Johnson & Johnson company SEC 10-K Paper

ACCT 301 7980 Accounting for Nonaccounting Managers (2192)

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ACCT 301 7980 Accounting for Nonaccounting Managers (2192)

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Renier (Alex) Sudul

University of Maryland University College

ACCT 301: SEC 10-K Presentation

April, 25, 2019

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 30, 2018 Commission file number 1-3215

JOHNSON & JOHNSON
(Exact name of registrant as specified in its charter)

New Jersey 22-1024240
(State of incorporation) (I.R.S. Employer Identification No.)

One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933

(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (732) 524-0400

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT

Title of each class Name of each exchange on which registered

Common Stock, Par Value $1.00 New York Stock Exchange
4.75% Notes Due November 2019 New York Stock Exchange
0.250% Notes Due January 2022 New York Stock Exchange

0.650% Notes Due May 2024 New York Stock Exchange
5.50% Notes Due November 2024 New York Stock Exchange

1.150% Notes Due November 2028 New York Stock Exchange
1.650% Notes Due May 2035 New York Stock Exchange

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the

preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ Accelerated filer o
Non-accelerated filer o Smaller reporting company o
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

The aggregate market value of the Common Stock held by non-affiliates computed by reference to the price at which the Common Stock was last sold as
of the last business day of the registrant’s most recently completed second fiscal quarter was approximately $325 billion.

On February 15, 2019, there were 2,663,138,579 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE

Parts I and
III:

Portions of registrant’s proxy statement for its 2019 annual meeting of shareholders filed within 120 days after the close of the registrant’s fiscal year (the “Proxy
Statement”), are incorporated by reference to this report on Form 10-K (this “Report”).

Item Page

PART I

1 Business 1
General 1
Segments of Business 1
Geographic Areas 2
Raw Materials 2
Patents 2
Trademarks 3
Seasonality 3
Competition 3
Environment 3
Regulation 3
Available Information 4
1A. Risk Factors 5
1B. Unresolved Staff Comments 10
2 Properties 10
3 Legal Proceedings 11
4 Mine Safety Disclosures 11
Executive Officers of the Registrant 11

PART II
5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 14
6 Selected Financial Data 15
7 Management’s Discussion and Analysis of Results of Operations and Financial Condition 16
7A. Quantitative and Qualitative Disclosures About Market Risk 33
8 Financial Statements and Supplementary Data 34
9 Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 103
9A. Controls and Procedures 103
9B. Other Information 103

PART III
10 Directors, Executive Officers and Corporate Governance 103
11 Executive Compensation 104
12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 104
13 Certain Relationships and Related Transactions, and Director Independence 104
14 Principal Accountant Fees and Services 104

PART IV
15 Exhibits and Financial Statement Schedules 105
16 Form 10-K Summary 105
Signatures 106
Exhibit Index 108

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K and Johnson & Johnson’s other publicly available documents contain “forward-looking statements” within the
meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Management and representatives of Johnson & Johnson
and its subsidiaries (the “Company”) also may from time to time make forward-looking statements. Forward-looking statements do not relate strictly to
historical or current facts and reflect management’s assumptions, views, plans, objectives and projections about the future. Forward-looking statements may
be identified by the use of words such as “plans,” “expects,” “will,” “anticipates,” “estimates” and other words of similar meaning in conjunction with,
among other things: discussions of future operations; expected operating results and financial performance; impact of planned acquisitions and dispositions;
the Company’s strategy for growth; product development; regulatory approvals; market position and expenditures.

Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to uncertainties,
risks and changes that are difficult to predict and many of which are outside of the Company’s control. Investors should realize that if underlying assumptions
prove inaccurate, or known or unknown risks or uncertainties materialize, the Company’s actual results and financial condition could vary materially from
expectations and projections expressed or implied in its forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking
statements. Risks and uncertainties include, but are not limited to:

Risks Related to Product Development, Market Success and Competition
• Challenges and uncertainties inherent in innovation and development of new and improved products and technologies on which the Company’s

continued growth and success depend, including uncertainty of clinical outcomes, additional analysis of existing clinical data, obtaining regulatory
approvals, health plan coverage and customer access, and initial and continued commercial success;

• Challenges to the Company’s ability to obtain and protect adequate patent and other intellectual property rights for new and existing products and
technologies in the United States and other important markets;

• The impact of patent expirations, typically followed by the introduction of competing biosimilars and generics and resulting revenue and market share
losses;

• Increasingly aggressive and frequent challenges to the Company’s patents by competitors and others seeking to launch competing generic, biosimilar or
other products and increased receptivity of courts, the United States Patent and Trademark Office and other decision makers to such challenges,
potentially resulting in loss of market exclusivity and rapid decline in sales for the relevant product sooner than expected;

• Competition in research and development of new and improved products, processes and technologies, which can result in product and process
obsolescence;

• Competition to reach agreement with third parties for collaboration, licensing, development and marketing agreements for products and technologies;

• Competition based on cost-effectiveness, product performance, technological advances and patents attained by competitors; and

• Allegations that the Company’s products infringe the patents and other intellectual property rights of third parties, which could adversely affect the
Company’s ability to sell the products in question and require the payment of money damages and future royalties.

Risks Related to Product Liability, Litigation and Regulatory Activity
• Product efficacy or safety concerns, whether or not based on scientific evidence, potentially resulting in product withdrawals, recalls, regulatory action

on the part of the United States Food and Drug Administration (or international counterparts), declining sales, reputational damage, increased litigation
expense and share price impact;

• Impact, including declining sales and reputational damage, of significant litigation or government action adverse to the Company, including product
liability claims and allegations related to pharmaceutical marketing practices and contracting strategies;

• Impact of an adverse judgment or settlement and the adequacy of reserves related to legal proceedings, including patent litigation, product liability,
personal injury claims, securities class actions, government investigations, employment and other legal proceedings;

• Increased scrutiny of the health care industry by government agencies and state attorneys general resulting in investigations and prosecutions, which
carry the risk of significant civil and criminal penalties, including, but not limited to, debarment from government business;

• Failure to meet compliance obligations in the McNEIL-PPC, Inc. Consent Decree or any other compliance agreements with governments or government
agencies, which could result in significant sanctions;

• Potential changes to applicable laws and regulations affecting United States and international operations, including relating to: approval of new
products; licensing and patent rights; sales and promotion of health care products; access to, and reimbursement and pricing for, health care products and
services; environmental protection and sourcing of raw materials;

• Compliance with local regulations and laws that may restrict the Company’s ability to manufacture or sell its products in relevant markets including,
requirements to comply with medical device reporting regulations and other requirements such as the European Union’s Medical Devices Regulation;

• Changes in domestic and international tax laws and regulations, including changes related to The Tax Cuts and Jobs Act in the United States, the Federal
Act on Tax Reform and AHV Financing in Switzerland, increasing audit scrutiny by tax authorities around the world and exposures to additional tax
liabilities potentially in excess of existing reserves; and

• Issuance of new or revised accounting standards by the Financial Accounting Standards Board and regulations by the Securities and Exchange
Commission.

Risks Related to the Company’s Strategic Initiatives and Healthcare Market Trends
• Pricing pressures resulting from trends toward health care cost containment, including the continued consolidation among health care providers and

other market participants, trends toward managed care, the shift toward governments increasingly becoming the primary payers of health care expenses,
significant new entrants to the health care markets seeking to reduce costs and government pressure on companies to voluntarily reduce costs and price
increases;

• Restricted spending patterns of individual, institutional and governmental purchasers of health care products and services due to economic hardship and
budgetary constraints;

• Challenges to the Company’s ability to realize its strategy for growth including through externally sourced innovations, such as development
collaborations, strategic acquisitions, licensing and marketing agreements, and the potential heightened costs of any such external arrangements due to
competitive pressures;

• The potential that the expected strategic benefits and opportunities from any planned or completed acquisition or divestiture by the Company may not
be realized or may take longer to realize than expected; and

• The potential that the expected benefits and opportunities related to past and ongoing restructuring actions may not be realized or may take longer to
realize than expected.

Risks Related to Economic Conditions, Financial Markets and Operating Internationally
• Market conditions and the possibility that the Company’s share repurchase program may be delayed, suspended or discontinued;

• Impact of inflation and fluctuations in interest rates and currency exchange rates and the potential effect of such fluctuations on revenues, expenses and
resulting margins;

• Potential changes in export/import and trade laws, regulations and policies of the United States and other countries, including any increased trade
restrictions or tariffs and potential drug reimportation legislation;

• The impact on international operations from financial instability in international economies, sovereign risk, possible imposition of governmental
controls and restrictive economic policies, and unstable international governments and legal systems;

• Changes to global climate, extreme weather and natural disasters that could affect demand for the Company’s products and services, cause disruptions in
manufacturing and distribution networks, alter the availability of goods and services within the supply chain, and affect the overall design and integrity
of the Company’s products and operations; and

• The impact of armed conflicts and terrorist attacks in the United States and other parts of the world including social and economic disruptions and
instability of financial and other markets.

Risks Related to Supply Chain and Operations
• Difficulties and delays in manufacturing, internally through third party providers or otherwise within the supply chain, that may lead to voluntary or

involuntary business interruptions or shutdowns, product shortages, withdrawals or suspensions of products from the market, and potential regulatory
action;

• Interruptions and breaches of the Company’s information technology systems or those of the Company’s vendors which, could result in reputational,
competitive, operational or other business harm as well as financial costs and regulatory action;

• Reliance on global supply chains and production and distribution processes that are complex and subject to increasing regulatory requirements that may
adversely affect supply, sourcing and pricing of materials used in the Company’s products; and

• The potential that the expected benefits and opportunities related to restructuring actions contemplated for the global supply chain may not be realized
or may take longer to realize than expected, including due to any required approvals from applicable regulatory authorities. Disruptions associated with
the announced global supply chain actions may adversely affect supply and sourcing of materials used in the Company’s products.

Investors also should carefully read the Risk Factors described in Item 1A of this Annual Report on Form 10-K for a description of certain risks that
could, among other things, cause the Company’s actual results to differ materially from those expressed in its forward-looking statements. Investors should
understand that it is not possible to predict or identify all such factors and should not consider the risks described above and in Item 1A to be a complete
statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from
time to time, whether as a result of new information or future events or developments.

PART I

Item 1. BUSINESS

General

Johnson & Johnson and its subsidiaries (the Company) have approximately 135,100 employees worldwide engaged in the research and
development, manufacture and sale of a broad range of products in the health care field. Johnson & Johnson is a holding company, which has more than 260
operating companies conducting business in virtually all countries of the world. The Company’s primary focus is products related to human health and well-
being. Johnson & Johnson was incorporated in the State of New Jersey in 1887.

The Executive Committee of Johnson & Johnson is the principal management group responsible for the strategic operations and allocation of the
resources of the Company. This Committee oversees and coordinates the activities of the Company’s three business segments: Consumer, Pharmaceutical and
Medical Devices. Within the strategic parameters provided by the Committee, senior management groups at U.S. and international operating companies are
each responsible for their own strategic plans and the day-to-day operations of those companies. Each subsidiary within the business segments is, with
limited exceptions, managed by residents of the country where located.

Segments of Business

The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices. Additional information required by this
item is incorporated herein by reference to the narrative and tabular descriptions of segments and operating results under: “Item 7. Management’s Discussion
and Analysis of Results of Operations and Financial Condition” of this Report; and Note 18 “Segments of Business and Geographic Areas” of the Notes to
Consolidated Financial Statements included in Item 8 of this Report.

Consumer

The Consumer segment includes a broad range of products used in the baby care, oral care, beauty, over-the-counter pharmaceutical, women’s health
and wound care markets. Baby Care includes the JOHNSON’S® line of products. Oral Care includes the LISTERINE® product line. Major brands in Beauty
include the AVEENO®; CLEAN & CLEAR®; DABAO™; JOHNSON’S® Adult; LE PETITE MARSEILLAIS®; NEUTROGENA® and OGX® product lines.
Over-the-counter medicines include the broad family of TYLENOL® acetaminophen products; SUDAFED® cold, flu and allergy products; BENADRYL® and
ZYRTEC® allergy products; MOTRIN® IB ibuprofen products; and the PEPCID® line of acid reflux products. Major brands in Women’s Health outside of
North America are STAYFREE® and CAREFREE® sanitary pads and o.b.® tampon brands. Wound Care brands include the BAND-AID® Brand Adhesive
Bandages and NEOSPORIN® First Aid product lines. These products are marketed to the general public and sold both to retail outlets and distributors
throughout the world.

Pharmaceutical

The Pharmaceutical segment is focused on six therapeutic areas: Immunology (e.g., rheumatoid arthritis, inflammatory bowel disease and psoriasis),
Infectious Diseases and Vaccines (e.g., HIV/AIDS), Neuroscience (e.g., mood disorders, neurodegenerative disorders and schizophrenia), Oncology (e.g.,
prostate cancer and hematologic malignancies), Cardiovascular and Metabolism (e.g., thrombosis and diabetes) and Pulmonary Hypertension (e.g.,
Pulmonary Arterial Hypertension). Medicines in this segment are distributed directly to retailers, wholesalers, hospitals and health care professionals for
prescription use. Key products in the Pharmaceutical segment include: REMICADE® (infliximab), a treatment for a number of immune-mediated
inflammatory diseases; SIMPONI® (golimumab), a subcutaneous treatment for adults with moderate to severe rheumatoid arthritis, active psoriatic arthritis,
active ankylosing spondylitis and moderately active to severely active ulcerative colitis; SIMPONI ARIA® (golimumab), an intravenous treatment for adults
with moderate to severe rheumatoid arthritis, active psoriatic arthritis and active ankylosing spondylitis; STELARA® (ustekinumab), a treatment for adults
and children with moderate to severe plaque psoriasis, for adults with active psoriatic arthritis, and for adults with moderately to severely active Crohn’s
disease; TREMFYA® (guselkumab), a treatment for adults with moderate to severe plaque psoriasis; EDURANT® (rilpivirine), INTELENCE® (etravirine),
PREZISTA® (darunavir) and PREZCOBIX®/REZOLSTA® (darunavir/cobicistat), antiretroviral medicines for the treatment of human immunodeficiency virus
(HIV-1) in combination with other antiretroviral products and SYMTUZA® ( darunavir/cobicistat/emtricitabine/tenofovir alafenamide), a once-daily single
tablet regimen for the treatment of HIV ; CONCERTA® (methylphenidate HCl) extended-release tablets CII, a treatment for attention deficit hyperactivity
disorder; INVEGA SUSTENNA®/XEPLION® (paliperidone palmitate), for the treatment of schizophrenia and schizoaffective disorder in adults; INVEGA
TRINZA®/TREVICTA® (paliperidone palmitate), for the treatment of schizophrenia in patients after they have been adequately treated with INVEGA
SUSTENNA® for at least four months; RISPERDAL CONSTA® (risperidone long-acting injection), for the treatment of schizophrenia and the maintenance
treatment of Bipolar 1 Disorder in adults; ZYTIGA® (abiraterone acetate), a treatment for metastatic castration-

1

resistant prostate cancer (CRPC) and metastatic high-risk castration-sensitive prostate cancer; IMBRUVICA® (ibrutinib), a treatment for certain B-cell
malignancies, or blood cancers, chronic graft versus host disease and Waldenström’s Macroglobulinemia; DARZALEX® (daratumumab), a treatment for
relapsed/refractory multiple myeloma; VELCADE® (bortezomib), a treatment for multiple myeloma mantle cell lymphoma; PROCRIT®/EPREX® (epoetin
alfa), a treatment for chemotherapy-induced anemia and patients with chronic kidney disease; XARELTO® (rivaroxaban), an oral anticoagulant for the
prevention of deep vein thrombosis (DVT), which may lead to pulmonary embolism (PE) in patients undergoing hip or knee replacement surgery, to reduce
the risk of stroke and systemic embolism in patients with nonvalvular atrial fibrillation, and for the treatment and reduction of risk of recurrence of DVT and
PE; INVOKANA® (canagliflozin), for the treatment of adults with type 2 diabetes; INVOKAMET®/VOKANAMET® (canagliflozin/metformin HCl), a
combination therapy of fixed doses of canagliflozin and metformin hydrochloride for the treatment of adults with type 2 diabetes; and INVOKAMET® XR
(canagliflozin/metformin hydrochloride extended-release), a once-daily, fixed-dose combination therapy of canagliflozin and metformin hydrochloride
extended-release, for the treatment of adults with type 2 diabetes; OPSUMIT® (macitentan) as monotherapy or in combination, indicated for the long-term
treatment of pulmonary arterial hypertension (PAH); UPTRAVI® (selexipag), the only approved oral, selective IP receptor agonist targeting a prostacyclin
pathway in PAH. Many of these medicines were developed in collaboration with strategic partners or are licensed from other companies and maintain active
lifecycle development programs.

Medical Devices

The Medical Devices segment includes a broad range of products used in the orthopaedic, surgery, interventional solutions (cardiovascular and
neurovascular), diabetes care (divested in the fiscal fourth quarter of 2018) and eye health fields. These products are distributed to wholesalers, hospitals and
retailers, and used principally in the professional fields by physicians, nurses, hospitals, eye care professionals and clinics. They include orthopaedic
products; general surgery, biosurgical, endomechanical and energy products; electrophysiology products to treat cardiovascular disease; sterilization and
disinfection products to reduce surgical infection; and vision products such as disposable contact lenses and ophthalmic products related to cataract and laser
refractive surgery.

Geographic Areas

The business of Johnson & Johnson is conducted by more than 260 operating companies located in more than 60 countries, including the U.S.,
which sell products in virtually all countries throughout the world. The products made and sold in the international business include many of those described
above under “– Segments of Business – Consumer,” “– Pharmaceutical” and “– Medical Devices.” However, the principal markets, products and methods of
distribution in the international business vary with the country and the culture. The products sold in international business include those developed in the
U.S. and by subsidiaries abroad.

Investments and activities in some countries outside the U.S. are subject to higher risks than comparable U.S. activities because the investment and
commercial climate may be influenced by financial instability in international economies, restrictive economic policies and political and legal system
uncertainties.

Raw Materials

Raw materials essential to the Company’s business are generally readily available from multiple sources. Where there are exceptions, the temporary
unavailability of those raw materials would not likely have a material adverse effect on the financial results of the Company.

Patents

The Company’s subsidiaries have made a practice of obtaining patent protection on their products and processes where possible. They own, or are
licensed under, a significant number of patents in the U.S. and other countries relating to their products, product uses, formulations and manufacturing
processes, which in the aggregate are believed to be of material importance to the Company in the operation of its businesses. The Company’s subsidiaries
face patent challenges from third parties, including challenges seeking to manufacture and market generic and biosimilar versions of the Company’s key
pharmaceutical products prior to expiration of the applicable patents covering those products. Significant legal proceedings and claims involving the
Company’s patent and other intellectual property are described in Note 21, “Legal Proceedings—Intellectual Property” of the Notes to Consolidated
Financial Statements included in Item 8 of this Report.

Sales of the Company’s 2nd largest product, STELARA® (ustekinumab), accounted for approximately 6.3% of the Company’s total revenues for fiscal
2018. Accordingly, the patents related to this product are believed to be material to the Company.

There is one set of granted patents related specifically to STELARA®. This set of patents is owned by Janssen Biotech, Inc., a wholly-owned
subsidiary of Johnson & Johnson. These patents are in force in the U.S. and many countries outside the

2

United States. In the U.S., the latest projected expiration date for patents in this set is 2023 due to a patent term extension. In Europe, the latest projected
expiration date for patents in this set is 2024 due to a Supplemental Patent Certificate (patent term extension). In most other countries, the latest projected
expiration date is 2021.

In addition to competing in the immunology market with STELARA®, the Company is currently marketing SIMPONI® (golimumab) and SIMPONI
ARIA® (golimumab), next generation immunology products with remaining patent lives of up to six years. The Company also markets REMICADE®
(infliximab) in the immunology market which is the Company’s largest product. Patents on this product have expired and the Food and Drug Administration
approved the first infliximab biosimilar for sale in the U.S. in 2016, and a number of such products have been launched since then. For a more extensive
description of legal matters regarding the patents related to REMICADE®, see Note 21 “Legal Proceedings – Intellectual Property – Pharmaceutical –
REMICADE® Related Cases” of the Notes to Consolidated Financial Statements included in Item 8 of this Report.

Trademarks

The Company’s subsidiaries have made a practice of selling their products under trademarks and of obtaining protection for these trademarks by all
available means. These trademarks are protected by registration in the U.S. and other countries where such products are marketed. The Company considers
these trademarks in the aggregate to be of material importance in the operation of its businesses.

Seasonality

Worldwide sales do not reflect …