Johnson & Johnson: quarterly report

Tickers: JNJ
Prior year amounts have been reclassified to conform to current year presentation

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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NOTE 1 - The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of Johnson & Johnson and its subsidiaries (the Company) and related notes as contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017 . The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented.

New Accounting Standards

Recently Adopted Accounting Standards

ASU 2017-12 : Targeted Improvements to Accounting for Hedging Activities

The Company elected to early adopt this standard as of the beginning of the fiscal second quarter of 2018. This update makes more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. The adoption of this standard did not have a material impact on the Company's consolidated financial statements. For additional required disclosures see Note 4 to the Consolidated Financial Statements.

ASU 2014-09 : Revenue from Contracts with Customers

On January 1, 2018, the Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers and all the related amendments (new revenue standard) to all contracts using the modified retrospective method. The cumulative effect of initially applying the new standard was recognized as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the new revenue standard has not had a material impact to either reported Sales to customers or Net earnings. Additionally, the Company will continue to recognize revenue from product sales as goods are shipped or delivered to the customer, as control of goods occurs at the same time.

In accordance with the new standard requirements, the disclosure of the impact of adoption on the Company's Consolidated Statement of Earnings and Balance Sheet was as follows:

Statement of Earnings - For the fiscal six months ended July 1, 2018

(Dollars in millions)

As Reported

Effect of change

Balance without adoption of ASC 606

Sales to customers

$

40,839

(40

)

40,799

Net earnings

8,321

(33

)

8,288

Statement of Earnings - For the fiscal second quarter ended July 1, 2018

(Dollars in millions)

As Reported

Effect of change

Balance without adoption of ASC 606

Sales to customers

$

20,830

(11

)

20,819

Net earnings

3,954

(8

)

3,946

Balance Sheet - As of July 1, 2018

As Reported

Effect of change

Balance without adoption of ASC 606

Assets

155,365

24

155,389

Liabilities

92,476

10

92,486

Equity

$

62,889

14

62,903

The Company made a cumulative effect adjustment to the 2018 opening balance of retained earnings upon adoption of ASU 2014-09, which decreased beginning retained earnings by $47 million .

As part of the adoption of ASC 606 see Note 9 to the Consolidated Financial Statements for further disaggregation of revenue.

6

The Company recognizes revenue from product sales when obligations under the terms of a contract with the customer are satisfied; generally, this occurs with the transfer of control of the goods to customers. The Company's global payment terms are typically between 30 to 90 days. Provisions for certain rebates, sales incentives, trade promotions, coupons, product returns and discounts to customers are accounted as variable consideration and recorded as a reduction in sales.

Product discounts granted are based on the terms of arrangements with direct, indirect and other market participants, as well as market conditions, including prices charged by competitors. Rebates are estimated based on contractual terms, historical experience, patient outcomes, trend analysis and projected market conditions in the various markets served. The Company evaluates market conditions for products or groups of products primarily through the analysis of wholesaler and other third-party sell-through and market research data, as well as internally generated information.

Sales returns are estimated and recorded based on historical sales and returns information. Products that exhibit unusual sales or return patterns due to dating, competition or other marketing matters are specifically investigated and analyzed as part of the accounting for sales return accruals.

Sales returns allowances represent a reserve for products that may be returned due to expiration, destruction in the field, or in specific areas, product recall. The sales returns reserve is based on historical return trends by product and by market as a percent to gross sales. In accordance with the Company's accounting policies, the Company generally issues credit to customers for returned goods. The Company's sales returns reserves are accounted for in accordance with the U.S. GAAP guidance for revenue recognition when right of return exists. Sales returns reserves are recorded at full sales value. Sales returns in the Consumer and Pharmaceutical segments are almost exclusively not resalable. Sales returns for certain franchises in the Medical Devices segment are typically resalable but are not material. The Company infrequently exchanges products from inventory for returned products. The sales returns reserve for the total Company has been approximately 1.0% of annual net trade sales during the fiscal reporting years 2017, 2016 and 2015.

Promotional programs, such as product listing allowances and cooperative advertising arrangements, are recorded in the same period as related sales. Continuing promotional programs include coupons and volume-based sales incentive programs. The redemption cost of consumer coupons is based on historical redemption experience by product and value. Volume-based incentive programs are based on the estimated sales volumes for the incentive period and are recorded as products are sold. These arrangements are evaluated to determine the appropriate amounts to be deferred or recorded as a reduction of revenue. The Company also earns service revenue for co-promotion of certain products, which is included in sales to customers.

ASU 2016-01 : Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities

The Company adopted this standard as of the beginning of the fiscal year 2018 on a modified retrospective basis. The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities to be measured at fair value with changes in the fair value recognized through net earnings. The standard amends financial reporting by providing relevant information about an entity's equity investments and reducing the number of items that are recognized in other comprehensive income.

The Company made a cumulative effect adjustment to the opening balance of retained earnings upon adoption of ASU 2016-01 that increased retained earnings by $232 million net of tax and decreased accumulated other comprehensive income for previously unrealized gains from equity investments. For additional details see Note 4 to the Consolidated Financial Statements.

ASU 2016-16 : Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory

The Company adopted this standard as of the beginning of the fiscal year 2018. This update removes the current exception in U.S. GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. The Company recorded net adjustments to deferred taxes of approximately $2.0 billion , a decrease to Other Assets of approximately $0.7 billion and an increase to retained earnings of approximately $1.3 billion . The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

ASU 2017-01 : Clarifying the Definition of a Business

The Company adopted this standard as of the beginning of the fiscal year 2018. This update narrows the definition of a business by providing a screen to determine when an integrated set of assets and activities is not a business. The screen specifies that an integrated set of assets and activities is not a business if substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single or a group of similar identifiable assets. This update was applied prospectively. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

7

ASU 2017-07 : Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

The Company adopted this standard as of the beginning of the fiscal year 2018. This update requires that an employer disaggregate the service cost component from the other components of net periodic benefit cost (NPBC). In addition, only the service cost component will be eligible for capitalization. The amendments in this update are required to be applied retrospectively for the presentation of the service cost component and the other components of NPBC in the Consolidated Statement of Earnings and prospectively, on and after the adoption date, for the capitalization of the service cost component of NPBC in assets. As required by the transition provisions of this update, the Company made the following reclassifications to the 2017 fiscal second quarter and fiscal six months Consolidated Statement of Earnings to retroactively apply classification of the service cost component and the other components of NPBC:

(Dollars In millions)

Increase (Decrease) to Net Expense

Fiscal Second Quarter Ended

Fiscal Six Months Ended

Cost of products sold

$

23

46

Selling, marketing and administrative expenses

27

53

Research and development expense

11

21

Other (income) expense, net

(61

)

(120

)

Earnings before provision for taxes on income

$

-

-

The following table summarizes the cumulative effect adjustments made to the 2018 opening balance of retained earnings upon adoption of the new accounting standards mentioned above:

(Dollars in Millions)

Cumulative Effect Adjustment Increase (Decrease) to Retained Earnings

ASU 2014-09 - Revenue from Contracts with Customers

$

(47

)

ASU 2016-01 - Financial Instruments

232

ASU 2016-16 - Income Taxes: Intra-Entity Transfers

1,311

Total

$

1,496

Recently Issued Accounting Standards

Not Adopted as of July 1, 2018

ASU 2018-02 : Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income

This update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Act enacted in December 2017. This update will be effective for the Company for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect this standard to have a material impact on the Company's consolidated financial statements.

ASU 2016-02 : Leases

This update requires the recognition of lease assets and lease liabilities on the balance sheet for all lease obligations and disclosing key information about leasing arrangements. This update requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current generally accepted accounting principles. This update will be effective for the Company for all annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company will apply the new standard at its adoption date rather than at the earliest comparative period presented in the financial statements. The Company anticipates that most of its operating leases will result in the recognition of additional assets and the corresponding liabilities on its Consolidated Balance Sheets, however it does not expect the standard to have a material impact on the financial position. The actual impact will depend on the Company's lease portfolio at the time of adoption. The Company continues to assess all implications of the standard and related financial disclosures.

8

NOTE 2 - INVENTORIES

(Dollars in Millions)

July 1, 2018

December 31, 2017

Raw materials and supplies

$

1,166

1,140

Goods in process

2,282

2,317

Finished goods

5,362

5,308

Total inventories (1)

$

8,810

8,765

(1) Net of assets held for sale on the Consolidated Balance Sheet for approximately $0.1 billion related to the divestiture of the LifeScan business and $0.1 billion related to the divestiture of the Advanced Sterilization Products business, both of which were pending as of July 1, 2018.

NOTE 3 - INTANGIBLE ASSETS AND GOODWILL

Intangible assets that have finite useful lives are amortized over their estimated useful lives. The latest annual impairment assessment of goodwill and indefinite lived intangible assets was completed in the fiscal fourth quarter of 2017 . Future impairment tests for goodwill and indefinite lived intangible assets will be performed annually in the fiscal fourth quarter, or sooner, if warranted.

(Dollars in Millions)

July 1, 2018

December 31, 2017

Intangible assets with definite lives:

Patents and trademarks - gross

$

34,823

36,427

Less accumulated amortization

8,267

7,223

Patents and trademarks - net (1)

26,556

29,204

Customer relationships and other intangibles - gross

21,059

20,204

Less accumulated amortization

7,915

7,463

Customer relationships and other intangibles - net

13,144

12,741

Intangible assets with indefinite lives:

Trademarks

6,952

7,082

Purchased in-process research and development

3,404

4,201

Total intangible assets with indefinite lives

10,356

11,283

Total intangible assets - net

$

50,056

53,228

(1) Net of approximately $0.1 billion classified as assets held for sale on the Consolidated Balance Sheet related to the divestiture of the LifeScan business, which was pending as of July 1, 2018.

Goodwill as of July 1, 2018 was allocated by segment of business as follows:

(Dollars in Millions)

Consumer

Pharm

Med Devices

Total

Goodwill, net at December 31, 2017

$

8,875

9,109

13,922

31,906

Goodwill, related to acquisitions

-

51

53

104

Goodwill, related to divestitures

-

-

-

-

Currency translation/Other

(297

)

(118

)

(1,249

)

(1)

(1,664

)

Goodwill, net at July 1, 2018

$

8,578

9,042

12,726

30,346

(1) Net of approximately $1.2 billion classified as assets held for sale on the Consolidated Balance Sheet. Goodwill of $1.0 billion was related to the divestiture of the LifeScan business and $0.2 billion was related to the divestiture of the Advanced Sterilization Products business, both of which were pending as of July 1, 2018.

The weighted average amortization periods for patents and trademarks and customer relationships and other intangible assets are 11 years and 22 years, respectively. The amortization expense of amortizable intangible assets included in cost of products sold was $2.2 billion and $0.8 billion for the fiscal six months ended July 1, 2018 and July 2, 2017 , respectively. The estimated

9

amortization expense for the five succeeding years approximates $4.4 billion , before tax, per year. Intangible asset write-downs are included in Other (income) expense, net.

See Note 10 to the Consolidated Financial Statements for additional details related to acquisitions and divestitures.

NOTE 4 - FAIR VALUE MEASUREMENTS

The Company uses forward foreign exchange contracts to manage its exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of future intercompany product and third-party purchases of materials denominated in a foreign currency. The Company uses cross currency interest rate swaps to manage currency risk primarily related to borrowings.

The Company also uses equity collar contracts to manage exposure to market risk associated with certain equity investments.

All three types of derivatives are designated as cash flow hedges.

The Company uses interest rate swaps as an instrument to manage interest rate risk related to fixed rate borrowings. These derivatives are designated as fair value hedges. The Company uses cross currency interest rate swaps and forward foreign exchange contracts designated as net investment hedges. Additionally, the Company uses forward foreign exchange contracts to offset its exposure to certain foreign currency assets and liabilities. These forward foreign exchange contracts are not designated as hedges, and therefore, changes in the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the related foreign currency assets and liabilities.

The Company early adopted ASU 2017-12: Targeted Improvements to Accounting for Hedge Activities effective as of the beginning of fiscal second quarter of 2018.

The Company does not enter into derivative financial instruments for trading or speculative purposes, or that contain credit risk related contingent features. During the fiscal second quarter of 2017, the Company entered into credit support agreements (CSA) with certain derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. As of July 1, 2018 , the total amount of collateral paid under the credit support agreements amounted to $126 million , net. For equity collar contracts, the Company pledged the underlying hedged marketable equity securities to the counter-party as collateral. On an ongoing basis, the Company monitors counter-party credit ratings. The Company considers credit non-performance risk to be low, because the Company primarily enters into agreements with commercial institutions that have at least an investment grade credit rating. Refer to the table on significant financial assets and liabilities measured at fair value contained in this footnote for receivables and payables with these commercial institutions. As of July 1, 2018 , the Company had notional amounts outstanding for forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps of $37.0 billion , $5.3 billion and $1.1 billion , respectively. As of December 31, 2017, the Company had notional amounts outstanding for forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps of $34.5 billion , $2.3 billion and $1.1 billion , respectively.

All derivative instruments are recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction, and if so, the type of hedge transaction.

The designation as a cash flow hedge is made at the entrance date of the derivative contract. At inception, all derivatives are expected to be highly effective. Changes in the fair value of a derivative that is designated as a cash flow hedge and is highly effective are recorded in accumulated other comprehensive income until the underlying transaction affects earnings, and are then reclassified to earnings in the same account as the hedged transaction. Gains and losses associated with interest rate swaps and changes in fair value of hedged debt attributable to changes in interest rates are recorded to interest expense in the period in which they occur. Gains and losses on net investment hedges are accounted for through the currency translation account. On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsetting changes of hedged items. If a derivative is no longer expected to be highly effective, hedge accounting is discontinued.

During the fiscal second quarter of 2016, the Company designated its Euro denominated notes issued in May 2016 with due dates ranging from 2022 to 2035 as a net investment hedge of the Company's investments in certain of its international subsidiaries that use the Euro as their functional currency in order to reduce the volatility caused by changes in exchange rates.

As of July 1, 2018 , the balance of deferred net loss on derivatives included in accumulated other comprehensive income was $80 million after-tax. For additional information, see the Consolidated Statements of Comprehensive Income and Note 7. The Company expects that substantially all of the amounts related to forward foreign exchange contracts will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period. The maximum length of time over which the Company is hedging transaction exposure is 18 months , excluding interest rate contracts, net investment

10

hedges and equity collar contracts. The amount ultimately realized in earnings may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity of the derivative.

The following table is a summary of the activity related to derivatives and hedges for the fiscal second quarters in 2018 and 2017 :
July 1, 2018

July 2, 2017

(Dollars in Millions)

Sales

Cost of Products Sold

R&D Expense

Interest (Income) Expense

Other (Income) Expense

Sales

Cost of Products Sold

R&D Expense

Interest (Income) Expense

Other (Income) Expense

The effects of fair value, net investment and cash flow hedging:

Gain (Loss) on fair value hedging relationship:

Interest rate swaps contracts:

Hedged items

$

-

-

-

5

-

-

-

-

5

-

Derivatives designated as hedging instruments

-

-

-

(5

)

-

-

-

-

(5

)

-

Gain (Loss) on net investment hedging relationship:

Cross currency interest rate swaps contracts:

Amount of gain or (loss) recognized in income on derivative amount excluded from effectiveness testing

-

-

-

2

-

-

-

-

-

-

Amount of gain or (loss) recognized in AOCI

-

-

-

2

-

-

-

-

-

-

Gain (Loss) on cash flow hedging relationship:

Forward foreign exchange contracts:

Amount of gain or (loss) reclassified from AOCI into income (1)

17

76

(14

)

-

(10

)

(6

)

(68

)

1

-

(2

)

Amount of gain or (loss) recognized in AOCI (1)

(49

)

(57

)

21

-

3

36

218

(19

)

-

(12

)

Cross currency interest rate swaps contracts:

Amount of gain or (loss) reclassified from AOCI into income

-

-

-

32

-

-

-

(65

)

-

Amount of gain or (loss) recognized in AOCI

$

-

-

-

19

-

-

-

-

(69

)

-

11

The following table is a summary of the activity related to derivatives and hedges for the fiscal six months in 2018 and 2017 :

July 1, 2018

July 2, 2017

(Dollars in Millions)

Sales

Cost of Products Sold

R&D Expense

Interest (Income) Expense

Other (Income) Expense

Sales

Cost of Products Sold

R&D Expense

Interest (Income) Expense

Other (Income) Expense

The effects of fair value, net investment and cash flow hedging:

Gain (Loss) on fair value hedging relationship:

Interest rate swaps contracts:

Hedged items

$

-

-

-

10

-

-

-

-

(1

)

-

Derivatives designated as hedging instruments

-

-

-

(10

)

-

-

-

-

1

-

Gain (Loss) on net investment hedging relationship:

Cross currency interest rate swaps contracts:

Amount of gain or (loss) recognized in income on derivative amount excluded from effectiveness testing

-

-

-

2

-

-

-

-

-

-

Amount of gain or (loss) recognized in AOCI

-

-

-

2

-

-

-

-

-

-

Gain (Loss) on cash flow hedging relationship:

Forward foreign exchange contracts:

Amount of gain or (loss) reclassified from AOCI into income (1)

46

78

(252

)

-

(21

)

(39

)

(99

)

(101

)

-

(37

)

Amount of gain or (loss) recognized in AOCI (1)

(18

)

(54

)

(216

)

-

(15

)

22

121

(128

)

-

(44

)

Cross currency interest rate swaps contracts:

Amount of gain or (loss) reclassified from AOCI into income

-

-

-

72

-

-

-

-

(43

)

-

Amount of gain or (loss) recognized in AOCI

$

-

-

-

76

-

-

-

-

(41

)

-

(1) Includes equity collar contracts. The equity collar contracts expired in December of 2017.

12

As of July 1, 2018 and December 31, 2017, the following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustment for fair value hedges:
Line item in the Consolidated Balance Sheet in which the hedged item is included

Carrying Amount of the Hedged Liability

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability

(Dollars in Millions)

July 1, 2018

December 31, 2017

July 1, 2018

December 31, 2017

Current Portion of Long-term Debt

$

597

597

3

2

Long-term Debt

492

496

7

3

The following table is the effect of derivatives not designated as hedging instrument for the fiscal second quarters and fiscal six months in 2018 and 2017:

Gain/(Loss)

Recognized In

Income on Derivative

Gain/(Loss)

Recognized In

Income on Derivative

(Dollars in Millions)

Location of Gain /(Loss) Recognized in Income on Derivative

Fiscal Second Quarters Ended

Fiscal Six Months Ended

Derivatives Not Designated as Hedging Instruments

July 1, 2018

July 2, 2017

July 1, 2018

July 2, 2017

Foreign Exchange Contracts

Other (income) expense

$

(53

)

63

(72

)

34

The following table is the effect of net investment hedges for the fiscal second quarters in 2018 and 2017:

Gain/(Loss)

Recognized In

Accumulated

OCI

Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income Into Income

Gain/(Loss) Reclassified From

Accumulated OCI

Into Income

(Dollars in Millions)

Fiscal Second Quarters Ended

July 1, 2018

July 2, 2017

July 1, 2018

July 2, 2017

Debt

$

306

(268

)

Other (income) expense

-

-

Cross Currency interest rate swaps

$

37

-

Other (income) expense

-

-

The following table is the effect of net investment hedges for the fiscal six months in 2018 and 2017:

Gain/(Loss)

Recognized In

Accumulated OCI

Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income Into Income

Gain/(Loss) Reclassified From

Accumulated OCI

Into Income

(Dollars in Millions)

Fiscal Six Months Ended

July 1, 2018

July 2, 2017

July 1, 2018

July 2, 2017

Debt

$

156

(378

)

Other (income) expense

-

-

Cross Currency interest rate swaps

$

37

-

Other (income) expense

-

-

13

The Company adopted ASU 2016-01: Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities as of the beginning of the fiscal year 2018. This ASU amends prior guidance to classify equity investments with readily determinable market values into different categories (that is, trading or available-for-sale) and require equity investments to be measured at fair value with changes in fair value recognized through net earnings. The Company made a cumulative effect adjustment to the opening balance of retained earnings upon adoption of ASU 2016-01 which increased retained earnings by $232 million , net of tax, and decreased accumulated other comprehensive income for previously net unrealized gains from equity investments.

The Company holds equity investments with readily determinable fair values and equity investments without readily determinable fair values. The Company has elected to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The following table is a summary of the activity related to equity investments as of July 1, 2018:

(Dollars in Millions)

December 31, 2017

July 1, 2018

Carrying Value

Changes in Fair Value Reflected in Net Income (1)

Sales/ Purchases/Other (2)

Carrying Value

Non Current Other Assets

Equity Investments with readily determinable value

$

751

(25

)

(29

)

697

697

Equity Investments without readily determinable value

$

510

13

101

624

624

(1) Recorded in Other Income/Expense

(2) Other includes impact of currency

For equity investments without readily determinable market values, $25 million of the changes in fair value reflected in net income were the result of impairments. There were $38 million of changes in fair value reflected in net income due to changes in observable prices.

For the fiscal six months ended July 2, 2017, changes in fair value reflected within other comprehensive income due to previously unrealized gains on equity investments with readily determinable fair values net of tax was a net gain of $354 million .

Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement determined using assumptions that market participants would use in pricing an asset or liability. The authoritative literature establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels within the hierarchy are described below with Level 1 inputs having the highest priority and Level 3 inputs having the lowest.

The fair value of a derivative financial instrument (i.e., forward foreign exchange contracts, interest rate contracts) is the aggregation by currency of all future cash flows discounted to its present value at the prevailing market interest rates and subsequently converted to the U.S. Dollar at the current spot foreign exchange rate. The Company does not believe that fair values of these derivative instruments materially differ from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a material effect on the Company's results of operations, cash flows or financial position. The Company also holds equity investments which are classified as Level 1 and debt securities which are classified as Level 2. The Company did not have any other significant financial assets or liabilities which would require revised valuations under this standard that are recognized at fair value.

The following three levels of inputs are used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets and liabilities.

Level 2 - Significant other observable inputs.

Level 3 - Significant unobservable inputs.

14

The Company's significant financial assets and liabilities measured at fair value as of July 1, 2018 and December 31, 2017 were as follows:

July 1, 2018

December 31, 2017

(Dollars in Millions)

Level 1

Level 2

Level 3

Total

Total (1)

Derivatives designated as hedging instruments:

Assets:

Forward foreign exchange contracts

$

-

547

-

547

418

Interest rate contracts (2)(4)

-

46

-

46

7

Total (7)

-

593

-

593

425

Liabilities:

Forward foreign exchange contracts

-

471

-

471

402

Interest rate contracts (3)(4)

-

236

-

236

165

Total (8)

-

707

-

707

567

Derivatives not designated as hedging instruments:

Assets:

Forward foreign exchange contracts (7)

-

58

-

58

38

Liabilities:

Forward foreign exchange contracts (8)

-

71

-

71

38

Other Investments:

Equity investments (5)

697

-

-

697

751

Debt securities (6)

$

-

9,031

-

9,031

5,310

Gross to Net Derivative Reconciliation

July 1, 2018

December 31, 2017

(Dollars in Millions)

Total Gross Assets

$

651

463

Credit Support Agreement (CSA)

(295

)

(76

)

Total Net Asset

356

387

Total Gross Liabilities

778

605

Credit Support Agreement (CSA)

(421

)

(238

)

Total Net Liabilities

$

357

367

(1)

2017 assets and liabilities are all classified as Level 2 with the exception of equity investments of $751 million , which are classified as Level 1.

(2)

Includes $0 million and $7 million of non-current other assets for July 1, 2018 and December 31, 2017 , respectively.

(3)

Includes $0 million and $9 million of non-current other liabilities for July 1, 2018 and December 31, 2017 , respectively.

(4)

Includes cross currency interest rate swaps and interest rate swaps.

(5)

Classified as non-current other assets. The carrying amount of the equity investments were $697 million and $751 million as of July 1, 2018 and December 31, 2017 , respectively.

(6)

Classified as cash equivalents and current marketable securities.

(7)

Equal sum of total gross assets.

(8)

Equal sum total gross liabilities.

15

The Company's cash, cash equivalents and current marketable securities as of July 1, 2018 comprised:
July 1, 2018

(Dollars in Millions)

Carrying Amount

Estimated Fair Value

Cash & Cash Equivalents

Current Marketable Securities

Cash

$

2,473

2,473

2,473

Other sovereign securities (1)

180

180

180

U.S. reverse repurchase agreements

2,425

2,425

2,425

Other reverse repurchase agreements

425

425

425

Corporate debt securities (1)

-

-

-

-

Money market funds

2,507

2,507

2,507

Time deposits (1)

1,098

1,098

1,098

Subtotal

9,108

9,108

9,108

-

Government securities

8,766

8,766

8,437

329

Other sovereign securities

-

-

-

-

Corporate debt securities

265

265

24

241

Subtotal available for sale debt (2)

$

9,031

9,031

8,461

570

Total cash, cash equivalents and current marketable securities

17,569

570

(1) Held to maturity investments are reported at amortized cost and gains or losses are reported in earnings.

(2) Available for sale debt securities are reported at fair value with unrealized gains and losses reported net of taxes in other comprehensive income.

In the fiscal second quarter ended July 1, 2018 and the fiscal year ended December 31, 2017 the carrying amount was the same as the estimated fair value.

Fair value of government securities and obligations and corporate debt securities was estimated using quoted broker prices and significant other observable inputs.

The Company classifies all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months from the date of purchase as current marketable securities. Available for sale securities with stated maturities of greater than one year from the date of purchase are available for current operations and are classified as cash equivalents and current marketable securities.

The contractual maturities of the available for sale securities at July 1, 2018 are as follows:
(Dollars in Millions)

Cost Basis

Fair Value

Due within one year

$

8,956

8,956

Due after one year through five years

75

75

Due after five years through ten years

-

-

Total debt securities

$

9,031

9,031

16

Financial Instruments not measured at Fair Value:

The following financial liabilities are held at carrying amount on the consolidated balance sheet as of July 1, 2018 :
(Dollars in Millions)

Carrying Amount

Estimated Fair Value

Financial Liabilities

Current Debt

$

2,678

2,678

Non-Current Debt

4.75% Notes due 2019 (1B Euro 1.1556)

1,154

1,234

1.875% Notes due 2019

492

488

3% Zero Coupon Convertible Subordinated Debentures due in 2020

52

88

1.950% Notes due 2020

499

491

2.95% Debentures due 2020

547

551

3.55% Notes due 2021

448

459

2.45% Notes due 2021

349

347

1.65% Notes due 2021

998

971

0.250% Notes due 2022 (1B Euro 1.1556)

1,153

1,162

2.25% Notes due 2022

996

974

6.73% Debentures due 2023

250

292

3.375% Notes due 2023

806

815

2.05% Notes due 2023

498

478

0.650% Notes due 2024 (750MM Euro 1.1556)

863

873

5.50% Notes due 2024 (500 MM GBP 1.3052)

647

799

2.625% Notes due 2025

747

718

2.45% Notes due 2026

1,991

1,866

2.95% Notes due 2027

995

959

2.90% Notes due 2028

1,492

1,436

1.150% Notes due 2028 (750MM Euro 1.1556)

859

873

6.95% Notes due 2029

296

388

4.95% Debentures due 2033

498

567

4.375% Notes due 2033

856

919

1.650% Notes due 2035 (1.5B Euro 1.1556)

1,716

1,776

3.55% Notes due 2036

987

957

5.95% Notes due 2037

991

1,269

3.625% Notes due 2037

1,486

1,461

3.40% Notes due 2038

990

941

5.85% Debentures due 2038

696

885

4.50% Debentures due 2040

538

579

4.85% Notes due 2041

296

333

4.50% Notes due 2043

495

540

3.70% Notes due 2046

1,971

1,907

3.75% Notes due 2047

991

967

3.50% Notes due 2048

742

695

Other

20

20

Total Non-Current Debt

$

29,405

30,078

The weighted average effective interest rate on non-current debt is 3.20% .

17

The excess of the estimated fair value over the carrying value of debt was $2.0 billion at December 31, 2017.

Fair value of the non-current debt was estimated using market prices, which were corroborated by quoted broker prices and significant other observable inputs.

NOTE 5 - INCOME TAXES

The worldwide effective income tax rates for the fiscal six months of 2018 and 2017 were 20.4% and 20.1% , respectively. The U.S. Tax Cuts and Jobs Act (TCJA) was enacted into law effective January 1, 2018. This law reduces the U.S. statutory corporate tax rate from 35% to 21%, eliminates or reduces certain corporate income tax deductions and introduces a tax on global intangible low-taxed income (GILTI). In December 2017, the Company recorded a provisional tax cost of $13.0 billion related to the enactment of the TCJA. Under the guidance in SEC Staff Accounting Bulletin 118 (SAB 118), the provisional amount was a reasonable estimate based on the most recent information and guidance available related to the calculation of the tax liability and the impact to its deferred tax assets and liabilities, including those recorded for foreign local and withholding taxes as of the 2017 assessment date of January 18, 2018. As noted below, the Company has made adjustments through the second quarter of 2018. All amounts recorded remain provisional and may require further adjustments and changes to the Company's estimates as new guidance is made available. The estimate is subject to the finalization of management's analysis related to certain matters, such as developing interpretations of the provisions of the TCJA, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of tax returns. Revisions to the provisional charge may be material to the Company's future financial results. See Note 8 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for further details on the TCJA and SAB 118.

The Company completed its acquisition of AMO in the first fiscal quarter of 2017, and incurred incremental tax costs that were discretely recorded in the first quarter of 2017, which had increased the effective tax rate by 2.1% for the first six months of 2017 compared to the same period in 2018. Additionally, in 2018 the Company had more income in higher tax jurisdictions relative to lower tax jurisdictions as compared to 2017. Tax benefits received from stock-based compensation during the fiscal six months of 2018 and 2017, reduced the effective tax rate by 1.3% and 2.7% , respectively. The reduction of the U.S. statutory corporate tax rate, offset by the elimination of the corporate income tax deductions, measurement period adjustments (1) and the GILTI tax (2) , decreased the Company's worldwide effective rate as compared to the same period of the prior year. As previously disclosed, the Company has elected to provisionally treat the GILTI tax as a period expense, pending further analysis by management of this new tax provision.

(1) The following adjustments were made to the provisional tax amounts through the fiscal second quarter of 2018 due to issued Treasury guidance and revisions to the Company's estimates since the assessment date:

$0.2 billion increase to the transition tax on previously undistributed foreign earnings as of December 31, 2017 due to U.S. Treasury Department's issuance of Notice 2018-13 on January 19, 2018 and Notice 2018-26 on April 2, 2018.

$0.3 billion decrease to the deferred tax liability for foreign withholding and local taxes, partially offset by a decrease of $0.1 billion in deferred tax assets for U.S. foreign tax credits due to updated estimates from the amounts recorded in 2017.

These measurement period adjustments decreased the Company's effective tax rate by approximately 0.5% through the first fiscal six months of 2018 as compared to the same period of the prior year.

(2) The impact of GILTI on the effective tax rate through the first fiscal six months of 2018 was an increase of 2.1% .

In 2017, the Company provisionally recorded the TCJA transition tax and foreign local and withholding taxes on substantially all of the Company's foreign earnings. The Company has currently designated a portion of its 2018 foreign earnings as indefinitely reinvested in certain foreign jurisdictions and, as such, has not accrued for the impact of foreign local and withholding taxes in its financial results related to these earnings. The estimated impact of these taxes would have been an increase of approximately 2.5% to the year-to-date effective tax rate. As of July 1, 2018, the Company has no plans or intention to repatriate these designated earnings to the United States. However, the Company is continuing to evaluate its reinvestment plans based on the enacted provisions of the TCJA and related guidance issued to-date in 2018 by the U.S. Department of Treasury, specifically related to the eligibility of these earnings to utilize foreign tax credits. As further Treasury guidance is provided, the Company may re-evaluate its reinvestment plans and strategies for all of its foreign earnings.

As of July 1, 2018 , the Company had approximately $3.2 billion of liabilities from unrecognized tax benefits. The Company believes it is possible that audits may be completed by tax authorities in some jurisdictions over the next twelve months. The Company is not able to provide a reasonably reliable estimate of the timing of any future tax payments relating to uncertain tax positions. The IRS has completed its audit for the tax years through 2009 and is currently auditing the tax years 2010 through

18

2012. The Company currently expects completion of this audit during 2019. Final conclusion of the tax audit may result in an outcome that is different than the Company's estimates and may result in a material impact on the Company's current and future operating results or cash flows in the period that the audit is concluded.

NOTE 6 - PENSIONS AND OTHER BENEFIT PLANS

Components of Net Periodic Benefit Cost

Net periodic benefit cost for the Company's defined benefit retirement plans and other benefit plans for the fiscal second quarters and fiscal six months of 2018 and 2017 include the following components:

Fiscal Second Quarters Ended

Fiscal Six Months Ended

Retirement Plans

Other Benefit Plans

Retirement Plans

Other Benefit Plans

(Dollars in Millions)

July 1, 2018

July 2, 2017

July 1, 2018

July 2, 2017

July 1, 2018

July 2, 2017

July 1, 2018

July 2, 2017

Service cost

$

309

255

68

62

618

506

135

123

Interest cost

249

231

38

40

501

461

75

79

Expected return on plan assets

(554

)

(509

)

(2

)

(1

)

(1,114

)

(1,014

)

(4

)

(3

)

Amortization of prior service cost/(credit)

-

1

(8

)

(8

)

1

1

(16

)

(15

)

Recognized actuarial losses

213

150

31

35

428

302

61

69

Curtailments and settlements

-

(1

)

-

-

(2

)

(1

)

-

-

Net periodic benefit cost

$

217

127

127

128

432

255

251

253

As per the adoption of ASU 2017-07, the service cost component of net periodic benefit cost was presented in the same line items on the Consolidated Statement of Earnings where other employee compensation costs are reported. All other components of net periodic benefit cost are presented as part of Other (income) expense, net on the Consolidated Statement of Earnings.

Company Contributions

For the fiscal six months ended July 1, 2018 , the Company contributed $36 million and $19 million to its U.S. and international retirement plans, respectively. The Company plans to continue to fund its U.S. defined benefit plans to comply with the Pension Protection Act of 2006. International plans are funded in accordance with local regulations.

19

NOTE 7 - ACCUMULATED OTHER COMPREHENSIVE INCOME

Components of other comprehensive income (loss) consist of the following:

Foreign

Gain/(Loss)

Employee

Gain/(Loss)

Total Accumulated

Currency

On

Benefit

On Derivatives

Other Comprehensive

(Dollars in Millions)

Translation

Securities

Plans

& Hedges

Income (Loss)

December 31, 2017

$

(7,351

)

232

(6,150

)

70

(13,199

)

Net change

(1,567

)

-

371

(150

)

(1,346

)

Cumulative adjustment to retained earnings

(232

)

(1)

(232

)

July 1, 2018

$

(8,918

)

-

(5,779

)

(80

)

(14,777

)

(1) See Note 1 to the Consolidated Financial Statements for additional details on the adoption of ASU 2016-01

Amounts in accumulated other comprehensive income are presented net of the related tax impact. Foreign currency translation is not adjusted for income taxes where it relates to permanent investments in international subsidiaries. For additional details on comprehensive income see the Consolidated Statements of Comprehensive Income.

Details on reclassifications out of Accumulated Other Comprehensive Income:

Gain/(Loss) On Securities - reclassifications released to Other (income) expense, net.

Employee Benefit Plans - reclassifications are included in net periodic benefit cost. See Note 6 for additional details.

Gain/(Loss) On Derivatives & Hedges - reclassifications to earnings are recorded in the same account as the underlying transaction. See Note 4 for additional details.

NOTE 8 - EARNINGS PER SHARE

The following is a reconciliation of basic net earnings per share to diluted net earnings per share for the fiscal second quarters and fiscal six months ended July 1, 2018 and July 2, 2017 :

Fiscal Second Quarters Ended

Fiscal Six Months Ended

(Shares in Millions)

July 1, 2018

July 2, 2017

July 1, 2018

July 2, 2017

Basic net earnings per share

$

1.47

1.42

3.10

3.06

Average shares outstanding - basic

2,682.3

2,691.9

2,682.2

2,699.3

Potential shares exercisable under stock option plans

127.5

143.2

141.8

142.2

Less: shares which could be repurchased under treasury stock method

(89.3

)

(94.6

)

(96.3

)

(93.1

)

Convertible debt shares

0.8

1.0

0.8

1.0

Average shares outstanding - diluted

2,721.3

2,741.5

2,728.5

2,749.4

Diluted net earnings per share

$

1.45

1.40

3.05

3.00

The diluted net earnings per share calculation for both the fiscal second quarters ended July 1, 2018 and July 2, 2017 included the dilutive effect of convertible debt that was offset by the related reduction in interest expense. The diluted net earnings per share calculation for the fiscal second quarter ended July 1, 2018 excluded 17 million shares related to stock options, as the exercise price of these options was greater than their average market value. The diluted net earnings per share calculation for the fiscal second quarter of July 2, 2017 included all shares related to stock options, as there were no options or other instruments which were anti-dilutive.

The diluted net earnings per share calculation for both the fiscal six months ended July 1, 2018 and July 2, 2017 included the dilutive effect of convertible debt that was offset by the related reduction in interest expense. The diluted net earnings per share calculation for both the fiscal six months ended July 1, 2018 and July 2, 2017 included all shares related to stock options, as there were no options or other instruments which were anti-dilutive.

20

NOTE 9 - SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS

SALES BY SEGMENT OF BUSINESS

Fiscal Second Quarters Ended

Fiscal Six Months Ended

(Dollars in Millions)

July 1,
2018

July 2,
2017

Percent

Change

July 1,
2018

July 2,
2017

Percent Change

CONSUMER

Baby Care

U.S.

$

89

113

(21.2

)%

$

186

226

(17.7

)%

International

367

381

(3.7

)

727

723

0.6

Worldwide

456

494

(7.7

)

913

949

(3.8

)

Beauty

U.S.

637

649

(1.8

)

1,248

1,216

2.6

International

472

427

10.5

945

841

12.4

Worldwide

1,109

1,076

3.1

2,193

2,057

6.6

Oral Care

U.S.

157

150

4.7

314

306

2.6

International

236

244

(3.3

)

458

450

1.8

Worldwide

393

394

(0.3

)

772

756

2.1

OTC

U.S.

454

432

5.1

919

909

1.1

International

612

574

6.6

1,219

1,110

9.8

Worldwide

1,066

1,006

6.0

2,138

2,019

5.9

Women's Health

U.S.

4

3

33.3

7

6

16.7

International

276

273

1.1

516

512

0.8

Worldwide

280

276

1.4

523

518

1.0

Wound Care/Other

U.S.

135

140

(3.6

)

238

238

0.0

International

65

92

(29.3

)

125

169

(26.0

)

Worldwide

200

232

(13.8

)

363

407

(10.8

)

TOTAL CONSUMER

U.S.

1,476

1,487

(0.7

)

2,912

2,901

0.4

International

2,028

1,991

1.9

3,990

3,805

4.9

Worldwide

3,504

3,478

0.7

6,902

6,706

2.9

PHARMACEUTICAL

Immunology

U.S.

2,317

2,101

10.3

4,317

4,224

2.2

International

1,021

858

19.0

2,063

1,665

23.9

Worldwide

3,338

2,959

12.8

6,380

5,889

8.3

REMICADE ®

U.S.

918

1,064

(13.7

)

1,834

2,246

(18.3

)

U.S. Exports

104

127

(18.1

)

246

292

(15.8

)

International

298

339

(12.1

)

629

664

(5.3

)

Worldwide

1,320

1,530

(13.7

)

2,709

3,202

(15.4

)

21

SIMPONI / SIMPONI ARIA ®

U.S.

274

230

19.1

498

459

8.5

International

274

209

31.1

568

408

39.2

Worldwide

548

439

24.8

1,066

867

23.0

STELARA ®

U.S.

919

680

35.1

1,571

1,227

28.0

International

422

303

39.3

831

579

43.5

Worldwide

1,341

983

36.4

2,402

1,806

33.0

OTHER IMMUNOLOGY

U.S.

102

-

*

168

-

*

International

27

7

*

35

14

*

Worldwide

129

7

*

203

14

*

Infectious Diseases

U.S.

328

341

(3.8

)

661

667

(0.9

)

International

521

451

15.5

1,018

874

16.5

Worldwide

849

792

7.2

1,679

1,541

9.0

EDURANT ® / rilpivirine

U.S.

15

17

(11.8

)

29

29

0.0

International

196

162

21.0

392

299

31.1

Worldwide

211

179

17.9

421

328

28.4

PREZISTA ® / PREZCOBIX ® / REZOLSTA ® / SYMTUZA ®

U.S.

277

278

(0.4

)

550

537

2.4

International

215

176

22.2

420

347

21.0

Worldwide

492

454

8.4

970

884

9.7

OTHER INFECTIOUS DISEASES

U.S.

36

46

(21.7

)

82

101

(18.8

)

International

110

113

(2.7

)

206

228

(9.6

)

Worldwide

146

159

(8.2

)

288

329

(12.5

)

Neuroscience

U.S.

639

620

3.1

1,263

1,284

(1.6

)

International

889

847

5.0

1,824

1,680

8.6

Worldwide

1,528

1,467

4.2

3,087

2,964

4.1

CONCERTA ® / Methylphenidate

U.S.

68

76

(10.5

)

134

184

(27.2

)

International

115

105

9.5

222

206

7.8

Worldwide

183

181

1.1

356

390

(8.7

)

INVEGA SUSTENNA ® / XEPLION ® / TRINZA ® / TREVICTA ®

U.S.

438

387

13.2

838

759

10.4

International

282

242

16.5

578

474

21.9

Worldwide

720

629

14.5

1,416

1,233

14.8

RISPERDAL CONSTA ®

U.S.

80

91

(12.1

)

162

186

(12.9

)

International

108

116

(6.9

)

222

228

(2.6

)

Worldwide

188

207

(9.2

)

384

414

(7.2

)

22

OTHER NEUROSCIENCE

U.S.

53

66

(19.7

)

129

155

(16.8

)

International

384

384

0.0

802

772

3.9

Worldwide

437

450

(2.9

)

931

927

0.4

Oncology

U.S.

1,085

697

55.7

2,018

1,361

48.3

International

1,371

1,030

33.1

2,749

1,960

40.3

Worldwide

2,456

1,727

42.2

4,767

3,321

43.5

DARZALEX ®

U.S.

298

212

40.6

562

413

36.1

International

213

87

*

381

141

*

Worldwide

511

299

70.9

943

554

70.2

IMBRUVICA ®

U.S.

250

202

23.8

477

392

21.7

International

370

248

49.2

730

467

56.3

Worldwide

620

450

37.8

1,207

859

40.5

VELCADE ®

U.S.

-

-

-

-

-

-

International

280

290

(3.4

)

593

570

4.0

Worldwide

280

290

(3.4

)

593

570

4.0

ZYTIGA ®

U.S.

486

241

*

893

474

88.4

International

423

317

33.4

861

607

41.8

Worldwide

909

558

62.9

1,754

1,081

62.3

OTHER ONCOLOGY

U.S.

51

42

21.4

86

82

4.9

International

85

88

(3.4

)

184

175

5.1

Worldwide

136

130

4.6

270

257

5.1

Pulmonary Hypertension

U.S.

429

37

*

790

37

*

International

236

48

*

460

48

*

Worldwide

665

85

*

1,250

85

*

OPSUMIT ®

U.S.

180

24

*

329

24

*

International

131

21

*

253

21

*

Worldwide

311

45

*

582

45

*

TRACLEER ®

U.S.

71

2

*

139

2

*

International

72

24

*

144

24

*

Worldwide

143

26

*

283

26

*

UPTRAVI ®

U.S.

155

8

*

279

8

*

International

16

1

*

32

1

*

Worldwide

171

9

*

311

9

*

23

OTHER

U.S.

23

3

*

43

3

*

International

17

2

*

31

2

*

Worldwide

40

5

*

74

5

*

Cardiovascular / Metabolism / Other

U.S.

1,101

1,214

(9.3

)

2,204

2,309

(4.5

)

International

417

391

6.6

831

771

7.8

Worldwide

1,518

1,605

(5.4

)

3,035

3,080

(1.5

)

XARELTO ®

U.S.

679

642

5.8

1,257

1,155

8.8

International

-

-

-

-

-

-

Worldwide

679

642

5.8

1,257

1,155

8.8

INVOKANA ® / INVOKAMET ®

U.S.

169

256

(34.0

)

373

503

(25.8

)

International

46

39

17.9

90

76

18.4

Worldwide

215

295

(27.1

)

463

579

(20.0

)

PROCRIT ® / EPREX ®

U.S.

156

174

(10.3

)

345

343

0.6

International

80

81

(1.2

)

167

159

5.0

Worldwide

236

255

(7.5

)

512

502

2.0

OTHER

U.S.

97

142

(31.7

)

229

308

(25.6

)

International

291

271

7.4

574

536

7.1

Worldwide

388

413

(6.1

)

803

844

(4.9

)

TOTAL PHARMACEUTICAL

U.S.

5,899

5,010

17.7

11,253

9,882

13.9

International

4,455

3,625

22.9

8,945

6,998

27.8

Worldwide

10,354

8,635

19.9

20,198

16,880

19.7

MEDICAL DEVICES

Diabetes Care

U.S.

129

160

(19.4

)

246

314

(21.7

)

International

226

261

(13.4

)

448

506

(11.5

)

Worldwide

355

421

(15.7

)

694

820

(15.4

)

Diagnostics

U.S.

-

-

-

-

-

-

International

-

-

-

-

1

*

Worldwide

-

-

-

-

1

*

Interventional Solutions

U.S.

323

285

13.3

627

564

11.2

International

344

288

19.4

680

558

21.9

Worldwide

667

573

16.4

1,307

1,122

16.5

Orthopaedics

U.S.

1,332

1,367

(2.6

)

2,639

2,726

(3.2

)

International

930

926

0.4

1,873

1,842

1.7

Worldwide

2,262

2,293

(1.4

)

4,512

4,568

(1.2

)

24

HIPS

U.S.

211

208

1.4

420

417

0.7

International

149

142

4.9

303

285

6.3

Worldwide

360

350

2.9

723

702

3.0

KNEES

U.S.

229

236

(3.0

)

457

482

(5.2

)

International

153

149

2.7

312

301

3.7

Worldwide

382

385

(0.8

)

769

783

(1.8

)

TRAUMA

U.S.

394

390

1.0

801

781

2.6

International

281

253

11.1

570

504

13.1

Worldwide

675

643

5.0

1,371

1,285

6.7

SPINE & OTHER

U.S.

498

533

(6.6

)

961

1,046

(8.1

)

International

347

382

(9.2

)

688

752

(8.5

)

Worldwide

845

915

(7.7

)

1,649

1,798

(8.3

)

Surgery

U.S.

1,022

1,012

1.0

2,015

2,007

0.4

International

1,493

1,372

8.8

2,923

2,648

10.4

Worldwide

2,515

2,384

5.5

4,938

4,655

6.1

ADVANCED

U.S.

402

400

0.5

795

792

0.4

International

603

533

13.1

1,176

1,018

15.5

Worldwide

1,005

933

7.7

1,971

1,810

8.9

GENERAL

U.S.

436

423

3.1

859

846

1.5

International

733

691

6.1

1,437

1,342

7.1

Worldwide

1,169

1,114

4.9

2,296

2,188

4.9

SPECIALTY

U.S.

184

189

(2.6

)

361

369

(2.2

)

International

157

148

6.1

310

288

7.6

Worldwide

341

337

1.2

671

657

2.1

Vision

U.S.

459

405

13.3

899

710

26.6

International

714

650

9.8

1,389

1,143

21.5

Worldwide

1,173

1,055

11.2

2,288

1,853

23.5

CONTACT LENSES / OTHER

U.S.

320

274

16.8

629

530

18.7

International

524

479

9.4

1,022

906

12.8

Worldwide

844

753

12.1

1,651

1,436

15.0

SURGICAL

U.S.

139

131

6.1

270

180

50.0

International

190

171

11.1

367

237

54.9

Worldwide

329

302

8.9

637

417

52.8

25

TOTAL MEDICAL DEVICES

U.S.

3,265

3,229

1.1

6,426

6,321

1.7

International

3,707

3,497

6.0

7,313

6,698

9.2

Worldwide

6,972

6,726

3.7

13,739

13,019

5.5

WORLDWIDE

U.S.

10,640

9,726

9.4

20,591

19,104

7.8

International

10,190

9,113

11.8

20,248

17,501

15.7

Worldwide

$

20,830

18,839

10.6

%

$

40,839

36,605

11.6

%

*Percentage greater than 100% or not meaningful

EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT
Fiscal Second Quarters Ended

Fiscal Six Months Ended

(Dollars in Millions)

July 1,
2018

July 2,
2017

Percent

Change

July 1,
2018

July 2,
2017

Percent Change

Consumer (1)

$

829

658

26.0

%

$

1,377

1,254

9.8

%

Pharmaceutical (2)

3,651

3,414

6.9

7,317

7,077

3.4

Medical Devices (3)

796

992

(19.8

)

2,375

2,555

(7.0

)

Segment earnings before provision for taxes

5,276

5,064

4.2

11,069

10,886

1.7

Less: Expense not allocated to segments (4)

303

316

615

563

Worldwide income before tax

$

4,973

4,748

4.7

%

$

10,454

10,323

1.3

%

(1) Includes a gain of $0.3 billion from the divestiture of NIZORAL ® in the fiscal second quarter and six months of 2018. Includes amortization expense of $0.1 billion in the fiscal second quarters and fiscal six months of 2018 and 2017.

(2) Includes acquisition costs related to the Actelion acquisition of $0.1 billion and $0.2 billion in the fiscal second quarters of 2018 and 2017, respectively. Includes acquisition costs related to the Actelion acquisition of $0.2 billion in the fiscal six months of 2018 and 2017. Includes a gain of $0.2 billion related to monetization of future royalty receivables in the fiscal second quarter and fiscal six months of 2017. Includes a gain of $0.2 billion in the fiscal six months of 2017 related to the sale of certain investments in equity securities held by Johnson & Johnson Innovation - JJDC, Inc. Includes amortization expense of $0.8 billion and $0.2 billion in the fiscal second quarters of 2018 and 2017, respectively. Includes a gain of $0.1 billion from the divestiture of PANCREASE ® in the fiscal second quarter and six months of 2018. Includes amortization expense of $1.5 billion and $0.2 billion in the fiscal six months of 2018 and 2017, respectively.

(3) Includes a restructuring related charge of $0.1 billion and $0.1 billion in the fiscal second quarters of 2018 and 2017, respectively. Includes a restructuring related charge of $0.2 billion and $0.3 billion in the fiscal six months of 2018 and 2017, respectively. Includes litigation expense of $0.7 billion and $0.4 billion in the fiscal second quarters and fiscal six months of 2018 and 2017, respectively. Includes an asset impairment of $0.2 billion primarily related to the insulin pump business in the fiscal second quarter and fiscal six months of 2017. Includes amortization expense of $0.3 billion and $0.3 billion in the fiscal second quarters of 2018 and 2017, respectively. Includes amortization expense of $0.5 billion and $0.5 billion in the fiscal six months of 2018 and 2017, respectively.

(4) Amounts not allocated to segments include interest income/expense and general corporate income/expense.

SALES BY GEOGRAPHIC AREA

Fiscal Second Quarters Ended

Fiscal Six Months Ended

(Dollars in Millions)

July 1, 2018

July 2, 2017

Percent

Change

July 1, 2018

July 2, 2017

Percent Change

United States

$

10,640

9,726

9.4

%

$

20,591

19,104

7.8

%

Europe

4,810

4,232

13.7

9,607

8,090

18.8

Western Hemisphere, excluding U.S.

1,540

1,499

2.7

3,107

2,953

5.2

Asia-Pacific, Africa

3,840

3,382

13.5

7,534

6,458

16.7

Total

$

20,830

18,839

10.6

%

$

40,839

36,605

11.6

%

26

NOTE 10- BUSINESS COMBINATIONS AND DIVESTITURES

Subsequent to the quarter, on July 30, 2018, the Company announced that it has entered into a definitive agreement to acquire Zarbee's, Inc., a privately held company that is a leader in naturally-based healthcare products. The acquisition will include the full line of Zarbee's Naturals products for children and adults.

During the fiscal second quarter of 2018, the Company announced acceptance of the binding offer from Platinum Equity, previously announced in the fiscal first quarter of 2018, to acquire its LifeScan business for approximately $2.1 billion , subject to customary adjustments. The transaction is expected to close by the end of 2018. As of July 1, 2018, the assets held for sale on the Consolidated Balance Sheet were $0.1 billion of inventory, $0.1 billion of property, plant and equipment, $0.1 billion of intangible assets, net and $1.0 billion of goodwill. The Company will retain certain net liabilities of approximately $0.4 billion associated with the LifeScan business.

Additionally, in the fiscal second quarter of 2018, the Company announced receipt of a binding offer from Fortive Corporation to acquire its Advanced Sterilization Products (ASP) business for approximately $2.7 billion , subject to customary adjustments. The transaction is expected to close in early 2019. As of July 1, 2018, the assets held for sale on the Consolidated Balance Sheet were $0.1 billion of inventory, $0.1 billion of property, plant and equipment and $0.2 billion of goodwill. The Company will retain certain net receivables of approximately $0.1 billion associated with the ASP business.

During the fiscal second quarter of 2018, the Company completed the acquisition BeneVir Biopharm, Inc. (BeneVir), a privately-held, biopharmaceutical company specializing in the development of oncolytic immunotherapies.

Additionally, during the fiscal second quarter of 2018, the Company completed the divestitures of NIZORAL ® , PANCREASE ® and VALCHLOR ® products.

During the fiscal first quarter of 2018, the Company announced the acquisition of Orthotaxy, a privately-held developer of software-enabled surgery technologies, including a differentiated robotic-assisted surgery solution.

On June 16, 2017, the Company completed the acquisition of Actelion Ltd through an all cash tender offer in Switzerland for $280 per share, amounting to $29.6 billion , net of cash acquired. As part of the transaction, immediately prior to the completion of the acquisition, Actelion spun out its drug discovery operations and early-stage clinical development assets into a newly created Swiss biopharmaceutical company, Idorsia Ltd. The shares of Idorsia are listed on the SIX Swiss Exchange (SIX). The Company currently holds 9.9% of the shares of Idorsia and has rights to an additional 22.1% of Idorsia equity through a convertible loan with a principal amount of approximately $0.5 billion . The convertible loan may be converted into Idorsia shares as follows: (i) up to an aggregate shareholding of 16% of Idorsia shares as a result of certain shareholders holding more than 20% of the issued Idorsia shares, and (ii) up to the balance of the remaining amount within 20 business days of the maturity date of the convertible loan, which has a ten -year term, or if Idorsia undergoes a change of control transaction. The investment in Idorsia was recorded as a cost method investment in Other assets in the Company's consolidated Balance Sheet. The Company also exercised the option acquired on ACT-132577, a product within Idorsia being developed for resistant hypertension currently in phase 2 of clinical development. The Company has also entered into an agreement to provide Idorsia with a Swiss franc denominated credit facility of approximately $250 million . As of July 1, 2018, Idorsia has not made any draw-downs under the credit facility. Actelion has entered into a transitional services agreement with Idorsia. Actelion has established a leading franchise of differentiated, innovative products for pulmonary arterial hypertension (PAH) that are highly complementary to the existing portfolio of the Company. The addition of Actelion's specialty in-market medicines and late-stage products is consistent with the Company's efforts to grow in attractive and complementary therapeutic areas and serve patients with serious illnesses and significant unmet medical need.

27

The Company has finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. The following table presents the amounts recognized for assets acquired and liabilities assumed as of the acquisition date with adjustments made through July 1, 2018:

(Dollars in Millions)

July 1, 2018

Cash & Cash equivalents

469

Inventory (1)

759

Accounts Receivable

485

Other current assets

93

Property, plant and equipment

104

Goodwill

6,161

Intangible assets

25,010

Deferred Taxes

99

Other non-current assets

19

Total Assets Acquired

33,199

Current liabilities

956

Deferred Taxes

1,776

Other non-current liabilities

413

Total Liabilities Assumed

3,145

Net Assets Acquired

30,054

(1) Includes adjustment of $642 million to write-up the acquired inventory to its estimated fair value.

The adjustments made since the date of acquisition were $0.2 billion to the deferred taxes and $0.4 billion to the current liabilities with the offset to goodwill. The assets acquired are recorded in the Pharmaceutical segment. The acquisition of Actelion resulted in approximately $6.2 billion of goodwill. The goodwill is primarily attributable to synergies expected to arise from the acquisition. The goodwill is not expected to be deductible for tax purposes.

The purchase price allocation to the identifiable intangible assets is as follows:

(Dollars in Millions)

Intangible assets with definite lives:

Patents and trademarks*

$

24,230

Total amortizable intangibles

24,230

In-process research and development

780

Total intangible assets

$

25,010

*Includes $0.4 billion related to VALCHLOR ® , one of the acquired products, which was divested in the fiscal second quarter of 2018.

The patents and trademarks acquired are comprised of developed technology with a weighted average life of 9 years and was primarily based on the patent life of the marketed products. The intangible assets with definite lives were assigned asset lives ranging from 4 to 10 years . The in-process research and development intangible assets were valued for technology programs for unapproved products.

The value of the IPR&D was calculated using probability adjusted cash flow projections discounted for the risk inherent in such projects. The discount rate applied was 9% .

The acquisition was accounted for using the acquisition method and, accordingly, the results of operations of Actelion were reported in the Company's financial statements beginning on June 16, 2017, the date of acquisition.

The following table provides pro forma results of operations for the fiscal second quarter ended July 2, 2017 as if Actelion had been acquired as of January 4, 2016. The pro forma results include the effect of certain purchase accounting adjustments such

28

as the estimated changes in depreciation and amortization expense on the acquired tangible and intangible assets. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of Actelion. Accordingly, such amounts are not necessarily indicative of the results if the acquisition had occurred on the dates indicated or which may occur in the future.

Unaudited Pro forma Consolidated Results

(Dollars in Millions Except Per Share Data)

Fiscal Second Quarter Ended

Fiscal Six Months Ended

July 2, 2017

July 2, 2017

Net Sales

$

19,426

37,836

Net Earnings

3,788

7,890

Diluted Net Earnings per Common Share

$

1.38

2.87

In the fiscal second quarter and fiscal six months of 2018, the Company recorded acquisition related costs, of approximately $0.1 billion and $0.2 billion before tax, respectively, which was recorded in Other (income)/expense and Cost of products sold.

Additionally, during the fiscal second quarter of 2017, the Company completed the acquisition of Neuravi Limited, a privately-held medical device company that develops and markets medical devices for neurointerventional therapy.

During the fiscal first quarter of 2017, the Company acquired Abbott Medical Optics (AMO), a wholly-owned subsidiary of Abbott Laboratories, for $4.3 billion , net of cash acquired. The acquisition included ophthalmic products related to: cataract surgery, laser refractive surgery and consumer eye health. The net purchase price was primarily recorded as amortizable intangible assets for $2.3 billion and goodwill for $1.7 billion . The weighted average life of total amortizable intangibles, the majority being customer relationships, is approximately 14.4 years . The goodwill is primarily attributable to synergies expected to arise from the business acquisition and is not deductible for tax purposes. The intangible assets and goodwill amounts are based on the final purchase price allocation. The assets acquired were recorded in the Medical Devices segment.

Additionally, during the fiscal first quarter of 2017, the Company completed the acquisitions of Torax Medical, Inc., a privately-held medical device company that manufactures and markets the LINX™ Reflux Management System for the surgical treatment of gastroesophageal reflux disease and Megadyne Medical Products, Inc., a privately-held medical device company that develops, manufactures and markets electrosurgical tools.

NOTE 11 - LEGAL PROCEEDINGS

Johnson & Johnson and certain of its subsidiaries are involved in various lawsuits and claims regarding product liability, intellectual property, commercial and other matters; governmental investigations; and other legal proceedings that arise from time to time in the ordinary course of their business.

The Company records accruals for loss contingencies associated with these legal matters when it is probable that a liability will be incurred and the amount of the loss can be reasonably estimated. As of July 1, 2018 , the Company has determined that the liabilities associated with certain litigation matters are probable and can be reasonably estimated. The Company has accrued for these matters and will continue to monitor each related legal issue and adjust accruals as might be warranted based on new information and further developments in accordance with ASC 450-20-25. For these and other litigation and regulatory matters discussed below for which a loss is probable or reasonably possible, the Company is unable to estimate the possible loss or range of loss beyond the amounts already accrued. Amounts accrued for legal contingencies often result from a complex series of judgments about future events and uncertainties that rely heavily on estimates and assumptions. The ability to make such estimates and judgments can be affected by various factors, including whether damages sought in the proceedings are unsubstantiated or indeterminate; scientific and legal discovery has not commenced or is not complete; proceedings are in early stages; matters present legal uncertainties; there are significant facts in dispute; or there are numerous parties involved.

In the Company's opinion, based on its examination of these matters, its experience to date and discussions with counsel, the ultimate outcome of legal proceedings, net of liabilities accrued in the Company's balance sheet, is not expected to have a material adverse effect on the Company's financial position. However, the resolution of, or increase in accruals for, one or more of these matters in any reporting period may have a material adverse effect on the Company's results of operations and cash flows for that period.

29

PRODUCT LIABILITY

Johnson & Johnson and certain of its subsidiaries are involved in numerous product liability claims and lawsuits involving multiple products. Claimants in these cases seek substantial compensatory and, where available, punitive damages. While the Company believes it has substantial defenses, it is not feasible to predict the ultimate outcome of litigation. The Company has established accruals for product liability claims and lawsuits in compliance with ASC 450-20 based on currently available information, which in some cases may be limited. The Company accrues an estimate of the legal defense costs needed to defend each matter when those costs are probable and can be reasonably estimated. For certain of these matters, the Company has accrued additional amounts such as estimated costs associated with settlements, damages and other losses. To the extent adverse verdicts have been rendered against the Company, the Company does not record an accrual until a loss is determined to be probable and can be reasonably estimated. Product liability accruals can represent projected product liability for thousands of claims around the world, each in different litigation environments and with different fact patterns. Changes to the accruals may be required in the future as additional information becomes available.

The most significant of these cases include: the DePuy ASR™ XL Acetabular System and DePuy ASR™ Hip Resurfacing System; the PINNACLE ® Acetabular Cup System; pelvic meshes; RISPERDAL ® ; XARELTO ® ; body powders containing talc, primarily JOHNSONS ® Baby Powder; and INVOKANA ® . As of July 1, 2018 , in the United States there were approximately 2,000 plaintiffs with direct claims in pending lawsuits regarding injuries allegedly due to the DePuy ASR™ XL Acetabular System and DePuy ASR™ Hip Resurfacing System; 10,300 with respect to the PINNACLE ® Acetabular Cup System; 54,000 with respect to pelvic meshes; 13,500 with respect to RISPERDAL ® ; 24,800 with respect to XARELTO ® ; 10,600 with respect to body powders containing talc; and 1,100 with respect to INVOKANA ® .

In August 2010, DePuy Orthopaedics, Inc. (DePuy) announced a worldwide voluntary recall of its ASR XL Acetabular System and DePuy ASR Hip Resurfacing System used in hip replacement surgery. Claims for personal injury have been made against DePuy and Johnson & Johnson. The number of pending lawsuits is expected to fluctuate as certain lawsuits are settled or dismissed and additional lawsuits are filed. Cases filed in federal courts in the United States have been organized as a multi-district litigation in the United States District Court for the Northern District of Ohio. Litigation has also been filed in countries outside of the United States, primarily in the United Kingdom, Canada, Australia, Ireland, Germany and Italy. In November 2013, DePuy reached an agreement with a Court-appointed committee of lawyers representing ASR Hip System plaintiffs to establish a program to settle claims with eligible ASR Hip patients in the United States who had surgery to replace their ASR Hips, known as revision surgery, as of August 31, 2013. DePuy reached additional agreements in February 2015 and March 2017, which further extended the settlement program to include ASR Hip patients who had revision surgeries after August 31, 2013 and prior to February 15, 2017. This settlement program has resolved more than 10,000 claims, with more expected from the recent extension, therefore bringing to resolution significant ASR Hip litigation activity in the United States. However, lawsuits in the United States remain, and the settlement program does not address litigation outside of the United States. In Australia, a class action settlement was reached that resolved the claims of the majority of ASR Hip patients in that country. In Canada, the Company has reached agreements to settle two pending class actions which have been approved by the Québec Superior Court and the Supreme Court of British Columbia. The Company continues to receive information with respect to potential additional costs associated with this recall on a worldwide basis. The Company has established accruals for the costs associated with the United States settlement program and DePuy ASR Hip-related product liability litigation.

Claims for personal injury have also been made against DePuy Orthopaedics, Inc. and Johnson & Johnson relating to the PINNACLE ® Acetabular Cup System used in hip replacement surgery. The number of pending product liability lawsuits continues to increase, and the Company continues to receive information with respect to potential costs and the anticipated number of cases. Cases filed in federal courts in the United States have been organized as a multi-district litigation in the United States District Court for the Northern District of Texas. Litigation has also been filed in some state courts and in countries outside of the United States, primarily in the United Kingdom. In the United Kingdom, a trial was completed regarding common issues of liability and the Queen's Bench Division in the Royal Courts of Justice in London returned a judgment in favor of the Company in May 2018, ruling that the product was not defective and the Company was not liable to the claimants in the proceeding. The Company has established an accrual for defense costs only in connection with product liability litigation associated with the PINNACLE ® Acetabular Cup System.

Claims for personal injury have been made against Ethicon, Inc. (Ethicon) and Johnson & Johnson arising out of Ethicon's pelvic mesh devices used to treat stress urinary incontinence and pelvic organ prolapse. The Company continues to receive information with respect to potential costs and additional cases. Cases filed in federal courts in the United States have been organized as a multi-district litigation in the United States District Court for the Southern District of West Virginia. The Company has settled or otherwise resolved a majority of the United States cases and the costs associated with these settlements are reflected in the Company's accruals.

30

In addition, class actions and individual personal injury cases or claims have been commenced in various countries outside of the United States, including claims and cases in the United Kingdom, the Netherlands and Belgium, and class actions in Israel, Australia and Canada, seeking damages for alleged injury resulting from Ethicon's pelvic mesh devices. In Australia, a trial of class action issues has been completed and a decision is expected in 2018. The Company has established accruals with respect to product liability litigation associated with Ethicon's pelvic mesh products.

Claims for personal injury have been made against Janssen Pharmaceuticals, Inc. and Johnson & Johnson arising out of the use of RISPERDAL ® , indicated for the treatment of schizophrenia, acute manic or mixed episodes associated with bipolar I disorder and irritability associated with autism, and related compounds. Lawsuits have been primarily filed in state courts in Pennsylvania, California, and Missouri. Other actions are pending in various courts in the United States and Canada. Product liability lawsuits continue to be filed, and the Company continues to receive information with respect to potential costs and the anticipated number of cases. The Company has settled or otherwise resolved many of the United States cases and the costs associated with these settlements are reflected in the Company's accruals.

Claims for personal injury arising out of the use of XARELTO ® , an oral anticoagulant, have been made against Janssen Pharmaceuticals, Inc. (JPI); Johnson & Johnson; and JPI's collaboration partner for XARELTO ® Bayer AG and certain of its affiliates. The number of pending product liability lawsuits continues to increase, and the Company continues to receive information with respect to potential costs and the anticipated number of cases. Cases filed in federal courts in the United States have been organized as a multi-district litigation in the United States District Court for the Eastern District of Louisiana. In addition, cases have been filed in state courts across the United States. Many of these cases have been consolidated into a state mass tort litigation in Philadelphia, Pennsylvania; and there are coordinated proceedings in Delaware, California and Missouri. Class action lawsuits also have been filed in Canada. The Company has established an accrual for defense costs only in connection with product liability litigation associated with XARELTO ® .

Personal injury claims alleging that talc causes cancer have been made against Johnson & Johnson Consumer Inc. and Johnson & Johnson arising out of the use of body powders containing talc, primarily JOHNSONS ® Baby Powder. The number of pending product liability lawsuits continues to increase, and the Company continues to receive information with respect to potential costs and the anticipated number of cases. Lawsuits have been primarily filed in state courts in Missouri, New Jersey and California. Cases filed in federal courts in the United States have been organized as a multi-district litigation in the United States District Court for the District of New Jersey. The Company has successfully defended a number of these cases but there have been verdicts against the Company, including a recent jury verdict of $4.7 billion . The Company believes that it has strong grounds on appeal to overturn these verdicts. The Company has established an accrual for defense costs only in connection with product liability litigation associated with body powders containing talc.

Claims for personal injury have been made against a number of Johnson & Johnson companies, including Janssen Pharmaceuticals, Inc. and Johnson & Johnson, arising out of the use of INVOKANA ® , a prescription medication indicated to improve glycemic control in adults with Type 2 diabetes. The number of pending product liability lawsuits continues to increase, and the Company continues to receive information with respect to potential costs and the anticipated number of cases. Cases filed in federal courts in the United States have been organized as a multi-district litigation in the United States District Court for the District of New Jersey. Cases have also been filed in state courts in Pennsylvania, California and New Jersey. Class action lawsuits have been filed in Canada. The Company has established an accrual with respect to product liability litigation associated with INVOKANA ® .

INTELLECTUAL PROPERTY

Certain subsidiaries of Johnson & Johnson are subject, from time to time, to legal proceedings and claims related to patent, trademark and other intellectual property matters arising out of their businesses. Many of these matters involve challenges to the coverage and/or validity of the patents on various products and allegations that certain of the Company's products infringe the patents of third parties. Although these subsidiaries believe that they have substantial defenses to these challenges and allegations with respect to all significant patents, there can be no assurance as to the outcome of these matters. A loss in any of these cases could adversely affect the ability of these subsidiaries to sell their products, result in loss of sales due to loss of market exclusivity, require the payment of past damages and future royalties, and may result in a non-cash impairment charge for any associated intangible asset. The most significant of these matters are described below.

Medical Devices

In June 2009, Rembrandt Vision Technologies, L.P. (Rembrandt) filed a patent infringement lawsuit against Johnson & Johnson Vision Care, Inc. (JJVCI) in the United States District Court for the Eastern District of Texas alleging that JJVCI's manufacture and sale of its ACUVUE ® ADVANCE and ACUVUE OASYS ® Hydrogel Contact Lenses infringed Rembrandt's United States

31

Patent No. 5,712,327 and seeking monetary relief. The case was transferred to the United States District Court for the Middle District of Florida, where a trial in May 2012 resulted in a verdict of non-infringement that was subsequently upheld on appeal. In July 2014, Rembrandt sought a new trial based on alleged new evidence, which the District Court denied. In April 2016, the Court of Appeals overturned that ruling and remanded the case to the District Court for a new trial. A new trial was held in August 2017, and the jury returned a verdict of non-infringement in favor of JJVCI. Rembrandt has appealed the verdict to the United States Court of Appeals for the Federal Circuit.

In March 2013, Medinol Ltd. (Medinol) filed a patent infringement lawsuit against Cordis Corporation (Cordis) and Johnson & Johnson in the United States District Court for the Southern District of New York alleging that Cordis's sales of the CYPHER and CYPHER SELECT stents made in the United States since 2005 willfully infringed four of Medinol's patents directed to the geometry of articulated stents. Medinol is seeking damages and attorneys' fees. Although Johnson & Johnson has since sold Cordis, it has retained liability for this case. After trial in January 2014, the District Court dismissed the case, finding Medinol unreasonably delayed bringing its claims (the laches defense). In September 2014, the District Court denied a motion by Medinol to vacate the judgment and grant it a new trial. Medinol appealed the decision to the United States Court of Appeals for the Federal Circuit. In March 2017, the United States Supreme Court held that the laches defense is not available in patent cases. In April 2018, the United States Court of Appeals for the Federal Circuit remanded the case back to the District Court to reconsider Medinol's motion for a new trial, and briefing in the District Court was completed in June 2018.

In November 2016, MedIdea, L.L.C. (MedIdea) filed a patent infringement lawsuit against DePuy Orthopaedics, Inc. in the United States District Court for the Northern District of Illinois alleging infringement by the ATTUNE ® Knee System. In April 2017, MedIdea filed an amended complaint adding DePuy Synthes Products, Inc. and DePuy Synthes Sales, Inc. as named defendants. MedIdea alleges infringement of United States Patent Nos. 6,558,426 ('426); 8,273,132; 8,721,730 and 9,492,280 relating to posterior stabilized knee systems. Specifically, MedIdea alleges that the SOFCAM TM Contact feature of the ATTUNE ® posterior stabilized knee products infringes the patents-in-suit. MedIdea is seeking monetary damages and injunctive relief. In June 2017, the case was transferred to the United States District Court for the District of Massachusetts. A claim construction hearing is scheduled for August 2018. In December 2017, DePuy Synthes Products, Inc. filed a Petition for Inter Partes Review with the United States Patent and Trademark Office (USPTO), seeking to invalidate the '426 patent, and in June 2018, the USPTO instituted review of the patent.

In December 2016, Ethicon Endo-Surgery, Inc. and Ethicon Endo-Surgery, LLC (now known as Ethicon LLC) sued Covidien, Inc. in the United States District Court for the District of Massachusetts seeking a declaration that United States Patent Nos. 6,585,735 (the '735 patent); 7,118,587; 7,473,253; 8,070,748 and 8,241,284 (the '284 patent), are either invalid or not infringed by Ethicon's ENSEAL ® X1 Large Jaw Tissue Sealer product. In April 2017, Covidien LP, Covidien Sales LLC, and Covidien AG (collectively, Covidien) answered and counterclaimed, denying the allegations, asserting willful infringement of the '735 patent, the '284 patent and United States Patent Nos. 8,323,310 (the '310 patent); 9,084,608; 9,241,759 (the '759 patent) and 9,113,882, and seeking damages and an injunction. Covidien filed a motion for preliminary injunction, which was denied in October 2017. The parties have entered joint stipulations such that only the the '284 patent, the '735 patent, the '310 patent and the '759 patent remain in dispute. Trial is scheduled to begin in September 2019.

In November 2017, Board of Regents, The University of Texas System and Tissuegen, Inc. filed a lawsuit in the United States District Court for the Western District of Texas against Ethicon, Inc. and Ethicon US, LLC alleging the manufacture and sale of VICRYL ® Plus Antibacterial Sutures, MONOCRYL ® Plus Antibacterial Sutures, PDS ® Plus Antibacterial Sutures, STRATAFIX ® POS ® Antibacterial Sutures and STRATAFIX ® MONOCRYL ® Plus Antibacterial Sutures infringe plaintiffs' United States Patent Nos. 6,596,296 and 7,033,603 directed to implantable polymer drug releasing biodegradable fibers containing a therapeutic agent. A claim construction hearing is scheduled in October 2018.

Pharmaceutical

In April 2016, MorphoSys AG, a German biotech company, filed a patent infringement lawsuit against Janssen Biotech, Inc. (JBI), Genmab U.S. Inc. and Genmab A/S (collectively, Genmab) in the United States District Court for the District of Delaware. MorphoSys alleges that JBI's manufacture and sale of DARZALEX ® (daratumumab) willfully infringes MorphoSys' United States Patent Nos. 8,263,746, 9,200,061 and 9,785,590. MorphoSys is seeking money damages. JBI licenses patents and the commercial rights to DARZALEX ® from Genmab. Trial on liability and damages is scheduled to commence in February 2019.

In August 2016, Sandoz Ltd and Hexal AG (collectively, Sandoz) filed a lawsuit in the English High Court against G.D. Searle LLC, a Pfizer company (Searle) and Janssen Sciences Ireland UC (JSI) alleging that Searle's supplementary protection certificate SPC/GB07/038 (SPC), which is exclusively licensed to JSI, is invalid and should be revoked. Janssen-Cilag Limited sells PREZISTA ® (darunavir) in the United Kingdom pursuant to this license. In October 2016, Searle and JSI counterclaimed

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against Sandoz for threatened infringement of the SPC based on statements of its plans to launch generic darunavir in the United Kingdom. Sandoz admitted that its generic darunavir product would infringe the SPC if it is found valid. Searle and JSI are seeking an order enjoining Sandoz from marketing its generic darunavir before the expiration of the SPC. Following a trial in April 2017, the Court entered a decision holding that the SPC is valid and granting a final injunction. Sandoz has appealed the Court's decision and the injunction will be stayed pending the appeal. In January 2018, the Court referred the issue on appeal to the Court of Justice for the European Union (CJEU) and stayed the proceedings pending the CJEU's ruling on the issue.

REMICADE ® Related Cases

In August 2014, Celltrion Healthcare Co. Ltd. and Celltrion Inc. (collectively, Celltrion) filed an application with the United States Food and Drug Administration (FDA) for approval to make and sell its own infliximab biosimilar. In March 2015, Janssen Biotech, Inc. (JBI) filed a lawsuit in the United States District Court for the District of Massachusetts against Celltrion and Hospira Healthcare Corporation (Hospira), which has exclusive marketing rights for Celltrion's infliximab biosimilar in the United States, seeking, among other things, a declaratory judgment that their biosimilar product infringes or potentially infringes several JBI patents, including United States Patent No. 6,284,471 relating to REMICADE ® (infliximab) (the '471 patent) and United States Patent No. 7,598,083 (the '083 patent) directed to the cell culture media used to make Celltrion's biosimilar. In August 2016, the District Court granted both Celltrion's and Hospira's motions for summary judgment of invalidity of the '471 patent. JBI appealed those decisions to the United States Court of Appeals for the Federal Circuit. In January 2018, the Federal Circuit dismissed the appeal as moot based on its affirmance of a decision by the USPTO's Patent Trial and Appeal Board affirming invalidity of the '471 patent.

In June 2016, JBI filed two additional patent infringement lawsuits asserting the '083 patent, one against Celltrion and Hospira in the United States District Court for the District of Massachusetts and the other against HyClone Laboratories, Inc., the manufacturer of the cell culture media that Celltrion uses to make its biosimilar product, in the United States District Court for the District of Utah. On July 30, 2018 the District Court granted Celltrion's motion for summary judgment of non-infringement and entered an order dismissing the '083 lawsuit against Celltrion and Hospira. The litigation against HyClone in Utah is stayed pending the outcome of the Massachusetts actions.

The FDA approved the first infliximab biosimilar for sale in the United States in 2016, and a number of such products have been launched.

Litigation Against Filers of Abbreviated New Drug Applications (ANDAs)

The following summarizes lawsuits pending against generic companies that have filed Abbreviated New Drug Applications (ANDAs) with the FDA, or undertaken similar regulatory processes outside of the United States, seeking to market generic forms of products sold by various subsidiaries of Johnson & Johnson prior to expiration of the applicable patents covering those products. These ANDAs typically include allegations of non-infringement, invalidity and unenforceability of the applicable patents. In the event the subsidiaries are not successful in these actions, or the statutory 30-month stays of the ANDAs expire before the United States District Court rulings are obtained, the third-party companies involved will have the ability, upon approval of the FDA, to introduce generic versions of the products at issue to the market, resulting in the potential for substantial market share and revenue losses for those products, and which may result in a non-cash impairment charge in any associated intangible asset. In addition, from time to time, subsidiaries may settle these actions and such settlements can involve the introduction of generic versions of the products at issue to the market prior to the expiration of the relevant patents. The inter partes review (IPR) process with the United States Patent and Trademark Office (USPTO), created under the 2011 America Invents Act, is also being used by generic companies in conjunction with these ANDAs and lawsuits to challenge patents held by the Company's subsidiaries.

ZYTIGA ®

In July 2015, Janssen Biotech, Inc., Janssen Oncology, Inc. and Janssen Research & Development, LLC (collectively, Janssen) and BTG International Ltd. (BTG) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against a number of generic companies (and certain of their affiliates and/or suppliers) who filed ANDAs seeking approval to market a generic version of ZYTIGA ® 250mg before the expiration of United States Patent No. 8,822,438 (the '438 patent). The generic companies currently include Amneal Pharmaceuticals, LLC and Amneal Pharmaceuticals of New York, LLC (collectively, Amneal); Apotex Inc. and Apotex Corp. (collectively, Apotex); Citron Pharma LLC (Citron); Dr. Reddy's Laboratories, Ltd. and Dr. Reddy's Laboratories, Inc. (collectively, Dr. Reddy's); Mylan Pharmaceuticals Inc. and Mylan Inc. (collectively, Mylan); Par Pharmaceuticals, Inc. and Par Pharmaceutical Companies, Inc. (collectively, Par); Sun

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Pharmaceutical Industries Ltd. and Sun Pharmaceuticals Industries, Inc. (collectively, Sun); Teva Pharmaceuticals USA, Inc. (Teva); Wockhardt Bio A.G.; Wockhardt USA LLC and Wockhardt Ltd. (collectively, Wockhardt); West-Ward Pharmaceutical Corp. (West-Ward) and Hikma Pharmaceuticals, LLC (Hikma).

Janssen and BTG also initiated patent infringement lawsuits in the United States District Court for the District of New Jersey against Amerigen Pharmaceuticals Limited (Amerigen) in May 2016, and Glenmark Pharmaceuticals, Inc. (Glenmark) in June 2016, each of whom filed an ANDA seeking approval to market its generic version of ZYTIGA ® before the expiration of the '438 patent. This lawsuit has been consolidated with the lawsuit filed in July 2015.

In August 2015, Janssen and BTG filed an additional jurisdictional protective lawsuit against the Mylan defendants in the United States District Court for the Northern District of West Virginia, which has been stayed.

In August 2017, Janssen and BTG initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Teva, who filed an ANDA seeking approval to market a generic version of ZYTIGA ® 500mg before the expiration of the '438 patent. This lawsuit has been consolidated with the lawsuit filed in July 2015.

In February 2018, Janssen and BTG filed a patent infringement lawsuit against MSN Pharmaceuticals, Inc. and MSN Laboratories Private Limited (collectively, MSN) based on its ANDA seeking approval for a generic version of ZYTIGA ® prior to the expiration of the '438 patent.

In February 2018, the court heard oral arguments on a motion for summary judgment of non-infringement filed by certain defendants and, in May 2018, administratively terminated the motion without prejudice to reassertion following trial.

Trial on the matter is ongoing. If the decision if unfavorable, the stay could be lifted and a generic version of ZYTIGA ® could enter the market.

In December 2017, Janssen and BTG entered into a settlement agreement with Glenmark. In January 2018, Janssen dismissed its lawsuit against Sun after it withdrew its ANDA. In April 2018, Janssen and BTG entered into a settlement agreement with Apotex.

In each of the above lawsuits, Janssen is seeking an order enjoining the defendants from marketing their generic versions of ZYTIGA ® before the expiration of the '438 patent.

Several generic companies including Amerigen, Argentum Pharmaceuticals LLC (Argentum), Mylan, Wockhardt, Actavis, Amneal, Dr. Reddy's, Sun, Teva, West-Ward and Hikma filed Petitions for Inter Partes Review (IPR) with the USPTO, seeking to invalidate the '438 patent. In January 2018, the USPTO issued decisions finding the '438 patent claims unpatentable, and Janssen has requested rehearing. The IPR decisions are not binding on the district court in the pending litigation.

In October 2017, Janssen Inc. and Janssen Oncology, Inc. (collectively, Janssen) initiated two Notices of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Teva Canada Limited (Teva) and the Minister of Health in Canada in response to Teva's filing Abbreviated New Drug Submissions (ANDS) and seeking approval to market generic versions of ZYTIGA ® 250mg and ZYTIGA ® 500mg before the expiration of Canadian Patent No. 2,661,422. In June 2018, the parties entered into a settlement agreement.

In November 2017, Janssen initiated a Notice of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Apotex Inc. (Apotex) and the Minister of Health in Canada in response to Apotex's filing of an Abbreviated New Drug Submission (ANDS) seeking approval to market a generic version of ZYTIGA ® before the expiration of Canadian Patent No. 2,661,422. The federal court of Canada scheduled the Final Hearing for April 2019. Janssen is seeking an order prohibiting the Minister of Health from issuing a Notice of Compliance with respect to Apotex's ANDS before the expiration of Janssen's patent.

XARELTO ®

B eginning in October 2015, Janssen Pharmaceuticals, Inc. (JPI) and Bayer Pharma AG and Bayer Intellectual Property GmbH (collectively, Bayer) filed patent infringement lawsuits in the United States District Court for the District of Delaware against a number of generic companies who filed ANDAs seeking approval to market generic versions of XARELTO ® before expiration of Bayer's United States Patent Nos. 7,157,456, 7,585,860 and 7,592,339 relating to XARELTO ® . JPI is the exclusive sublicensee of the asserted patents. The following generic companies are named defendants: Aurobindo Pharma Limited and Aurobindo Pharma USA, Inc. (collectively, Aurobindo); Breckenridge Pharmaceutical, Inc. (Breckenridge); InvaGen Pharmaceuticals Inc. (InvaGen); Micro Labs USA Inc. and Micro Labs Ltd (collectively, Micro); Mylan Pharmaceuticals Inc.

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(Mylan); Prinston Pharmaceuticals, Inc.; Sigmapharm Laboratories, LLC (Sigmapharm); Torrent Pharmaceuticals, Limited and Torrent Pharma Inc. (collectively, Torrent). All defendants except Mylan and Sigmapharm have agreed to have their cases stayed and to be bound by the outcome of any final judgment rendered against any of the other defendants. Trial concluded in April 2018. In July 2018 the court entered judgment in JPI's and Bayer's favor, holding that the asserted compound patent is valid and infringed.

Beginning in April 2017, JPI and Bayer Intellectual Property GmbH and Bayer AG (collectively, Bayer AG) filed patent infringement lawsuits in the United States District Court for the District of Delaware against a number of generic companies who filed ANDAs seeking approval to market generic versions of XARELTO ® before expiration of Bayer AG's United States Patent No. 9,539,218 ('218) relating to XARELTO ® . The following generic companies are named defendants: Alembic Pharmaceuticals Limited, Alembic Global Holding SA and Alembic Pharmaceuticals, Inc. (Alembic); Aurobindo; Breckenridge; InvaGen; Lupin Limited and Lupin Pharmaceuticals, Inc. (collectively, Lupin); Micro; Mylan; Sigmapharm; Taro Pharmaceutical Industries Ltd. and Taro Pharmaceuticals U.S.A., Inc. (collectively, Taro) and Torrent. Lupin counterclaimed for declaratory judgment of noninfringement and invalidity of United States Patent No. 9,415,053, but Lupin dismissed its counterclaims after it was provided a covenant not to sue on that patent. Aurobindo, Taro, Torrent, Micro, Breckenridge and Alembic have agreed to have their cases stayed and to be bound by the outcome of any final judgment rendered against any of the other defendants. The '218 cases have been consolidated for discovery and trial, and are currently set for trial in April 2019.

In each of these lawsuits, JPI is seeking an order enjoining the defendants from marketing their generic versions of XARELTO ® before the expiration of the relevant patents.

PREZISTA ®

In November 2017, Janssen Inc. (Janssen) initiated Notices of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Apotex Inc. (Apotex) and the Minister of Health in Canada in response to Apotex's filing of an Abbreviated New Drug Submission (ANDS) seeking approval to market a generic version of PREZISTA ® before the expiration of Canadian Patent Nos. 2,485,834 and 2,336,160, which are owned by the United States and the Board of Trustees of the University of Illinois. Janssen is seeking an order prohibiting the Minister of Health from issuing a Notice of Compliance with respect to Apotex's ANDS before the expiration of the relevant patents. The Final Hearing is scheduled to begin in June 2019. Janssen is seeking an order enjoining Apotex from marketing its generic versions of PREZISTA ® before the expiration of the patents-in-suit.

In May 2018, Janssen Products, L.P. and Janssen Sciences Ireland UC (collectively, Janssen) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Dr. Reddys Laboratories, Inc., Dr. Reddys Laboratories, Ltd., Laurus Labs, Ltd. and Pharmaq, Inc. (collectively, DRL) who filed an ANDA seeking approval to market generic versions of PREZISTA ® before the expiration of United States Patent Nos. 8,518,987; 7,126,015; and 7,595,408 (the patents-in-suit). Janssen is seeking an order enjoining DRL from marketing its generic versions of PREZISTA ® before the expiration of the patents-in-suit.

INVOKANA ® /INVOKAMET ®

Beginning in July 2017, Janssen Pharmaceuticals, Inc., Janssen Research & Development, LLC, Cilag GmbH International and Janssen Pharmaceutica NV (collectively, Janssen) and Mitsubishi Tanabe Pharma Corporation (MTPC) filed patent infringement lawsuits in the United States District Court for the District of New Jersey, the United States District Court for the District of Colorado and the United States District Court for the District of Delaware against a number of generic companies who filed ANDAs seeking approval to market generic versions of INVOKANA ® and/or INVOKAMET ® before expiration of MTPC's United States Patent Nos. 7,943,582 and/or 8,513,202 relating to INVOKANA ® and INVOKAMET ® . Janssen is the exclusive licensee of the asserted patents. The following generic companies are named defendants: Apotex Inc. and Apotex Corp. (Apotex); Aurobindo Pharma USA Inc. (Aurobindo); Macleods Pharmaceuticals Ltd. and MacLeods Pharma USA, Inc.; InvaGen Pharmaceuticals, Inc. (InvaGen); Prinston Pharmaceuticals Inc.; Dr. Reddy's Laboratories, Inc. and Dr. Reddy's Laboratories Ltd; Hetero USA, Inc., Hetero Labs Limited Unit-V and Hetero Labs Limited; MSN Laboratories Private Ltd. and MSN Pharmaceuticals, Inc.; Laurus Labs Ltd.; Indoco Remedies Ltd.; Zydus Pharmaceuticals (USA) Inc. (Zydus); Sandoz, Inc. (Sandoz); Teva Pharmaceuticals USA, Inc.; and Lupin Ltd. and Lupin Pharmaceuticals, Inc.

Beginning in July 2017, Janssen and MTPC filed patent infringement lawsuits in the United States District Court for the District of New Jersey and the United States District Court for the District of Colorado against Sandoz and InvaGen, who filed ANDAs seeking approval to market generic versions of INVOKANA ® and/or INVOKAMET ® before expiration of MTPC's United States Patent No. 7,943,788 (the '788 patent) relating to INVOKANA ® and INVOKAMET ® and against Zydus, who

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filed ANDAs seeking approval to market generic versions of INVOKANA ® and INVOKAMET ® before expiration of the '788 patent, MTPC's United States Patent No. 8,222,219 relating to INVOKANA ® and INVOKAMET ® and MTPC's United States Patent No. 8,785,403 relating to INVOKAMET ® , and against Aurobindo, who filed an ANDA seeking approval to market a generic version of INVOKANA ® before expiration of the '788 patent and the '219 patent relating to INVOKANA ® . Janssen is the exclusive licensee of the asserted patents. In October 2017, the Colorado lawsuits against Sandoz were dismissed. In December 2017, the Delaware lawsuits against Apotex and Teva were dismissed.

In April 2018, Janssen and MTPC filed a patent infringement lawsuit in the United States District Court for the District of New Jersey against Prinston, who filed an ANDA seeking approval to market a generic version of INVOKANA ® before expiration of the '788 patent relating to INVOKANA ® .

In each of these lawsuits, Janssen and MTPC are seeking an order enjoining the defendants from marketing their generic versions of INVOKANA ® and/or INVOKAMET ® before the expiration of the relevant patents.

VELETRI ®

In July 2017, Actelion Pharmaceuticals Ltd. (Actelion) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Sun Pharmaceutical Industries, Inc. and Sun Pharmaceutical Industries Limited (collectively, Sun Pharmaceutical), who filed an ANDA seeking approval to market a generic version of VELETRI ® before the expiration of United States Patent No. 8,598,227. Actelion is seeking an order enjoining Sun Pharmaceutical from marketing its generic version of VELETRI ® before the expiration of the patent. Trial is scheduled to commence in June 2019.

OPSUMIT ®

In January 2018, Actelion Pharmaceuticals Ltd (Actelion) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Zydus Pharmaceuticals (USA) Inc. (Zydus) and Amneal Pharmaceuticals LLC (Amneal), who filed an ANDA seeking approval to market a generic version of OPSUMIT ® before the expiration of United States Patent No. 7,094,781. In the lawsuit, Actelion is seeking an order enjoining Zydus and Amneal from marketing generic versions of OPSUMIT ® before the expiration of the patent. Trial is scheduled to commence in October 2020.

INVEGA SUSTENNA ®

In January 2018, Janssen Pharmaceutica NV and Janssen Pharmaceuticals, Inc. (collectively, Janssen) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Teva Pharmaceuticals USA, Inc. (Teva), who filed an ANDA seeking approval to market a generic version of INVEGA SUSTENNA ® before the expiration of United States Patent No. 9,439,906. In the lawsuit, Janssen is seeking an order enjoining Teva from marketing a generic version of INVEGA SUSTENNA ® before the expiration of the patent.

In February 2018, Janssen Inc. and Janssen Pharmaceutica NV (together, Janssen) initiated a Notices of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Teva Canada Limited (Teva) and the Minister of Health in response to Teva's filing of an Abbreviated New Drug Submission (ANDS) seeking approval to market a generic version of INVEGA SUSTENNA ® before the expiration of Canadian Patent Nos. 2,309,629 and 2,655,335. Janssen is seeking an order prohibiting the Minister of Health from issuing a Notice of Compliance with respect to Teva's ANDS before the expiration of these patents. The Court scheduled the Final Hearing to begin in September 2019.

IMBRUVICA ®

Beginning in January 2018, Pharmacyclics LLC (Pharmacyclics) and Janssen Biotech, Inc. (Janssen) filed patent infringement lawsuits in the United States District Court for the District of Delaware against a number of generic companies who filed ANDAs seeking approval to market generic versions of IMBRUVICA ® before expiration of Pharmacyclics' United States Patent Nos. 8,008,309, 7,514,444, 8,697,711, 8,735,403, 8,957,079, 9,181,257, 8,754,091, 8,497,277, 8,925,015, 8,476,284, 8,754,090, 8,999,999, 9,125,889, 9,801,881, 9,801,883, 9,814,721, 9,795,604, 9,296,753, 9,540,382, 9,713,617 and/or 9,725,455 relating to IMBRUVICA ® . Janssen is the exclusive licensee of the asserted patents. The following generic companies are named defendants: Cipla Limited and Cipla USA Inc. (Cipla); Fresenius Kabi USA, LLC, Fresenius Kabi USA, Inc., and Fresenius Kabi Oncology Limited (Fresenius Kabi); Sandoz Inc. and Lek Pharmaceuticals d.d. (Sandoz); Shilpa Medicare Limited (Shilpa); Sun Pharma Global FZE and Sun Pharmaceutical Industries Limited (Sun); Teva Pharmaceuticals USA, Inc. (Teva); and Zydus Worldwide DMCC and Cadila Healthcare Limited (Zydus). Trial is scheduled to begin in September 2020.

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In each of the lawsuits, Pharmacyclics and Janssen are seeking an order enjoining the defendants from marketing generic versions of IMBRUVICA ® before the expiration of the relevant patents.

GOVERNMENT PROCEEDINGS

Like other companies in the pharmaceutical and medical devices industries, Johnson & Johnson and certain of its subsidiaries are subject to extensive regulation by national, state and local government agencies in the United States and other countries in which they operate. As a result, interaction with government agencies is ongoing. The most significant litigation brought by, and investigations conducted by, government agencies are listed below. It is possible that criminal charges and substantial fines and/or civil penalties or damages could result from government investigations or litigation.

Average Wholesale Price (AWP) Litigation

Johnson & Johnson and several of its pharmaceutical subsidiaries (the J&J AWP Defendants), along with numerous other pharmaceutical companies, were named as defendants in a series of lawsuits in state and federal courts involving allegations that the pricing and marketing of certain pharmaceutical products amounted to fraudulent and otherwise actionable conduct because, among other things, the companies allegedly reported an inflated Average Wholesale Price (AWP) for the drugs at issue. Payors alleged that they used those AWPs in calculating provider reimbursement levels. The plaintiffs in these cases included three classes of private persons or entities that paid for any portion of the purchase of the drugs at issue based on AWP, and state government entities that made Medicaid payments for the drugs at issue based on AWP. Many of these cases, both federal actions and state actions removed to federal court, were consolidated for pre-trial purposes in a multi-district litigation in the United States District Court for the District of Massachusetts, where all claims against the J&J AWP Defendants were ultimately dismissed. The J&J AWP Defendants also prevailed in a case brought by the Commonwealth of Pennsylvania. Other AWP cases have been resolved through court order or settlement. Two cases remain pending. In a case brought by Illinois, the parties are awaiting assignment of a trial date. In New Jersey, a putative class action based upon AWP allegations is pending against Centocor, Inc. and Ortho Biotech Inc. (both now Janssen Biotech, Inc.), Johnson & Johnson and ALZA Corporation.

Opioids Litigation

Beginning in 2014 and continuing to the present, Johnson & Johnson and Janssen Pharmaceuticals, Inc. (JPI), along with other pharmaceutical companies, have been named in numerous lawsuits brought by certain state and local governments related to the marketing of opioids, including DURAGESIC ® , NUCYNTA ® and NUCYNTA ® ER. To date, complaints against pharmaceutical companies, including Johnson & Johnson and JPI, have been filed in state court by the state Attorneys General in Arkansas, Florida, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, Ohio, Oklahoma and South Dakota. Complaints against the manufacturers also have been filed in state or federal court by city, county and local government agencies in the following states: Alabama; Arkansas; California; Connecticut; Florida; Georgia; Illinois; Kentucky; Louisiana; Maine; Maryland; Massachusetts; Mississippi; Missouri; Nevada; New Hampshire; New Jersey; New Mexico; New York; North Carolina; Ohio; Oklahoma; Oregon; Pennsylvania; Rhode Island; South Carolina; South Dakota; Tennessee; Texas; Utah; Virginia; Washington; Wisconsin and West Virginia. These actions allege a variety of claims related to opioids marketing practices, including false advertising, unfair competition, public nuisance, consumer fraud violations, deceptive acts and practices, false claims and unjust enrichment. The suits generally seek penalties and/or injunctive and monetary relief. These cases are in early stages of litigation. In October 2017, Johnson & Johnson and JPI were both served with a motion to consolidate 66 pending matters into a federal Multi District Litigation in the Southern District of Ohio. In December 2017, the MDL was approved in the Northern District of Ohio and there are over 500 cases that have been transferred to the MDL.

Johnson & Johnson, JPI and other pharmaceutical companies have also received subpoenas or requests for information related to opioids marketing practices from the following state Attorneys General: Alaska, Indiana, Montana, New Hampshire, New Jersey, South Carolina, Tennessee and Washington. An additional request was received from Puerto Rico. In September 2017, Johnson & Johnson and JPI were contacted by the Texas and Colorado Attorney General's Offices on behalf of approximately 38 states regarding a multi-state Attorney General investigation. The multi-state coalition served Johnson & Johnson and JPI with subpoenas as part of the investigation. Johnson & Johnson and JPI have also received requests for information from the ranking minority member of the United States Senate Committee on Homeland Security and Governmental Affairs regarding the sales, marketing, and educational strategies related to the promotion of opioids use.

Other

In August 2012, DePuy Orthopaedics, Inc., DePuy, Inc. (now DePuy Synthes, Inc.), and Johnson & Johnson Services, Inc. (collectively DePuy) received an informal request from the United States Attorney's Office for the District of Massachusetts and the Civil Division of the United States Department of Justice (the United States) for the production of materials relating to

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the DePuy ASR™ XL Hip device. In July 2014, the United States notified the United States District Court for the District of Massachusetts that it had declined to intervene in a qui tam case filed pursuant to the False Claims Act against the companies. In February 2016, the District Court granted the companies' motion to dismiss with prejudice, unsealed the qui tam complaint, and denied the qui tam relators' request for leave to file a further amended complaint. The qui tam relators appealed the case to the United States Court of Appeals for the First Circuit. In July 2017, the First Circuit affirmed the District Court's dismissal in part, reversed in part, and affirmed the decision to deny the relators' request to file a third amended complaint. The relators' remaining claims are now pending before the District Court. DePuy filed a petition for certiorari with the United States Supreme Court, seeking review of the First Circuit's decision. The Supreme Court denied the petition in April 2018.

Since October 2013, a group of State Attorneys General have issued Civil Investigative Demands relating to the development, sales and marketing of several of DePuy Orthopaedics, Inc.'s hip products. The states are seeking monetary and injunctive relief, and DePuy Orthopaedics, Inc. has entered into a tolling agreement with the states. In July 2014, the Oregon Department of Justice, which was investigating these matters independently of the other states, announced a settlement of its ASR™ XL Hip device investigation with the State of Oregon.

In October 2012, Johnson & Johnson was contacted by the California Attorney General's office regarding a multi-state Attorney General investigation of the marketing of surgical mesh products for hernia and urogynecological purposes by Johnson & Johnson's subsidiary, Ethicon, Inc. (Ethicon). Johnson & Johnson and Ethicon have since entered into a series of tolling agreements with the 47 states and the District of Columbia participating in the multi-state investigation and have responded to Civil Investigative Demands served by certain of the participating states. The states are seeking monetary and injunctive relief. In May 2016, California and Washington filed civil complaints against Johnson & Johnson, Ethicon Inc. and Ethicon US, LLC alleging violations of their consumer protection statutes. Similar complaints were filed against the companies by Kentucky in August 2016 and by Mississippi in October 2017. Johnson & Johnson and Ethicon have entered into a new tolling agreement with the remaining 43 states and the District of Columbia.

In December 2012, Therakos, Inc. (Therakos), formerly a subsidiary of Johnson & Johnson and part of the Ortho-Clinical Diagnostics, Inc. (OCD) franchise, received a letter from the civil division of the United States Attorney's Office for the Eastern District of Pennsylvania informing Therakos that the United States Attorney's Office was investigating the sales and marketing of Uvadex ® (methoxsalen) and the Uvar Xts ® and Cellex ® Systems during the period 2000 to the present. The United States Attorney's Office requested that OCD and Johnson & Johnson preserve documents that could relate to the investigation. Therakos was subsequently acquired by an affiliate of Gores Capital Partners III, L.P. in January 2013, and OCD was divested in June 2014. Following the divestiture of OCD, Johnson & Johnson retains OCD's portion of any liability that may result from the investigation for activity that occurred prior to the sale of Therakos. In March 2014 and March 2016, the United States Attorney's Office requested that Johnson & Johnson produce certain documents, and Johnson & Johnson is cooperating with those requests.

In June 2014, the Mississippi Attorney General filed a complaint in Chancery Court of The First Judicial District of Hinds County, Mississippi against Johnson & Johnson and Johnson & Johnson Consumer Companies, Inc. (now Johnson & Johnson Consumer Inc.) (JJCI). The complaint alleges that defendants failed to disclose alleged health risks associated with female consumers' use of talc contained in JOHNSON'S ® Baby Powder and JOHNSON'S ® Shower to Shower (a product no longer sold by JJCI) and seeks injunctive and monetary relief. Trial is currently scheduled to begin in the fall of 2019.

In March 2016, Janssen Pharmaceuticals, Inc. (JPI) received a Civil Investigative Demand from the United States Attorney's Office for the Southern District of New York related to JPI's contractual relationships with pharmacy benefit managers over the period from January 1, 2006 to the present with regard to certain of JPI's pharmaceutical products. The demand was issued in connection with an investigation under the False Claims Act.

In January 2017, Janssen Pharmaceuticals, Inc. (JPI) received a Civil Investigative Demand from the United States Department of Justice relating to allegations concerning the sales and marketing practices of OLYSIO ® . In December 2017, Johnson & Johnson and JPI were served with a whistleblower lawsuit filed in the United States District Court for the Central District of California alleging the off-label promotion of OLYSIO ® and additional products, including NUCYNTA ® , XARELTO ® , LEVAQUIN ® and REMICADE ® . At this time, the federal and state governments have declined to intervene and the lawsuit, which is related to the Civil Investigative Demand, is being prosecuted by a former company employee. The United States District Court for the Central District of California dismissed the claim in April 2018. In May 2018, the relator filed a notice of appeal to the United States Court of Appeals for the Ninth Circuit.

In February 2017, Johnson & Johnson received a subpoena from the United States Attorney's Office for the District of Massachusetts seeking the production of records pertaining to payments to any 501(c)(3) charitable organization that provides

38

financial assistance to Medicare patients. Multiple pharmaceutical companies have publicly reported receipt of subpoenas and ongoing inquiries similar to this one and the one described below.

Actelion Pharmaceuticals US, Inc. (Actelion US), received a subpoena in May 2016, with follow-up requests for documents from the United States Attorney's Office for the District of Massachusetts. The subpoena seeks the production of records pertaining to Actelion US' payments to 501(c)(3) charitable organizations that provide financial assistance to Medicare patients.

In March 2017, Janssen Biotech, Inc. received a Civil Investigative Demand from the United States Department of Justice regarding a False Claims Act investigation concerning management and advisory services provided to rheumatology and gastroenterology practices that purchased REMICADE ® or SIMPONI ARIA ® .

In April and September 2017, Johnson & Johnson received subpoenas from the United States Attorney for the District of Massachusetts seeking documents broadly relating to pharmaceutical copayment support programs for DARZALEX ® , OLYSIO ® , REMICADE ® , SIMPONI ® , STELARA ® and ZYTIGA ® . The subpoenas also seek documents relating to Average Manufacturer Price and Best Price reporting to the Center for Medicare and Medicaid Services related to those products, as well as rebate payments to state Medicaid agencies.

In June 2017, Johnson & Johnson received a subpoena from the United States Attorney's Office for the District of Massachusetts seeking information regarding practices pertaining to the sterilization of DePuy Synthes, Inc. spinal implants at three hospitals in Boston as well as interactions of Company employees with physicians at these hospitals.

From time to time, the Company has received requests from a variety of United States Congressional Committees to produce information relevant to ongoing congressional inquiries. It is the policy of Johnson & Johnson to cooperate with these inquiries by producing the requested information.

GENERAL LITIGATION

In June 2009, following the public announcement that Ortho-Clinical Diagnostics, Inc. (OCD) had received a grand jury subpoena from the United States Department of Justice, Antitrust Division, in connection with an investigation that has since been closed, multiple class action complaints were filed against OCD by direct purchasers seeking damages for alleged price fixing. These cases were consolidated for pre-trial purposes in the United States District Court for the Eastern District of Pennsylvania as In re Blood Reagent Antitrust Litigation. OCD was divested in 2014 and Johnson & Johnson retained any liability that may result from these cases. Following the appeal and reversal of its initial grant of a motion for class certification, on remand, the District Court in October 2015 again granted a motion by the plaintiffs for class certification. In July 2017, the Court issued an opinion granting in part and denying in part OCD's motion for summary judgment. The Court granted summary judgment concerning allegations of price fixing in 2005 and 2008, and denied summary judgment concerning allegations of price fixing in 2001. In May 2018, OCD and the plaintiffs reached a settlement on all claims. The court granted preliminary approval of the settlement in July 2018.

In June 2011, DePuy Orthopaedics, Inc. (DePuy) filed suit against Orthopaedic Hospital (OH) in the United States District Court for the Northern District of Indiana seeking a declaratory judgment that DePuy did not owe OH royalties under a 1999 development agreement. In January 2012, OH filed a breach of contract case in California federal court, which was later consolidated with the Indiana case. In February 2014, OH brought suit for patent infringement relating to the same technology, and that action was also consolidated with the Indiana case. In August 2017, the court denied DePuy's motions for summary judgment. Trial is scheduled to begin in November 2018.

In April 2016, a putative class action was filed against Johnson & Johnson, Johnson & Johnson Sales and Logistics Company, LLC and McNeil PPC, Inc. (now known as Johnson & Johnson Consumer, Inc.) in New Jersey Superior Court, Camden County on behalf of persons who reside in the state of New Jersey who purchased various McNeil over-the-counter products from December 2008 through the present. The complaint alleges violations of the New Jersey Consumer Fraud Act. Following the grant of a motion to dismiss and the filing of an amended complaint, in May 2017, the Court denied a motion to dismiss the amended complaint. Discovery is underway.

In May 2014, two purported class actions were filed in federal court, one in the United States District Court for the Central District of California and one in the United States District Court for the Southern District of Illinois, against Johnson & Johnson and Johnson & Johnson Consumer Companies, Inc. (now Johnson & Johnson Consumer Inc.) (JJCI) alleging violations of state consumer fraud statutes based on nondisclosure of alleged health risks associated with talc contained in JOHNSON'S ® Baby Powder and JOHNSON'S ® Shower to Shower (a product no longer sold by JJCI). Both cases seek injunctive relief and monetary damages; neither includes a claim for personal injuries. In October 2016, both cases were

39

transferred to the United States District Court for the District Court of New Jersey as part of a newly created federal multi-district litigation. In July 2017, the Court granted Johnson & Johnson's and JJCI's motion to dismiss one of the cases. The plaintiff has appealed. In September 2017, the plaintiff in the second case voluntarily dismissed their complaint. In March 2018, the plaintiff in the second case refiled in Illinois State Court.

In August 2014, United States Customs and Border Protection (US CBP) issued a Penalty Notice against Janssen Ortho LLC (Janssen Ortho), assessing penalties for the alleged improper classification of darunavir ethanolate (the active pharmaceutical ingredient in PREZISTA ® ) in connection with its importation into the United States. In October 2014, Janssen Ortho submitted a Petition for Relief in response to the Penalty Notice. In May 2015, US CBP issued an Amended Penalty Notice assessing substantial penalties and Janssen Ortho filed a Petition for Relief in July 2015.

In March and April 2015, over 30 putative class action complaints were filed by contact lens patients in a number of courts around the United States against Johnson & Johnson Vision Care, Inc. (JJVCI) and other contact lens manufacturers, distributors, and retailers, alleging vertical and horizontal conspiracies to fix the retail prices of contact lenses. The complaints allege that the manufacturers reached agreements with each other and certain distributors and retailers concerning the prices at which some contact lenses could be sold to consumers. The plaintiffs are seeking damages and injunctive relief. All of the class action cases were transferred to the United States District Court for the Middle District of Florida in June 2015. The plaintiffs filed a consolidated class action complaint in November 2015. In June 2016, the Court denied motions to dismiss filed by JJVCI and other defendants. Discovery is ongoing. In March 2017, the plaintiffs filed a motion for class certification. The class certification hearing has been set for August 2018.

In August 2015, two third-party payors filed a purported class action in the United States District Court for the Eastern District of Louisiana against Janssen Research & Development, LLC, Janssen Ortho LLC, Janssen Pharmaceuticals, Inc., Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Johnson & Johnson (as well as certain Bayer entities), alleging that the defendants improperly marketed and promoted XARELTO ® as safer and more effective than less expensive alternative medications while failing to fully disclose its risks. The complaint seeks damages.

In May 2017, a purported class action was filed in the United States District Court for the Western District of Washington against Lifescan Inc., Johnson & Johnson, other diabetes test strip manufacturers and certain Pharmacy Benefit Managers (PBMs). The complaint alleges that consumers paid inflated prices for glucose monitor test strips as a consequence of undisclosed rebates and other incentives paid by manufacturers to PBMs. The complaint includes RICO, ERISA, and state consumer protection claims. The complaint seeks equitable relief and damages. In November 2017, the case was ordered transferred to United States District Court for the District of New Jersey.

In May 2017, Lonza Sales AG (Lonza) filed a Request for Arbitration with the London Court of International Arbitration against Janssen Research & Development, LLC (Janssen). Lonza alleges that Janssen breached a 2005 agreement between the parties by sublicensing certain Lonza technology used in the manufacture of daratumumab without Lonza's consent. Lonza seeks monetary damages. The arbitration hearing is scheduled for September 2018.

In September 2017, Strategic Products Group, Inc. (SPG) filed an antitrust complaint against Lifescan, Inc. and Lifescan Scotland, Ltd. (collectively, Lifescan) in the United States District Court for the Northern District of Florida (Pensacola Division). SPG, the exclusive distributor of Unistrip blood glucose meter test strips, alleges that Lifescan has monopolized or is attempting to monopolize the market for blood glucose meter test strips compatible with certain Lifescan meters. The complaint seeks damages.

In September 2017, Pfizer, Inc. (Pfizer) filed an antitrust complaint against Johnson & Johnson and Janssen Biotech, Inc. (collectively Janssen) in United States District Court for the Eastern District of Pennsylvania. Pfizer alleges that Janssen has violated federal antitrust laws through its contracting strategies for REMICADE ® . The complaint seeks damages and injunctive relief.

Beginning in September 2017, multiple purported class actions were filed against Johnson & Johnson and Janssen Biotech, Inc. (collectively Janssen) alleging that Janssen's REMICADE ® contracting strategies violated federal and state antitrust and consumer laws and seeking damages and injunctive relief. In November 2017, the cases were consolidated for pre-trial purposes in United States District Court for the Eastern District of Pennsylvania as In re Remicade Antitrust Litigation.

In October 2017, certain United States service members and their families brought a complaint against a number of pharmaceutical and medical devices companies, including Johnson & Johnson and certain of its subsidiaries, alleging that the defendants violated the United States Anti-Terrorism Act. The complaint alleges that the defendants provided funding for terrorist organizations through their sales practices pursuant to pharmaceutical and medical device contracts with the Iraqi

40

Ministry of Health. Also, the company has received an inquiry from the United States Department of Justice regarding the matters set out in the complaint.

Andover Healthcare, Inc. filed a Lanham act case against Johnson & Johnson Consumer Inc. in April 2017 in the United States District Court for the District of Massachusetts. Andover asserts that the claim 'not made with natural rubber latex' on COACH ® Sports Wrap, BAND-AID ® Brand SECURE-FLEX ® Wrap and BAND-AID ® Brand HURT-FREE ® Wrap is false. Andover seeks actual damages and pre-judgment interest thereon, disgorgement of profits, treble damages, attorney's fees and injunctive relief.

In February 2018, a securities class action lawsuit was filed against Johnson & Johnson in the United States District Court for the District of New Jersey alleging that Johnson & Johnson violated the federal Securities laws by failing to adequately disclose the alleged asbestos contamination in body powders containing talc, primarily JOHNSON'S ® Baby Powder. The lawsuit was assigned to the District Court Judge managing the personal injury multi-district litigation.

In June 2018, Walgreen Co. and Kroger Co, filed an antitrust complaint against Johnson & Johnson and Janssen Biotech, Inc. in the United States District Court for the Eastern District of Pennsylvania. The complaint alleges that Janssen has violated federal antitrust laws through its contracting strategies for Remicade. The complaint seeks damages and injunctive relief.

Johnson & Johnson or its subsidiaries are also parties to a number of proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund, and comparable state, local or foreign laws in which the primary relief sought is the cost of past and/or future remediation.

NOTE 12- RESTRUCTURING

In the first quarter of 2016, the Company announced restructuring actions in its Medical Devices segment to better serve the needs of patients and customers in today's evolving healthcare marketplace. The Company is undertaking actions to strengthen its go-to-market model, accelerate the pace of innovation, further prioritize key platforms and geographies, and streamline operations while maintaining high quality standards.

The Company estimates that, in connection with its plans, it will record pre-tax restructuring related charges of approximately $2.4 billion . In the fiscal second quarter of 2018, the Company recorded a pre-tax charge of $117 million , of which $19 million was included in cost of products sold and $54 million was included in other (income) expense. See the following table for additional details on the restructuring programs. Total project costs of $2.3 billion have been recorded since the restructuring was announced.

Additionally, as part of the plan, the Company expects that the restructuring actions will result in position eliminations of approximately 5 percent of the Medical Devices segment's global workforce. Approximately 2,600 positions have been eliminated of which 1,900 received separation payments since the restructuring announcement.

On April 17, 2018, the Company announced plans to implement a series of actions across its Global Supply Chain that are intended to focus resources and increase investments in the critical capabilities, technologies and solutions necessary to manufacture and supply its product portfolio, enhance agility and drive growth. The Global Supply Chain actions will include expanding the use of strategic collaborations and bolstering initiatives to reduce complexity, improve cost-competitiveness, enhance capabilities and optimize the Supply Chain network. In the fiscal second quarter of 2018, the Company recorded a pre-tax charge of $59 million , of which $25 million was included in cost of products sold and $21 million was included in other (income) expense. See the following table for additional details on the restructuring programs.

Subsequent to the second quarter, the Company received a binding offer to form a strategic collaboration with Jabil Inc., one of the world's leading manufacturing services providers for health care products and technology products. Upon acceptance of the full binding offer, the Company would expand a 12-year relationship with Jabil to produce a range of products within the Ethicon Endo-Surgery and DePuy Synthes businesses. This strategic collaboration has been accepted with respect to the North American sites and is pending applicable consultative processes in other jurisdictions. There is not a significant accounting impact upon signing of the agreement with Jabil Inc.

In total, the Company expects these actions to generate approximately $0.6 billion to $0.8 billion in annual pre-tax cost savings that will be substantially delivered by 2022. The Company expects to record pre-tax restructuring charges of approximately $1.9 billion to $2.3 billion , over the 4 to 5 year period of this activity. The Company estimates that approximately 70% of the cumulative pre-tax costs will result in cash outlays. These costs are associated with network optimizations, exit costs and accelerated depreciation and amortization.

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The following table summarizes the severance related reserves and the associated spending under these restructuring programs through the fiscal six months of 2018:

(Dollars in Millions)

Severance

Asset Write-offs

Other**

Total

Reserve balance, December 31, 2017

$

229

-

38

267

Current year activity:

Charges

-

49

234

283

Cash payments

(23

)

-

(241

)

(264

)

Settled non cash

-

(49

)

-

(49

)

Reserve balance, July 1, 2018*

$

206

-

31

237

*Cash outlays for severance are expected to be substantially paid out over the next 2 years in accordance with the Company's plans and local laws.

**Other includes project expense such as salaries for employees supporting the initiative and consulting expenses.

The Company expects that the Medical Devices restructuring program will be completed by the end of fiscal year 2018 with certain projects and severance charges continuing beyond that date. The Company continuously reevaluates its severance reserves related to restructuring and the timing of payments has extended due to the planned release of associates regarding several longer-term projects. The Company believes that the existing severance reserves are sufficient to cover the Global Supply Chain plans given the period over which the actions will take place. The Company will continue to assess and make adjustments as necessary if additional amounts become probable and estimable.

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Disclaimer

Johnson & Johnson published this content on 02 August 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 02 August 2018 10:11:06 UTC