NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.Summary of Significant Accounting Policies
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 134,500 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 Health (previously referred to as Consumer), Pharmaceutical and Medical Devices. The Consumer Health segment includes a broad range of products used in the baby care, oral care, skin health/beauty, over-the-counter pharmaceutical, women’s health and wound care markets. These products are marketed to the general public and sold online (eCommerce) and 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 2018-18: Collaborative Arrangements
The Company adopted this standard as of the beginning of the fiscal year 2020. 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. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
ASU 2016-13: Financial Instruments - Credit Losses
The Company adopted this standard as of the beginning of the fiscal year 2020. This update introduces the current expected credit loss (CECL) model, which requires 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 is 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. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
ASU 2018-14: Compensation - Defined Benefit Plans
The Company adopted this standard in the fiscal year ended 2020. This standard revised the financial statement note disclosure requirements of ASC 715-20 for defined benefit plan sponsors. The adoption of this standard had no impact on the Company's consolidated financial statements. See Note 10 to the Consolidated Financial Statements for defined benefit plan disclosures.
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 these accounting standards in 2018:
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Cumulative Effect Adjustment Increase (Decrease) to Retained Earnings
|
|
ASU 2014-09 - Revenue from Contracts with Customers
|
|
$
|
(47)
|
|
|
ASU 2016-01 - Financial Instruments
|
|
232
|
|
|
ASU 2016-16 - Income Taxes: Intra-Entity Transfers
|
|
(439)
|
|
|
Total
|
|
$
|
(254)
|
|
Recently Issued Accounting Standards
Not Adopted as of January 3, 2021
The Company assesses the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on the Company's financial statements as well as material updates to previous assessments, if any, from the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2019. There were no new material accounting standards issued in fiscal 2020 that impacted the Company.
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:
|
|
|
|
|
|
|
|
Building and building equipment
|
20 - 30 years
|
|
Land and leasehold improvements
|
10 - 20 years
|
|
Machinery and equipment
|
2 - 13 years
|
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 $7.2 billion and $7.0 billion as of January 3, 2021 and December 29, 2019, 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 Health 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 each of the fiscal years 2020, 2019 and 2018.
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 less than 3.0% of the total revenues and are included in sales to customers.
See Note 17 to the Consolidated Financial Statements for further disaggregation of revenue.
Shipping and Handling
Shipping and handling costs incurred were $1.0 billion, $1.0 billion and $1.1 billion in fiscal years 2020, 2019 and 2018, 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 2020 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.
Leases
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.
The Company primarily has operating lease for space, vehicles, manufacturing equipment and data processing equipment. The ROU asset pertaining to operating leases was $1.0 billion and $1.0 billion in 2020 and 2019, respectively. The lease liability was $1.1 billion and $1.0 billion in 2020 and 2019, respectively. The operating lease costs were $0.3 billion, $0.3 billion and $0.3 billion in 2020, 2019 and 2018, respectively. Cash paid for amounts included in the measurement of lease liabilities were $0.3 billion and $0.3 billion in 2020 and 2019, respectively.
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:
|
|
|
|
|
|
|
|
|
|
|
Nature/Type of Collaboration
|
|
Statement of Earnings Presentation
|
|
Third-party sale of product & profit share payments received
|
|
Sales to customers
|
|
Royalties/milestones paid to collaborative partner (post-regulatory approval)*
|
|
Cost of products sold
|
|
Royalties received from collaborative partner
|
|
Other income (expense), net
|
|
Upfront payments & milestones paid to collaborative partner (pre-regulatory approval)
|
|
Research and development expense
|
|
Research and development payments to collaborative partner
|
|
Research and development expense
|
|
Research and development payments received from collaborative partner or government entity
|
|
Reduction of Research and development expense
|
|
|
|
|
|
|
|
|
*
|
Milestones are capitalized as intangible assets and amortized to cost of products sold over the useful life.
|
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 $2.1 billion, $2.2 billion and $2.6 billion in fiscal years 2020, 2019 and 2018, 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 2017, the United States enacted into law new U.S. tax legislation, the U.S. Tax Cuts and Jobs Act (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. The TCJA 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 2020 was approximately $7.7 billion, of which $6.9 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.
The TCJA also includes provisions for a tax on global intangible low-taxed income (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 January 2018, the FASB issued guidance that allows companies to elect as an accounting policy whether to record the tax effects of 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 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 $0.7 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.
The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions including interest rates, employment rates and health insurance coverage, the speed of the anticipated recovery, and governmental and business reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of January 3, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, accrued rebates and associated reserves, and the carrying value of the goodwill and other long-lived assets. While there was not a material impact to the Company’s consolidated financial statements as of and for the fiscal year ended January 3, 2021, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.
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 fiscal year 2020, and will be the case again in fiscal year 2026.
Reclassification
Certain prior period amounts have been reclassified to conform to current year presentation.
2.Cash, Cash Equivalents and Current Marketable Securities
At the end of the fiscal year 2020 and 2019, cash, cash equivalents and current marketable securities were comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2020
|
|
|
|
Carrying Amount
|
|
Unrecognized Gain
|
|
|
|
Estimated Fair Value
|
|
Cash & Cash Equivalents
|
|
Current Marketable Securities
|
|
Cash
|
|
$
|
2,863
|
|
|
—
|
|
|
|
|
2,863
|
|
|
2,863
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Sovereign Securities(1)
|
|
690
|
|
|
—
|
|
|
|
|
690
|
|
|
—
|
|
|
690
|
|
|
U.S. Reverse repurchase agreements
|
|
1,937
|
|
|
—
|
|
|
|
|
1,937
|
|
|
1,937
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities(1)
|
|
2,674
|
|
|
—
|
|
|
|
|
2,674
|
|
|
1,451
|
|
|
1,223
|
|
|
Money market funds
|
|
2,102
|
|
|
—
|
|
|
|
|
2,102
|
|
|
2,102
|
|
|
—
|
|
|
Time deposits(1)
|
|
877
|
|
|
—
|
|
|
|
|
877
|
|
|
877
|
|
|
—
|
|
|
Subtotal
|
|
$
|
11,143
|
|
|
—
|
|
|
|
|
11,143
|
|
|
9,230
|
|
|
1,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Gov't Securities
|
|
$
|
13,777
|
|
|
1
|
|
|
|
|
13,778
|
|
|
4,731
|
|
|
9,047
|
|
|
Other Sovereign Securities
|
|
14
|
|
|
—
|
|
|
|
|
14
|
|
|
—
|
|
|
14
|
|
|
Corporate debt securities
|
|
250
|
|
|
—
|
|
|
|
|
250
|
|
|
24
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal available for sale(2)
|
|
$
|
14,041
|
|
|
1
|
|
|
|
|
14,042
|
|
|
4,755
|
|
|
9,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and current marketable securities
|
|
|
|
|
|
|
|
|
|
$
|
13,985
|
|
|
11,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2019
|
|
|
|
Carrying Amount
|
|
|
|
|
|
|
|
Cash & Cash Equivalents
|
|
Current Marketable Securities
|
|
Cash
|
|
$
|
2,637
|
|
|
|
|
|
|
|
|
2,637
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-U.S. Sovereign Securities(1)
|
|
439
|
|
|
|
|
|
|
|
|
149
|
|
|
290
|
|
|
U.S. Reverse repurchase agreements
|
|
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
|
|
|
—
|
|
|
Subtotal
|
|
$
|
14,919
|
|
|
|
|
|
|
|
|
14,195
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gov't Securities
|
|
$
|
4,102
|
|
|
|
|
|
|
|
|
3,095
|
|
|
1,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
266
|
|
|
|
|
|
|
|
|
15
|
|
|
251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal available for sale(2)
|
|
$
|
4,368
|
|
|
|
|
|
|
|
|
3,110
|
|
|
1,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and current marketable securities
|
|
|
|
|
|
|
|
|
|
$
|
17,305
|
|
|
1,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
At the end of fiscal year 2019, the carrying amount was the same as the estimated fair value.
Fair value of government securities and obligations and corporate debt securities were estimated using quoted broker prices and significant other observable inputs.
The contractual maturities of the available for sale debt securities at January 3, 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Cost Basis
|
|
Fair Value
|
|
Due within one year
|
|
$
|
14,026
|
|
|
14,027
|
|
|
Due after one year through five years
|
|
15
|
|
|
15
|
|
|
Due after five years through ten years
|
|
—
|
|
|
—
|
|
|
Total debt securities
|
|
$
|
14,041
|
|
|
14,042
|
|
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.
3.Inventories
At the end of fiscal years 2020 and 2019, inventories were comprised of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
Raw materials and supplies
|
|
$
|
1,410
|
|
|
1,117
|
|
|
Goods in process
|
|
2,040
|
|
|
1,832
|
|
|
Finished goods
|
|
5,894
|
|
|
6,071
|
|
|
Total inventories (1)
|
|
$
|
9,344
|
|
|
9,020
|
|
(1) See Note 18 to the Consolidated Financial Statements for details on assets held for sale and the related divestitures for the fiscal year ended December 29, 2019. There were no assets held for sale at January 3, 2021.
4.Property, Plant and Equipment
At the end of fiscal years 2020 and 2019, property, plant and equipment at cost and accumulated depreciation were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
Land and land improvements
|
|
$
|
882
|
|
|
854
|
|
|
Buildings and building equipment
|
|
12,502
|
|
|
11,877
|
|
|
Machinery and equipment
|
|
29,104
|
|
|
26,964
|
|
|
Construction in progress
|
|
4,316
|
|
|
3,637
|
|
|
Total property, plant and equipment, gross
|
|
$
|
46,804
|
|
|
43,332
|
|
|
Less accumulated depreciation
|
|
28,038
|
|
|
25,674
|
|
|
Total property, plant and equipment, net(1)
|
|
$
|
18,766
|
|
|
17,658
|
|
(1) See Note 18 to the Consolidated Financial Statements for details on assets held for sale and the related divestitures for the fiscal year ended December 29, 2019. There were no assets held for sale at January 3, 2021.
The Company capitalizes interest expense as part of the cost of construction of facilities and equipment. Interest expense capitalized in fiscal years 2020, 2019 and 2018 was $63 million, $70 million and $86 million, respectively.
Depreciation expense, including the amortization of capitalized interest in fiscal years 2020, 2019 and 2018 was $2.6 billion, $2.5 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 fiscal years 2020 and 2019, the gross and net amounts of intangible assets were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
Intangible assets with definite lives:
|
|
|
|
|
|
Patents and trademarks — gross
|
|
$
|
39,990
|
|
|
36,634
|
|
|
Less accumulated amortization
|
|
17,618
|
|
|
13,154
|
|
|
Patents and trademarks — net
|
|
$
|
22,372
|
|
|
23,480
|
|
|
Customer relationships and other intangibles — gross
|
|
$
|
22,898
|
|
|
22,056
|
|
|
Less accumulated amortization
|
|
10,912
|
|
|
9,462
|
|
|
Customer relationships and other intangibles — net*
|
|
$
|
11,986
|
|
|
12,594
|
|
|
Intangible assets with indefinite lives:
|
|
|
|
|
|
Trademarks
|
|
$
|
7,195
|
|
|
6,922
|
|
|
Purchased in-process research and development(1)
|
|
11,849
|
|
|
4,647
|
|
|
Total intangible assets with indefinite lives
|
|
$
|
19,044
|
|
|
11,569
|
|
|
Total intangible assets — net
|
|
$
|
53,402
|
|
|
47,643
|
|
*The majority is comprised of customer relationships
(1) In fiscal year 2020, the Company completed multiple acquisitions and recorded in-process research and development intangible assets of $6.0 billion from Momenta Pharmaceuticals, Inc., $0.8 billion for bermekimab and certain related assets from XBiotech, Inc., and $0.4 billion from the acquisition of all outstanding shares in Verb Surgical, Inc.
Goodwill as of January 3, 2021 and December 29, 2019, as allocated by segment of business, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
Consumer Health
|
|
Pharmaceutical
|
|
Medical Devices
|
|
Total
|
|
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
|
|
|
Goodwill, related to acquisitions
|
|
—
|
|
|
1,222
|
|
|
238
|
|
|
1,460
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation/other
|
|
600
|
|
|
618
|
|
|
76
|
|
|
1,294
|
|
|
Goodwill at January 3, 2021
|
|
$
|
10,336
|
|
|
11,009
|
|
|
15,048
|
|
|
36,393
|
|
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 $4.7 billion, $4.5 billion and $4.4 billion before tax, for the fiscal years ended January 3, 2021, December 29, 2019 and December 30, 2018, 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)
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
$4,600
|
|
4,200
|
|
4,100
|
|
3,900
|
|
3,200
|
See Note 18 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 January 3, 2021, the total amount of cash collateral paid by the Company under the CSA amounted to $1.1 billion net, related to net investment and cash flow 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 January 3, 2021, the Company had notional amounts outstanding for forward foreign exchange contracts, and cross currency interest rate swaps of $37.8 billion and $30.6 billion, respectively. 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.
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 January 3, 2021 and December 29, 2019. 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 January 3, 2021, the balance of deferred net gain on derivatives included in accumulated other comprehensive income was $652 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 January 3, 2021 and December 29, 2019, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 3, 2021
|
December 29, 2019
|
|
(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
|
$
|
—
|
|
—
|
|
—
|
|
153
|
|
—
|
|
—
|
|
—
|
|
—
|
|
159
|
|
—
|
|
|
Amount of gain or (loss) recognized in AOCI
|
—
|
|
—
|
|
—
|
|
153
|
|
—
|
|
—
|
|
—
|
|
—
|
|
159
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on cash flow hedging relationship:
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from AOCI into income
|
12
|
|
(329)
|
|
(137)
|
|
—
|
|
(16)
|
|
(54)
|
|
(321)
|
|
(105)
|
|
—
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) recognized in AOCI
|
44
|
|
298
|
|
(191)
|
|
—
|
|
(52)
|
|
(20)
|
|
(606)
|
|
(94)
|
|
—
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency interest rate swaps contracts:
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) reclassified from AOCI into income
|
—
|
|
—
|
|
—
|
|
370
|
|
—
|
|
—
|
|
—
|
|
—
|
|
292
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of gain or (loss) recognized in AOCI
|
$
|
—
|
|
—
|
|
—
|
|
748
|
|
—
|
|
—
|
|
—
|
|
—
|
|
417
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table is the effect of derivatives not designated as hedging instrument for the fiscal years ended January 3, 2021 and December 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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
|
|
|
|
January 3, 2021
|
|
December 29, 2019
|
|
Foreign Exchange Contracts
|
|
Other (income) expense
|
|
$
|
24
|
|
|
(144)
|
|
The following table is the effect of net investment hedges for the fiscal years ended January 3, 2021 and December 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
|
January 3, 2021
|
|
December 29, 2019
|
|
|
|
January 3, 2021
|
|
December 29, 2019
|
|
Debt
|
|
$
|
(473)
|
|
|
121
|
|
|
Interest (income) expense
|
|
—
|
|
|
—
|
|
|
Cross Currency interest rate swaps
|
|
$
|
65
|
|
|
488
|
|
|
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 January 3, 2021 and December 29, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2019
|
|
|
|
|
|
January 3, 2021
|
|
(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
|
|
$
|
1,148
|
|
|
527
|
|
|
(194)
|
|
|
1,481
|
|
|
1,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Investments without readily determinable value
|
|
$
|
712
|
|
|
(55)
|
|
|
81
|
|
|
738
|
|
|
738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
(1) Recorded in Other Income/Expense
(2) Other includes impact of currency
For the fiscal years ended January 3, 2021 and December 29, 2019 for equity investments without readily determinable market values, $76 million and $57 million, respectively, of the changes in fair value reflected in net income were the result of impairments. There were $21 million and $19 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 January 3, 2021 and December 29, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
(Dollars in Millions)
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Total (1)
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
$
|
—
|
|
|
849
|
|
|
—
|
|
|
849
|
|
|
209
|
|
|
Interest rate contracts (2)(3)
|
|
—
|
|
|
240
|
|
|
—
|
|
|
240
|
|
|
693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
1,089
|
|
|
—
|
|
|
1,089
|
|
|
902
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
—
|
|
|
702
|
|
|
—
|
|
|
702
|
|
|
426
|
|
|
Interest rate contracts (3)
|
|
—
|
|
|
1,569
|
|
|
—
|
|
|
1,569
|
|
|
193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
—
|
|
|
2,271
|
|
|
—
|
|
|
2,271
|
|
|
619
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
$
|
—
|
|
|
49
|
|
|
—
|
|
|
49
|
|
|
23
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign exchange contracts
|
|
—
|
|
|
38
|
|
|
—
|
|
|
38
|
|
|
33
|
|
|
Available For Sale Other Investments:
|
|
|
|
|
|
|
|
|
|
|
|
Equity investments(4)
|
|
1,481
|
|
|
—
|
|
|
—
|
|
|
1,481
|
|
|
1,148
|
|
|
Debt securities(5)
|
|
—
|
|
|
14,042
|
|
|
—
|
|
|
14,042
|
|
|
4,368
|
|
|
Other Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Contingent Consideration(6)
|
|
$
|
|
|
|
633
|
|
|
633
|
|
|
1,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross to Net Derivative Reconciliation
|
|
2020
|
|
2019
|
|
(Dollars in Millions)
|
|
|
|
|
|
Total Gross Assets
|
|
$
|
1,138
|
|
|
925
|
|
|
Credit Support Agreement (CSA)
|
|
(1,107)
|
|
|
(841)
|
|
|
Total Net Asset
|
|
31
|
|
|
84
|
|
|
|
|
|
|
|
|
Total Gross Liabilities
|
|
2,309
|
|
|
652
|
|
|
Credit Support Agreement (CSA)
|
|
(2,172)
|
|
|
(586)
|
|
|
Total Net Liabilities
|
|
$
|
137
|
|
|
66
|
|
|
|
|
|
|
|
Summarized information about changes in liabilities for contingent consideration is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
2019
|
2018
|
|
(Dollars in Millions)
|
|
|
|
|
|
Beginning Balance
|
|
$
|
1,715
|
|
397
|
|
600
|
|
|
Changes in estimated fair value (7)
|
|
(1,089)
|
|
151
|
|
(156)
|
|
|
Additions
|
|
106
|
|
1,246
|
|
125
|
|
|
Payments
|
|
(99)
|
|
(79)
|
|
(172)
|
|
|
Ending Balance
|
|
$
|
633
|
|
1,715
|
|
397
|
|
|
|
|
|
|
|
(1)2019 assets and liabilities are all classified as Level 2 with the exception of equity investments of $1,148 million, which are classified as Level 1 and contingent consideration of $1,715 million, classified as Level 3.
(2)Includes $1 million of non-current assets as of December 29, 2019.
(3)Includes cross currency interest rate swaps and interest rate swaps.
(4)Classified as non-current other assets.
(5)Classified as cash equivalents and current marketable securities.
(6)Includes $594 million, $1,631 million (primarily related to Auris Health) and $397 million, classified as non-current other liabilities as of January 3, 2021, December 29, 2019 and December 30, 2018, respectively. Includes $39 million and $84 million classified as current liabilities as of January 3, 2021 and December 29, 2019, respectively.
(7)Ongoing fair value adjustment amounts are recorded primarily in Research and Development expense. The Company recorded a contingent consideration reversal of $1,148 million in 2020 related to the timing of certain developmental milestones associated with the Auris Health acquisition. The reversal of the contingent consideration was recorded in Other income and expense
See Notes 2 and 7 for financial assets and liabilities held at carrying amount on the Consolidated Balance Sheet.
7.Borrowings
The components of long-term debt are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2020
|
|
Effective Rate %
|
|
2019
|
|
Effective Rate %
|
|
|
3% Zero Coupon Convertible Subordinated Debentures due 2020
|
|
$
|
—
|
|
|
—
|
|
|
51
|
|
|
3.00
|
|
|
|
2.95% Debentures due 2020
|
|
—
|
|
|
—
|
|
|
549
|
|
|
3.15
|
|
|
|
1.950% Notes due 2020
|
|
—
|
|
|
—
|
|
|
500
|
|
|
1.99
|
|
|
|
3.55% Notes due 2021
|
|
450
|
|
|
3.67
|
|
|
449
|
|
|
3.67
|
|
|
|
2.45% Notes due 2021
|
|
350
|
|
|
2.48
|
|
|
349
|
|
|
2.48
|
|
|
|
1.65% Notes due 2021
|
|
999
|
|
|
1.65
|
|
|
999
|
|
|
1.65
|
|
|
|
0.250% Notes due 2022 (1B Euro 1.2281)(2)/(1B Euro 1.1096)(3)
|
|
1,227
|
|
(2)
|
0.26
|
|
|
1,108
|
|
(3)
|
0.26
|
|
|
|
2.25% Notes due 2022
|
|
999
|
|
|
2.31
|
|
|
998
|
|
|
2.31
|
|
|
|
6.73% Debentures due 2023
|
|
250
|
|
|
6.73
|
|
|
250
|
|
|
6.73
|
|
|
|
3.375% Notes due 2023
|
|
803
|
|
|
3.17
|
|
|
804
|
|
|
3.17
|
|
|
|
2.05% Notes due 2023
|
|
499
|
|
|
2.09
|
|
|
498
|
|
|
2.09
|
|
|
|
0.650% Notes due 2024
(750MM Euro 1.2281)(2)/(750MM Euro 1.1096)(3)
|
|
919
|
|
(2)
|
0.68
|
|
|
829
|
|
(3)
|
0.68
|
|
|
|
5.50% Notes due 2024
(500MM 1.3654 GBP )(2)/(500MM GBP 1.2987)(3)
|
|
679
|
|
(2)
|
6.75
|
|
|
645
|
|
(3)
|
6.75
|
|
|
|
2.625% Notes due 2025
|
|
748
|
|
|
2.63
|
|
|
748
|
|
|
2.63
|
|
|
|
0.55% Notes due 2025(5)
|
|
996
|
|
|
0.57
|
|
|
—
|
|
|
—
|
|
|
|
2.45% Notes due 2026
|
|
1,994
|
|
|
2.47
|
|
|
1,993
|
|
|
2.47
|
|
|
|
2.95% Notes due 2027
|
|
997
|
|
|
2.96
|
|
|
996
|
|
|
2.96
|
|
|
|
0.95% Notes due 2027(5)
|
|
1,494
|
|
|
0.96
|
|
|
—
|
|
|
—
|
|
|
|
1.150% Notes due 2028 (750MM Euro 1.2281)(2)/(750MM Euro 1.1096)(3)
|
|
915
|
|
(2)
|
1.21
|
|
|
825
|
|
(3)
|
1.21
|
|
|
|
2.90% Notes due 2028
|
|
1,495
|
|
|
2.91
|
|
|
1,494
|
|
|
2.91
|
|
|
|
6.95% Notes due 2029
|
|
297
|
|
|
7.14
|
|
|
297
|
|
|
7.14
|
|
|
|
1.30% Notes due 2030(5)
|
|
1,743
|
|
|
1.30
|
|
|
—
|
|
|
—
|
|
|
|
4.95% Debentures due 2033
|
|
498
|
|
|
4.95
|
|
|
498
|
|
|
4.95
|
|
|
|
4.375% Notes due 2033
|
|
855
|
|
|
4.24
|
|
|
855
|
|
|
4.24
|
|
|
|
1.650% Notes due 2035 (1.5B Euro 1.2281)(2)/(1.5B Euro 1.1096)(3)
|
|
1,827
|
|
(2)
|
1.68
|
|
|
1,649
|
|
(3)
|
1.68
|
|
|
|
3.55% Notes due 2036
|
|
989
|
|
|
3.59
|
|
|
989
|
|
|
3.59
|
|
|
|
5.95% Notes due 2037
|
|
992
|
|
|
5.99
|
|
|
992
|
|
|
5.99
|
|
|
|
3.625% Notes due 2037
|
|
1,488
|
|
|
3.64
|
|
|
1,487
|
|
|
3.64
|
|
|
|
5.85% Debentures due 2038
|
|
696
|
|
|
5.85
|
|
|
696
|
|
|
5.85
|
|
|
|
3.400% Notes due 2038
|
|
991
|
|
|
3.42
|
|
|
991
|
|
|
3.42
|
|
|
|
4.50% Debentures due 2040
|
|
539
|
|
|
4.63
|
|
|
539
|
|
|
4.63
|
|
|
|
2.10% Notes due 2040(5)
|
|
986
|
|
|
2.14
|
|
|
—
|
|
|
—
|
|
|
|
4.85% Notes due 2041
|
|
297
|
|
|
4.89
|
|
|
297
|
|
|
4.89
|
|
|
|
4.50% Notes due 2043
|
|
496
|
|
|
4.52
|
|
|
495
|
|
|
4.52
|
|
|
|
3.70% Notes due 2046
|
|
1,974
|
|
|
3.74
|
|
|
1,973
|
|
|
3.74
|
|
|
|
3.75% Notes due 2047
|
|
991
|
|
|
3.76
|
|
|
991
|
|
|
3.76
|
|
|
|
3.500% Notes due 2048
|
|
742
|
|
|
3.52
|
|
|
742
|
|
|
3.52
|
|
|
|
2.250% Notes due 2050(5)
|
|
984
|
|
|
2.29
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.450% Notes due 2060(5)
|
|
1,228
|
|
|
2.49
|
|
|
—
|
|
|
—
|
|
|
|
Other
|
|
7
|
|
|
—
|
|
|
18
|
|
|
—
|
|
|
|
Subtotal
|
|
34,434
|
|
(4)
|
2.85
|
%
|
(1)
|
27,594
|
|
(4)
|
3.19
|
|
(1)
|
|
Less current portion
|
|
1,799
|
|
|
|
|
1,100
|
|
|
|
|
|
Total long-term debt
|
|
$
|
32,635
|
|
|
|
|
26,494
|
|
|
|
|
(1)Weighted average effective rate.
(2)Translation rate at January 3, 2021.
(3)Translation rate at December 29, 2019.
(4)The excess of the fair value over the carrying value of debt was $5.4 billion at the end of fiscal year 2020 and $3.0 billion at the end of fiscal year 2019.
(5)In the fiscal third quarter of 2020, the Company issued senior unsecured notes for a total of $7.5 billion.
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 2020, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires on September 9, 2021. Interest charged on borrowings under the credit line agreement is based on either bids provided by banks, London Interbank Offered Rates (LIBOR), Secured Overnight Financing Rate (SOFR) Swap Curve or other applicable market rate as allowed plus applicable margins. Commitment fees under the agreements are not material.
Throughout fiscal year 2020, 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 $2.6 billion at the end of fiscal year 2020, of which $1.8 billion is the current portion of the long-term debt, and the remainder is commercial paper and local borrowings by international subsidiaries.
Throughout fiscal year 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 fiscal year 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.
Aggregate maturities of long-term debt obligations commencing in 2021 are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
|
|
|
|
|
|
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
After 2025
|
|
$1,799
|
|
2,226
|
|
1,552
|
|
1,598
|
|
1,744
|
|
25,515
|
8.Income Taxes
The provision for taxes on income consists of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
2018
|
|
|
Currently payable:
|
|
|
|
|
|
|
|
|
U.S. taxes
|
|
$
|
1,026
|
|
|
1,941
|
|
|
1,284
|
|
|
|
|
|
|
|
|
|
|
|
|
International taxes
|
|
1,898
|
|
|
2,744
|
|
|
2,434
|
|
|
|
Total currently payable
|
|
2,924
|
|
|
4,685
|
|
|
3,718
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
U.S. taxes
|
|
(76)
|
|
|
(814)
|
|
|
1,210
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
International taxes
|
|
(1,065)
|
|
|
(1,662)
|
|
|
(2,226)
|
|
|
|
Total deferred
|
|
(1,141)
|
|
|
(2,476)
|
|
|
(1,016)
|
|
|
|
Provision for taxes on income
|
|
$
|
1,783
|
|
|
2,209
|
|
|
2,702
|
|
|
(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 fiscal years 2020, 2019 and 2018, to the Company’s effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
2018
|
|
|
U.S.
|
|
$
|
4,312
|
|
|
3,543
|
|
|
5,575
|
|
|
|
International
|
|
12,185
|
|
|
13,785
|
|
|
12,424
|
|
|
|
Earnings before taxes on income:
|
|
$
|
16,497
|
|
|
17,328
|
|
|
17,999
|
|
|
|
Tax rates:
|
|
|
|
|
|
|
|
|
U.S. statutory rate
|
|
21.0
|
%
|
|
21.0
|
|
|
21.0
|
|
|
|
International operations (1)
|
|
(9.9)
|
|
|
(5.9)
|
|
|
(3.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. taxes on international income (2)
|
|
2.7
|
|
|
1.8
|
|
|
1.4
|
|
|
|
Tax benefits on Capital Loss
|
|
(1.2)
|
|
|
(0.3)
|
|
(4)
|
—
|
|
|
|
Tax benefits on share-based compensation
|
|
(1.5)
|
|
|
(0.5)
|
|
|
(1.5)
|
|
|
|
|
|
|
|
|
|
|
|
|
TCJA and related impacts
|
|
0.7
|
|
|
(3.9)
|
|
(3)
|
(1.9)
|
|
(3)
|
|
All other
|
|
(1.0)
|
|
|
0.5
|
|
(4)
|
(0.3)
|
|
|
|
Effective Rate
|
|
10.8
|
%
|
|
12.7
|
|
|
15.0
|
|
|
(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 2020 and 2019 amounts include the impact of the new tax legislation enactment in Switzerland, which is further described below.
(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) Certain prior year amounts have been reclassified to conform to current year presentation.
The fiscal year 2020 tax rate decreased by 1.9% compared to the fiscal year 2019 tax rate, which was primarily driven by the following items. In fiscal year 2019, Switzerland enacted the Federal Act on Tax Reform and AHV Financing (TRAF) which became effective on January 1, 2020. The Federal transitional provisions of TRAF allow companies, under certain conditions, to adjust the tax basis in certain assets to fair value (i.e., “step-up”) to be depreciated and amortized resulting in an incremental Swiss tax deduction over the transitional period.
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 allowed 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. During the fiscal year 2019, as described in further detail below, the Company recorded the impacts of the TRAF that were enacted in that period.
During the fiscal year 2020, the final canton where the Company maintains significant operations enacted TRAF legislation. Additionally, the Company received rulings from the Swiss Federal and cantonal tax authorities in the remaining jurisdictions where it has significant operations. These rulings resulted in the Company revising its estimate on the tax basis adjustment (i.e., “step-up”) for its assets and as a result, the Company recorded additional deferred tax benefits in 2020. The Company recognized a net benefit in the fiscal year 2020 for Swiss Tax Reform of approximately $0.4 billion or 2.6% benefit to the Company’s annual effective tax rate, comprised of the following items:
•approximately $0.3 billion tax benefit relating to the remeasurement of Swiss deferred tax assets and liabilities for the change in the Federal and cantonal tax rates, where enactment occurred in the fiscal year 2020; this benefit has been reflected as “International Operations” on the Company’s effective tax rate reconciliation.
•a $450 million deferred tax asset related to the estimated value of a Federal tax basis step-up of the Company’s Swiss subsidiaries’ assets as described above; this benefit has been reflected as “International Operations” on the Company’s effective tax rate reconciliation.
•approximately $0.3 billion 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 in the fiscal year 2020. This benefit has been reflected as “U.S. tax on international income” on the Company’s effective tax rate reconciliation.
The Company does not expect to receive future rulings regarding the transitional provisions of TRAF.
Also, in the fiscal fourth quarter of 2020, the Company recognized a capital loss on certain U.S. affiliates related to the previously impaired book value of certain intangibles, which reduced the 2020 tax rate by approximately 1.2% which is
reflected as a “Tax Benefits on Capital Loss” on the effective tax rate reconciliation. In addition in the fiscal year 2020, the Company had lower income in higher tax jurisdictions, primarily driven by:
•the impact of the accrual of litigation costs related to Talc for $4.0 billion which reduced the U.S. earnings before taxes at an effective tax rate of 23.5%;
•the accrual of additional legal costs, including an additional $1.0 billion associated with a revised agreement in principle to settle opioid litigation at an effective tax rate of 21.4%
The Company also generated additional tax benefits from stock-based compensation that were either exercised or vested; reduced the contingent consideration liability related to the Auris Health acquisition (see Note 18); and reversal of some of its unrecognized tax benefits due to the completion of several years of tax examinations in certain jurisdictions during the fiscal year 2020.
The fiscal year 2019 tax rate decreased by 2.3% compared to the fiscal year 2018 tax rate. In addition to the impact of TRAF 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 19 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.
As described above for the Swiss tax legislation, in the fiscal year 2019, 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 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.
As described in Note 1, 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. 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.
Temporary differences and carryforwards at the end of fiscal years 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020 Deferred Tax
|
|
2019 Deferred Tax*
|
|
(Dollars in Millions)
|
|
Asset
|
|
Liability
|
|
Asset
|
|
Liability
|
|
Employee related obligations
|
|
$
|
2,434
|
|
|
|
|
2,473
|
|
|
|
|
Stock based compensation
|
|
627
|
|
|
|
|
595
|
|
|
|
|
Depreciation & amortization
|
|
721
|
|
|
|
|
1,122
|
|
|
|
|
Non-deductible intangibles
|
|
|
|
(6,567)
|
|
|
|
|
(5,835)
|
|
|
International R&D capitalized for tax
|
|
1,517
|
|
|
|
|
1,189
|
|
|
|
|
Reserves & liabilities
|
|
3,466
|
|
|
|
|
2,337
|
|
|
|
|
Income reported for tax purposes
|
|
1,705
|
|
|
|
|
1,605
|
|
|
|
|
Net operating loss carryforward international
|
|
990
|
|
|
|
|
838
|
|
|
|
|
Undistributed foreign earnings
|
|
812
|
|
|
(1,435)
|
|
|
765
|
|
|
(1,289)
|
|
|
Global intangible low-taxed income
|
|
|
|
(3,606)
|
|
|
|
|
(2,965)
|
|
|
Miscellaneous international
|
|
854
|
|
|
(211)
|
|
|
696
|
|
|
(81)
|
|
|
Miscellaneous U.S.
|
|
12
|
|
|
|
|
411
|
|
|
|
|
Total deferred income taxes
|
|
$
|
13,138
|
|
|
(11,819)
|
|
|
12,031
|
|
|
(10,170)
|
|
*Certain prior year amounts have been reclassified to conform to current year presentation
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)
|
|
2020
|
|
2019
|
|
2018
|
|
|
Beginning of year
|
|
$
|
3,853
|
|
|
3,326
|
|
|
3,151
|
|
|
|
Increases related to current year tax positions
|
|
265
|
|
|
249
|
|
|
242
|
|
|
|
Increases related to prior period tax positions
|
|
668
|
|
|
408
|
|
|
145
|
|
|
|
Decreases related to prior period tax positions
|
|
(551)
|
|
|
(105)
|
|
|
(137)
|
|
|
|
Settlements
|
|
(839)
|
|
|
(9)
|
|
|
(40)
|
|
|
|
Lapse of statute of limitations
|
|
(23)
|
|
|
(16)
|
|
|
(35)
|
|
|
|
End of year
|
|
$
|
3,373
|
|
|
3,853
|
|
|
3,326
|
|
|
The unrecognized tax benefits of $3.4 billion at January 3, 2021, 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 2012. As of December 29, 2019, the Company 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. In the fiscal year 2020, the Company made its final payments for approximately $0.7 billion to the U.S. Treasury related to the final settlement of 2010-2012 tax audit 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 $32 million, $50 million and $53 million in fiscal years 2020, 2019 and 2018, respectively. The total amount of accrued interest was $468 million and $559 million in fiscal years 2020 and 2019, respectively.
9.Employee Related Obligations
At the end of fiscal 2020 and fiscal 2019, employee related obligations recorded on the Consolidated Balance Sheets were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
Pension benefits
|
|
$
|
5,761
|
|
|
5,538
|
|
|
Postretirement benefits
|
|
2,229
|
|
|
2,297
|
|
|
Postemployment benefits
|
|
3,078
|
|
|
3,004
|
|
|
Deferred compensation
|
|
250
|
|
|
338
|
|
|
Total employee obligations
|
|
11,318
|
|
|
11,177
|
|
|
Less current benefits payable
|
|
547
|
|
|
514
|
|
|
Employee related obligations — non-current
|
|
$
|
10,771
|
|
|
10,663
|
|
Prepaid employee related obligations of $656 million and $551 million for 2020 and 2019, 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.
In the U.S, non-union pension benefits for employees hired before January 1, 2015 are primarily based on the employee’s compensation during the last five years before retirement and the number of years of service (the Final Average Pay formula). U.S. pension benefits for employees hired after 2014, are calculated using a different formula based on employee compensation over total years of service (the Retirement Value formula).
In January 2021, the Company announced that, effective on January 1, 2026, all eligible U.S. non-union employees,
regardless of hire date, will earn benefits under the Retirement Value formula. This amendment does not affect the benefits
accrued under the Final Average Pay formula for service before January 1, 2026. The impact of this change decreases the
PBO as of January 3, 2021 by approximately $1.8 billion and is included in the “Amendments” line in the Change in Benefit Obligation.
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 fund retiree health care benefits in advance and has the right to modify these plans in the future.
In 2020 and 2019 the Company used December 31, 2020 and December 31, 2019, 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 2020, 2019 and 2018 include the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plans
|
|
Other Benefit Plans
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Service cost
|
|
$
|
1,380
|
|
|
1,163
|
|
|
1,283
|
|
|
287
|
|
|
274
|
|
|
269
|
|
|
Interest cost
|
|
955
|
|
|
1,096
|
|
|
996
|
|
|
133
|
|
|
185
|
|
|
148
|
|
|
Expected return on plan assets
|
|
(2,461)
|
|
|
(2,322)
|
|
|
(2,212)
|
|
|
(7)
|
|
|
(6)
|
|
|
(7)
|
|
|
Amortization of prior service cost
|
|
2
|
|
|
4
|
|
|
3
|
|
|
(31)
|
|
|
(31)
|
|
|
(31)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized actuarial losses (gains)
|
|
891
|
|
|
579
|
|
|
852
|
|
|
142
|
|
|
129
|
|
|
123
|
|
|
Curtailments and settlements
|
|
23
|
|
|
73
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net periodic benefit cost
|
|
$
|
790
|
|
|
593
|
|
|
923
|
|
|
524
|
|
|
551
|
|
|
502
|
|
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
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Net Periodic Benefit Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost discount rate
|
|
2.82
|
%
|
|
3.63
|
|
|
3.20
|
|
|
3.04
|
|
|
4.45
|
|
|
3.85
|
|
|
Interest cost discount rate
|
|
3.13
|
%
|
|
4.13
|
|
|
3.60
|
|
|
3.08
|
|
|
4.25
|
|
|
3.62
|
|
|
Rate of increase in compensation levels
|
|
4.00
|
%
|
|
3.99
|
|
|
3.98
|
|
|
4.25
|
|
|
4.29
|
|
|
4.29
|
|
|
Expected long-term rate of return on plan assets
|
|
8.12
|
%
|
|
8.31
|
|
|
8.46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
2.14
|
%
|
|
2.91
|
|
|
3.76
|
|
|
2.23
|
|
|
3.39
|
|
|
4.40
|
|
|
Rate of increase in compensation levels
|
|
4.00
|
%
|
|
4.01
|
|
|
3.97
|
|
|
4.27
|
|
|
4.29
|
|
|
4.29
|
|
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
|
|
2020
|
|
2019
|
|
Health care cost trend rate assumed for next year
|
|
5.68
|
%
|
|
5.87
|
%
|
|
Rate to which the cost trend rate is assumed to decline (ultimate trend)
|
|
4.49
|
%
|
|
4.50
|
%
|
|
Year the rate reaches the ultimate trend rate
|
|
2040
|
|
|
2040
|
|
The following table sets forth information related to the benefit obligation and the fair value of plan assets at fiscal year-end 2020 and 2019 for the Company’s defined benefit retirement plans and other post-retirement plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement Plans
|
|
Other Benefit Plans
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation — beginning of year
|
|
$
|
37,188
|
|
|
31,670
|
|
|
5,076
|
|
|
4,480
|
|
|
Service cost
|
|
1,380
|
|
|
1,163
|
|
|
287
|
|
|
274
|
|
|
Interest cost
|
|
955
|
|
|
1,096
|
|
|
133
|
|
|
185
|
|
|
Plan participant contributions
|
|
61
|
|
|
63
|
|
|
—
|
|
|
—
|
|
|
Amendments(1)
|
|
(1,780)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Actuarial (gains) losses(2)
|
|
5,716
|
|
|
5,178
|
|
|
(75)
|
|
|
562
|
|
|
Divestitures & acquisitions
|
|
(88)
|
|
|
(278)
|
|
|
—
|
|
|
—
|
|
|
Curtailments, settlements & restructuring
|
|
(24)
|
|
|
(172)
|
|
|
—
|
|
|
—
|
|
|
Benefits paid from plan
|
|
(1,111)
|
|
|
(1,555)
|
|
(3)
|
(396)
|
|
|
(431)
|
|
|
Effect of exchange rates
|
|
1,003
|
|
|
23
|
|
|
3
|
|
|
6
|
|
|
Projected benefit obligation — end of year
|
|
$
|
43,300
|
|
|
37,188
|
|
|
5,028
|
|
|
5,076
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
Plan assets at fair value — beginning of year
|
|
$
|
32,201
|
|
|
26,818
|
|
|
115
|
|
|
180
|
|
|
Actual return on plan assets
|
|
5,524
|
|
|
6,185
|
|
|
14
|
|
|
19
|
|
|
Company contributions
|
|
870
|
|
|
908
|
|
|
357
|
|
|
347
|
|
|
Plan participant contributions
|
|
61
|
|
|
63
|
|
|
—
|
|
|
—
|
|
|
Settlements
|
|
(13)
|
|
|
(16)
|
|
|
—
|
|
|
—
|
|
|
Divestitures & acquisitions
|
|
(84)
|
|
|
(274)
|
|
|
—
|
|
|
—
|
|
|
Benefits paid from plan assets
|
|
(1,111)
|
|
|
(1,555)
|
|
(3)
|
(396)
|
|
|
(431)
|
|
|
Effect of exchange rates
|
|
747
|
|
|
72
|
|
|
—
|
|
|
—
|
|
|
Plan assets at fair value — end of year
|
|
$
|
38,195
|
|
|
32,201
|
|
|
90
|
|
|
115
|
|
|
Funded status — end of year
|
|
$
|
(5,105)
|
|
|
(4,987)
|
|
|
(4,938)
|
|
|
(4,961)
|
|
|
Amounts Recognized in the Company’s Balance Sheet consist of the following:
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
$
|
656
|
|
|
551
|
|
|
—
|
|
|
—
|
|
|
Current liabilities
|
|
(125)
|
|
|
(113)
|
|
|
(418)
|
|
|
(397)
|
|
|
Non-current liabilities
|
|
(5,636)
|
|
|
(5,425)
|
|
|
(4,520)
|
|
|
(4,564)
|
|
|
Total recognized in the consolidated balance sheet — end of year
|
|
$
|
(5,105)
|
|
|
(4,987)
|
|
|
(4,938)
|
|
|
(4,961)
|
|
|
Amounts Recognized in Accumulated Other Comprehensive Income consist of the following:
|
|
|
|
|
|
|
|
|
|
Net actuarial loss
|
|
$
|
10,860
|
|
|
8,835
|
|
|
1,463
|
|
|
1,685
|
|
|
Prior service cost (credit)(1)
|
|
(1,797)
|
|
|
(8)
|
|
|
(44)
|
|
|
(75)
|
|
|
Unrecognized net transition obligation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total before tax effects
|
|
$
|
9,063
|
|
|
8,827
|
|
|
1,419
|
|
|
1,610
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Benefit Obligations — end of year
|
|
$
|
40,356
|
|
|
33,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)In January 2021, the Company announced that, effective on January 1, 2026, all eligible U.S. non-union employees, regardless of hire date, will earn benefits under the Retirement Value formula. This amendment does not affect the benefits accrued under the Final Average Pay formula for service before January 1, 2026.
(2)The actuarial losses for retirement plans in 2020 and 2019 was primarily related to decreases in discount rates.
(3)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)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Amounts Recognized in Net Periodic Benefit Cost and Other Comprehensive Income
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
790
|
|
|
593
|
|
|
524
|
|
|
551
|
|
|
Net actuarial (gain) loss
|
|
2,616
|
|
|
1,084
|
|
|
(81)
|
|
|
550
|
|
|
Amortization of net actuarial loss
|
|
(891)
|
|
|
(579)
|
|
|
(142)
|
|
|
(129)
|
|
|
Prior service cost (credit)
|
|
(1,780)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Amortization of prior service (cost) credit
|
|
(2)
|
|
|
(4)
|
|
|
31
|
|
|
31
|
|
|
Effect of exchange rates
|
|
293
|
|
|
1
|
|
|
1
|
|
|
1
|
|
|
Total loss/(income) recognized in other comprehensive income, before tax
|
|
$
|
236
|
|
|
502
|
|
|
(191)
|
|
|
453
|
|
|
Total recognized in net periodic benefit cost and other comprehensive income
|
|
$
|
1,026
|
|
|
1,095
|
|
|
333
|
|
|
1,004
|
|
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 2020, the Company contributed $441 million and $429 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, 2020 and December 31, 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
International Plans
|
|
|
Qualified Plans
|
Non-Qualified Plans
|
Funded Plans
|
Unfunded Plans
|
|
(Dollars in Millions)
|
2020
|
2019
|
2020
|
2019
|
2020
|
2019
|
2020
|
2019
|
|
Plan Assets
|
$
|
25,554
|
|
21,398
|
|
—
|
|
—
|
|
12,641
|
|
10,803
|
|
—
|
|
—
|
|
|
Projected Benefit Obligation
|
25,466
|
|
22,034
|
|
2,748
|
|
2,544
|
|
14,541
|
|
12,132
|
|
545
|
|
478
|
|
|
Accumulated Benefit Obligation
|
24,158
|
|
19,831
|
|
2,495
|
|
2,115
|
|
13,210
|
|
11,040
|
|
493
|
|
430
|
|
|
Over (Under) Funded Status
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation
|
$
|
88
|
|
(636)
|
|
(2,748)
|
|
(2,544)
|
|
(1,900)
|
|
(1,329)
|
|
(545)
|
|
(478)
|
|
|
Accumulated Benefit Obligation
|
1,396
|
|
1,567
|
|
(2,495)
|
|
(2,115)
|
|
(569)
|
|
(237)
|
|
(493)
|
|
(430)
|
|
Plans with accumulated benefit obligations in excess of plan assets have an accumulated benefit obligation, projected benefit obligation and plan assets of $8.8 billion, $9.8 billion and $4.4 billion, respectively, at the end of 2020, and $4.3 billion, $5.2 billion and $0.9 billion, respectively, at the end of 2019.
The following table displays the projected future benefit payments from the Company’s retirement and other benefit plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Millions)
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026-2030
|
|
Projected future benefit payments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement plans
|
|
$
|
1,257
|
|
|
1,292
|
|
|
1,388
|
|
|
1,424
|
|
|
1,494
|
|
|
8,795
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other benefit plans
|
|
$
|
427
|
|
|
440
|
|
|
453
|
|
|
465
|
|
|
417
|
|
|
2,273
|
|
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)
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
|
2026-2030
|
|
Projected future contributions
|
|
$
|
110
|
|
|
116
|
|
|
121
|
|
|
130
|
|
|
136
|
|
|
787
|
|
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 2020 and 2019 and target allocations for 2021 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of
Plan Assets
|
|
Target
Allocation
|
|
|
|
2020
|
|
2019
|
|
2021
|
|
Worldwide Retirement Plans
|
|
|
|
|
|
|
|
Equity securities
|
|
66
|
%
|
|
74
|
%
|
|
67
|
%
|
|
Debt securities
|
|
34
|
|
|
26
|
|
|
33
|
|
|
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.
•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, 2020 and December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs(1)
|
|
Investments Measured at Net Asset Value
|
|
|
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
|
|
|
|
Total Assets
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Short-term investment funds
|
|
$
|
127
|
|
|
119
|
|
|
763
|
|
|
405
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
890
|
|
|
524
|
|
|
Government and agency securities
|
|
—
|
|
|
—
|
|
|
5,023
|
|
|
4,140
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,023
|
|
|
4,140
|
|
|
Debt instruments
|
|
—
|
|
|
—
|
|
|
3,931
|
|
|
3,452
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,931
|
|
|
3,452
|
|
|
Equity securities
|
|
14,375
|
|
|
12,483
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,377
|
|
|
12,485
|
|
|
Commingled funds
|
|
—
|
|
|
—
|
|
|
4,690
|
|
|
3,338
|
|
|
160
|
|
|
181
|
|
|
8,236
|
|
|
7,580
|
|
|
13,086
|
|
|
11,099
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
—
|
|
|
—
|
|
|
11
|
|
|
9
|
|
|
21
|
|
|
19
|
|
|
856
|
|
|
473
|
|
|
888
|
|
|
501
|
|
|
Investments at fair value
|
|
$
|
14,502
|
|
|
12,602
|
|
|
14,420
|
|
|
11,346
|
|
|
181
|
|
|
200
|
|
|
9,092
|
|
|
8,053
|
|
|
38,195
|
|
|
32,201
|
|
(1) 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 $90 million and $84 million at December 31, 2020 and December 31, 2019, respectively and U.S. short-term investment funds (Level 2) of $31 million at December 31, 2019.
The fair value of Johnson & Johnson Common Stock directly held in plan assets was $946 million (2.5% of total plan assets) at December 31, 2020 and $984 million (3.1% of total plan assets) at December 31, 2019.
11.Savings Plan
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 $243 million, $235 million and $242 million in fiscal years 2020, 2019 and 2018, 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 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
|
|
|
Employee compensation and stock option plans
|
|
(21,765)
|
|
|
(3,148)
|
|
|
Repurchase of common stock
|
|
21,760
|
|
|
3,221
|
|
|
Balance at January 3, 2021
|
|
487,331
|
|
|
$
|
38,490
|
|
Aggregate shares of common stock issued were approximately 3,119,843,000 shares at the end of fiscal years 2020, 2019 and 2018.
Cash dividends paid were $3.98 per share in fiscal year 2020, compared with dividends of $3.75 per share in fiscal year 2019, and $3.54 per share in fiscal year 2018.
On January 4, 2021, the Board of Directors declared a regular cash dividend of $1.01 per share, payable on March 9, 2021 to shareholders of record as of February 23, 2021.
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.
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)
|
|
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)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net 2020 changes
|
|
(233)
|
|
|
1
|
|
|
(66)
|
|
|
947
|
|
|
649
|
|
|
January 3, 2021
|
|
$
|
(8,938)
|
|
|
1
|
|
|
(6,957)
|
|
|
652
|
|
|
(15,242)
|
|
(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. The other current and non current assets line within the Statement of Cash flows includes the impact of foreign currency translation. 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 fiscal years 2020, 2019 and 2018 for foreign currency translation adjustments is included in Note 13.
Net currency transaction gains and losses included in Other (income) expense were losses of $209 million, $267 million and $265 million in fiscal years 2020, 2019 and 2018, respectively.
15.Earnings Per Share
The following is a reconciliation of basic net earnings per share to diluted net earnings per share for the fiscal years ended January 3, 2021, December 29, 2019 and December 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions Except Per Share Amounts)
|
|
2020
|
|
2019
|
|
2018
|
|
Basic net earnings per share
|
|
$
|
5.59
|
|
|
5.72
|
|
|
5.70
|
|
|
Average shares outstanding — basic
|
|
2,632.8
|
|
|
2,645.1
|
|
|
2,681.5
|
|
|
Potential shares exercisable under stock option plans
|
|
118.3
|
|
|
136.3
|
|
|
139.0
|
|
|
Less: shares repurchased under treasury stock method
|
|
(80.4)
|
|
|
(97.8)
|
|
|
(92.5)
|
|
|
Convertible debt shares
|
|
—
|
|
|
0.7
|
|
|
0.7
|
|
|
Adjusted average shares outstanding — diluted
|
|
2,670.7
|
|
|
2,684.3
|
|
|
2,728.7
|
|
|
Diluted net earnings per share
|
|
$
|
5.51
|
|
|
5.63
|
|
|
5.61
|
|
The diluted net earnings per share calculation for fiscal year 2020 excluded 18 million shares related to stock options, as the exercise price of these options was greater than their average market value. As of January 3, 2021, the Company did not have convertible debt.
The diluted net earnings per share calculation for fiscal year 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 fiscal year 2019 included the dilutive effect of convertible debt that was offset by the related reduction in interest expense of $1 million after-tax.
The diluted net earnings per share calculation for fiscal year 2018 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 diluted net earnings per share calculation for fiscal year 2018 included the dilutive effect of convertible debt that was offset by the related reduction in interest expense of $1 million after-tax.
16.Common Stock, Stock Option Plans and Stock Compensation Agreements
At January 3, 2021, 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 277 million at the end of fiscal year 2020.
The compensation cost that has been charged against income for these plans was $1,005 million, $977 million and $978 million for fiscal years 2020, 2019 and 2018, respectively. The total income tax benefit recognized in the income statement for share-based compensation costs was $210 million, $227 million and $192 million for fiscal years 2020, 2019 and 2018, respectively. The Company also recognized additional income tax benefits of $248 million, $209 million and $264 million for fiscal years 2020, 2019 and 2018, respectively, for which options were exercised or restricted shares were vested. The total
unrecognized compensation cost was $804 million, $823 million and $827 million for fiscal years 2020, 2019 and 2018, respectively. The weighted average period for this cost to be recognized was 1.76 years, 1.71 years and 1.73 years for fiscal years 2020, 2019, and 2018, 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 through market purchases 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 2020, 2019 and 2018 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 $16.42, $17.80 and $17.98, in fiscal years 2020, 2019 and 2018, respectively. The fair value was estimated based on the weighted average assumptions of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
Risk-free rate
|
1.47
|
%
|
|
2.56
|
%
|
|
2.77
|
%
|
|
Expected volatility
|
15.33
|
%
|
|
16.27
|
%
|
|
15.77
|
%
|
|
Expected life (in years)
|
7.0
|
|
7.0
|
|
7.0
|
|
Expected dividend yield
|
2.60
|
%
|
|
2.80
|
%
|
|
2.70
|
%
|
A summary of option activity under the Plan as of January 3, 2021, December 29, 2019 and December 30, 2018, 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 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
|
|
|
Options granted
|
|
20,723
|
|
|
151.41
|
|
|
|
|
Options exercised
|
|
(16,275)
|
|
|
86.05
|
|
|
|
|
Options canceled/forfeited
|
|
(1,835)
|
|
|
137.62
|
|
|
|
|
Shares at January 3, 2021
|
|
114,250
|
|
|
$
|
116.22
|
|
|
$
|
4,703
|
|
The total intrinsic value of options exercised was $1,021 million, $807 million and $1,028 million in fiscal years 2020, 2019 and 2018, respectively.
The following table summarizes stock options outstanding and exercisable at January 3, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in Thousands)
|
|
Outstanding
|
|
Exercisable
|
|
Exercise Price Range
|
|
Options
|
|
Average Life(1)
|
|
Weighted Average Exercise Price
|
|
Options
|
|
Weighted Average Exercise Price
|
|
$62.20-$72.54
|
|
11,111
|
|
|
1.8
|
|
$70.79
|
|
11,111
|
|
|
$70.79
|
|
$90.44-$100.06
|
|
22,304
|
|
|
3.6
|
|
$95.36
|
|
22,304
|
|
|
$95.36
|
|
$100.48-$115.67
|
|
28,180
|
|
|
5.6
|
|
$108.64
|
|
27,695
|
|
|
$108.51
|
|
$129.51-$131.94
|
|
32,553
|
|
|
7.6
|
|
$130.85
|
|
145
|
|
|
$130.53
|
|
$141.06-$151.41
|
|
20,102
|
|
|
9.1
|
|
$151.41
|
|
34
|
|
|
$151.41
|
|
|
|
114,250
|
|
|
6.0
|
|
$116.22
|
|
61,289
|
|
|
$96.97
|
(1) Average contractual life remaining in years.
Stock options outstanding at December 29, 2019 and December 30, 2018 were 111,637 and an average life of 6.0 years and 109,652 and an average life of 6.2 years, respectively. Stock options exercisable at December 29, 2019 and December 30, 2018 were 60,761 at an average price of $88.88 and 54,862 at an average price of $82.03, 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. Beginning in fiscal 2020, performance shares were granted with two equally-weighted goals that directly align with or help drive long-term total shareholder return: 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.
A summary of the restricted share units and performance share units activity under the Plans as of January 3, 2021 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Shares in Thousands)
|
|
Outstanding Restricted Share Units
|
|
Outstanding Performance Share Units
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares at December 29, 2019
|
|
16,769
|
|
|
2,174
|
|
|
Granted
|
|
5,051
|
|
|
816
|
|
|
Issued
|
|
(6,042)
|
|
|
(702)
|
|
|
Canceled/forfeited/adjusted
|
|
(780)
|
|
|
(52)
|
|
|
Shares at January 3, 2021
|
|
14,998
|
|
|
2,236
|
|
The average fair value of the restricted share units granted was $139.58, $121.31 and $119.67 in fiscal years 2020, 2019 and 2018, 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 $650 million, $586 million and $614 million in 2020, 2019 and 2018, respectively.
The weighted average fair value of the performance share units granted was $160.54, $124.67 and $120.64 in fiscal years 2020, 2019 and 2018, calculated using the weighted average fair market value for each of the 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 $91 million, $119 million and $129 million in fiscal years 2020, 2019 and 2018, respectively.
17.Segments of Business* and Geographic Areas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Customers
|
|
% Change
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
2018
|
|
’20 vs. ’19
|
|
’19 vs. ’18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Health)(1)
|
|
|
|
|
|
|
|
|
|
|
|
OTC
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
2,460
|
|
|
2,010
|
|
|
1,850
|
|
|
22.4
|
%
|
|
8.6
|
|
|
International
|
|
2,364
|
|
|
2,434
|
|
|
2,484
|
|
|
(2.9)
|
|
|
(2.0)
|
|
|
Worldwide
|
|
4,824
|
|
|
4,444
|
|
|
4,334
|
|
|
8.5
|
|
|
2.5
|
|
|
Skin Health/Beauty(2)
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,350
|
|
|
2,392
|
|
|
2,403
|
|
|
(1.7)
|
|
|
(0.4)
|
|
|
International
|
|
2,100
|
|
|
2,201
|
|
|
1,979
|
|
|
(4.6)
|
|
|
11.2
|
|
|
Worldwide
|
|
4,450
|
|
|
4,593
|
|
|
4,382
|
|
|
(3.1)
|
|
|
4.8
|
|
|
Oral Care
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
683
|
|
|
621
|
|
|
637
|
|
|
9.9
|
|
|
(2.5)
|
|
|
International
|
|
958
|
|
|
906
|
|
|
918
|
|
|
5.7
|
|
|
(1.2)
|
|
|
Worldwide
|
|
1,641
|
|
|
1,528
|
|
|
1,555
|
|
|
7.4
|
|
|
(1.7)
|
|
|
Baby Care
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
376
|
|
|
362
|
|
|
422
|
|
|
3.7
|
|
|
(14.2)
|
|
|
International
|
|
1,141
|
|
|
1,313
|
|
|
1,436
|
|
|
(13.1)
|
|
|
(8.6)
|
|
|
Worldwide
|
|
1,517
|
|
|
1,675
|
|
|
1,858
|
|
|
(9.4)
|
|
|
(9.9)
|
|
|
Women's Health
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
13
|
|
|
12
|
|
|
13
|
|
|
8.2
|
|
|
(5.5)
|
|
|
International
|
|
888
|
|
|
974
|
|
|
1,036
|
|
|
(8.8)
|
|
|
(6.0)
|
|
|
Worldwide
|
|
901
|
|
|
986
|
|
|
1,049
|
|
|
(8.6)
|
|
|
(6.0)
|
|
|
Wound Care/Other
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
480
|
|
|
441
|
|
|
436
|
|
|
8.9
|
|
|
1.2
|
|
|
International
|
|
240
|
|
|
230
|
|
|
239
|
|
|
4.1
|
|
|
(3.9)
|
|
|
Worldwide
|
|
720
|
|
|
671
|
|
|
675
|
|
|
7.2
|
|
|
(0.6)
|
|
|
TOTAL CONSUMER HEALTH
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
6,362
|
|
|
5,839
|
|
|
5,761
|
|
|
9.0
|
|
|
1.4
|
|
|
International
|
|
7,691
|
|
|
8,059
|
|
|
8,092
|
|
|
(4.6)
|
|
|
(0.4)
|
|
|
Worldwide
|
|
14,053
|
|
|
13,898
|
|
|
13,853
|
|
|
1.1
|
|
|
0.3
|
|
|
(1)Previously referred to as Consumer
(2)Previously referred to as Beauty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PHARMACEUTICAL
|
|
|
|
|
|
|
|
|
|
|
|
Immunology
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
10,175
|
|
|
9,641
|
|
|
9,073
|
|
|
5.5
|
|
|
6.3
|
|
|
International
|
|
4,880
|
|
|
4,309
|
|
|
4,047
|
|
|
13.2
|
|
|
6.5
|
|
|
Worldwide
|
|
15,055
|
|
|
13,950
|
|
|
13,120
|
|
|
7.9
|
|
|
6.3
|
|
|
REMICADE®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,508
|
|
|
3,079
|
|
|
3,664
|
|
|
(18.5)
|
|
|
(16.0)
|
|
|
U.S. Exports
|
|
346
|
|
|
294
|
|
|
436
|
|
|
18.0
|
|
|
(32.7)
|
|
|
International
|
|
893
|
|
|
1,007
|
|
|
1,226
|
|
|
(11.4)
|
|
|
(17.8)
|
|
|
Worldwide
|
|
3,747
|
|
|
4,380
|
|
|
5,326
|
|
|
(14.4)
|
|
|
(17.8)
|
|
|
SIMPONI / SIMPONI ARIA®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,155
|
|
|
1,159
|
|
|
1,051
|
|
|
(0.3)
|
|
|
10.2
|
|
|
International
|
|
1,088
|
|
|
1,029
|
|
|
1,033
|
|
|
5.8
|
|
|
(0.4)
|
|
|
Worldwide
|
|
2,243
|
|
|
2,188
|
|
|
2,084
|
|
|
2.6
|
|
|
5.0
|
|
|
STELARA®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
5,240
|
|
|
4,346
|
|
|
3,469
|
|
|
20.6
|
|
|
25.3
|
|
|
International
|
|
2,467
|
|
|
2,015
|
|
|
1,687
|
|
|
22.4
|
|
|
19.4
|
|
|
Worldwide
|
|
7,707
|
|
|
6,361
|
|
|
5,156
|
|
|
21.1
|
|
|
23.4
|
|
|
TREMFYA®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
926
|
|
|
764
|
|
|
453
|
|
|
21.3
|
|
|
68.5
|
|
|
International
|
|
421
|
|
|
248
|
|
|
91
|
|
|
69.9
|
|
|
**
|
|
Worldwide
|
|
1,347
|
|
|
1,012
|
|
|
544
|
|
|
33.2
|
|
|
85.9
|
|
|
OTHER IMMUNOLOGY
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
International
|
|
11
|
|
|
10
|
|
|
10
|
|
|
6.4
|
|
|
4.5
|
|
|
Worldwide
|
|
11
|
|
|
10
|
|
|
10
|
|
|
6.4
|
|
|
4.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infectious Diseases
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,735
|
|
|
1,597
|
|
|
1,378
|
|
|
8.6
|
|
|
15.9
|
|
|
International
|
|
1,839
|
|
|
1,815
|
|
|
1,926
|
|
|
1.3
|
|
|
(5.7)
|
|
|
Worldwide
|
|
3,574
|
|
|
3,413
|
|
|
3,304
|
|
|
4.7
|
|
|
3.3
|
|
|
EDURANT® / rilpivirine
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
44
|
|
|
50
|
|
|
58
|
|
|
(11.2)
|
|
|
(13.7)
|
|
|
International
|
|
920
|
|
|
812
|
|
|
758
|
|
|
13.3
|
|
|
7.1
|
|
|
Worldwide
|
|
964
|
|
|
861
|
|
|
816
|
|
|
11.9
|
|
|
5.6
|
|
|
PREZISTA® / PREZCOBIX® / REZOLSTA® / SYMTUZA®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,587
|
|
|
1,422
|
|
|
1,169
|
|
|
11.6
|
|
|
21.6
|
|
|
International
|
|
597
|
|
|
689
|
|
|
786
|
|
|
(13.4)
|
|
|
(12.3)
|
|
|
Worldwide
|
|
2,184
|
|
|
2,110
|
|
|
1,955
|
|
|
3.5
|
|
|
8.0
|
|
|
OTHER INFECTIOUS DISEASES
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
104
|
|
|
126
|
|
|
151
|
|
|
(17.6)
|
|
|
(16.5)
|
|
|
International
|
|
323
|
|
|
315
|
|
|
382
|
|
|
2.6
|
|
|
(17.6)
|
|
|
Worldwide
|
|
427
|
|
|
441
|
|
|
533
|
|
|
(3.2)
|
|
|
(17.3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Neuroscience
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
3,091
|
|
|
2,919
|
|
|
2,574
|
|
|
5.9
|
|
|
13.4
|
|
|
International
|
|
3,457
|
|
|
3,409
|
|
|
3,503
|
|
|
1.4
|
|
|
(2.7)
|
|
|
Worldwide
|
|
6,548
|
|
|
6,328
|
|
|
6,077
|
|
|
3.5
|
|
|
4.1
|
|
|
CONCERTA® / methylphenidate
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
183
|
|
|
233
|
|
|
229
|
|
|
(21.4)
|
|
|
1.7
|
|
|
International
|
|
439
|
|
|
463
|
|
|
434
|
|
|
(5.1)
|
|
|
6.6
|
|
|
Worldwide
|
|
622
|
|
|
696
|
|
|
663
|
|
|
(10.6)
|
|
|
4.9
|
|
|
INVEGA SUSTENNA® / XEPLION® / INVEGA TRINZA® / TREVICTA®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,314
|
|
|
2,107
|
|
|
1,791
|
|
|
9.8
|
|
|
17.6
|
|
|
International
|
|
1,339
|
|
|
1,224
|
|
|
1,137
|
|
|
9.4
|
|
|
7.7
|
|
|
Worldwide
|
|
3,653
|
|
|
3,330
|
|
|
2,928
|
|
|
9.7
|
|
|
13.7
|
|
|
RISPERDAL CONSTA®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
296
|
|
|
314
|
|
|
315
|
|
|
(5.9)
|
|
|
(0.3)
|
|
|
International
|
|
346
|
|
|
374
|
|
|
422
|
|
|
(7.5)
|
|
|
(11.4)
|
|
|
Worldwide
|
|
642
|
|
|
688
|
|
|
737
|
|
|
(6.8)
|
|
|
(6.7)
|
|
|
OTHER NEUROSCIENCE
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
298
|
|
|
266
|
|
|
239
|
|
|
12.4
|
|
|
11.4
|
|
|
International
|
|
1,334
|
|
|
1,349
|
|
|
1,510
|
|
|
(1.1)
|
|
|
(10.7)
|
|
|
Worldwide
|
|
1,632
|
|
|
1,614
|
|
|
1,749
|
|
|
1.1
|
|
|
(7.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oncology
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
5,092
|
|
|
4,299
|
|
|
4,331
|
|
|
18.5
|
|
|
(0.7)
|
|
|
International
|
|
7,275
|
|
|
6,393
|
|
|
5,513
|
|
|
13.8
|
|
|
16.0
|
|
|
Worldwide
|
|
12,367
|
|
|
10,692
|
|
|
9,844
|
|
|
15.7
|
|
|
8.6
|
|
|
DARZALEX®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,232
|
|
|
1,567
|
|
|
1,203
|
|
|
42.4
|
|
|
30.3
|
|
|
International
|
|
1,958
|
|
|
1,430
|
|
|
822
|
|
|
36.9
|
|
|
73.9
|
|
|
Worldwide
|
|
4,190
|
|
|
2,998
|
|
|
2,025
|
|
|
39.8
|
|
|
48.0
|
|
|
ERLEADA®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
583
|
|
297
|
|
124
|
|
96.1
|
|
|
**
|
|
International
|
|
176
|
|
35
|
|
—
|
|
|
* *
|
|
**
|
|
Worldwide
|
|
760
|
|
332
|
|
124
|
|
* *
|
|
**
|
|
IMBRUVICA®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,821
|
|
|
1,555
|
|
|
1,129
|
|
|
17.1
|
|
|
37.7
|
|
|
International
|
|
2,307
|
|
|
1,856
|
|
|
1,486
|
|
|
24.3
|
|
|
24.9
|
|
|
Worldwide
|
|
4,128
|
|
|
3,411
|
|
|
2,615
|
|
|
21.0
|
|
|
30.4
|
|
|
VELCADE®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
International
|
|
408
|
|
|
751
|
|
|
1,116
|
|
|
(45.7)
|
|
|
(32.7)
|
|
|
Worldwide
|
|
408
|
|
|
751
|
|
|
1,116
|
|
|
(45.7)
|
|
|
(32.7)
|
|
|
ZYTIGA® /abiraterone acetate
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
373
|
|
|
810
|
|
|
1,771
|
|
|
(54.0)
|
|
|
(54.3)
|
|
|
International
|
|
2,097
|
|
|
1,985
|
|
|
1,727
|
|
|
5.6
|
|
|
15.0
|
|
|
Worldwide
|
|
2,470
|
|
|
2,795
|
|
|
3,498
|
|
|
(11.6)
|
|
|
(20.1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER ONCOLOGY
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
83
|
|
|
70
|
|
|
104
|
|
|
19.2
|
|
|
(32.7)
|
|
|
International
|
|
330
|
|
|
336
|
|
|
362
|
|
|
(1.9)
|
|
|
(7.2)
|
|
|
Worldwide
|
|
413
|
|
|
407
|
|
|
466
|
|
|
1.7
|
|
|
(12.7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pulmonary Hypertension
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,133
|
|
|
1,684
|
|
|
1,651
|
|
|
26.6
|
|
|
2.0
|
|
|
International
|
|
1,015
|
|
|
939
|
|
|
922
|
|
|
8.2
|
|
|
1.9
|
|
|
Worldwide
|
|
3,148
|
|
|
2,623
|
|
|
2,573
|
|
|
20.0
|
|
|
1.9
|
|
|
OPSUMIT®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,008
|
|
|
766
|
|
|
700
|
|
|
31.7
|
|
|
9.4
|
|
|
International
|
|
631
|
|
|
562
|
|
|
515
|
|
|
12.3
|
|
|
9.0
|
|
|
Worldwide
|
|
1,639
|
|
|
1,327
|
|
|
1,215
|
|
|
23.5
|
|
|
9.2
|
|
|
UPTRAVI®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
955
|
|
|
714
|
|
|
598
|
|
|
33.8
|
|
|
19.3
|
|
International
|
|
138
|
|
|
105
|
|
|
65
|
|
|
30.9
|
|
|
62.4
|
|
Worldwide
|
|
1,093
|
|
|
819
|
|
|
663
|
|
|
33.5
|
|
|
23.5
|
|
OTHER
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
169
|
|
|
205
|
|
|
353
|
|
|
(17.6)
|
|
|
(41.9)
|
|
|
International
|
|
247
|
|
|
272
|
|
|
342
|
|
|
(9.2)
|
|
|
(20.5)
|
|
|
Worldwide
|
|
416
|
|
|
476
|
|
|
695
|
|
|
(12.8)
|
|
|
(31.5)
|
|
|
Cardiovascular / Metabolism / Other
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
3,509
|
|
|
3,734
|
|
|
4,279
|
|
|
(6.0)
|
|
|
(12.7)
|
|
|
International
|
|
1,369
|
|
|
1,458
|
|
|
1,537
|
|
|
(6.1)
|
|
|
(5.2)
|
|
|
Worldwide
|
|
4,878
|
|
|
5,192
|
|
|
5,816
|
|
|
(6.0)
|
|
|
(10.7)
|
|
|
XARELTO®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
2,345
|
|
|
2,313
|
|
|
2,477
|
|
|
1.4
|
|
|
(6.6)
|
|
|
International
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Worldwide
|
|
2,345
|
|
|
2,313
|
|
|
2,477
|
|
|
1.4
|
|
|
(6.6)
|
|
|
INVOKANA® / INVOKAMET®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
564
|
|
|
536
|
|
|
711
|
|
|
5.2
|
|
|
(24.6)
|
|
|
International
|
|
231
|
|
|
199
|
|
|
170
|
|
|
16.3
|
|
|
17.3
|
|
|
Worldwide
|
|
795
|
|
|
735
|
|
|
881
|
|
|
8.2
|
|
|
(16.5)
|
|
|
PROCRIT® / EPREX®
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
277
|
|
|
505
|
|
|
674
|
|
|
(45.1)
|
|
|
(25.1)
|
|
|
International
|
|
274
|
|
|
285
|
|
|
314
|
|
|
(3.8)
|
|
|
(9.2)
|
|
|
Worldwide
|
|
552
|
|
|
790
|
|
|
988
|
|
|
(30.2)
|
|
|
(20.0)
|
|
|
OTHER
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
323
|
|
|
380
|
|
|
417
|
|
|
(15.1)
|
|
|
(9.1)
|
|
|
International
|
|
864
|
|
|
974
|
|
|
1,053
|
|
|
(11.3)
|
|
|
(7.6)
|
|
|
Worldwide
|
|
1,186
|
|
|
1,353
|
|
|
1,470
|
|
|
(12.4)
|
|
|
(8.0)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL PHARMACEUTICAL
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
25,735
|
|
|
23,874
|
|
|
23,286
|
|
|
7.8
|
|
|
2.5
|
|
|
International
|
|
19,837
|
|
|
18,324
|
|
|
17,448
|
|
|
8.3
|
|
|
5.0
|
|
|
Worldwide
|
|
45,572
|
|
|
42,198
|
|
|
40,734
|
|
|
8.0
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEDICAL DEVICES
|
|
|
|
|
|
|
|
|
|
|
|
Diabetes Care
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
—
|
|
|
—
|
|
|
371
|
|
|
—
|
|
|
**
|
|
International
|
|
—
|
|
|
—
|
|
|
638
|
|
|
—
|
|
|
**
|
|
Worldwide
|
|
—
|
|
|
—
|
|
|
1,009
|
|
|
—
|
|
|
**
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interventional Solutions
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,452
|
|
|
1,443
|
|
|
1,283
|
|
|
0.6
|
|
|
12.5
|
|
|
International
|
|
1,594
|
|
|
1,554
|
|
|
1,363
|
|
|
2.6
|
|
|
14.0
|
|
|
Worldwide
|
|
3,046
|
|
|
2,997
|
|
|
2,646
|
|
|
1.6
|
|
|
13.3
|
|
|
Orthopaedics
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
4,779
|
|
|
5,319
|
|
|
5,281
|
|
|
(10.2)
|
|
|
0.7
|
|
|
International
|
|
2,984
|
|
|
3,520
|
|
|
3,604
|
|
|
(15.2)
|
|
|
(2.3)
|
|
|
Worldwide
|
|
7,763
|
|
|
8,839
|
|
|
8,885
|
|
|
(12.2)
|
|
|
(0.5)
|
|
|
HIPS
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
793
|
|
|
863
|
|
|
841
|
|
|
(8.2)
|
|
|
2.6
|
|
|
International
|
|
487
|
|
|
575
|
|
|
577
|
|
|
(15.3)
|
|
|
(0.3)
|
|
|
Worldwide
|
|
1,280
|
|
|
1,438
|
|
|
1,418
|
|
|
(11.0)
|
|
|
1.4
|
|
|
KNEES
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
743
|
|
|
889
|
|
|
911
|
|
|
(16.4)
|
|
|
(2.4)
|
|
|
International
|
|
427
|
|
|
591
|
|
|
591
|
|
|
(27.8)
|
|
|
0.0
|
|
|
Worldwide
|
|
1,170
|
|
|
1,480
|
|
|
1,502
|
|
|
(21.0)
|
|
|
(1.4)
|
|
|
TRAUMA
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,648
|
|
|
1,652
|
|
|
1,599
|
|
|
(0.2)
|
|
|
3.3
|
|
|
International
|
|
966
|
|
|
1,068
|
|
|
1,100
|
|
|
(9.6)
|
|
|
(2.9)
|
|
|
Worldwide
|
|
2,614
|
|
|
2,720
|
|
|
2,699
|
|
|
(3.9)
|
|
|
0.8
|
|
|
SPINE, SPORTS & OTHER(3)
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,595
|
|
|
1,915
|
|
|
1,930
|
|
|
(16.7)
|
|
|
(0.8)
|
|
|
International
|
|
1,104
|
|
|
1,286
|
|
|
1,336
|
|
|
(14.1)
|
|
|
(3.8)
|
|
|
Worldwide
|
|
2,699
|
|
|
3,201
|
|
|
3,266
|
|
|
(15.7)
|
|
|
(2.0)
|
|
|
Surgery
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
3,249
|
|
|
3,828
|
|
|
4,125
|
|
|
(15.1)
|
|
|
(7.2)
|
|
|
International
|
|
4,983
|
|
|
5,673
|
|
|
5,776
|
|
|
(12.2)
|
|
|
(1.8)
|
|
|
Worldwide
|
|
8,232
|
|
|
9,501
|
|
|
9,901
|
|
|
(13.4)
|
|
|
(4.0)
|
|
|
ADVANCED
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,535
|
|
|
1,637
|
|
|
1,657
|
|
|
(6.2)
|
|
|
(1.2)
|
|
|
International
|
|
2,304
|
|
|
2,458
|
|
|
2,345
|
|
|
(6.2)
|
|
|
4.8
|
|
|
Worldwide
|
|
3,839
|
|
|
4,095
|
|
|
4,002
|
|
|
(6.2)
|
|
|
2.3
|
|
|
GENERAL
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,714
|
|
|
2,192
|
|
|
2,468
|
|
|
(21.8)
|
|
|
(11.2)
|
|
|
International
|
|
2,679
|
|
|
3,215
|
|
|
3,431
|
|
|
(16.7)
|
|
|
(6.3)
|
|
|
Worldwide
|
|
4,392
|
|
|
5,406
|
|
|
5,899
|
|
|
(18.8)
|
|
|
(8.4)
|
|
|
Vision
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,557
|
|
|
1,794
|
|
|
1,777
|
|
|
(13.2)
|
|
|
0.9
|
|
|
International
|
|
2,362
|
|
|
2,830
|
|
|
2,776
|
|
|
(16.5)
|
|
|
2.0
|
|
|
Worldwide
|
|
3,919
|
|
|
4,624
|
|
|
4,553
|
|
|
(15.2)
|
|
|
1.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONTACT LENSES / OTHER
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
1,213
|
|
|
1,304
|
|
|
1,237
|
|
|
(7.0)
|
|
|
5.4
|
|
|
International
|
|
1,781
|
|
|
2,088
|
|
|
2,065
|
|
|
(14.7)
|
|
|
1.1
|
|
|
Worldwide
|
|
2,994
|
|
|
3,392
|
|
|
3,302
|
|
|
(11.7)
|
|
|
2.7
|
|
|
SURGICAL
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
344
|
|
|
490
|
|
|
540
|
|
|
(29.7)
|
|
|
(9.4)
|
|
|
International
|
|
581
|
|
|
742
|
|
|
711
|
|
|
(21.7)
|
|
|
4.4
|
|
|
Worldwide
|
|
925
|
|
|
1,232
|
|
|
1,251
|
|
|
(24.9)
|
|
|
(1.6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL MEDICAL DEVICES
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
11,036
|
|
|
12,384
|
|
|
12,837
|
|
|
(10.9)
|
|
|
(3.5)
|
|
|
International
|
|
11,923
|
|
|
13,579
|
|
|
14,157
|
|
|
(12.2)
|
|
|
(4.1)
|
|
|
Worldwide
|
|
22,959
|
|
|
25,963
|
|
|
26,994
|
|
|
(11.6)
|
|
|
(3.8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WORLDWIDE
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
43,133
|
|
|
42,097
|
|
|
41,884
|
|
|
2.5
|
|
|
0.5
|
|
|
International
|
|
39,451
|
|
|
39,962
|
|
|
39,697
|
|
|
(1.3)
|
|
|
0.7
|
|
|
Worldwide
|
|
$
|
82,584
|
|
|
82,059
|
|
|
81,581
|
|
|
0.6
|
%
|
|
0.6
|
|
(3)Previously referred to as Spine & Other
*Certain prior year amounts have been reclassified to conform to current year presentation
**Percentage greater than 100% or not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Tax
|
|
Identifiable Assets
|
|
(Dollars in Millions)
|
|
2020 (3)
|
|
2019 (4)
|
|
2018 (5)
|
|
2020
|
|
2019
|
|
Consumer Health
|
|
$
|
(1,064)
|
|
|
2,061
|
|
|
2,320
|
|
|
$
|
27,355
|
|
|
26,618
|
|
|
Pharmaceutical
|
|
15,462
|
|
|
8,816
|
|
|
12,568
|
|
|
66,158
|
|
|
56,292
|
|
|
Medical Devices
|
|
3,044
|
|
|
7,286
|
|
|
4,397
|
|
|
49,578
|
|
|
49,462
|
|
|
Total
|
|
17,442
|
|
|
18,163
|
|
|
19,285
|
|
|
143,091
|
|
|
132,372
|
|
|
Less: Expense not allocated to segments (1)
|
|
945
|
|
|
835
|
|
|
1,286
|
|
|
|
|
|
|
General corporate (2)
|
|
|
|
|
|
|
|
31,803
|
|
|
25,356
|
|
|
Worldwide total
|
|
$
|
16,497
|
|
|
17,328
|
|
|
17,999
|
|
|
$
|
174,894
|
|
|
157,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to Property,
Plant & Equipment
|
|
Depreciation and
Amortization
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
Consumer Health
|
|
$
|
248
|
|
|
328
|
|
|
438
|
|
|
$
|
785
|
|
|
765
|
|
|
688
|
|
|
Pharmaceutical
|
|
863
|
|
|
950
|
|
|
1,012
|
|
|
4,006
|
|
|
3,910
|
|
|
3,802
|
|
|
Medical Devices
|
|
1,980
|
|
|
1,912
|
|
|
1,843
|
|
|
2,140
|
|
|
2,014
|
|
|
2,103
|
|
|
Segments total
|
|
3,091
|
|
|
3,190
|
|
|
3,293
|
|
|
6,931
|
|
|
6,689
|
|
|
6,593
|
|
|
General corporate
|
|
256
|
|
|
308
|
|
|
377
|
|
|
300
|
|
|
320
|
|
|
336
|
|
|
Worldwide total
|
|
$
|
3,347
|
|
|
3,498
|
|
|
3,670
|
|
|
$
|
7,231
|
|
|
7,009
|
|
|
6,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to Customers
|
|
Long-Lived Assets (6)
|
|
(Dollars in Millions)
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
United States
|
|
$
|
43,133
|
|
|
42,097
|
|
|
41,884
|
|
|
$
|
49,951
|
|
|
41,528
|
|
|
Europe
|
|
18,980
|
|
|
18,466
|
|
|
18,753
|
|
|
49,363
|
|
|
48,015
|
|
|
Western Hemisphere excluding U.S.
|
|
5,335
|
|
|
5,941
|
|
|
6,113
|
|
|
2,734
|
|
|
2,862
|
|
|
Asia-Pacific, Africa
|
|
15,136
|
|
|
15,555
|
|
|
14,831
|
|
|
5,484
|
|
|
5,486
|
|
|
Segments total
|
|
82,584
|
|
|
82,059
|
|
|
81,581
|
|
|
107,532
|
|
|
97,891
|
|
|
General corporate
|
|
|
|
|
|
|
|
1,029
|
|
|
1,049
|
|
|
Other non long-lived assets
|
|
|
|
|
|
|
|
66,333
|
|
|
58,788
|
|
|
Worldwide total
|
|
$
|
82,584
|
|
|
82,059
|
|
|
81,581
|
|
|
$
|
174,894
|
|
|
157,728
|
|
See Note 1 for a description of the segments in which the Company operates.
Export sales are not significant. In fiscal year 2020, the Company utilized three wholesalers distributing products for all three segments that represented approximately 16.0%, 12.0% and 12.0% of the total consolidated revenues. In fiscal year 2019, the Company had three wholesalers distributing products for all three segments that represented approximately 15.0%, 12.0% and 11.0% of the total consolidated revenues. In fiscal year 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.
(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)Consumer Health includes:
•Litigation expense of $3.9 billion, primarily talc related reserves and certain settlements.
Pharmaceutical includes:
•Litigation expense of $0.8 billion, primarily related to the agreement in principle to settle opioid litigation
•An unrealized gain on securities of $0.5 billion
•A restructuring related charge of $0.1 billion
Medical Devices includes:
•A contingent consideration reversal of $1.1 billion related to the timing of certain developmental milestones associated with the Auris Health acquisition.
•Litigation expense of $0.3 billion
•A restructuring related charge of $0.3 billion
•An in-process research and development expense of $0.2 billion
•A Medical Device Regulation charge of $0.1 billion
(4) Consumer Health 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
•A restructuring related charge of $0.1 billion
Pharmaceutical includes:
•Litigation expense of $4.3 billion of which $4.0 billion is related to the agreement in principle to settle 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 and integration related costs of $0.2 billion
•A restructuring charge of $0.1 billion
Medical Devices 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
•Auris Health acquisition and integration related costs of $0.1 billion
(5) Consumer Health includes:
•A gain of $0.3 billion from the divestiture of NIZORAL®
•Litigation expense of $0.3 billion
Pharmaceutical 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 and integration related costs of $0.2 billion
•An unrealized loss on securities of $0.2 billion
•A gain of $0.2 billion from the divestiture of certain non-strategic Pharmaceutical products
Medical Devices includes:
•Litigation expense of $1.7 billion
•A restructuring related charge of $0.6 billion
•AMO acquisition and integration related costs of $0.1 billion
•A gain of $0.5 billion from the divestiture of the LifeScan business
(6) Long-lived assets include property, plant and equipment, net for fiscal years 2020, and 2019 of $18,766 and $17,658, respectively, and intangible assets and goodwill, net for fiscal years 2020 and 2019 of $89,795 and $81,282, respectively.
18.Acquisitions and Divestitures
Certain businesses were acquired for $7.3 billion in cash and $0.4 billion of liabilities assumed during fiscal year 2020. 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 excess of purchase price over the estimated fair value of tangible assets acquired amounted to $7.5 billion and has been assigned to identifiable intangible assets, with any residual recorded to goodwill.
The fiscal year 2020 acquisitions primarily included: all rights to the investigational compound bermekimab, which has multiple dermatological indications, along with certain employees from XBiotech Inc. (XBiotech), Momenta Pharmaceuticals, Inc. (Momenta), a company that discovers and develops novel therapies for immune-mediated diseases and the outstanding shares in Verb Surgical Inc., a company with significant robotics and data science capabilities.
During the fiscal first quarter of 2020, 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. The fair value of the acquisition was allocated primarily to non-amortizable intangible assets, primarily IPR&D, for $0.8 billion applying a probability of success factor that ranged from 20% to 60% to reflect inherent development, regulatory and commercial risk for the different indications. The discount rate applied was approximately 16%. XBiotech may be eligible to receive additional payments upon the receipt of certain commercialization authorizations. The transaction was accounted for as a business combination and included in the Pharmaceutical segment.
Additionally, in the fiscal first quarter of 2020, the Company completed the acquisition of all outstanding shares in Verb Surgical Inc., a company with significant robotics and data science capabilities, including those shares previously held by Verily. The transaction was accounted for as a business combination and included in the Medical Devices segment. The fair value of the acquisition was allocated primarily to non-amortizable intangible assets, primarily IPR&D, for $0.4 billion, goodwill for $0.2 billion, other assets of $0.2 billion and liabilities assumed of $0.3 billion. The fair value of the Company's previously held equity investment in Verb Surgical Inc. was $0.4 billion.
On October 1, 2020, the Company completed the acquisition of Momenta for a purchase price of approximately $6.1 billion, net of cash acquired. The fair value of the acquisition was allocated primarily to non-amortizable intangible assets (IPR&D) of $6.0 billion, goodwill of $1.2 billion, other assets of $0.5 billion and liabilities of $1.6 billion. The assets acquired are intended to address substantial unmet medical need in maternal-fetal disorders, neuro-inflammatory disorders, rheumatology, dermatology and autoimmune hematology. Depending on the asset, probability of success factors ranging from 20% to 77% were used in the fair value calculation to reflect inherent development and regulatory risk of the IPR&D. The discount rate applied was approximately 13%. The goodwill is primarily attributable to synergies expected to arise from the business acquisition and is not expected to be deductible for tax purposes. The transaction was accounted for as a business combination and included in the Pharmaceutical segment.
During fiscal year 2019 certain businesses were acquired for $5.8 billion in cash and $1.4 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 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.
The fiscal year 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 and 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.
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. 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 Health segment. During the fiscal first quarter of 2020, the Company finalized the purchase price allocation. The final 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. 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. During the fiscal second quarter of 2020, the Company finalized the purchase price allocation. During fiscal 2020, the Company recorded Other income of approximately $1.1 billion for the reversal of all of the contingent consideration related to the timing of certain developmental and commercial milestones, which are not expected to be met based on the Company’s current timelines. During the fiscal third quarter of 2020, the Company recorded a partial IPR&D impairment charge of $0.1 billion related to timing and progression of the digital surgery platforms. 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.
During fiscal year 2018 certain businesses were acquired for $0.9 billion in cash and $0.1 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 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.
In accordance with U.S. GAAP standards related to business combinations, and goodwill and other intangible assets, supplemental pro forma information for fiscal years 2020, 2019 and 2018 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
Subsequent to fiscal 2020, in separate transactions, the Company divested two brands outside the U.S. within the Pharmaceutical segment and received combined proceeds of approximately $0.6 billion. The Company will reflect these brand divestitures in its 2021 financial results.
During fiscal year 2020, the Company sold 11.8 million shares of Idorsia LTD (Idorsia), or its 8.3% ownership in the company. The transaction resulted in gross proceeds of approximately CHF 337 million ($357 million) based on a sales price of CHF 28.55/share and an immaterial net loss. The Company currently has rights to at least an additional 38.7 million shares (or approximately 20% of Idorsia equity) through a convertible loan with a principal amount of CHF 445 million (due June 2027). Idorsia also has access to an approximate CHF 243 million credit facility with the Company. As of January 3, 2021, Idorsia has not made any draw-downs under the credit facility.
During fiscal year 2019, the Company divested its 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. The Company recognized a pre-tax gain recorded in Other ( income) expense, net, of approximately $2.0 billion.
During fiscal year 2018, the Company divested the LifeScan Inc business for approximately $2.1 billion and retained certain net liabilities. Other divestitures in fiscal year 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 fiscal year 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 transfers were completed in fiscal year 2020. As of January 3, 2021, there were no assets held for sale on the Consolidated Balance Sheet. 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. For additional details on the global supply chain restructuring see Note 20 to the Consolidated Financial Statements.
19.Legal Proceedings
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. Due to the ongoing impacts of the COVID-19 pandemic, certain trials have been rescheduled or delayed. The Company continues to monitor its legal proceedings as the situation evolves.
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 January 3, 2021, 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 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; ability to achieve comprehensive multi-party settlements; complexity of related cross-claims and counterclaims; and/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 January 3, 2021, in the United States there were approximately 560 plaintiffs with direct claims in pending lawsuits regarding
injuries allegedly due to the DePuy ASR™ XL Acetabular System and DePuy ASR™ Hip Resurfacing System; 7,800 with respect to the PINNACLE® Acetabular Cup System; 14,900 with respect to pelvic meshes; 9,300 with respect to RISPERDAL®; 12,600 with respect to XARELTO®; 25,000 with respect to body powders containing talc; 300 with respect to INVOKANA®; and 4,200 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 the class actions filed in that country. 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 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. In March 2020, the Court entered damages awards to the three Lead Applicants. The Company is appealing the decision. 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 form of the individual case assessment process has not yet been determined by the Court. The class actions in Canada were discontinued in 2020 as a result of a settlement of a group of cases. 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. Discovery is proceeding in these cases and certain of the cases are in preparation for trials.
Claims have also been filed against Ethicon and Johnson & Johnson alleging personal injuries arising from the PROCEED® Mesh and PROCEED® Ventral Patch hernia mesh products. In March 2019, the New Jersey Supreme Court entered an order consolidating these cases pending in New Jersey 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. Discovery is underway in these cases.
In September 2019, plaintiffs’ attorney filed an application with the New Jersey Supreme Court seeking centralized management of 107 PROLENE™ Polypropylene Hernia System (“PHS”) cases. The New Jersey Supreme Court granted plaintiffs application in January 2020 and those cases have also been transferred to an MCL in Atlantic County Superior Court. Discovery is underway in these 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, and PROLENE™ Polypropylene Hernia System products.
Claims for personal injury have been made against Janssen Pharmaceuticals, Inc. and Johnson & Johnson arising out of the use of RISPERDAL®, and related compounds, indicated for the treatment of schizophrenia, acute manic or mixed episodes associated with bipolar I disorder and irritability associated with autism. 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 verdict in October 2019 of $8.0 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 and plaintiff are each appealing this 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 were 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, the settlement became final in December 2019, and the settlement was funded in January 2020. This resolved 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 personal injury 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, and suits have also been filed outside the United States. The majority of cases are pending in federal court, organized into a multi-district litigation (MDL) in the United States District Court for the District of New Jersey. In the MDL, the parties sought to exclude experts through Daubert motions. In April 2020, the Court issued rulings that limit the scope of testimony, including some theories and testing methods, for certain plaintiff expert witnesses and denied plaintiffs’ attempt to limit the scope of testimony of certain of the Company’s witnesses. With this ruling made, case-specific discovery has begun per the Court’s directive.
In talc cases that have previously gone to trial, the Company has obtained defense verdicts in a number of them, but there have also been verdicts against the Company, many of which have been reversed on appeal. In June 2020, the Missouri Court of Appeals reversed in part and affirmed in part a July 2018 verdict of $4.7 billion in Ingham v. Johnson & Johnson, et al., No. ED 207476 (Mo. App.), reducing the overall award to $2.1 billion and, with additional interest as of January 3, 2021, as the Company pursues further appeal, is currently $2.5 billion (the Ingham decision). An application for transfer of the case to the Missouri Supreme Court was subsequently denied, and the Company is currently seeking review by the United States Supreme Court. The Company continues to believe that it has strong legal grounds for the appeal of this verdict, as well as other verdicts that it has appealed. Notwithstanding the Company’s confidence in the safety of its talc products, in certain circumstances the Company has and may settle cases. The Company has established an accrual for defense costs and reserves for the resolution of certain cases and claims, including the Ingham decision currently on appeal, 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. The Company previously 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, waiving the Company’s indemnification claims against Imerys, and 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. In May 2020, Imerys and the asbestos claimants’ committee (Plan Proponents) filed their Plan of Reorganization (the Plan) and the Disclosure Statement related thereto agreeing to put its North American operations up for auction which was subsequently amended. The Company has objected to the Disclosure Statement and intends to object to the Plan of Reorganization as currently structured. Additionally, in June 2020, Cyprus Mines Corporation and its parent (Cyprus) filed an adversary proceeding against the Company as well as Imerys seeking a declaration of indemnity under certain contractual agreements. The Company denies such indemnification is owed and filed a motion to dismiss the adversary complaint arguing, among other things, that the Court does not have subject matter jurisdiction over Cyprus’s claims against the Company. The Plan Proponents filed numerous amendments to the Plan and Disclosure Statement to which the Company objected. A hearing on the Plan Proponent’s Disclosure Statement was held in January 2021, and the Court entered an order approving the Disclosure Statement for the Ninth Amended Joint Chapter 11 Plan of Reorganization of Imerys Talc America, Inc. and its Debtor Affiliates allowing Debtors to proceed with soliciting votes on the Plan. The Company intends to continue to object to the Plan. A hearing to consider confirmation of the Plan has been scheduled for June 2021.
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 disclose 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. Plaintiff is 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 March 2020, Defendants answered the complaint. Discovery is underway.
In June 2019, a shareholder filed a 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 October 2019, December 2019, and January 2020, four shareholders filed four separate derivative lawsuits against Johnson & Johnson as the nominal defendant and its current directors and certain officers 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 February 2020, the four cases were consolidated into a single action under the caption In re Johnson & Johnson Talc Stockholder Derivative Litigation.
In July 2020, a report was delivered to the Company’s Board of Directors by independent counsel retained by the Board to investigate the allegations in the derivative lawsuits and in a series of shareholder letters that the Board received raising similar issues. Four of the shareholders who sent demands are plaintiffs in the In re Johnson & Johnson Talc Stockholder Derivative Litigation. The independent counsel recommended that the Company reject the shareholder demands and take the steps that are necessary or appropriate to secure dismissal of the derivative lawsuits. The Board unanimously adopted the recommendations of the independent counsel’s report. In October 2020, the shareholders filed a consolidated complaint, and in January 2021, Johnson & Johnson moved to dismiss the consolidated complaint.
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. In September 2019, Defendants filed a motion to dismiss. In April 2020, the Court granted Defendants’ motion but granted leave to amend. In June 2020, Plaintiffs filed an amended complaint, and in July 2020, Defendants moved to dismiss the amended complaint. As of October 2020, briefing on Defendants’ motion was complete.
A lawsuit pending in the Superior Court of California for the County of San Diego alleging violations of California’s Consumer Legal Remedies Act relating to JOHNSON’S® Baby Powder has been resolved in the Company’s favor. In that lawsuit, the plaintiffs allege that Johnson & Johnson violated the CLRA by failing to provide required Proposition 65 warnings. 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. 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 April 2020, the Court granted the motion to dismiss but granted leave to amend. In May 2020, plaintiffs filed a Fourth Amended Complaint but indicated that they would be filing a motion for leave to file a fifth amended complaint. Plaintiffs filed a Fifth Amended Complaint in August 2020. The Company moved to dismiss the Fifth Amended Complaint for failure to state a claim upon which relief may be granted. In January 2021, the Court issued an Order and opinion ruling in the Company’s favor and granting the motion to dismiss with prejudice.
In January 2020, the Abtahi Law Group filed an action under Proposition 65 against Johnson & Johnson and Johnson & Johnson Consumer Inc. as well as a number of other alleged talcum powder manufacturers and distributors, including one California company. In that action, the plaintiff alleges contamination of talcum powder products with unsafe levels of arsenic, hexavalent chromium and lead. The plaintiff seeks civil penalties and injunctive relief. Defendants filed a motion for summary judgment in January 2021, and a hearing has been scheduled for April 2021. Limited informal discovery is continuing.
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 (SEC) and the U.S. Congressional Subcommittee on Economic and Consumer Policy. The Company produced documents as required in response and will continue to cooperate with government inquiries. In November 2020, the SEC terminated its investigation.
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. In December 2016, lawsuits filed in federal courts in the United States were 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.
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 ELMIRON®, a prescription medication indicated for the relief of bladder pain or discomfort associated with interstitial cystitis. These lawsuits, which allege that ELMIRON® contributes to the development of permanent retinal injury and vision loss, have been filed in both state and federal courts across the United States. In December 2020, the federal cases, including two putative class action cases seeking medical monitoring, were organized as a multi-district litigation in the United States District Court for the District of New Jersey. In addition, three 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 established accruals for defense costs associated with ELMIRON® related product liability litigation.
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. Significant matters are described below.
Medical Devices
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 alleged 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. In November 2019, judgment was entered in favor of DePuy. In January 2021, the U.S. Court of Appeals for the Federal Circuit affirmed.
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. 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. Trial is scheduled to begin in October 2021.
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 (collectively, Ethicon) 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 (’296) and 7,033,603 (’603) 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 United States Patent and Trademark Office (USPTO), seeking Inter Partes Review (IPR) of both asserted patents. In June 2020, the USPTO denied institution of the ’296 patent IPR and granted institution of the ’603 patent IPR. 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 previously scheduled district court trial has been postponed.
In August 2018, Intuitive Surgical, Inc. and Intuitive Surgical Operations, Inc. (collectively, 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); 6,491,701 (’701); 6,522,906 (’906); 6,800,056 (’056); 8,142,447 (’447); 8,620,473 (’473); 8,801,601 (’601); and 9,452,276 (’276) based on Auris’ Monarch™ Platform. Auris filed IPR Petitions with the USPTO regarding the ’200, ’056, ’601 ’701, ’447, ’276 and ’906 patents. Intuitive subsequently dropped the ’200, ’473 and ’701 patents from the suit. In December 2019, the USPTO instituted review of the ’601 patent and denied review of the ’056 patent. In February and March 2020, the USPTO instituted review of the ’200, ’447, ’701 and ’906 patents and denied review of the ’276 patent. In December 2020, the USPTO declared all of the challenged claims in the ’601 patent to be invalid. Intuitive has appealed that decision. The district court trial is scheduled to begin in June 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., and Precision Spine, Inc. In June 2020, the case was stayed pending IPR proceedings filed by the Consolidated Defendants involving the asserted patents.
In March 2020, Osteoplastics, LLC filed a patent infringement suit against DePuy Synthes, Inc., DePuy Synthes Products, Inc., Medical Device Business Services, Inc., and Synthes, Inc. (collectively, DePuy Synthes) in the United States District Court for the District of Delaware. In the suit, Osteoplastics alleges willful infringement of U.S. Patent Nos. 8,781,557; 9,929,920; 9,330,206; 9,626,756; 9,672,617; 9,672,302; and 9,275,191 based on the PROPLAN CMF® Virtual Surgical Planning Services and the TruMatch® CMF Personalize Solutions. In April 2020, Osteoplastics filed an amended complaint to substitute U.S. Patent No. 9,292,920 for U.S. Patent No. 9,929,920. Osteoplastics seeks monetary damages and injunctive relief. In June 2020, DePuy Synthes filed a motion to dismiss the complaint. In October 2020, the Court dismissed Medical Device Business Services, Inc. from the case but otherwise denied the motion. Trial is scheduled for October 2022.
Pharmaceutical
Litigation Against Filers of Abbreviated New Drug Applications (ANDAs)
The following summarizes lawsuits pending against generic companies that have filed 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
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 November 2017, Janssen Inc. and Janssen Oncology Inc. (collectively, 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 (’422). 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.
Beginning in January 2019, Janssen initiated Statements of Claim under Section 6 of the Patented Medicines (Notice of Compliance) Regulations in Canada against Apotex, Pharmascience Inc. (Pharmascience) and Dr. Reddy's Laboratories Ltd. and Dr. Reddy's Laboratories, Inc. (collectively, DRL) in response to those parties’ filing of Abbreviated New Drug Submissions (ANDS) seeking approval to market generic versions of ZYTIGA® before the expiration of the ’422 patent. The final hearing in these actions concluded in November 2020, and the Court issued a decision holding the ’422 patent invalid in January 2021. In February 2021, Janssen appealed the decision.
In August 2020, Janssen initiated a Statement of Claim under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against JAMP Pharma Corporation (Jamp) in Canada in response to Jamp’s filing of an ANDS seeking approval to market a generic version of ZYTIGA® before the expiration of the ’422 patent. The final hearing is scheduled to begin in May 2022.
In each of these Canadian actions, Janssen is seeking an order enjoining the defendants from marketing their generic versions of ZYTIGA® before the expiration of the ’422 patent.
XARELTO®
In August 2020, Janssen Pharmaceuticals, Inc. (JPI) and Bayer Intellectual Property GmbH and Bayer AG (collectively, Bayer) filed a patent infringement lawsuit in the United States District Court for the District of New Jersey against Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories, Ltd. (collectively, DRL) which filed an ANDA seeking approval to market a generic version of XARELTO® before expiration of U.S. Patent No. 9,539,218 (’218). In this lawsuit, JPI and Bayer were seeking an order enjoining DRL from marketing their generic versions of XARELTO® before the expiration of the relevant patents. In November 2020, JPI and Bayer entered into a confidential settlement agreement with DRL, and the case was voluntarily dismissed.
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 against a number of generic companies that filed ANDAs seeking approval to market generic versions of INVOKANA®, INVOKAMET® and/or INVOKAMET® XR before expiration of MTPC’s United States Patent Nos. 7,943,582 (’582) and/or 8,513,202 (’202) relating to INVOKANA®, INVOKAMET® and/or INVOKAMET® XR. Janssen is the exclusive licensee of the asserted patents. Named defendants include MSN Laboratories Private Ltd. and MSN Pharmaceuticals, Inc. (MSN); Zydus Pharmaceuticals (USA) Inc. (Zydus); Sandoz, Inc. (Sandoz); and Lupin Ltd. and Lupin Pharmaceuticals, Inc. (Lupin). These cases were consolidated into one action (Polymorph Main Action), which has been scheduled for trial starting in April 2021. In December 2020, Janssen and MTPC entered into a confidential settlement with Sandoz and in January 2021, Janssen and MTPC entered into a confidential settlement with Lupin. The cases against Sandoz and Lupin were voluntarily dismissed.
In July 2017, Janssen and MTPC filed a patent infringement lawsuit in the United States District Court for the District of New Jersey against Zydus which filed ANDAs seeking approval to market generic versions of INVOKANA® and IVOKAMET® before expiration of MTPC’s United States Patent No. 7,943,788 (’788), 8,222,219 (’219) and/or 8,785,403 (’403) relating to INVOKANA®, INVOKAMET® and/or INVOKAMET® XR (Compounds Main Action). Janssen is the exclusive licensee of the asserted patents. Trial concluded in October 2020.
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, which 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, which 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 Dr. Reddy’s Laboratories, Inc. and Dr. Reddy’s Laboratories Ltd (DRL), who filed an ANDA seeking approval to market a generic version of INVOKAMET® before expiration of the ’788 patent. In January 2021, Janssen and MTPC filed a patent infringement lawsuit in the United States District Court for the District of New Jersey against Macleods Pharmaceuticals, Ltd. and Macleods Pharma USA, Inc. (Macleods), which 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 February 2021, Janssen filed a patent infringement lawsuit in the United States District Court for the District of New Jersey against Macleods Pharmaceuticals, Ltd. and Macleods Pharma USA, Inc. (Macleods), which filed an ANDA seeking approval to market a generic version of INVOKANA® before expiration of United States Patent No. 10,617,668 relating to INVOKANA®. These lawsuits have not been consolidated with the Main Actions.
In each of these U.S. lawsuits, Janssen and MTPC are seeking an order enjoining the defendant from marketing their generic versions of INVOKANA®, INVOKAMET® and/or, INVOKAMET XR® before the expiration of the relevant patents.
In October 2020, Janssen Inc., Janssen Pharmaceutica NV and MTPC initiated a Statement of Claim under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Sandoz Canada Inc. (Sandoz) in Canada in response to Sandoz’s filing of an ANDS seeking approval to market a generic version of INVOKANA® before the expiration of the Canadian Patent Nos. 2,534,024 and 2,671,357. The final hearing is scheduled to begin in August 2022.
Janssen Inc., Janssen Pharmaceutica NV and MTPC are seeking an order enjoining Sandoz from marketing its generic version of INVOKANA® before the expiration of the relevant patents.
OPSUMIT®
In October 2020, Actelion Pharmaceuticals Ltd (Actelion) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Laurus Labs Limited and PharmaQ, Inc. (collectively, Laurus), which filed an ANDA seeking approval to market generic versions of OPSUMIT® before the expiration of U.S. Patent No. 7,094,781 (’781). Actelion was seeking an order enjoining Laurus from marketing generic versions of OPSUMIT® before the expiration of the ’781 patent. In January 2021, Actelion entered into a settlement agreement with Laurus.
In May 2020, Janssen Inc. (Janssen) and Actelion initiated a Statement of Claim under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Sandoz Canada Inc. (Sandoz) in Canada in response to Sandoz’s filing of an ANDS seeking approval to market a generic version of OPSUMIT® 10 mg, before the expiration of Canadian Patent No. 2,659,770 (’770). Trial is scheduled to begin in January 2022.
In May 2020, Janssen and Actelion initiated a Statement of Claim under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Apotex Inc. (Apotex) in Canada in response to Apotex’s filing of an ANDS seeking approval to market a generic version of OPSUMIT® 10 mg, before the expiration of the ’770 patent. Trial is scheduled to begin in February 2022.
In July 2020, Janssen and Actelion initiated a Statement of Claim under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against JAMP Pharma Corporation (JAMP) in Canada in response to JAMP’s filing of an ANDS seeking approval to market a generic version of OPSUMIT® 10 mg before the expiration of the ’770 patent and Canadian Patent No. 2,621,273 (’273). Trial is scheduled to begin in April 2022.
In each of these Canadian actions, Janssen and Actelion are seeking an order enjoining the defendants from marketing their generic versions of OPSUMIT® before the expiration of the relevant patents.
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), which filed an ANDA seeking approval to market a generic version of INVEGA SUSTENNA® before the expiration of United States Patent No. 9,439,906 (’906). Trial concluded in October 2020.
In August 2019, Janssen initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Mylan Laboratories Limited (Mylan), which filed an ANDA seeking approval to market a generic version of INVEGA SUSTENNA® before the expiration of the ’906 patent. In February 2020, Mylan filed a Petition for Inter Partes Review with the USPTO seeking to invalidate the ’906 patent. The USPTO denied the Petition in September 2020, and Mylan appealed.
In December 2019, Janssen initiated a patent infringement lawsuit in the United States District Courts for the Districts of New Jersey and Delaware against Pharmascience Inc., Mallinckrodt PLC and Specgx LLC (collectively, Pharmascience), which filed an ANDA seeking approval to market a generic version of INVEGA SUSTENNA® before the expiration of the ’906 patent.
In each of these U.S. lawsuits, Janssen is seeking an order enjoining the defendant from marketing a generic version of INVEGA SUSTENNA® before the expiration of the relevant patents.
In February 2018, Janssen Inc. and Janssen Pharmaceutica NV (collectively, Janssen Canada) initiated a Statement of Claim under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Teva Canada Limited (Teva Canada) in response to Teva's filing of an ANDS seeking approval to market a generic version of INVEGA SUSTENNA® before the expiration of Canadian Patent Nos. 2,309,629 (’629) and 2,655,335 (’335). Janssen subsequently discontinued the portion of the lawsuit relating to the ’629 patent. In May 2020, the Canadian Federal Court issued a Public Judgment and Reasons declaring that Teva Canada’s generic version of INVEGA SUSTENNA®, if approved, would infringe claims of the ’335 patent and that the claims of the ’335 patent are not invalid for obviousness. Teva Canada appealed.
In November 2020, Janssen Canada initiated a Statement of Claim under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Pharmascience Inc. in response to Pharmascience Inc.'s filing of an ANDS seeking approval to market a generic version of INVEGA SUSTENNA® before the expiration of the ’335 patent. The Final Hearing is scheduled to begin in July 2022.
In January 2021, Janssen Canada initiated a Statement of Claim under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Apotex Inc. (Apotex) in response to Apotex's filing of an ANDS seeking approval to market a generic version of INVEGA SUSTENNA® before the expiration of the ’335 patent. The Final Hearing is scheduled to begin in September 2022.
In each of these Canadian lawsuits, Janssen Canada is seeking an order enjoining the defendant from marketing a generic version of INVEGA SUSTENNA® before the expiration of the relevant patents.
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 that 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 named defendants include the following generic companies: Cipla Limited and Cipla USA Inc. (collectively, Cipla); Sandoz Inc. and Lek Pharmaceuticals d.d. (collectively, Sandoz).
In January 2019, Pharmacyclics and JBI amended their complaint against Sandoz to allege infringement of United States Patent Nos. 10,125,140 and 10,106,548.
In February 2019, Pharmacyclics and JBI amended their complaint against Cipla to allege infringement of United States Patent Nos. 10,106,548, and 10,125,140.
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. (collectively, Alvogen), which 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 complaint against Cipla to further allege infringement of United States Patent No. 10,016,435. In June 2019, Pharmacyclics and JBI amended their complaint 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 and Sandoz to further allege infringement of U.S. Patent Nos. 10,294,231 and 10,294,232. In August 2019, the Court granted a joint stipulation to stay the litigation against Cipla.
Trial in the actions against Sandoz and Alvogen took place in October 2020.
In March 2019, Sandoz filed an IPR Petition with the USPTO, seeking to invalidate United States Patent No. 9,795,604. In September 2020, the USPTO issued a final decision in the IPR invalidating certain claims of the ’604 patent and upholding the validity of certain claims in the ’604 patent. The final decision was not appealed by the parties.
In March 2020, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Alvogen and Sandoz asserting infringement of United States Patent No. 10,478,439. In April 2020, Pharmacyclics and JBI amended their complaint against Sandoz to further allege infringement of U.S. Patent No. 10,463,668. In October 2020, Pharmacyclics and JBI amended their complaint against Sandoz to further allege infringement of U.S. Patent Nos. 10,752,634 and 10,695,350 and amended their complaint against Alvogen to further allege infringement of U.S. Patent No. 10,653,696. In December 2020 the Court entered a joint stipulation dismissing the complaint against Sandoz.
In April 2020, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Zydus Worldwide DMCC and Cadila Healthcare Limited (collectively, Zydus), which filed an ANDA seeking approval to market generic versions of IMBRUVICA® tablets, asserting infringement of United States Patent Nos. 7,514,444, 8,008,309, 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, 10,125,140, 10,213,386 and 10,478,439.
Trials in the actions against Alvogen and Zydus are scheduled to begin in March 2022.
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.
UPTRAVI®
In April 2020, Actelion Pharmaceuticals Ltd (Actelion) and Nippon Shinyaku Co., Ltd. (Nippon Shinyaku) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against a number of generic companies that filed ANDAs seeking approval to market generic versions of UPTRAVI® before expiration of Nippon Shinyaku’s United States Patent Nos. 7,205,302; 8,791,122; and 9,284,280 relating to UPTRAVI® . Actelion is the exclusive licensee of the asserted patents. The defendants include Alembic Pharmaceuticals Limited and Alembic Pharmaceuticals Inc. (collectively, Alembic); MSN Laboratories Private Limited and MSN Pharmaceuticals Inc. (collectively, MSN); ); VGYAAN Pharmaceuticals LLC (VGYAAN); and Zydus Pharmaceuticals (USA), Inc. and Zydus Worldwide DMCC (collectively, Zydus). In January 2021, the Court entered joint stipulations dismissing VGYAAN and MSN from suit.
Actelion and Nippon Shinyaku are seeking an order enjoining the defendants from marketing generic versions of UPTRAVI® before the expiration of the relevant patents.
INVEGA TRINZA®
In September 2020, Janssen Pharmaceuticals, Inc., Janssen Pharmaceutica NV, and Janssen Research & Development, LCC (collectively, Janssen) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Mylan Laboratories Limited, Mylan Pharmaceuticals Inc., and Mylan Institutional LLC (collectively, Mylan). Mylan filed an ANDA seeking approval to market generic versions of INVEGA TRINZA® before expiration of United States Patent No. 10,143,693 relating to INVEGA TRINZA®. Janssen is seeking an order enjoining Mylan from marketing a generic version of INVEGA TRINZA® before the expiration of the relevant patent.
GOVERNMENT PROCEEDINGS
Like other companies in the pharmaceutical, consumer health 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. Such regulation has been the basis of government investigations and litigations. 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 3,100 lawsuits 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). The majority of the cases have been filed by state and local governments. Similar lawsuits have also been filed by private plaintiffs and organizations, including but not limited to the following: 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, Arizona, 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 370 cases pending in various state courts. There are over 2,800 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 matters. In October 2020, the Company agreed to contribute up to an additional $1 billion to an all-in settlement amount that would resolve opioid lawsuits filed and future claims by states, cities, counties and tribal governments, for a total of $5 billion which has been accrued, 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.
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. In September 2020, the Company learned that NYDFS filed a statement of charges related to this investigation.
From June 2017 through December 2019, the Company’s Board of Directors received a series of shareholder demand letters alleging breaches of fiduciary duties related to the marketing of opioids. The Board retained independent counsel to investigate the allegations in the demands, and in April 2020, independent counsel delivered a report to the Board recommending that the Company reject the shareholder demands and take the steps that are necessary or appropriate to secure dismissal of related derivative litigation. The Board unanimously adopted the recommendations of the independent counsel’s report.
In November 2019, one of the shareholders who sent a demand filed a derivative complaint against Johnson & Johnson as the nominal defendant and certain current and former directors and officers as defendants in the Superior Court of New Jersey. The complaint alleges breaches of fiduciary duties related to the marketing of opioids, and that Johnson & Johnson has suffered damages as a result of those alleged breaches. In May 2020, the shareholder filed an amended complaint challenging the Board’s rejection of his demand. In August 2020, Johnson & Johnson moved to dismiss the amended complaint, and as of December 2020, that motion was fully briefed. In August 2020, another shareholder who sent a demand filed a separate derivative complaint in the same court making similar allegations. In October 2020, the Court granted defendants’ request to reassign the second-filed case to the division where the first-filed case is pending.
In December 2019, two additional shareholders who sent demands filed two separate derivative complaints making similar allegations against Johnson & Johnson as the nominal defendant and certain current and former directors and officers as defendants in the United States District for the District of New Jersey. In April 2020, the two federal cases were consolidated into a single action captioned In re Johnson & Johnson Opioid Stockholder Derivative Litigation. In July 2020, the shareholders filed a consolidated complaint. In September 2020, Johnson & Johnson moved to dismiss the consolidated complaint, and in December 2020, the shareholders opposed Johnson & Johnson’s motion. Johnson & Johnson filed its reply in February 2021. In July 2020, an additional shareholder who sent a demand filed a derivative complaint in the same federal court making similar allegations against the same defendants named in the consolidated action. In January 2021, pursuant to an order in the consolidated action, the third case was consolidated into the consolidated action. In February 2021, the shareholders in the consolidated action filed a motion for voluntary dismissal.
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. In July 2020, the Court ordered the relators to complete discovery by August 2020; the Relators have requested an extension of the August 2020 deadline that DePuy opposed and additional discovery-related motions have been filed by both parties. Additionally, DePuy has requested a schedule for the filing of a motion to strike and to dismiss the relators’ second amended complaint.
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. Similar complaints were filed against the companies by the following states: Kentucky, Mississippi, West Virginia and Oregon. In April 2019, Johnson & Johnson and Ethicon settled the Washington case. The California case started trial in July 2019 and concluded in September 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 January 2020, the Court in California issued a statement of decision, finding in favor of the State of California, and awarded civil penalties in the amount of $344 million. In April 2020, the Court in California denied the Company's motion for a new trial. In August 2020, the Court entered judgment with respect to the penalties of $344 million, but denied the Attorney General’s request for injunctive relief. The Company is appealing the penalty judgment. In April 2020, the
Company settled the West Virginia. In October 2020, the Company settled with the Attorney General of Oregon. In November 2020, the Company settled with the Attorney General of Mississippi.
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 retained OCD’s portion of any liability resulting from the investigation for activity that occurred prior to the sale of Therakos. Following production of documents to and settlement discussions with the U.S. Attorney’s Office, J&J affiliate Medical Device Business Services, Inc. agreed to resolve claims under the federal False Claims Act and analogous state laws in a settlement announced in November 2020. In the settlement agreement, Medical Device Business Services expressly denied any wrongful conduct. As a result of the settlement, a qui tam complaint filed by two relators pending in the U.S. District Court for the Eastern District of Pennsylvania will be dismissed. Separate settlement agreements with the states participating in the settlement are in the process of being finalized.
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. Briefing is complete and oral argument was held in February 2021.
In January 2020, the State of New Mexico filed a consumer protection case alleging that the Company deceptively marketed and sold its talcum powder products by making misrepresentations about the safety of the products and the presence of carcinogens, including asbestos. The State of New Mexico filed an Amended Complaint in March 2020. The Company moved to dismiss certain of the claims in the Amended Complaint, which was granted. The Company then filed a motion for partial judgment on the pleadings in December 2020.
Forty-one states have commenced a joint investigation into the Company’s marketing of its talcum powder products. At this time, the multi-state group has not asserted any claims against the Company. Several states have issued Civil Investigative Demands seeking documents and other information.
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. The Company has provided documents in response to the demand.
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 February 2021, the Court stayed the case and ordered mediation.
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. Subsequently, the United States District Court for the District of Massachusetts unsealed a qui tam False Claims Act complaint, which was served on the Company. The Department of Justice had declined to intervene in the qui tam lawsuit in August 2019. The Company filed a motion to dismiss, which was granted in part and denied in part. Discovery is underway.
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. The Company has provided documents in response to the subpoenas.
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. We continue to actively respond to inquiries regarding the Foreign Corrupt Practices Act from the United States Department of Justice and the United States Securities and Exchange Commission.
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 March 2018, a purported class action was filed in the Circuit Court Third Judicial District Madison County, Illinois against 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. The complaint seeks damages but does not allege personal injury. In October 2020, JJCI moved to dismiss the complaint.
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 August 2020, US CBP formally rejected Janssen’s Supplemental Petition challenging the penalties assessment and demanded payment of the mitigated penalty. In October 2020, US CBP agreed to not refer the matter to the Office of Chief Counsel at this time, pending resolution of the related Classification Litigation. In December 2013, Janssen Ortho sued the United States in the United States Court of International Trade (the Classification Litigation) seeking a determination that darunavir ethanolate is exempt from duties upon importation into the United States. In February 2020, the Court ruled that darunavir ethanolate is eligible for duty free treatment. In April 2020, the United States appealed to the United States Court of Appeals for the Federal Circuit.
In September 2020, Genmab A/S brought an arbitration against Janssen Biotech, Inc. pursuant to a 2012 License Agreement between the parties. The arbitration relates to royalties for certain Janssen daratumumab products.
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. Discovery and pre-trial motion practice is complete. No trial date has been set.
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 November 2020, Defendants moved to dismiss the complaint.
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 were filed on behalf of indirect purchasers of REMICADE® against Johnson & Johnson and Janssen Biotech, Inc. (collectively, Janssen) alleging that Janssen has violated federal antitrust laws through its contracting strategies for REMICADE®. The cases were consolidated for pre-trial purposes as In re REMICADE® Antitrust Litigation in United States District Court for the Eastern District of Pennsylvania. The consolidated complaint seeks damages and injunctive relief. Discovery is ongoing.
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. In February 2020, the United States Court of Appeals for the Third Circuit reversed the District Court’s decision. Discovery is ongoing.
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 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 in United States District Court for the District of Columbia, 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 July 2020, the District Court dismissed the complaint. In January 2021, plaintiffs appealed the District Court’s decision to the United States Court of Appeals for the District of Columbia Circuit.
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 required by the Food and Drug Administration, 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 to the United States Court of Appeals for the Fourth Circuit.
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. In September 2019, Janssen 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 on behalf of indirect purchasers of ZYTIGA®. Several additional complaints were filed thereafter in Virginia and New Jersey. The indirect purchaser 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 and seek damages. The Virginia cases have been transferred to the United States District Court for the District of New Jersey and consolidated with the New Jersey case for pretrial purposes. In May 2020, a class action complaint was filed against Janssen Biotech Inc., Janssen Oncology, Inc., Janssen Research & Development LLC and BTG International Limited in the United States District Court for the District of New Jersey, on behalf of direct purchasers of ZYTIGA®. The direct purchaser complaint alleges that defendants violated the Sherman Act by pursuing patent litigation relating to ZYTIGA® in order to delay generic entry, and seek damages and injunctive relief.
In May 2019, a class action antitrust complaint was filed against Janssen R&D Ireland (Janssen) and Johnson & Johnson in the United States District Court for the Northern District of California. 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. In March 2020, the Court granted in part and denied in part defendants’ motions to dismiss. Plaintiffs filed an amended complaint in April 2020. Defendants moved to dismiss the amended complaint. In July 2020, the Court granted in part and denied in part the renewed motion to dismiss. Discovery is ongoing.
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. In January 2020, BWI filed a motion to dismiss the complaint. In August 2020, the Court granted in part and denied in part BWI’s motion to dismiss. Discovery is ongoing.
In November 2019, Johnson & Johnson received a demand for indemnification from Pfizer Inc., pursuant to the 2006 Stock and Asset Purchase Agreement between the Company and Pfizer. Also in November 2019, Johnson & Johnson, Inc. received a demand for indemnification from Sanofi Consumer Health, Inc., pursuant to the 2016 Asset Purchase Agreement between J&J, Inc. and Sanofi. In January 2020, Johnson & Johnson received a demand for indemnification from Boehringer Ingelheim Pharmaceuticals, Inc., pursuant to the 2006 Asset Purchase Agreement among the Company, Pfizer, and Boehringer Ingelheim. The notices seek indemnification for legal claims related to over-the-counter Zantac (ranitidine) products. Plaintiffs in the underlying actions allege 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, and seek injunctive and monetary relief.
In October 2020, Fortis Advisors LLC (Fortis), in its capacity as representative of the former stockholders of Auris Health Inc. (Auris), filed a complaint against Johnson & Johnson, Ethicon Inc., and certain named officers and employees (collectively, Ethicon) in the Court of Chancery of the State of Delaware. The complaint alleges breach of contract, fraud, and other causes of action against Ethicon in connection with Ethicon’s acquisition of Auris in 2019. The complaint seeks damages and other relief. In December 2020, Ethicon moved to dismiss certain causes of action in the complaint.
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.
20. Restructuring
In the fiscal second quarter of 2018, the Company announced plans to implement a series of actions across its Global Supply Chain that are intended to focus resources and increase investments in the critical capabilities, technologies and solutions necessary to manufacture and supply its product portfolio, enhance agility and drive growth. The Global Supply Chain actions 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 18 to the Consolidated Financial Statements. In fiscal year 2020, the Company recorded a pre-tax charge of $0.4 billion, which is included on the following lines of the Consolidated Statement of Earnings, $0.2 billion in restructuring, $0.1 billion in other (income) expense and $0.1 billion in cost of products sold. Total project costs of approximately $1.3 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 $2.3 billion, over the 4 to 5 year period of this activity. These costs are associated with network optimizations, exit costs and accelerated depreciation and amortization.
The following table summarizes the severance charges and the associated spending under these initiatives through the fiscal year ended 2020:
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(Dollars in Millions)
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Severance
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Asset Write-offs/Sales
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Other(2)
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Total
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Reserve balance, December 30, 2018
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$
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194
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—
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48
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242
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2019 activity
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(30)
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—
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(32)
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(62)
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Reserve balance, December 29, 2019
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164
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—
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16
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180
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Current year activity:
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Charges
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—
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43
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405
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448
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Cash settlements
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(29)
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24
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(4)
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(399)
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(404)
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Settled non cash
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—
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(67)
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(13)
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(3)
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(80)
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Reserve balance, January 3, 2021(1)
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$
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135
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—
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9
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144
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(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 net actuarial losses associated with the transfer of employees to Jabil Inc. as part of the strategic collaboration.
(4) Represents gain on sale of an asset
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.