NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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1.
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Summary of Significant Accounting Policies
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Principles of Consolidation
The consolidated financial statements include the accounts of Johnson & Johnson and its subsidiaries (the Company). Intercompany accounts and transactions are eliminated. Columns and rows within tables may not add due to rounding. Percentages have been calculated using actual, non-rounded figures.
Description of the Company and Business Segments
The Company has approximately 132,200 employees worldwide engaged in the research and development, manufacture and sale of a broad range of products in the health care field. The Company conducts business in virtually all countries of the world and its primary focus is on products related to human health and well-being.
The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices. The Consumer segment includes a broad range of products used in the baby care, oral care, beauty, over-the-counter pharmaceutical, women’s health and wound care markets. These products are marketed to the general public and sold both to retail outlets and distributors throughout the world. The Pharmaceutical segment is focused on six therapeutic areas, including immunology, infectious diseases, neuroscience, oncology, pulmonary hypertension, and cardiovascular and metabolic diseases. Products in this segment are distributed directly to retailers, wholesalers, hospitals and health care professionals for prescription use. The Medical Devices segment includes a broad range of products used in the orthopaedic, surgery, interventional solutions (cardiovascular and neurovascular) and eye health fields, which are distributed to wholesalers, hospitals and retailers, and used principally in the professional fields by physicians, nurses, hospitals, eye care professionals and clinics.
New Accounting Standards
Recently Adopted Accounting Standards
ASU 2016-02: Leases
The Company adopted this standard as of the beginning of fiscal year 2019, on a prospective basis. 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 arrangements that are classified as operating leases. The Company’s operating leases resulted in the recognition of additional assets and the corresponding liabilities on its Consolidated Balance Sheet, however it did not have a material impact on the consolidated financial statements.
The Company determines whether an arrangement is a lease at contract inception by establishing if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration.
Right of Use (ROU) Assets and Lease Liabilities for operating leases are included in Other assets, Accrued liabilities, and Other liabilities on the consolidated balance sheet. The ROU Assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Commitments under finance leases are not significant, and are included in Property, plant and equipment, Loans and notes payable, and Long-term debt on the consolidated balance sheet.
ROU Assets and Lease Liabilities are recognized at the lease commencement date based on the present value of all minimum lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, when the implicit rate is not readily determinable. Lease terms may include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term.
The Company has elected the following policy elections on adoption: use of portfolio approach on leases of assets under master service agreements, exclusion of short term leases on the balance sheet, and not separating lease and non-lease components.
For additional disclosures see Note 16 to the Consolidated Financial Statements.
ASU 2018-02: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This update allows a Company to elect to reclassify stranded tax effects resulting from the Tax Cuts and Job Act enacted in December 2017 from accumulated other comprehensive income to retained earnings. The Company has elected not to reclassify the income tax effects of this standard and therefore this standard will not impact the Company's consolidated financial statements.
ASU 2018-16: Derivatives and Hedging (Topic ASC 815)
This update adds the Overnight Index Swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR) as an eligible benchmark interest rate permitted in the application of hedge accounting. The guidance was effective for the Company as of the fiscal fourth quarter of 2018, due to the previous adoption of ASU 2017-12. The impact of the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. The standard may have an impact in the future as the market for SOFR derivatives develops over time and if SOFR is used to hedge the Company’s financial instruments.
Accounting Standards adopted in the fiscal 2018 with a cumulative effect to the 2018 opening balance of Retained Earnings
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 below:
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(Dollars in Millions)
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Cumulative Effect Adjustment Increase (Decrease) to Retained Earnings
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ASU 2014-09 - Revenue from Contracts with Customers
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$
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(47
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)
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ASU 2016-01 - Financial Instruments
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232
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|
ASU 2016-16 - Income Taxes: Intra-Entity Transfers
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(439
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)
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Total
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$
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(254
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)
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Recently Issued Accounting Standards
Not Adopted as of December 29, 2019
ASU 2018-18: Collaborative Arrangements
This update clarifies the interaction between ASC 808, Collaborative Arrangements and ASC 606, Revenue from Contracts with Customers. The update clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that transaction. This update will be effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. ASU 2018-18 should be applied retrospectively to the date of initial application of ASC 606 and early adoption is permitted. The adoption of this standard will not have a material impact on the Company’s consolidated financial statements.
ASU 2016-13: Financial Instruments - Credit Losses
This update introduces the current expected credit loss (CECL) model, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. This update will be effective for the Company for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The adoption of this standard will not have a material impact on the Company’s consolidated financial statements.
Cash Equivalents
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. The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating. The Company invests its cash primarily in government securities and obligations, corporate debt securities, money market funds and reverse repurchase agreements (RRAs).
RRAs are collateralized by deposits in the form of Government Securities and Obligations for an amount not less than 102% of their value. The Company does not record an asset or liability as the Company is not permitted to sell or repledge the associated collateral. The Company has a policy that the collateral has at least an A (or equivalent) credit rating. The Company utilizes a third party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the RRAs on a daily basis. RRAs with stated maturities of greater than three months from the date of purchase are classified as marketable securities.
Investments
Investments classified as held to maturity investments are reported at amortized cost and realized gains or losses are reported in earnings. Investments classified as available-for-sale debt securities are carried at estimated fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income. Available-for-sale securities available for current operations are classified as current assets otherwise, they are classified as long term. Management determines the appropriate classification of its investment in debt and equity securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company reviews its investments for impairment and adjusts these investments to fair value through earnings, as required.
Property, Plant and Equipment and Depreciation
Property, plant and equipment are stated at cost. The Company utilizes the straight-line method of depreciation over the estimated useful lives of the assets:
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Building and building equipment
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20 - 30 years
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Land and leasehold improvements
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10 - 20 years
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Machinery and equipment
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2 - 13 years
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The Company capitalizes certain computer software and development costs, included in machinery and equipment, when incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs are amortized over the estimated useful lives of the software, which generally range from 3 to 8 years.
The Company reviews long-lived assets to assess recoverability using undiscounted cash flows. When certain events or changes in operating or economic conditions occur, an impairment assessment may be performed on the recoverability of the carrying value of these assets. If the asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. If quoted market prices are not available, the Company will estimate fair value using a discounted value of estimated future cash flows.
Revenue Recognition
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 for as variable consideration and recorded as a reduction in sales. The liability is recognized within Accrued Rebates, Returns, and Promotions on the consolidated balance sheet.
Product discounts granted are based on the terms of arrangements with direct, indirect and other market participants, as well as market conditions, including consideration of competitor pricing. Rebates are estimated based on contractual terms, historical experience, patient outcomes, trend analysis and projected market conditions in the various markets served. A significant portion of the liability related to rebates is from the sale of the Company's pharmaceutical products within the U.S., primarily the Managed Care, Medicare and Medicaid programs, which amounted to $7.0 billion and $5.8 billion as of December 29, 2019 and December 30, 2018, respectively. 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 2019, 2018 and 2017.
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 profit-share payments through collaborative arrangements for certain products, which are included in
sales to customers. For all years presented, profit-share payments were approximately 2.0% of the total revenues and are included in sales to customers.
See Note 18 to the Consolidated Financial Statements for further disaggregation of revenue.
Shipping and Handling
Shipping and handling costs incurred were $1.0 billion, $1.1 billion and $1.0 billion in 2019, 2018 and 2017, respectively, and are included in selling, marketing and administrative expense. The amount of revenue received for shipping and handling is less than 0.5% of sales to customers for all periods presented.
Inventories
Inventories are stated at the lower of cost or net realizable value determined by the first-in, first-out method.
Intangible Assets and Goodwill
The authoritative literature on U.S. GAAP requires that goodwill and intangible assets with indefinite lives be assessed annually for impairment. The Company completed its annual impairment test for 2019 in the fiscal fourth quarter. Future impairment tests will be performed annually in the fiscal fourth quarter, or sooner if warranted. Purchased in-process research and development is accounted for as an indefinite lived intangible asset until the underlying project is completed, at which point the intangible asset will be accounted for as a definite lived intangible asset, or abandoned, at which point the intangible asset will be written off or partially impaired.
Intangible assets that have finite useful lives continue to be amortized over their useful lives, and are reviewed for impairment when warranted by economic conditions. See Note 5 for further details on Intangible Assets and Goodwill.
Financial Instruments
As required by U.S. GAAP, all derivative instruments are recorded on the balance sheet at fair value. 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, with Level 1 having the highest priority and Level 3 having the lowest. 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 Company documents all relationships between hedged items and derivatives. The overall risk management strategy includes reasons for undertaking hedge transactions and entering into derivatives. The objectives of this strategy are: (1) minimize foreign currency exposure’s impact on the Company’s financial performance; (2) protect the Company’s cash flow from adverse movements in foreign exchange rates; (3) ensure the appropriateness of financial instruments; and (4) manage the enterprise risk associated with financial institutions. See Note 6 for additional information on Financial Instruments.
Product Liability
Accruals for product liability claims are recorded, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information and actuarially determined estimates where applicable. The accruals are adjusted periodically as additional information becomes available. 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. 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.
The Company has self insurance through a wholly-owned captive insurance company. In addition to accruals in the self insurance program, claims that exceed the insurance coverage are accrued when losses are probable and amounts can be reasonably estimated.
Research and Development
Research and development expenses are expensed as incurred in accordance with ASC 730, Research and Development. Upfront and milestone payments made to third parties in connection with research and development collaborations are expensed as incurred up to the point of regulatory approval. Payments made to third parties subsequent to regulatory approval are capitalized and amortized over the remaining useful life of the related product. Amounts capitalized for such payments are included in other intangibles, net of accumulated amortization.
The Company enters into collaborative arrangements, typically with other pharmaceutical or biotechnology companies, to develop and commercialize drug candidates or intellectual property. These arrangements typically involve two (or more) parties who are active participants in the collaboration and are exposed to significant risks and rewards dependent on the commercial success of the activities. These collaborations usually involve various activities by one or more parties, including research and development, marketing and selling and distribution. Often, these collaborations require upfront, milestone and royalty or profit
share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development. Amounts due from collaborative partners related to development activities are generally reflected as a reduction of research and development expense because the performance of contract development services is not central to the Company’s operations. In general, the income statement presentation for these collaborations is as follows:
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Nature/Type of Collaboration
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Statement of Earnings Presentation
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Third-party sale of product & profit share payments received
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Sales to customers
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Royalties/milestones paid to collaborative partner (post-regulatory approval)*
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Cost of products sold
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Royalties received from collaborative partner
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Other income (expense), net
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Upfront payments & milestones paid to collaborative partner (pre-regulatory approval)
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Research and development expense
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Research and development payments to collaborative partner
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Research and development expense
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Research and development payments received from collaborative partner
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|
Reduction of Research and development expense
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|
|
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*
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Milestones are capitalized as intangible assets and amortized to cost of products sold over the useful life.
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For all years presented, there was no individual project that represented greater than 5% of the total annual consolidated research and development expense.
The Company has a number of products and compounds developed in collaboration with strategic partners including XARELTO®, co-developed with Bayer HealthCare AG and IMBRUVICA®, developed in collaboration and co-marketed with Pharmacyclics LLC, an AbbVie company.
Separately, the Company has a number of licensing arrangements for products and compounds including DARZALEX®, licensed from Genmab A/S.
Advertising
Costs associated with advertising are expensed in the year incurred and are included in selling, marketing and administrative expenses. Advertising expenses worldwide, which comprised television, radio, print media and Internet advertising, were $2.2 billion, $2.6 billion and $2.5 billion in 2019, 2018 and 2017, respectively.
Income Taxes
Income taxes are recorded based on amounts refundable or payable for the current year and include the results of any difference between U.S. GAAP accounting and tax reporting, recorded as deferred tax assets or liabilities. The Company estimates deferred tax assets and liabilities based on enacted tax regulations and rates. Future changes in tax laws and rates may affect recorded deferred tax assets and liabilities in the future.
The Company has unrecognized tax benefits for uncertain tax positions. The Company follows U.S. GAAP which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Management believes that changes in these estimates would not have a material effect on the Company's results of operations, cash flows or financial position.
In January 2018, the FASB issued guidance that allows companies to elect as an accounting policy whether to record the tax effects of the global intangible low-taxed income (GILTI) in the period the tax liability is generated (i.e., “period cost”) or provide for deferred tax assets and liabilities related to basis differences that exist and are expected to effect the amount of GILTI inclusion in future years upon reversal (i.e., “deferred method”). In fiscal 2018, the Company elected to account for GILTI under the deferred method. The deferred tax amounts recorded are based on the evaluation of temporary differences that are expected to reverse as GILTI is incurred in future periods.
The Company has recorded deferred tax liabilities on all undistributed earnings prior to December 31, 2017 from its international subsidiaries. The Company has not provided deferred taxes on the undistributed earnings subsequent to January 1, 2018 from certain international subsidiaries where the earnings are considered to be indefinitely reinvested. The Company intends to continue to reinvest these earnings in those international operations. If the Company decides at a later date to repatriate these earnings to the U.S., the Company would be required to provide for the net tax effects on these amounts. The Company estimates that the total tax effect of this repatriation would be approximately $0.8 billion under current enacted tax laws and regulations and at current currency exchange rates.
See Note 8 to the Consolidated Financial Statements for further information regarding income taxes.
Net Earnings Per Share
Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock using the treasury stock method.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported. Estimates are used when accounting for sales discounts, rebates, allowances and incentives, product liabilities, income taxes, withholding taxes, depreciation, amortization, employee benefits, contingencies and intangible asset and liability valuations. Actual results may or may not differ from those estimates.
The Company follows the provisions of U.S. GAAP when recording litigation related contingencies. A liability is recorded when a loss is probable and can be reasonably estimated. The best estimate of a loss within a range is accrued; however, if no estimate in the range is better than any other, the minimum amount is accrued.
Annual Closing Date
The Company follows the concept of a fiscal year, which ends on the Sunday nearest to the end of the month of December. Normally each fiscal year consists of 52 weeks, but every five or six years the fiscal year consists of 53 weeks, and therefore includes additional shipping days, as was the case in 2015, and will be the case again in 2020.
Reclassification
Certain prior period amounts have been reclassified to conform to current year presentation.
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2.
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Cash, Cash Equivalents and Current Marketable Securities
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At the end of the fiscal year 2019 and 2018, cash, cash equivalents and current marketable securities were comprised of:
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|
|
|
|
|
|
|
|
|
|
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(Dollars in Millions)
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|
2019
|
|
|
Carrying Amount
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|
Cash & Cash Equivalents
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|
Current Marketable Securities
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Cash
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|
$
|
2,637
|
|
|
2,637
|
|
|
—
|
|
Non-U.S. Sovereign Securities(1)
|
|
439
|
|
|
149
|
|
|
290
|
|
U.S. Reverse repurchase agreements
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|
6,375
|
|
|
6,375
|
|
|
—
|
|
Other Reverse repurchase agreements
|
|
375
|
|
|
375
|
|
|
—
|
|
Corporate debt securities(1)
|
|
1,323
|
|
|
889
|
|
|
434
|
|
Money market funds
|
|
2,864
|
|
|
2,864
|
|
|
—
|
|
Time deposits(1)
|
|
906
|
|
|
906
|
|
|
—
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|
Subtotal
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|
$
|
14,919
|
|
|
14,195
|
|
|
724
|
|
|
|
|
|
|
|
|
U.S. Gov't Securities
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|
$
|
4,102
|
|
|
3,095
|
|
|
1,007
|
|
Corporate debt securities
|
|
266
|
|
|
15
|
|
|
251
|
|
Subtotal available for sale(2)
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|
$
|
4,368
|
|
|
3,110
|
|
|
1,258
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and current marketable securities
|
|
|
|
|
$
|
17,305
|
|
|
1,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2018
|
|
|
Carrying Amount
|
|
Cash & Cash Equivalents
|
|
Current Marketable Securities
|
Cash
|
|
$
|
2,619
|
|
|
2,619
|
|
|
—
|
|
U.S. Reverse repurchase agreements
|
|
3,009
|
|
|
3,009
|
|
|
—
|
|
Other Reverse repurchase agreements
|
|
443
|
|
|
443
|
|
|
—
|
|
Money market funds
|
|
3,397
|
|
|
3,397
|
|
|
—
|
|
Time deposits(1)
|
|
485
|
|
|
485
|
|
|
—
|
|
Subtotal
|
|
$
|
9,953
|
|
|
9,953
|
|
|
—
|
|
|
|
|
|
|
|
|
Gov't Securities
|
|
$
|
9,474
|
|
|
8,144
|
|
|
1,330
|
|
Corporate debt securities
|
|
260
|
|
|
10
|
|
|
250
|
|
Subtotal available for sale(2)
|
|
$
|
9,734
|
|
|
8,154
|
|
|
1,580
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and current marketable securities
|
|
|
|
$
|
18,107
|
|
|
1,580
|
|
(1) Held to maturity investments are reported at amortized cost and realized 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.
Fair value of government securities and obligations and corporate debt securities were estimated using quoted broker prices and significant other observable inputs.
In 2019 and 2018, the carrying amount was the same as the estimated fair value.
The contractual maturities of the available for sale debt securities at December 29, 2019 are as follows:
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|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Cost Basis
|
|
Fair Value
|
Due within one year
|
|
$
|
4,322
|
|
|
4,322
|
|
Due after one year through five years
|
|
46
|
|
|
46
|
|
Due after five years through ten years
|
|
—
|
|
|
—
|
|
Total debt securities
|
|
$
|
4,368
|
|
|
4,368
|
|
The Company invests its excess cash in both deposits with major banks throughout the world and other high-quality money market instruments. The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating.
At the end of 2019 and 2018, inventories were comprised of:
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
Raw materials and supplies
|
|
$
|
1,117
|
|
|
1,114
|
|
Goods in process
|
|
1,832
|
|
|
2,109
|
|
Finished goods
|
|
6,071
|
|
|
5,376
|
|
Total inventories (1)
|
|
$
|
9,020
|
|
|
8,599
|
|
(1) See Note 20 to the Consolidated Financial Statements for details on assets held for sale and the related divestitures.
|
|
4.
|
Property, Plant and Equipment
|
At the end of 2019 and 2018, property, plant and equipment at cost and accumulated depreciation were:
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
Land and land improvements
|
|
$
|
854
|
|
|
807
|
|
Buildings and building equipment
|
|
11,877
|
|
|
11,176
|
|
Machinery and equipment
|
|
26,964
|
|
|
25,992
|
|
Construction in progress
|
|
3,637
|
|
|
3,876
|
|
Total property, plant and equipment, gross
|
|
$
|
43,332
|
|
|
41,851
|
|
Less accumulated depreciation
|
|
25,674
|
|
|
24,816
|
|
Total property, plant and equipment, net(1)
|
|
$
|
17,658
|
|
|
17,035
|
|
(1) See Note 20 to the Consolidated Financial Statements for details on assets held for sale and the related divestitures.
The Company capitalizes interest expense as part of the cost of construction of facilities and equipment. Interest expense capitalized in 2019, 2018 and 2017 was $70 million, $86 million and $94 million, respectively.
Depreciation expense, including the amortization of capitalized interest in 2019, 2018 and 2017 was $2.5 billion, $2.6 billion and $2.6 billion, respectively.
Upon retirement or other disposal of property, plant and equipment, the costs and related amounts of accumulated depreciation or amortization are eliminated from the asset and accumulated depreciation accounts, respectively. The difference, if any, between the net asset value and the proceeds are recorded in earnings.
|
|
5.
|
Intangible Assets and Goodwill
|
At the end of 2019 and 2018, the gross and net amounts of intangible assets were:
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
Intangible assets with definite lives:
|
|
|
|
|
|
|
Patents and trademarks — gross
|
|
$
|
36,634
|
|
|
35,194
|
|
Less accumulated amortization
|
|
13,154
|
|
|
9,784
|
|
Patents and trademarks — net
|
|
$
|
23,480
|
|
|
25,410
|
|
Customer relationships and other intangibles — gross
|
|
$
|
22,056
|
|
|
21,334
|
|
Less accumulated amortization
|
|
9,462
|
|
|
8,323
|
|
Customer relationships and other intangibles — net*
|
|
$
|
12,594
|
|
|
13,011
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
|
Trademarks
|
|
$
|
6,922
|
|
|
6,937
|
|
Purchased in-process research and development(1)
|
|
4,647
|
|
|
2,253
|
|
Total intangible assets with indefinite lives
|
|
$
|
11,569
|
|
|
9,190
|
|
Total intangible assets — net
|
|
$
|
47,643
|
|
|
47,611
|
|
*The majority is comprised of customer relationships
(1) In the fiscal year 2019, the Company completed the acquisition of Auris Health, Inc. and recorded an in-process research and development intangible asset of $2.9 billion. Additionally, in the fiscal first quarter of 2019, the Company recorded an IPR&D impairment charge of $0.9 billion for the remaining intangible asset value related to the development program of AL-8176, an investigational drug for the treatment of Respiratory Syncytial Virus (RSV) and human metapneumovirus (hMPV) acquired with the 2014 acquisition of Alios Biopharma Inc. The impairment charge was based on additional information, including clinical data, which became available and led to the Company's decision to abandon the development of AL-8176. A partial impairment charge of $0.8 billion was previously recorded in the fiscal third quarter 2018 related to the development program of AL-8176.
Goodwill as of December 29, 2019 and December 30, 2018, as allocated by segment of business, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Consumer
|
|
Pharmaceutical
|
|
Medical Devices
|
|
Total
|
Goodwill at December 31, 2017
|
|
$
|
8,875
|
|
|
9,109
|
|
|
13,922
|
|
|
31,906
|
|
Goodwill, related to acquisitions
|
|
168
|
|
|
51
|
|
|
184
|
|
|
403
|
|
Goodwill, related to divestitures
|
|
—
|
|
|
—
|
|
|
(1,348
|
)
|
(1)
|
(1,348
|
)
|
Currency translation/other
|
|
(373
|
)
|
|
(97
|
)
|
|
(38
|
)
|
|
(508
|
)
|
Goodwill at December 30, 2018
|
|
$
|
8,670
|
|
|
9,063
|
|
|
12,720
|
|
|
30,453
|
|
Goodwill, related to acquisitions
|
|
1,188
|
|
|
75
|
|
|
2,018
|
|
|
3,281
|
|
Currency translation/other
|
|
(122
|
)
|
|
31
|
|
|
(4
|
)
|
|
(95
|
)
|
Goodwill at December 29, 2019
|
|
$
|
9,736
|
|
|
9,169
|
|
|
14,734
|
|
|
33,639
|
|
(1) Goodwill of $1.0 billion is related to the divestiture of the LifeScan business. Goodwill of $0.3 billion is related to the divestiture of the Advanced Sterilization Products business which closed in 2019, and was pending and classified as assets held for sale on the Consolidated Balance Sheet as of December 30, 2018.
The weighted average amortization period for patents and trademarks is 12 years. The weighted average amortization period for customer relationships and other intangible assets is 21 years. The amortization expense of amortizable assets included in cost of products sold was $4.5 billion, $4.4 billion and $3.0 billion before tax, for the fiscal years ended December 29, 2019, December 30, 2018 and December 31, 2017, respectively. Intangible asset write-downs are included in Other (income) expense, net.
The estimated amortization expense for approved products, before tax, for the five succeeding years is approximately:
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
$4,500
|
|
4,300
|
|
4,100
|
|
4,100
|
|
4,000
|
See Note 20 to the Consolidated Financial Statements for additional details related to acquisitions and divestitures.
|
|
6.
|
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 products 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. Both types of derivatives are designated as cash flow hedges.
Additionally, 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 does not enter into derivative financial instruments for trading or speculative purposes, or that contain credit risk related contingent features. The Company maintains credit support agreements (CSA) with certain derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. As of December 29, 2019, the total amount of cash collateral held by the Company under the credit support agreements (CSA) amounted to $255 million net, primarily related to net investment hedges. 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 December 29, 2019, the Company had notional amounts outstanding for forward foreign exchange contracts, and cross currency interest rate swaps of $45.3 billion, and $20.1 billion respectively. As of December 30, 2018, the Company
had notional amounts outstanding for forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps of $41.1 billion, $7.3 billion, and $0.5 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. Foreign exchange contracts designated as cash flow hedges are accounted for under the forward method and all gains/losses associated with these contracts will be recognized in the income statement when the hedged item impacts earnings. Changes in the fair value of these derivatives 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. The effect of which are immaterial for the fiscal years ended December 29, 2019 and December 30, 2018. Gains and losses on net investment hedge are accounted through the currency translation account within accumulated other comprehensive income. The portion excluded from effectiveness testing is recorded through interest (income) expense using the spot method. On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsetting changes of hedged items. If and when a derivative is no longer expected to be highly effective, hedge accounting is discontinued.
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 December 29, 2019, the balance of deferred net loss on derivatives included in accumulated other comprehensive income was $295 million after-tax. For additional information, see the Consolidated Statements of Comprehensive Income and Note 13. 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 hedges. 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 years ended December 29, 2019 and December 30, 2018, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2019
|
December 30, 2018
|
(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 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
|
—
|
|
—
|
|
—
|
|
159
|
|
—
|
|
—
|
|
—
|
|
—
|
|
56
|
|
—
|
|
Amount of gain or (loss) recognized in AOCI
|
—
|
|
—
|
|
—
|
|
159
|
|
—
|
|
—
|
|
—
|
|
—
|
|
56
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on cash flow hedging relationship:
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from AOCI into income
|
(54
|
)
|
(321
|
)
|
(105
|
)
|
—
|
|
22
|
|
47
|
|
200
|
|
(220
|
)
|
—
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) recognized in AOCI
|
(20
|
)
|
(606
|
)
|
(94
|
)
|
—
|
|
39
|
|
(32
|
)
|
(17
|
)
|
(193
|
)
|
—
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency interest rate swaps contracts:
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from AOCI into income
|
—
|
|
—
|
|
—
|
|
292
|
|
—
|
|
—
|
|
—
|
|
—
|
|
133
|
|
—
|
|
Amount of gain or (loss) recognized in AOCI
|
$
|
—
|
|
—
|
|
—
|
|
415
|
|
—
|
|
—
|
|
—
|
|
—
|
|
117
|
|
—
|
|
For the fiscal years ended December 29, 2019 and December 30, 2018, the following amounts were recorded on the Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
December 29, 2019
|
|
December 30, 2018
|
|
December 29, 2019
|
|
December 30, 2018
|
Current Portion of Long-term Debt
|
|
$
|
—
|
|
|
494
|
|
|
—
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table is the effect of derivatives not designated as hedging instrument for the fiscal years ended December 29, 2019 and December 30, 2018:
|
|
|
|
|
|
(Dollars in Millions)
|
|
Location of Gain /(Loss) Recognized in Income on Derivative
|
|
Gain/(Loss)
Recognized In
Income on Derivative
|
Derivatives Not Designated as Hedging Instruments
|
|
|
|
December 29, 2019
|
|
December 30, 2018
|
Foreign Exchange Contracts
|
|
Other (income) expense
|
|
(144
|
)
|
|
(68
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table is the effect of net investment hedges for the fiscal years ended December 29, 2019 and December 30, 2018:
|
|
|
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)
|
|
December 29, 2019
|
|
December 30, 2018
|
|
|
|
December 29, 2019
|
|
December 30, 2018
|
Debt
|
|
$
|
121
|
|
|
218
|
|
|
Interest (income) expense
|
|
—
|
|
|
—
|
|
Cross Currency interest rate swaps
|
|
$
|
488
|
|
|
150
|
|
|
Interest (income) expense
|
|
—
|
|
|
—
|
|
The Company holds equity investments with readily determinable fair values and equity investments without readily determinable fair values. The Company measures 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 for the fiscal years ended December 29, 2019 and December 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 30, 2018
|
|
|
|
|
|
December 29, 2019
|
|
|
(Dollars in Millions)
|
|
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
|
|
$
|
511
|
|
|
533
|
|
|
104
|
|
|
1,148
|
|
|
1,148
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments without readily determinable value
|
|
$
|
681
|
|
|
(38
|
)
|
|
69
|
|
|
712
|
|
|
712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
December 30, 2018
|
|
|
|
(Dollars in Millions)
|
|
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
|
|
|
(247
|
)
|
|
7
|
|
|
511
|
|
|
511
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments without readily determinable value
|
|
$
|
510
|
|
|
13
|
|
|
158
|
|
|
681
|
|
|
681
|
|
(1) Recorded in Other Income/Expense
(2) Other includes impact of currency
For the fiscal years ended December 29, 2019 and December 30, 2018 for equity investments without readily determinable market values, $57 million and $54 million respectively, of the changes in fair value reflected in net income were the result of impairments. There were $19 million and $67 million respectively, of changes in fair value reflected in net income due to changes in observable prices.
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. In accordance with ASC 820, a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels within the hierarchy are described below with Level 1 having the highest priority and Level 3 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 holds acquisition related contingent liabilities based upon certain regulatory and commercial events, which are classified as Level 3, whose values are determined using discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant judgment or estimations.
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.
The Company’s significant financial assets and liabilities measured at fair value as of the fiscal year ended December 29, 2019 and December 30, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
(Dollars in Millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Total (1)
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
$
|
—
|
|
|
209
|
|
|
—
|
|
|
209
|
|
|
501
|
|
Interest rate contracts (2)(4)
|
|
—
|
|
|
693
|
|
|
—
|
|
|
693
|
|
|
161
|
|
Total
|
|
—
|
|
|
902
|
|
|
—
|
|
|
902
|
|
|
662
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
—
|
|
|
426
|
|
|
—
|
|
|
426
|
|
|
548
|
|
Interest rate contracts (3)(4)
|
|
—
|
|
|
193
|
|
|
—
|
|
|
193
|
|
|
292
|
|
Total
|
|
—
|
|
|
619
|
|
|
—
|
|
|
619
|
|
|
840
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
—
|
|
|
23
|
|
|
—
|
|
|
23
|
|
|
32
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
—
|
|
|
33
|
|
|
—
|
|
|
33
|
|
|
32
|
|
Available For Sale Other Investments:
|
|
|
|
|
|
|
|
|
|
|
Equity investments(5)
|
|
1,148
|
|
|
—
|
|
|
—
|
|
|
1,148
|
|
|
511
|
|
Debt securities(6)
|
|
$
|
—
|
|
|
4,368
|
|
|
—
|
|
|
4,368
|
|
|
9,734
|
|
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration(7)
|
|
|
|
|
|
1,715
|
|
|
1,715
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
Gross to Net Derivative Reconciliation
|
|
2019
|
|
2018
|
(Dollars in Millions)
|
|
|
|
|
Total Gross Assets
|
|
$
|
925
|
|
|
694
|
|
Credit Support Agreement (CSA)
|
|
(841
|
)
|
|
(423
|
)
|
Total Net Asset
|
|
84
|
|
|
271
|
|
|
|
|
|
|
Total Gross Liabilities
|
|
652
|
|
|
872
|
|
Credit Support Agreement (CSA)
|
|
(586
|
)
|
|
(605
|
)
|
Total Net Liabilities
|
|
$
|
66
|
|
|
267
|
|
|
|
|
|
|
Summarized information about changes in liabilities for contingent consideration is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
2018
|
2017
|
(Dollars in Millions)
|
|
|
|
|
Beginning Balance
|
|
397
|
|
600
|
|
378
|
|
Changes in estimated fair value (8)
|
|
151
|
|
(156
|
)
|
87
|
|
Additions
|
|
1,246
|
|
125
|
|
160
|
|
Payments
|
|
(79
|
)
|
(172
|
)
|
(25
|
)
|
Ending Balance
|
|
1,715
|
|
397
|
|
600
|
|
|
|
|
|
|
|
|
(1)
|
2018 assets and liabilities are all classified as Level 2 with the exception of equity investments of $511 million, which are classified as Level 1 and contingent consideration of $397 million, classified as Level 3.
|
|
|
(2)
|
Includes $1 million and $6 million of non-current assets for the fiscal years ending December 29, 2019 and December 30, 2018, respectively.
|
|
|
(3)
|
Includes $3 million of non-current liabilities for the fiscal years ending December 30, 2018.
|
|
|
(4)
|
Includes cross currency interest rate swaps and interest rate swaps.
|
|
|
(5)
|
Classified as non-current other assets.
|
|
|
(6)
|
Classified as cash equivalents and current marketable securities.
|
|
|
(7)
|
Includes $1,631 million (primarily related to Auris Health), $397 million and $600 million, classified as non-current other liabilities as of December 29, 2019, December 30, 2018 and December 31, 2017 respectively. Includes $84 million classified as current liabilities as of December 29, 2019.
|
|
|
(8)
|
Amounts are recorded primarily in Research and Development expense.
|
See Notes 2 and 7 for financial assets and liabilities held at carrying amount on the Consolidated Balance Sheet.
The components of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2019
|
|
Effective Rate %
|
|
2018
|
|
Effective Rate %
|
|
4.75% Notes due 2019 (1B Euro 1.1096)(2)/(1B Euro 1.14)(3)
|
|
$
|
—
|
|
|
—
|
|
|
1,139
|
|
(2)
|
5.83
|
|
1.875% Notes due 2019
|
|
—
|
|
|
—
|
|
|
494
|
|
|
1.93
|
|
0.89% Notes due 2019
|
|
—
|
|
|
—
|
|
|
300
|
|
|
1.32
|
|
1.125% Notes due 2019
|
|
—
|
|
|
—
|
|
|
699
|
|
|
1.13
|
|
3% Zero Coupon Convertible Subordinated Debentures due 2020
|
|
51
|
|
|
3.00
|
|
|
51
|
|
|
3.00
|
|
2.95% Debentures due 2020
|
|
549
|
|
|
3.15
|
|
|
548
|
|
|
3.15
|
|
1.950% Notes due 2020
|
|
500
|
|
|
1.99
|
|
|
499
|
|
|
1.99
|
|
3.55% Notes due 2021
|
|
449
|
|
|
3.67
|
|
|
449
|
|
|
3.67
|
|
2.45% Notes due 2021
|
|
349
|
|
|
2.48
|
|
|
349
|
|
|
2.48
|
|
1.65% Notes due 2021
|
|
999
|
|
|
1.65
|
|
|
998
|
|
|
1.65
|
|
0.250% Notes due 2022 (1B Euro 1.1096)(2)/(1B Euro 1.14)(3)
|
|
1,108
|
|
(2)
|
0.26
|
|
|
1,137
|
|
(3)
|
0.26
|
|
2.25% Notes due 2022
|
|
998
|
|
|
2.31
|
|
|
996
|
|
|
2.31
|
|
6.73% Debentures due 2023
|
|
250
|
|
|
6.73
|
|
|
250
|
|
|
6.73
|
|
3.375% Notes due 2023
|
|
804
|
|
|
3.17
|
|
|
805
|
|
|
3.17
|
|
2.05% Notes due 2023
|
|
498
|
|
|
2.09
|
|
|
498
|
|
|
2.09
|
|
0.650% Notes due 2024 (750MM Euro 1.1096)(2)/(750MM Euro 1.14)(3)
|
|
829
|
|
(2)
|
0.68
|
|
|
851
|
|
(3)
|
0.68
|
|
5.50% Notes due 2024 (500MM GBP 1.2987)(2)/(500MM GBP 1.2636)(3)
|
|
645
|
|
(2)
|
6.75
|
|
|
627
|
|
(3)
|
6.75
|
|
2.625% Notes due 2025
|
|
748
|
|
|
2.63
|
|
|
748
|
|
|
2.63
|
|
2.45% Notes due 2026
|
|
1,993
|
|
|
2.47
|
|
|
1,992
|
|
|
2.47
|
|
2.95% Notes due 2027
|
|
996
|
|
|
2.96
|
|
|
996
|
|
|
2.96
|
|
1.150% Notes due 2028 (750MM Euro 1.1096)(2)/(750MM Euro 1.14)(3)
|
|
825
|
|
(2)
|
1.21
|
|
|
847
|
|
(3)
|
1.21
|
|
2.900% Notes due 2028
|
|
1,494
|
|
|
2.91
|
|
|
1,493
|
|
|
2.91
|
|
6.95% Notes due 2029
|
|
297
|
|
|
7.14
|
|
|
297
|
|
|
7.14
|
|
4.95% Debentures due 2033
|
|
498
|
|
|
4.95
|
|
|
498
|
|
|
4.95
|
|
4.375% Notes due 2033
|
|
855
|
|
|
4.24
|
|
|
856
|
|
|
4.24
|
|
1.650% Notes due 2035 (1.5B Euro 1.1096)(2)/(1.5B Euro 1.14)(3)
|
|
1,649
|
|
(2)
|
1.68
|
|
|
1,693
|
|
(3)
|
1.68
|
|
3.55% Notes due 2036
|
|
989
|
|
|
3.59
|
|
|
988
|
|
|
3.59
|
|
5.95% Notes due 2037
|
|
992
|
|
|
5.99
|
|
|
991
|
|
|
5.99
|
|
3.625% Notes due 2037
|
|
1,487
|
|
|
3.64
|
|
|
1,486
|
|
|
3.64
|
|
5.85% Debentures due 2038
|
|
696
|
|
|
5.85
|
|
|
696
|
|
|
5.85
|
|
3.400% Notes due 2038
|
|
991
|
|
|
3.42
|
|
|
990
|
|
|
3.42
|
|
4.50% Debentures due 2040
|
|
539
|
|
|
4.63
|
|
|
538
|
|
|
4.63
|
|
4.85% Notes due 2041
|
|
297
|
|
|
4.89
|
|
|
297
|
|
|
4.89
|
|
4.50% Notes due 2043
|
|
495
|
|
|
4.52
|
|
|
495
|
|
|
4.52
|
|
3.70% Notes due 2046
|
|
1,973
|
|
|
3.74
|
|
|
1,972
|
|
|
3.74
|
|
3.75% Notes due 2047
|
|
991
|
|
|
3.76
|
|
|
991
|
|
|
3.76
|
|
3.500% Notes due 2048
|
|
742
|
|
|
3.52
|
|
|
742
|
|
|
3.52
|
|
Other
|
|
18
|
|
|
—
|
|
|
24
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
27,594
|
|
(4)
|
3.19
|
%
|
(1)
|
30,320
|
|
(4)
|
3.19
|
(1
|
)
|
Less current portion
|
|
1,100
|
|
|
|
|
|
2,636
|
|
|
|
|
Total long-term debt
|
|
$
|
26,494
|
|
|
|
|
|
27,684
|
|
|
|
|
|
|
(1)
|
Weighted average effective rate.
|
|
|
(2)
|
Translation rate at December 29, 2019.
|
|
|
(3)
|
Translation rate at December 30, 2018.
|
|
|
(4)
|
The excess of the fair value over the carrying value of debt was $3.0 billion in 2019 and $0.3 billion in 2018.
|
Fair value of the long-term debt was estimated using market prices, which were corroborated by quoted broker prices and significant other observable inputs.
The Company has access to substantial sources of funds at numerous banks worldwide. In September 2019, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires on September 10, 2020. Interest charged on borrowings under the credit line agreements is based on either bids provided by banks, the prime rate, London Interbank Offered Rates (LIBOR) or other applicable market rate as allowed under the terms of the agreement, plus applicable margins. Commitment fees under the agreements are not material.
Throughout 2019, the Company continued to have access to liquidity through the commercial paper market. Short-term borrowings and the current portion of long-term debt amounted to approximately $1.2 billion at the end of 2019, of which $1.1 billion is the current portion of the long-term debt, and the remainder principally represents local borrowing by international subsidiaries.
Throughout 2018, the Company continued to have access to liquidity through the commercial paper market. Short-term borrowings and the current portion of long-term debt amounted to approximately $2.8 billion at the end of 2018, of which $2.6 billion is the current portion of the long term debt, and the remainder principally represents local borrowing by international subsidiaries.
Aggregate maturities of long-term debt obligations commencing in 2020 are:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
After 2024
|
$1,100
|
|
1,797
|
|
2,106
|
|
1,552
|
|
1,474
|
|
19,565
|
The provision for taxes on income consists of:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
|
2017
|
Currently payable:
|
|
|
|
|
|
|
U.S. taxes
|
|
$
|
1,941
|
|
|
1,284
|
|
|
12,095
|
|
International taxes
|
|
2,744
|
|
|
2,434
|
|
|
1,872
|
|
Total currently payable
|
|
4,685
|
|
|
3,718
|
|
|
13,967
|
|
Deferred:
|
|
|
|
|
|
|
U.S. taxes
|
|
(814
|
)
|
|
1,210
|
|
(1)
|
(1,956
|
)
|
International taxes
|
|
(1,662
|
)
|
|
(2,226
|
)
|
|
4,362
|
|
Total deferred
|
|
(2,476
|
)
|
|
(1,016
|
)
|
|
2,406
|
|
Provision for taxes on income
|
|
$
|
2,209
|
|
|
2,702
|
|
|
16,373
|
|
(1) Includes $1.4 billion of deferred tax expense for the adoption of the deferred method to account for GILTI.
A comparison of income tax expense at the U.S. statutory rate of 21% in 2019 and 2018 and 35% in 2017, to the Company’s effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
|
2017
|
|
U.S.
|
|
$
|
3,543
|
|
|
5,575
|
|
|
4,865
|
|
|
International
|
|
13,785
|
|
|
12,424
|
|
|
12,808
|
|
|
Earnings before taxes on income:
|
|
$
|
17,328
|
|
|
17,999
|
|
|
17,673
|
|
|
Tax rates:
|
|
|
|
|
|
|
|
U.S. statutory rate
|
|
21.0
|
%
|
|
21.0
|
|
|
35.0
|
|
|
International operations (1)
|
|
(5.9
|
)
|
|
(3.7
|
)
|
|
(12.8
|
)
|
|
U.S. taxes on international income (2)
|
|
1.8
|
|
|
1.4
|
|
|
0.7
|
|
|
Tax benefits on share-based compensation
|
|
(0.5
|
)
|
|
(1.5
|
)
|
|
(2.1
|
)
|
|
All other
|
|
0.2
|
|
|
(0.3
|
)
|
|
(1.5
|
)
|
|
TCJA and related impacts
|
|
(3.9
|
)
|
(3)
|
(1.9
|
)
|
(3)
|
73.3
|
|
(4)
|
Effective Rate
|
|
12.7
|
%
|
|
15.0
|
|
|
92.6
|
|
|
(1) For all periods presented the Company has subsidiaries operating in Puerto Rico under various tax incentives. International operations reflects the impacts of operations in jurisdictions with statutory tax rates different than the U.S., particularly Ireland, Switzerland and Puerto Rico, which is a favorable impact on the effective tax rate as compared with the U.S. statutory rate. The 2017 amount also includes tax cost related to the revaluation of deferred tax balances related to the change in the Belgian statutory tax rate increasing the tax provision by approximately 3.4%.
(2) Includes the impact of the GILTI tax, the Foreign-Derived Intangible Income deduction and other foreign income that is taxable under the U.S. tax code.
(3) Represents impact of adjustments to balances originally recorded as part of the 2017 TCJA provisional tax charge. Further information provided below.
(4) Includes U.S. state and local taxes provisionally recorded as part TCJA provisional charge which was approximately 0.6% of the total effective tax rate.
The 2019 tax rate decreased by 2.3% compared to the fiscal year 2018 tax rate. In addition to the impact of Swiss tax reform discussed in more detail below, the primary drivers of the net decrease were as follows:
|
|
•
|
The Company reorganized the ownership structure of certain wholly-owned international subsidiaries in the fiscal fourth quarter of 2019, which resulted in a reduction of certain withholding and local taxes that it had previously recognized as part of the provisional Tax Cuts and Jobs Act (TCJA) tax charge in the fiscal year 2017 and finalized in the fiscal year 2018. Following the completion of this restructuring and approval by the applicable local authorities, the Company reversed a deferred tax liability of $0.6 billion and a related deferred tax asset of $0.2 billion for U.S. foreign tax credits, for a net deferred tax benefit of $0.4 billion decreasing the annual effective tax rate by 2.2%. This benefit has been reflected as “TCJA and related impacts” on the Company’s effective tax rate reconciliation.
|
|
|
•
|
The impact of the agreement in principle to settle opioid litigation for $4 billion (see Note 21 to the Consolidated Financial Statements) which reduced the U.S. earnings before taxes at an effective tax rate of 23.5% and decreased the Company’s annual effective tax rate by approximately 2.1%.
|
|
|
•
|
In December of fiscal year 2019, the U.S. Treasury issued final foreign tax credit regulations, which resulted in the Company revising the amount of foreign tax credits that were initially recorded in the fiscal year 2017 as part of the provisional TCJA tax charge. As a result, the Company recorded an increased deferred tax asset related to these foreign tax credits of approximately $0.3 billion or 1.7% to the annual effective tax rate. This benefit has been reflected as “TCJA and related impacts” on the Company’s effective tax rate reconciliation.
|
|
|
•
|
The Company reassessed its uncertain tax positions related to the current IRS audit and increased its unrecognized tax benefit by $0.3 billion liability which increased the annual effective tax rate by approximately 1.5% (see section on Unrecognized Tax Benefits for additional information). As these positions were related to uncertain tax regarding international transfer pricing, this expense has been classified as “International Operations” on the Company’s effective tax rate reconciliation. Subsequent to December 29, 2019, the Company received and agreed to Notices of Proposed Adjustments (NOPAs) from the IRS. The Company believes it is adequately reserved for potential exposures.
|
|
|
•
|
There were several one-time tax impacts that resulted in a cumulative net tax benefit to the 2018 annual effective tax rate of 1.2%. These items included the LifeScan divestiture, the adjustment to the 2017 provisional TCJA tax charge and the acceleration of certain tax deductions as part of the 2017 tax return.
|
|
|
•
|
More income in higher tax jurisdictions relative to lower tax jurisdictions as compared to 2018.
|
On September 28, 2018 the Swiss Parliament approved the Federal Act on Tax Reform and AHV Financing (TRAF). On May 19, 2019 a public referendum was held in Switzerland that approved the federal reform proposals. In the fiscal third quarter of 2019, the Swiss Federal Council enacted TRAF which became effective on January 1, 2020. The Federal transitional provisions
of TRAF allow companies, under certain conditions, to adjust their tax basis adjustments to fair value (i.e., “step-up”) which is used for tax depreciation and amortization purposes resulting in a deduction over the transitional period. The subsequent adjustment to the Company’s asset tax basis will require review and approval by the tax authorities.
TRAF also provides for parameters which enable the Swiss cantons to establish localized tax rates and regulations for companies. The new cantonal tax parameters include favorable tax benefits for patents and additional research and development tax deductions. The cantonal transitional provisions of TRAF are also expected to allow companies to elect either 1) tax basis step-up similar to the Federal transition benefit or 2) alternative statutory tax rate for a period not to exceed 5 years. The Company currently has operations located in various Swiss cantons and enactment may not be uniform in both the substantive nature of the legislation and the timing of enactment.
The Company recorded a net tax expense of $0.1 billion which increased the effective tax rate for the fiscal year 2019 by approximately 0.6%. This net tax expense related to federal and certain cantonal enactments in the fiscal year 2019 consisting of the following provisions:
|
|
•
|
approximately $0.6 billion tax expense relating to the remeasurement of Swiss deferred tax assets and liabilities for the change in the Federal and cantonal tax rates, where enactment occurred by December 29, 2019; this expense has been reflected as “International Operations” on the Company’s effective tax rate reconciliation.
|
|
|
•
|
a $0.9 billion deferred tax asset related to the estimated value of a Federal tax basis step-up of the Company’s Swiss subsidiaries’ assets; this benefit has been reflected as “International Operations” on the Company’s effective tax rate reconciliation.
|
|
|
•
|
approximately $450 million of U.S. deferred tax expense relating to the GILTI deferred tax liability resulting from the remeasurement of the Swiss deferred tax assets and liabilities and the new deferred tax asset for the Federal step-up. this benefit has been reflected as “U.S. tax on international income” on the Company’s effective tax rate reconciliation.
|
In the fiscal fourth quarter of 2019, the Swiss Federal Tax Administration issued authoritative guidance that required the Company to decrease the estimated value of the Federal tax basis step-up by approximately $0.3 billion from the determination made in the fiscal third quarter of 2019. Further authoritative guidance from the relevant Swiss tax authorities may be issued in the future and additional revisions may be required in the fiscal period that they are issued.
The Company is currently assessing and applying for approval for the elective transition provisions in several cantons which includes discussions with local tax authorities on the application of the new law. The Company has recorded an estimated impact of the transitional provisions based on the best available information for cantons where enactment has occurred but the Company has not yet received a final tax ruling.
As of December 29, 2019, the one canton where the Company maintains significant operations has not yet enacted TRAF legislation and the amounts recorded in the fiscal year 2019 do not include estimates for unenacted legislation. On February 9, 2020 a public referendum on the legislative change was held in this canton and the legislation was approved by the voters; formal enactment is expected in the fiscal first half of 2020. The Company has not yet elected the transitional provision in this canton. However, the net financial benefit is estimated to be between $0.2 billion and $0.5 billion in the fiscal first half of 2020.
U.S. Tax Cuts and Jobs Act (TCJA) (2018 and 2017)
In the fiscal year 2017, the United States enacted into law new U.S. tax legislation, the TCJA. This law included provisions for a comprehensive overhaul of the corporate income tax code, including a reduction of the statutory corporate tax rate from 35% to 21%, effective on January 1, 2018. This legislation also eliminated or reduced certain corporate income tax deductions as well as introduced new provisions that taxed certain foreign income not previously taxed by the United States. The TCJA also included a provision for a tax on all previously undistributed earnings of U.S. companies located in foreign jurisdictions. Undistributed earnings in the form of cash and cash equivalents were taxed at a rate of 15.5% and all other earnings were taxed at a rate of 8.0%. This tax is payable over 8 years and will not accrue interest. These payments began in 2018 and will continue through 2025. The remaining balance at the end of the fiscal year 2019 was approximately $8.2 billion, of which $7.7 billion is classified as noncurrent and reflected as “Long-term taxes payable” on the Company’s balance sheet. The balance of this account is related to receivables from tax authorities not expected to be received in the next 12 months.
In the fourth quarter of 2017, the Company recorded a provisional tax cost of approximately $13.0 billion which consisted primarily of the following components:
|
|
•
|
a $10.1 billion charge on previously undistributed foreign earnings as of December 31, 2017
|
|
|
•
|
a $4.5 billion deferred tax liability for foreign local and withholding taxes, offset by a $1.1 billion deferred tax asset for U.S. foreign tax credits, for repatriation of substantially all those earnings
|
|
|
•
|
a $0.6 billion tax benefit relating to the remeasurement of U.S. deferred tax assets and liabilities and the impact of the TCJA on unrecognized tax benefits
|
|
|
•
|
a $0.1 billion charge for U.S. state and local taxes on the repatriation of these foreign earnings
|
In the fiscal year 2018, the Company completed its full assessment and finalized the accounting for the impact of the TCJA. The Company recorded net adjustments to the above components of the provisional charge of approximately $0.2 billion. These revisions were based on updated estimates and additional analysis by management as well as applying interpretative guidance issued by the U.S. Department of Treasury to the facts and circumstances that existed as of the TCJA enactment date. This charge was primarily related to additional deferred tax liabilities for foreign local and withholding taxes for the remaining balance of undistributed foreign earnings as of December 31, 2017 that were not provided for in the 2017 provisional charge.
The TCJA also includes provisions for a tax on GILTI. GILTI is described as the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets, as provided by the TCJA. In the fiscal year 2018, the Company elected to treat GILTI as a period expense under the deferred method and recorded a deferred tax cost of approximately $1.4 billion in the fiscal year 2018 related to facts and circumstances that existed on the date of TCJA enactment. See Note 1 for further information regarding income taxes accounting policies.
During 2018, the Company reorganized the ownership structure of certain foreign subsidiaries which resulted in a reduction of certain foreign withholding taxes that it had recognized as part of the provisional TCJA tax charge in the fourth quarter of 2017. Following the completion of this restructuring and as a result of clarification by Swiss tax authorities regarding the applicability of withholding tax to repatriation of certain earnings, the Company reversed a deferred tax liability of $2.8 billion and a related deferred tax asset of $0.9 billion for U.S. foreign tax credits, for a net deferred tax benefit of $1.9 billion. This benefit has been reflected as “TCJA and related impacts” on the Company’s effective tax rate reconciliation.
The 2018 effective tax rate decreased by 77.6% compared to 2017. The 2017 effective tax rate was primarily driven by the approximately $13 billion provisional tax charge recorded in the fourth quarter of 2017 and the impact of a Belgian statutory tax rate change which increased the 2017 effective rate by 3.4%. Additional drivers of the 2018 annual effective tax were:
|
|
•
|
the reduction of the U.S. statutory corporate tax rate including the effects of tax elections which resulted in the acceleration of certain deductions into the 2017 tax return. The impact of these accelerated deductions decreased the annual effective tax rate by approximately 1.7%
|
|
|
•
|
the impact of the adjustments to the 2017 provisional TCJA charge, including both Staff Accounting Bulletin (SAB) 118 adjustments and the internal restructuring, decreased the effective tax rate by approximately 1.9%
|
|
|
•
|
GILTI tax which increased the annual effective tax rate by approximately 1.6%, which excludes the impact of the SAB 118 adjustment for the adoption of the deferred method for GILTI
|
|
|
•
|
tax benefits received from stock-based compensation during fiscal 2018 and 2017, reduced the effective tax rate by 1.5% and 2.0%, respectively
|
|
|
•
|
in the fourth quarter of 2018, the Company completed the divestiture of its LifeScan business (See Note 20 to the Consolidated Financial Statements), which increased the Company's annual effective tax rate by approximately 0.8%
|
|
|
•
|
more income in higher tax jurisdictions relative to lower tax jurisdictions as compared to 2017
|
Temporary differences and carryforwards for 2019 and 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019 Deferred Tax
|
|
2018 Deferred Tax
|
(Dollars in Millions)
|
|
Asset
|
|
Liability
|
|
Asset
|
|
Liability
|
Employee related obligations
|
|
$
|
2,393
|
|
|
|
|
|
2,398
|
|
|
|
|
Stock based compensation
|
|
546
|
|
|
|
|
|
639
|
|
|
|
|
Depreciation & amortization
|
|
1,122
|
|
|
|
|
|
1,784
|
|
|
|
|
Non-deductible intangibles
|
|
|
|
|
(5,752
|
)
|
|
|
|
|
(5,967
|
)
|
International R&D capitalized for tax
|
|
1,189
|
|
|
|
|
|
1,282
|
|
|
|
|
Reserves & liabilities
|
|
2,384
|
|
|
|
|
|
1,647
|
|
|
|
|
Income reported for tax purposes
|
|
1,605
|
|
|
|
|
|
1,104
|
|
|
|
|
Net operating loss carryforward international
|
|
838
|
|
|
|
|
|
786
|
|
|
|
|
Undistributed foreign earnings
|
|
765
|
|
|
(1,289
|
)
|
|
693
|
|
|
(2,240
|
)
|
Global intangible low-taxed income
|
|
|
|
(2,965
|
)
|
|
|
|
(2,971
|
)
|
Miscellaneous international
|
|
696
|
|
|
(81
|
)
|
|
603
|
|
|
(93
|
)
|
Miscellaneous U.S.
|
|
410
|
|
|
|
|
|
469
|
|
|
|
|
Total deferred income taxes
|
|
$
|
11,948
|
|
|
(10,087
|
)
|
|
11,405
|
|
|
(11,271
|
)
|
The Company has wholly-owned international subsidiaries that have cumulative net losses. The Company believes that it is more likely than not that these subsidiaries will generate future taxable income sufficient to utilize these deferred tax assets.
The following table summarizes the activity related to unrecognized tax benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
|
2017
|
|
Beginning of year
|
|
$
|
3,326
|
|
|
3,151
|
|
|
3,041
|
|
|
Increases related to current year tax positions
|
|
249
|
|
|
242
|
|
|
332
|
|
|
Increases related to prior period tax positions
|
|
408
|
|
|
145
|
|
|
232
|
|
|
Decreases related to prior period tax positions
|
|
(105
|
)
|
|
(137
|
)
|
|
(416
|
)
|
(1)
|
Settlements
|
|
(9
|
)
|
|
(40
|
)
|
|
(2
|
)
|
|
Lapse of statute of limitations
|
|
(16
|
)
|
|
(35
|
)
|
|
(36
|
)
|
|
End of year
|
|
$
|
3,853
|
|
|
3,326
|
|
|
3,151
|
|
|
(1) In 2017, $347 million of this decrease is related to the TCJA.
The unrecognized tax benefits of $3.9 billion at December 29, 2019, if recognized, would affect the Company’s annual effective tax rate. The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress with a number of tax authorities. With respect to the United States, the Internal Revenue Service (IRS) has completed its audit for the tax years through 2009 and is currently auditing the tax years 2010-2012. The Company currently expects completion of this audit and settlement of the related tax liabilities in the fiscal year 2020. As of the December 29, 2019, the Company has classified unrecognized tax benefits and related interest of approximately $0.9 billion as a current liability on the “Accrued taxes on Income” line of the Consolidated Balance Sheet. This is the amount expected to be paid over the next 12 months with respect to the IRS audit. Subsequent to December 29, 2019, the Company made a payment for approximately $0.6 billion to the U.S. Treasury related to the estimated 2010-2012 tax audit liability in anticipation of the final settlement later in fiscal 2020. The completion of this tax audit may result in additional adjustments to the Company’s unrecognized tax benefit liability.
In other major jurisdictions where the Company conducts business, the years that remain open to tax audit go back to the year 2006. The Company believes it is possible that tax audits may be completed over the next twelve months by taxing authorities in some jurisdictions outside of the United States. However, the Company is not able to provide a reasonably reliable estimate of the timing of any other future tax payments relating to uncertain tax positions.
The Company classifies liabilities for unrecognized tax benefits and related interest and penalties as long-term liabilities, except as previously noted on amounts related to the current United States IRS audit. Interest expense and penalties related to
unrecognized tax benefits are classified as income tax expense. The Company recognized after tax interest expense of $50 million, $53 million and $60 million in 2019, 2018 and 2017, respectively. The total amount of accrued interest was $559 million and $503 million in 2019 and 2018, respectively.
|
|
9.
|
Employee Related Obligations
|
At the end of 2019 and 2018, employee related obligations recorded on the Consolidated Balance Sheets were:
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
Pension benefits
|
|
$
|
5,538
|
|
|
5,327
|
|
Postretirement benefits
|
|
2,297
|
|
|
2,283
|
|
Postemployment benefits
|
|
3,004
|
|
|
2,330
|
|
Deferred compensation
|
|
338
|
|
|
410
|
|
Total employee obligations
|
|
11,177
|
|
|
10,350
|
|
Less current benefits payable
|
|
514
|
|
|
399
|
|
Employee related obligations — non-current
|
|
$
|
10,663
|
|
|
9,951
|
|
Prepaid employee related obligations of $551 million and $475 million for 2019 and 2018, respectively, are included in Other assets on the Consolidated Balance Sheets.
|
|
10.
|
Pensions and Other Benefit Plans
|
The Company sponsors various retirement and pension plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. The Company also provides post-retirement benefits, primarily health care, to all eligible U.S. retired employees and their dependents.
Many international employees are covered by government-sponsored programs and the cost to the Company is not significant.
Retirement plan benefits for employees hired before January 1, 2015 are primarily based on the employee’s compensation during the last three to five years before retirement and the number of years of service. In 2014, the Company announced that the U.S. Defined Benefit Plan was amended to adopt a new benefit formula, effective for employees hired on or after January 1, 2015. The benefits are calculated using a new formula based on employee compensation over total years of service.
International subsidiaries have plans under which funds are deposited with trustees, annuities are purchased under group contracts, or reserves are provided.
The Company does not typically fund retiree health care benefits in advance, but may do so at its discretion. The Company also has the right to modify these plans in the future.
In 2019 and 2018 the Company used December 31, 2019 and December 31, 2018, respectively, as the measurement date for all U.S. and international retirement and other benefit plans.
Net periodic benefit costs for the Company’s defined benefit retirement plans and other benefit plans for 2019, 2018 and 2017 include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plans
|
|
Other Benefit Plans
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Service cost
|
|
$
|
1,163
|
|
|
1,283
|
|
|
1,080
|
|
|
274
|
|
|
269
|
|
|
247
|
|
Interest cost
|
|
1,096
|
|
|
996
|
|
|
927
|
|
|
185
|
|
|
148
|
|
|
159
|
|
Expected return on plan assets
|
|
(2,322
|
)
|
|
(2,212
|
)
|
|
(2,041
|
)
|
|
(6
|
)
|
|
(7
|
)
|
|
(6
|
)
|
Amortization of prior service cost (credit)
|
|
4
|
|
|
3
|
|
|
2
|
|
|
(31
|
)
|
|
(31
|
)
|
|
(30
|
)
|
Recognized actuarial losses
|
|
579
|
|
|
852
|
|
|
609
|
|
|
129
|
|
|
123
|
|
|
138
|
|
Curtailments and settlements
|
|
73
|
|
|
1
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost
|
|
$
|
593
|
|
|
923
|
|
|
594
|
|
|
551
|
|
|
502
|
|
|
508
|
|
Amounts expected to be recognized in net periodic benefit cost in the coming year for the Company’s defined benefit retirement plans and other post-retirement plans:
|
|
|
|
|
(Dollars in Millions)
|
|
Amortization of net transition obligation
|
$
|
—
|
|
Amortization of net actuarial losses
|
1,022
|
|
Amortization of prior service credit
|
29
|
|
Unrecognized gains and losses for the U.S. pension plans are amortized over the average remaining future service for each plan. For plans with no active employees, they are amortized over the average life expectancy. The amortization of gains and losses for the other U.S. benefit plans is determined by using a 10% corridor of the greater of the market value of assets or the accumulated postretirement benefit obligation. Total unamortized gains and losses in excess of the corridor are amortized over the average remaining future service.
Prior service costs/benefits for the U.S. pension plans are amortized over the average remaining future service of plan participants at the time of the plan amendment. Prior service cost/benefit for the other U.S. benefit plans is amortized over the average remaining service to full eligibility age of plan participants at the time of the plan amendment.
The following table represents the weighted-average actuarial assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plans
|
|
Other Benefit Plans
|
Worldwide Benefit Plans
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost discount rate
|
|
3.63
|
%
|
|
3.20
|
|
3.59
|
|
4.45
|
|
3.85
|
|
4.63
|
Interest cost discount rate
|
|
4.13
|
%
|
|
3.60
|
|
3.98
|
|
4.25
|
|
3.62
|
|
3.94
|
Rate of increase in compensation levels
|
|
3.99
|
%
|
|
3.98
|
|
4.01
|
|
4.29
|
|
4.29
|
|
4.31
|
Expected long-term rate of return on plan assets
|
|
8.31
|
%
|
|
8.46
|
|
8.43
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
2.91
|
%
|
|
3.76
|
|
3.30
|
|
3.39
|
|
4.40
|
|
3.78
|
Rate of increase in compensation levels
|
|
4.01
|
%
|
|
3.97
|
|
3.99
|
|
4.29
|
|
4.29
|
|
4.30
|
The Company’s discount rates are determined by considering current yield curves representing high quality, long-term fixed income instruments. The resulting discount rates are consistent with the duration of plan liabilities. The Company's methodology in determining service and interest cost uses duration specific spot rates along that yield curve to the plans' liability cash flows.
The expected rates of return on plan asset assumptions represent the Company's assessment of long-term returns on diversified investment portfolios globally. The assessment is determined using projections from external financial sources, long-term historical averages, actual returns by asset class and the various asset class allocations by market.
The following table displays the assumed health care cost trend rates, for all individuals:
|
|
|
|
|
|
|
|
Health Care Plans
|
|
2019
|
|
2018
|
Health care cost trend rate assumed for next year
|
|
5.87
|
%
|
|
6.12
|
%
|
Rate to which the cost trend rate is assumed to decline (ultimate trend)
|
|
4.50
|
%
|
|
4.55
|
%
|
Year the rate reaches the ultimate trend rate
|
|
2040
|
|
|
2038
|
|
A one-percentage-point change in assumed health care cost trend rates would have the following effect:
|
|
|
|
|
|
|
|
|
|
|
One-Percentage-
|
|
One-Percentage-
|
(Dollars in Millions)
|
|
Point Increase
|
|
Point Decrease
|
Health Care Plans
|
|
|
|
|
|
|
Total interest and service cost
|
|
$
|
21
|
|
|
(17
|
)
|
Post-retirement benefit obligation
|
|
$
|
296
|
|
|
(246
|
)
|
The following table sets forth information related to the benefit obligation and the fair value of plan assets at year-end 2019 and 2018 for the Company’s defined benefit retirement plans and other post-retirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plans
|
|
Other Benefit Plans
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
Projected benefit obligation — beginning of year
|
|
$
|
31,670
|
|
|
33,221
|
|
|
4,480
|
|
|
4,582
|
|
Service cost
|
|
1,163
|
|
|
1,283
|
|
|
274
|
|
|
269
|
|
Interest cost
|
|
1,096
|
|
|
996
|
|
|
185
|
|
|
148
|
|
Plan participant contributions
|
|
63
|
|
|
66
|
|
|
—
|
|
|
—
|
|
Amendments
|
|
—
|
|
|
26
|
|
|
—
|
|
|
—
|
|
Actuarial (gains) losses
|
|
5,178
|
|
|
(2,326
|
)
|
|
562
|
|
|
(119
|
)
|
Divestitures & acquisitions
|
|
(278
|
)
|
|
(29
|
)
|
|
—
|
|
|
—
|
|
Curtailments, settlements & restructuring
|
|
(172
|
)
|
|
(21
|
)
|
|
—
|
|
|
—
|
|
Benefits paid from plan assets*
|
|
(1,555
|
)
|
|
(1,018
|
)
|
|
(431
|
)
|
|
(383
|
)
|
Effect of exchange rates
|
|
23
|
|
|
(528
|
)
|
|
6
|
|
|
(17
|
)
|
Projected benefit obligation — end of year
|
|
$
|
37,188
|
|
|
31,670
|
|
|
5,076
|
|
|
4,480
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
Plan assets at fair value — beginning of year
|
|
$
|
26,818
|
|
|
28,404
|
|
|
180
|
|
|
281
|
|
Actual return on plan assets
|
|
6,185
|
|
|
(1,269
|
)
|
|
19
|
|
|
—
|
|
Company contributions
|
|
908
|
|
|
1,140
|
|
|
347
|
|
|
282
|
|
Plan participant contributions
|
|
63
|
|
|
66
|
|
|
—
|
|
|
—
|
|
Settlements
|
|
(16
|
)
|
|
(13
|
)
|
|
—
|
|
|
—
|
|
Divestitures & acquisitions
|
|
(274
|
)
|
|
(17
|
)
|
|
—
|
|
|
—
|
|
Benefits paid from plan assets*
|
|
(1,555
|
)
|
|
(1,018
|
)
|
|
(431
|
)
|
|
(383
|
)
|
Effect of exchange rates
|
|
72
|
|
|
(475
|
)
|
|
—
|
|
|
—
|
|
Plan assets at fair value — end of year
|
|
$
|
32,201
|
|
|
26,818
|
|
|
115
|
|
|
180
|
|
Funded status — end of year
|
|
$
|
(4,987
|
)
|
|
(4,852
|
)
|
|
(4,961
|
)
|
|
(4,300
|
)
|
Amounts Recognized in the Company’s Balance Sheet consist of the following:
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
$
|
551
|
|
|
475
|
|
|
—
|
|
|
—
|
|
Current liabilities
|
|
(113
|
)
|
|
(98
|
)
|
|
(397
|
)
|
|
(281
|
)
|
Non-current liabilities
|
|
(5,425
|
)
|
|
(5,229
|
)
|
|
(4,564
|
)
|
|
(4,019
|
)
|
Total recognized in the consolidated balance sheet — end of year
|
|
$
|
(4,987
|
)
|
|
(4,852
|
)
|
|
(4,961
|
)
|
|
(4,300
|
)
|
Amounts Recognized in Accumulated Other Comprehensive Income consist of the following:
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
8,835
|
|
|
8,323
|
|
|
1,685
|
|
|
1,263
|
|
Prior service cost (credit)
|
|
(8
|
)
|
|
2
|
|
|
(75
|
)
|
|
(106
|
)
|
Unrecognized net transition obligation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total before tax effects
|
|
$
|
8,827
|
|
|
8,325
|
|
|
1,610
|
|
|
1,157
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligations — end of year
|
|
$
|
33,416
|
|
|
28,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*In 2019, the Company offered a voluntary lump-sum payment option for certain eligible former employees who are vested participants of the U.S. Qualified Defined Benefit Pension Plan. The distribution of the lump-sums was completed by the end of fiscal 2019. The amount distributed in 2019 was approximately $514 million.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plans
|
|
Other Benefit Plans
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Amounts Recognized in Net Periodic Benefit Cost and Other Comprehensive Income
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
593
|
|
|
923
|
|
|
551
|
|
|
502
|
|
Net actuarial (gain) loss
|
|
1,084
|
|
|
1,153
|
|
|
550
|
|
|
(111
|
)
|
Amortization of net actuarial loss
|
|
(579
|
)
|
|
(852
|
)
|
|
(129
|
)
|
|
(123
|
)
|
Prior service cost (credit)
|
|
—
|
|
|
26
|
|
|
—
|
|
|
—
|
|
Amortization of prior service (cost) credit
|
|
(4
|
)
|
|
(3
|
)
|
|
31
|
|
|
31
|
|
Effect of exchange rates
|
|
1
|
|
|
(114
|
)
|
|
1
|
|
|
(3
|
)
|
Total loss/(income) recognized in other comprehensive income, before tax
|
|
$
|
502
|
|
|
210
|
|
|
453
|
|
|
(206
|
)
|
Total recognized in net periodic benefit cost and other comprehensive income
|
|
$
|
1,095
|
|
|
1,133
|
|
|
1,004
|
|
|
296
|
|
The Company plans to continue to fund its U.S. Qualified Plans to comply with the Pension Protection Act of 2006. International Plans are funded in accordance with local regulations. Additional discretionary contributions are made when deemed appropriate to meet the long-term obligations of the plans. For certain plans, funding is not a common practice, as funding provides no economic benefit. Consequently, the Company has several pension plans that are not funded.
In 2019, the Company contributed $489 million and $419 million to its U.S. and international pension plans, respectively.
The following table displays the funded status of the Company's U.S. Qualified & Non-Qualified pension plans and international funded and unfunded pension plans at December 31, 2019 and December 31, 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
International Plans
|
|
Qualified Plans
|
Non-Qualified Plans
|
Funded Plans
|
Unfunded Plans
|
(Dollars in Millions)
|
2019
|
2018
|
2019
|
2018
|
2019
|
2018
|
2019
|
2018
|
Plan Assets
|
$
|
21,398
|
|
17,725
|
|
—
|
|
—
|
|
10,803
|
|
9,093
|
|
—
|
|
—
|
|
Projected Benefit Obligation
|
22,034
|
|
18,609
|
|
2,544
|
|
2,176
|
|
12,132
|
|
10,467
|
|
478
|
|
418
|
|
Accumulated Benefit Obligation
|
19,831
|
|
16,851
|
|
2,115
|
|
1,793
|
|
11,040
|
|
9,510
|
|
430
|
|
379
|
|
Over (Under) Funded Status
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation
|
$
|
(636
|
)
|
(884
|
)
|
(2,544
|
)
|
(2,176
|
)
|
(1,329
|
)
|
(1,374
|
)
|
(478
|
)
|
(418
|
)
|
Accumulated Benefit Obligation
|
1,567
|
|
874
|
|
(2,115
|
)
|
(1,793
|
)
|
(237
|
)
|
(417
|
)
|
(430
|
)
|
(379
|
)
|
Plans with accumulated benefit obligations in excess of plan assets have an accumulated benefit obligation, projected benefit obligation and plan assets of $4.3 billion, $5.2 billion and $0.9 billion, respectively, at the end of 2019, and $7.5 billion, $8.8 billion and $4.3 billion, respectively, at the end of 2018.
The following table displays the projected future benefit payments from the Company’s retirement and other benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025-2029
|
Projected future benefit payments
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement plans
|
|
$
|
1,126
|
|
|
1,172
|
|
|
1,234
|
|
|
1,323
|
|
|
1,359
|
|
|
7,945
|
|
Other benefit plans
|
|
$
|
437
|
|
|
450
|
|
|
466
|
|
|
479
|
|
|
494
|
|
|
2,356
|
|
The following table displays the projected future minimum contributions to the unfunded retirement plans. These amounts do not include any discretionary contributions that the Company may elect to make in the future.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025-2029
|
Projected future contributions
|
|
$
|
103
|
|
|
107
|
|
|
113
|
|
|
118
|
|
|
127
|
|
|
749
|
|
Each pension plan is overseen by a local committee or board that is responsible for the overall administration and investment of the pension plans. In determining investment policies, strategies and goals, each committee or board considers factors including, local pension rules and regulations; local tax regulations; availability of investment vehicles (separate accounts, commingled accounts, insurance funds, etc.); funded status of the plans; ratio of actives to retirees; duration of liabilities; and other relevant factors including: diversification, liquidity of local markets and liquidity of base currency. A majority of the Company’s pension funds are open to new entrants and are expected to be on-going plans. Permitted investments are primarily liquid and/or listed, with little reliance on illiquid and non-traditional investments such as hedge funds.
The Company’s retirement plan asset allocation at the end of 2019 and 2018 and target allocations for 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
Plan Assets
|
|
Target
Allocation
|
|
|
2019
|
|
2018
|
|
2020
|
Worldwide Retirement Plans
|
|
|
|
|
|
|
Equity securities
|
|
74
|
%
|
|
71
|
%
|
|
69
|
%
|
Debt securities
|
|
26
|
|
|
29
|
|
|
31
|
|
Total plan assets
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
Determination of Fair Value of Plan Assets
The Plan has an established and well-documented process for determining fair values. Fair value is based upon quoted market prices, where available. If listed prices or quotes are not available, fair value is based upon models that primarily use, as inputs, market-based or independently sourced market parameters, including yield curves, interest rates, volatilities, equity or debt prices, foreign exchange rates and credit curves.
While the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
Valuation Hierarchy
The authoritative literature establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels within the hierarchy are described in the table below with Level 1 having the highest priority and Level 3 having the lowest.
The Net Asset Value (NAV) is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
Following is a description of the valuation methodologies used for the investments measured at fair value.
|
|
•
|
Short-term investment funds — Cash and quoted short-term instruments are valued at the closing price or the amount held on deposit by the custodian bank. Other investments are through investment vehicles valued using the NAV provided by the administrator of the fund. The NAV is a quoted price in a market that is not active and classified as Level 2.
|
|
|
•
|
Government and agency securities — A limited number of these investments are valued at the closing price reported on the major market on which the individual securities are traded. Where quoted prices are available in an active market, the investments are classified within Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. When quoted market prices for a security are not available in an active market, they are classified as Level 2.
|
|
|
•
|
Debt instruments — A limited number of these investments are valued at the closing price reported on the major market on which the individual securities are traded. Where quoted prices are available in an active market, the investments are classified as Level 1. If quoted market prices are not available for the specific security, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics or discounted cash flows and are classified as Level 2. Level 3 debt instruments are priced based on unobservable inputs.
|
|
|
•
|
Equity securities — Equity securities are valued at the closing price reported on the major market on which the individual securities are traded. Substantially all equity securities are classified within Level 1 of the valuation hierarchy.
|
|
|
•
|
Commingled funds — These investment vehicles are valued using the NAV provided by the fund administrator. Assets in the Level 2 category have a quoted market price.
|
|
|
•
|
Insurance contracts — The instruments are issued by insurance companies. The fair value is based on negotiated value and the underlying investments held in separate account portfolios as well as considering the credit worthiness of the issuer. The underlying investments are government, asset-backed and fixed income securities. In general, insurance contracts are classified as Level 3 as there are no quoted prices nor other observable inputs for pricing.
|
|
|
•
|
Other assets — Other assets are represented primarily by limited partnerships. These investment vehicles are valued using the NAV provided by the fund administrator. Other assets that are exchange listed and actively traded are classified as Level 1, while inactively traded assets are classified as Level 2.
|
The following table sets forth the Retirement Plans' investments measured at fair value as of December 31, 2019 and December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs(a)
|
|
Investments Measured at Net Asset Value
|
|
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
Total Assets
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Short-term investment funds
|
|
$
|
119
|
|
|
122
|
|
|
405
|
|
|
529
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
524
|
|
|
651
|
|
Government and agency securities
|
|
—
|
|
|
—
|
|
|
4,140
|
|
|
3,595
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,140
|
|
|
3,595
|
|
Debt instruments
|
|
—
|
|
|
—
|
|
|
3,452
|
|
|
3,105
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,452
|
|
|
3,105
|
|
Equity securities
|
|
12,483
|
|
|
11,298
|
|
|
2
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12,485
|
|
|
11,302
|
|
Commingled funds
|
|
—
|
|
|
—
|
|
|
3,338
|
|
|
2,304
|
|
|
181
|
|
|
133
|
|
|
7,580
|
|
|
5,201
|
|
|
11,099
|
|
|
7,638
|
|
Insurance contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
193
|
|
|
—
|
|
|
—
|
|
|
19
|
|
|
193
|
|
Other assets
|
|
—
|
|
|
—
|
|
|
9
|
|
|
33
|
|
|
—
|
|
|
—
|
|
|
473
|
|
|
301
|
|
|
482
|
|
|
334
|
|
Investments at fair value
|
|
$
|
12,602
|
|
|
11,420
|
|
|
11,346
|
|
|
9,570
|
|
|
200
|
|
|
326
|
|
|
8,053
|
|
|
5,502
|
|
|
32,201
|
|
|
26,818
|
|
(a) The activity for the Level 3 assets is not significant for all years presented.
The Company's Other Benefit Plans are unfunded except for U.S. commingled funds (Level 2) of $84 million and $72 million and U.S. short-term investment funds (Level 2) of $31 million and $108 million at December 31, 2019 and December 31, 2018, respectively.
The fair value of Johnson & Johnson Common Stock directly held in plan assets was $984 million (3.1% of total worldwide plan assets) at December 31, 2019 and $876 million (3.3% of total worldwide plan assets) at December 31, 2018.
The Company has voluntary 401(k) savings plans designed to enhance the existing retirement programs covering eligible employees. The Company matches a percentage of each employee’s contributions consistent with the provisions of the plan for which he/she is eligible. Total Company matching contributions to the plans were $235 million, $242 million and $214 million in 2019, 2018 and 2017, respectively.
|
|
12.
|
Capital and Treasury Stock
|
Changes in treasury stock were:
|
|
|
|
|
|
|
|
|
|
|
Treasury Stock
|
(Amounts in Millions Except Treasury Stock Shares in Thousands)
|
|
Shares
|
|
Amount
|
Balance at January 1, 2017
|
|
413,332
|
|
|
$
|
28,352
|
|
Employee compensation and stock option plans
|
|
(25,508
|
)
|
|
(3,156
|
)
|
Repurchase of common stock
|
|
49,494
|
|
|
6,358
|
|
Balance at December 31, 2017
|
|
437,318
|
|
|
31,554
|
|
Employee compensation and stock option plans
|
|
(22,082
|
)
|
|
(3,060
|
)
|
Repurchase of common stock
|
|
42,283
|
|
|
5,868
|
|
Balance at December 30, 2018
|
|
457,519
|
|
|
34,362
|
|
Employee compensation and stock option plans
|
|
(20,053
|
)
|
|
(2,691
|
)
|
Repurchase of common stock
|
|
49,870
|
|
|
6,746
|
|
Balance at December 29, 2019
|
|
487,336
|
|
|
$
|
38,417
|
|
Aggregate shares of common stock issued were approximately 3,119,843,000 shares at the end of 2019, 2018 and 2017.
Cash dividends paid were $3.75 per share in 2019, compared with dividends of $3.54 per share in 2018, and $3.32 per share in 2017.
On December 17, 2018, the Company announced that its Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $5.0 billion of the Company's shares of common stock. This share repurchase program was completed as of September 29, 2019.
On October 13, 2015, the Company announced that its Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $10.0 billion of the Company's shares of common stock. This share repurchase program was completed as of July 2, 2017.
|
|
13.
|
Accumulated Other Comprehensive Income (Loss)
|
Components of other comprehensive income (loss) consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Foreign
Currency Translation
|
|
Gain/(Loss) On Securities
|
|
Employee Benefit Plans
|
|
Gain/
(Loss) On
Derivatives & Hedges
|
|
Total
Accumulated
Other
Comprehensive Income (Loss)
|
January 1, 2017
|
|
$
|
(9,047
|
)
|
|
411
|
|
|
(5,980
|
)
|
|
(285
|
)
|
|
(14,901
|
)
|
Net 2017 changes
|
|
1,696
|
|
|
(179
|
)
|
|
(170
|
)
|
|
355
|
|
|
1,702
|
|
December 31, 2017
|
|
(7,351
|
)
|
|
232
|
|
|
(6,150
|
)
|
|
70
|
|
|
(13,199
|
)
|
Cumulative adjustment to retained earnings
|
|
—
|
|
|
(232
|
)
|
(1)
|
|
|
|
|
(232
|
)
|
Net 2018 changes
|
|
(1,518
|
)
|
|
—
|
|
|
(8
|
)
|
|
(265
|
)
|
|
(1,791
|
)
|
December 30, 2018
|
|
(8,869
|
)
|
|
—
|
|
|
(6,158
|
)
|
|
(195
|
)
|
|
(15,222
|
)
|
Net 2019 changes
|
|
164
|
|
|
—
|
|
|
(733
|
)
|
|
(100
|
)
|
|
(669
|
)
|
December 29, 2019
|
|
$
|
(8,705
|
)
|
|
—
|
|
|
(6,891
|
)
|
|
(295
|
)
|
|
(15,891
|
)
|
(1) Per the adoption of ASU 2016-01- Financial Instruments
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 10 for additional details.
Gain/(Loss) On Derivatives & Hedges - reclassifications to earnings are recorded in the same account as the hedged transaction. See Note 6 for additional details.
|
|
14.
|
International Currency Translation
|
For translation of its subsidiaries operating in non-U.S. Dollar currencies, the Company has determined that the local currencies of its international subsidiaries are the functional currencies except those in highly inflationary economies, which are defined as those which have had compound cumulative rates of inflation of 100% or more during the past three years, or where a substantial portion of its cash flows are not in the local currency. For the majority of the Company's subsidiaries the local currency is the functional currency.
In consolidating international subsidiaries, balance sheet currency effects are recorded as a component of accumulated other comprehensive income. This equity account includes the results of translating certain balance sheet assets and liabilities at current exchange rates and some accounts at historical rates, except for those located in highly inflationary economies, (Argentina and Venezuela). The translation of balance sheet accounts for highly inflationary economies are reflected in the operating results.
A rollforward of the changes during 2019, 2018 and 2017 for foreign currency translation adjustments is included in Note 13.
Net currency transaction gains and losses included in Other (income) expense were losses of $267 million, $265 million and $216 million in 2019, 2018 and 2017, respectively.
The following is a reconciliation of basic net earnings per share to diluted net earnings per share for the fiscal years ended December 29, 2019, December 30, 2018 and December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions Except Per Share Amounts)
|
|
2019
|
|
2018
|
|
2017
|
Basic net earnings per share
|
|
$
|
5.72
|
|
|
5.70
|
|
|
0.48
|
|
Average shares outstanding — basic
|
|
2,645.1
|
|
|
2,681.5
|
|
|
2,692.0
|
|
Potential shares exercisable under stock option plans
|
|
136.3
|
|
|
139.0
|
|
|
139.7
|
|
Less: shares repurchased under treasury stock method
|
|
(97.8
|
)
|
|
(92.5
|
)
|
|
(87.3
|
)
|
Convertible debt shares
|
|
0.7
|
|
|
0.7
|
|
|
0.9
|
|
Adjusted average shares outstanding — diluted
|
|
2,684.3
|
|
|
2,728.7
|
|
|
2,745.3
|
|
Diluted net earnings per share
|
|
$
|
5.63
|
|
|
5.61
|
|
|
0.47
|
|
The diluted net earnings per share calculation included the dilutive effect of convertible debt that is offset by the related reduction in interest expense of $1 million after-tax for 2019, 2018 and 2017.
The diluted net earnings per share calculation for 2019 excluded an insignificant number of shares related to stock options, as the exercise price of these options was greater than the average market value of the Company’s stock. The diluted net earnings per share calculation for 2018 and 2017 included all shares related to stock options, as the exercise price of all options was less than the average market value of the Company's stock.
The Company primarily has operating leases for space, vehicles, manufacturing equipment and data processing equipment. Leases have remaining lease terms ranging from 1 year to 55 years, some of which could include options to extend the leases when they are reasonably certain.
The operating lease costs were approximately $307 million, $332 million and $372 million in 2019, 2018 and 2017, respectively. Cash paid for amounts included in the measurement of lease liabilities in 2019 were $308 million. Commitments under finance leases are not significant. Other supplemental information related to these leases are as follows:
The Weighted Average Remaining Lease Term and discount rate:
Operating leases 5.8 years
Weighted Average Discount Rate 3%
Maturity of Lease Liabilities related to Operating Lease
The approximate minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 29, 2019 are:
|
|
|
|
|
(Dollars in Millions)
|
Operating Leases
|
2020
|
$
|
215
|
|
2021
|
254
|
|
2022
|
197
|
|
2023
|
141
|
|
2024
|
86
|
|
After 2024
|
201
|
|
Total lease payments
|
1,094
|
|
Less: Interest
|
109
|
|
Present Value of lease liabilities
|
$
|
985
|
|
Supplemental information for comparative periods:
As of December 30, 2018, prior to the adoption of ASU 2016-02, the approximate future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year were:
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
After 2023
|
|
Total
|
$223
|
|
188
|
|
154
|
|
116
|
|
76
|
|
139
|
|
896
|
Supplemental balance sheet information related to leases as of December 29, 2019 were as follows:
|
|
|
|
|
|
(Dollars in Millions)
|
|
|
Non-current operating lease right-of-use assets
|
|
$
|
957
|
|
Current operating lease liabilities
|
|
269
|
|
Non-current Operating lease liabilities
|
|
716
|
|
Total operating lease liabilities
|
|
$
|
985
|
|
|
|
17.
|
Common Stock, Stock Option Plans and Stock Compensation Agreements
|
At December 29, 2019, the Company had 2 stock-based compensation plans. The shares outstanding are for contracts under the Company's 2005 Long-Term Incentive Plan and the 2012 Long-Term Incentive Plan. The 2005 Long-Term Incentive Plan expired April 26, 2012. All options and restricted shares granted subsequent to that date were under the 2012 Long-Term Incentive Plan. Under the 2012 Long-Term Incentive Plan, the Company may issue up to 650 million shares of common stock, plus any shares canceled, expired, forfeited, or not issued from the 2005 Long-Term Incentive Plan subsequent to April 26, 2012. Shares available for future grants under the 2012 Long-Term Incentive Plan were 315 million at the end of 2019.
The compensation cost that has been charged against income for these plans was $977 million, $978 million and $962 million for 2019, 2018 and 2017, respectively. The total income tax benefit recognized in the income statement for share-based compensation costs was $227 million, $192 million and $275 million for 2019, 2018 and 2017, respectively. The total unrecognized compensation cost was $823 million, $827 million and $798 million for 2019, 2018 and 2017, respectively. The weighted average period for this cost to be recognized was 1.71 years, 1.73 years and 1.76 years for 2019, 2018, and 2017, respectively. Share-based compensation costs capitalized as part of inventory were insignificant in all periods.
The Company settles employee benefit equity issuances with treasury shares. Treasury shares are replenished throughout the year for the number of shares used to settle employee benefit equity issuances.
Stock Options
Stock options expire 10 years from the date of grant and vest over service periods that range from 6 months to 4 years. All options are granted at the average of the high and low prices of the Company’s Common Stock on the New York Stock Exchange on the date of grant.
The fair value of each option award was estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following table. For 2019, 2018 and 2017 grants, expected volatility represents a blended rate of 10-year weekly historical overall volatility rate, and a 5-week average implied volatility rate based on at-the-money traded Johnson & Johnson options with a life of 2 years. For all grants, historical data is used to determine the expected life of the option. The risk-free rate was based on the U.S. Treasury yield curve in effect at the time of grant.
The average fair value of options granted was $17.80, $17.98 and $13.38, in 2019, 2018 and 2017, respectively. The fair value was estimated based on the weighted average assumptions of:
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
Risk-free rate
|
2.56
|
%
|
|
2.77
|
%
|
|
2.25
|
%
|
Expected volatility
|
16.27
|
%
|
|
15.77
|
%
|
|
15.30
|
%
|
Expected life (in years)
|
7.0
|
|
|
7.0
|
|
|
7.0
|
|
Expected dividend yield
|
2.80
|
%
|
|
2.70
|
%
|
|
2.90
|
%
|
A summary of option activity under the Plan as of December 29, 2019, December 30, 2018 and December 31, 2017, and changes during the years ending on those dates is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in Thousands)
|
|
Outstanding Shares
|
|
Weighted
Average Exercise Price
|
|
Aggregate
Intrinsic
Value
(Dollars in Millions)
|
Shares at January 1, 2017
|
|
113,455
|
|
|
$
|
83.16
|
|
|
$
|
3,636
|
|
Options granted
|
|
19,287
|
|
|
115.67
|
|
|
|
Options exercised
|
|
(18,975
|
)
|
|
70.87
|
|
|
|
Options canceled/forfeited
|
|
(2,461
|
)
|
|
101.40
|
|
|
|
Shares at December 31, 2017
|
|
111,306
|
|
|
90.48
|
|
|
5,480
|
|
Options granted
|
|
17,115
|
|
|
129.51
|
|
|
|
Options exercised
|
|
(16,228
|
)
|
|
75.44
|
|
|
|
Options canceled/forfeited
|
|
(2,541
|
)
|
|
112.90
|
|
|
|
Shares at December 30, 2018
|
|
109,652
|
|
|
98.29
|
|
|
3,214
|
|
Options granted
|
|
19,745
|
|
|
131.94
|
|
|
|
Options exercised
|
|
(14,785
|
)
|
|
82.43
|
|
|
|
Options canceled/forfeited
|
|
(2,975
|
)
|
|
125.11
|
|
|
|
Shares at December 29, 2019
|
|
111,637
|
|
|
$
|
105.63
|
|
|
$
|
4,478
|
|
The total intrinsic value of options exercised was $807 million, $1,028 million and $1,060 million in 2019, 2018 and 2017, respectively.
The following table summarizes stock options outstanding and exercisable at December 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in Thousands)
|
|
Outstanding
|
|
Exercisable
|
Exercise Price Range
|
|
Options
|
|
Average Life(1)
|
|
Average Exercise Price
|
|
Options
|
|
Average Exercise Price
|
$58.65-$66.07
|
|
7,752
|
|
|
1.3
|
|
$63.71
|
|
7,752
|
|
|
$63.71
|
$72.54-$90.44
|
|
23,837
|
|
|
3.6
|
|
$82.08
|
|
23,837
|
|
|
$82.08
|
$100.06-$101.87
|
|
29,586
|
|
|
5.6
|
|
$101.07
|
|
29,083
|
|
|
$101.05
|
$115.67-$129.51
|
|
31,810
|
|
|
7.6
|
|
$122.32
|
|
84
|
|
|
$120.76
|
$131.94-$141.06
|
|
18,652
|
|
|
9.1
|
|
$131.94
|
|
5
|
|
|
$131.94
|
|
|
111,637
|
|
|
6.0
|
|
$105.63
|
|
60,761
|
|
|
$88.88
|
(1) Average contractual life remaining in years.
Stock options outstanding at December 30, 2018 and December 31, 2017 were 109,652 and an average life of 6.2 years and 111,306 and an average life of 6.3 years, respectively. Stock options exercisable at December 30, 2018 and December 31, 2017 were 54,862 at an average price of $82.03 and 52,421 at an average price of $73.61, respectively.
Restricted Share Units and Performance Share Units
The Company grants restricted share units which vest over service periods that range from 6 months to 3 years. The Company also grants performance share units, which are paid in shares of Johnson & Johnson Common Stock after the end of a three-year performance period. Whether any performance share units vest, and the amount that does vest, is tied to the completion of service periods that range from 6 months to 3 years and the achievement, over a three-year period, of three equally-weighted goals that directly align with or help drive long-term total shareholder return: operational sales, adjusted operational earnings per share, and relative total shareholder return. The number of shares actually earned at the end of the three-year period will vary, based only on actual performance, from 0% to 200% of the target number of performance share units granted. In the fourth quarter of 2017, the Company modified the restricted share units that were scheduled to vest between January 1, 2018 and March 15, 2018. This modification guaranteed a minimum aggregate value, below the market value of the total expected payout amount, for all awards expected to vest during this period. The amount that was committed was not material to the Company’s overall financial position.
A summary of the restricted share units and performance share units activity under the Plans as of December 29, 2019 is presented below:
|
|
|
|
|
|
|
|
(Shares in Thousands)
|
|
Outstanding Restricted Share Units
|
|
Outstanding Performance Share Units
|
Shares at December 30, 2018
|
|
18,460
|
|
|
2,494
|
|
Granted
|
|
5,769
|
|
|
932
|
|
Issued
|
|
(6,261
|
)
|
|
(996
|
)
|
Canceled/forfeited/adjusted
|
|
(1,199
|
)
|
|
(256
|
)
|
Shares at December 29, 2019
|
|
16,769
|
|
|
2,174
|
|
The average fair value of the restricted share units granted was $121.31, $119.67 and $107.69 in 2019, 2018 and 2017, respectively, using the fair market value at the date of grant. The fair value of restricted share units was discounted for dividends, which are not paid on the restricted share units during the vesting period. The fair value of restricted share units issued was $585.9 million, $613.7 million and $596.5 million in 2019, 2018 and 2017, respectively.
The weighted average fair value of the performance share units granted was $124.67, $120.64 and $114.13 in 2019, 2018 and 2017, calculated using the weighted average fair market value for each of the three component goals at the date of grant.
The fair values for the sales and earnings per share goals of each performance share unit were estimated on the date of grant using the fair market value of the shares at the time of the award discounted for dividends, which are not paid on the performance share units during the vesting period. The fair value for the relative total shareholder return goal of each performance share unit was estimated on the date of grant using the Monte Carlo valuation model. The fair value of performance share units issued was $119.1 million, $128.8 million and $132.5 million in 2019, 2018 and 2017, respectively.
|
|
18.
|
Segments of Business and Geographic Areas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Customers
|
|
% Change
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
|
2017
|
|
’19 vs. ’18
|
|
’18 vs. ’17
|
|
|
|
|
|
|
|
|
|
|
|
CONSUMER
|
|
|
|
|
|
|
|
|
|
|
Baby Care
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
362
|
|
|
422
|
|
|
449
|
|
|
(14.2
|
)%
|
|
(6.0
|
)
|
International
|
|
1,313
|
|
|
1,436
|
|
|
1,467
|
|
|
(8.6
|
)
|
|
(2.1
|
)
|
Worldwide
|
|
1,675
|
|
|
1,858
|
|
|
1,916
|
|
|
(9.9
|
)
|
|
(3.0
|
)
|
Beauty
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,392
|
|
|
2,403
|
|
|
2,335
|
|
|
(0.4
|
)
|
|
2.9
|
|
International
|
|
2,201
|
|
|
1,979
|
|
|
1,865
|
|
|
11.2
|
|
|
6.1
|
|
Worldwide
|
|
4,593
|
|
|
4,382
|
|
|
4,200
|
|
|
4.8
|
|
|
4.3
|
|
Oral Care
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
621
|
|
|
637
|
|
|
616
|
|
|
(2.5
|
)
|
|
3.4
|
|
International
|
|
906
|
|
|
918
|
|
|
915
|
|
|
(1.2
|
)
|
|
0.3
|
|
Worldwide
|
|
1,528
|
|
|
1,555
|
|
|
1,531
|
|
|
(1.7
|
)
|
|
1.6
|
|
OTC
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,010
|
|
|
1,850
|
|
|
1,716
|
|
|
8.6
|
|
|
7.8
|
|
International
|
|
2,434
|
|
|
2,484
|
|
|
2,410
|
|
|
(2.0
|
)
|
|
3.1
|
|
Worldwide
|
|
4,444
|
|
|
4,334
|
|
|
4,126
|
|
|
2.5
|
|
|
5.0
|
|
Women's Health
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
12
|
|
|
13
|
|
|
12
|
|
|
(5.5
|
)
|
|
8.3
|
|
International
|
|
974
|
|
|
1,036
|
|
|
1,038
|
|
|
(6.0
|
)
|
|
(0.2
|
)
|
Worldwide
|
|
986
|
|
|
1,049
|
|
|
1,050
|
|
|
(6.0
|
)
|
|
(0.1
|
)
|
Wound Care/Other
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
441
|
|
|
436
|
|
|
437
|
|
|
1.2
|
|
|
(0.2
|
)
|
International
|
|
230
|
|
|
239
|
|
|
342
|
|
|
(3.9
|
)
|
|
(30.1
|
)
|
Worldwide
|
|
671
|
|
|
675
|
|
|
779
|
|
|
(0.6
|
)
|
|
(13.4
|
)
|
TOTAL CONSUMER
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
5,839
|
|
|
5,761
|
|
|
5,565
|
|
|
1.4
|
|
|
3.5
|
|
International
|
|
8,059
|
|
|
8,092
|
|
|
8,037
|
|
|
(0.4
|
)
|
|
0.7
|
|
Worldwide
|
|
13,898
|
|
|
13,853
|
|
|
13,602
|
|
|
0.3
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PHARMACEUTICAL
|
|
|
|
|
|
|
|
|
|
|
Immunology
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
9,641
|
|
|
9,073
|
|
|
8,871
|
|
|
6.3
|
|
|
2.3
|
|
International
|
|
4,309
|
|
|
4,047
|
|
|
3,373
|
|
|
6.5
|
|
|
20.0
|
|
Worldwide
|
|
13,950
|
|
|
13,120
|
|
|
12,244
|
|
|
6.3
|
|
|
7.2
|
|
REMICADE®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
3,079
|
|
|
3,664
|
|
|
4,525
|
|
|
(16.0
|
)
|
|
(19.0
|
)
|
U.S. Exports
|
|
294
|
|
|
436
|
|
|
563
|
|
|
(32.7
|
)
|
|
(22.6
|
)
|
International
|
|
1,007
|
|
|
1,226
|
|
|
1,227
|
|
|
(17.8
|
)
|
|
(0.1
|
)
|
Worldwide
|
|
4,380
|
|
|
5,326
|
|
|
6,315
|
|
|
(17.8
|
)
|
|
(15.7
|
)
|
SIMPONI / SIMPONI ARIA®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,159
|
|
|
1,051
|
|
|
954
|
|
|
10.2
|
|
|
10.2
|
|
International
|
|
1,029
|
|
|
1,033
|
|
|
879
|
|
|
(0.4
|
)
|
|
17.5
|
|
Worldwide
|
|
2,188
|
|
|
2,084
|
|
|
1,833
|
|
|
5.0
|
|
|
13.7
|
|
STELARA®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
4,346
|
|
|
3,469
|
|
|
2,767
|
|
|
25.3
|
|
|
25.4
|
|
International
|
|
2,015
|
|
|
1,687
|
|
|
1,244
|
|
|
19.4
|
|
|
35.6
|
|
Worldwide
|
|
6,361
|
|
|
5,156
|
|
|
4,011
|
|
|
23.4
|
|
|
28.5
|
|
TREMFYA®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
764
|
|
|
453
|
|
|
62
|
|
|
68.5
|
|
|
*
|
International
|
|
248
|
|
|
91
|
|
|
1
|
|
|
*
|
|
*
|
Worldwide
|
|
1,012
|
|
|
544
|
|
|
63
|
|
|
85.9
|
|
|
*
|
OTHER IMMUNOLOGY
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
International
|
|
10
|
|
|
10
|
|
|
22
|
|
|
4.5
|
|
|
(54.5
|
)
|
Worldwide
|
|
10
|
|
|
10
|
|
|
22
|
|
|
4.5
|
|
|
(54.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Infectious Diseases
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,597
|
|
|
1,378
|
|
|
1,358
|
|
|
15.9
|
|
|
1.5
|
|
International
|
|
1,815
|
|
|
1,926
|
|
|
1,796
|
|
|
(5.7
|
)
|
|
7.2
|
|
Worldwide
|
|
3,413
|
|
|
3,304
|
|
|
3,154
|
|
|
3.3
|
|
|
4.8
|
|
EDURANT® / rilpivirine
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
50
|
|
|
58
|
|
|
58
|
|
|
(13.7
|
)
|
|
0.0
|
|
International
|
|
812
|
|
|
758
|
|
|
656
|
|
|
7.1
|
|
|
15.5
|
|
Worldwide
|
|
861
|
|
|
816
|
|
|
714
|
|
|
5.6
|
|
|
14.3
|
|
PREZISTA® / PREZCOBIX® / REZOLSTA® / SYMTUZA®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,422
|
|
|
1,169
|
|
|
1,109
|
|
|
21.6
|
|
|
5.4
|
|
International
|
|
689
|
|
|
786
|
|
|
712
|
|
|
(12.3
|
)
|
|
10.4
|
|
Worldwide
|
|
2,110
|
|
|
1,955
|
|
|
1,821
|
|
|
8.0
|
|
|
7.4
|
|
OTHER INFECTIOUS DISEASES
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
126
|
|
|
151
|
|
|
191
|
|
|
(16.5
|
)
|
|
(20.9
|
)
|
International
|
|
315
|
|
|
382
|
|
|
428
|
|
|
(17.6
|
)
|
|
(10.7
|
)
|
Worldwide
|
|
441
|
|
|
533
|
|
|
619
|
|
|
(17.3
|
)
|
|
(13.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neuroscience
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,919
|
|
|
2,574
|
|
|
2,630
|
|
|
13.4
|
|
|
(2.1
|
)
|
International
|
|
3,409
|
|
|
3,503
|
|
|
3,356
|
|
|
(2.7
|
)
|
|
4.4
|
|
Worldwide
|
|
6,328
|
|
|
6,077
|
|
|
5,986
|
|
|
4.1
|
|
|
1.5
|
|
CONCERTA® / Methylphenidate
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
233
|
|
|
229
|
|
|
384
|
|
|
1.7
|
|
|
(40.4
|
)
|
International
|
|
463
|
|
|
434
|
|
|
407
|
|
|
6.6
|
|
|
6.6
|
|
Worldwide
|
|
696
|
|
|
663
|
|
|
791
|
|
|
4.9
|
|
|
(16.2
|
)
|
INVEGA SUSTENNA® / XEPLION® / INVEGA TRINZA® / TREVICTA®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,107
|
|
|
1,791
|
|
|
1,590
|
|
|
17.6
|
|
|
12.6
|
|
International
|
|
1,224
|
|
|
1,137
|
|
|
979
|
|
|
7.7
|
|
|
16.1
|
|
Worldwide
|
|
3,330
|
|
|
2,928
|
|
|
2,569
|
|
|
13.7
|
|
|
14.0
|
|
RISPERDAL CONSTA®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
314
|
|
|
315
|
|
|
360
|
|
|
(0.3
|
)
|
|
(12.5
|
)
|
International
|
|
374
|
|
|
422
|
|
|
445
|
|
|
(11.4
|
)
|
|
(5.2
|
)
|
Worldwide
|
|
688
|
|
|
737
|
|
|
805
|
|
|
(6.7
|
)
|
|
(8.4
|
)
|
OTHER NEUROSCIENCE
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
266
|
|
|
239
|
|
|
296
|
|
|
11.4
|
|
|
(19.3
|
)
|
International
|
|
1,349
|
|
|
1,510
|
|
|
1,525
|
|
|
(10.7
|
)
|
|
(1.0
|
)
|
Worldwide
|
|
1,614
|
|
|
1,749
|
|
|
1,821
|
|
|
(7.7
|
)
|
|
(4.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Oncology
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
4,299
|
|
|
4,331
|
|
|
3,098
|
|
|
(0.7
|
)
|
|
39.8
|
|
International
|
|
6,393
|
|
|
5,513
|
|
|
4,160
|
|
|
16.0
|
|
|
32.5
|
|
Worldwide
|
|
10,692
|
|
|
9,844
|
|
|
7,258
|
|
|
8.6
|
|
|
35.6
|
|
DARZALEX®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,567
|
|
|
1,203
|
|
|
884
|
|
|
30.3
|
|
|
36.1
|
|
International
|
|
1,430
|
|
|
822
|
|
|
358
|
|
|
73.9
|
|
|
*
|
Worldwide
|
|
2,998
|
|
|
2,025
|
|
|
1,242
|
|
|
48.0
|
|
|
63.0
|
|
IMBRUVICA®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,555
|
|
|
1,129
|
|
|
841
|
|
|
37.7
|
|
|
34.2
|
|
International
|
|
1,856
|
|
|
1,486
|
|
|
1,052
|
|
|
24.9
|
|
|
41.3
|
|
Worldwide
|
|
3,411
|
|
|
2,615
|
|
|
1,893
|
|
|
30.4
|
|
|
38.1
|
|
VELCADE®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
International
|
|
751
|
|
|
1,116
|
|
|
1,114
|
|
|
(32.7
|
)
|
|
0.2
|
|
Worldwide
|
|
751
|
|
|
1,116
|
|
|
1,114
|
|
|
(32.7
|
)
|
|
0.2
|
|
ZYTIGA® /abiraterone acetate
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
810
|
|
|
1,771
|
|
|
1,228
|
|
|
(54.3
|
)
|
|
44.2
|
|
International
|
|
1,985
|
|
|
1,727
|
|
|
1,277
|
|
|
15.0
|
|
|
35.2
|
|
Worldwide
|
|
2,795
|
|
|
3,498
|
|
|
2,505
|
|
|
(20.1
|
)
|
|
39.6
|
|
OTHER ONCOLOGY
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
367
|
|
|
228
|
|
|
145
|
|
|
61.0
|
|
|
57.2
|
|
International
|
|
371
|
|
|
362
|
|
|
359
|
|
|
2.4
|
|
|
0.8
|
|
Worldwide
|
|
739
|
|
|
590
|
|
|
504
|
|
|
25.0
|
|
|
17.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulmonary Hypertension
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,684
|
|
|
1,651
|
|
|
773
|
|
|
2.0
|
|
|
*
|
International
|
|
939
|
|
|
922
|
|
|
554
|
|
|
1.9
|
|
|
66.4
|
|
Worldwide
|
|
2,623
|
|
|
2,573
|
|
|
1,327
|
|
|
1.9
|
|
|
93.9
|
|
OPSUMIT®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
766
|
|
|
700
|
|
|
320
|
|
|
9.4
|
|
|
*
|
International
|
|
562
|
|
|
515
|
|
|
253
|
|
|
9.0
|
|
|
*
|
Worldwide
|
|
1,327
|
|
|
1,215
|
|
|
573
|
|
|
9.2
|
|
|
*
|
TRACLEER® / bosentan
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
131
|
|
|
268
|
|
|
161
|
|
|
(51.1
|
)
|
|
66.5
|
|
International
|
|
210
|
|
|
278
|
|
|
242
|
|
|
(24.3
|
)
|
|
14.9
|
|
Worldwide
|
|
341
|
|
|
546
|
|
|
403
|
|
|
(37.5
|
)
|
|
35.5
|
|
UPTRAVI®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
714
|
|
|
598
|
|
|
238
|
|
|
19.3
|
|
|
*
|
International
|
|
105
|
|
|
65
|
|
|
25
|
|
|
62.4
|
|
|
*
|
Worldwide
|
|
819
|
|
|
663
|
|
|
263
|
|
|
23.5
|
|
|
*
|
OTHER
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
74
|
|
|
85
|
|
|
54
|
|
|
(13.7
|
)
|
|
57.4
|
|
International
|
|
62
|
|
|
64
|
|
|
34
|
|
|
(3.7
|
)
|
|
88.2
|
|
Worldwide
|
|
135
|
|
|
149
|
|
|
88
|
|
|
(9.4
|
)
|
|
69.3
|
|
Cardiovascular / Metabolism / Other
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
3,734
|
|
|
4,279
|
|
|
4,744
|
|
|
(12.7
|
)
|
|
(9.8
|
)
|
International
|
|
1,458
|
|
|
1,537
|
|
|
1,543
|
|
|
(5.2
|
)
|
|
(0.4
|
)
|
Worldwide
|
|
5,192
|
|
|
5,816
|
|
|
6,287
|
|
|
(10.7
|
)
|
|
(7.5
|
)
|
XARELTO®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,313
|
|
|
2,477
|
|
|
2,500
|
|
|
(6.6
|
)
|
|
(0.9
|
)
|
International
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Worldwide
|
|
2,313
|
|
|
2,477
|
|
|
2,500
|
|
|
(6.6
|
)
|
|
(0.9
|
)
|
INVOKANA® / INVOKAMET®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
536
|
|
|
711
|
|
|
944
|
|
|
(24.6
|
)
|
|
(24.7
|
)
|
International
|
|
199
|
|
|
170
|
|
|
167
|
|
|
17.3
|
|
|
1.8
|
|
Worldwide
|
|
735
|
|
|
881
|
|
|
1,111
|
|
|
(16.5
|
)
|
|
(20.7
|
)
|
PROCRIT® / EPREX®
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
505
|
|
|
674
|
|
|
675
|
|
|
(25.1
|
)
|
|
(0.1
|
)
|
International
|
|
285
|
|
|
314
|
|
|
297
|
|
|
(9.2
|
)
|
|
5.7
|
|
Worldwide
|
|
790
|
|
|
988
|
|
|
972
|
|
|
(20.0
|
)
|
|
1.6
|
|
OTHER
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
380
|
|
|
417
|
|
|
625
|
|
|
(9.1
|
)
|
|
(33.3
|
)
|
International
|
|
974
|
|
|
1,053
|
|
|
1,079
|
|
|
(7.6
|
)
|
|
(2.4
|
)
|
Worldwide
|
|
1,353
|
|
|
1,470
|
|
|
1,704
|
|
|
(8.0
|
)
|
|
(13.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL PHARMACEUTICAL
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
23,874
|
|
|
23,286
|
|
|
21,474
|
|
|
2.5
|
|
|
8.4
|
|
International
|
|
18,324
|
|
|
17,448
|
|
|
14,782
|
|
|
5.0
|
|
|
18.0
|
|
Worldwide
|
|
42,198
|
|
|
40,734
|
|
|
36,256
|
|
|
3.6
|
|
|
12.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEDICAL DEVICES
|
|
|
|
|
|
|
|
|
|
|
Diabetes Care
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
—
|
|
|
371
|
|
|
612
|
|
|
*
|
|
(39.4
|
)
|
International
|
|
—
|
|
|
638
|
|
|
1,003
|
|
|
*
|
|
(36.4
|
)
|
Worldwide
|
|
—
|
|
|
1,009
|
|
|
1,615
|
|
|
*
|
|
(37.5
|
)
|
Diagnostics
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
—
|
|
International
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
*
|
Worldwide
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
*
|
Interventional Solutions
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,443
|
|
|
1,283
|
|
|
1,148
|
|
|
12.5
|
|
|
11.8
|
|
International
|
|
1,554
|
|
|
1,363
|
|
|
1,148
|
|
|
14.0
|
|
|
18.7
|
|
Worldwide
|
|
2,997
|
|
|
2,646
|
|
|
2,296
|
|
|
13.3
|
|
|
15.2
|
|
Orthopaedics
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
5,319
|
|
|
5,281
|
|
|
5,404
|
|
|
0.7
|
|
|
(2.3
|
)
|
International
|
|
3,520
|
|
|
3,604
|
|
|
3,654
|
|
|
(2.3
|
)
|
|
(1.4
|
)
|
Worldwide
|
|
8,839
|
|
|
8,885
|
|
|
9,058
|
|
|
(0.5
|
)
|
|
(1.9
|
)
|
HIPS
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
863
|
|
|
841
|
|
|
827
|
|
|
2.6
|
|
|
1.7
|
|
International
|
|
575
|
|
|
577
|
|
|
567
|
|
|
(0.3
|
)
|
|
1.8
|
|
Worldwide
|
|
1,438
|
|
|
1,418
|
|
|
1,394
|
|
|
1.4
|
|
|
1.7
|
|
KNEES
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
889
|
|
|
911
|
|
|
948
|
|
|
(2.4
|
)
|
|
(3.9
|
)
|
International
|
|
591
|
|
|
591
|
|
|
575
|
|
|
0.0
|
|
|
2.8
|
|
Worldwide
|
|
1,480
|
|
|
1,502
|
|
|
1,523
|
|
|
(1.4
|
)
|
|
(1.4
|
)
|
TRAUMA
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,652
|
|
|
1,599
|
|
|
1,576
|
|
|
3.3
|
|
|
1.5
|
|
International
|
|
1,068
|
|
|
1,100
|
|
|
1,040
|
|
|
(2.9
|
)
|
|
5.8
|
|
Worldwide
|
|
2,720
|
|
|
2,699
|
|
|
2,616
|
|
|
0.8
|
|
|
3.2
|
|
SPINE & OTHER
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,915
|
|
|
1,930
|
|
|
2,053
|
|
|
(0.8
|
)
|
|
(6.0
|
)
|
International
|
|
1,286
|
|
|
1,336
|
|
|
1,472
|
|
|
(3.8
|
)
|
|
(9.2
|
)
|
Worldwide
|
|
3,201
|
|
|
3,266
|
|
|
3,525
|
|
|
(2.0
|
)
|
|
(7.3
|
)
|
Surgery
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
3,828
|
|
|
4,125
|
|
|
4,085
|
|
|
(7.2
|
)
|
|
1.0
|
|
International
|
|
5,673
|
|
|
5,776
|
|
|
5,474
|
|
|
(1.8
|
)
|
|
5.5
|
|
Worldwide
|
|
9,501
|
|
|
9,901
|
|
|
9,559
|
|
|
(4.0
|
)
|
|
3.6
|
|
ADVANCED
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,637
|
|
|
1,657
|
|
|
1,620
|
|
|
(1.2
|
)
|
|
2.3
|
|
International
|
|
2,458
|
|
|
2,345
|
|
|
2,136
|
|
|
4.8
|
|
|
9.8
|
|
Worldwide
|
|
4,095
|
|
|
4,002
|
|
|
3,756
|
|
|
2.3
|
|
|
6.5
|
|
GENERAL
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,762
|
|
|
1,751
|
|
|
1,728
|
|
|
0.6
|
|
|
1.3
|
|
International
|
|
2,718
|
|
|
2,806
|
|
|
2,735
|
|
|
(3.1
|
)
|
|
2.6
|
|
Worldwide
|
|
4,480
|
|
|
4,557
|
|
|
4,463
|
|
|
(1.7
|
)
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SPECIALTY
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
430
|
|
|
717
|
|
|
737
|
|
|
(40.1
|
)
|
|
(2.7
|
)
|
International
|
|
497
|
|
|
625
|
|
|
603
|
|
|
(20.5
|
)
|
|
3.6
|
|
Worldwide
|
|
926
|
|
|
1,342
|
|
|
1,340
|
|
|
(31.0
|
)
|
|
0.1
|
|
Vision
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,794
|
|
|
1,777
|
|
|
1,575
|
|
|
0.9
|
|
|
12.8
|
|
International
|
|
2,830
|
|
|
2,776
|
|
|
2,488
|
|
|
2.0
|
|
|
11.6
|
|
Worldwide
|
|
4,624
|
|
|
4,553
|
|
|
4,063
|
|
|
1.6
|
|
|
12.1
|
|
CONTACT LENSES / OTHER
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,304
|
|
|
1,237
|
|
|
1,122
|
|
|
5.4
|
|
|
10.2
|
|
International
|
|
2,088
|
|
|
2,065
|
|
|
1,914
|
|
|
1.1
|
|
|
7.9
|
|
Worldwide
|
|
3,392
|
|
|
3,302
|
|
|
3,036
|
|
|
2.7
|
|
|
8.8
|
|
SURGICAL
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
490
|
|
|
540
|
|
|
453
|
|
|
(9.4
|
)
|
|
19.2
|
|
International
|
|
742
|
|
|
711
|
|
|
574
|
|
|
4.4
|
|
|
23.9
|
|
Worldwide
|
|
1,232
|
|
|
1,251
|
|
|
1,027
|
|
|
(1.6
|
)
|
|
21.8
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL MEDICAL DEVICES
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
12,384
|
|
|
12,837
|
|
|
12,824
|
|
|
(3.5
|
)
|
|
0.1
|
|
International
|
|
13,579
|
|
|
14,157
|
|
|
13,768
|
|
|
(4.1
|
)
|
|
2.8
|
|
Worldwide
|
|
25,963
|
|
|
26,994
|
|
|
26,592
|
|
|
(3.8
|
)
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
WORLDWIDE
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
42,097
|
|
|
41,884
|
|
|
39,863
|
|
|
0.5
|
|
|
5.1
|
|
International
|
|
39,962
|
|
|
39,697
|
|
|
36,587
|
|
|
0.7
|
|
|
8.5
|
|
Worldwide
|
|
$
|
82,059
|
|
|
81,581
|
|
|
76,450
|
|
|
0.6
|
%
|
|
6.7
|
|
*Percentage greater than 100% or not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Tax
|
|
Identifiable Assets
|
(Dollars in Millions)
|
|
2019 (3)
|
|
2018 (4)
|
|
2017 (5)
|
|
2019
|
|
2018
|
Consumer
|
|
$
|
2,061
|
|
|
2,320
|
|
|
2,524
|
|
|
$
|
26,618
|
|
|
25,877
|
|
Pharmaceutical
|
|
8,816
|
|
|
12,568
|
|
|
11,083
|
|
|
56,292
|
|
|
56,636
|
|
Medical Devices
|
|
7,286
|
|
|
4,397
|
|
|
5,392
|
|
|
49,462
|
|
|
46,254
|
|
Total
|
|
18,163
|
|
|
19,285
|
|
|
18,999
|
|
|
132,372
|
|
|
128,767
|
|
Less: Expense not allocated to segments (1)
|
|
835
|
|
|
1,286
|
|
|
1,326
|
|
|
|
|
|
General corporate (2)
|
|
|
|
|
|
|
|
25,356
|
|
|
24,187
|
|
Worldwide total
|
|
$
|
17,328
|
|
|
17,999
|
|
|
17,673
|
|
|
$
|
157,728
|
|
|
152,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to Property,
Plant & Equipment
|
|
Depreciation and
Amortization
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Consumer
|
|
$
|
328
|
|
|
438
|
|
|
485
|
|
|
$
|
765
|
|
|
688
|
|
|
674
|
|
Pharmaceutical
|
|
950
|
|
|
1,012
|
|
|
936
|
|
|
3,910
|
|
|
3,802
|
|
|
2,416
|
|
Medical Devices
|
|
1,912
|
|
|
1,843
|
|
|
1,566
|
|
|
2,014
|
|
|
2,103
|
|
|
2,216
|
|
Segments total
|
|
3,190
|
|
|
3,293
|
|
|
2,987
|
|
|
6,689
|
|
|
6,593
|
|
|
5,306
|
|
General corporate
|
|
308
|
|
|
377
|
|
|
292
|
|
|
320
|
|
|
336
|
|
|
336
|
|
Worldwide total
|
|
$
|
3,498
|
|
|
3,670
|
|
|
3,279
|
|
|
$
|
7,009
|
|
|
6,929
|
|
|
5,642
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Customers
|
|
Long-Lived Assets (6)
|
(Dollars in Millions)
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
United States
|
|
$
|
42,097
|
|
|
41,884
|
|
|
39,863
|
|
|
$
|
41,528
|
|
|
37,117
|
|
Europe
|
|
18,466
|
|
|
18,753
|
|
|
17,126
|
|
|
48,015
|
|
|
51,433
|
|
Western Hemisphere excluding U.S.
|
|
5,941
|
|
|
6,113
|
|
|
6,041
|
|
|
2,862
|
|
|
2,752
|
|
Asia-Pacific, Africa
|
|
15,555
|
|
|
14,831
|
|
|
13,420
|
|
|
5,486
|
|
|
2,733
|
|
Segments total
|
|
82,059
|
|
|
81,581
|
|
|
76,450
|
|
|
97,891
|
|
|
94,035
|
|
General corporate
|
|
|
|
|
|
|
|
1,049
|
|
|
1,064
|
|
Other non long-lived assets
|
|
|
|
|
|
|
|
58,788
|
|
|
57,855
|
|
Worldwide total
|
|
$
|
82,059
|
|
|
81,581
|
|
|
76,450
|
|
|
$
|
157,728
|
|
|
152,954
|
|
See Note 1 for a description of the segments in which the Company operates.
Export sales are not significant. In 2019, the Company utilized three wholesalers distributing products for all three segments that represented approximately 15.0%, 12.0% and 11.0% of the total consolidated revenues. In 2018, the Company had three wholesalers distributing products for all three segments that represented approximately 14.0%, 11.0% and 11.0% of the total consolidated revenues. In 2017, the Company had two wholesalers distributing products for all three segments that represented approximately 14.0% and 10.0% of the total consolidated revenues.
|
|
(1)
|
Amounts not allocated to segments include interest (income) expense and general corporate (income) expense.
|
|
|
(2)
|
General corporate includes cash, cash equivalents and marketable securities.
|
|
|
(3)
|
The Consumer segment includes a gain of $0.3 billion related to the Company's previously held equity investment in DR. CI:LABO, litigation expense of $0.4 billion and a restructuring charge of $0.1 billion. The Pharmaceutical segment includes litigation expense of $4.3 billion including $4.0 billion related to the agreement in principle to settle opioid litigation (see Note 21 to the Consolidated Financial Statements for additional information regarding the opioid litigation), an in-process research and development expense of $0.9 billion related to the Alios asset, a research and development expense of $0.3 billion for an upfront payment related to argenx, an unrealized gain on securities of $0.6 billion, Actelion acquisition related costs of $0.2 billion and a restructuring charge of $0.1 billion. The Medical Devices segment includes a gain of $2.0 billion from the divestiture of the ASP business, a restructuring related charge of $0.4 billion, litigation expense of $0.4 billion and Auris Health acquisition related costs of $0.1 billion.
|
|
|
(4)
|
The Consumer segment includes a gain of $0.3 billion from the divestiture of NIZORAL® and litigation expense of $0.3 billion. The Pharmaceutical segment includes an in-process research and development charge of $1.1 billion related to the Alios and XO1 assets and the corresponding XO1 contingent liability reversal of $0.2 billion, Actelion acquisition related costs of $0.2 billion, unrealized loss on securities of $0.2 billion and a gain of $0.2 billion from the divestiture of certain non-strategic Pharmaceutical products. The Medical Devices segment includes net litigation expense of $1.7 billion, a restructuring related charge of $0.6 billion, AMO acquisition related costs of $0.1 billion and a gain of $0.5 billion from the divestiture of the LifeScan business.
|
|
|
(5)
|
The Pharmaceutical segment includes $0.8 billion for Actelion acquisition and integration related costs, an in-process research and development expense of $0.4 billion and litigation expense of $0.1 billion. The Medical Devices segment includes litigation expense of $1.1 billion, a restructuring related charge of $0.8 billion, an asset impairment of $0.2 billion primarily related to the insulin pump business and $0.1 billion for AMO acquisition related costs. The Medical Devices segment includes a gain of $0.7 billion from the divestiture of Codman Neurosurgery. The Consumer segment includes a gain of $0.5 billion from the divestiture of COMPEED®.
|
|
|
(6)
|
Long-lived assets include property, plant and equipment, net for 2019, and 2018 of $17,658 and $17,035, respectively, and intangible assets and goodwill, net for 2019 and 2018 of $81,282 and $78,064, respectively.
|
|
|
19.
|
Selected Quarterly Financial Data (unaudited)
|
Selected unaudited quarterly financial data for the years 2019 and 2018 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
(Dollars in Millions Except Per Share Data)
|
|
First Quarter (1)
|
|
Second Quarter (2)
|
|
Third Quarter (3)
|
|
Fourth Quarter (4)
|
|
First Quarter (5)
|
|
Second Quarter (6)
|
|
Third Quarter (7)
|
|
Fourth Quarter (8)
|
Segment sales to customers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
|
|
$
|
3,318
|
|
|
3,544
|
|
|
3,469
|
|
|
3,567
|
|
|
3,398
|
|
|
3,504
|
|
|
3,415
|
|
|
3,536
|
|
Pharmaceutical
|
|
10,244
|
|
|
10,529
|
|
|
10,877
|
|
|
10,548
|
|
|
9,844
|
|
|
10,354
|
|
|
10,346
|
|
|
10,190
|
|
Medical Devices
|
|
6,459
|
|
|
6,489
|
|
|
6,383
|
|
|
6,632
|
|
|
6,767
|
|
|
6,972
|
|
|
6,587
|
|
|
6,668
|
|
Total sales
|
|
20,021
|
|
|
20,562
|
|
|
20,729
|
|
|
20,747
|
|
|
20,009
|
|
|
20,830
|
|
|
20,348
|
|
|
20,394
|
|
Gross profit
|
|
13,406
|
|
|
13,622
|
|
|
13,862
|
|
|
13,613
|
|
|
13,395
|
|
|
13,903
|
|
|
13,759
|
|
|
13,433
|
|
Earnings before provision for taxes on income
|
|
4,422
|
|
|
7,041
|
|
|
1,647
|
|
|
4,218
|
|
|
5,481
|
|
|
4,973
|
|
|
4,423
|
|
|
3,122
|
|
Net earnings
|
|
3,749
|
|
|
5,607
|
|
|
1,753
|
|
|
4,010
|
|
|
4,367
|
|
|
3,954
|
|
|
3,934
|
|
|
3,042
|
|
Basic net earnings per share
|
|
$
|
1.41
|
|
|
2.11
|
|
|
0.67
|
|
|
1.52
|
|
|
1.63
|
|
|
1.47
|
|
|
1.47
|
|
|
1.14
|
|
Diluted net earnings per share
|
|
$
|
1.39
|
|
|
2.08
|
|
|
0.66
|
|
|
1.50
|
|
|
1.60
|
|
|
1.45
|
|
|
1.44
|
|
|
1.12
|
|
|
|
(1)
|
The first quarter of 2019 includes a gain of $0.3 billion after-tax ($0.3 billion before-tax) related to the Company's previously held equity investment in DR. CI:LABO, an in-process research and development expense of $703 million after-tax ($890 million before-tax) related to the Alios asset, a litigation expense of $342 million after-tax ($423 million before-tax), an unrealized gain on securities of $125 million after-tax ($158 million before-tax), a restructuring related charge of $75 million after-tax ($90 million before-tax), and acquisition related costs of $60 million after-tax ($67 million before-tax).
|
|
|
(2)
|
The second quarter of 2019 includes a gain of $1.5 billion after-tax ($2.0 billion before-tax) from the divestiture of the ASP business, a litigation expense of $342 million after-tax ($409 million before-tax), an unrealized gain on securities of $117 million after-tax ($148 million before-tax), a restructuring related charge of $116 million after-tax ($142 million before-tax) and acquisition related costs of $50 million after-tax ($55 million before-tax).
|
|
|
(3)
|
The third quarter of 2019 includes a litigation expense of $3,080 million after-tax ($4,000 million before-tax) related to the agreement in principle to settle opioid litigation, a restructuring related charge of $106 million after-tax ($128 million before-tax), acquisition related costs of $88 million after-tax ($107 million before-tax), a $391 million benefit after-tax from the impact of tax legislation, and an unrealized loss on securities of $71 million after-tax ($89 million before-tax).
|
|
|
(4)
|
The fourth quarter of 2019 includes a litigation expense of $251 million after-tax ($264 million before-tax), an unrealized gain on securities of $277 million after-tax ($350 million before-tax), a restructuring related charge of $214 million after-tax ($251 million before-tax), a $184 million benefit after-tax from the impact of tax legislation, and acquisition related costs of $82 million after-tax ($90 million before-tax).
|
|
|
(5)
|
The first quarter of 2018 includes an Actelion acquisition related cost of $92 million after-tax ($96 million before-tax) and a restructuring related charge of $81 million after-tax ($107 million before-tax).
|
|
|
(6)
|
The second quarter of 2018 includes a litigation expense of $609 million after-tax ($703 million before-tax) and a restructuring related charge of $152 million after-tax ($176 million before-tax).
|
|
|
(7)
|
The third quarter of 2018 includes an in-process research and development expense of $859 million after-tax ($1,126 million before-tax) related to the Alios and XO1 assets and the corresponding XO1 contingent liability reversal of $184 million after and before tax, a restructuring related charge of $162 million after-tax ($190 million before-tax) and a $265 million benefit after-tax from the impact of tax legislation.
|
|
|
(8)
|
The fourth quarter of 2018 includes a litigation expense of $1,113 million after-tax ($1,288 million before-tax), a restructuring related charge of $190 million after-tax ($227 million before-tax) and a $137 million benefit after-tax from the impact of tax legislation.
|
|
|
20.
|
Acquisitions and Divestitures
|
Certain businesses were acquired for $5.8 billion in cash and $1.4 billion of liabilities assumed during 2019. These acquisitions were accounted for using the acquisition method and, accordingly, results of operations have been included in the financial statements from their respective dates of acquisition.
The 2019 acquisitions primarily included: DR. CI:LABO, a Japanese company focused on the marketing, development and distribution of a broad range of dermocosmetic, cosmetic and skincare products; Auris Health, Inc. a privately held developer of robotic technologies, initially focused in lung cancer, with an FDA-cleared platform currently used in bronchoscopic diagnostic and therapeutic procedures and Taris Biomedical LLC a company specializing in the development of a novel drug delivery technology for the treatment of bladder diseases including cancer. The Company also acquired the assets of JointPoint, Inc., a privately held company, with navigation software to improve surgical outcomes in hip replacement.
The excess of purchase price over the estimated fair value of tangible assets acquired amounted to $6.8 billion and has been assigned to identifiable intangible assets, with any residual recorded to goodwill.
On January 17, 2019, the Company acquired DR. CI:LABO, a Japanese company focused on the marketing, development and distribution of a broad range of dermocosmetic, cosmetic and skincare products for a total purchase price of approximately ¥230 billion, which equates to approximately $2.1 billion, using the exchange rate of 109.06 Japanese Yen to each U.S. Dollar on January 16, 2019. The acquisition was completed through a series of transactions that included an all-cash tender offer to acquire the publicly held shares not already held by the Company for ¥5,900 per share. The Company previously held a 20% ownership in DR. CI:LABO. As of June 2019, the Company became the legal owner of DR. CI:LABO with the completion of the tender offer procedure in Japan. The acquired company was then delisted from the Tokyo Stock Exchange. Additionally, in the fiscal first quarter of 2019, the Company recognized a pre-tax gain recorded in Other (income) expense, net, of approximately $0.3 billion related to the Company's previously held equity investment in DR. CI:LABO.
The Company treated this transaction as a business combination and included it in the Consumer segment. The allocation of the purchase price included in the current period balance sheet is based on the best estimate of management and is preliminary and subject to change. At December 29, 2019, the fair value of the acquisition was allocated primarily to amortizable intangible assets for $1.5 billion, goodwill for $1.2 billion and liabilities of $0.4 billion subject to any subsequent valuation adjustments within the measurement period. The adjustments made since the date of acquisition were $0.1 billion to intangible assets, accrued liabilities, deferred taxes on income and property, plant and equipment with the offset to goodwill. The amortizable intangible assets were comprised of brand/trademarks and customer relationships with a weighted average life of 15.3 years The goodwill is primarily attributable to synergies expected to arise from the business acquisition and is not expected to be deductible for tax purposes.
On April 1, 2019 the Company completed the acquisition of Auris Health, Inc. for approximately $3.4 billion, net of cash acquired. Additional contingent payments of up to $2.35 billion, in the aggregate, may be payable upon reaching certain predetermined milestones. Auris Health was a privately held developer of robotic technologies, initially focused in lung cancer, with an FDA-cleared platform currently used in bronchoscopic diagnostic and therapeutic procedures. The Company treated this transaction as a business combination and included it in the Medical Devices segment. The fair value of the acquisition was allocated primarily to amortizable and non-amortizable intangible assets, primarily IPR&D for $3.0 billion, goodwill for $2.0 billion, marketable securities of $0.2 billion and liabilities assumed of $1.8 billion, which includes the fair value of the contingent payments mentioned above, subject to any subsequent valuation adjustments within the measurement period. As of December 29, 2019 there were no valuation adjustments. The fair value of the contingent consideration was $1.1 billion. A probability of success factor ranging from 55% to 95% was used in the fair value calculation to reflect inherent regulatory and commercial risk of the contingent payments and IPR&D. The discount rate applied was approximately 10%. The goodwill is primarily attributable to synergies expected to arise from the business acquisition and is not expected to be deductible for tax purposes.
On December 20, 2019, the Company announced the agreement to acquire Verily's stake in Verb Surgical Inc. The transaction closed in the fiscal first quarter of 2020 and Verb Surgical Inc. is now a subsidiary of Johnson & Johnson.
On December 30, 2019, subsequent to the fiscal year end, the Company completed the acquisition of all rights to the investigational compound bermekimab, which has multiple dermatological indications, along with certain employees from XBiotech Inc., for a purchase price of $0.8 billion. XBiotech may be eligible to receive additional payments upon the receipt of certain commercialization authorizations. The transaction will be accounted for as a business combination and included in the Pharmaceutical segment.
During 2018 certain businesses were acquired for $0.9 billion in cash and $0.1 billion of liabilities assumed during 2018. These acquisitions were accounted for using the acquisition method and, accordingly, results of operations have been included in the financial statements from their respective dates of acquisition.
The 2018 acquisitions primarily included: Zarbee’s, Inc., a privately held company that is a leader in naturally-based consumer healthcare products; BeneVir Biopharm, Inc. (BeneVir), a privately-held, biopharmaceutical company specializing in the development of oncolytic immunotherapies and Orthotaxy, a privately-held developer of software-enabled surgery technologies, including a differentiated robotic-assisted surgery solution. The Company also acquired the assets of Medical Enterprises Distribution LLC, a privately held healthcare technology firm focused on surgical procedure innovation.
The excess of purchase price over the estimated fair value of tangible assets acquired amounted to $1.0 billion and has been assigned to identifiable intangible assets, with any residual recorded to goodwill.
During 2017 certain businesses were acquired for $35.2 billion in cash and $1.8 billion of liabilities assumed. These acquisitions were accounted for using the acquisition method and, accordingly, results of operations have been included in the financial statements from their respective dates of acquisition.
The 2017 acquisitions primarily included: Actelion Ltd, an established leading franchise of differentiated, innovative products for pulmonary arterial hypertension (PAH); Abbott Medical Optics (AMO), a wholly-owned subsidiary of Abbott Laboratories, which included ophthalmic products related to: cataract surgery, laser refractive surgery and consumer eye health; Neuravi Limited, a privately-held medical device company that develops and markets medical devices for neurointerventional therapy; TearScience Inc., a manufacturer of products dedicated to treating meibomian gland dysfunction; Sightbox, Inc., a privately-held company that developed a subscription vision care service that connects consumers with eye care professionals and a supply of contact lenses; 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.
The excess of purchase price over the estimated fair value of tangible assets acquired amounted to $34.4 billion and has been assigned to identifiable intangible assets, with any residual recorded to goodwill. Of this amount, approximately $1.1 billion has been identified as the value of IPR&D, primarily associated with the acquisition of Actelion Ltd. The value of the IPR&D was calculated using cash flow projections discounted for the inherent risk in the projects.
During 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). In 2017 the Company held 9.9% of the shares of Idorsia and had rights to an additional 22.1% of Idorsia equity through a convertible loan with a principal amount of approximately $0.5 billion. As a result of Idorsia raising additional capital in July 2018, the Company currently holds 9.0% of the shares of Idorsia and has rights to an additional 20.8% of Idorsia equity through a convertible loan with a carrying value and a principal amount of approximately $0.5 billion. The convertible loan may be converted into 38,715,114 Idorsia shares, subject to certain restrictions, 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 10 year term, or if Idorsia undergoes a change of control transaction. At the maturity of the loan, if the remaining amount has not yet been converted, Idorsia may elect to settle the remaining amount in cash or in ordinary shares of Idorsia. The equity investment in Idorsia and the convertible loan are recorded 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 3 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 December 29, 2019, Idorsia has not made any draw-downs under the credit facility. 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.
During the fiscal second quarter of 2018, the Company finalized the purchase price allocation for Actelion 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 the second quarter of 2018:
|
|
|
|
(Dollars in Millions)
|
|
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. For the year ended December 31, 2017, total sales and a net loss for Actelion from the date of acquisition were $1.4 billion and $1.4 billion, respectively.
The following table provides pro forma results of operations for the fiscal year ended December 31, 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 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)
|
2017
|
|
|
Net Sales
|
77,681
|
|
Net Earnings
|
1,509
|
|
Diluted Net Earnings per Common Share
|
0.55
|
|
The Company recorded Actelion acquisition related costs before tax of approximately $0.2 billion, $0.2 billion and $0.8 billion in 2019, 2018 and 2017, respectively, which was recorded in Other (income)/expense and Cost of products sold.
During 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.
In 2012, the Company completed the acquisition of Synthes, Inc. for a purchase price of $20.2 billion in cash and stock. In connection with the acquisition of Synthes, Inc. the Company entered into two accelerated share repurchase (ASR) agreements. In 2013, the Company settled the remaining liabilities under the ASR agreements. While the Company believes that the transactions under each ASR agreement and a series of related internal transactions were consummated in a tax efficient manner in accordance with applicable law, it is possible that the Internal Revenue Service could assert one or more contrary positions to challenge the transactions from a tax perspective. If challenged, an amount up to the total purchase price for the Synthes shares could be treated as subject to applicable U.S. tax at approximately the statutory rate to the Company, plus interest.
With the exception of the Actelion Ltd acquisition, supplemental pro forma information for 2019, 2018 and 2017 in accordance with U.S. GAAP standards related to business combinations, and goodwill and other intangible assets, is not provided, as the impact of the aforementioned acquisitions did not have a material effect on the Company’s results of operations, cash flows or financial position.
Divestitures
During 2019, the Company divested its Advanced Sterilization Products (ASP) business to Fortive Corporation for an aggregate value of approximately $2.8 billion, consisting of $2.7 billion of cash proceeds and $0.1 billion of retained net receivables. As of December 30, 2018, the assets held for sale on the Consolidated Balance Sheet were $0.2 billion of inventory, $0.1 billion of property, plant and equipment, net and $0.3 billion of goodwill. The Company recognized a pre-tax gain recorded in Other (income) expense, net, of approximately $2.0 billion.
During 2018, the Company divested the LifeScan Inc business for approximately $2.1 billion and retained certain net liabilities. Other divestitures in 2018 included: NIZORAL®, RoC® and certain non-strategic Pharmaceutical products. In 2018, the pre-tax gains on the divestitures were approximately $1.2 billion.
In 2018, the Company accepted 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. The Company is expanding a 12-year relationship with Jabil to produce a range of products within the Ethicon Endo-Surgery and DePuy Synthes businesses. This transaction includes the transfer of employees and manufacturing sites. The majority of the transfers were completed in 2019 with a minor amount remaining in 2020. As of December 29, 2019, the assets held for sale on the Consolidated Balance Sheet were $0.1 billion of inventory and property, plant and equipment, net. As of December 30, 2018, the assets held for sale on the Consolidated Balance Sheet were $0.3 billion of inventory and $0.1 billion of property, plant and equipment, net. For additional details on the global supply chain restructuring see Note 22 to the Consolidated Financial Statements.
During 2017, the Company divestitures primarily included: the Codman Neurosurgery business, to Integra LifeSciences Holdings Corporation and the divestiture of COMPEED® to HRA Pharma. In 2017, the pre-tax gains on the divestitures were approximately $1.3 billion.
Johnson & Johnson and certain of its subsidiaries are involved in various lawsuits and claims regarding product liability, intellectual property, commercial, supplier indemnification 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 December 29, 2019, 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 including timing of related payments. The ability to make such estimates and judgments can be affected by various factors including, among other things, 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; procedural or jurisdictional issues; the uncertainty and unpredictability of the number of potential claims; or there are numerous parties involved. 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.
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.
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. From time to time, even if it has substantial defenses, the Company considers isolated settlements based on a variety of circumstances. 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. 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; INVOKANA®; and ETHICON PHYSIOMESH® Flexible Composite Mesh. As of December 29, 2019, in the United States there were approximately 1,100 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; 17,600 with respect to pelvic meshes; 11,900 with respect to RISPERDAL®; 29,000 with respect to XARELTO®; 17,900 with respect to body powders containing talc; 400 with respect to INVOKANA®; and 3,300 with respect to ETHICON PHYSIOMESH® Flexible Composite Mesh.
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, India 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, 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 (collectively, DePuy) relating to the PINNACLE® Acetabular Cup System used in hip replacement surgery. 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. 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. Several adverse verdicts have been rendered against DePuy, one of which was reversed on appeal and remanded for retrial. During the first quarter of 2019, DePuy established a United States settlement program to resolve these cases. As part of the settlement program, adverse verdicts have been settled. The Company has established an accrual for product liability litigation associated with the PINNACLE® Acetabular Cup System and the related settlement program.
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 had been organized as a multi-district litigation (MDL) in the United States District Court for the Southern District of West Virginia. The MDL Court is remanding cases for trial to the jurisdictions where the case was originally filed and additional pelvic mesh lawsuits have been filed, and remain, outside of the MDL. The Company has settled or otherwise resolved a majority of the United States cases and the estimated costs associated with these settlements and the remaining cases are reflected in the Company's accruals. 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 November 2019, the Federal Court of Australia issued a judgment regarding its findings with respect to liability in relation to the three Lead Applicants and generally in relation to the design, manufacture, pre and post-market assessments and testing, and supply and promotion of the devices in Australia used to treat stress urinary incontinence and pelvic organ prolapse. Orders determining the damages amounts to be awarded to the three Lead Applicants are expected in the first quarter of 2020. With respect to other group members, there will be an individual case assessment process which will require proof of use and causally related loss. The class actions in Canada are expected to be discontinued in 2020 as a result of a settlement of a group of cases, subject to court approval of the discontinuance. The Company has established accruals with respect to product liability litigation associated with Ethicon's pelvic mesh products.
Following a June 2016 worldwide market withdrawal of ETHICON PHYSIOMESH® Flexible Composite Mesh, claims for personal injury have been made against Ethicon, Inc. and Johnson & Johnson alleging personal injury arising out of the use of this hernia mesh device. Cases filed in federal courts in the United States have been organized as a multi-district litigation (MDL) in the United States District Court for the Northern District of Georgia. A multi-county litigation (MCL) has also been formed in New Jersey state court and assigned to Atlantic County for cases pending in New Jersey. In addition to the matters in the MDL and MCL, there are additional lawsuits pending in the United States District Court for the Southern District of Ohio, which are part of the MDL for polypropylene mesh devices manufactured by C.R. Bard, Inc., and lawsuits pending outside the United States.
Along with ETHICON PHYSIOMESH® lawsuits, there were a number of filings related to the PROCEED® Mesh and PROCEED® Ventral Patch products. In March 2019, the New Jersey Supreme Court entered an order consolidating all PROCEED® and PROCEED® Ventral Patch cases as an MCL in Atlantic County Superior Court. Additional cases have been filed in various federal and state courts in the US, and in jurisdictions outside the US. The Company continues to receive information with respect to potential costs and the anticipated number of cases. The Company has established accruals with respect to product liability litigation associated with ETHICON PHYSIOMESH® Flexible Composite Mesh, PROCEED® Mesh and PROCEED® Ventral Patch products. In September 2019, plaintiffs’ attorney filed an application with the New Jersey Supreme Court seeking centralized management of 107 PROLENE™ Polypropylene Hernia System cases. The New Jersey Supreme Court granted plaintiffs application in January 2020 and those will be transferred to an MCL in Atlantic County Superior Court.
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 successfully defended a number of these cases but there have been verdicts against the Company, including a recent verdict in October 2019 of $8 billion of punitive damages related to one single plaintiff which was subsequently reduced in January 2020 to $6.8 million by the trial judge. The Company will appeal the final judgment. 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 (J&J); and JPI's collaboration partner for XARELTO® Bayer AG and certain of its affiliates. 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 in a coordinated proceeding in Los Angeles, California. Class action lawsuits also have been filed in Canada. In March 2019, JPI and J&J announced an agreement in principle to the settle the XARELTO® cases in the United States; the settlement agreement was executed in May 2019, and the settlement became final in December 2019. This will resolve the majority of cases pending in the United States. The Company has established accruals for its costs associated with the United States settlement program and XARELTO® related product liability litigation.
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 JOHNSON’S® 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, as well as outside the United States. 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. In the multi-district litigation, the parties have moved to exclude experts, known as Daubert motions. The Court held Daubert hearings in mid-July 2019 and a final round of briefing has been submitted to the Court. The parties are awaiting a decision. The Company has successfully defended a number of these cases but there have been verdicts against the Company, including a verdict in July 2018 of $4.7 billion. The Company believes that it has strong grounds on appeal to overturn these verdicts. The Company has established an accrual primarily for defense costs in connection with product liability litigation associated with body powders containing talc.
In February 2019, the Company’s talc supplier, Imerys Talc America, Inc. and two of its affiliates, Imerys Talc Vermont, Inc. and Imerys Talc Canada, Inc. (collectively, Imerys) filed a voluntary chapter 11 petition commencing a reorganization under the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware (Imerys Bankruptcy). The Imerys Bankruptcy relates to Imerys’ potential liability for personal injury from exposure to talcum powder sold by Imerys (Talc Claims). In its bankruptcy filing, Imerys noted certain claims it alleges it has against the Company for indemnification and rights to joint insurance proceeds. Based on such claims as well as indemnity and insurance claims the Company has against Imerys, the Company petitioned the United States District Court for the District of Delaware to establish federal jurisdiction of the state court talc lawsuits under the Bankruptcy Code. The Company's petition was denied and the state court talc lawsuits that have been removed to federal court on such basis have been remanded. The Company formally proposed to resolve Imerys' and the Company’s obligations arising out of the Talc Claims by agreeing to assume the defense of litigation of all Talc Claims involving the Company's products, lifting the automatic stay to enable the Talc Claims to proceed outside the bankruptcy forum with the Company agreeing to settle or pay any judgment against Imerys, and waiving the Company’s indemnification claims against Imerys. Discussions between Imerys and the Company on this issue remain ongoing.
In February 2018, a securities class action lawsuit was filed against Johnson & Johnson and certain named officers 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, and that purchasers of Johnson & Johnson’s shares suffered losses as a result. Plaintiffs are seeking damages. In April 2019, the Company moved to dismiss the complaint and briefing on the motion was complete as of August 2019. In December 2019, the Court denied, in part, the motion to dismiss.
In October 2018, a shareholder derivative lawsuit was filed against Johnson & Johnson as the nominal defendant and its current directors as defendants in the United States District Court for the District of New Jersey, alleging a breach of fiduciary duties related to the alleged asbestos contamination in body powders containing talc, primarily JOHNSON’S® Baby Powder, and that Johnson & Johnson has suffered damages as a result of those alleged breaches. In June 2019, the shareholder filed an additional
complaint initiating a summary proceeding in New Jersey state court for a books and records inspection. In August 2019, Johnson & Johnson responded to the books and records complaint and filed a cross motion to dismiss. In September 2019, Plaintiff replied and the Court heard oral argument. The Court has not yet ruled in the books and records action. In September 2019, the United States District Court for the District of New Jersey granted defendants’ motion to dismiss the shareholder derivative lawsuit, and dismissed the complaint without prejudice. In October 2019, the shareholder filed a notice of appeal with the United States Court of Appeals for the Third Circuit. In January 2020, the shareholder voluntarily dismissed his appeal, with prejudice. Four additional shareholder derivative lawsuits have been filed in New Jersey making similar allegations against the Company and its current directors and certain officers.
In January 2019, two ERISA class action lawsuits were filed by participants in the Johnson & Johnson Savings Plan against Johnson & Johnson, its Pension and Benefits Committee, and certain named officers in the United States District Court for the District of New Jersey, alleging that the defendants breached their fiduciary duties by offering Johnson & Johnson stock as a Johnson & Johnson Savings Plan investment option when it was imprudent to do so because of failures to disclose alleged asbestos contamination in body powders containing talc, primarily JOHNSON’S® Baby Powder. Plaintiffs are seeking damages and injunctive relief. Defendants have filed a motion to dismiss.
A lawsuit is pending in the United States District Court for the Central District of California alleging violations of Proposition 65, California’s Unfair Competition Law and False Advertising Law concerning JOHNSON’S® Baby Powder. In June 2019, plaintiffs filed a motion for voluntary dismissal of this Proposition 65 action and the Company opposed such motion to the extent it would allow plaintiffs’ counsel to refile such claims with new plaintiffs. The Court granted plaintiff’s motion conditioned upon payment of attorneys’ fees and costs. The Court entered its award of attorneys’ fees and costs in October 2019 and the case was dismissed without prejudice. Another lawsuit alleging violations of Proposition 65, California’s Consumer Legal Remedies Act relating to JOHNSON’S® Baby Powder was filed in the Superior Court of California for the County of San Diego. In July 2019, the Company filed a notice of removal to the United States District Court for the Southern District of California and plaintiffs filed a second amended complaint shortly thereafter. In October 2019, the Company moved to dismiss the second amended complaint for failure to state a claim upon which relief may be granted, primarily on the basis that the plaintiffs failed to comply with Proposition 65’s mandatory pre-suit notice requirement, which applies even when a plaintiff asserts only an indirect Proposition 65 claim. In response to those motions, plaintiffs filed a third amended complaint. In December 2019, the Company moved to dismiss the third amended complaint for failure to state a claim upon which relief may be granted.
In addition, the Company has received preliminary inquiries and subpoenas to produce documents regarding these matters from Senator Murray, a member of the Senate Committee on Health, Education, Labor and Pensions, the Department of Justice, the Securities and Exchange Commission and the U.S. Congressional Subcommittee on Economic and Consumer Policy. The Company is cooperating with government inquiries and continues to produce documents in response.
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. Lawsuits 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. Class action lawsuits have been filed in 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 cases and claims in the United States and the costs associated with these settlements are reflected in the Company's accruals.
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 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. Although Johnson & Johnson has since sold Cordis, it has retained liability for this case. After the 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. In March 2019, the district court denied Medinol’s motion for a new trial. In April 2019, Medinol filed a notice of appeal.
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 (collectively, DePuy). MedIdea alleges infringement of United States Patent Nos. 6,558,426 (’426); 8,273,132 (’132); 8,721,730 (’730) and 9,492,280 (’280) relating to posterior stabilized knee systems. Specifically, MedIdea alleges that the SOFCAMTM 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 was held in October 2018, and a claim construction order was issued in November 2018. In December 2018, MedIdea stipulated to non-infringement of the ’132, ’730 and ’280 patents, based on the district court’s claim construction and reserving its right to appeal that construction, leaving only the ’426 patent at issue before the district court. In January 2019, the district court stayed the case pending a decision in the Inter Partes Review proceeding on the ’426 patent (see below). 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 two claims of the ’426 patent asserted in the district court litigation, and in June 2018, the USPTO instituted review of those claims. A hearing was held in March 2019, and in April 2019, the USPTO issued its decision upholding the validity of the patent. In May 2019, DePuy filed a motion for summary judgment of non-infringement of the claims of the ’426 patent. In November 2019, judgment was entered in favor of Depuy. In December 2019, MedIdea filed a notice of appeal.
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 ’310 patent and the ’759 patent remain in dispute. Trial began in September 2019, and closing arguments will be heard in March 2020.
In December 2016, Dr. Ford Albritton sued Acclarent, Inc. (Acclarent) in United States District Court for the Northern District of Texas alleging that Acclarent’s RELIEVA® Spin and RELIEVEA SpinPlus® products infringe U.S. Patent No. 9,011,412 (the ’412 patent). Dr. Albritton also alleges breach of contract, fraud and that he is the true owner of Acclarent’s U.S. Patent No. 8,414,473. In December 2016, Acclarent filed a petition for Inter Partes Review (IPR) with the United States Patent and Trademark Office (USPTO) challenging the validity of the ’412 patent. The USPTO instituted the IPR in July 2017. In July 2018, the USPTO ruled in favor of Albritton in the IPR, finding that Acclarent had not met its burden of proof that the challenged claims were invalid. In October 2019, the Court of Appeals affirmed the USPTO’s Patent Trial and Appeal Board. In June 2019, the parties filed cross motions for summary judgment in the district court and the parties are awaiting a decision. The district court trial is scheduled for April 2020.
In November 2017, Board of Regents, The University of Texas System and TissueGen, Inc. (collectively, UT) 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® PDS® Antibacterial Sutures and STRATAFIX® MONOCRYL® Plus Antibacterial Sutures infringe plaintiffs’ United States Patent Nos. 6,596,296 and 7,033,603 (the ’603 patent) directed to implantable polymer drug releasing biodegradable fibers containing a therapeutic agent. UT is seeking damages and an injunction. In December 2018, Ethicon filed petitions with the USPTO, seeking Inter Partes Review (IPR) of both asserted patents. Those petitions have been stayed by the USPTO pending a decision by the U.S. Supreme Court in an unrelated case. UT dismissed the ’603 patent from
the suit and no longer accuses PDS® Plus Antibacterial Sutures or STRATAFIX® PDS® Plus Antibacterial Sutures of infringement. The district court trial is scheduled for June 2020.
In August 2018, Intuitive Surgical, Inc. and Intuitive Surgical Operations, Inc. (“Intuitive”) filed a patent infringement suit against Auris Health, Inc. (“Auris”) in United States District Court for the District of Delaware. In the suit, Intuitive alleges willful infringement of U.S. Patent Nos. 6,246,200 (’200 patent); 6,491,701 (’701 patent); 6,522,906 (’906 patent); 6,800,056 (’056 patent); 8,142,447 (’447 patent); 8,620,473 (’473 patent); 8,801,601 (’601 patent); and 9,452,276 (’276 patent) based on Auris’ Monarch™ Platform. Auris filed Petitions for Inter Partes Review with the USPTO regarding the ’200, ’056, ’601 ’701, ’447, ’276 and ’906 patents. In December 2019, the USPTO instituted review of the ’601 patent and denied review of the ’056 patent. The district court trial is scheduled to begin in January 2021.
In August 2019, RSB Spine LLC (“RSB Spine”) filed a patent infringement suit against DePuy Synthes, Inc. in United States District Court for the District of Delaware. In October 2019, RSB Spine amended the complaint to change the named defendants to DePuy Synthes Sales, Inc. and DePuy Synthes Products, Inc. In the suit, RSB Spine alleges willful infringement of United States Patent Nos. 6,984,234 and 9,713, 537 by one or more of the following products: ZERO-P-VA™ Spacer, ZERO-P® Spacer, ZERO-P NATURAL™ Plate, SYNFIX® LR Spacer and SYNFIX® Evolution System. RSB Spine seeks monetary damages and injunctive relief. In November 2019, the suit was consolidated for pre-trial purposes with other patent infringement suits brought by RSB Spine in the United States District Court for the District of Delaware against Life Spine, Inc., Medacta USA, Inc., Precision Spine, Inc., and Xtant Medical Holdings, Inc.
Pharmaceutical
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 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 is 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. In December 2019, the parties entered into a settlement agreement.
In April 2018, Acerta Pharma B.V., AstraZeneca UK Ltd and AstraZeneca Pharmaceuticals LP filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Pharmacyclics LLC and Abbvie Inc. (collectively, Abbvie), alleging that the manufacture and sale of IMBRUVICA® infringes U.S. Patent No. 7,459,554. Janssen Biotech, Inc., which commercializes IMBRUVICA® jointly with Abbvie, intervened in the action in November 2018. In October 2019, the parties entered into a settlement agreement.
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. JBI seeks monetary damages and other relief. In October 2017, the district court in the Massachusetts
action denied Celltrion and Hospira’s motion to dismiss for lack of standing. In July 2018, the district court in the Massachusetts action granted Celltrion’s motion for summary judgment of non-infringement and entered an order dismissing the ’083 lawsuit against Celltrion and Hospira. JBI appealed to the United States Court of Appeals for the Federal Circuit, and Celltrion and Hospira cross-appealed on the standing issue. A hearing on the appeal and cross-appeal is scheduled for March 2020. 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 and invalidity of the applicable patents. In the event the subsidiaries are not successful in an action, or the automatic statutory stay of the ANDAs expires before the United States District Court rulings are obtained, the third-party companies involved would have the ability, upon approval of the FDA, to introduce generic versions of their products to the market, resulting in the potential for substantial market share and revenue losses for the applicable 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 types of 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 at times by generic companies in conjunction with ANDAs and lawsuits, to challenge the applicable patents.
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 (the main action) 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 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); 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. These lawsuits were consolidated with the main action.
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 main action.
In December 2017, Janssen and BTG entered into a settlement agreement with Glenmark.
In February 2018, Janssen and BTG filed a patent infringement lawsuit against MSN Pharmaceuticals, Inc. and MSN Laboratories Private Limited (collectively, MSN) in United States District Court for the District of New Jersey based on its ANDA seeking approval for a generic version of ZYTIGA® prior to the expiration of the ’438 patent. In February 2019, the action was stayed pending the outcome of the main action.
In April 2018, Janssen and BTG entered into a settlement agreement with Apotex.
In October 2018, the United States District Court for the District of New Jersey issued a ruling invalidating all asserted claims of the ’438 patent. The court held that the patent claims would be infringed if the patent were valid. Janssen appealed the court’s decision.
In November 2018, Janssen and BTG initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Qilu Pharmaceutical Co., Ltd. and Qilu Pharma, Inc. (collectively, Qilu), who filed an ANDA seeking approval to market a generic version of ZYTIGA® before the expiration of the ’438 patent. Janssen is seeking an order enjoining Qilu from marketing its generic version of ZYTIGA® before the expiration of the ’438 patent.
In November 2018, the United States Court of Appeals for the Federal Circuit denied Janssen’s request for an injunction pending appeal. As a result, several generic versions of ZYTIGA® have entered the market.
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 requested rehearing. In December 2018, the USPTO denied Janssen’s request for rehearing of the IPR decisions. Janssen filed an appeal, which was consolidated with the above-mentioned appeal of the decision of the United States District Court for the District of New Jersey. In May 2019, the Federal Circuit issued a decision affirming the USPTO's decision in the Wockhardt IPR that the ’438 patent claims are unpatentable and dismissed the remaining appeals as moot. Subsequently, Janssen dismissed its lawsuits against MSN and Qilu.
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 ’422 patent). The final hearing concluded in May 2019. In October 2019, the court issued an order prohibiting the Canadian Minister of Health from approving Apotex’s ANDS until the expiration of the ’422 patent. In November 2019, Apotex filed an appeal.
In January 2019, Janssen initiated a Notice of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against 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 film-coated generic version of ZYTIGA® before the expiration of the ’422 patent.
In January 2019, Janssen initiated a Notice of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Pharmascience Inc. (Pharmascience) and the Minister of Health in Canada in response to Pharmascience’s filing of an Abbreviated New Drug Submission (ANDS) seeking approval to market a generic version of ZYTIGA® 250 mg, before the expiration of the ’422 patent. The final hearing is scheduled to begin in October 2020.
In November 2019, Janssen initiated a Notice of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Pharmascience and the Minister of Health in Canada in response to Pharmascience’s filing of an ANDS seeking approval to market a generic version of ZYTIGA®, 500 mg, before the expiration of the ’422 patent. The final hearing is scheduled to begin in October 2020.
In January 2019, Janssen initiated a Notice of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Sandoz Canada Inc. (Sandoz) and the Minister of Health in Canada in response to Sandoz’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. In July 2019, the parties entered into a settlement agreement.
In June 2019, Janssen initiated a Notice of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Dr. Reddy's Laboratories Ltd. and Dr. Reddy's Laboratories, Inc. (collectively, DRL) 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 final hearing is scheduled to begin in October 2020.
In each of these Canadian actions, Janssen is seeking an order prohibiting the Minister of Health from issuing a Notice of Compliance with respect to the defendants’ ANDSs before the expiration of Janssen’s patent.
XARELTO®
Beginning 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. (Mylan); Prinston Pharmaceuticals, Inc.; Sigmapharm Laboratories, LLC (Sigmapharm); Torrent Pharmaceuticals, Limited and Torrent Pharma Inc. (collectively, Torrent). The trial concluded in April 2018. In July 2018 the district court entered judgment against Mylan and Sigmapharm, holding that the asserted compound patent is valid and infringed. In September 2018, the district court entered judgment against the remaining defendants. None of the defendants appealed the judgment.
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®. JPI is the exclusive sublicensee of the asserted patent. 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, InvaGen, Sigmapharm, Lupin 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. The trial began in April 2019 and closing arguments were heard in June 2019.
In December 2018, JPI and Bayer AG filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. (collectively, Teva) who filed an ANDA seeking approval to market a generic version of XARELTO® before expiration of Bayer AG’s ’218 patent. The case against Teva has been consolidated with the other ’218 cases for all purposes, and Teva has agreed to have its case stayed and to be bound by the outcome of any final judgment rendered against any of the other defendants.
In May 2018, Mylan filed a Petition for Inter Partes Review with the USPTO, seeking to invalidate the ’218 patent. In December 2018, the USPTO issued a decision denying institution of Mylan’s Petition for Inter Partes Review.
In May 2019, JPI and Bayer filed suit against Macleods Pharmaceuticals Ltd. and Macleods Pharma USA, Inc. (collectively, Macleods) alleging infringement of the ’218 patent. The case against Macleods has been consolidated with the other ’218 cases for all purposes, and Macleods has agreed to have its case stayed and to be bound by the outcome of any final judgment rendered against any of the other defendants.
In June 2019, JPI and Bayer filed suit against Accord Healthcare Inc., Accord Healthcare Ltd., and Intas Pharmaceuticals Ltd. (collectively, Accord) alleging infringement of the ’218 patent.
In August 2019, JPI and Bayer filed suit against Sunshine Lake Pharma Co., Ltd. and HEC Pharm USA Inc. alleging infringement of the ’218 patent.
In October 2019, JPI and Bayer entered into a settlement agreement with Mylan. In November 2019, JPI and Bayer entered into a settlement agreement with Breckenridge. In December 2019, JPI and Bayer entered into settlement agreements with each of Accord, Micro, Sigmapharm, Sunshine, and Torrent. In January 2020, JPI and Bayer entered into a settlement agreement with Macleods.
The consolidated ’218 cases involving Alembic, Aurobindo, InvaGen, Lupin, Taro, and Teva, and have been stayed until March 2020.
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 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. In February 2019, the parties entered into a settlement agreement.
In December 2018, Janssen initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Amneal Pharmaceuticals, LLC, Amneal Pharmaceuticals Company GmbH, Amneal Pharmaceuticals of New York, LLC, Amneal Pharmaceuticals Pvt Ltd., and Raks Pharma Pvt. Ltd. (collectively, Amneal), 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. In April 2019, the parties entered into a settlement agreement.
In January 2020, Janssen Products, L.P. and Janssen Sciences Ireland Unlimited Company (collectively, Janssen) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Zydus Pharmaceuticals (USA), Inc. and Cadila Healthcare Ltd. (collectively, Zydus), who filed an ANDA seeking approval to market a generic version of PREZISTA® before the expiration of United States Patent Nos. 7,700,645, 8,518,987, 7,126,015 and 7,595,408. Janssen is seeking an order enjoining Zydus from marketing its generic version of PREZISTA® before the expiration of the relevant patents.
INVOKANA®/INVOKAMET®/INVOKAMET XR®
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 (the ’582 patent) and/or 8,513,202 (the ’202 patent) 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. (Lupin).
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 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® (the ’403 patent), 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 February 2019, Janssen and MTPC filed a patent infringement lawsuit in the United States District Court for the District of New Jersey against Lupin, who filed an ANDA seeking approval to market a generic version of INVOKAMET XR® before expiration of the ’582 patent and ’202 patent relating to INVOKAMET XR®.
In July 2019, Janssen and MTPC filed a patent infringement lawsuit in the United States District Court for the District of New Jersey against MSN, who filed an ANDA seeking approval to market a generic version of INVOKAMET XR® before expiration of the ’582 patent and ’202 patent relating to INVOKAMET XR®.
In October 2019, Janssen and MTPC initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against MSN, who filed ANDAs seeking approval to market generic versions of INVOKANA® and INVOKAMET XR® before expiration of the ’788 patent. In October 2019, Janssen and MTPC initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against DRL, who filed an ANDA seeking approval to market a generic version of INVOKAMET® before expiration of the ’788 patent.
Janssen and MTPC entered into settlement agreements with Prinston and InvaGen (June 2019), Hetero (July 2019) and Apotex and Teva (August 2019).
A trial on the ’582 and ’202 patents is scheduled to begin in April 2020, and a trial on the ’788, ’219 and ’403 patents is scheduled to begin in May 2020.
In each of these lawsuits, Janssen and MTPC are seeking an order enjoining the defendants from marketing their generic versions of INVOKANA®, INVOKAMET® and/or, INVOKAMET XR® before the expiration of the relevant patents.
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), each of whom filed an ANDA seeking approval to market a generic version of OPSUMIT® before the expiration of United States Patent No. 7,094,781 (the ’781 patent). In the lawsuit, Actelion is seeking an order enjoining Zydus and Amneal from marketing generic versions of OPSUMIT® before the expiration of the patent. Amneal and Zydus have stipulated to infringement. In February 2019, Actelion and Amneal entered into a settlement agreement. The trial against Zydus is scheduled to commence in October 2020.
In July 2019, Actelion Pharmaceuticals Ltd. filed suit against Aurobindo Pharma USA Inc. and Aurobindo Pharma Limited (Aurobindo). Aurobindo filed an ANDA seeking approval to market a generic version of OPSUMIT® before the expiration of the ’781 patent. Actelion is seeking an order enjoining Defendants from marketing a generic version of OPSUMIT® before the expiration of the ’781 patent. Trial against Aurobindo is scheduled to commence in July 2021.
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. Trial is scheduled to begin in June 2020.
In August 2019, 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 Mylan Laboratories Limited (Mylan), who filed an ANDA seeking approval to market a generic version of INVEGA SUSTENNA® before the expiration of the patent.
In December 2019, Janssen Pharmaceutica NV and Janssen Pharmaceuticals, Inc. (collectively, Janssen) initiated a patent infringement lawsuit in the United States District Courts for the Districts of New Jersey and Delaware against Pharmascience Inc., Mallincrodt PLC and Specgx LLC (collectively, Pharmascience), 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 February 2018, Janssen Inc. and Janssen Pharmaceutica NV (collectively, 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 final hearing is scheduled to begin in February 2020.
In each of these lawsuits, Janssen is seeking an order enjoining the defendant from marketing a generic version of INVEGA SUSTENNA® before the expiration of the patent.
IMBRUVICA®
Beginning in January 2018, Pharmacyclics LLC (Pharmacyclics) and Janssen Biotech, Inc. (JBI) 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® 140 mg capsules 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®. JBI 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). The trial is scheduled to begin in October 2020.
In October 2018, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Sun asserting United States Patent No. 10,004,746.
In November 2018, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Hetero Labs Limited, Hetero Labs Limited Unit-1, Hetero Labs Limited Unit-V, and Hetero USA Inc. (Hetero), who filed an ANDA seeking approval to market a generic version of IMBRUVICA® 140 mg capsules, asserting infringement of United States Patent Nos. 8,754,090, 9,296,753, 9,540,382, 9,713,617 and 9,725,455.
In January 2019, Pharmacyclics and JBI amended their complaints against Fresenius Kabi, Zydus, Teva and Sandoz to further allege infringement of U.S. Patent Nos. 10,106,548, and 10,125,140.
In January 2019, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Zydus, who filed an ANDA seeking approval to market a generic version of IMBRUVICA® 70 mg before the expiration of U.S. Patent Nos. 7,514,444, 8,003,309, 8,476,284, 8,497,277, 8,697,711, 8,753,403, 8,754,090, 8,754,091, 8,952,015, 8,957,079, 9,181,257, 9,296,753, 9,540,382, 9,713,617, 9,725,455, 10,106,548, and 10,125,140.
In January 2019, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Hetero asserting infringement of United States Patent No. 10,106,548.
In February 2019, Pharmacyclics and JBI amended their complaints against Cipla, Shilpa, and Sun to allege infringement of United States Patent Nos. 10,106,548, and 10,125,140.
In February 2019, Pharmacyclics and JBI entered into settlement agreements with Teva and Hetero. In March 2019, Pharmacyclics and JBI entered into a settlement agreement with Shilpa.
In March 2019, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Alvogen Pine Brook LLC and Natco Pharma Ltd. (Alvogen), who filed an ANDA seeking approval to market generic versions of IMBRUVICA® tablets, asserting infringement of United States Patent Nos. 7,514,444, 8,003,309, 8,476,284, 8,497,277, 8,697,711, 8,753,403, 8,754,090, 8,754,091, 8,952,015, 8,957,079, 9,181,257, 9,296,753, 9,655,857, 9,725,455, 10,010,507, 10,106,548, and 10,125,140.
In May 2019, Pharmacyclics and JBI amended their complaints against Cipla to further allege infringement of United States Patent No. 10,016,435. In June 2019, Pharmacyclics and JBI amended their complaints against Alvogen to further allege infringement of United States Patent No. 10,213,386.
In August 2019, Pharmacyclics and JBI amended their complaints against Cipla, Fresenius, and Sandoz to further allege infringement of U.S. Patent Nos. 10,294,231 and 10,294,232 and amended their complaint against Sun to further allege infringement of U.S. Patent No. 10,294,232.
In March 2019, Sandoz filed an Inter Partes Review (IPR) in the USPTO, seeking to invalidate United States Patent No. 9,795,604.
In each of the lawsuits, Pharmacyclics and JBI are seeking an order enjoining the defendants from marketing generic versions of IMBRUVICA® before the expiration of the relevant patents.
TRACLEER®
In May 2019, Actelion Pharmaceuticals Ltd and Actelion Pharmaceuticals US, Inc. initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Natco Pharma Limited and Syneos Health LLC (collectively, Natco), who filed an ANDA seeking approval to market a generic version of TRACLEER®, 32 mg, before the expiration of U.S. Patent No. 8,309,126 (the ’126 patent). In the lawsuit, Actelion is seeking an order enjoining Natco from marketing its generic version of TRACLEER® before the expiration of the ’126 patent. In November 2019, the parties entered into a settlement agreement.
In December 2019, Actelion Pharmaceuticals Ltd and Actelion Pharmaceuticals US, Inc. initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Zydus Pharmaceuticals (USA), Inc. and Cadila Healthcare Limited (collectively, Zydus), who filed an ANDA seeking approval to market a generic version of TRACLEER®, 32 mg, before the expiration of U.S. Patent No. 8,309,126 (the ’126 patent). Actelion is seeking an order enjoining Zydus from marketing its generic version of TRACLEER® before the expiration of the ’126 patent.
RISPERDAL CONSTA®
In July 2019, Janssen Pharmaceuticals, Inc., Alkermes Pharma Ireland Limited and Alkermes Controlled Therapeutics, Inc. initiated a patent infringement lawsuit in the United States District Court for the District of Delaware against Luye Pharma Group Ltd., Luye Pharma (USA), Ltd., Nanjing Luye Pharmaceutical Co., Ltd. and Shandong Luye Pharmaceutical Co., Ltd. (collectively, Luye), who filed an ANDA seeking approval to market a generic version of RISPERDAL CONSTA® before the expiration of United States Patent No. 6,667,061. In November 2019, the parties entered into a settlement.
In this lawsuit, Janssen is seeking an order enjoining Luye from marketing a generic version of RISPERDAL CONSTA® before the expiration of the patent.
GOVERNMENT PROCEEDINGS
Like other companies in the pharmaceutical, consumer 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. The case brought by Illinois was settled after trial. 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. All other cases have been resolved.
Opioid 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 more than 2,800 lawsuits brought by certain state and local governments related to the marketing of opioids, including DURAGESIC®, NUCYNTA® and NUCYNTA® ER. The suits also raise allegations related to previously owned active pharmaceutical ingredient supplier subsidiaries, Tasmanian Alkaloids Pty, Ltd. and Noramco, Inc. (both subsidiaries were divested in 2016). Similar lawsuits have also been filed by the following groups of plaintiffs: individual plaintiffs on behalf of children suffering from Neonatal Abstinence Syndrome; hospitals; and health insurers/payors. To date, complaints against pharmaceutical companies, including Johnson & Johnson and JPI, have been filed by the state Attorneys General in Arkansas, Florida, Idaho, Illinois, Kentucky, Louisiana, Mississippi, Missouri, New
Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma, South Dakota, Texas, Washington and West Virginia. 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, West Virginia and Wisconsin. The Government of Puerto Rico filed suit in Superior Court of San Juan. There are more than 350 cases pending in various state courts. There are over 2,500 federal cases coordinated in a federal Multi-District Litigation (MDL) pending in the U.S. District Court for the Northern District of Ohio (MDL No. 2804). In addition, the Province of British Columbia filed suit in Canada. In October 2019, an anti-trust complaint was filed by private plaintiffs in federal court in Tennessee and is pending transfer to the MDL. These actions allege a variety of claims related to opioid 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 and, in some of the suits, the plaintiffs are seeking joint and several liability among the defendants. An adverse judgment in any of these lawsuits could result in the imposition of large monetary penalties and significant damages including, punitive damages, cost of abatement, substantial fines, equitable remedies and other sanctions.
The trial in the matter filed by the Oklahoma Attorney General resulted in a judgment against Johnson & Johnson and JPI in the amount of $572 million, subject to a final order to be issued by the court. The court issued a final judgment reducing the amount to $465 million. Johnson & Johnson and JPI have appealed the judgment. The Company believes that it has strong grounds to overturn this judgment. In October 2019 Johnson & Johnson and JPI announced a settlement of the first case set for trial in the MDL with two counties in Ohio.
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, South Carolina, Tennessee, Texas and Washington. 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. In October 2019, the Company announced a proposed agreement in principle that would include the Company paying $4 billion as settlement of these lawsuits, subject to various conditions and an agreement being finalized. This agreement in principle is not an admission of liability or wrong-doing and would resolve opioid lawsuits filed and future claims by states, cities and counties. The Company cannot predict if or when the agreement will be finalized and individual cases are ongoing, including a trial in New York scheduled to commence in March 2020.
In August 2019, Johnson & Johnson received a grand jury subpoena from the United States Attorney’s Office for the Eastern District of New York for documents related to the Company’s anti-diversion policies and procedures and distribution of its opioid medications, in what the Company understands to be part of a broader investigation into manufacturers’ and distributors’ monitoring programs and reporting under the Controlled Substances Act. In September 2019, Johnson & Johnson received subpoenas from the New York State Department of Financial Services (NYDFS) as part of an industry-wide inquiry into the effect of opioid prescriptions on New York health insurance premiums. The Company is cooperating and producing documents in response to the various subpoenas and requests for information.
Other
In August 2012, DePuy Orthopaedics, Inc., DePuy, Inc. (now known as 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 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, and fact discovery is currently scheduled to close in March 2020.
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). In May 2016, California and Washington filed civil complaints against Johnson & Johnson, Ethicon and Ethicon US, LLC alleging violations of their consumer protection statutes. In April 2019, Johnson & Johnson and Ethicon settled the Washington case. The California case started trial in July 2019 and concluded in September
2019. In January 2020, the court found in favor of the state and awarded the state civil penalties of approximately $344 million. The Company intends to appeal when further proceedings are concluded in the trial court. Similar complaints were filed against the companies by Kentucky in August 2016, by Mississippi in October 2017, by West Virginia in September 2019 and by Oregon in December 2019. The trial date for the Kentucky case was scheduled for September 2019 but has been adjourned and no new trial date has been scheduled. In October 2019, Johnson & Johnson and Ethicon settled the multi-state investigation with 41 other 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 known as Johnson & Johnson Consumer Inc.) (JJCI). The complaint alleges that defendants violated the Mississippi Consumer Protection Act by
failing 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 divested in 2012) and seeks injunctive and monetary relief. The matter is stayed pending interlocutory appeal of a December 2018 denial of Johnson & Johnson and JJCI's motion for summary judgment. The Mississippi Supreme Court granted J&J and JJCI's request to file an interlocutory appeal of the denial of the motion for summary judgment in late 2019 and it will soon establish a briefing schedule. The Company has also received inquiries from several other State Attorneys General.
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 July 2016, Johnson & Johnson and Janssen Products LP were served with a qui tam complaint pursuant to the False Claims Act filed in the United States District Court for the District of New Jersey alleging the off-label promotion of two HIV products, PREZISTA® and INTELENCE®, and anti-kickback violations in connection with the promotion of these products. The complaint was filed under seal in December 2012. The federal and state governments have declined to intervene, and the lawsuit is being prosecuted by the relators.
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 January 2020, the U.S. Court of Appeals for the Ninth Circuit dismissed the relator's appeal.
In November 2018, a second whistleblower lawsuit was unsealed in the United States District Court for the Central District of California. The lawsuit was substantially similar to the lawsuit under appeal but was brought in the name of the original relator. The federal and state governments declined to intervene in the second suit, and the relator moved to dismiss the lawsuit without prejudice. In April 2019, the court granted the relator's motion and dismissed the complaint without prejudice.
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 August 2019, the Unites States Department of Justice notified Janssen Biotech, Inc. that it was closing the investigation. In January 2020, Janssen Biotech, Inc. was served with a newly-unsealed qui tam suit filed in the U.S. District Court for the District of Massachusetts.
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 employees of Company subsidiaries with physicians at these hospitals. Johnson & Johnson and DePuy Synthes, Inc. have produced documents in response to the subpoena and are fully cooperating with the government’s investigation.
In July 2018 the Public Prosecution Service in Rio de Janeiro and representatives from the Brazilian antitrust authority CADE inspected the offices of more than 30 companies including Johnson & Johnson do Brasil Indústria e Comércio de Produtos para Saúde Ltda. The authorities appear to be investigating allegations of possible anti-competitive behavior and possible improper payments in the medical device industry. The United States Department of Justice and the United States Securities and Exchange Commission have made additional inquiries, and Johnson & Johnson do Brasil Indústria e Comércio de Produtos para Saúde Ltda. is cooperating with those requests.
In January 2020, the New Mexico Attorney General’s Office filed a suit against Johnson & Johnson and Johnson & Johnson Consumer Companies, Inc. in the First Judicial District Court, New Mexico. The suit relates to the safety and marketing of the Company’s talc products. The State included claims for violations of the New Mexico Unfair Practices Act, Medicaid Fraud Act, Fraud Against Taxpayers Act, Fraud and Negligent Misrepresentation, Negligence and Unjust Enrichment. Other state Attorneys General have informed the Company that they are conducting an inquiry into this matter.
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 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 known as 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 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 district court granted Johnson & Johnson's and JJCI’s motion to dismiss one of the cases. In September 2018, the United States Court of Appeals for the Third Circuit affirmed this dismissal. In September 2017, the plaintiff in the second case voluntarily dismissed the 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 May 2019, US CBP issued its Mitigation Decision and determined that Janssen Ortho had negligently misrepresented that darunavir ethanolate is entitled to duty free treatment. In June 2019, Janssen Ortho filed a Supplemental Petition for Relief. The Penalties Proceeding will be impacted by the related Classification Litigation pending in the United States Court of International Trade. The Classification Litigation will determine whether darunavir ethanolate was properly classified as exempt from duties upon importation into the United States. The trial in the Classification Litigation was held in July 2019. In February 2020, the Court ruled that darunavir ethanolate is eligible for duty free treatment.
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 December 2018, the district court granted the plaintiffs' motion for class certification. Defendants filed two motions for interlocutory appeal of class certification to the United States Court of Appeals for the Eleventh Circuit. Both motions were denied. Defendants' motions for summary judgment were denied in November 2019. Trial is scheduled for June 2020.
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 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. Discovery is ongoing.
Beginning in September 2017, multiple purported class actions of direct and indirect purchasers 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. Motions to dismiss were denied in both the direct and indirect purchaser cases. A motion to compel arbitration of the direct purchaser case was denied by the district court. The United States Court of Appeals for the Third Circuit reversed the district court's ruling.
In June 2018, Walgreen Co. and Kroger Co, filed an antitrust complaint against Johnson & Johnson and Janssen Biotech, Inc. (collectively, Janssen) 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. In March 2019, summary judgment was granted in favor of Janssen. This ruling is on appeal to the United States Court of Appeals for the Third Circuit.
In June 2019, the United States Federal Trade Commission (FTC) issued a Civil Investigative Demand to Johnson & Johnson in connection with its investigation of whether Janssen’s REMICADE® contracting practices violate federal antitrust laws. The Company has produced documents and information responsive to the Civil Investigative Demand.
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 Ministry of Health. In January 2019, plaintiffs' motion to file a Second Amended Complaint adding plaintiffs to the lawsuit was granted. In April 2019, the Company moved to dismiss the Second Amended Complaint.
In October 2018, two separate putative class actions were filed against Actelion Pharmaceutical Ltd., Actelion Pharmaceuticals US, Inc., and Actelion Clinical Research, Inc. (collectively Actelion) in United States District Court for the District of Maryland and United States District Court for the District of Columbia. The complaints allege that Actelion violated state and federal antitrust and unfair competition laws by allegedly refusing to supply generic pharmaceutical manufacturers with samples of TRACLEER®. TRACLEER® is subject to a Risk Evaluation and Mitigation Strategy, which imposes restrictions on distribution of the product. In January 2019, the plaintiffs dismissed the District of Columbia case and filed a consolidated complaint in the United States District Court for the District of Maryland. In October 2019, the Court granted Actelion’s motion to dismiss the amended complaint. Plaintiffs have appealed the decision.
In December 2018, Janssen Biotech, Inc., Janssen Oncology, Inc, Janssen Research & Development, LLC, and Johnson & Johnson (collectively, Janssen) were served with a qui tam complaint filed on behalf of the United States, 28 states, and the District of Columbia. The complaint, which was filed in December 2017 in United States District Court for the Northern District of California, alleges that Janssen violated the federal False Claims Act and state law when providing pricing information for ZYTIGA® to the government in connection with direct government sales and government-funded drug
reimbursement programs. At this time, the federal and state governments have declined to intervene. The case has been transferred to United States District Court for the District of New Jersey. Janssen has moved to dismiss the complaint.
In April 2019, Blue Cross & Blue Shield of Louisiana and HMO Louisiana, Inc. filed a class action complaint against Janssen Biotech, Inc, Janssen Oncology, Inc, Janssen Research & Development, LLC and BTG International Limited in the United States District Court for the Eastern District of Virginia. Several additional complaints were filed thereafter. The complaints generally allege that the defendants violated the antitrust and consumer protections laws of several states and the Sherman Act
by pursuing patent litigation relating to ZYTIGA® in order to delay generic entry. The case has been transferred to the United States District Court for the District of New Jersey and consolidated for pretrial purposes.
In May 2019, a class action antitrust complaint was filed against Janssen R&D Ireland (Janssen) and Johnson & Johnson. The complaint alleges that Janssen violated federal and state antitrust and consumer protection laws by agreeing to exclusivity provisions in its agreements with Gilead concerning the development and marketing of combination antiretroviral therapies (cART) to treat HIV. The complaint also alleges that Gilead entered into similar agreements with Bristol-Myers-Squibb and Japan Tobacco. The case is pending in the United States District Court for the District of Northern California. The defendants have filed motions to dismiss the complaint.
In October 2019, Innovative Health, LLC filed a complaint against Biosense Webster, Inc. (BWI) in the United States District Court for the Middle District of California. The complaint alleges that certain of BWI’s business practices and contractual terms violate the antitrust laws of the United States and the State of California by restricting competition in the sale of High Density Mapping Catheters and Ultrasound Catheters. BWI filed a motion to dismiss the complaint.
The Company received notices from Pfizer, Inc. and Sanofi Consumer Health, Inc. in November 2019 and Boehringer Ingelheim Pharmaceuticals, Inc. in January 2020 tendering for defense and indemnification of legal claims related to personal injury matters and putative class actions in the U.S. and Canada related to Zantac (ranitidine) products. The notices were based on certain indemnification provisions regarding assumed liabilities in connection with the Stock and Asset Purchase Agreement between Pfizer, Inc. and the Company in 2006. Plaintiffs in the underlying suits allege generally that Zantac and other over-the-counter ranitidine medications contain unsafe levels of NDMA (N-nitrosodimethylamine) and can cause and/or have caused various cancers in patients using the products, for which plaintiffs are seeking injunctive and monetary 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.
22. Restructuring
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. For additional details on the global supply chain restructuring strategic collaborations see Note 20 to the Consolidated Financial Statements. In 2019, the Company recorded a pre-tax charge of $0.6 billion, which is included on the following lines of the Consolidated Statement of Earnings, $0.3 billion in restructuring, $0.2 billion in other (income) expense and $0.1 billion in cost of products sold. Total project costs of approximately $0.8 billion have been recorded since the restructuring was announced. See the following table for additional details on the restructuring program.
In total, the Company expects the Global Supply Chain 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. These costs are associated with network optimizations, exit costs and accelerated depreciation and amortization.
The following table summarizes the severance charges and the associated spending under these initiatives through the fiscal year ended 2019:
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
Severance
|
Asset Write-offs
|
Other(2)
|
|
Total
|
Reserve balance, December 31, 2017
|
229
|
|
—
|
|
38
|
|
|
267
|
|
|
|
|
|
|
|
2018 activity
|
(35
|
)
|
—
|
|
10
|
|
|
(25
|
)
|
|
|
|
|
|
|
Reserve balance, December 30, 2018
|
194
|
|
—
|
|
48
|
|
|
242
|
|
|
|
|
|
|
|
Current year activity:
|
|
|
|
|
|
Charges
|
—
|
|
151
|
|
460
|
|
|
611
|
|
Cash payments
|
(30
|
)
|
—
|
|
(424
|
)
|
|
(454
|
)
|
Settled non cash
|
—
|
|
(151
|
)
|
(68
|
)
|
(3)
|
(219
|
)
|
Reserve balance, December 29, 2019(1)
|
$
|
164
|
|
—
|
|
16
|
|
|
180
|
|
|
|
|
|
|
|
(1) 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.
(2) Other includes project expense such as salaries for employees supporting these initiatives and consulting expenses.
(3) Relates to pension related actuarial losses associated with the transfer of employees to Jabil Inc. as part of the strategic collaboration.
The Company continuously reevaluates its severance reserves related to restructuring and the timing of payments 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.