0000200406 us-gaap:NonUsMember jnj:PharmaceuticalMember jnj:PulmonaryHypertensionMember 2018-01-01 2018-07-01


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
   
þ☑ 
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the quarterly period ended September 30, 2018
for the quarterly period ended June 30, 2019

or
   
o☐ 
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for the transition period from            to
Commission file number 1-3215
jnjlogoa03a01a01a01a01a11.jpgJohnson & Johnson
(Exact name of registrant as specified in its charter)
NEW JERSEY
New Jersey		22-1024240
(State or other jurisdiction of
incorporation or organization)
 
22-1024240
(I.R.S. Employer
Identification No.)


One Johnson & Johnson Plaza
New Brunswick, New Jersey 08933
(Address of principal executive offices)
Registrant’s telephone number, including area code (732) 524-0400
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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. þ☑ Yes o☐ No
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). þ☑ Yes o☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an 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 filerþ
☑
Accelerated filero
☐
 
Non-accelerated filero
☐
Smaller reporting companyo
☐
 
Emerging growth companyo
☐  


If an emerging growth company, indicated 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). o☐ Yes þ☑ No





SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, Par Value $1.00JNJNew York Stock Exchange
4.75% Notes Due November 2019JNJNew York Stock Exchange
0.250% Notes Due January 2022JNJNew York Stock Exchange
0.650% Notes Due May 2024JNJNew York Stock Exchange
5.50% Notes Due November 2024JNJNew York Stock Exchange
1.150% Notes Due November 2028JNJNew York Stock Exchange
1.650% Notes Due May 2035JNJNew York Stock Exchange
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
On October 26, 2018, 2,681,977,969July 24, 2019, 2,639,165,527 shares of Common Stock, $1.00 par value, were outstanding.







JOHNSON & JOHNSON AND SUBSIDIARIES
TABLE OF CONTENTS
  Page
  No.
Part I — Financial Information
 
1
   
Item 1. Financial Statements (unaudited)
 
1
   
Consolidated Balance Sheets — SeptemberJune 30, 20182019 and December 31, 201730, 2018
 
1
   
Consolidated Statements of Earnings for the Fiscal Third QuartersSecond Quarter Ended SeptemberJune 30, 20182019 and OctoberJuly 1, 20172018
 
2
   
Consolidated Statements of Earnings for the Fiscal NineSix Months Ended SeptemberJune 30, 20182019 and OctoberJuly 1, 20172018
 
3
   
Consolidated Statements of Comprehensive Income for the Fiscal Third QuartersSecond Quarter and Fiscal NineSix Months Ended SeptemberJune 30, 20182019 and OctoberJuly 1, 20172018
 
4
   
Consolidated Statements of Cash FlowsEquity for the Fiscal NineSecond Quarter and Fiscal Six Months Ended SeptemberJune 30, 20182019 and OctoberJuly 1, 20172018
 
5
   
Notes to Consolidated Financial Statements of Cash Flows for the Fiscal Six Months Ended June 30, 2019 and July 1, 2018
 
67
   
Notes to Consolidated Financial Statements
8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
4446
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk
57
Item 4. Controls and Procedures
57
Part II — Other Information
 
59
   
Item 1 - Legal Proceedings4. Controls and Procedures
 
59
   
Part II — Other Information
60
Item 1 - Legal Proceedings
60
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
 
5960
   
Item 6 - Exhibits
 
5961
   
Signatures
 
6062
 EX-31.1
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT








CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


This Quarterly Report on Form 10-Q and Johnson & Johnson's other publicly available documents contain “forward-looking statements” within the meaning of the safe harbor provisions of the United States 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, financial performance; impact of planned acquisitions and dispositions; impact and timing of restructuring initiatives including associated cost savings and other benefits; the Company's strategy for growth; product development activities; 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 reputational damage;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 the Corporate Integrity Agreements of the Johnson & Johnson Pharmaceutical Affiliates, 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 Health Care 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, and significant new entrants to the health care markets seeking to reduce costs;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 futureongoing 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 recently 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 the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2017,30, 2018, 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 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.




Table of Contents


Part I — FINANCIAL INFORMATION


Item 1 — FINANCIAL STATEMENTS


JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited; Dollars in Millions Except Share and Per Share Data)

  June 30, 2019 December 30, 2018
ASSETS
Current assets:    
Cash and cash equivalents $14,376
 18,107
Marketable securities 902
 1,580
Accounts receivable, trade, less allowances for doubtful accounts $251 (2018, $248) 14,653
 14,098
Inventories (Note 2) 9,263
 8,599
Prepaid expenses and other 2,411
 2,699
Assets held for sale (Note 10) 194
 950
Total current assets 41,799
 46,033
Property, plant and equipment at cost 42,905
 41,851
Less: accumulated depreciation (25,657) (24,816)
Property, plant and equipment, net 17,248
 17,035
Intangible assets, net (Note 3) 49,332
 47,611
Goodwill (Note 3) 33,661
 30,453
Deferred taxes on income 7,647
 7,640
Other assets 5,430
 4,182
Total assets $155,117
 152,954
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:    
Loans and notes payable $1,719
 2,796
Accounts payable 6,912
 7,537
Accrued liabilities 8,297
 7,601
Accrued rebates, returns and promotions 10,433
 9,380
Accrued compensation and employee related obligations 2,291
 3,098
Accrued taxes on income 1,701
 818
Total current liabilities 31,353
 31,230
Long-term debt (Note 4) 27,699
 27,684
Deferred taxes on income 7,725
 7,506
Employee related obligations 9,910
 9,951
Long-term taxes payable 7,543
 8,242
Other liabilities 10,102
 8,589
Total liabilities 94,332
 93,202
Commitments and Contingencies (Note 11) 


 


Shareholders’ equity:    
Common stock — par value $1.00 per share (authorized 4,320,000,000 shares; issued 3,119,843,000 shares) $3,120
 3,120
Accumulated other comprehensive income (loss) (Note 7) (14,969) (15,222)
Retained earnings 109,809
 106,216
Less: common stock held in treasury, at cost (477,778,000 and 457,519,000 shares) 37,175
 34,362
Total shareholders’ equity 60,785
 59,752
Total liabilities and shareholders' equity $155,117
 152,954
  September 30, 2018 December 31, 2017
ASSETS
Current assets:    
Cash and cash equivalents $16,056
 17,824
Marketable securities 3,308
 472
Accounts receivable, trade, less allowances for doubtful accounts $281 (2017, $291) 14,048
 13,490
Inventories (Note 2) 8,678
 8,765
Prepaid expenses and other 2,896
 2,537
Assets held for sale (Note 10) 2,208
 —
Total current assets 47,194
 43,088
Property, plant and equipment at cost 41,520
 41,466
Less: accumulated depreciation (24,891) (24,461)
Property, plant and equipment, net 16,629
 17,005
Intangible assets, net (Note 3) 48,637
 53,228
Goodwill (Note 3) 30,702
 31,906
Deferred taxes on income 8,076
 7,105
Other assets 4,465
 4,971
Total assets $155,703
 157,303
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:    
Loans and notes payable $1,773
 3,906
Accounts payable 7,000
 7,310
Accrued liabilities 6,044
 7,304
Accrued rebates, returns and promotions 8,684
 7,210
Accrued compensation and employee related obligations 2,840
 2,953
Accrued taxes on income 1,096
 1,854
Total current liabilities 27,437
 30,537
Long-term debt (Note 4) 29,480
 30,675
Deferred taxes on income 7,711
 8,368
Employee related obligations 9,374
 10,074
Long-term taxes payable 8,537
 8,472
Other liabilities 8,538
 9,017
Total liabilities 91,077
 97,143
Shareholders’ equity:    
Common stock — par value $1.00 per share (authorized 4,320,000,000 shares; issued 3,119,843,000 shares) $3,120
 3,120
Accumulated other comprehensive income (loss) (Note 7) (14,647) (13,199)
Retained earnings 107,617
 101,793
Less: common stock held in treasury, at cost (436,688,000 and 437,318,000 shares) 31,464
 31,554
Total shareholders’ equity 64,626
 60,160
Total liabilities and shareholders' equity $155,703
 157,303
See Notes to Consolidated Financial Statements

JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; Dollars & Shares in Millions Except Per Share Amounts)
 Fiscal Third Quarters Ended Fiscal Second Quarter Ended
 September 30,
2018		 
Percent
to Sales
 October 1,
2017		 
Percent
to Sales
 June 30,
2019		 
Percent
to Sales
 July 1,
2018		 
Percent
to Sales
Sales to customers (Note 9) $20,348
 100.0 % $19,650
 100.0 % $20,562
 100.0 % $20,830
 100.0 %
Cost of products sold 6,589
 32.4
 6,925
 35.2
 6,940
 33.8
 6,927
 33.3
Gross profit 13,759
 67.6
 12,725
 64.8
 13,622
 66.2
 13,903
 66.7
Selling, marketing and administrative expenses 5,543
 27.3
 5,423
 27.6
 5,546
 27.0
 5,743
 27.5
Research and development expense 2,508
 12.3
 2,585
 13.2
 2,666
 13.0
 2,639
 12.7
In-process research and development 1,126
 5.6
 —
 —
Interest income (175) (0.9) (74) (0.4) (88) (0.4) (126) (0.6)
Interest expense, net of portion capitalized 243
 1.2
 229
 1.2
 83
 0.4
 253
 1.2
Other (income) expense, net 3
 0.0
 (297) (1.5) (1,683) (8.2) 364
 1.7
Restructuring (Note 12) 88
 0.4
 69
 0.3
 57
 0.2
 57
 0.3
Earnings before provision for taxes on income 4,423
 21.7
 4,790
 24.4
 7,041
 34.2
 4,973
 23.9
Provision for taxes on income (Note 5) 489
 2.4
 1,026
 5.2
 1,434
 6.9
 1,019
 4.9
NET EARNINGS $3,934
 19.3 % $3,764
 19.2 % $5,607
 27.3 % $3,954
 19.0 %
                
NET EARNINGS PER SHARE (Note 8)                
Basic $1.47
   $1.40
   $2.11
   $1.47
  
Diluted $1.44
   $1.37
   $2.08
   $1.45
  
CASH DIVIDENDS PER SHARE $0.90
   $0.84
  
        
AVG. SHARES OUTSTANDING                
Basic 2,683.2
   2,684.6
   2,652.5
   2,682.3
  
Diluted 2,727.6
   2,737.7
   2,691.7
   2,721.3
  
Prior year amounts have been reclassified to conform to current year presentation


See Notes to Consolidated Financial Statements



JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited; Dollars & Shares in Millions Except Per Share Amounts)

                
 Fiscal Nine Months Ended Fiscal Six Months Ended
 September 30,
2018		 
Percent
to Sales
 October 1,
2017		 
Percent
to Sales
 June 30,
2019		 
Percent
to Sales
 July 1,
2018		 
Percent
to Sales
Sales to customers (Note 9) $61,187
 100.0 % $56,255
 100.0 % $40,583
 100.0 % $40,839
 100.0 %
Cost of products sold 20,130
 32.9
 18,180
 32.3
 13,555
 33.4
 13,541
 33.2
Gross profit 41,057
 67.1
 38,075
 67.7
 27,028
 66.6
 27,298
 66.8
Selling, marketing and administrative expenses 16,549
 27.1
 15,475
 27.5
 10,765
 26.5
 11,006
 27.0
Research and development expense 7,551
 12.3
 6,951
 12.4
 5,524
 13.6
 5,043
 12.3
In-process research and development 1,126
 1.8
 —
 0.0
 890
 2.2
 —
 —
Interest income (415) (0.6) (300) (0.5) (187) (0.5) (240) (0.6)
Interest expense, net of portion capitalized 755
 1.2
 660
 1.1
 185
 0.5
 512
 1.3
Other (income) expense, net 427
 0.7
 11
 0.0
 (1,705) (4.2) 424
 1.0
Restructuring expense (Note 12) 187
 0.3
 165
 0.3
Restructuring (Note 12) 93
 0.3
 99
 0.2
Earnings before provision for taxes on income 14,877
 24.3
 15,113
 26.9
 11,463
 28.2
 10,454
 25.6
Provision for taxes on income (Note 5) 2,622
 4.3
 3,100
 5.5
 2,107
 5.1
 2,133
 5.2
NET EARNINGS $12,255
 20.0 % $12,013
 21.4 % $9,356
 23.1 % $8,321
 20.4 %
                
NET EARNINGS PER SHARE (Note 8)                
Basic $4.57
   $4.46
   $3.52
   $3.10
  
Diluted $4.49
   $4.37
   $3.47
   $3.05
  
CASH DIVIDENDS PER SHARE $2.64
   $2.48
  
        
AVG. SHARES OUTSTANDING                
Basic 2,682.6
   2,694.4
   2,656.7
   2,682.2
  
Diluted 2,729.6
   2,746.4
   2,697.0
   2,728.5
  
                
Prior year amounts have been reclassified to conform to current year presentation
See Notes to Consolidated Financial Statements




JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited; Dollars in Millions)


Fiscal Third Quarters Ended Fiscal Nine Months Ended
September 30, 2018 October 1, 2017 September 30, 2018 October 1, 2017Fiscal Second Quarter Ended Fiscal Six Months Ended
       June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018
Net earnings$3,934
 3,764
 $12,255
 12,013
$5,607
 3,954
 $9,356
 8,321
              
Other comprehensive income (loss), net of tax              
Foreign currency translation(151) 359
 (1,718) 1,597
350
 (2,190) 92
 (1,567)
              
Securities:(1)
       
Securities:       
Unrealized holding gain (loss) arising during period—
 14
 —
 150
1
 —
 1
 —
Reclassifications to earnings(1) (99) (1) (292)—
 —
 —
 —
Net change(1) (85) (1) (142)1
 —
 1
 —
              
Employee benefit plans:              
Prior service cost amortization during period(6) (4) (17) (13)(5) (5) (12) (11)
Gain (loss) amortization during period192
 124
 574
 370
142
 190
 318
 382
Net change186
 120
 557
 357
137
 185
 306
 371
              
Derivatives & hedges:              
Unrealized gain (loss) arising during period262
 62
 37
 (8)86
 (61) (216) (225)
Reclassifications to earnings(166) 31
 (91) 350
(26) (103) 70
 75
Net change96
 93
 (54) 342
60
 (164) (146) (150)
              
Other comprehensive income (loss)130
 487
 (1,216) 2,154
548
 (2,169) 253
 (1,346)
              
Comprehensive income$4,064
 4,251
 $11,039
 14,167
$6,155
 1,785
 $9,609
 6,975
              
(1) 2018 includes the impact from the adoption of ASU 2016-01. For further details see Note 1 to the Consolidated Financial Statements
See Notes to Consolidated Financial Statements


The tax effects in other comprehensive income for the fiscal third quarterssecond quarter were as follows for 20182019 and 2017,2018, respectively: Foreign Currency Translation: $104 million in 2018 due to the enactment of the U.S. Tax Cuts and Jobs Act; Securities: $0$106 million and $45$346 million; Employee Benefit Plans: $52$34 million and $61$51 million; Derivatives & Hedges: $26$16 million and $50$44 million.
 
The tax effects in other comprehensive income for the fiscal ninesix months were as follows for 20182019 and 2017,2018, respectively: Foreign Currency Translation: $79 million in 2018 due to the enactment of the U.S. Tax Cuts and Jobs Act; Securities: $0$44 million and $76$183 million; Employee Benefit Plans: $155$35 million and $181$103 million; Derivatives & Hedges:$1439 million and $184$40 million.
 

JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; Dollars in Millions)



Fiscal Second Quarter Ended June 30, 2019

JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in Millions)
  Fiscal Nine Months Ended
  September 30,
2018		 October 1,
2017
CASH FLOWS FROM OPERATING ACTIVITIES    
Net earnings $12,255
 12,013
Adjustments to reconcile net earnings to cash flows from operating activities:    
Depreciation and amortization of property and intangibles 5,194
 3,773
Stock based compensation 822
 758
Asset write-downs 1,226
 309
Net gain on sale of assets/businesses (443) (527)
Deferred tax provision 53
 (407)
Accounts receivable allowances (3) 59
Changes in assets and liabilities, net of effects from acquisitions and divestitures:    
Increase in accounts receivable (1,040) (300)
Increase in inventories (777) (193)
Increase in accounts payable and accrued liabilities 731
 339
Increase in other current and non-current assets (904) (555)
Decrease in other current and non-current liabilities (1,157) (318)
     
NET CASH FLOWS FROM OPERATING ACTIVITIES 15,957
 14,951
     
CASH FLOWS FROM INVESTING ACTIVITIES    
Additions to property, plant and equipment (2,352) (2,039)
Proceeds from the disposal of assets/businesses, net 895
 726
Acquisitions, net of cash acquired (897) (34,646)
Purchases of investments (4,155) (5,798)
Sales of investments 1,162
 27,511
Other (48) (117)
     
NET CASH USED BY INVESTING ACTIVITIES (5,395) (14,363)
     
CASH FLOWS FROM FINANCING ACTIVITIES    
Dividends to shareholders (7,083) (6,687)
Repurchase of common stock (2,060) (5,543)
Proceeds from short-term debt 40
 4,760
Retirement of short-term debt (2,365) (936)
Proceeds from long-term debt, net of issuance costs 6
 4,465
Retirement of long-term debt (910) (1,024)
Proceeds from the exercise of stock options/employee withholding tax on stock awards, net 480
 854
Other (229) (25)
     
NET CASH USED BY FINANCING ACTIVITIES (12,121) (4,136)
     
Effect of exchange rate changes on cash and cash equivalents (209) 297
Decrease in cash and cash equivalents (1,768) (3,251)
Cash and Cash equivalents, beginning of period 17,824
 18,972
CASH AND CASH EQUIVALENTS, END OF PERIOD $16,056
 15,721
     
Acquisitions    
Fair value of assets acquired $1,046
 36,494
Fair value of liabilities assumed and noncontrolling interests (149) (1,848)
Net cash paid for acquisitions $897
 34,646
 Total 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Common Stock
Issued Amount
 
Treasury
Stock
Amount
Balance, March 31, 2019$58,955
 106,650
 (15,517) 3,120
 (35,298)
Net earnings5,607
 5,607
 —
 —
 —
Cash dividends paid ($0.95 per share)(2,522) (2,522) —
 —
 —
Employee compensation and stock option plans683
 74
 —
 —
 609
Repurchase of common stock(2,486) —
 —
 —
 (2,486)
Other—
 —
 —
 —
 —
Other comprehensive income (loss), net of tax548
 —
 548
 —
 —
Balance, June 30, 2019$60,785
 109,809
 (14,969) 3,120
 (37,175)



Fiscal Six Months Ended June 30, 2019

 Total 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Common Stock
Issued Amount
 
Treasury
Stock
Amount
Balance, December 30, 2018$59,752
 106,216
 (15,222) 3,120
 (34,362)
Net earnings9,356
 9,356
 —
 —
 —
Cash dividends paid ($1.85 per share)(4,918) (4,918) —
 —
 —
Employee compensation and stock option plans1,034
 (845) —
 —
 1,879
Repurchase of common stock(4,692) —
 —
 —
 (4,692)
Other—
 —
 —
 —
 —
Other comprehensive income (loss), net of tax253
 —
 253
 —
 —
Balance, June 30, 2019$60,785
 109,809
 (14,969) 3,120
 (37,175)


See Notes to Consolidated Financial Statements














JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (cont.)
(Unaudited; Dollars in Millions)



Fiscal Second Quarter Ended July 1, 2018

 Total 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Common Stock
Issued Amount
 
Treasury
Stock
Amount
Balance, April 1, 2018$63,255
 104,339
 (12,608) 3,120
 (31,596)
Cumulative Adjustment to retained earnings—
 —
 —
 —
 —
Net earnings3,954
 3,954
 —
 —
 —
Cash dividends paid ($0.90 per share)(2,415) (2,415) —
 —
 —
Employee compensation and stock option plans409
 245
 —
 —
 164
Repurchase of common stock(145) —
 —
 —
 (145)
Other—
 —
 —
 —
 —
Other comprehensive income (loss), net of tax(2,169) —
 (2,169) —
 —
Balance, July 1, 2018$62,889
 106,123
 (14,777) 3,120
 (31,577)
          



Fiscal Six Months Ended July 1, 2018

 Total 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Common Stock
Issued Amount
 
Treasury
Stock
Amount
Balance, December 31, 2017$60,160
 101,793
 (13,199) 3,120
 (31,554)
Cumulative Adjustment to retained earnings1,264
 1,496
 (232) —
 —
Net earnings8,321
 8,321
 —
 —
 —
Cash dividends paid ($1.74 per share)(4,668) (4,668) —
 —
 —
Employee compensation and stock option plans760
 (806) —
 —
 1,566
Repurchase of common stock(1,589) —
 —
 —
 (1,589)
Other(13) (13) —
 —
 —
Other comprehensive income (loss), net of tax(1,346) —
 (1,346) —
 —
Balance, July 1, 2018$62,889
 106,123
 (14,777) 3,120
 (31,577)
          


See Notes to Consolidated Financial Statements


JOHNSON & JOHNSON AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; Dollars in Millions)
  Fiscal Six Months Ended
  June 30,
2019		 July 1,
2018
CASH FLOWS FROM OPERATING ACTIVITIES    
Net earnings $9,356
 8,321
Adjustments to reconcile net earnings to cash flows from operating activities:    
Depreciation and amortization of property and intangibles 3,466
 3,463
Stock based compensation 572
 580
Asset write-downs 989
 27
Net gain on sale of assets/businesses (2,079) (443)
Deferred tax provision (694) (285)
Accounts receivable allowances 1
 (16)
Changes in assets and liabilities, net of effects from acquisitions and divestitures:    
Increase in accounts receivable (336) (989)
Increase in inventories (423) (491)
Decrease in accounts payable and accrued liabilities (444) (49)
Increase in other current and non-current assets (862) (267)
Decrease in other current and non-current liabilities (55) (166)
     
NET CASH FLOWS FROM OPERATING ACTIVITIES 9,491
 9,685
     
CASH FLOWS FROM INVESTING ACTIVITIES    
Additions to property, plant and equipment (1,493) (1,533)
Proceeds from the disposal of assets/businesses, net 3,018
 870
Acquisitions, net of cash acquired (5,346) (222)
Purchases of investments (1,517) (951)
Sales of investments 2,132
 743
Other 1
 (33)
     
NET CASH USED BY INVESTING ACTIVITIES (3,205) (1,126)
     
CASH FLOWS FROM FINANCING ACTIVITIES    
Dividends to shareholders (4,918) (4,668)
Repurchase of common stock (4,692) (1,589)
Proceeds from short-term debt 15
 27
Retirement of short-term debt (12) (2,433)
Proceeds from long-term debt, net of issuance costs 1
 3
Retirement of long-term debt (1,005) (9)
Proceeds from the exercise of stock options/employee withholding tax on stock awards, net 463
 162
Other 98
 (137)
     
NET CASH USED BY FINANCING ACTIVITIES (10,050) (8,644)
     
Effect of exchange rate changes on cash and cash equivalents 33
 (170)
Decrease in cash and cash equivalents (3,731) (255)
Cash and Cash equivalents, beginning of period 18,107
 17,824
CASH AND CASH EQUIVALENTS, END OF PERIOD $14,376
 17,569
     
Acquisitions    
Fair value of assets acquired $6,744
 334
Fair value of liabilities assumed and noncontrolling interests (1,398) (112)
Net cash paid for acquisitions $5,346
 222

See Notes to Consolidated Financial Statements

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 — The accompanying unaudited interim consolidated financial statements and related notes should be read in conjunction with the audited Consolidated Financial Statements of Johnson & Johnson and its subsidiaries (the Company) and related notes as contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 201730, 2018. The unaudited interim financial statements include all adjustments (consisting only of normal recurring adjustments) and accruals necessary in the judgment of management for a fair statement of the results for the periods presented.


Columns and rows within tables may not add due to rounding. Percentages have been calculated using actual, non-rounded figures.

New Accounting Standards
Recently Adopted Accounting Standards
ASU 2017-122016-02: Targeted Improvements to Accounting for Hedging Activities
The Company elected to early adopt this standard as of the beginning of the fiscal second quarter of 2018. This update makes more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. The adoption of this standard did not have a material impact on the Company's consolidated financial statements. For additional required disclosures see Note 4 to the Consolidated Financial Statements.

ASU 2014-09: Revenue from Contracts with Customers
On January 1, 2018, the Company adopted the new accounting standard, ASC 606, Revenue from Contracts with Customers and all the related amendments (new revenue standard) to all contracts using the modified retrospective method. The cumulative effect of initially applying the new standard was recognized as an adjustment to the opening balance of retained earnings. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The adoption of the new revenue standard has not had a material impact to either reported Sales to customers or Net earnings. Additionally, the Company will continue to recognize revenue from product sales as goods are shipped or delivered to the customer, as control of goods transfers at the same time.

In accordance with the new standard requirements, the disclosure of the impact of adoption on the Company's Consolidated Statement of Earnings and Balance Sheet was as follows:
Statement of Earnings - For the fiscal nine months ended September 30, 2018
(Dollars in millions)As Reported Effect of change Balance without adoption of ASC 606
Sales to customers$61,187
 (18) 61,169
      
Net earnings12,255
 (14) 12,241
      
Statement of Earnings - For the fiscal third quarter ended September 30, 2018
(Dollars in millions)As Reported Effect of change Balance without adoption of ASC 606
Sales to customers$20,348
 22
 20,370
      
Net earnings3,934
 19
 3,953
      
Balance Sheet - As of September 30, 2018
 As Reported Effect of change Balance without adoption of ASC 606
Assets155,703
 24
 155,727
      
Liabilities91,077
 (7) 91,070
      
Equity$64,626
 31
 64,657
      

The Company made a cumulative effect adjustment to the 2018 opening balance of retained earnings upon adoption of ASU 2014-09, which decreased beginning retained earnings by $47 million.
As part of the adoption of ASC 606 see Note 9 to the Consolidated Financial Statements for further disaggregation of revenue.

The Company recognizes revenue from product sales when obligations under the terms of a contract with the customer are satisfied; generally, this occurs with the transfer of control of the goods to customers. The Company's global payment terms are typically between 30 to 90 days. Provisions for certain rebates, sales incentives, trade promotions, coupons, product returns and discounts to customers are accounted as variable consideration and recorded as a reduction in sales.
Product discounts granted are based on the terms of arrangements with direct, indirect and other market participants, as well as market conditions, including prices charged by competitors. Rebates are estimated based on contractual terms, historical experience, patient outcomes, trend analysis and projected market conditions in the various markets served. The Company evaluates market conditions for products or groups of products primarily through the analysis of wholesaler and other third-party sell-through and market research data, as well as internally generated information.
Sales returns are estimated and recorded based on historical sales and returns information. Products that exhibit unusual sales or return patterns due to dating, competition or other marketing matters are specifically investigated and analyzed as part of the accounting for sales return accruals.
Sales returns allowances represent a reserve for products that may be returned due to expiration, destruction in the field, or in specific areas, product recall. The sales returns reserve is based on historical return trends by product and by market as a percent to gross sales. In accordance with the Company’s accounting policies, the Company generally issues credit to customers for returned goods. The Company’s sales returns reserves are accounted for in accordance with the U.S. GAAP guidance for revenue recognition when right of return exists. Sales returns reserves are recorded at full sales value. Sales returns in the Consumer and Pharmaceutical segments are almost exclusively not resalable. Sales returns for certain franchises in the Medical Devices segment are typically resalable but are not material. The Company infrequently exchanges products from inventory for returned products. The sales returns reserve for the total Company has been approximately 1.0% of annual net trade sales during the fiscal reporting years 2017, 2016 and 2015.
Promotional programs, such as product listing allowances and cooperative advertising arrangements, are recorded in the same period as related sales. Continuing promotional programs include coupons and volume-based sales incentive programs. The redemption cost of consumer coupons is based on historical redemption experience by product and value. Volume-based incentive programs are based on the estimated sales volumes for the incentive period and are recorded as products are sold. These arrangements are evaluated to determine the appropriate amounts to be deferred or recorded as a reduction of revenue. The Company also earns service revenue for co-promotion of certain products, which is included in sales to customers.
ASU 2016-01: Financial Instruments: Recognition and Measurement of Financial Assets and Financial LiabilitiesLeases
The Company adopted this standard as of the beginning of the fiscal year 20182019, on a modified retrospectiveprospective basis. The amendments in this update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities to be measured at fair value with changes in the fair value recognized through net earnings. The standard amends financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income.
The Company made a cumulative effect adjustment to the opening balance of retained earnings upon adoption of ASU 2016-01 that increased retained earnings by $232 million net of tax and decreased accumulated other comprehensive income for previously unrealized gains from equity investments. For additional details see Note 4 to the Consolidated Financial Statements.
ASU 2016-16: Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory
The Company adopted this standard as of the beginning of the fiscal year 2018. This update removes the current exception in U.S. GAAP prohibiting entities from recognizing current and deferred income tax expenses or benefits related to transfer of assets, other than inventory, within the consolidated entity. The current exception to defer the recognition of any tax impact on the transfer of inventory within the consolidated entity until it is sold to a third party remains unaffected. The Company recorded net adjustments to deferred taxes of approximately $2.0 billion, a decrease to Other Assets of approximately $0.7 billion and an increase to retained earnings of approximately $1.3 billion. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

ASU 2017-01: Clarifying the Definition of a Business
The Company adopted this standard as of the beginning of the fiscal year 2018. This update narrows the definition of a business by providing a screen to determine when an integrated set of assets and activities is not a business. The screen specifies that an integrated set of assets and activities is not a business if substantially all of the fair value of the gross assets acquired or disposed of is concentrated in a single or a group of similar identifiable assets. This update was applied prospectively. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.


ASU 2017-07: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost
The Company adopted this standard as of the beginning of the fiscal year 2018. This update requires that an employer disaggregate the service cost component from the other components of net periodic benefit cost (NPBC). In addition, only the service cost component will be eligible for capitalization. The amendments in this update are required to be applied retrospectively for the presentation of the service cost component and the other components of NPBC in the Consolidated Statement of Earnings and prospectively, on and after the adoption date, for the capitalization of the service cost component of NPBC in assets. As required by the transition provisions of this update, the Company made the following reclassifications to the 2017 fiscal third quarter and fiscal nine months Consolidated Statement of Earnings to retroactively apply classification of the service cost component and the other components of NPBC:

(Dollars In millions) Increase (Decrease) to Net Expense
  Fiscal Third Quarter Ended Fiscal Nine Months Ended
Cost of products sold $23
 69
Selling, marketing and administrative expenses 27
 80
Research and development expense 11
 32
Other (income) expense, net (61) (181)
Earnings before provision for taxes on income $—
 —

The following table summarizes the cumulative effect adjustments made to the 2018 opening balance of retained earnings upon adoption of the new accounting standards mentioned above:
(Dollars in Millions) Cumulative Effect Adjustment Increase (Decrease) to Retained Earnings
ASU 2014-09 - Revenue from Contracts with Customers $(47)
ASU 2016-01 - Financial Instruments 232
ASU 2016-16 - Income Taxes: Intra-Entity Transfers 1,311
Total $1,496


Recently Issued Accounting Standards
Not Adopted as of September 30, 2018
ASU 2018-02: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This update allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Job Act enacted in December 2017. This update will be effective for the Company for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect this standard to have a material impact on the Company's consolidated financial statements.

ASU 2016-02: Leases
This update requires the recognition of lease assets and lease liabilities on the balance sheet for all lease obligations and disclosing key information about leasing arrangements. This update requires the recognition of lease assets and lease liabilities by lessees for those leasesarrangements that are classified as operating leases under current generally accepted accounting principles. This update will be effective for the Company for all annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted.leases. The Company will apply the new standard at its adoption date rather than at the earliest comparative period presented in the financial statements. The Company anticipates that most of itsCompany’s operating leases will resultresulted in the recognition of additional assets and the corresponding liabilities on its Consolidated Balance Sheets,Sheet, however it doesdid not expect the standard to have a material impact on the consolidated financial position. statements.

The actual impact will dependCompany 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 Company'sconsolidated balance sheet. The ROU Assets represent the right to use an underlying asset for the lease portfolioterm 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 timelease commencement date based on the present value of adoption.all minimum lease payments over the lease term. The Company continuesuses 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 assess all implicationsextend 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 leases for space, vehicles, manufacturing equipment, and data processing equipment. Leases have remaining lease terms ranging from 1 year to 37 years, some of which could include options to extend the leases when they are reasonably certain.
As noted in the Company’s 2018 10-K, the approximate minimum rental payments required under operating leases that had initial or remaining non-cancelable lease terms in excess of one year at December 30, 2018 were:
(Dollars in Millions)
2019 2020 2021 2022 2023 After 2023 Total
$223 188 154 116 76 139 896


Commitments under finance leases are not significant.




Maturity of Lease Liabilities related to Operating Lease
The minimum rental payments required under operating leases that have initial or remaining non-cancellable lease terms in excess of one year as of June 30, 2019 are:
 (Dollars in Millions)Operating Leases
2019 (for the remainder of fiscal 2019)$185
2020245
2021201
2022156
202398
After 2023214
Total lease payments1,099
Less: Interest88
Present Value of lease liabilities$1,011


The Weighted Average Remaining Lease Term and discount rate:
Operating leases                        6.2 years
Weighted Average Discount Rate                3%
For the fiscal second quarter and first fiscal six months ended June 30, 2019, the operating lease costs were $50 million and $124 million, respectively. Cash paid for amounts included in the measurement of lease liabilities were $76 million and $147 million for the fiscal second quarter and fiscal six months of 2019, respectively. Other supplemental information related to these leases are as follows:
Supplemental balance sheet information (for the fiscal first quarter ended June 30, 2019):
(Dollars in Millions)  
Non-current operating lease right-of-use assets $980
Current operating lease liabilities 262
Non-current Operating lease liabilities 749
       Total operating lease liabilities $1,011
   
ASU 2018-02: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income
This update allows a Company to elect to reclassify stranded tax effects resulting from the Tax Cuts and Job Act enacted in December 2017 from accumulated other comprehensive income to retained earnings. The Company has elected not to reclassify the income tax effects of this standard and therefore this standard will not impact the Company's consolidated financial statements.

ASU 2018-16: Derivatives and Hedging (Topic ASC 815)
This update adds the Overnight Index Swap (OIS) rate based on the Secured Overnight Financing Rate (SOFR) as an eligible benchmark interest rate permitted in the application of hedge accounting. The guidance was effective for the Company as of the standardfiscal fourth quarter of 2018, due to the previous adoption of ASU 2017-12. The impact of the adoption of this guidance did not have a material impact on the Company’s consolidated financial statements and related disclosures. The standard may have an impact in the future as the market for SOFR derivatives develops over time and if SOFR is used to hedge the Company’s financial instruments.

Recently Issued Accounting Standards
Not Adopted as of June 30, 2019
ASU 2018-18: Collaborative Arrangements

This update clarifies the interaction between ASC 808, Collaborative Arrangements and ASC 606, Revenue from Contracts with Customers. The update clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that transaction. This update will be effective for the Company for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. ASU 2018-18 should be applied retrospectively to the date of initial application of ASC 606 and early adoption is permitted. The Company is currently assessing the impact of this update on the Company’s consolidated financial statements and related disclosures.


ASU 2016-13: Financial Instruments - Credit Losses
This update introduces the current expected credit loss (CECL) model, which will require an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity will be required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. This update will be effective for the Company for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this update on the Company’s consolidated financial statements and related disclosures.








NOTE 2 — INVENTORIES
(Dollars in Millions) June 30, 2019 December 30, 2018
Raw materials and supplies $1,198
 1,114
Goods in process 2,024
 2,109
Finished goods 6,041
 5,376
Total inventories(1)
 $9,263
 8,599

(Dollars in Millions) September 30, 2018 December 31, 2017
Raw materials and supplies $1,202
 1,140
Goods in process 1,986
 2,317
Finished goods 5,490
 5,308
Total inventories(1)
 $8,678
 8,765
(1) NetThe balance as of June 30, 2019, does not include the assets held for sale on the Consolidated Balance Sheet for approximately $0.1 billion related to the divestiturestrategic collaboration with Jabil Inc. of approximately $0.2 billion. The balance as of December 30, 2018, does not include the LifeScan business, $0.2 billionassets held for sale related to the divestiture of the Advanced Sterilization Products (ASP) business of approximately $0.2 billion and $0.3 billion related to the strategic collaboration with Jabil Inc., all of which were pending as of September 30, 2018.


NOTE 3 — INTANGIBLE ASSETS AND GOODWILL


Intangible assets that have finite useful lives are amortized over their estimated useful lives. The latest annual impairment assessment of goodwill and indefinite lived intangible assets was completed in the fiscal fourth quarter of 20172018. Future impairment tests for goodwill and indefinite lived intangible assets will be performed annually in the fiscal fourth quarter, or sooner, if warranted.
(Dollars in Millions) June 30, 2019 December 30, 2018
Intangible assets with definite lives:    
Patents and trademarks — gross $36,582
 35,194
Less accumulated amortization 11,500
 9,784
Patents and trademarks — net 25,082
 25,410
Customer relationships and other intangibles — gross 21,862
 21,334
Less accumulated amortization 8,874
 8,323
Customer relationships and other intangibles — net 12,988
 13,011
Intangible assets with indefinite lives:    
Trademarks 6,939
 6,937
Purchased in-process research and development (1)
 4,323
 2,253
Total intangible assets with indefinite lives 11,262
 9,190
Total intangible assets — net $49,332
 47,611

(Dollars in Millions) September 30, 2018 December 31, 2017
Intangible assets with definite lives:    
Patents and trademarks — gross $35,478
 36,427
Less accumulated amortization 9,077
 7,223
Patents and trademarks — net (1)
 26,401
 29,204
Customer relationships and other intangibles — gross 21,176
 20,204
Less accumulated amortization 8,168
 7,463
Customer relationships and other intangibles — net 13,008
 12,741
Intangible assets with indefinite lives:    
Trademarks 7,002
 7,082
Purchased in-process research and development (2)
 2,226
 4,201
Total intangible assets with indefinite lives 9,228
 11,283
Total intangible assets — net $48,637
 53,228

(1) NetIn the fiscal first quarter of approximately $0.1 billion classified as assets held for sale on the Consolidated Balance Sheet related to the divestiture of the LifeScan business, which was pending as of September 30, 2018. See Note 10 to the Consolidated Financial Statements for additional details
(2) The decrease was primarily attributable to the write-down of $1.1 billion related to the assets acquired in the acquisitions of Alios Biopharma Inc. (Alios) and XO1 Limited (XO1). Of the $1.1 billion,2019, the Company recorded a partialan IPR&D impairment charge of $0.8$0.9 billion for the remaining intangible asset value related to the development program of AL-8176, an investigational drug for the treatment of Respiratory Syncytial Virus (RSV) and human metapneumovirus (hMPV) acquired with the 2014 acquisition of Alios.Alios Biopharma Inc. The impairment charge was calculated based on updated cash flow projections discounted for

additional information, including clinical data, which became available and led to the inherent risk inCompany's decision to abandon the asset development and reflects the impact of recent phase 2b clinical trial suspension, a decrease in the probability of success factors and the ongoing analysis of asset development activities. In addition, anAL-8176. A partial impairment charge of $0.3$0.8 billion was previously recorded forin the discontinuationfiscal third quarter of 2018 related to the development project for an anti-thrombin antibody associated withprogram of AL-8176. In the 2015fiscal second quarter of 2019, the Company completed the acquisition of XO1.Auris Health, Inc. and recorded an in-process research and development intangible asset of $2.9 billion.



Goodwill as of SeptemberJune 30, 20182019 was allocated by segment of business as follows:
(Dollars in Millions) Consumer Pharm Med Devices Total
Goodwill, net at December 30, 2018 $8,670
 9,063
 12,720
 30,453
Goodwill, related to acquisitions 1,196
 —
 2,019
 3,215
Currency translation/Other (49) 41
 1
 (7)
Goodwill, net at June 30, 2019 $9,817
 9,104
 14,740
 33,661

(Dollars in Millions) Consumer Pharm Med Devices Total
Goodwill, net at December 31, 2017 $8,875
 9,109
 13,922
 31,906
Goodwill, related to acquisitions 169
 51
 208
 428
Goodwill, related to divestitures —
 —
 (1,246)(1)(1,246)
Currency translation/Other (304) (48) (34) (386)
Goodwill, net at September 30, 2018 $8,740
 9,112
 12,850
 30,702

(1) Goodwill of $1.0 billion is related to the divestiture of the LifeScan business and $0.2 billion is related to the divestiture of the Advanced Sterilization Products business, both of which were pending and classified as assets held for sale on the Consolidated Balance Sheet as of September 30, 2018.


The weighted average amortization periodsperiod for patents and trademarks andis 12 years. The weighted average amortization period for customer relationships and other intangible assets are 11 years and 22 years, respectively.is 21 years. The amortization expense of amortizable intangible assets included in cost of products sold was $3.3 billion and $1.9$1.1 billion for each of the fiscal ninesecond quarters ended June 30, 2019 and July 1, 2018. The amortization expense of amortizable intangible assets included in cost of products sold was $2.2 billion for each of the fiscal six months ended SeptemberJune 30, 20182019 and OctoberJuly 1, 2017, respectively.2018. The estimated amortization expense for the five succeeding years approximates $4.4 billion, before tax, per year. Intangible asset write-downs other than in-process research and development are included in Other (income) expense, net.


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


NOTE 4 — FAIR VALUE MEASUREMENTS


The Company uses forward foreign exchange contracts to manage its exposure to the variability of cash flows, primarily related to the foreign exchange rate changes of future intercompany product and third-party purchases of materials denominated in a foreign currency. The Company uses cross currency interest rate swaps to manage currency risk primarily related to borrowings.
The Company also uses equity collar contracts to manage exposure to market risk associated with certain equity investments.
All threeBoth types of derivatives are designated as cash flow hedges.


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


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


The Company does not enter into derivative financial instruments for trading or speculative purposes, or that contain credit risk related contingent features. During the fiscal second quarter of 2017, theThe Company entered intomaintains credit support agreements (CSA) with certain derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. As of SeptemberJune 30, 2018,2019, the total amount of collateral paid under the credit support agreements (CSA) amounted to $153$384 million,, net. For equity collar contracts, the Company pledged the underlying hedged marketable equity securities to the counter-party as collateral. On an ongoing basis, the Company monitors counter-party credit ratings. The Company considers credit non-performance risk to be low, because the Company primarily enters into agreements with commercial institutions that have at least an investment grade credit rating. Refer to the table on significant financial assets and liabilities measured at fair value contained in this footnote for receivables and payables with these commercial institutions. As of SeptemberJune 30, 2019, the Company had notional amounts outstanding for forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps of $49.7 billion, $15.3 billion and $0.5 billion, respectively. As of December 30, 2018, the Company had notional amounts outstanding for forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps of $38.8$41.1 billion, $7.3 billion and $1.1$0.5 billion, respectively. As of December 31, 2017, the Company had notional amounts outstanding for forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps of $34.5 billion, $2.3 billion and $1.1 billion, respectively.


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


The designation as a cash flow hedge is made at the entrance date of the derivative contract. At inception, all derivatives are expected to be highly effective. 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 a derivative that is designated as a cash flow hedge and is highly effectivethese 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. Gains and losses on net investment hedges are accounted for through the currency translation account.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.



During the fiscal second quarter of 2016, theThe 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 SeptemberJune 30, 2018,2019, the balance of deferred net gainloss on derivatives included in accumulated other comprehensive income was $16$341 million after-tax. For additional information, see the Consolidated Statements of Comprehensive Income and Note 7. The Company expects that substantially all of the amounts related to forward foreign exchange contracts will be reclassified into earnings over the next 12 months as a result of transactions that are expected to occur over that period. The maximum length of time over which the Company is hedging transaction exposure is 18 months, excluding interest rate contracts, net investment hedges and equity collar contracts. The amount ultimately realized in earnings may differ as foreign exchange rates change. Realized gains and losses are ultimately determined by actual exchange rates at maturity of the derivative.



The following table is a summary of the activity related to derivatives and hedges for the fiscal thirdsecond quarters ended in 20182019 and 20172018:

September 30, 2018October 1, 2017June 30, 2019July 1, 2018
(Dollars in Millions)SalesCost of Products SoldR&D ExpenseInterest (Income) ExpenseOther (Income) ExpenseSalesCost of Products SoldR&D ExpenseInterest (Income) ExpenseOther (Income) ExpenseSalesCost of Products SoldR&D ExpenseInterest (Income) ExpenseOther (Income) ExpenseSalesCost of Products SoldR&D ExpenseInterest (Income) ExpenseOther (Income) Expense
The effects of fair value, net investment and cash flow hedging:    
Gain (Loss) on fair value hedging relationship:    
Interest rate swaps contracts:    
Hedged items$—
—
—
(7)—
—
—
—
(4)—
$—
—
—
1
—
—
—
—
5
—
Derivatives designated as hedging instruments—
—
—
7
—
—
—
—
4
—
—
—
—
(1)—
—
—
—
(5)—
    
Gain (Loss) on net investment hedging relationship:    
Cross currency interest rate swaps contracts:    
Amount of gain or (loss) recognized in income on derivative amount excluded from effectiveness testing—
—
—
25
—
—
—
—
—
—
—
—
—
39
—
—
—
—
2
—
Amount of gain or (loss) recognized in AOCI—
—
—
25
—
—
—
—
—
—
—
—
—
39
—
—
—
—
2
—
    
Gain (Loss) on cash flow hedging relationship:    
Forward foreign exchange contracts:    
Amount of gain or (loss) reclassified from AOCI into income (1)
4
97
10
—
(3)5
(63)(30)—
(49)(14)(101)36
—
2
17
76
(14)—
(10)
    
Amount of gain or (loss) recognized in AOCI (1)
15
192
(4)—
(1)18
(16)(39)—
(15)
Amount of gain or (loss) recognized in AOCI—
(50)18
—
(3)(49)(57)21
—
3
    
Cross currency interest rate swaps contracts:    
Amount of gain or (loss) reclassified from AOCI into income—
—
—
34
—
—

—
106
—
—
—
—
64
—
—

—
32
—
Amount of gain or (loss) recognized in AOCI$—
—
—
35
—
—
—
—
114
—
$—
—
—
82
—
—
—
—
19
—
    








The following table is a summary of the activity related to derivatives and hedges for the fiscal ninesix months ended in 20182019 and 20172018:
September 30, 2018October 1, 2017June 30, 2019July 1, 2018
(Dollars in Millions)SalesCost of Products SoldR&D ExpenseInterest (Income) ExpenseOther (Income) ExpenseSalesCost of Products SoldR&D ExpenseInterest (Income) ExpenseOther (Income) ExpenseSalesCost of Products SoldR&D ExpenseInterest (Income) ExpenseOther (Income) ExpenseSalesCost of Products SoldR&D ExpenseInterest (Income) ExpenseOther (Income) Expense
The effects of fair value, net investment and cash flow hedging:    
Gain (Loss) on fair value hedging relationship:    
Interest rate swaps contracts:    
Hedged items$—
—
—
3
—
—
—
—
(6)—
$—
—
—
1
—
—
—
—
10
—
Derivatives designated as hedging instruments—
—
—
(3)—
—
—
—
6
—
—
—
—
(1)—
—
—
—
(10)—
    
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—
—
—
27
—
—
—
—
—
—
—
—
—
78
—
—
—
—
2
—
Amount of gain or (loss) recognized in AOCI—
—
—
27
—
—
—
—
—
—
—
—
—
78
—
—
—
—
2
—
    
Gain (Loss) on cash flow hedging relationship:    
Forward foreign exchange contracts:    
Amount of gain or (loss) reclassified from AOCI into income (1)
50
175
(242)—
(24)(34)(162)(131)—
(86)(35)(136)(103)—
8
46
78
(252)—
(21)
    
Amount of gain or (loss) recognized in AOCI (1)
(3)138
(220)—
(16)40
105
(167)—
(59)
Amount of gain or (loss) recognized in AOCI(6)(346)(92)—
10
(18)(54)(216)—
(15)
    
Cross currency interest rate swaps contracts:    
Amount of gain or (loss) reclassified from AOCI into income—
—
—
106
—
—
—
—
63
—
—
—
—
118
—
—
—
—
72
—
Amount of gain or (loss) recognized in AOCI$—
—
—
111
—
—
—
—
73
—
$—
—
—
140
—
—
—
—
76
—
    









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


As of SeptemberJune 30, 20182019, and December 31, 2017,30, 2018, the following amounts were recorded on the Consolidated Balance Sheet related to cumulative basis adjustment for fair value hedges:
Line item in the Consolidated Balance Sheet in which the hedged item is included 
Carrying Amount of the Hedged Liability

 Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
(Dollars in Millions) June 30, 2019 December 30, 2018 June 30, 2019 December 30, 2018
Current Portion of Long-term Debt $498
 494
 1
 5
Long-term Debt —
 —
 —
 —

Line item in the Consolidated Balance Sheet in which the hedged item is included 
Carrying Amount of the Hedged Liability

 Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
(Dollars in Millions) September 30, 2018 December 31, 2017 September 30, 2018 December 31, 2017
Current Portion of Long-term Debt $601
 597
 1
 2
Long-term Debt 495
 496
 (4) 3

The following table is the effect of derivatives not designated as hedging instrument for the fiscal second quarter and fiscal six months ended in 2019 and 2018:
    
Gain/(Loss)
Recognized In
Income on Derivative
Gain/(Loss)
Recognized In
Income on Derivative
(Dollars in Millions) Location of Gain /(Loss) Recognized in Income on Derivative Fiscal Second Quarter EndedFiscal Six Months Ended
Derivatives Not Designated as Hedging Instruments   June 30, 2019 July 1, 2018June 30, 2019 July 1, 2018
Foreign Exchange Contracts Other (income) expense $(50) (53)(88) (72)

The following table is the effect of derivatives not designated as hedging instrument for the fiscal third quarters and fiscal nine months in 2018 and 2017:
    
Gain/(Loss)
Recognized In
Income on Derivative
Gain/(Loss)
Recognized In
Income on Derivative
(Dollars in Millions) Location of Gain /(Loss) Recognized in Income on Derivative Fiscal Third Quarters EndedFiscal Nine Months Ended
Derivatives Not Designated as Hedging Instruments   September 30, 2018 October 1, 2017September 30, 2018 October 1, 2017
Foreign Exchange Contracts Other (income) expense $49
 (12)(23) 22



The following table is the effect of net investment hedges for the fiscal third quarters in 2018 and 2017:
  
Gain/(Loss)
Recognized In
Accumulated
OCI
 Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income Into Income 
Gain/(Loss) Reclassified From
Accumulated OCI
Into Income
(Dollars in Millions) Fiscal Third Quarters Ended
  September 30, 2018 October 1, 2017   September 30, 2018 October 1, 2017
Debt $(50) (151) Other (income) expense —
 —
Cross Currency interest rate swaps $(75) —
 
Other (income) expense


 —
 —

The following table is the effect of net investment hedges for the fiscal nine months in 2018 and 2017:
  
Gain/(Loss)
Recognized In
Accumulated OCI
 Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income Into Income 
Gain/(Loss) Reclassified From
Accumulated OCI
Into Income
(Dollars in Millions) Fiscal Nine Months Ended
  September 30, 2018 October 1, 2017   September 30, 2018 October 1, 2017
Debt $106
 (529) 
Other (income) expense

 —
 —
Cross Currency interest rate swaps $(37) —
 
Other (income) expense


 —
 —


The Company adopted ASU 2016-01: Financial Instruments: Recognition and Measurementfollowing table is the effect of Financial Assets and Financial Liabilities as of the beginning ofnet investment hedges for the fiscal year 2018. This ASU amends prior guidance to classify equity investments with readily determinable market values into different categories (thatsecond quarters ended in 2019 and 2018
  
Gain/(Loss)
Recognized In
Accumulated
OCI
 Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income Into Income 
Gain/(Loss) Reclassified From
Accumulated OCI
Into Income
(Dollars in Millions) June 30, 2019 July 1, 2018   June 30, 2019 July 1, 2018
Debt $(57) 306
 Other (income) expense —
 —
Cross Currency interest rate swaps $(57) 37
 
Other (income) expense


 —
 —
           


The following table is trading or available-for-sale)the effect of net investment hedges for the fiscal six months ended in 2019 and require equity investments to be measured at fair value with changes in fair value recognized through net earnings. The Company made a cumulative effect adjustment to the opening balance of retained earnings upon adoption of ASU 2016-01 which increased retained earnings by $232 million, net of tax, and decreased accumulated other comprehensive income for previously net unrealized gains from equity investments.2018:
  
Gain/(Loss)
Recognized In
Accumulated OCI
 Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income Into Income 
Gain/(Loss) Reclassified From
Accumulated OCI
Into Income
(Dollars in Millions) June 30, 2019 July 1, 2018   June 30, 2019 July 1, 2018
Debt $14
 156
 
Other (income) expense

 —
 —
Cross Currency interest rate swaps $313
 37
 Other (income) expense —
 —



The Company holds equity investments with readily determinable fair values and equity investments without readily determinable fair values. The Company has elected to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The following table is a summary of the activity related to equity investments as of September 30, 2018:investments:
(Dollars in Millions) December 30, 2018     June 30, 2019  
  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
 292
 160
 963
 963
           
Equity Investments without readily determinable value $681
 (23) 19
 677
 677

(Dollars in Millions) December 31, 2017     September 30, 2018  
  Carrying Value 
Changes in Fair Value Reflected in Net Income (1)
 
Sales/ Purchases/Other (2)
 Carrying Value Non Current Other Assets
Equity Investments with readily determinable value $751
 (35) (19) 697
 697
           
Equity Investments without readily determinable value $510
 7
 122
 639
 639
(1)Recorded in Other Income/Expense
(2)Other includes impact of currency



For equity investments without readily determinable market values, $31$22 million of the changesdecrease in the fair value reflected in net income were the result of impairments. There were $38was a $1 million of changesdecrease in the fair value reflected in net income due to changes in observable prices.

For the fiscal nine months ended October 1, 2017, changes in fair value reflected within other comprehensive income due to previously unrealized gains on equity investments with readily determinable fair values net of tax was a net gain of $269 million.


Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement determined using assumptions that market participants would use in pricing an asset or liability. The authoritative literature establishesIn accordance with ASC 820, a three-level hierarchy was established to prioritize the inputs used in measuring fair value. The levels within the hierarchy are described below with Level 1 inputs having the highest priority and Level 3 inputs having the lowest.


The fair value of a derivative financial instrument (i.e., forward foreign exchange contracts, interest rate contracts) is the aggregation by currency of all future cash flows discounted to its present value at the prevailing market interest rates and subsequently converted to the U.S. Dollar at the current spot foreign exchange rate. The Company does not believe that fair values of these derivative instruments materially differ from the amounts that could be realized upon settlement or maturity, or that the changes in fair value will have a material effect on the Company’s results of operations, cash flows or financial position. The Company also holds equity investments which are classified as Level 1 and debt securities which are classified as Level 2. The Company did not have any otherholds 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 financial assetsjudgment or liabilities which would require revised valuations under this standard that are recognized at fair value.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 SeptemberJune 30, 20182019 and December 31, 201730, 2018 were as follows:
 September 30, 2018   December 31, 2017 June 30, 2019   December 30, 2018
(Dollars in Millions) Level 1 Level 2 Level 3 Total 
Total(1)
 Level 1 Level 2 Level 3 Total 
Total(1)
Derivatives designated as hedging instruments:                    
Assets:                    
Forward foreign exchange contracts $—
 551
 —
 551
 418
 $—
 251
 —
 251
 501
Interest rate contracts (2)(4)
 —
 19
 —
 19
 7
 —
 325
 —
 325
 161
Total —
 570
 —
 570
 425
 —
 576
 —
 576
 662
Liabilities:                    
Forward foreign exchange contracts —
 401
 —
 401
 402
 —
 481
 —
 481
 548
Interest rate contracts (3)(4)
 —
 269
 —
 269
 165
 —
 394
 —
 394
 292
Total —
 670
 —
 670
 567
 —
 875
 —
 875
 840
Derivatives not designated as hedging instruments:                    
Assets:                    
Forward foreign exchange contracts —
 28
 —
 28
 38
 —
 23
 —
 23
 32
Liabilities:                    
Forward foreign exchange contracts —
 45
 —
 45
 38
 —
 55
 —
 55
 32
Other Investments:                    
Equity investments (5)
 697
 —
 —
 697
 751
 963
 —
 —
 963
 511
Debt securities(6)
 $—
 11,155
 —
 11,155
 5,310
 $—
 2,767
 —
 2,767
 9,734
Other Liabilities          
Contingent consideration (7)
     1,479
 1,479
 335



Gross to Net Derivative Reconciliation September 30, 2018 December 31, 2017 June 30, 2019 December 30, 2018
(Dollars in Millions)        
Total Gross Assets $598
 463
 $599
 694
Credit Support Agreement (CSA) (290) (76) (437) (423)
Total Net Asset 308
 387
 162
 271
        
Total Gross Liabilities 715
 605
 930
 872
Credit Support Agreement (CSA) (443) (238) (821) (605)
Total Net Liabilities $272
 367
 $109
 267
        


(1) 
2017December 30, 2018 assets and liabilities are all classified as Level 2 with the exception of equity investments of $751$511 million, which are classified as Level 1.1 and $335 million, classified as Level 3.
(2) 
Includes $4 million and $7$6 million of non-current other assets for Septemberas of December 30, 20182018.
(3)
Includes $1 million and $3 million of non-current other liabilities as of June 30, 2019 and December 31, 2017,30, 2018, respectively.
(3)
Includes $6 million and $9 million of non-current other liabilities for September 30, 2018 and December 31, 2017, respectively.
(4) 
Includes cross currency interest rate swaps and interest rate swaps.
(5) 
Classified as non-current other assets. The carrying amount of the equity investments were $697$963 million and $751$511 million as of SeptemberJune 30, 20182019 and December 31, 2017,30, 2018, respectively.
(6) 
Classified aswithin cash equivalents and current marketable securities.
(7)
Includes $1,370 million (primarily related to Auris Health) and $335 million, classified as non-current other liabilities as of June 30, 2019 and December 30, 2018, respectively. Includes $109 million classified as current liabilities as of June 30, 2019







The Company's cash, cash equivalents and current marketable securities as of SeptemberJune 30, 20182019 comprised:
September 30, 2018
(Dollars in Millions)Carrying Amount Unrecognized Gain Unrecognized Loss Estimated Fair Value Cash & Cash Equivalents Current Marketable SecuritiesCarrying Amount Unrecognized Gain Estimated Fair Value Cash & Cash Equivalents Current Marketable Securities
Cash$2,575
 —
 —
 2,575
 2,575
  $2,615
 —
 2,615
 2,615
  
Other sovereign securities(1)
—
 —
 —
 —
 —
 

380
 —
 380
 380
 


U.S. reverse repurchase agreements2,260
 —
 —
 2,260
 2,260
 
7,014
 —
 7,014
 7,014
 

Other reverse repurchase agreements479
 —
 —
 479
 479
  219
 —
 219
 219
  
Corporate debt securities(1)
200
 —
 —
 200
 200
 —
264
 —
 264
 264
 


Money market funds1,763
 —
 —
 1,763
 1,763
  1,368
 —
 1,368
 1,368
  
Time deposits(1)
932
 —
 —
 932
 932
  651
 —
 651
 651
  
Subtotal8,209
 —
 —
 8,209
 8,209
 —
12,511
 —
 12,511
 12,511
 —
                    
  Unrealized Gain Unrealized Loss        Unrealized Gain      
Government securities10,885
 —
 (1) 10,884
 7,835
 3,049
2,501
 1
 2,502
 1,845
 657
Other sovereign securities—
 —
 —
 —
 —
 —
—
 —
 —
 —
 —
Corporate debt securities271
 —
 —
 271
 12
 259
265
 —
 265
 20
 245
Subtotal available for sale debt(2)
$11,156
 —
 (1) 11,155
 7,847
 3,308
$2,766
 1
 2,767
 1,865
 902
Total cash, cash equivalents and current marketable securities

 

 

 

 16,056
 3,308
$15,277
 1
 15,278
 14,376
 902
(1) Held to maturity investments are reported at amortized cost and gains or losses are reported in earnings.
(2) Available for sale debt securities are reported at fair value with unrealized gains and losses reported net of taxes in other comprehensive income.


In the fiscal year ended December 30, 2018 the carrying amount was the same as the estimated fair value.

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


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


The contractual maturities of the available for sale securities at Septemberas of June 30, 20182019 are as follows:
(Dollars in Millions) Cost Basis Fair Value
Due within one year $2,711
 2,712
Due after one year through five years 55
 55
Due after five years through ten years —
 —
Total debt securities $2,766
 2,767

(Dollars in Millions) Cost Basis Fair Value
Due within one year $11,079
 11,078
Due after one year through five years 77
 77
Due after five years through ten years —
 —
Total debt securities $11,156
 11,155



Financial Instruments not measured at Fair Value:
The following financial liabilities are held at carrying amount on the consolidated balance sheet as of SeptemberJune 30, 20182019:
(Dollars in Millions) Carrying Amount Estimated Fair Value
     
Financial Liabilities    
     
Current Debt $1,719
 1,739
     
Non-Current Debt    
3% Zero Coupon Convertible Subordinated Debentures due in 2020 52
 99
1.950% Notes due 2020 499
 498
2.95% Debentures due 2020 548
 554
3.55% Notes due 2021 449
 462
2.45% Notes due 2021 349
 353
1.65% Notes due 2021 999
 993
0.250% Notes due 2022 (1B Euro 1.1364) 1,134
 1,150
2.25% Notes due 2022 997
 1,004
6.73% Debentures due 2023 250
 298
3.375% Notes due 2023 805
 852
2.05% Notes due 2023 498
 498
0.650% Notes due 2024 (750MM Euro 1.1364) 849
 882
5.50% Notes due 2024 (500 MM GBP 1.2709) 631
 770
2.625% Notes due 2025 748
 762
2.45% Notes due 2026 1,992
 2,024
2.95% Notes due 2027 996
 1,032
2.90% Notes due 2028 1,493
 1,541
1.150% Notes due 2028 (750MM Euro 1.1364) 845
 916
6.95% Notes due 2029 297
 414
4.95% Debentures due 2033 498
 618
4.375% Notes due 2033 856
 1,008
1.650% Notes due 2035 (1.5B Euro 1.1364) 1,688
 1,910
3.55% Notes due 2036 988
 1,049
5.95% Notes due 2037 992
 1,377
3.625% Notes due 2037 1,487
 1,592
3.40% Notes due 2038 990
 1,032
5.85% Debentures due 2038 696
 946
4.50% Debentures due 2040 538
 635
4.85% Notes due 2041 297
 364
4.50% Notes due 2043 495
 594
3.70% Notes due 2046 1,973
 2,144
3.75% Notes due 2047 991
 1,089
3.50% Notes due 2048 742
 778
Other 37
 37
Total Non-Current Debt $27,699
 30,275

(Dollars in Millions) Carrying Amount Estimated Fair Value
     
Financial Liabilities    
     
Current Debt $1,773
 1,773
     
Non-Current Debt    
4.75% Notes due 2019 (1B Euro 1.1681) 1,166
 1,231
1.875% Notes due 2019 495
 490
3% Zero Coupon Convertible Subordinated Debentures due in 2020 52
 100
1.950% Notes due 2020 499
 490
2.95% Debentures due 2020 548
 551
3.55% Notes due 2021 448
 454
2.45% Notes due 2021 349
 345
1.65% Notes due 2021 998
 967
0.250% Notes due 2022 (1B Euro 1.1681) 1,165
 1,172
2.25% Notes due 2022 996
 973
6.73% Debentures due 2023 250
 291
3.375% Notes due 2023 805
 829
2.05% Notes due 2023 498
 477
0.650% Notes due 2024 (750MM Euro 1.1681) 872
 881
5.50% Notes due 2024 (500 MM GBP 1.3123) 651
 793
2.625% Notes due 2025

 748
 719
2.45% Notes due 2026 1,991
 1,884
2.95% Notes due 2027 996
 956
2.90% Notes due 2028 1,493
 1,420
1.150% Notes due 2028 (750MM Euro 1.1681) 868
 874
6.95% Notes due 2029 296
 385
4.95% Debentures due 2033 498
 559
4.375% Notes due 2033 856
 912
1.650% Notes due 2035 (1.5B Euro 1.1681) 1,735
 1,774
3.55% Notes due 2036 988
 945
5.95% Notes due 2037 991
 1,252
3.625% Notes due 2037 1,486
 1,433
3.40% Notes due 2038 990
 926
5.85% Debentures due 2038 696
 874
4.50% Debentures due 2040 538
 573
4.85% Notes due 2041 297
 330
4.50% Notes due 2043 495
 532
3.70% Notes due 2046 1,971
 1,884
3.75% Notes due 2047 991
 951
3.50% Notes due 2048 742
 689
Other 22
 22
Total Non-Current Debt $29,480
 29,938



The weighted average effective interest rate on non-current debt is 3.20%3.19%.


The excess of the estimated fair value over the carrying value of debt was $2.00.3 billion at December 31, 2017.30, 2018.


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



NOTE 5 — INCOME TAXES


The worldwide effective income tax rates for the first fiscal ninesix months of 2019 and 2018 were 18.4% and 2017 were 17.6% and 20.5%20.4%, respectively. The U.S. Tax Cuts and Jobs Act (TCJA) was enacted into law effective January 1, 2018. This law reducesreduced the U.S. statutory corporate tax rate from 35% to 21%, eliminateseliminated or reducesreduced certain corporate income tax deductions and introducesintroduced a tax on global intangible low-taxed incomeGlobal Intangible Low-Taxed Income (GILTI) and a Base Erosion and Anti Abuse Tax (BEAT). In December 2017,During the first fiscal six months of 2018, the Company recorded a provisional tax costestimated the impact of $13.0 billion related to the enactment of the TCJA. Under the guidance in SEC Staff Accounting Bulletin 118 (SAB 118), the provisional amount was a reasonable estimatethese changes based on the most recentbest information and guidance available related toat that time. Subsequent U.S. Treasury guidance on the calculationapplication of the tax liability and the impact to its deferred tax assets and liabilities, including those recorded for foreign local and withholding taxes as of the 2017 assessment date of January 18, 2018. As noted below,these provisions allowed the Company has made adjustments through the third quarter of 2018. All amounts recorded remain provisional and may require further adjustments and changes to the Company’s estimates as new guidance is made available. The estimate is subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provisions of the TCJA, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of tax returns. Revisions to the provisional charge may be material to the Company's future financial results. See Note 8 to the Consolidated Financial Statements in the Annual Report on Form 10-Kbetter refine these calculations for the fiscal year ended December 31, 20172018 and when combined with the election to account for further details onGILTI under the TCJA and SAB 118.

The Company completed its acquisition of AMO indeferred method reduced the first fiscal quartersix months of 2017, and incurred incremental tax costs that were discretely recorded in the first quarter of 2017, which had increased the2019 effective income tax rate by 1.4% forapproximately 2.5% versus the first ninefiscal six months of 2017 compared to the same period in 2018. Additionally, in 2018This reduction was partially offset by the Company hadhaving more income in higher tax jurisdictions relative to lower tax jurisdictions, as compared to 2017. Tax benefits received from stock-based compensation duringincluding the fiscal nine months of 2018 and 2017, reduced the effective tax rate by 1.2% and 2.1%, respectively. The reductionone-time impact of the U.S. statutory corporate tax rate including the effects of tax electionsASP divestiture, which resultedwas primarily taxed in the acceleration of certain deductions into the 2017 tax return (1) U.S., offset by the elimination of the corporate income tax deductions, measurement period adjustments (2) and the GILTI tax (3) , decreased the Company’s worldwide effective rate as compared to the same period of the prior year. As previously disclosed, the Company has elected to provisionally treat the GILTI tax as a period expense, pending further analysis by management of this new tax provision which will be completed in the fourth quarter of 2018.
(1) The impact of the accelerations of these deductions on the effective tax rate through the fiscal nine months of 2018 was a decrease of approximately 2.0%.
(2)The following adjustments were made to the provisional tax amounts through the fiscal third quarter of 2018 due to issued Treasury guidance and revisions to the Company’s estimates since the assessment date:
$0.1 billion increase to the transition tax on previously undistributed foreign earnings as of December 31, 2017 due to U.S. Treasury Department’s issuance of Notice 2018-13 on January 19, 2018, Notice 2018-26 on April 2, 2018, Notice 2018-78 on October 1, 2018 and updates to prior estimates
$0.3 billion decrease to the deferred tax liability for foreign withholding and local taxes, partially offset by a decrease of $0.2 billion in deferred tax assets for U.S. foreign tax credits due to updated estimates from the amounts recorded in 2017.
These measurement period adjustments decreased the Company’s effective tax rate by approximately 0.4% through the first fiscal nine months of 2018 as compared to the same period of the prior year.
(3) The impact of GILTI on the effective tax rate through the first fiscal nine months of 2018 was an increase of 2.5%.

In 2017, the Company provisionally recorded the TCJA transition tax and foreign local and withholding taxes on substantially all of the Company’s foreign earnings. The Company has currently designated a portion of its 2018 foreign earnings as indefinitely reinvested in certain foreign jurisdictions and, as such, has not accrued for the impact of foreign local and withholding taxes in its financial results related to these earnings. The estimated impact of these taxes would have been an increase of approximately 2.5% to the year-to-date effective tax rate. As of September 30, 2018, the Company has no plans or intention to repatriate these designated earnings to the United States. However, the Company is continuing to evaluate its reinvestment plans based on the enacted provisions of the TCJA and related guidance issued to-date in 2018 by the U.S. Department of Treasury, specifically related to the eligibility of these earnings to utilize foreign tax credits. As further Treasury guidance is provided, the Company may re-evaluate its reinvestment plans and strategies for all of its foreign earnings.



As of SeptemberJune 30, 2018,2019, the Company had approximately $3.2$3.3 billion of liabilities from unrecognized tax benefits. The Company believes it is possible that audits may be completed by tax authorities in some jurisdictions over the next twelve months. The Company is not able to provide a reasonably reliable estimate of the timing of any future tax payments relating to uncertain tax positions. TheWith respect to the United States, the IRS has completed its audit for the tax years through 2009 and is currently auditing the tax years 2010 through 2012. The Company currently expects substantial completion of this audit during 2019.  Final conclusion ofwithin the next twelve months. The outcome from this tax audit may result in an outcome that is different thanadjustments to the Company’s current estimates andthat may result inhave a material impact on the Company’s current and future operating results or cash flows in the period that the audit is concluded. substantially completed.


Swiss Tax Reform
On September 28, 2018 the Swiss Parliament approved the Federal Act on Tax Reform and AHV Financing (TRAF). On May 19, 2019 a public referendum was held in Switzerland that approved the federal reform proposals and subsequently announced the TRAF will become effective on January 1, 2020. In the fiscal third quarter of 2019, the Swiss Federal Council enacted TRAF.
TRAF provides for parameters which enable the Swiss cantons to establish localized tax rates and regulations for multinational companies. The new cantonal tax parameters include favorable tax benefits for patents and an additional research and development tax deduction to encourage investment. The cantons are required to implement new local legislation by January 1, 2020 or the new federal law will be directly applied.
The significant cantons in which the Company operates have not yet enacted legislation in response to TRAF. The transitional provisions of TRAF are also expected to allow companies to elect tax basis adjustments to fair value which is used for tax depreciation and amortization purposes resulting in a deduction over the transitional period. The adjustment in the Company’s asset tax basis will likely require review and approval by the federal and cantonal tax agencies. The Company has not yet applied for the adjustment to the tax basis.
As TRAF was not enacted as of June 30, 2019, the Company has not reflected the financial impacts in its fiscal second quarter results. The Company estimates the impact of revaluing its deferred tax assets and liabilities as a result of Swiss Federal enactment of TRAF, without consideration of future cantonal tax rate changes or the transitional provisions, to result in an incremental tax expense between $0.3 billion to $0.5 billion in the fiscal third quarter of 2019. The financial impact of the future cantonal tax rate changes or the transitional provisions cannot currently be reasonably estimated but may result in a material impact to the future results of the Company.







NOTE 6 — PENSIONS AND OTHER BENEFIT PLANS


Components of Net Periodic Benefit Cost
Net periodic benefit cost for the Company’s defined benefit retirement plans and other benefit plans for the fiscal thirdsecond quarters and the first fiscal ninesix months of 20182019 and 20172018 include the following components:
  Fiscal Second Quarter Ended Fiscal Six Months Ended
  Retirement Plans Other Benefit Plans Retirement Plans Other Benefit Plans
(Dollars in Millions) June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018
Service cost $277
 309
 69
 68
 553
 618
 137
 135
Interest cost 274
 249
 46
 38
 549
 501
 92
 75
Expected return on plan assets (581) (554) (1) (2) (1,164) (1,114) (3) (4)
Amortization of prior service cost/(credit) 1
 —
 (8) (8) 2
 1
 (16) (16)
Recognized actuarial losses 146
 213
 33
 31
 290
 428
 65
 61
Curtailments and settlements 8
 —
 —
 —
 7
 (2) —
 —
Net periodic benefit cost $125
 217
 139
 127
 237
 432
 275
 251
                 

  Fiscal Third Quarters Ended Fiscal Nine Months Ended
  Retirement Plans Other Benefit Plans Retirement Plans Other Benefit Plans
(Dollars in Millions) September 30, 2018 October 1, 2017 September 30, 2018 October 1, 2017 September 30, 2018 October 1, 2017 September 30, 2018 October 1, 2017
Service cost $307
 266
 67
 62
 925
 772
 202
 185
Interest cost 247
 232
 37
 40
 748
 693
 112
 119
Expected return on plan assets (550) (514) (1) (2) (1,664) (1,528) (5) (5)
Amortization of prior service cost/(credit) 1
 1
 (7) (8) 2
 2
 (23) (23)
Recognized actuarial losses 213
 154
 31
 34
 641
 456
 92
 103
Curtailments and settlements —
 2
 —
 —
 (2) 1
 —
 —
Net periodic benefit cost $218
 141
 127
 126
 650
 396
 378
 379
                 


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


Company Contributions
For the fiscal ninesix months ended SeptemberJune 30, 20182019, the Company contributed $656$42 million and $28$87 million to its U.S. and international retirement plans, respectively. The Company plans to continue to fund its U.S. defined benefit plans to comply with the Pension Protection Act of 2006. International plans are funded in accordance with local regulations.




NOTE 7 — ACCUMULATED OTHER COMPREHENSIVE INCOME


Components of other comprehensive income (loss) consist of the following:
           
  Foreign Gain/(Loss) Employee Gain/(Loss) Total Accumulated
  Currency On Benefit On Derivatives Other Comprehensive
(Dollars in Millions) Translation Securities Plans & Hedges Income (Loss)
December 30, 2018 $(8,869) —
 (6,158) (195) (15,222)
Net change 92
 1
 306
 (146) 253
June 30, 2019 $(8,777) 1
 (5,852) (341) (14,969)

           
  Foreign Gain/(Loss) Employee Gain/(Loss) Total Accumulated
  Currency On Benefit On Derivatives Other Comprehensive
(Dollars in Millions) Translation Securities Plans & Hedges Income (Loss)
December 31, 2017 $(7,351) 232
 (6,150) 70
 (13,199)
Net change (1,718) (1) 557
 (54) (1,216)
Cumulative adjustment to retained earnings   (232)
(1) 
    (232)
September 30, 2018 $(9,069) (1) (5,593) 16
 (14,647)
(1)See Note 1 to the Consolidated Financial Statements for additional details on the adoption of ASU 2016-01


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


Details on reclassifications out of Accumulated Other Comprehensive Income:
Gain/(Loss) On Securities - reclassifications released to Other (income) expense, net.
Employee Benefit Plans - reclassifications are included in net periodic benefit cost. See Note 6 for additional details.
Gain/(Loss) On Derivatives & Hedges - reclassifications to earnings are recorded in the same account as the underlying transaction. See Note 4 for additional details.

NOTE 8 — EARNINGS PER SHARE


The following is a reconciliation of basic net earnings per share to diluted net earnings per share for the fiscal thirdsecond quarters and the first fiscal ninesix months ended SeptemberJune 30, 20182019 and OctoberJuly 1, 20172018:
  Fiscal Second Quarter Ended Fiscal Six Months Ended
(Shares in Millions) June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018
Basic net earnings per share $2.11
 1.47
 3.52
 3.10
Average shares outstanding — basic 2,652.5
 2,682.3
 2,656.7
 2,682.2
Potential shares exercisable under stock option plans 140.8
 127.5
 138.6
 141.8
Less: shares which could be repurchased under treasury stock method (102.3) (89.3) (99.0) (96.3)
Convertible debt shares 0.7
 0.8
 0.7
 0.8
Average shares outstanding — diluted 2,691.7
 2,721.3
 2,697.0
 2,728.5
Diluted net earnings per share $2.08
 1.45
 3.47
 3.05

  Fiscal Third Quarters Ended Fiscal Nine Months Ended
(Shares in Millions) September 30, 2018 October 1, 2017 September 30, 2018 October 1, 2017
Basic net earnings per share $1.47
 1.40
 4.57
 4.46
Average shares outstanding — basic 2,683.2
 2,684.6
 2,682.6
 2,694.4
Potential shares exercisable under stock option plans 140.3
 139.3
 140.9
 141.2
Less: shares which could be repurchased under treasury stock method (96.7) (87.2) (94.7) (90.2)
Convertible debt shares 0.8
 1.0
 0.8
 1.0
Average shares outstanding — diluted 2,727.6
 2,737.7
 2,729.6
 2,746.4
Diluted net earnings per share $1.44
 1.37
 4.49
 4.37


The diluted net earnings per share calculation for both the fiscal thirdsecond quarters ended SeptemberJune 30, 20182019 and OctoberJuly 1, 20172018 included the dilutive effect of convertible debt that was offset by the related reduction in interest expense. The diluted net earnings per share calculation for the both the fiscal third quarterssecond quarter ended SeptemberJune 30, 2018 and October 1, 2017 included all2019 excluded an insignificant number of shares related to stock options, as there were nothe exercise price of these options or other instruments which were anti-dilutive.was greater than their average market value. The diluted net earnings per share calculation for the fiscal second quarter ended July 1, 2018 excluded 17 million shares related to stock options, as the exercise price of these options was greater than their average market value.


The diluted net earnings per share calculation for both the fiscal ninesix months ended SeptemberJune 30, 20182019 and OctoberJuly 1, 20172018 included the dilutive effect of convertible debt that was offset by the related reduction in interest expense. The diluted net earnings per share calculation for both the fiscal ninesix months ended SeptemberJune 30, 2018 and October2019 excluded an insignificant number of shares related to stock options, as the exercise price of these options was greater than their average market value. The diluted net earnings per share calculation for the fiscal six months ended July 1, 20172018 included all shares related to stock options, as there were no options or other instruments which were anti-dilutive.










NOTE 9 — SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS


SALES BY SEGMENT OF BUSINESS
  Fiscal Second Quarter Ended Fiscal Six Months Ended
(Dollars in Millions) June 30,
2019		 July 1,
2018		 
Percent
Change
 June 30,
2019		 July 1,
2018		 Percent Change
             
CONSUMER            
Baby Care            
     U.S. $99
 89
 11.5 % $186
 186
 (0.2)%
     International 344
 367
 (6.3) 651
 727
 (10.5)
     Worldwide 443
 456
 (2.8) 837
 913
 (8.4)
Beauty            
     U.S. 663
 637
 4.1
 1,251
 1,248
 0.3
     International 539
 472
 14.1
 1,041
 945
 10.1
     Worldwide 1,202
 1,109
 8.4
 2,292
 2,193
 4.5
Oral Care            
     U.S. 155
 157
 (1.6) 306
 314
 (2.5)
     International 234
 236
 (0.7) 450
 458
 (1.7)
     Worldwide 389
 393
 (1.1) 756
 772
 (2.0)
OTC            
     U.S. 484
 454
 6.6
 991
 919
 7.8
     International 580
 612
 (5.1) 1,160
 1,219
 (4.9)
     Worldwide 1,064
 1,066
 (0.1) 2,151
 2,138
 0.6
Women's Health            
     U.S. 3
 4
 (10.3) 6
 7
 (3.7)
     International 250
 276
 (9.5) 472
 516
 (8.6)
     Worldwide 253
 280
 (9.5) 478
 523
 (8.5)
Wound Care/Other            
     U.S. 132
 135
 (1.9) 234
 238
 (1.5)
     International 61
 65
 (6.4) 114
 125
 (8.9)
     Worldwide 193
 200
 (3.4) 348
 363
 (4.0)
TOTAL CONSUMER            
     U.S. 1,537
 1,476
 4.1
 2,975
 2,912
 2.2
     International 2,007
 2,028
 (1.0) 3,887
 3,990
 (2.6)
     Worldwide 3,544
 3,504
 1.2
 6,862
 6,902
 (0.6)
             
  Fiscal Third Quarters Ended Fiscal Nine Months Ended
(Dollars in Millions) September 30,
2018		 October 1,
2017		 
Percent
Change
 September 30,
2018		 October 1,
2017		 Percent Change
             
CONSUMER            
Baby Care            
     U.S. $120
 100
 20.0 % $306
 326
 (6.1)%
     International 352
 377
 (6.6) 1,079
 1,100
 (1.9)
     Worldwide 472
 477
 (1.0) 1,385
 1,426
 (2.9)
Beauty            
     U.S. 543
 523
 3.8
 1,791
 1,739
 3.0
     International 535
 510
 4.9
 1,480
 1,351
 9.5
     Worldwide 1,078
 1,033
 4.4
 3,271
 3,090
 5.9
Oral Care            
     U.S. 158
 154
 2.6
 472
 460
 2.6
     International 226
 228
 (0.9) 684
 678
 0.9
     Worldwide 384
 382
 0.5
 1,156
 1,138
 1.6
OTC            
     U.S. 440
 401
 9.7
 1,359
 1,310
 3.7
     International 608
 601
 1.2
 1,827
 1,711
 6.8
     Worldwide 1,048
 1,002
 4.6
 3,186
 3,021
 5.5
Women's Health            
     U.S. 3
 3
 0.0
 10
 9
 11.1
     International 266
 267
 (0.4) 782
 779
 0.4
     Worldwide 269
 270
 (0.4) 792
 788
 0.5
Wound Care/Other            
     U.S. 106
 104
 1.9
 344
 342
 0.6
     International 58
 88
 (34.1) 183
 257
 (28.8)
     Worldwide 164
 192
 (14.6) 527
 599
 (12.0)
TOTAL CONSUMER            
     U.S. 1,370
 1,285
 6.6
 4,282
 4,186
 2.3
     International 2,045
 2,071
 (1.3) 6,035
 5,876
 2.7
     Worldwide 3,415
 3,356
 1.8
 10,317
 10,062
 2.5
             
PHARMACEUTICAL            
Immunology            
     U.S. 2,400
 2,420
 (0.8) 6,717
 6,644
 1.1
     International 998
 849
 17.6
 3,061
 2,514
 21.8
     Worldwide 3,398
 3,269
 3.9
 9,778
 9,158
 6.8
     REMICADE®
            
     U.S. 987
 1,206
 (18.2) 2,821
 3,452
 (18.3)
     U.S. Exports 100
 156
 (35.9) 346
 448
 (22.8)
     International 292
 285
 2.5
 921
 949
 (3.0)
     Worldwide 1,379
 1,647
 (16.3) 4,088
 4,849
 (15.7)
             


PHARMACEUTICAL            
Immunology            
     U.S. 2,379
 2,317
 2.7
 4,542
 4,317
 5.2
     International 1,087
 1,021
 6.3
 2,175
 2,063
 5.4
     Worldwide 3,466
 3,338
 3.8
 6,717
 6,380
 5.3
     REMICADE®
            
     U.S. 801
 918
 (12.7) 1,575
 1,834
 (14.1)
     U.S. Exports 62
 104
 (40.3) 138
 246
 (43.9)
     International 244
 298
 (18.5) 496
 629
 (21.2)
     Worldwide 1,107
 1,320
 (16.2) 2,209
 2,709
 (18.5)
     SIMPONI / SIMPONI ARIA®
            
     U.S. 281
 274
 2.7
 544
 498
 9.1
     International 282
 274
 2.7
 543
 568
 (4.4)
     Worldwide 563
 548
 2.7
 1,087
 1,066
 1.9
     STELARA®
            
     U.S. 1,058
 919
 15.2
 1,940
 1,571
 23.5
     International 499
 422
 18.1
 1,022
 831
 23.0
     Worldwide 1,558
 1,341
 16.1
 2,963
 2,402
 23.3
     TREMFYA®
            
     U.S. 176
 102
 72.3 344
 168
 *
     International 59
 24
 * 108
 30
 *
     Worldwide 235
 126
 86.5 452
 198
 *
     OTHER IMMUNOLOGY
            
     U.S. —
 —
 — —
 —
 —
     International 3
 3
 27.7 6
 5
 23.6
     Worldwide 3
 3
 27.7 6
 5
 23.6
             
Infectious Diseases            
     U.S. 387
 328
 17.8
 744
 661
 12.5
     International 475
 521
 (8.7) 964
 1,018
 (5.3)
     Worldwide 862
 849
 1.5
 1,708
 1,679
 1.7
     EDURANT® / rilpivirine
            
     U.S. 12
 15
 (15.8) 24
 29
 (17.3)
     International 198
 196
 0.5
 397
 392
 1.4
     Worldwide 210
 211
 (0.6) 421
 421
 0.1
     PREZISTA® / PREZCOBIX® / REZOLSTA® / SYMTUZA®
            
     U.S. 344
 277
 24.2
 659
 550
 19.9
     International 191
 215
 (11.1) 399
 420
 (5.0)
     Worldwide 535
 492
 8.7
 1,058
 970
 9.1
     OTHER INFECTIOUS DISEASES
            
     U.S. 31
 36
 (16.6) 61
 82
 (26.0)
     International 86
 110
 (20.8) 168
 206
 (18.6)
     Worldwide 117
 146
 (19.7) 229
 288
 (20.7)
             
     SIMPONI / SIMPONI ARIA®
            
     U.S. 281
 242
 16.1
 779
 701
 11.1
     International 255
 234
 9.0
 823
 642
 28.2
     Worldwide 536
 476
 12.6
 1,602
 1,343
 19.3
     STELARA®
            
     U.S. 889
 800
 11.1
 2,460
 2,027
 21.4
     International 421
 324
 29.9
 1,252
 903
 38.6
     Worldwide 1,310
 1,124
 16.5
 3,712
 2,930
 26.7
     OTHER IMMUNOLOGY
            
     U.S. 143
 16
 * 311
 16
 *
     International 30
 6
 * 65
 20
 *
     Worldwide 173
 22
 * 376
 36
 *
             
Infectious Diseases            
     U.S. 345
 353
 (2.3) 1,006
 1,020
 (1.4)
     International 478
 460
 3.9
 1,496
 1,334
 12.1
     Worldwide 823
 813
 1.2
 2,502
 2,354
 6.3
     EDURANT® / rilpivirine
            
     U.S. 13
 15
 (13.3) 42
 44
 (4.5)
     International 189
 179
 5.6
 581
 478
 21.5
     Worldwide 202
 194
 4.1
 623
 522
 19.3
     PREZISTA® / PREZCOBIX® / REZOLSTA® / SYMTUZA®
            
     U.S. 297
 287
 3.5
 847
 824
 2.8
     International 193
 180
 7.2
 613
 527
 16.3
     Worldwide 490
 467
 4.9
 1,460
 1,351
 8.1
     OTHER INFECTIOUS DISEASES
            
     U.S. 35
 51
 (31.4) 117
 152
 (23.0)
     International 96
 101
 (5.0) 302
 329
 (8.2)
     Worldwide 131
 152
 (13.8) 419
 481
 (12.9)
             
Neuroscience            
     U.S. 651
 647
 0.6
 1,914
 1,931
 (0.9)
     International 839
 851
 (1.4) 2,663
 2,531
 5.2
     Worldwide 1,490
 1,498
 (0.5) 4,577
 4,462
 2.6
     CONCERTA® / Methylphenidate
            
     U.S. 57
 100
 (43.0) 191
 284
 (32.7)
     International 100
 98
 2.0
 322
 304
 5.9
     Worldwide 157
 198
 (20.7) 513
 588
 (12.8)
     INVEGA SUSTENNA® / XEPLION® / TRINZA® / TREVICTA®
            
     U.S. 468
 395
 18.5
 1,306
 1,154
 13.2
     International 281
 248
 13.3
 859
 722
 19.0
     Worldwide 749
 643
 16.5
 2,165
 1,876
 15.4
     RISPERDAL CONSTA®
            
     U.S. 76
 87
 (12.6) 238
 273
 (12.8)
     International 99
 107
 (7.5) 321
 335
 (4.2)
     Worldwide 175
 194
 (9.8) 559
 608
 (8.1)


Neuroscience            
     U.S. 664
 639
 3.8
 1,387
 1,263
 9.8
     International 875
 889
 (1.6) 1,780
 1,824
 (2.4)
     Worldwide 1,538
 1,528
 0.6
 3,167
 3,087
 2.6
     CONCERTA® / methylphenidate
            
     U.S. 15
 68
 (78.6) 112
 134
 (16.4)
     International 123
 115
 6.2
 239
 222
 7.3
     Worldwide 137
 183
 (25.2) 351
 356
 (1.6)
     INVEGA SUSTENNA® / XEPLION® / INVEGA TRINZA® / TREVICTA®
            
     U.S. 506
 438
 15.6
 989
 838
 18.1
     International 312
 282
 10.4
 619
 578
 7.0
     Worldwide 818
 720
 13.6
 1,608
 1,416
 13.6
     RISPERDAL CONSTA®
            
     U.S. 81
 80
 0.8
 158
 162
 (3.0)
     International 101
 108
 (6.5) 203
 222
 (8.4)
     Worldwide 182
 188
 (3.4) 361
 384
 (6.2)
     OTHER NEUROSCIENCE
            
     U.S. 62
 53
 16.1
 128
 129
 (0.4)
     International 340
 384
 (11.5) 719
 802
 (10.3)
     Worldwide 401
 437
 (8.1) 847
 931
 (8.9)
             
Oncology            
     U.S. 1,013
 1,085
 (6.6) 1,975
 2,018
 (2.1)
     International 1,684
 1,371
 22.8
 3,240
 2,749
 17.9
     Worldwide 2,697
 2,456
 9.8
 5,215
 4,767
 9.4
     DARZALEX®
            
     U.S. 369
 298
 24.4
 721
 562
 28.5
     International 405
 213
 89.5
 682
 381
 78.7
     Worldwide 774
 511
 51.6
 1,403
 943
 48.8
     IMBRUVICA®
            
     U.S. 367
 250
 47.0
 716
 477
 50.2
     International 463
 370
 25.3
 898
 730
 23.1
     Worldwide 831
 620
 34.1
 1,615
 1,207
 33.8
     VELCADE®
            
     U.S. —
 —
 — —
 —
 —
     International 224
 280
 (20.1) 487
 593
 (17.9)
     Worldwide 224
 280
 (20.1) 487
 593
 (17.9)
     ZYTIGA® / abiraterone acetate
            
     U.S. 198
 486
 (59.4) 383
 893
 (57.1)
     International 500
 423
 18.0
 994
 861
 15.4
     Worldwide 698
 909
 (23.3) 1,377
 1,754
 (21.5)
     OTHER ONCOLOGY
            
     U.S. 78
 51
 50.5 154
 86
 77.7
     International 92
 85
 8.8
 179
 184
 (2.5)
     Worldwide 170
 136
 24.7
 333
 270
 23.2
             
             
     OTHER NEUROSCIENCE
            
     U.S. 50
 65
 (23.1) 179
 220
 (18.6)
     International 359
 398
 (9.8) 1,161
 1,170
 (0.8)
     Worldwide 409
 463
 (11.7) 1,340
 1,390
 (3.6)
             
Oncology            
     U.S. 1,250
 846
 47.8
 3,268
 2,207
 48.1
     International 1,338
 1,052
 27.2
 4,087
 3,012
 35.7
     Worldwide 2,588
 1,898
 36.4
 7,355
 5,219
 40.9
     DARZALEX®
            
     U.S. 318
 230
 38.3
 880
 643
 36.9
     International 180
 87
 * 561
 228
 *
     Worldwide 498
 317
 57.1
 1,441
 871
 65.4
     IMBRUVICA®
            
     U.S. 334
 230
 45.2
 811
 622
 30.4
     International 371
 282
 31.6
 1,101
 749
 47.0
     Worldwide 705
 512
 37.7
 1,912
 1,371
 39.5
     VELCADE®
            
     U.S. —
 —
 —
 —
 —
 —
     International 271
 273
 (0.7) 864
 843
 2.5
     Worldwide 271
 273
 (0.7) 864
 843
 2.5
     ZYTIGA®
            
     U.S. 527
 352
 49.7
 1,420
 826
 71.9
     International 431
 317
 36.0
 1,292
 924
 39.8
     Worldwide 958
 669
 43.2
 2,712
 1,750
 55.0
     OTHER ONCOLOGY
            
     U.S. 71
 34
 * 157
 116
 35.3
     International 85
 93
 (8.6) 269
 268
 0.4
     Worldwide 156
 127
 22.8
 426
 384
 10.9
             
Pulmonary Hypertension            
     U.S. 425
 371
 14.6 1,215
 408
 *
     International 231
 261
 (11.5) 691
 309
 *
     Worldwide 656
 632
 3.8 1,906
 717
 *
     OPSUMIT®
            
     U.S. 182
 150
 21.3 511
 174
 *
     International 128
 109
 17.4 381
 130
 *
     Worldwide 310
 259
 19.7 892
 304
 *
     TRACLEER®
            
     U.S. 69
 83
 (16.9) 208
 85
 *
     International 70
 127
 (44.9) 214
 151
 *
     Worldwide 139
 210
 (33.8) 422
 236
 *
     UPTRAVI®
            
     U.S. 154
 113
 36.3 433
 121
 *
     International 17
 11
 54.5 49
 12
 *
     Worldwide 171
 124
 37.9 482
 133
 *


Pulmonary Hypertension            
     U.S. 439
 429
 2.2 869
 790
 10.0
     International 251
 236
 6.7 477
 460
 3.7
     Worldwide 690
 665
 3.8 1,346
 1,250
 7.7
     OPSUMIT®
            
     U.S. 203
 180
 12.8 375
 329
 14.2
     International 146
 131
 11.5 279
 253
 10.3
     Worldwide 348
 311
 12.3 654
 582
 12.5
     TRACLEER®
            
     U.S. 41
 71
 (41.8) 102
 139
 (26.3)
     International 62
 72
 (14.5) 118
 144
 (18.7)
     Worldwide 103
 143
 (28.0) 220
 283
 (22.4)
     UPTRAVI®
            
     U.S. 175
 155
 13.4 351
 279
 25.9
     International 28
 16
 62.5 50
 32
 53.1
     Worldwide 203
 171
 18.2 401
 311
 28.7
     OTHER 
            
     U.S. 20
 23
 (18.2) 41
 43
 (8.4)
     International 16
 17
 3.7 31
 31
 4.1
     Worldwide 37
 40
 (9.6) 72
 74
 (3.4)
             
Cardiovascular / Metabolism / Other            
     U.S. 902
 1,101
 (18.1) 1,849
 2,204
 (16.1)
     International 373
 417
 (10.5) 771
 831
 (7.2)
     Worldwide 1,275
 1,518
 (16.0) 2,620
 3,035
 (13.7)
     XARELTO®
            
     U.S. 549
 679
 (19.2) 1,091
 1,257
 (13.2)
     International —
 —
 — —
 —
 —
     Worldwide 549
 679
 (19.2) 1,091
 1,257
 (13.2)
     INVOKANA® / INVOKAMET®
            
     U.S. 132
 169
 (21.2) 286
 373
 (23.2)
     International 43
 46
 (6.0) 92
 90
 2.6
     Worldwide 177
 215
 (17.9) 379
 463
 (18.2)
     PROCRIT® / EPREX®
            
     U.S. 113
 156
 (27.5) 261
 345
 (24.3)
     International 70
 80
 (13.4) 148
 167
 (11.7)
     Worldwide 183
 236
 (22.7) 409
 512
 (20.2)
     OTHER
            
     U.S. 107
 97
 9.3
 211
 229
 (8.2)
     International 260
 291
 (10.5) 531
 574
 (7.5)
     Worldwide 368
 388
 (5.5) 742
 803
 (7.7)
             
TOTAL PHARMACEUTICAL            
     U.S. 5,783
 5,899
 (2.0) 11,365
 11,253
 1.0
     International 4,746
 4,455
 6.5
 9,408
 8,945
 5.2
     Worldwide 10,529
 10,354
 1.7
 20,773
 20,198
 2.8
             
     OTHER 
            
     U.S. 20
 25
 (20.0) 63
 28
 *
     International 16
 14
 14.3 47
 16
 *
     Worldwide 36
 39
 (7.7) 110
 44
 *
Cardiovascular / Metabolism / Other            
     U.S. 1,026
 1,179
 (13.0) 3,230
 3,488
 (7.4)
     International 365
 406
 (10.1) 1,196
 1,177
 1.6
     Worldwide 1,391
 1,585
 (12.2) 4,426
 4,665
 (5.1)
     XARELTO®
            
     U.S. 612
 635
 (3.6) 1,869
 1,790
 4.4
     International —
 —
 —
 —
 —
 —
     Worldwide 612
 635
 (3.6) 1,869
 1,790
 4.4
     INVOKANA® / INVOKAMET®
            
     U.S. 150
 220
 (31.8) 523
 723
 (27.7)
     International 40
 45
 (11.1) 130
 121
 7.4
     Worldwide 190
 265
 (28.3) 653
 844
 (22.6)
     PROCRIT® / EPREX®
            
     U.S. 178
 168
 6.0
 523
 511
 2.3
     International 77
 70
 10.0
 244
 229
 6.6
     Worldwide 255
 238
 7.1
 767
 740
 3.6
     OTHER
            
     U.S. 86
 156
 (44.9) 315
 464
 (32.1)
     International 248
 291
 (14.8) 822
 827
 (0.6)
     Worldwide 334
 447
 (25.3) 1,137
 1,291
 (11.9)
TOTAL PHARMACEUTICAL            
     U.S. 6,097
 5,816
 4.8
 17,350
 15,698
 10.5
     International 4,249
 3,879
 9.5
 13,194
 10,877
 21.3
     Worldwide 10,346
 9,695
 6.7
 30,544
 26,575
 14.9
             
MEDICAL DEVICES            
Diabetes Care            
     U.S. 125
 168
 (25.6) 371
 482
 (23.0)
     International 190
 237
 (19.8) 638
 743
 (14.1)
     Worldwide 315
 405
 (22.2) 1,009
 1,225
 (17.6)
Diagnostics            
     U.S. —
 —
 —
 —
 —
 —
     International —
 —
 —
 —
 1
 *
     Worldwide —
 —
 —
 —
 1
 *
Interventional Solutions            
     U.S. 320
 279
 14.7
 947
 843
 12.3
     International 333
 274
 21.5
 1,013
 832
 21.8
     Worldwide 653
 553
 18.1
 1,960
 1,675
 17.0
Orthopaedics            
     U.S. 1,284
 1,308
 (1.8) 3,923
 4,034
 (2.8)
     International 827
 896
 (7.7) 2,700
 2,738
 (1.4)
     Worldwide 2,111
 2,204
 (4.2) 6,623
 6,772
 (2.2)
             


MEDICAL DEVICES            
Diabetes Care            
     U.S. —
 129
 * —
 246
 *
     International —
 226
 * —
 448
 *
     Worldwide —
 355
 * —
 694
 *
Interventional Solutions            
     U.S. 366
 323
 13.7
 709
 627
 13.2
     International 385
 344
 11.6
 774
 680
 13.7
     Worldwide 750
 667
 12.6
 1,482
 1,307
 13.4
Orthopaedics            
     U.S. 1,331
 1,332
 (0.1) 2,649
 2,639
 0.4
     International 894
 930
 (3.8) 1,779
 1,873
 (5.0)
     Worldwide 2,224
 2,262
 (1.6) 4,428
 4,512
 (1.9)
     HIPS
            
     U.S. 216
 211
 2.1
 429
 420
 2.1
     International 147
 149
 (0.7) 295
 303
 (2.3)
     Worldwide 364
 360
 0.9
 725
 723
 0.3
     KNEES
            
     U.S. 218
 229
 (4.8) 441
 457
 (3.5)
     International 153
 153
 0.4
 299
 312
 (4.0)
     Worldwide 372
 382
 (2.8) 741
 769
 (3.7)
     TRAUMA
            
     U.S. 407
 394
 3.3
 824
 801
 2.9
     International 265
 281
 (5.9) 533
 570
 (6.5)
     Worldwide 672
 675
 (0.6) 1,357
 1,371
 (1.0)
     SPINE & OTHER
            
     U.S. 490
 498
 (1.5) 955
 961
 (0.6)
     International 328
 347
 (5.3) 651
 688
 (5.4)
     Worldwide 818
 845
 (3.1) 1,606
 1,649
 (2.6)
Surgery            
     U.S. 926
 1,022
 (9.5) 1,927
 2,015
 (4.4)
     International 1,427
 1,493
 (4.4) 2,821
 2,923
 (3.5)
     Worldwide 2,353
 2,515
 (6.5) 4,748
 4,938
 (3.9)
     ADVANCED
            
     U.S. 396
 402
 (1.7) 800
 795
 0.6
     International 633
 603
 5.0
 1,209
 1,176
 2.8
     Worldwide 1,029
 1,005
 2.3
 2,009
 1,971
 1.9
     GENERAL
            
     U.S. 443
 436
 1.6
 868
 859
 1.0
     International 674
 733
 (7.9) 1,339
 1,437
 (6.8)
     Worldwide 1,119
 1,169
 (4.3) 2,208
 2,296
 (3.9)
     SPECIALTY
            
     U.S. 87
 184
 (53.1) 259
 361
 (28.3)
     International 120
 157
 (23.7) 273
 310
 (12.1)
     Worldwide 206
 341
 (39.6) 531
 671
 (20.8)
             
             
     HIPS
            
     U.S. 201
 195
 3.1
 621
 612
 1.5
     International 129
 133
 (3.0) 432
 418
 3.3
     Worldwide 330
 328
 0.6
 1,053
 1,030
 2.2
     KNEES
            
     U.S. 215
 220
 (2.3) 672
 702
 (4.3)
     International 126
 123
 2.4
 438
 424
 3.3
     Worldwide 341
 343
 (0.6) 1,110
 1,126
 (1.4)
     TRAUMA
            
     U.S. 395
 398
 (0.8) 1,196
 1,179
 1.4
     International 259
 264
 (1.9) 829
 768
 7.9
     Worldwide 654
 662
 (1.2) 2,025
 1,947
 4.0
     SPINE & OTHER
            
     U.S. 473
 495
 (4.4) 1,434
 1,541
 (6.9)
     International 313
 376
 (16.8) 1,001
 1,128
 (11.3)
     Worldwide 786
 871
 (9.8) 2,435
 2,669
 (8.8)
Surgery            
     U.S. 1,016
 1,002
 1.4
 3,031
 3,009
 0.7
     International 1,360
 1,344
 1.2
 4,283
 3,992
 7.3
     Worldwide 2,376
 2,346
 1.3
 7,314
 7,001
 4.5
     ADVANCED
            
     U.S. 421
 398
 5.8
 1,216
 1,190
 2.2
     International 555
 525
 5.7
 1,731
 1,543
 12.2
     Worldwide 976
 923
 5.7
 2,947
 2,733
 7.8
     GENERAL
            
     U.S. 423
 430
 (1.6) 1,282
 1,276
 0.5
     International 657
 675
 (2.7) 2,094
 2,017
 3.8
     Worldwide 1,080
 1,105
 (2.3) 3,376
 3,293
 2.5
     SPECIALTY
            
     U.S. 172
 174
 (1.1) 533
 543
 (1.8)
     International 148
 144
 2.8
 458
 432
 6.0
     Worldwide 320
 318
 0.6
 991
 975
 1.6
Vision            
     U.S. 452
 432
 4.6
 1,351
 1,142
 18.3
     International 680
 659
 3.2
 2,069
 1,802
 14.8
     Worldwide 1,132
 1,091
 3.8
 3,420
 2,944
 16.2
     CONTACT LENSES / OTHER
            
     U.S. 319
 302
 5.6
 948
 832
 13.9
     International 516
 498
 3.6
 1,538
 1,404
 9.5
     Worldwide 835
 800
 4.4
 2,486
 2,236
 11.2
     SURGICAL
            
     U.S. 133
 130
 2.3
 403
 310
 30.0
     International 164
 161
 1.9
 531
 398
 33.4
     Worldwide 297
 291
 2.1
 934
 708
 31.9
             


Vision            
     U.S. 461
 459
 0.4
 907
 899
 1.0
     International 701
 714
 (2.0) 1,383
 1,389
 (0.5)
     Worldwide 1,161
 1,173
 (1.0) 2,290
 2,288
 0.1
     CONTACT LENSES / OTHER
            
     U.S. 333
 320
 3.9
 654
 629
 4.0
     International 509
 524
 (2.9) 1,011
 1,022
 (1.0)
     Worldwide 842
 844
 (0.3) 1,666
 1,651
 0.9
     SURGICAL
            
     U.S. 128
 139
 (7.7) 253
 270
 (6.1)
     International 191
 190
 0.7
 371
 367
 1.0
     Worldwide 319
 329
 (2.8) 624
 637
 (2.0)
             
TOTAL MEDICAL DEVICES            
     U.S. 3,083
 3,265
 (5.6) 6,192
 6,426
 (3.6)
     International 3,406
 3,707
 (8.1) 6,756
 7,313
 (7.6)
     Worldwide 6,489
 6,972
 (6.9) 12,948
 13,739
 (5.7)
             
WORLDWIDE            
     U.S. 10,403
 10,640
 (2.2) 20,532
 20,591
 (0.3)
     International 10,159
 10,190
 (0.3) 20,051
 20,248
 (1.0)
     Worldwide $20,562
 20,830
 (1.3)% $40,583
 40,839
 (0.6)%
TOTAL MEDICAL DEVICES            
     U.S. 3,197
 3,189
 0.3
 9,623
 9,510
 1.2
     International 3,390
 3,410
 (0.6) 10,703
 10,108
 5.9
     Worldwide 6,587
 6,599
 (0.2) 20,326
 19,618
 3.6
             
WORLDWIDE            
     U.S. 10,664
 10,290
 3.6
 31,255
 29,394
 6.3
     International 9,684
 9,360
 3.5
 29,932
 26,861
 11.4
     Worldwide $20,348
 19,650
 3.6 % $61,187
 56,255
 8.8 %

*Percentage greater than 100% or not meaningful


EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT
  Fiscal Second Quarter Ended Fiscal Six Months Ended
(Dollars in Millions) June 30,
2019		 July 1,
2018		 
Percent
Change
 June 30,
2019		 July 1,
2018		 Percent Change
Consumer (1)
 $406
 829
 (51.0)% $1,147
 1,377
 (16.7)%
Pharmaceutical(2)
 3,677
 3,651
 0.7
 6,008
 7,317
 (17.9)
Medical Devices(3)
 3,189
 796
 *
 4,686
 2,375
 97.3
Segment earnings before provision for taxes 7,272
 5,276
 37.8
 11,841
 11,069
 7.0
Less: Expense not allocated to segments (4)
 231
 303
  
 378
 615
  
Worldwide income before tax $7,041
 4,973
 41.6 % $11,463
 10,454
 9.7 %

  Fiscal Third Quarters Ended Fiscal Nine Months Ended
(Dollars in Millions) September 30,
2018		 October 1,
2017		 
Percent
Change
 September 30,
2018		 October 1,
2017		 Percent Change
Consumer (1)
 $510
 878
 (41.9)% $1,887
 2,132
 (11.5)%
Pharmaceutical(2)
 2,876
 2,857
 0.7
 10,193
 9,934
 2.6
Medical Devices(3)
 1,267
 1,383
 (8.4) 3,642
 3,938
 (7.5)
Segment earnings before provision for taxes 4,653
 5,118
 (9.1) 15,722
 16,004
 (1.8)
Less: Expense not allocated to segments (4)
 230
 328
   845
 891
  
Worldwide income before tax $4,423
 4,790
 (7.7)% $14,877
 15,113
 (1.6)%
*Percentage greater than 100%

(1) Includes a gain of $0.3 billion related to the Company's previously held equity investment in Ci:z Holdings Co., Ltd. (Dr. Ci: Labo) in the fiscal six months of 2019. Includes a gain of $0.3 billion from the divestiture of NIZORAL® in the fiscal ninesecond quarter and six months of 2018. Includes a gain of $0.4 billion from the divestiture of COMPEED® in the fiscal third quarter and fiscal nine months of 2017. Includes amortization expense of $0.1 billion and $0.1 billion in the fiscal thirdsecond quarters and $0.2 billion and $0.1 billion in the fiscal ninesix months of 2019 and 2018, and 2017.
(2)respectively. 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 reversallitigation expense of $0.2 billion in the fiscal thirdsecond quarter and fiscal ninesix months of 2018.2019.
(2) Includes an unrealized gain on securities of $0.2 billion and Actelion acquisition related costs of $0.1 billion in the fiscal second quarter of 2019. Includes an unrealized gain on securities of $0.3 billion, 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, litigation expense of $0.4 billion, and Actelion acquisition related costs of $0.1 billion in the fiscal six months of 2019. Includes Actelion acquisition related costs of $0.4$0.1 billion and $0.2 billion in the fiscal thirdsecond quarter of 2017. Includes Actelion acquisition related costs of $0.2 billion and $0.6 billion in the fiscal ninesix months of 2018, respectively and 2017, respectively. Includes a gain of $0.1 billion from the divestiture of PANCREASE® in the fiscal ninesecond quarter and six months of 2018. Includes a gain of $0.2 billion related to monetization of future royalty receivables in the fiscal nine months of 2017. Includes a gain of $0.3 billion in the fiscal nine months of 2017 related to the sale of certain investments in equity securities held by Johnson & Johnson Innovation - JJDC, Inc. Includes litigation expense of $0.1 billion in the fiscal nine months of 2017. Includes amortization expense of $0.7 billion in the fiscal third quarters of 2018 and 2017. Includes amortization expense of $2.3 billion and $0.9 billion in the fiscal nine months of 2018 and 2017, respectively.
(3) Includes a restructuring related charge of $0.2 billion and $0.2 billion in the fiscal third quarters of 2018 and 2017, respectively. Includes a restructuring related charge of $0.4 billion and $0.5 billion in the fiscal nine months of 2018 and 2017, respectively. Includes litigation expense of $0.1 billion in the fiscal third quarter of 2017. Includes litigation expense of $0.7 billion and $0.5 billion in the fiscal nine months of 2018 and 2017, respectively. Includes an asset impairment of $0.2 billion primarily related to the insulin pump business in the fiscal nine months of 2017. Includes amortization expense of $0.3 billion and $0.3 billion in the fiscal third quarters of 2018 and 2017, respectively. Includes amortization expense of $0.8 billion and $0.8 billion in the fiscal ninesecond quarters and $1.6 billion and $1.5 billion in the fiscal six months of 2019 and 2018, respectively.

(3) Includes a gain of $2.0 billion from the divestiture of the ASP businessin the fiscal second quarter and 2017,six months of 2019. Includes a restructuring related charge of $0.1 billion and $0.1 billion in the fiscal second quarters of 2019 and 2018, respectively and $0.1 billion and $0.2 billion in the fiscal six months of 2019 and 2018, respectively. Includes litigation expense of $0.2 billion and $0.7 billion in the fiscal second quarters of 2019 and 2018, respectively and $0.3 billion and $0.7 billion in the fiscal six months of 2019 and 2018, respectively. Includes amortization expense of $0.2 billion and $0.3 billion in the fiscal second quarters of 2019 and 2018, respectively and $0.5 billion and $0.5 billion in the fiscal six months of 2019 and 2018, respectively.
(4) Amounts not allocated to segments include interest income/expense and general corporate income/expense.







SALES BY GEOGRAPHIC AREA
  Fiscal Second Quarter Ended Fiscal Six Months Ended
(Dollars in Millions) June 30, 2019 July 1, 2018 
Percent
Change
 June 30, 2019 July 1, 2018 Percent Change
United States $10,403
 10,640
 (2.2)% $20,532
 20,591
 (0.3)%
Europe 4,733
 4,810
 (1.6) 9,342
 9,607
 (2.8)
Western Hemisphere, excluding U.S. 1,455
 1,540
 (5.5) 2,958
 3,107
 (4.8)
Asia-Pacific, Africa 3,971
 3,840
 3.4
 7,751
 7,534
 2.9
Total $20,562
 20,830
 (1.3)% $40,583
 40,839
 (0.6)%

  Fiscal Third Quarters Ended Fiscal Nine Months Ended
(Dollars in Millions) September 30, 2018 October 1, 2017 
Percent
Change
 September 30, 2018 October 1, 2017 Percent Change
United States $10,664
 10,290
 3.6 % $31,255
 29,394
 6.3%
Europe 4,416
 4,308
 2.5
 14,023
 12,398
 13.1
Western Hemisphere, excluding U.S. 1,550
 1,569
 (1.2) 4,657
 4,522
 3.0
Asia-Pacific, Africa 3,718
 3,483
 6.7
 11,252
 9,941
 13.2
Total $20,348
 19,650
 3.6 % $61,187
 56,255
 8.8%


NOTE 10— BUSINESS COMBINATIONS AND DIVESTITURES


SubsequentOn 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 third quarteraggregate, may be payable upon reaching certain predetermined milestones. Auris Health was a privately held developer of robotic technologies, initially focused in lung cancer, with an FDA-cleared platform currently used in bronchoscopic diagnostic and therapeutic procedures. The Company treated this transaction as a business combination and included it in the Medical Devices segment. The fair value of the acquisition was allocated primarily to amortizable and non-amortizable intangible assets, primarily IPR&D, for $3.0 billion, goodwill for $2.0 billion, marketable securities of $0.2 billion and liabilities assumed of $1.8 billion, which includes the fair value of the contingent payments mentioned above, subject to any subsequent valuation adjustments within the measurement period. The fair value of the contingent consideration was $1.1 billion. A probability of success factor ranging from 55% to 95% was used in the fair value calculation to reflect inherent regulatory and commercial risk of the contingent payments and IPR&D. The discount rate applied was approximately 10%. The goodwill is primarily attributable to synergies expected to arise from the business acquisition and is not expected to be deductible for tax purposes.

On April 1, 2019, the Company completed the divestiture of 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.

On October 23, 2018, the Company announcedentered into an agreement withto acquire Ci:z Holdings Co., Ltd., (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 launchapproximately $2.1 billion, using the exchange rate of 109.06 Japanese Yen to each U.S. Dollar on January 16, 2019. The acquisition was completed on January 17, 2019, through a series of transactions that included an all-cash tender offer (the “tender offer”) to acquire all of the outstandingpublicly held shares of Ci:z Holdings Co., Ltd. not already held by the Company and its affiliates for ¥5,900 per share, which equates to approximately ¥230 billion (approximately $2 billion, usingshare. The Company previously held a 20% ownership in Ci:z Holdings Co., Ltd. As of June 2019, the exchange rateCompany became the legal owner of 112.82 Japanese Yen to each U.S. Dollar as of 5 p.m., New York City time, on October 22, 2018). The tender offer is expected to close inCi:z Holdings with the first quarter of 2019. Upon completion of the tender offer procedure in Japan. The acquired company was then delisted from the Tokyo Stock Exchange. Additionally, in the fiscal first quarter of 2019, the Company intendsrecognized a pre-tax gain recorded in Other (income) expense, net, of approximately $0.3 billion related to conductthe Company's previously held equity investment in Ci:z Holdings Co., Ltd.

The Company treated this transaction as a squeeze-out procedure to purchase the remaining shares that were not tenderedbusiness combination and included it in the tender offer, whichConsumer segment. On June 30, 2019, the Company expectsfair value of the acquisition was allocated primarily to complete inamortizable intangible assets for $1.5 billion, goodwill for $1.2 billion and liabilities assumed of $0.5 billion subject to any subsequent valuation adjustments within the first halfmeasurement period. The adjustments made since the date of 2019. The acquisition will include the range of brands comprising DR.CI:LABO, LABO LABO and GENOMER line of skincare products.

Subsequent to the third quarter of 2018, the Company completed the divestiture of its LifeScan business for approximately $2.1 billion. As of September 30, 2018, the assets held for sale on the Consolidated Balance Sheet were $0.1 billion of inventory, $0.1 billion of property, plant and equipment, $0.1 billion ofto the intangible assets net and $1.0 billion ofwith the offset to goodwill. The Company will retain certain net liabilitiesamortizable intangible assets were comprised of approximately $0.4 billion associatedbrand/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 LifeScan business.business acquisition and is not expected to be deductible for tax purposes.

During the fiscal third quarter of 2018, the Company accepted the binding offer from Fortive Corporation to acquire its Advanced Sterilization Products (ASP) business for approximately $2.7 billion, subject to customary adjustments. The transaction is expected to close in 2019. As of September 30, 2018, the assets held for sale on the Consolidated Balance Sheet were $0.2 billion of inventory, $0.1 billion of property, plant and equipment and $0.2 billion of goodwill. The Company will retain certain net receivables of approximately $0.1 billion associated with the ASP business.

During the fiscal third quarter, 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 strategic collaboration has been accepted with respecttransaction includes the transfer of employees and manufacturing sites. Certain manufacturing sites were transferred to Jabil in the North Americanfirst fiscal six months of 2019 and additional sites and is pending applicable consultative processesare expected to transfer in other jurisdictions.the remainder of 2019.  As of SeptemberJune 30, 2018,2019, the assets held for sale on the Consolidated Balance Sheet were $0.3$0.2 billion of inventory and $0.1 billion of property, plant and equipment, net.inventory. For additional details on the global supply chain restructuring see Note 12 to the Consolidated Financial Statements.


During the fiscal third quarter of 2018, the Company completed the acquisitions of Zarbee’s, Inc., a privately held company that is a leader in naturally-based consumer healthcare products and Medical Enterprises Distribution, a healthcare technology firm focused on surgical procedure innovation. 

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

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

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

During the fiscal third quarter of 2017, the Company completed the acquisitions of TearScience Inc., a manufacturer of products dedicated to treating meibomian gland dysfunction and Sightbox, Inc., a privately-held company that developed a subscription vision care service that connects consumers with eye care professionals and a supply of contact lenses. Additionally, during the fiscal third quarter of 2017, the Company completed the divestiture of COMPEED® to HRA Pharma.

On June 16, 2017, the Company completed the acquisition of Actelion Ltd through an all cash tender offer in Switzerland for $280 per share, amounting to $29.6 billion, net of cash acquired. As part of the transaction, immediately prior to the completion of the acquisition, Actelion spun out its drug discovery operations and early-stage clinical development assets into a newly created Swiss biopharmaceutical company, Idorsia Ltd. The shares of Idorsia are listed on the SIX Swiss Exchange (SIX). The Company currently holds 9.9% of the shares of Idorsia and has rights to an additional 22.1% of Idorsia equity through a convertible loan with a principal amount of approximately $0.5 billion. The convertible loan may be converted into Idorsia shares as follows: (i) up to an aggregate shareholding of 16% of Idorsia shares as a result of certain shareholders holding more than 20% of the issued Idorsia shares, and (ii) up to the balance of the remaining amount within 20 business days of the maturity date of the convertible loan, which has a ten-year term, or if Idorsia undergoes a change of control transaction. The investment in Idorsia was recorded as a cost method investment in Other assets in the Company's consolidated Balance Sheet. The Company also exercised the option acquired on ACT-132577, a product within Idorsia being developed for resistant hypertension currently in phase 2 of clinical development. The Company has also entered into an agreement to provide Idorsia with a Swiss franc denominated credit facility of approximately $250 million. As of September 30, 2018, Idorsia has not made any draw-downs under the credit facility. Actelion has entered into a transitional services agreement with Idorsia. Actelion has established a leading franchise of differentiated, innovative products for pulmonary arterial hypertension (PAH) that are highly complementary to the existing portfolio of the Company. The addition of Actelion’s specialty in-market medicines and late-stage products is consistent with the Company's efforts to grow in attractive and complementary therapeutic areas and serve patients with serious illnesses and significant unmet medical need.

During the fiscal second quarter of 2018, the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. The following table presents the amounts recognized for assets acquired and liabilities assumed as of the acquisition date with adjustments made through the second quarter of 2018:
(Dollars in Millions)
Cash & Cash equivalents469
Inventory(1)
759
Accounts Receivable485
Other current assets93
Property, plant and equipment104
Goodwill6,161
Intangible assets25,010
Deferred Taxes99
Other non-current assets19
Total Assets Acquired33,199
Current liabilities956
Deferred Taxes1,776
Other non-current liabilities413
Total Liabilities Assumed3,145
Net Assets Acquired30,054

(1) Includes adjustment of $642 million to write-up the acquired inventory to its estimated fair value.
The adjustments made since the date of acquisition were $0.2 billion to the deferred taxes and $0.4 billion to the current liabilities with the offset to goodwill. The assets acquired are recorded in the Pharmaceutical segment. The acquisition of Actelion resulted in approximately $6.2 billion of goodwill. The goodwill is primarily attributable to synergies expected to arise from the acquisition. The goodwill is not expected to be deductible for tax purposes.


The purchase price allocation to the identifiable intangible assets is as follows:
(Dollars in Millions)  
Intangible assets with definite lives:  
Patents and trademarks* $24,230
Total amortizable intangibles 24,230
   
In-process research and development 780
Total intangible assets $25,010
*Includes $0.4 billion related to VALCHLOR®, one of the acquired products, which was divested in the fiscal second quarter of 2018.

The patents and trademarks acquired are comprised of developed technology with a weighted average life of 9 years and was primarily based on the patent life of the marketed products. The intangible assets with definite lives were assigned asset lives ranging from 4 to 10 years. The in-process research and development intangible assets were valued for technology programs for unapproved products.
The value of the IPR&D was calculated using probability adjusted cash flow projections discounted for the risk inherent in such projects. The discount rate applied was 9%.

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

The following table provides pro forma results of operations for the fiscal nine months ended October 1, 2017 as if Actelion had been acquired as of January 4, 2016. The pro forma results include the effect of certain purchase accounting adjustments such as the estimated changes in depreciation and amortization expense on the acquired tangible and intangible assets. However, pro forma results do not include any anticipated cost savings or other effects of the planned integration of Actelion. Accordingly, such amounts are not necessarily indicative of the results if the acquisition had occurred on the dates indicated or which may occur in the future.
Unaudited Pro forma Consolidated Results
(Dollars in Millions Except Per Share Data) Fiscal Nine Months Ended
  October 1, 2017
Net Sales $57,486
Net Earnings 11,909
Diluted Net Earnings per Common Share $4.34

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

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

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

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



NOTE 11 — LEGAL PROCEEDINGS


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


The Company records accruals for loss contingencies associated with these legal matters when it is probable that a liability will be incurred, and the amount of the loss can be reasonably estimated. As of SeptemberJune 30, 2018,2019, the Company has determined that the liabilities associated with certain litigation matters are probable and can be reasonably estimated. The Company has accrued for these matters and will continue to monitor each related legal issue and adjust accruals as might be warranted based on new information and further developments in accordance with ASC 450-20-25. For these and other litigation and regulatory matters discussed below for which a loss is probable or reasonably possible, the Company is unable to estimate the possible loss or range of loss beyond the amounts already accrued. Amounts accrued for legal contingencies often result from a complex series of judgments about future events and uncertainties that rely heavily on estimates and assumptions. The ability to make such estimates and judgments can be affected by various factors, including whether damages sought in the proceedings are unsubstantiated or indeterminate; scientific and legal discovery has not commenced or is not complete; proceedings are in early stages; matters present legal uncertainties; there are significant facts in dispute; or there are numerous parties involved.


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




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. To the extent adverse verdicts have been rendered against the Company, the Company does not record an accrual until a loss is determined to be probable and can be reasonably estimated. Product liability accruals can represent projected product liability for thousands of claims around the world, each in different litigation environments and with different fact patterns. Changes to the accruals may be required in the future as additional information becomes available.


The most significant of these cases include: the DePuy ASR™ XL Acetabular System and DePuy ASR™ Hip Resurfacing System; the PINNACLE® Acetabular Cup System; pelvic meshes; RISPERDAL®; XARELTO®; body powders containing talc,

primarily JOHNSONS® Baby Powder; INVOKANA®; and ETHICON PHYSIOMESH® Flexible Composite Mesh. As of SeptemberJune 30, 2018,2019, in the United States there were approximately 2,0001,500 plaintiffs with direct claims in pending lawsuits regarding injuries allegedly due to the DePuy ASR™ XL Acetabular System and DePuy ASR™ Hip Resurfacing System; 10,40010,500 with respect to the PINNACLE® Acetabular Cup System; 37,40024,800 with respect to pelvic meshes; 13,00013,400 with respect to RISPERDAL®; 25,50031,700 with respect to XARELTO®; 11,70015,500 with respect to body powders containing talc; 1,1001,000 with respect to INVOKANA®; and 1,5002,900 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 and Italy. In November 2013, DePuy reached an agreement with a Court-appointed committee of lawyers representing ASR Hip System plaintiffs to establish a program to settle claims with eligible ASR Hip patients in the United States who had surgery to replace their ASR Hips, known as revision surgery, as of August 31, 2013. DePuy reached additional agreements in February 2015 and March

2017, which further extended the settlement program to include ASR Hip patients who had revision surgeries after August 31, 2013 and prior to February 15, 2017. This settlement program has resolved more than 10,000 claims, therefore bringing to resolution significant ASR Hip litigation activity in the United States. However, lawsuits in the United States remain, and the settlement program does not address litigation outside of the United States. In Australia, a class action settlement was reached that resolved the claims of the majority of ASR Hip patients in that country. In Canada, the Company has reached agreements to settle two pending class actions which have been approved by the Québec Superior Court and the Supreme Court of British Columbia. The British Columbia order is currently the subject of an appeal. 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. The number of pending productProduct liability lawsuits continuescontinue to increase,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 are currently being appealed.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 defense costs only in connection with product liability litigation associated with the PINNACLE® Acetabular Cup System.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 have been organized as a multi-district litigation in the United States District Court for the Southern District of West Virginia. The Company has settled or otherwise resolved a majority of the United States cases and the estimated costs associated with these settlements and the remaining cases are reflected in the Company's accruals. In addition, class actions and individual personal injury cases or claims have been commenced in various countries outside of the United States, including claims and cases in the United Kingdom, the Netherlands and Belgium, and class actions in Israel, Australia and Canada, seeking damages for alleged injury resulting from Ethicon's pelvic mesh devices. In Australia, a trial of class action issues has been completed and the parties are awaiting a decision is expected in 2018.decision. 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 countymulti-county litigation (MCL) has also been formed in New Jersey state court and assigned to Atlantic County for cases pending in New Jersey. Along with ETHICON PHYSIOMESH® lawsuits, there were a number of filings related to the PROCEED® Mesh and PROCEED® Ventral Patch products. In March 2019, the New Jersey Supreme Court entered an order consolidating all PROCEED® and PROCEED® Ventral Patch cases as an MCL in Atlantic County Superior Court. 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 with respect to product liability litigation associated with ETHICON PHYSIOMESH® Flexible Composite Mesh.Mesh, PROCEED® Mesh and PROCEED® Ventral Patch products.


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


Claims for personal injury arising out of the use of XARELTO®, an oral anticoagulant, have been made against Janssen Pharmaceuticals, Inc. (JPI); Johnson & Johnson; and JPI's collaboration partner for XARELTO® Bayer AG and certain of its affiliates. The number of pending product liability lawsuits continues to increase, and the Company continues to receive information with respect to potential costs and the anticipated number of cases. Cases filed in federal courts in the United States have been organized as a multi-district litigation in the United States District Court for the Eastern District of Louisiana. In addition, cases have been filed in state courts across the United States. Many of these cases have been consolidated into a state mass tort litigation in Philadelphia, Pennsylvania;Pennsylvania and there arein a coordinated proceedingsproceeding in Delaware, California and Missouri.California. Class action lawsuits also have been filed in Canada. In March 2019, the Company announced an agreement in principle to the settle the XARELTO® cases in the United States; such agreement was finalized and executed in May 2019 establishing a United States settlement program. The Company has established an accrualaccruals for defensethe costs only in connectionassociated with the United States settlement program and XARELTO® related product liability litigation associated with XARELTO®.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 JOHNSONSJOHNSON’S® Baby Powder. The number of pending product liability lawsuits continues to increase, and the Company continues to receive information with respect to potential costs and the anticipated number of cases. Lawsuits have been primarily filed in state courts in Missouri, New Jersey and California.California, as well as outside the United States. Cases filed in federal courts in the United States have been organized as a multi-district litigation in the United States District Court for the District of New Jersey. In the multi-district litigation, the parties have moved to exclude experts, known as Daubert motions. The Court began conducting Daubert hearings in mid-July 2019. The Company has successfully defended a number of these cases but there have been verdicts against the Company, including a recent jury verdict in July 2018 of $4.7 billion. The Company believes that it has strong grounds on appeal to overturn these verdicts. The Company has established an accrual for defense costs only 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 potential liability on account of Imerys’s sales of talc, including to the Company for the Company’s body powders. In its bankruptcy filing, Imerys noted certain claims it alleged it had against the Company for indemnification and rights to joint insurance proceeds. Based on such claims as well as indemnity and insurance claims the Company has against Imerys, the Company has petitioned the United States District Court for the District of Delaware to establish federal jurisdiction of the state court talc lawsuits under the “related to” jurisdictional provisions of the Bankruptcy Code. The Company's petition was denied and the state court talc lawsuits that have been removed to federal court on such basis will be remanded.

In February 2018, a securities class action lawsuit was filed against Johnson & Johnson and certain named officers in the United States District Court for the District of New Jersey, alleging that Johnson & Johnson violated the federal securities laws by failing to adequately disclose the alleged asbestos contamination in body powders containing talc, primarily JOHNSON'S® Baby Powder, and that purchasers of Johnson & Johnson’s shares suffered losses as a result.  Plaintiffs are seeking damages.  In October 2018, a shareholder derivative lawsuit was filed against Johnson & Johnson as the nominal defendant and its current directors as defendants in the United States District Court for the District of New Jersey, alleging a breach of fiduciary duties related to the alleged asbestos contamination in body powders containing talc, primarily JOHNSON’S® Baby Powder, and that Johnson & Johnson has suffered damages as a result of those alleged breaches.  Plaintiff is seeking damages and an order for the Company to reform its internal policies and procedures.  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. A lawsuit is pending in the United

States District Court for the Central District of California alleging violations of Proposition 65, California’s Unfair Competition Law and False Advertising Law. In June 2019, plaintiffs filed a motion for voluntary dismissal of this Proposition 65 action and the Company opposed such motion to the extent it would allow plaintiffs’ counsel to refile such claims with new plaintiffs.
In addition, the Company has received preliminary inquiries and subpoenas to produce documents regarding these matters from Senator Murray, a member of the Senate Committee on Health, Education, Labor and Pensions, the Department of Justice, the Securities and Exchange Commission and the U.S. Congressional Subcommittee on Economic and Consumer Policy. The Company is cooperating with these government inquiries and continues to produce documents in response.     

Claims for personal injury have been made against a number of Johnson & Johnson companies, including Janssen Pharmaceuticals, Inc. and Johnson & Johnson, arising out of the use of INVOKANA®, a prescription medication indicated to improve glycemic control in adults with Type 2 diabetes. Lawsuits filed in federal courts in the United States have been organized as a multi-district litigation in the United States District Court for the District of New Jersey. Cases have also been filed in various state courts inincluding Pennsylvania California and New Jersey.Louisiana. Class action lawsuits have been filed in Canada. Product liability lawsuits continue to be filed, and the Company continues to receive information with respect to potential costs and the anticipated number of cases. The Company has settled or otherwise resolved many of the cases and claims in the United States and the costs associated with these settlements are reflected in the Company's accruals.



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


Medical Devices
In June 2009, Rembrandt Vision Technologies, L.P. (Rembrandt) filed a patent infringement lawsuit against Johnson & Johnson Vision Care, Inc. (JJVCI) in the United States District Court for the Eastern District of Texas alleging that JJVCI's manufacture and sale of its ACUVUE® ADVANCE and ACUVUE OASYS® Hydrogel Contact Lenses infringed Rembrandt’s United States Patent No. 5,712,327 and seeking monetary relief. The case was transferred to the United States District Court for the Middle District of Florida, where a trial in May 2012 resulted in a verdict of non-infringement that was subsequently upheld on appeal. In July 2014, Rembrandt sought a new trial based on alleged new evidence, which the District Courtdistrict court denied. In April 2016, the Court of Appeals overturned that ruling and remanded the case to the District Courtdistrict court for a new trial. A new trial was held in August 2017, and the jury returned a verdict of non-infringement in favor of JJVCI. Rembrandt has appealed the verdict to the United States Court of Appeals for the Federal Circuit.Circuit (CAFC). In February 2019, the CAFC affirmed the judgment in favor of JJVCI. In May 2019, the district court awarded costs in favor of JJVCI.


In March 2013, Medinol Ltd. (Medinol) filed a patent infringement lawsuit against Cordis Corporation (Cordis) and Johnson & Johnson in the United States District Court for the Southern District of New York alleging that Cordis’s sales of the CYPHER™ and CYPHER SELECT™ stents made in the United States since 2005 willfully infringed four of Medinol's patents directed to the geometry of articulated stents. Medinol is seeking damages and attorneys’ fees. Although Johnson & Johnson has since sold Cordis, it has retained liability for this case. After the trial in January 2014, the District Courtdistrict court dismissed the case, finding Medinol unreasonably delayed bringing its claims (the laches defense). In September 2014, the District Courtdistrict court denied a motion by Medinol to vacate the judgment and grant it a new trial. Medinol appealed the decision to the United States Court of Appeals for the Federal Circuit. In March 2017, the United States Supreme Court held that the laches defense is not available in patent cases. In April 2018, the United States Court of Appeals for the Federal Circuit remanded the case back to the District Courtdistrict court to reconsider Medinol'sMedinol’s motion for a new trial, and briefing intrial. In March 2019, the District Court was completed in June 2018.district court denied Medinol’s motion for a new trial. In April 2019, Medinol filed a notice of appeal.


In November 2016, MedIdea, L.L.C. (MedIdea) filed a patent infringement lawsuit against DePuy Orthopaedics, Inc. in the United States District Court for the Northern District of Illinois alleging infringement by the ATTUNE® Knee System. In April 2017, MedIdea filed an amended complaint adding DePuy Synthes Products, Inc. and DePuy Synthes Sales, Inc. as named defendants.defendants (collectively, DePuy). MedIdea alleges infringement of United States Patent Nos. 6,558,426 (’426); 8,273,132;8,273,132 (’132); 8,721,730 (’730) and 9,492,280 (’280) relating to posterior stabilized knee systems. Specifically, MedIdea alleges that the SOFCAMTM Contact feature of the

ATTUNE® posterior stabilized knee products infringes the patents-in-suit. MedIdea is

seeking monetary damages and injunctive relief. In June 2017, the case was transferred to the United States District Court for the District of Massachusetts. A claim construction hearing was held in October 2018, and a claim construction order was issued in November 2018. In December 2018, MedIdea stipulated to non-infringement of the ’132, ’730 and ’280 patents, based on the district court’s claim construction and reserving its right to appeal that construction, leaving only the ’426 patent at issue before the district court. In January 2019, the district court stayed the case pending a decision in the Inter Partes Review proceeding on the ’426 patent (see below). In December 2017, DePuy Synthes Products, Inc. filed a Petitionpetition for Inter Partes Review with the United States Patent and Trademark Office (USPTO), seeking to invalidate the two claims of the ’426 patent asserted in the district court litigation, and in June 2018, the USPTO instituted review of those claims. A hearing was held in March 2019, and in April 2019, the USPTO issued its decision upholding the validity of the patent. In May 2019, DePuy filed a motion for summary judgment of non-infringement of the claims of the ’426 patent.


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


In December 2016, Dr. Ford Albritton sued Acclarent, Inc. (Acclarent) in United States District Court for the Northern District of Texas alleging that Acclarent’s RELIEVA® Spin and RELIEVEA SpinPlus® products infringe U.S. Patent No. 9,011,412 (the ’412 patent). Dr. Albritton also alleges breach of contract, fraud and that he is the true owner of Acclarent’s U.S. Patent No. 8,414,473. In December 2016, Acclarent filed a petition for Inter Partes Review (IPR) with the United States Patent and Trademark Office (USPTO) challenging the validity of the ’412 patent. The USPTO instituted the IPR in July 2017. In July 2018, the USPTO ruled in favor of Albritton in the IPR, finding that Acclarent had not met its burden of proof that the challenged claims were invalid. Acclarent appealed the IPR decision in September 2018. A second IPR petition was not instituted. The trial is scheduled for October 2019. In June 2019, Albritton filed a motion for summary judgment that the asserted patent is not invalid. In June 2019, Acclarent filed a motion for summary judgment that the asserted claims are not infringed and that Albritton’s non-patent claims are barred by, among other things, the statute of limitations.

In November 2017, Board of Regents, The University of Texas System and Tissuegen, Inc. (collectively, UT) filed a lawsuit in the United States District Court for the Western District of Texas against Ethicon, Inc. and Ethicon US, LLC alleging the manufacture and sale of VICRYL® Plus Antibacterial Sutures, MONOCRYL® Plus Antibacterial Sutures, PDS® Plus Antibacterial Sutures, STRATAFIX® POS® Antibacterial Sutures and STRATAFIX® MONOCRYL®Plus Antibacterial Sutures infringe plaintiffs’ United States Patent Nos. 6,596,296 and 7,033,603 (the ’603 patent) directed to implantable polymer drug releasing biodegradable fibers containing a therapeutic agent. UT is seeking damages and an injunction. A claim construction hearingIn December 2018, Ethicon filed petitions with the USPTO, seeking Inter Partes Review (IPR) of both asserted patents. Those petitions have been stayed by the USPTO pending a decision by the U.S. Court of Appeals for the Federal Circuit in an unrelated case. In June 2019, the stay on the IPRs was heldlifted, and a decision on institution is due in October 2018, andNovember 2019. UT dismissed the parties await a decision.’603 patent from the suit.


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

In August 2016, Sandoz Ltd and Hexal AG (collectively, Sandoz) filed a lawsuit in the English High Court against G.D. Searle LLC, a Pfizer company (Searle) and Janssen Sciences Ireland UC (JSI) alleging that Searle’s supplementary protection certificate SPC/GB07/038 (SPC), which is exclusively licensed to JSI, is invalid and should be revoked. Janssen-Cilag Limited sells PREZISTA® (darunavir) in the United Kingdom pursuant to this license. In October 2016, Searle and JSI counterclaimed against Sandoz for threatened infringement of the SPC based on statements of its plans to launch generic darunavir in the United Kingdom. Sandoz admitted that its generic darunavir product would infringe the SPC if it is found valid. Searle and JSI are seeking an order enjoining Sandoz from marketing its generic darunavir before the expiration of the SPC. Following a trial in April 2017, the Courtcourt entered a decision holding that the SPC is valid and granting a final injunction. Sandoz has appealed the Court’scourt’s decision and the injunction will beis stayed pending the appeal. In January 2018, the Courtcourt referred the issue on appeal to the Court of Justice for the European Union (CJEU) and stayed the proceedings pending the CJEU’s ruling on the issue.

In April 2018, Acerta Pharma B.V., AstraZeneca UK Ltd and AstraZeneca Pharmaceuticals LP filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Pharmacyclics LLC and Abbvie Inc. (collectively, Abbvie), alleging that the manufacture and sale of IMBRUVICA® infringes U.S. Patent No. 7,459,554. Janssen

REMICADEBiotech, Inc., which commercializes IMBRUVICA® jointly with Abbvie, intervened in the action in November 2018. A trial is scheduled to begin in January 2021.

REMICADE® Related Cases


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


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


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


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

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


Janssen and BTG also initiated patent infringement lawsuits in the United States District Court for the District of New Jersey against Amerigen Pharmaceuticals Limited (Amerigen) in May 2016, and Glenmark Pharmaceuticals, Inc. (Glenmark) in June

2016, each of whom filed an ANDA seeking approval to market its generic version of ZYTIGA® before the expiration of the ’438 patent. These lawsuits have beenwere consolidated with the lawsuit filed in July 2015.main action.


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


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


In December 2017, Janssen and BTG entered into a settlement agreement with Glenmark.

In February 2018, Janssen and BTG filed a patent infringement lawsuit against MSN Pharmaceuticals, Inc. and MSN Laboratories Private Limited (collectively, MSN) in United States District Court for the District of New Jersey based on its ANDA seeking approval for a generic version of ZYTIGA® prior to the expiration of the ‘438’438 patent. In February 2019, the action was stayed pending the outcome of the main action.



In FebruaryApril 2018, the court heard oral arguments onJanssen and BTG entered into a motion for summary judgment of non-infringement filed by certain defendants and, in May 2018, administratively terminated the motion without prejudice to reassertion following trial.settlement agreement with Apotex.


In October 2018, the United States District Court for the District of New Jersey issued a ruling invalidating all asserted claims of the ‘438’438 patent. The Courtcourt held that the patent claims would be infringed if the patent were valid. Janssen plansappealed the court’s decision.

In November 2018, Janssen and BTG initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Qilu Pharmaceutical Co., Ltd. and Qilu Pharma, Inc. (collectively, Qilu), who filed an ANDA seeking approval to appeal the Court’s decision. The Court extended an injunction prohibiting generics from launching until the earlier of November 9, 2018, or until the Federal Circuit renders a decision on a stay pending appeal. If the Federal Circuit Court of Appeals declines to extend the injunction, the Company expects thatmarket a generic version of ZYTIGA® will enter before the market and will result in a significant decline in sales of ZYTIGA®.

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

In eachexpiration of the above lawsuits,’438 patent. Janssen is seeking an order enjoining the defendantsQilu from marketing theirits generic versionsversion of ZYTIGA® before the expiration of the ’438 patent.


In November 2018, the United States Court of Appeals for the Federal Circuit denied Janssen’s request for an injunction pending appeal. As a result, several generic versions of ZYTIGA® have entered the market.

Several generic companies including Amerigen, Argentum Pharmaceuticals LLC (Argentum), Mylan, Wockhardt, Actavis, Amneal, Dr. Reddy’s, Sun, Teva, West-Ward and Hikma filed Petitions for Inter Partes Review (IPR) with the USPTO, seeking to invalidate the ’438 patent. In January 2018, the USPTO issued decisions finding the '438’438 patent claims unpatentable, and Janssen has requested rehearing. TheIn December 2018, the USPTO denied Janssen’s request for rehearing of the IPR decisions are not binding ondecisions. Janssen filed an appeal, which was consolidated with the district courtabove-mentioned appeal of the decision of the United States District Court for the District of New Jersey. In May 2019, the Federal Circuit issued a decision affirming the USPTO's decision in the pending litigation.Wockhardt IPR that the ’438 patent claims are unpatentable and dismissed the remaining appeals as moot. Subsequently, Janssen dismissed its lawsuits against MSN and Qilu.


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

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

In January 2019, Janssen initiated a Notice of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Apotex and the Minister of Health in Canada in response to Apotex’s filing of an Abbreviated New Drug Submission (ANDS) seeking approval to market a film-coated generic version of ZYTIGA® before the expiration of Canadian Patent No. 2,661,422. The Final Hearing is scheduled to begin in October 2020.

In January 2019, Janssen initiated a Notice of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Pharmascience Inc. (Pharmascience) and the Minister of Health in Canada in response to Pharmascience’s filing of an Abbreviated New Drug Submission (ANDS) seeking approval to market a generic version of ZYTIGA® before the expiration of Canadian Patent No. 2,661,422. The Final Hearing is scheduled to begin in October 2020.

In January 2019, Janssen initiated a Notice of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Sandoz Canada Inc. (Sandoz) and the Minister of Health in Canada in response to Sandoz’s filing of an Abbreviated New Drug Submission (ANDS) seeking approval to market a generic version of ZYTIGA® before the expiration of Canadian Patent No. 2,661,422. The Final Hearing is scheduled to begin in October 2020.

In June 2019, Janssen initiated a Notice of Application under Section 6 of the Patented Medicines (Notice of Compliance) Regulations against Dr. Reddy's Laboratories Ltd. and Dr. Reddy's Laboratories, Inc. (collectively, DRL) and the Minister of Health in Canada in response to Apotex’s filing of an Abbreviated New Drug Submission (ANDS) seeking approval to market a generic version of ZYTIGA�� before the expiration of Canadian Patent No. 2,661,422

In each of these Canadian actions, Janssen is seeking an order prohibiting the Minister of Health from issuing a Notice of Compliance with respect to Apotex's ANDSthe defendants’ ANDSs before the expiration of Janssen'sJanssen’s patent.


XARELTO® 
Beginning in October 2015, Janssen Pharmaceuticals, Inc. (JPI) and Bayer Pharma AG and Bayer Intellectual Property GmbH (collectively, Bayer) filed patent infringement lawsuits in the United States District Court for the District of Delaware against a number of generic companies who filed ANDAs seeking approval to market generic versions of XARELTO® before expiration of Bayer’s United States Patent Nos. 7,157,456, 7,585,860 and 7,592,339 relating to XARELTO®. JPI is the exclusive sublicensee of the asserted patents. The following generic companies are named defendants: Aurobindo Pharma Limited and Aurobindo Pharma USA, Inc. (collectively, Aurobindo); Breckenridge Pharmaceutical, Inc. (Breckenridge); InvaGen Pharmaceuticals Inc. (InvaGen); Micro Labs USA Inc. and Micro Labs Ltd (collectively, Micro); Mylan Pharmaceuticals Inc. (Mylan); Prinston Pharmaceuticals, Inc.; Sigmapharm Laboratories, LLC (Sigmapharm); Torrent Pharmaceuticals, Limited and Torrent Pharma Inc. (collectively, Torrent). TrialThe trial concluded in April 2018. In July 2018 the district court entered judgment against Mylan and Sigmapharm, holding that the asserted compound patent is valid and infringed. In September 2018, the district court entered judgment against the remaining defendants. None of the defendants appealed the judgment.

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

outcome of any final judgment rendered against any of the other defendants. The ’218 cases have been consolidated for discovery and trial. The trial and are currently set for trialbegan in April 2019 and closing arguments were heard in June 2019.


In eachDecember 2018, JPI and Bayer AG filed a patent infringement lawsuit in the United States District Court for the District of these lawsuits, JPI isDelaware against Teva Pharmaceuticals USA, Inc. and Teva Pharmaceutical Industries Ltd. (collectively, Teva) who filed an ANDA seeking an order enjoining the defendants from marketing theirapproval to market a generic versionsversion of XARELTO® before the expiration of Bayer AG’s ’218 patent. The case against Teva has been consolidated with the relevant patents.other ’218 cases for all purposes, and Teva has agreed to have its case stayed and to be bound by the outcome of any final judgment rendered against any of the other defendants.


In May 2018, Mylan filed a Petition for Inter Partes Review with the USPTO, seeking to invalidate the ’218 patent. TheIn December 2018, the USPTO has not yet decided whether to initiate review.issued a decision denying institution of Mylan’s Petition for Inter Partes Review.


PREZISTA®

In November 2017, JanssenMay 2019, JPI and Bayer filed suit against Macleods Pharmaceuticals Ltd. and Macleods Pharma USA, Inc. initiated Notices of Application under Section 6(collectively, Macleods) alleging infringement of the Patented Medicines (Notice of Compliance) Regulations’218 patent. The case against Apotex Inc. (Apotex)Macleods has been consolidated with the other ’218 cases for all purposes, and the Minister of Health in Canada in responseMacleods has agreed to Apotex’s filing of an Abbreviated New Drug Submission (ANDS) seeking approvalhave its case stayed and to market a generic version of PREZISTA® before the expiration of Canadian Patent Nos. 2,485,834 and 2,336,160, which are ownedbe bound by the United States and the Boardoutcome of Trusteesany final judgment rendered against any of the Universityother defendants.

In June 2019, JPI and Bayer filed suit against Accord Healthcare Inc., Accord Healthcare Ltd., and Intas Pharmaceuticals Ltd. (collectively, Accord) alleging infringement of Illinois. Janssen Inc.the ’218 patent.

In each of these lawsuits, JPI is seeking an order prohibitingenjoining the Ministerdefendants from marketing their generic versions of Health from issuing a Notice of Compliance with respect to Apotex's ANDSXARELTO® before the expiration of the relevant patents. The Final Hearing is scheduled to begin in June 2019. Janssen Inc. is also seeking an order enjoining Apotex from marketing its generic versions of

PREZISTA® before the expiration of the patents-in-suit. In September 2018, the parties entered into a settlement agreement.


In May 2018, Janssen Products, L.P. and Janssen Sciences Ireland UC (collectively, Janssen) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Dr. Reddys Laboratories, Inc., Dr. Reddys Laboratories, Ltd., Laurus Labs, Ltd. and Pharmaq, Inc. (collectively, DRL) who filed an ANDA seeking approval to market generic versions of PREZISTA® before the expiration of United States Patent Nos. 8,518,987; 7,126,015; and 7,595,408 (the patents-in-suit).7,595,408. In February 2019, the parties entered into a settlement agreement.

In December 2018, Janssen initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Amneal Pharmaceuticals, LLC, Amneal Pharmaceuticals Company GmbH, Amneal Pharmaceuticals of New York, LLC, Amneal Pharmaceuticals Pvt Ltd., and Raks Pharma Pvt. Ltd. (collectively, Amneal), who filed an ANDA seeking approval to market generic versions of PREZISTA® before the expiration of United States Patent Nos. 8,518,987; 7,126,015; and 7,595,408. Janssen is seeking an order enjoining DRLAmneal from marketing its generic versions of PREZISTA®before the expiration of the patents-in-suit. Trial is scheduled to begin in May 2020.relevant patents. In April 2019, the parties entered into a settlement.



INVOKANA®/INVOKAMET®/INVOKAMET XR® 


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


Beginning in July 2017, Janssen and MTPC filed patent infringement lawsuits in the United States District Court for the District of New Jersey and the United States District Court for the District of Colorado against Sandoz and InvaGen, who filed ANDAs seeking approval to market generic versions of INVOKANA® and/or INVOKAMET® before expiration of MTPC’s United States Patent No. 7,943,788 (the '788’788 patent) relating to INVOKANA® and INVOKAMET® and against Zydus, who filed ANDAs seeking approval to market generic versions of INVOKANA® and INVOKAMET® before expiration of the '788’788 patent, MTPC's United States Patent No. 8,222,219 relating to INVOKANA® and INVOKAMET® and MTPC’s United States Patent No. 8,785,403 relating to INVOKAMET®, and against Aurobindo, who filed an ANDA seeking approval to market a generic version of INVOKANA® before expiration of the ’788 patent and the ’219 patent relating to INVOKANA®. Janssen is the exclusive licensee of the asserted patents. In October 2017, the Colorado lawsuits against Sandoz were dismissed. In December 2017, the Delaware lawsuits against Apotex and Teva were dismissed.


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


In February 2019, Janssen and MTPC filed a patent infringement lawsuit in the United States District Court for the District of New Jersey against Lupin, who filed an ANDA seeking approval to market a generic version of INVOKAMET XR® before expiration of the ’582 patent and ’202 patent relating to INVOKAMET XR®.

A trial on the ’582 and ’202 patents is scheduled to begin in April 2020, and a trial on the ’788, ’219 and ’403 patents is scheduled to begin in May 2020.

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


VELETRIOPSUMIT® 


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

OPSUMIT®

In January 2018, Actelion Pharmaceuticals Ltd (Actelion) initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Zydus Pharmaceuticals (USA) Inc. (Zydus) and Amneal Pharmaceuticals LLC

(Amneal), each of whom filed an ANDA seeking approval to market a generic version of OPSUMIT® before the expiration of United States Patent No. 7,094,781. In the lawsuit, Actelion is seeking an order enjoining Zydus and Amneal from marketing generic versions of OPSUMIT® before the expiration of the patent. TrialAmneal and Zydus have stipulated to infringement. The trial is scheduled to commence in October 2020.


INVEGA SUSTENNA® 


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


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


IMBRUVICA® 


Beginning in January 2018, Pharmacyclics LLC (Pharmacyclics) and Janssen Biotech, Inc. (JBI) filed patent infringement lawsuits in the United States District Court for the District of Delaware against a number of generic companies who filed ANDAs seeking approval to market generic versions of IMBRUVICA® 140 mg capsulesbefore expiration of Pharmacyclics’  United States Patent Nos. 8,008,309, 7,514,444, 8,697,711, 8,735,403, 8,957,079, 9,181,257, 8,754,091, 8,497,277, 8,925,015, 8,476,284, 8,754,090, 8,999,999, 9,125,889, 9,801,881, 9,801,883, 9,814,721, 9,795,604, 9,296,753, 9,540,382, 9,713,617 and/or 9,725,455 relating to IMBRUVICA®. JBI is the exclusive licensee of the asserted patents. The following generic companies are named defendants: Cipla Limited and Cipla USA Inc. (Cipla); Fresenius Kabi USA, LLC, Fresenius Kabi USA, Inc., and Fresenius Kabi Oncology Limited (Fresenius Kabi); Sandoz Inc. and Lek Pharmaceuticals d.d. (Sandoz); Shilpa Medicare Limited (Shilpa); Sun Pharma Global FZE and Sun Pharmaceutical Industries Limited (Sun); Teva Pharmaceuticals USA, Inc. (Teva); and Zydus Worldwide DMCC and Cadila Healthcare Limited (Zydus). TrialThe trial is scheduled to begin in SeptemberOctober 2020.


In October 2018, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Sun asserting newly issued United States Patent No. 10,004,746.

In November 2018, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Hetero Labs Limited, Hetero Labs Limited Unit-1, Hetero Labs Limited Unit-V, and Hetero USA Inc. (“Hetero”), who filed an ANDA seeking approval to market a generic version of IMBRUVICA® 140 mg capsules, asserting infringement of United States Patent Nos. 8,754,090, 9,296,753, 9,540,382, 9,713,617 and 9,725,455.

In January 2019, Pharmacyclics and JBI amended their complaints against Fresenius Kabi, Zydus, Teva and Sandoz to further allege infringement of U.S. Patent Nos. 10,106,548, and 10,125,140.

In January 2019, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Zydus, who filed an ANDA seeking approval to market a generic version of IMBRUVICA® 70 mg before the expiration of U.S. Patent Nos. 7,514,444, 8,003,309, 8,476,284, 8,497,277, 8,697,711, 8,753,403, 8,754,090, 8,754,091, 8,952,015, 8,957,079, 9,181,257, 9,296,753, 9,540,382, 9,713,617, 9,725,455, 10,106,548, and 10,125,140.

In January 2019, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Hetero asserting infringement of United States Patent No. 10,106,548.

In February 2019, Pharmacyclics and JBI amended their complaints against Cipla, Shilpa, and Sun to allege infringement of United States Patent Nos. 10,106,548, and 10,125,140.

In February 2019, Pharmacyclics and JBI entered into settlement agreements with Teva and Hetero. In March 2019, Pharmacyclics and JBI entered into a settlement agreement with Shilpa.


In March 2019, Pharmacyclics and JBI filed a patent infringement lawsuit in the United States District Court for the District of Delaware against Alvogen Pine Brook LLC and Natco Pharma Ltd. (Alvogen), who filed an ANDA seeking approval to market generic versions of IMBRUVICA® tablets, asserting infringement of United States Patent Nos. 7,514,444, 8,003,309, 8,476,284, 8,497,277, 8,697,711, 8,753,403, 8,754,090, 8,754,091, 8,952,015, 8,957,079, 9,181,257, 9,296,753, 9,655,857, 9,725,455, 10,010,507, 10,106,548, and 10,125,140.

In May 2019, Pharmacyclics and JBI amended their complaints against Cipla to further allege infringement of United States Patent No. 10,016,435. In June 2019, Pharmacyclics and JBI amended their complaints against Alvogen to further allege infringement of United States Patent No. 10,213,386.

In 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.

In March 2019, Sandoz filed an Inter Partes Review (IPR) in the USPTO, seeking to invalidate United States Patent No. 9,795,604.

TRACLEER®

In May 2019, Actelion Pharmaceuticals Ltd and Actelion Pharmaceuticals US, Inc. initiated a patent infringement lawsuit in the United States District Court for the District of New Jersey against Natco Pharma Limited and Syneos Health LLC (collectively, Natco), who filed an ANDA seeking approval to market a generic version of TRACLEER®, 32 mg, before the expiration of U.S. Patent No. 8,309,126 (the ’126 patent). In the lawsuit, Actelion is seeking an order enjoining Natco from marketing its generic version of TRACLEER® before the expiration of the ’126 patent.

GOVERNMENT PROCEEDINGS
Like other companies in the pharmaceutical, consumer and medical devices industries, Johnson & Johnson and certain of its subsidiaries are subject to extensive regulation by national, state and local government agencies in the United States and other countries in which they operate. As a result, interaction with government agencies is ongoing. The most significant litigation brought by,

and investigations conducted by, government agencies are listed below. It is possible that criminal charges and substantial fines and/or civil penalties or damages could result from government investigations or litigation.


Average Wholesale Price (AWP) Litigation
Johnson & Johnson and several of its pharmaceutical subsidiaries (the J&J AWP Defendants), along with numerous other pharmaceutical companies, were named as defendants in a series of lawsuits in state and federal courts involving allegations that the pricing and marketing of certain pharmaceutical products amounted to fraudulent and otherwise actionable conduct because, among other things, the companies allegedly reported an inflated Average Wholesale Price (AWP) for the drugs at issue. Payors alleged that they used those AWPs in calculating provider reimbursement levels. The plaintiffs in these cases included three classes of private persons or entities that paid for any portion of the purchase of the drugs at issue based on AWP, and state government entities that made Medicaid payments for the drugs at issue based on AWP. Many of these cases, both federal actions and state actions removed to federal court, were consolidated for pre-trial purposes in a multi-district litigation in the United States District Court for the District of Massachusetts, where all claims against the J&J AWP Defendants were ultimately dismissed. The J&J AWP Defendants also prevailed in a case brought by the Commonwealth of Pennsylvania. Other AWP cases have been resolved through court order or settlement. Two cases remain pending. In aA case brought by Illinois trial has been scheduled for March 2019.was tried in May 2019 and post-trial briefing is underway. In New Jersey, a putative class action based upon AWP allegations is pending against Centocor, Inc. and Ortho Biotech Inc. (both now Janssen Biotech, Inc.), Johnson & Johnson and ALZA Corporation.


Opioids Litigation
Beginning in 2014 and continuing to the present, Johnson & Johnson and Janssen Pharmaceuticals, Inc. (JPI), along with other pharmaceutical companies, have been named in numerousmore than 2,000 lawsuits brought by certain state and local governments related to the marketing of opioids, including DURAGESIC®, NUCYNTA® and NUCYNTA® ER. The suits also raise allegations related to previously owned active pharmaceutical ingredient supplier subsidiaries, Tasmanian Alkaloids Pty, Ltd. and Noramco, Inc. (both subsidiaries were divested in 2016).To date, complaints against pharmaceutical companies, including Johnson & Johnson and JPI, have been filed in state court by the state Attorneys General in Arkansas, Florida, Kentucky, Louisiana, Mississippi, Missouri, New Hampshire, New Jersey, New Mexico, New York, Ohio, Oklahoma and South Dakota.

Complaints against the manufacturers also have been filed in state or federal court by city, county and local government agencies in the following states: Alabama; Arkansas; California; Connecticut; Florida; Georgia; Illinois; Kentucky; Louisiana; Maine; Maryland; Massachusetts; Mississippi; Missouri; Nevada; New Hampshire; New Jersey; New Mexico; New York; North Carolina; Ohio; Oklahoma; Oregon; Pennsylvania; Rhode Island; South Carolina; South Dakota; Tennessee; Texas; Utah; Virginia; Washington; West Virginia and Wisconsin. The Government of Puerto Rico filed suit in Superior Court of San Juan. In addition, the Province of British Columbia filed suit in Canada. These actions allege a variety of claims related to opioids marketing practices, including false advertising, unfair competition, public nuisance, consumer fraud violations, deceptive acts and practices, false claims and unjust enrichment. The suits generally seek penalties and/or injunctive and monetary relief. Theserelief and, in some of the suits, the plaintiffs are seeking joint and several liability among the defendants. The case filed by the Oklahoma Attorney General started trial in May 2019.  Additionally, over 2,000 federal cases arehave been coordinated in early stages of litigation. In October 2017, Johnson & Johnson and JPI were both served with a motion to consolidate 66 pending matters into a federal Multi DistrictMulti-District Litigation (MDL) pending in the SouthernU.S. District of Ohio. In December 2017, the MDL was approved inCourt for the Northern District of Ohio (MDL No. 2804).  The first trial date in the MDL has been set for October 2019.  An adverse judgment in any of these lawsuits could result in the imposition of large monetary penalties and there are over 500 cases that have been transferred to the MDL.significant damages including, punitive damages, cost of abatement, substantial fines, equitable remedies and other sanctions. 


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


Other
In August 2012, DePuy Orthopaedics, Inc., DePuy, Inc. (now 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 Courtdistrict 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’sdistrict court’s dismissal in part, reversed in part, and affirmed the decision to deny the relators’ request to file a third amended

complaint. The relators’ remaining claims are now pending before the District Court. DePuy filed a petition for certiorari with the United States Supreme Court, seeking review of the First Circuit’s decision. The Supreme Court denied the petitiondistrict court, and fact discovery is currently scheduled to close in April 2018.September 2019.
Since October 2013, a group of State Attorneys General have issued Civil Investigative Demands relating to the development, sales and marketing of several of DePuy Orthopaedics, Inc.'s hip products. The states are seeking monetary and injunctive relief, and DePuy Orthopaedics, Inc. has entered into a tolling agreement with the states. In July 2014, the Oregon Department of Justice, which was investigating these matters independently of the other states, announced a settlement of its ASR™ XL Hip device investigationwith the State of Oregon.
In October 2012, Johnson & Johnson was contacted by the California Attorney General's office regarding a multi-state Attorney General investigation of the marketing of surgical mesh products for hernia and urogynecological purposes by Johnson & Johnson's subsidiary, Ethicon, Inc. (Ethicon). Johnson & Johnson and Ethicon have since entered into a series of tolling agreements with the 47 states and the District of Columbia participating in the multi-state investigation and have responded to Civil Investigative Demands served by certain of the participating states. The states are seeking monetary and injunctive relief. In May 2016, California and Washington filed civil complaints against Johnson & Johnson, Ethicon and Ethicon US, LLC alleging violations of their consumer protection statutes. In April 2019, Johnson & Johnson and Ethicon settled the Washington case. The California case started trial in July 2019. Similar complaints were filed against the companies by Kentucky in August 2016 and by Mississippi in October 2017. The trial date for the Kentucky case was scheduled for September 2019 but has been adjourned and no new trial date has been scheduled. Johnson & Johnson and Ethicon have entered into a new tolling agreement with the remaining 43 states and the District of Columbia.
In December 2012, Therakos, Inc. (Therakos), formerly a subsidiary of Johnson & Johnson and part of the Ortho-Clinical Diagnostics, Inc. (OCD) franchise, received a letter from the civil division of the United States Attorney's Office for the Eastern District of Pennsylvania informing Therakos that the United States Attorney's Office was investigating the sales and marketing of Uvadex® (methoxsalen) and the Uvar Xts® and Cellex® Systems during the period 2000 to the present. The United States Attorney's Office requested that OCD and Johnson & Johnson preserve documents that could relate to the investigation. Therakos was subsequently acquired by an affiliate of Gores Capital Partners III, L.P. in January 2013, and OCD was divested in June 2014. Following the divestiture of OCD, Johnson & Johnson retains OCD’s portion of any liability that may result from the investigation for activity that occurred prior to the sale of Therakos. In March 2014 and March 2016, the United States Attorney’s Office requested that Johnson & Johnson produce certain documents, and Johnson & Johnson is cooperating with those requests.

In June 2014, the Mississippi Attorney General filed a complaint in Chancery Court of The First Judicial District of Hinds County, Mississippi against Johnson & Johnson and Johnson & Johnson Consumer Companies, Inc. (now known as Johnson & Johnson Consumer Inc.) (JJCI). The complaint alleges that defendants failed to disclose alleged health risks associated with female consumers' use of talc contained in JOHNSON'S® Baby Powder and JOHNSON'S® Shower to Shower (a product no longer sold by JJCI)divested in 2012) and seeks injunctive and monetary relief. TrialThe trial is currently scheduled to begin in the fallstayed pending interlocutory appeal of 2019.a denial of JJCI's motion for summary judgment.


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


In July 2016, Johnson & Johnson and Janssen Products LP were served with a qui tam complaint pursuant to the False Claims Act filed in the United States District Court for the District of New Jersey alleging the off-label promotion of two HIV products, PREZISTA® and INTELENCE®, and anti-kickback violations in connection with the promotion of these products.  The complaint was filed under seal in December 2012.  The federal and state governments have declined to intervene, and the lawsuit is being prosecuted by the relators. 

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


In February 2017, Johnson & Johnson receivedNovember 2018, a subpoena fromsecond whistleblower lawsuit was unsealed in the United States Attorney's OfficeDistrict Court for the Central District of Massachusetts seeking the production of records pertaining to payments to any 501(c)(3) charitable organization that provides financial assistance to Medicare patients. Multiple pharmaceutical companies have publicly reported receipt of subpoenas and ongoing inquiriesCalifornia. The lawsuit was substantially similar to this onethe lawsuit under appeal but was brought in the name of the original relator. The federal and state governments declined to intervene in the second suit, and the one described below.relator moved to dismiss the lawsuit without prejudice. In April 2019, the court granted the relator's motion and dismissed the complaint without prejudice.


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

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


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


In June 2017, Johnson & Johnson received a subpoena from the United States Attorney's Office for the District of Massachusetts seeking information regarding practices pertaining to the sterilization of DePuy Synthes, Inc. spinal implants at three hospitals in Boston as well as interactions of 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, Advanced Sterilization Products (ASP) received a Civil Investigative Demand from the United States Department of Justice regarding a False Claims Act investigation concerning the pricing, quality, marketing and promotion of EvoTech ECR, Tyvek Peel Pouches, or Sterrad Cyclesure 24 biological indicators.

In July 2018 the Public Prosecution Service in Rio de Janeiro and representatives from the Brazilian antitrust authority CADE inspected the offices of more than 30 companies including Johnson & Johnson do Brasil Indústria e Comércio de Produtos para Saúde Ltda. The authorities appear to be investigating allegations of possible anti-competitive behavior and possible improper payments in the medical device industry. The United StateStates Department of Justice and the United States Securities and Exchange Commission have made additional preliminary inquiries about the inspection in Brazil, and Johnson & Johnson do Brasil Indústria e Comércio de Produtos para Saúde Ltda.is cooperating with those requests.


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

GENERAL LITIGATION
In June 2009, following the public announcement that Ortho-Clinical Diagnostics, Inc. (OCD) had received a grand jury subpoena from the United States Department of Justice, Antitrust Division, in connection with an investigation that has since been closed, multiple class action complaints were filed against OCD by direct purchasers seeking damages for alleged price fixing. These cases were consolidated for pre-trial purposes in the United States District Court for the Eastern District of Pennsylvania as In re Blood Reagent Antitrust Litigation. OCD was divested in 2014 and Johnson & Johnson retained any liability that may result from these cases. Following the appeal and reversal of its initial grant of a motion for class certification, on remand, the District Court in October 2015 again granted a motion by the plaintiffs for class certification. In July 2017, the Court issued an opinion granting in part and denying in part OCD's motion for summary judgment. The Court granted summary judgment concerning allegations of price fixing in 2005 and 2008, and denied summary judgment concerning allegations of price fixing in 2001. In May 2018, OCD and the plaintiffs reached a settlement on all claims.  The court granted preliminary approval of the settlement in July 2018. 
In June 2011, DePuy Orthopaedics, Inc. (DePuy) filed suit against Orthopaedic Hospital (OH) in the United States District Court for the Northern District of Indiana seeking a declaratory judgment that DePuy did not owe OH royalties under a 1999 development agreement. In January 2012, OH filed a breach of contract case in California federal court, which was later consolidated with the Indiana case. In February 2014, OH brought suit for patent infringement relating to the same technology, and that action was also consolidated with the Indiana case. In October 2018, the parties entered into a settlement agreement.

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

In May 2014, two purported class actions were filed in federal court, one in the United States District Court for the Central District of California and one in the United States District Court for the Southern District of Illinois, against Johnson &

Johnson and Johnson & Johnson Consumer Companies, Inc. (now known as Johnson & Johnson Consumer Inc.) (JJCI) alleging violations of state consumer fraud statutes based on nondisclosure of alleged health risks associated with talc contained in JOHNSON'S® Baby Powder and JOHNSON'S® Shower to Shower (a product no longer sold by JJCI). Both cases seek injunctive relief and monetary damages; neither includes a claim for personal injuries. In October 2016, both cases were transferred to the United States District Court for the District Court of New Jersey as part of a newly created federal multi-district litigation. In July 2017, the Courtdistrict court granted Johnson & Johnson's and JJCI’s motion to dismiss one of the cases. In September 2018, the United States Court of Appeals for the Third Circuit affirmed this dismissal. In September 2017, the plaintiff in the second case voluntarily dismissed theirthe complaint. In March 2018, the plaintiff in the second case refiled in Illinois State Court.


In August 2014, United States Customs and Border Protection (US CBP) issued a Penalty Notice against Janssen Ortho LLC (Janssen Ortho), assessing penalties for the alleged improper classification of darunavir ethanolate (the active pharmaceutical ingredient in PREZISTA®) in connection with its importation into the United States. In October 2014, Janssen Ortho submitted a Petition for Relief in response to the Penalty Notice. In May 2015, US CBP issued an Amended Penalty Notice assessing substantial penalties and Janssen Ortho filed a Petition for Relief in July 2015. In May 2019, US CBP issued its Mitigation Decision and determined that Janssen Ortho had negligently misrepresented that darunavir ethanolate is entitled to duty free treatment. In June 2019, Janssen Ortho filed a Supplemental Petition for Relief. The Penalties Proceeding will be impacted by the related Classification Litigation pending in the United States Court of International Trade. The Classification Litigation will determine whether darunavir ethanolate was properly classified as exempt from duties upon importation into the United States. The trial in the Classification Litigation commenced in July 2019.


In March and April 2015, over 30 putative class action complaints were filed by contact lens patients in a number of courts around the United States against Johnson & Johnson Vision Care, Inc. (JJVCI) and other contact lens manufacturers, distributors, and retailers, alleging vertical and horizontal conspiracies to fix the retail prices of contact lenses. The complaints allege that the manufacturers reached agreements with each other and certain distributors and retailers concerning the prices at which some contact lenses could be sold to consumers. The plaintiffs are seeking damages and injunctive relief. All of the class action cases were transferred to the United States District Court for the Middle District of Florida in June 2015. The plaintiffs filed a consolidated class action complaint in November 2015. In June 2016,December 2018, the Court denied motions to dismiss filed by JJVCI and other defendants. Discovery is ongoing. In March 2017,district court granted the plaintiffs filed aplaintiffs' motion for class certification. The court held a hearing on the motionDefendants filed two motions for interlocutory appeal of class certification to the United States Court of Appeals for the Eleventh Circuit. Both motions were denied. Defendants' motions for summary judgment are pending in August 2018.the District Court.
In August 2015, two third-party payors filed a purported class action in the United States District Court for the Eastern District of Louisiana against Janssen Research & Development, LLC, Janssen Ortho LLC, Janssen Pharmaceuticals, Inc., Ortho-McNeil-Janssen Pharmaceuticals, Inc. and Johnson & Johnson (as well as certain Bayer entities), alleging that the defendants improperly marketed and promoted XARELTO® as safer and more effective than less expensive alternative medications while failing to fully disclose its risks. The complaint seeks damages.
In May 2017, Lonza Sales AG (Lonza) filed a Request for Arbitration with the London Court of International Arbitration against Janssen Research & Development, LLC (Janssen R&D). Lonza alleges that Janssen R&D breached a 2005 agreement between the parties by sublicensing certain Lonza technology used in the manufacture of daratumumab without Lonza’s consent. Lonza seeks monetary damages. TheIn May 2019, the arbitration hearingaward was held in September 2018. Post hearing briefing is complete,issued and the parties are awaiting a decision.matter has been resolved.
In May 2017, a purported class action was filed in the United States District Court for the Western District of Washington against LifeScan Inc., Johnson & Johnson, other diabetes test strip manufacturers and certain Pharmacy Benefit Managers (PBMs). The complaint alleges that consumers paid inflated prices for glucose monitor test strips as a consequence of undisclosed rebates and other incentives paid by manufacturers to PBMs. The complaint includes RICO, ERISA, and state consumer protection claims. The complaint seeks equitable relief and damages. In November 2017, the case was ordered transferred to United States District Court for the District of New Jersey. The LifeScan business was divested in October 2018 and Johnson & Johnson retained liability that may result from these claims prior to the closing of the divestiture.
In September 2017, Strategic Products Group, Inc. (SPG) filed an antitrust complaint against LifeScan, Inc. and LifeScan Scotland, Ltd. (collectively, LifeScan) in the United States District Court for the Northern District of Florida (Pensacola Division). SPG, the exclusive distributor of Unistrip blood glucose meter test strips, alleges that LifeScan has monopolized or is attempting to monopolize the market for blood glucose meter test strips compatible with certain LifeScan meters. The complaint seeks damages. The LifeScan business was divested in October 2018 and the buyer assumed any liability that may result from these claims.
In September 2017, Pfizer, Inc. (Pfizer) filed an antitrust complaint against Johnson & Johnson and Janssen Biotech, Inc. (collectively, Janssen) in United States District Court for the Eastern District of Pennsylvania. Pfizer alleges that Janssen has violated federal antitrust laws through its contracting strategies for REMICADE®. The complaint seeks damages and injunctive relief. Discovery is ongoing.



Beginning in September 2017, multiple purported class actions of direct and indirect purchasers were filed against Johnson & Johnson and Janssen Biotech, Inc. (collectively, Janssen) alleging that Janssen’s REMICADE® contracting strategies violated federal and state antitrust and consumer laws and seeking damages and injunctive relief. In November 2017, the cases were consolidated for pre-trial purposes in United States District Court for the Eastern District of Pennsylvania as In re Remicade Antitrust Litigation. A motion to compel arbitration of the direct purchaser case was denied and is on appeal to the United States Court of Appeals for the Third Circuit. Motions to dismiss were denied in both the direct and indirect purchaser cases.


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.REMICADE®. The complaint seeks damages and injunctive relief. In March 2019, summary judgment was granted in favor of Janssen. This ruling is on appeal to the United States Court of Appeals for the Third Circuit.

In June 2019, the United States Federal Trade Commission (“FTC”) issued a Civil Investigative Demand to Johnson & Johnson in connection with its investigation of whether Janssen’s REMICADE® contracting practices violate federal antitrust laws.
 
In October 2017, certain United States service members and their families brought a complaint against a number of pharmaceutical and medical devices companies, including Johnson & Johnson and certain of its subsidiaries, alleging that the defendants violated the United States Anti-Terrorism Act.  The complaint alleges that the defendants provided funding for terrorist organizations through their sales practices pursuant to pharmaceutical and medical device contracts with the Iraqi Ministry of Health. In January 2019, plaintiffs' motion to file a Second Amended Complaint adding plaintiffs to the lawsuit was granted. In April 2019, the Company moved to dismiss the Second Amended Complaint.


Andover Healthcare,In October 2018, two separate putative class actions were filed against Actelion Pharmaceutical Ltd., Actelion Pharmaceuticals US, Inc. (Andover), and Actelion Clinical Research, Inc. (collectively “Actelion”) in United States District Court for the District of Maryland and United States District Court for the District of Columbia.  The complaints allege that Actelion violated state and federal antitrust and unfair competition laws by allegedly refusing to supply generic pharmaceutical manufacturers with samples of TRACLEER®.  TRACLEER® is subject to a Risk Evaluation and Mitigation Strategy, which imposes restrictions on distribution of the product.  In January 2019, the plaintiffs dismissed the District of Columbia case and filed a Lanham act case against Johnson & Johnson Consumer Inc. in April 2017consolidated complaint in the United States District Court for the District of Massachusetts.  Andover asserts that the claim “not made with natural rubber latex” on COACH® Sports Wrap, BAND-AID® Brand SECURE-FLEX® Wrap and BAND-AID® Brand HURT-FREE® Wrap is false.  Andover seeks actual damages and pre-judgment interest thereon, disgorgement of profits, treble damages, attorney’s fees and injunctive relief. 

Maryland.  In February 2019, Actelion filed a motion to dismiss the amended complaint.
In December 2018, a securities class action lawsuit was filed againstJanssen 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 certain named officersthe District of Columbia.  The complaint, which was filed in December 2017 in United States District Court for the Northern District of California, alleges that Janssen violated the federal False Claims Act and state law when providing pricing information for ZYTIGA® to the government in connection with direct government sales and government-funded drug reimbursement programs.  At this time, the federal and state governments have declined to intervene. The case has been transferred to United States District Court for the District of New Jersey. Janssen has moved to dismiss the complaint.

In April 2019, Blue Cross & Blue Shield of Louisiana and HMO Louisiana, Inc. filed a class action complaint against Janssen Biotech, Inc, Janssen Oncology, Inc, Janssen Research & Development, LLC and BTG International Limited in the United States District Court for the Eastern District of Virginia. The complaint alleges that the defendants violated the Sherman Act and the antitrust and consumer protections laws of several states by pursuing patent litigation relating to ZYTIGA®in order to delay generic entry. The case has been transferred to the United States District Court for the District of New Jersey, alleging that Johnson & Johnson violated the federal securities laws by failing to adequately disclose the alleged asbestos contamination in body powders containing talc, primarily JOHNSON'S® Baby Powder.  In October 2018, a shareholder derivative lawsuit was filed against Johnson & Johnson as the nominal defendant and its current directors as defendants in the United States District Court for the District of New Jersey, alleging a breach of fiduciary duties related to the alleged asbestos contamination in body powders containing talc, primarily JOHNSON’S® Baby Powder, and that Johnson & Johnson has suffered damages as a result of those alleged breaches.  Plaintiffs are seeking damages and an order for the Company to reform its internal policies and procedures. Jersey. 


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


NOTE 12— RESTRUCTURING

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

The Company estimates that, in connection with its plans, it will record pre-tax restructuring related charges of approximately $2.4 billion. In the fiscal third quarter of 2018, the Company recorded a pre-tax charge of $101 million, of which $9 million was included in cost of products sold and $45 million was included in other (income) expense. See the following table for additional details on the restructuring programs. Total project costs of approximately $2.4 billion have been recorded since the restructuring was announced.

Additionally, as part of the plan, the Company expects that the restructuring actions will result in position eliminations of approximately 5 percent of the Medical Devices segment’s global workforce. Approximately 2,650 positions have been eliminated of which 1,950 received separation payments since the restructuring announcement.


On April 17, 2018, the Company announced plans to implement a series of actions across its Global Supply Chain that are intended to focus resources and increase investments in the critical capabilities, technologies and solutions necessary to manufacture and supply its product portfolio, enhance agility and drive growth. The Global Supply Chain actions will include expanding the use of strategic collaborations and bolstering initiatives to reduce complexity, improve cost-competitiveness, enhance capabilities and optimize the Supply Chain network. For additional details on the global supply chain restructuring strategic collaborations see Note 10 to the Consolidated Financial Statements. In the fiscal thirdsecond quarter of 2018,2019, the Company

recorded a pre-tax charge of $89$142 million, of which $14$38 million was included in cost of products sold and $34$47 million was included in other (income) expense. In the first fiscal six months of 2019, the Company recorded a pre-tax charge of $232 million, of which $61 million was included in cost of products sold and $78 million was included in other (income) expense. Total project costs of $0.1 billionapproximately $500 million have been recorded since the restructuring was announced. See the following table for additional details on the restructuring programs.program.


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


The following table summarizes the severance related reserves and the associated spending under these restructuring programs through the first fiscal ninesix months of 2018:2019:
(Dollars in Millions)SeveranceAsset Write-offsOther**TotalSeveranceAsset Write-offsOther**Total
Reserve balance, December 31, 2017$229
—
38
267
Reserve balance, December 30, 2018$194
—
48
242
    
Current year activity:



Charges—
100
373
473
—
61
171
232
Cash payments(29)—
(388)(417)(7)—
(204)(211)
Settled non cash—
(100)—
(100)—
(61)—
(61)
    
Reserve balance, September 30, 2018*$200
—
23
223
Reserve balance, June 30, 2019*$187
—
15
202
    
*Cash outlays for severance are expected to be substantially paid out over the next 2 years in accordance with the Company's plans and local laws.
**Other includes project expense such as salaries for employees supporting the initiative and consulting expenses.


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




Item 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


RESULTS OF OPERATIONS


Sales to Customers


Analysis of Consolidated Sales


For the first fiscal ninesix months of 2018,2019, worldwide sales were $61.2$40.6 billion, a total increasedecrease of 8.8%0.6%, including operational growth of 7.5%2.7% as compared to 20172018 fiscal ninesix months sales of $56.3 billion. Currency fluctuations had a positive impact of 1.3% for the fiscal nine months of 2018. In the fiscal nine months of 2018, the net impact of acquisitions and divestitures on worldwide operational sales growth was a positive 1.9%.

Sales by U.S. companies were $31.3 billion in the fiscal nine months of 2018, which represented an increase of 6.3% as compared to the prior year. In the fiscal nine months of 2018, the net impact of acquisitions and divestitures on the U.S. operational sales growth was a positive 2.6%. Sales by international companies were $29.9 billion, an increase of 11.4%, including operational growth of 8.6%, and a positive currency impact of 2.8% as compared to the fiscal nine months sales of 2017. In the fiscal nine months of 2018, the net impact of acquisitions and divestitures on the international operational sales growth was a positive 1.0%.

In the fiscal nine months of 2018, sales by companies in Europe achieved growth of 13.1%, which included operational growth of 7.1% and a positive currency impact of 6.0%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 3.0%, which included operational growth of 8.4%, partially offset by a negative currency impact of 5.4%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 13.2%, including operational growth of 10.8% and a positive currency impact of 2.4%.



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Note: values may have been rounded









For the fiscal third quarter of 2018, worldwide sales were $20.3 billion, a total increase of 3.6%, including operational growth of 5.5% as compared to 2017 fiscal third quarter sales of $19.7$40.8 billion. Currency fluctuations had a negative impact of 1.9%3.3% for the first fiscal third quartersix months of 2018.2019. In the first fiscal third quartersix months of 2018,2019, the net impact of acquisitions and divestitures on worldwide operational sales growth was a negative 0.6%1.9%.


Sales by U.S. companies were $10.7$20.5 billion in the first fiscal third quartersix months of 2018,2019, which represented an increasea decrease of 3.6%0.3% as compared to the prior year. In the first fiscal third quartersix months of 2018,2019, the net impact of acquisitions and divestitures on the U.S. operational sales growth was a negative 0.3%1.8%. Sales by international companies were $9.7$20.1 billion, an increasea decrease of 3.5%1.0%, including operational growth of 7.5%5.8%, partially offset by a negative currency impact of 4.0%6.8% as compared to the first fiscal third quartersix months sales of 2017.2018. In the first fiscal third quartersix months of 2018,2019, the net impact of acquisitions and divestitures on the international operational sales growth was a negative 1.0%1.9%.


In the first fiscal third quartersix months of 2018,2019, sales by companies in Europe achieved growthexperienced a decline of 2.5%2.8%, which included operational growth of 5.1% and4.6% offset by a negative currency impact of 2.6%7.4%. Sales by companies in the Western Hemisphere, excluding the U.S., experienced a sales decline of 1.2%4.8%, which included operational growth of 11.2%6.5%, offset by a negative currency impact of 12.4%11.3%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 6.7%2.9%, including operational growth of 8.6%7.0% and a negative currency impact of 1.9%4.1%.






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Note: values may have been rounded











For the fiscal second quarter of 2019, worldwide sales were $20.6 billion, a total decrease of 1.3%, including operational growth of 1.6% as compared to 2018 fiscal second quarter sales of $20.8 billion. Currency fluctuations had a negative impact of 2.9% for the fiscal second quarter of 2019. In the fiscal second quarter of 2019, the net impact of acquisitions and divestitures on worldwide operational sales growth was a negative 2.1%.



Sales by U.S. companies were $10.4 billion in the fiscal second quarter of 2019, which represented a decrease of 2.2% as compared to the prior year. In the fiscal second quarter of 2019, the net impact of acquisitions and divestitures on the U.S. operational sales growth was a negative 2.2%. Sales by international companies were $10.2 billion, a decrease of 0.3%, including operational growth of 5.5%, offset by a negative currency impact of 5.8% as compared to the fiscal second quarter sales of 2018. In the fiscal second quarter of 2019, the net impact of acquisitions and divestitures on the international operational sales growth was a negative 2.1%.



In the fiscal second quarter of 2019, sales by companies in Europe experienced a decline of 1.6%, which included operational growth of 4.7% offset by a negative currency impact of 6.3%. Sales by companies in the Western Hemisphere, excluding the U.S., experienced a sales decline of 5.5%, which included operational growth of 4.2%, offset by a negative currency impact of 9.7%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 3.4%, including operational growth of 7.2% and a negative currency impact of 3.8%.







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Note: values may have been rounded
























Analysis of Sales by Business Segments


Consumer
Consumer segment sales in the first fiscal ninesix months of 20182019 were $10.3$6.9 billion, an increasea decrease of 2.5%0.6% as compared to the same period a year ago, including operational growth of 1.9%3.4% and a positivenegative currency impact of 0.6%4.0%. U.S. Consumer segment sales increased by 2.3%. International Consumer segment sales increased by 2.7%, including an operational increase of 1.6% and a positive currency impact of 1.1%. In the fiscal nine months of 2018, the impact of acquisitions and divestitures on the Consumer segment operational sales growth was a negative 1.1%.

Major Consumer Franchise Sales — Fiscal Nine Months Ended
(Dollars in Millions) September 30, 2018 October 1, 2017 Total
Change		 Operations
Change		 Currency
Change
Beauty $3,271
 $3,090
 5.9 % 5.1% 0.8%
OTC 3,186
 3,021
 5.5
 3.8
 1.7
Baby Care 1,385
 1,426
 (2.9) (1.8) (1.1)
Oral Care 1,156
 1,138
 1.6
 0.7
 0.9
Women’s Health 792
 788
 0.5
 2.1
 (1.6)
Wound Care/Other 527
 599
 (12.0) (12.5) 0.5
Total Consumer Sales $10,317
 $10,062
 2.5 % 1.9% 0.6%

Consumer segment sales in the fiscal third quarter of 2018 were $3.4 billion, an increase of 1.8% as compared to the same period a year ago, including an operational growth of 4.9% and a negative currency impact of 3.1%. U.S. Consumer segment sales increased by 6.6%2.2%. International Consumer segment sales decreased by 1.3%2.6%, including an operational growthincrease of 3.7%4.3% and a negative currency impact of 5.0%6.9%. In the first fiscal third quartersix months of 2018,2019, the net impact of acquisitions and divestitures on the Consumer segment operational sales growth was a negative 1.2%positive 1.9%.


Major Consumer Franchise Sales — Fiscal Third QuartersSix Months Ended
(Dollars in Millions) September 30, 2018 October 1, 2017 Total
Change		 Operations
Change		 Currency
Change		 June 30, 2019 July 1, 2018 Total
Change		 Operations
Change		 Currency
Change
Beauty $1,078
 $1,033
 4.4 % 6.5% (2.1)% $2,292
 $2,193
 4.5 % 7.2 % (2.7)%
OTC 1,048
 1,002
 4.6
 6.8
 (2.2) 2,151
 2,138
 0.6
 4.2
 (3.6)
Baby Care 472
 477
 (1.0) 4.3
 (5.3) 837
 913
 (8.4) (2.6) (5.8)
Oral Care 384
 382
 0.5
 3.2
 (2.7) 756
 772
 (2.0) 1.9
 (3.9)
Women’s Health 269
 270
 (0.4) 7.9
 (8.3) 478
 523
 (8.5) 1.2
 (9.7)
Wound Care/Other 164
 192
 (14.6) (13.3) (1.3) 348
 363
 (4.0) (2.3) (1.7)
Total Consumer Sales $3,415
 $3,356
 1.8 % 4.9% (3.1)% $6,862
 $6,902
 (0.6)% 3.4 % (4.0)%


Consumer segment sales in the fiscal second quarter of 2019 were $3.5 billion, an increase of 1.2% as compared to the same period a year ago, including operational growth of 4.6% and a negative currency impact of 3.4%. U.S. Consumer segment sales increased by 4.1%. International Consumer segment sales decreased by 1.0%, including operational growth of 4.9% offset by a negative currency impact of 5.9%. In the fiscal second quarter of 2019, the net impact of acquisitions and divestitures on the Consumer segment operational sales growth was a positive 2.3%.

Major Consumer Franchise Sales — Fiscal Second Quarter Ended
(Dollars in Millions) June 30, 2019 July 1, 2018 Total
Change		 Operations
Change		 Currency
Change
Beauty $1,202
 $1,109
 8.4 % 10.7 % (2.3)%
OTC 1,064
 1,066
 (0.1) 2.8
 (2.9)
Baby Care 443
 456
 (2.8) 2.2
 (5.0)
Oral Care 389
 393
 (1.1) 2.5
 (3.6)
Women’s Health 253
 280
 (9.5) (1.4) (8.1)
Wound Care/Other 193
 200
 (3.4) (1.9) (1.5)
Total Consumer Sales $3,544
 $3,504
 1.2 % 4.6 % (3.4)%

The Beauty franchise achieved operational growth of 6.5%10.7% as compared to the prior year fiscal thirdsecond quarter. Growth was primarily driven by NEUTROGENA®, Vogue and NEOSTRATA® products as well as strengthsales from the recent acquisition of DR. CI: LABO and DABAOas well as NEUTROGENA® products, AVEENO® outsideand OGX® products. Growth was partially offset by the U.S.divestitures of RoC® and NIZORAL®.


The OTC franchise achieved operational growth of 6.8%2.8% as compared to the prior year fiscal thirdsecond quarter. Growth was primarily driven by share and consumption growth across multiple brands including ZYRTEC® , TYLENOL® and Children's MOTRIN®, as well as digestive health products and anti-smoking aids. Additionally, sales from the recent acquisition of ZARBEES® as well as ZYRTEC® andMOTRIN® contributed to growth. products.


The Baby Care franchise achieved operational growth of 4.3%2.2% as compared to the prior year fiscal third quartersecond quarter. Growth was primarily due to prior year comparisons related to the JOHNSON'S® U.S. relaunch pipeline replenishment.partially offset by AVEENO® baby.


The Oral Care franchise achieved operational growth of 3.2%2.5% as compared to the prior year fiscal thirdsecond quarter primarily due todriven by new product launches.launches outside the U.S.



The Women’s Health franchise achievedexperienced an operational growthdecline of 7.9%1.4% as compared to the prior year fiscal thirdsecond quarter primarily driven by sales in Latin America.competitive pressures outside the U.S.
 

The Wound Care/Other franchise experienced an operational decline of 13.3%1.9% as compared to the prior year fiscal third quarter due tosecond driven by the divestiture of COMPEED®in the fiscal third quarter of 2017..


Pharmaceutical
Pharmaceutical segment sales in the first fiscal ninesix months of 20182019 were $30.5$20.8 billion, an increase of 14.9%2.8% as compared to the same period a year ago, with an operational increase of 13.4%6.1% and a positivenegative currency impact of 1.5%3.3%. U.S. Pharmaceutical sales increased 10.5%1.0% as compared to the same period a year ago. International Pharmaceutical sales increased by 21.3%5.2%, including operational growth of 17.5%12.5% and a positivenegative currency impact of 3.8%7.3%. In the first fiscal ninesix months of 2018,2019, the net impact of acquisitions and divestitures on the Pharmaceutical segment operational sales growth was a positive 4.5%.negligible.


Major Pharmaceutical Therapeutic Area Sales* — Fiscal NineSix Months Ended
(Dollars in Millions) September 30, 2018 October 1, 2017 
Total
Change
 
Operations
Change
 
Currency
Change
 June 30, 2019 July 1, 2018 
Total
Change
 
Operations
Change
 
Currency
Change
Total Immunology $9,778
 $9,158
 6.8 % 5.9 % 0.9% $6,717
 $6,380
 5.3 % 7.6 % (2.3)%
REMICADE®
 4,088
 4,849
 (15.7) (15.9) 0.2
 2,209
 2,709
 (18.5) (17.1) (1.3)
SIMPONI®/ SIMPONI ARIA®
 1,602
 1,343
 19.3
 17.9
 1.4
 1,087
 1,066
 1.9
 5.4
 (3.5)
STELARA®
 3,712
 2,930
 26.7
 24.9
 1.8
 2,963
 2,402
 23.3
 26.1
 (2.8)
TREMFYA®
 452
 198
 ** ** **
Other Immunology 376
 36
 ** ** ** 6
 5
 23.6
 24.0
 (0.4)
Total Infectious Diseases 2,502
 2,354
 6.3
 4.0
 2.3
 1,708
 1,679
 1.7
 6.5
 (4.8)
EDURANT®/rilpivirine
 623
 522
 19.3
 12.6
 6.7
 421
 421
 0.1
 6.8
 (6.7)
PREZISTA®/ PREZCOBIX®/ REZOLSTA®/ SYMTUZA®
 1,460
 1,351
 8.1
 7.0
 1.1
PREZISTA®/ PREZCOBIX®/ REZOLSTA®/ SYMTUZA®
 1,058
 970
 9.1
 12.7
 (3.6)
Other Infectious Diseases 419
 481
 (12.9) (13.7) 0.8
 229
 288
 (20.7) (15.1) (5.6)
Total Neuroscience 4,577
 4,462
 2.6
 0.9
 1.7
 3,167
 3,087
 2.6
 6.4
 (3.8)
CONCERTA®/methylphenidate
 513
 588
 (12.8) (13.6) 0.8
 351
 356
 (1.6) 2.5
 (4.1)
INVEGA SUSTENNA®/ XEPLION®/ TRINZA®/ TREVICTA®
 2,165
 1,876
 15.4
 13.5
 1.9
INVEGA SUSTENNA®/ XEPLION®/ INVEGA TRINZA®/ TREVICTA®
 1,608
 1,416
 13.6
 16.7
 (3.1)
RISPERDAL CONSTA®
 559
 608
 (8.1) (9.8) 1.7
 361
 384
 (6.2) (2.0) (4.2)
Other Neuroscience 1,340
 1,390
 (3.6) (5.4) 1.8
 847
 931
 (8.9) (4.1) (4.8)
Total Oncology 7,355
 5,219
 40.9
 38.1
 2.8
 5,215
 4,767
 9.4
 14.3
 (4.9)
DARZALEX®
 1,441
 871
 65.4
 63.6 1.8
 1,403
 943
 48.8
 54.6
 (5.8)
IMBRUVICA®
 1,912
 1,371
 39.5
 36.9
 2.6
 1,615
 1,207
 33.8
 39.8
 (6.0)
VELCADE®
 864
 843
 2.5
 (1.7) 4.2
 487
 593
 (17.9) (12.9) (5.0)
ZYTIGA®
 2,712
 1,750
 55.0
 52.0
 3.0
ZYTIGA®/ abiraterone acetate
 1,377
 1,754
 (21.5) (18.0) (3.5)
Other Oncology 426
 384
 10.9
 8.9
 2.0
 333
 270
 23.2
 28.6
 (5.4)
Pulmonary Hypertension*** 1,906
 717
 ** ** **
Pulmonary Hypertension 1,346
 1,250
 7.7
 10.2
 (2.5)
OPSUMIT®
 892
 304
 ** ** ** 654
 582
 12.5
 15.8
 (3.3)
TRACLEER®
 422
 236
 ** ** ** 220
 283
 (22.4) (20.3) (2.1)
UPTRAVI®
 482
 133
 ** ** ** 401
 311
 28.7
 29.7
 (1.0)
Other 110
 44
 ** ** ** 72
 74
 (3.4) 1.0
 (4.4)
Cardiovascular / Metabolism / Other 4,426
 4,665
 (5.1) (5.8) 0.7
 2,620
 3,035
 (13.7) (12.1) (1.6)
XARELTO®
 1,869
 1,790
 4.4
 4.4
 —
 1,091
 1,257
 (13.2) (13.2) —
INVOKANA®/ INVOKAMET®
 653
 844
 (22.6) (23.0) 0.4
 379
 463
 (18.2) (16.9) (1.3)
PROCRIT®/EPREX®
 767
 740
 3.6
 2.4
 1.2
 409
 512
 (20.2) (18.7) (1.5)
Other 1,137
 1,291
 (11.9) (13.5) 1.6
 742
 803
 (7.7) (3.4) (4.3)
Total Pharmaceutical Sales $30,544
 $26,575
 14.9 % 13.4 % 1.5% $20,773
 $20,198
 2.8 % 6.1 % (3.3)%
          
*PriorCertain prior year amounts have been reclassified to conform to current year presentation
**Percentage greater than 100% or not meaningful
***Products acquired from Actelion acquisition on June 16, 2017

Pharmaceutical segment sales in the fiscal thirdsecond quarter of 20182019 were $10.3$10.5 billion, an increase of 6.7%1.7% as compared to the same period a year ago, with an operational increase of 8.2%4.4% and a negative currency impact of 1.5%2.7%. U.S. Pharmaceutical sales increased 4.8%decreased 2.0% as compared to the same period a year ago. International Pharmaceutical sales increased by 9.5%6.5%, including operational growth of 13.2%12.9% and a negative currency impact of 3.7%6.4%. In the fiscal thirdsecond quarter of 2018,2019, the net impact of acquisitions and divestitures on the Pharmaceutical segment operational sales growth was negligible.


Major Pharmaceutical Therapeutic Area Sales* — Fiscal Third QuartersSecond Quarter Ended
(Dollars in Millions) September 30, 2018 October 1, 2017 
Total
Change
 
Operations
Change
 
Currency
Change
 June 30, 2019 July 1, 2018 
Total
Change
 
Operations
Change
 
Currency
Change
Total Immunology $3,398
 $3,269
 3.9 % 5.0% (1.1)% $3,466
 $3,338
 3.8 % 5.7 % (1.9)%
REMICADE®
 1,379
 1,647
 (16.3) (15.3) (1.0) 1,107
 1,320
 (16.2) (15.1) (1.1)
SIMPONI®/ SIMPONI ARIA®
 536
 476
 12.6
 14.8
 (2.2) 563
 548
 2.7
 5.6
 (2.9)
STELARA®
 1,310
 1,124
 16.5
 17.4
 (0.9) 1,558
 1,341
 16.1
 18.3
 (2.2)
TREMFYA®
 235
 126
 86.5
 88.9
 (2.4)
Other Immunology 173
 22
 ** ** ** 3
 3
 27.7
 27.0
 0.7
Total Infectious Diseases 823
 813
 1.2
 3.2
 (2.0) 862
 849
 1.5
 5.4
 (3.9)
EDURANT®/rilpivirine
 202
 194
 4.1
 5.2
 (1.1) 210
 211
 (0.6) 5.0
 (5.6)
PREZISTA®/ PREZCOBIX®/ REZOLSTA®/ SYMTUZA®
 490
 467
 4.9
 6.9
 (2.0)
PREZISTA®/ PREZCOBIX®/ REZOLSTA®/ SYMTUZA®
 535
 492
 8.7
 11.6
 (2.9)
Other Infectious Diseases 131
 152
 (13.8) (10.7) (3.1) 117
 146
 (19.7) (15.1) (4.6)
Total Neuroscience 1,490
 1,498
 (0.5) 1.5
 (2.0) 1,538
 1,528
 0.6
 3.9
 (3.3)
CONCERTA®/ methylphenidate
 157
 198
 (20.7) (18.1) (2.6) 137
 183
 (25.2) (21.5) (3.7)
INVEGA SUSTENNA®/ XEPLION®/ TRINZA®/ TREVICTA®
 749
 643
 16.5
 17.8
 (1.3)
INVEGA SUSTENNA®/ XEPLION®/ INVEGA TRINZA®/ TREVICTA®
 818
 720
 13.6
 16.3
 (2.7)
RISPERDAL CONSTA®
 175
 194
 (9.8) (7.9) (1.9) 182
 188
 (3.4) 0.3
 (3.7)
Other Neuroscience 409
 463
 (11.7) (9.0) (2.7) 401
 437
 (8.1) (4.4) (3.7)
Total Oncology 2,588
 1,898
 36.4
 38.6
 (2.2) 2,697
 2,456
 9.8
 14.1
 (4.3)
DARZALEX®
 498
 317
 57.1
 60.0
 (2.9) 774
 511
 51.6
 57.3
 (5.7)
IMBRUVICA®
 705
 512
 37.7
 40.4
 (2.7) 831
 620
 34.1
 39.2
 (5.1)
VELCADE®
 271
 273
 (0.7) 1.8
 (2.5) 224
 280
 (20.1) (16.1) (4.0)
ZYTIGA®
 958
 669
 43.2
 44.5
 (1.3)
ZYTIGA®/ abiraterone acetate
 698
 909
 (23.3) (20.3) (3.0)
Other Oncology 156
 127
 22.8
 25.6
 (2.8) 170
 136
 24.7
 29.3
 (4.6)
Pulmonary Hypertension 656
 632
 3.8
 4.9
 (1.1) 690
 665
 3.8
 6.0
 (2.2)
OPSUMIT®
 310
 259
 19.7
 21.2
 (1.5) 348
 311
 12.3
 15.0
 (2.7)
TRACLEER®
 139
 210
 (33.8) (33.0) (0.8) 103
 143
 (28.0) (26.2) (1.8)
UPTRAVI®
 171
 124
 37.9
 38.1
 (0.2) 203
 171
 18.2
 19.1
 (0.9)
Other 36
 39
 (7.7) (5.2) (2.5) 37
 40
 (9.6) (5.8) (3.8)
Cardiovascular / Metabolism / Other 1,391
 1,585
 (12.2) (11.3) (0.9) 1,275
 1,518
 (16.0) (14.7) (1.3)
XARELTO®
 612
 635
 (3.6) (3.6) —
 549
 679
 (19.2) (19.2) —
INVOKANA®/ INVOKAMET®
 190
 265
 (28.3) (27.6) (0.7) 177
 215
 (17.9) (16.9) (1.0)
PROCRIT®/ EPREX®
 255
 238
 7.1
 7.9
 (0.8) 183
 236
 (22.7) (21.4) (1.3)
Other 334
 447
 (25.3) (22.9) (2.4) 368
 388
 (5.5) (1.5) (4.0)
Total Pharmaceutical Sales $10,346
 $9,695
 6.7 % 8.2% (1.5)% $10,529
 $10,354
 1.7 % 4.4 % (2.7)%
*PriorCertain prior year amounts have been reclassified to conform to current year presentation
**Percentage greater than 100% or not meaningful

Immunology products achieved operational growth of 5.0%5.7% as compared to the same period a year ago driven by strong uptake of STELARA® (ustekinumab) in Crohn's disease, the strong launch of TREMFYA® (guselkumab), expanded indications of SIMPONI ARIA®/SIMPONI ARIA® (golimumab), the launch of TREMFYA® (guselkumab) and U.S. immunology market growth. Immunology was negatively impacted by lower sales of REMICADE® (infliximab) due to increased discounts/rebates and biosimilar competition.



The patents for REMICADE® (infliximab) in certain countries in Europe expired in February 2015. Biosimilar versions of REMICADE® have been introduced in certain markets outside the United States, resulting in a reduction in sales of REMICADE® in those markets. Additional biosimilar competition will likely result in a further reduction in REMICADE® sales in markets outside the United States. In the United States, a biosimilar version of REMICADE® was introduced in 2016, and additional competitors continue to enter the market. Continued infliximab biosimilar competition in the U.S. market will result in a further reduction in U.S. sales of REMICADE®. See Note 11 to the Consolidated Financial Statements for a description of legal matters regarding the REMICADE® patents.


Infectious disease products achieved operational growth of 3.2% as compared to the same period a year ago. Sales growth of PREZCOBIX®/REZOLSTA® , EDURANT®/rilpivirine, and the launch of SYMTUZA® was partially offset by lower sales of PREZISTA®.

Neuroscience products achieved operational sales growth of 1.5%5.4% as compared to the same period a year ago. Strong sales of INVEGA SUSTENNASYMTUZA® andthe launch of JULUCA®/XEPLION®/ TRINZA®/TREVICTA®(paliperidone palmitate) were partially offset by cannibalizationlower sales of RISPERDAL CONSTAPREZISTA® (risperidone) and generic competition for CONCERTAPREZCOBIX®/methylphenidate.REZOLSTA® due to increased competition and loss of exclusivity of PREZISTA® in certain countries outside the U.S.

Neuroscience products achieved operational sales growth of 3.9% as compared to the same period a year ago. Paliperidone long-acting injectables growth was driven by strong sales of INVEGA TRINZA®/TREVICTA® and INVEGA SUSTENNA®/XEPLION® (paliperidone palmitate) and was partially offset by RISPERDAL CONSTA® (risperidone). The decline of U.S. CONCERTA®/methylphenidate sales was due to generic competition.
 
Oncology products achieved strong operational sales growth of 38.6%14.1% as compared to the same period a year ago. Contributors to the growth were strong sales of DARZALEX® (daratumumab) and IMBRUVICA® (ibrutinib) due to increased patient uptake globallyglobally. DARZALEX® sales included one-time adjustments related to the completion of pricing and reimbursement discussions in certain European countries which positively impacted worldwide DARZALEX® growth by approximately 16%. Growth was negatively impacted from a decline in U.S. sales of ZYTIGA® (abiraterone acetate) driven by LATITUDE data and market growth.generic competition partially offset by increased sales outside the U.S. Additionally, sales from the launch of ERLEADA™ (apalutamide) contributed to the growth. The growth of DARZALEX® (daratumumab) was partially offset by a one-time adjustment outside the U.S. related to accruals for retroactive reimbursement matters. A number of companies marketing generic pharmaceuticals have filed Abbreviated New Drug Applications (ANDAs) with the FDA, or undertaken similar regulatory processes outside of the United States, seeking to market generic forms of ZYTIGA® prior to expiration of its applicable patents. These ANDAs include allegations of non-infringement, invalidity and unenforceability of the applicable patents. In October 2018, the Court issued a ruling invalidating all asserted claims of the applicable patent. Janssen plans to appeal the Court’s decision. The Court extended an injunction prohibiting generics from launching until the earlier of November 9, 2018, or until the Federal Circuit renders a decision on a stay pending appeal. If the Federal Circuit Court of Appeals declines to extend the injunction, the Company expects that a generic version of ZYTIGA® will enter the market and will result in a significant decline in sales of ZYTIGA®. See Note 11 to the Consolidated Financial Statements for a description of the legal matters regarding the ZYTIGA® patents.


Pulmonary Hypertension achieved operational sales growth of 4.9%6.0% as compared to the same period a year ago primarily due to strong salesago. Sales of OPSUMIT® (macitentan) and UPTRAVI® (selexipag) were due to continued market growth and increased share gains partially offset by lowerwhile sales of TRACLEER® (bosetan) due to generics were negatively impacted by increased use of OPSUMIT® and market share loss to OPSUMIT®.generics.


Cardiovascular / Metabolism / Other products experienced an operational decline of 11.3%14.7% as compared to the same period a year ago. Lower sales of XARELTO® (rivaroxaban) were driven by an increase in pricehigher discounts and rebates, lower sales of INVOKANA®/INVOKAMET® (canagliflozin) were due to competitive pressure and a safety label update and lower sales of INVOKANAPROCRIT®/INVOKAMET EPREX® (canagliflozin)(epoetin alfa) were due to increased discounts and rebates and competitive pressure.biosimilar competition.




Medical Devices
The Medical Devices segment sales in the first fiscal ninesix months of 20182019 were $20.3$12.9 billion, an increasea decrease of 3.6%5.7% as compared to the same period a year ago, with an operational growthdecline of 2.2%2.6% and a positivenegative currency impact of 1.4%3.1%. U.S. Medical Devices sales increased 1.2%decreased 3.6%. International Medical Devices sales increaseddecreased by 5.9%7.6%, including an operational increasedecline of 3.2%1.6% and a positivenegative currency impact of 2.7%6.0%. In the first fiscal ninesix months of 2018,2019, the net impact of acquisitions and divestitures on the Medical Devices segment operational sales growth was a negative 0.1%.6.4% of which, the divestitures of LifeScan and ASP had an impact of approximately 5.1% and 1.1%, respectively.


Major Medical Devices Franchise Sales*Sales — Fiscal NineSix Months Ended
(Dollars in Millions) September 30, 2018 October 1, 2017 
Total
Change
 
Operations
Change
 
Currency
Change
 June 30, 2019 July 1, 2018 
Total
Change
 
Operations
Change
 
Currency
Change
Surgery $7,314
 $7,001
 4.5 % 3.2 % 1.3% $4,748
 $4,938
 (3.9)% 0.0 % (3.9)%
Advanced 2,947
 2,733
 7.8
 6.3
 1.5
 2,009
 1,971
 1.9
 5.9
 (4.0)
General 3,376
 3,293
 2.5
 1.1
 1.4
 2,208
 2,296
 (3.9) 0.1
 (4.0)
Specialty 991
 975
 1.6
 1.1
 0.5
 531
 671
 (20.8) (17.8) (3.0)
Orthopaedics 6,623
 6,772
 (2.2) (3.5) 1.3
 4,428
 4,512
 (1.9) 0.7
 (2.6)
Hips 1,053
 1,030
 2.2
 0.9
 1.3
 725
 723
 0.3
 3.0
 (2.7)
Knees 1,110
 1,126
 (1.4) (2.6) 1.2
 741
 769
 (3.7) (1.3) (2.4)
Trauma 2,025
 1,947
 4.0
 2.6
 1.4
 1,357
 1,371
 (1.0) 1.5
 (2.5)
Spine & Other 2,435
 2,669
 (8.8) (10.1) 1.3
 1,606
 1,649
 (2.6) (0.1) (2.5)
Vision 3,420
 2,944
 16.2
 14.9
 1.3
 2,290
 2,288
 0.1
 3.2
 (3.1)
Contact Lenses/Other 2,486
 2,236
 11.2
 9.9
 1.3
 1,666
 1,651
 0.9
 4.2
 (3.3)
Surgical 934
 708
 31.9
 30.5
 1.4
 624
 637
 (2.0) 0.6
 (2.6)
Interventional Solutions (1)
 1,960
 1,675
 17.0
 14.9
 2.1
 1,482
 1,307
 13.4
 16.7
 (3.3)
Diabetes Care(1) 1,009
 1,225
 (17.6) (19.0) 1.4
 —
 694
 * * *
Diagnostics (2)
 —
 1
 ** ** **
Total Medical Devices Sales $20,326
 $19,618
 3.6 % 2.2 % 1.4% $12,948
 $13,739
 (5.7)% (2.6)% (3.1)%
*Prior year amounts have been reclassified to conform to current year presentation
**Percentage greater than 100% or not meaningful
(1)Previously referred to as CardiovascularLifeScan was divested in the fiscal fourth quarter of 2018
(2)On June 30, 2014, the Company divested the Ortho-Clinical Diagnostics business (the Diagnostics Franchise)


The Medical Devices segment sales in the fiscal thirdsecond quarter of 20182019 were $6.6$6.5 billion, a decrease of 0.2%6.9% as compared to the same period a year ago, with an operational growthdecline of 1.7% offset by4.1% and a negative currency impact of 1.9%2.8%. U.S. Medical Devices sales increased 0.3%decreased 5.6%. International Medical Devices sales decreased by 0.6%8.1%, including an operational increasedecline of 3.0% offset by2.9% and a negative currency impact of 3.6%5.2%. In the fiscal thirdsecond quarter of 2018,2019, the net impact of acquisitions and divestitures on the Medical Devices segment operational sales growth was a negative 1.2%.7.3% of which, the divestitures of LifeScan and ASP had an impact of approximately 5.1% and 2.0%, respectively.




































Major Medical Devices Franchise Sales*Sales — Fiscal Third QuartersSecond Quarter Ended
(Dollars in Millions) June 30, 2019 July 1, 2018 
Total
Change
 
Operations
Change
 
Currency
Change
Surgery $2,353
 $2,515
 (6.5)% (3.0)% (3.5)%
     Advanced 1,029
 1,005
 2.3
 6.1
 (3.8)
     General 1,119
 1,169
 (4.3) (0.9) (3.4)
     Specialty 206
 341
 (39.6) (37.1) (2.5)
Orthopaedics 2,224
 2,262
 (1.6) 0.6
 (2.2)
     Hips 364
 360
 0.9
 3.3
 (2.4)
     Knees 372
 382
 (2.8) (0.7) (2.1)
     Trauma 672
 675
 (0.6) 1.7
 (2.3)
     Spine & Other 818
 845
 (3.1) (0.9) (2.2)
Vision 1,161
 1,173
 (1.0) 1.5
 (2.5)
     Contact Lenses/Other 842
 844
 (0.3) 2.4
 (2.7)
     Surgical 319
 329
 (2.8) (0.8) (2.0)
Interventional Solutions 750
 667
 12.6
 15.6
 (3.0)
Diabetes Care(1)
 —
 355
 * * *
Total Medical Devices Sales $6,489
 $6,972
 (6.9)% (4.1)% (2.8)%
(Dollars in Millions) September 30, 2018 October 1, 2017 
Total
Change
 
Operations
Change
 
Currency
Change
Surgery $2,376
 $2,346
 1.3 % 3.8 % (2.5)%
     Advanced 976
 923
 5.7
 8.1
 (2.4)
     General 1,080
 1,105
 (2.3) 0.3 (2.6)
     Specialty 320
 318
 0.6
 2.9
 (2.3)
Orthopaedics 2,111
 2,204
 (4.2) (2.9) (1.3)
     Hips 330
 328
 0.6
 2.2
 (1.6)
     Knees 341
 343
 (0.6) 1.0
 (1.6)
     Trauma 654
 662
 (1.2) 0.0
 (1.2)
     Spine & Other 786
 871
 (9.8) (8.6) (1.2)
Vision 1,132
 1,091
 3.8
 5.6
 (1.8)
     Contact Lenses/Other 835
 800
 4.4
 6.2
 (1.8)
     Surgical 297
 291
 2.1
 4.1
 (2.0)
Interventional Solutions (1)
 653
 553
 18.1
 19.4
 (1.3)
Diabetes Care 315
 405
 (22.2) (20.0) (2.2)
Total Medical Devices Sales $6,587
 $6,599
 (0.2)% 1.7 % (1.9)%
*Prior year amounts have been reclassified to conform to current year presentationPercentage greater than 100% or not meaningful
(1)Previously referred to as CardiovascularLifeScan was divested in the fiscal fourth quarter of 2018
     
The Surgery franchise achievedexperienced an operational sales growthdecline of 3.8%3.0% as compared to the prior year fiscal thirdsecond quarter. Operational growth in Advanced Surgery was primarily driven by endocutters biosurgery products and growth outside the U.S. in energy products driven by share gains and new products. Operational growthGrowth was partially offset by a sales decline in biosurgery due to an isolated supply disruption. The decline in General Surgery was primarily driven by mechanical products due to a temporary stapler recall partially offset by growth of wound closure products. Operational growthThe operational decline in Specialty Surgery was primarily driven by the divestiture of the Advanced Sterilization Products.Products (ASP) business partially offset by growth of Mentor products.


The Orthopaedics franchise experienced anachieved operational sales declinegrowth of 2.9%0.6% as compared to the prior year fiscal thirdsecond quarter. The decline in Spine & Other sales was primarily due to the Codman Neurosurgery divestiture and share loss in Spine partially offset by new product launches. Trauma is flat as compared to the prior year due to lower market growth and continued pricing pressure, primarily in the U.S. Operational growth in hips and kneestrauma was primarily due to the continued uptake of new products. Spine & Other decline in sales was driven by declines in spine partially offset by growth in Sports. The decline in knees was due to competitive pressure in the U.S. partially offset by continued uptake of the ATTUNE® Revision knee system and growth outside the U.S. from new products.


The Vision franchise achieved operational sales growth of 5.6%1.5% as compared to the prior year fiscal thirdsecond quarter. Operational growth was primarily driven by strength of the astigmatismdaily disposables and daily disposableAstigmatism lenses in the OASYS® contact lenses category. The Surgical growthoperational decline was primarily driven by cataract performance primarilycompetitive pressures in the U.S. partially offset by strength of cataracts outside the U.S.


The Interventional Solutions franchise (includes the Cerenovus business previously included in Spine and Other in Orthopaedics) achieved strong operational sales growth of 19.4%15.6% as compared to the prior year fiscal thirdsecond quarter. Strong operational growth in the electrophysiology business was driven by Atrial Fibrillation procedure growth and continued uptake of the THERMOCOOL SMARTTOUCH® Contact ForceSensing Catheter.

The Diabetes Care franchise experienced an operational sales decline of 20.0% as compared to the prior year fiscal third quarter. Lower sales were primarily due to the Company's decision to exit the Animas insulin pump business, price declinesvolume. Growth in the U.S.Cerenovus business was driven by new product innovation and competitive pressure. Subsequent to the quarter the Company completed the divestiture of its LifeScan business.market growth.



ANALYSIS OF CONSOLIDATED EARNINGS BEFORE PROVISION FOR TAXES ON INCOME


Consolidated earnings before provision for taxes on income for the first fiscal six months of 2019 was $11.5 billion representing 28.2% of sales as compared to $10.5 billion in the first fiscal six months of 2018, representing 25.6% of sales.

Consolidated earnings before provision for taxes on income for the fiscal nine monthssecond quarter of 20182019 was $14.9$7.0 billion representing 24.3%34.2% of sales as compared to $15.1$5.0 billion in the fiscal nine monthssecond quarter of 2017,2018, representing 26.9%23.9% of sales.


Consolidated earnings before provision for taxes on income for the fiscal third quarter of 2018 was $4.4 billion representing 21.7% of sales as compared to $4.8 billion in the fiscal third quarter of 2017, representing 24.4% of sales.

Cost of Products Sold


Consolidated costs of products sold for the first fiscal ninesix months of 20182019 increased to 32.9%33.4% from 32.3%33.2% of sales as compared to the same period a year ago. Consolidated costs of products sold for the fiscal thirdsecond quarter of 2018 decreased2019 increased to 32.4%33.8% from 35.2%33.3% of sales as compared to the same period a year ago. The unfavorable increase in the fiscal nine monthsboth periods was primarily driven by higher amortization expense primarily related tounfavorable product mix and the Actelion acquisition. This was partially offset by lower acquisition related costs and favorable product and segment mix. The favorable decreasenegative impact of currency in the fiscal third quarter was primarily driven by lower acquisition related costs and favorable product and segment mix.Pharmaceutical business. The intangible asset amortization expense for each of the fiscal ninesecond quarters of 2019 and 2018 was $1.1 billion. The intangible asset amortization expense for each of the first fiscal six months of 2019 and 2018 and 2017 was $3.3 billion and $1.9 billion, respectively.$2.2 billion.


Selling, Marketing and Administrative Expenses


Consolidated selling, marketing and administrative expenses for the first fiscal ninesix months of 20182019 decreased to 27.1%26.5% from 27.5%27.0% of sales as compared to the same period a year ago. Consolidated selling, marketing and administrative expenses for the fiscal thirdsecond quarter of 20182019 decreased to 27.3%27.0% from 27.6%27.5% of sales as compared to the same period a year ago. The decrease in both periods as compared to the same period a year ago was primarily due to favorable segment mix and lower costs relative to sales growth in the Pharmaceutical business. The decreaseAdditionally, planned optimization in the nine monthsConsumer business and expense leveraging in the Pharmaceutical business was partially offset by increased investment spend to support new product launchesspending in the Medical Devices and Consumer segments.Device business in the fiscal second quarter of 2019.


Research and Development Expense


Worldwide costs of research and development activities for the first fiscal ninesix months of 2018 decreased2019 increased to 12.3%13.6% from 12.4%12.3% of sales as compared to the same period a year ago. The increase in the fiscal six months was due to higher upfront payments, primarily related to argenx and increased investment to advance the pipeline. Worldwide costs of research and development activities for the fiscal thirdsecond quarter of 2018 decreased2019 increased to 12.3%13.0% from 13.2%12.7% of sales as compared to the same period a year ago. In the fiscal nine months of 2018 worldwide costs of research and development activities were $7.6 billion, anThe increase of 8.6% as compared to the same period a year ago but decreased slightly as a percent to sales due to higher overall sales in the Pharmaceutical segment. The decrease in the fiscal thirdsecond quarter was primarily due to timing, specifically lower milestone paymentsincreased investment in the pharmaceutical business.Medical Device business related to robotics and digital programs.


In-Process Research and Development (IPR&D)


In the fiscal thirdfirst quarter and fiscal nine months of 2018,2019, the Company recorded an IPR&D charge of $1.1 billion. Of$0.9 billion for the $1.1 billion, a partial impairment charge of $0.8 billionremaining intangible asset value related to the development program of AL-8176, an investigational drug for the treatment of Respiratory Syncytial Virus (RSV) and human metapneumovirus (hMPV) acquired with the 2014 acquisition of Alios Biopharma Inc. LateThe impairment charge was based on additional information, including clinical data, which became available and led to the Company's decision to abandon the development of AL-8176. There was no IPR&D charge in the fiscal second quartersix months of 2018, information became available which led the Company to suspend on-going Phase 2B trials on AL-8176 until an analysis2018. A partial impairment charge of this information$0.8 billion was completed. Inpreviously recorded in the fiscal third quarter of 2018 further information became available to the Company enabling the Company to reassess the carrying value of the AL-8176 IPR&D asset. The impairment charge was calculated based on updated cash flow projections discounted for the inherent risk in the asset development and reflects the impact of recent phase 2b clinical trial suspension, a decrease in the probability of success factors and the ongoing analysis of asset development activities. The Company continues to evaluate information with respectrelated to the development program and will monitor the remaining $0.9 billion intangible asset for further impairment. In addition, an impairment charge of $0.3 billion was recorded for the discontinuation of the development project for an anti-thrombin antibody associated with the 2015 acquisition of XO1 Limited.AL-8176.

Interest (Income) Expense


Interest income(Income) Expense in the first fiscal ninesix months and fiscal thirdsecond quarter of 20182019 was higher thannet interest income as compared to an expense in the same periods a year ago. Interest incomeThis was higher inprimarily due to the fiscal nine monthspositive effect of 2018 as compared to 2017 due tonet investment hedging arrangements and certain cross currency swaps, a higher average interest rate partially offset by a lower average cash, cash equivalents and marketable securities balance during the period. Interest income was higher in the fiscal third quarter 2018 as compared to 2017 due to a higher average interest rate and a higherlower average cash, cash

equivalents and marketable securities balance during the period.debt balance. The balance of cash, cash equivalents and current marketable securities was $19.4$15.3 billion at the end of the fiscal thirdsecond quarter of 20182019 as compared to $16.2$18.1 billion at the end of the fiscal third quarter of 2017. The average balance of cash, cash equivalents and marketable securities for the fiscal nine months of 2018 was $18.8 billion as compared to $29.1 billion for the same period a year ago. The decrease in the average balance of cash, cash equivalents and marketable securities was due to the use of cash for general corporate purposes including acquisitions, primarily the Actelion acquisition for $29.6 billion, net of cash acquired late in the fiscal second quarter of 2017.

Interest expense in the fiscal nine months and fiscal third quarter of 2018 was higher as compared to the same periods a year ago. Interest expense was higher in the fiscal nine months of 2018 as compared to 2017 due to a higher average interest rate and a higher average debt balance. Interest expense was slightly higher in the fiscal third quarter of 2018 as compared to 2017 due to a higher average interest rate partially offset by a lower average debt balance.2018. The Company’s debt position was $31.3$29.4 billion as of SeptemberJune 30, 20182019 as compared to $35.2$32.1 billion the same period a year ago.




Other (Income) Expense, Net


Other (income) expense, net for the first fiscal ninesix months and fiscal second quarter of 20182019 was unfavorablefavorable by $0.4 billion as compared to the same period a year ago. The fiscal nine months of 2018 included a reversal of a contingent liability of $0.2$2.1 billion and lower costs of $0.1$2.0 billion, related to the Actelion acquisition offset by higher litigation expense of $0.1 billion and $0.3 billion of other miscellaneous items as compared to the same period a year ago. The fiscal nine months of 2017 included higher gains of $0.5 billion from the monetization of future royalty receivables and the sale of certain investments in equity securities partially offset by an asset impairment charge of $0.2 billion primarily related to the insulin pump business.

Other (income) expense, net for the fiscal third quarter of 2018 was unfavorable by $0.3 billionrespectively, as compared to the same period a year ago. This was primarily attributable to a reversalgain of $2.0 billion related to the divestiture of the ASP business. In addition the fiscal six months of 2019 included an equity step-up gain of $0.3 billion related to the Company's previously held equity investment in Ci:z Holdings (Dr. Ci: Labo) and higher unrealized gains on securities of $0.3 billion as compared to the same period a contingent liabilityyear ago. This was partially offset by higher litigation expense of $0.2$0.8 billion andin the fiscal six months of 2019 as compared to $0.7 billion in the fiscal six months of 2018. The fiscal six months of 2018 included divestiture gains of $0.4 billion, primarily NIZORAL®. The fiscal second quarter of 2019 included lower litigation expense of $0.1$0.4 billion as compared to $0.7 billion in the fiscal thirdsecond quarter of 2018 offset byand higher unrealized gains on securities of $0.1 billion as compared to the same period a year ago. The fiscal second quarter of 2018 included divestiture gains of $0.5$0.4 billion, on divestitures, primarily COMPEEDNIZORAL®, in the fiscal third quarter of 2017..
 

EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT


Income before tax by segment of business for the first fiscal ninesix months were as follows:
            
 Income Before Tax Segment Sales Percent of Segment Sales Income Before Tax Segment Sales Percent of Segment Sales
(Dollars in Millions) September 30, 2018 October 1, 2017 September 30, 2018 October 1, 2017 September 30, 2018 October 1, 2017 June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018
Consumer $1,887
 $2,132
 $10,317
 $10,062
 18.3% 21.2% $1,147
 $1,377
 $6,862
 $6,902
 16.7% 20.0%
Pharmaceutical 10,193
 9,934
 30,544
 26,575
 33.4
 37.4
 6,008
 7,317
 20,773
 20,198
 28.9
 36.2
Medical Devices 3,642
 3,938
 20,326
 19,618
 17.9
 20.1
 4,686
 2,375
 12,948
 13,739
 36.2
 17.3
Segment total 15,722
 16,004
 61,187
 56,255
 25.7
 28.4
 11,841
 11,069
 40,583
 40,839
 29.2
 27.1
Less: Expenses not allocated to segments (1)
 845
 891
      
  
 378
 615
      
  
Worldwide total $14,877
 $15,113
 $61,187
 $56,255
 24.3% 26.9% $11,463
 $10,454
 $40,583
 $40,839
 28.2% 25.6%
(1) Amounts not allocated to segments include interest (income) expense and general corporate (income) expense.


Income before tax by segment of business for the fiscal thirdsecond quarters were as follows:
 Income Before Tax Segment Sales Percent of Segment Sales Income Before Tax Segment Sales Percent of Segment Sales
(Dollars in Millions) September 30, 2018 October 1, 2017 September 30, 2018 October 1, 2017 September 30, 2018 October 1, 2017 June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018 June 30, 2019 July 1, 2018
Consumer $510
 $878
 $3,415
 $3,356
 14.9% 26.2% $406
 $829
 $3,544
 $3,504
 11.5% 23.7%
Pharmaceutical 2,876
 2,857
 10,346
 9,695
 27.8
 29.5
 3,677
 3,651
 10,529
 10,354
 34.9
 35.3
Medical Devices 1,267
 1,383
 6,587
 6,599
 19.2
 21.0
 3,189
 796
 6,489
 6,972
 49.1
 11.4
Segment earnings before provision for taxes 4,653
 5,118
 20,348
 19,650
 22.9
 26.0
 7,272
 5,276
 20,562
 20,830
 35.4
 25.3
Less: Expenses not allocated to segments (1)
 230
 328
      
  
 231
 303
      
  
Worldwide income before tax $4,423
 $4,790
 $20,348
 $19,650
 21.7% 24.4% $7,041
 $4,973
 $20,562
 $20,830
 34.2% 23.9%
(1) Amounts not allocated to segments include interest (income) expense and general corporate (income) expense.



Consumer Segment


The Consumer segment income before tax as a percent of sales in the first fiscal six months of 2019 was 16.7% versus 20.0% for the same period a year ago. The first fiscal six months of 2019 included litigation expense of $0.2 billion and higher intangible asset amortization expense of $0.1 billion as compared to the prior year offset by a gain of $0.3 billion related to the Company's previously held equity investment in Ci:z Holdings (Dr Ci: Labo) and leveraging in selling, marketing and administrative expense. The first fiscal six months of 2018 included a gain of $0.3 billion related to the divestiture of NIZORAL®. The Consumer segment income before tax as a percent of sales in the fiscal nine monthssecond quarter of 20182019 was 18.3%11.5% versus 21.2%23.7% for the same period a year ago. The Consumer segment income before tax as a percent of sales in the fiscal thirdsecond quarter of 2018 was 14.9% versus 26.2% for the same period a year ago. The decrease in the income before tax as a percent2019 included litigation expense of sales in both the fiscal nine months$0.2 billion and fiscal third quarterhigher intangible asset amortization expense of 2018$0.1 billion as compared to 2017the prior year. This was primarily attributable to higher gains on divestiturespartially offset by leveraging in 2017selling, marketing and administrative expense as compared to 2018. The fiscal nine months of 2018 included again of $0.3 billion from the divestiture of NIZORAL®which was completed inprior year. In addition, the fiscal second quarter of 2018. The fiscal nine months of 20172018 included the COMPEED® a gain of $0.4$0.3 billion which was divested in the fiscal third quarter of 2017. Additionally, the fiscal nine months of 2018 included higher investment spend as comparedrelated to the prior year to support the launchdivestiture of new products.NIZORAL®.


Pharmaceutical Segment


The Pharmaceutical segment income before tax as a percent of sales in the first fiscal ninesix months of 20182019 was 33.4%28.9% versus 37.4%36.2% for the same period a year ago. The Pharmaceutical segment income before tax as a percent of sales in the fiscal thirdsecond quarter of 20182019 was 27.8%34.9% versus 29.5%35.3% for the same period a year ago. The decrease in the income before tax as a percent of sales for the first fiscal ninesix months of 2018 was primarily due to higher amortization expense of $1.3 billion related to the Actelion acquisition and an in-process research and development charge of $1.1 billion. This was partially offset by lower acquisition related costs of $0.4 billion, a contingent liability reversal of $0.2 billion, a gain of $0.1 billion on the divestiture of PANCREASE® , favorable product mix and slower increases in expenses relative to the increase in sales. Additionally, the fiscal nine months of 2017 included a gain of $0.2 billion related to the monetization of future royalty receivables and higher gains of $0.3 billion on the sale of certain investments in equity securities held by Johnson & Johnson Innovation - JJDC, Inc. as compared to the fiscal nine months of 2018. The decrease in the income before tax as a percent of sales for the fiscal third quarter of 20182019 as compared to the prior year was primarily due to an in-process research and development charge of $1.1 billion.$0.9 billion, higher litigation expense of $0.3 billion, higher cost of products sold due to the negative impact of currency and increased spending in research and development primarily due to a $0.3 billion upfront payment to argenx. This was partially offset by $0.3 billion of higher unrealized gains on securities, lower Actelion acquisition related costs and leveraging in selling, marketing and administrative as compared to the prior year. In addition, the first fiscal six months of $0.32018 included a higher gain of $0.1 billion related to divestitures. The decrease in the income before tax as a contingent liability reversalpercent of $0.2 billion and favorablesales for the fiscal second quarter of 2019 as compared to the prior year was primarily due to unfavorable product mix and slower increasesthe negative impact of currency recorded in expenses relativecost of products sold. In addition, the fiscal second quarter of 2018 included a higher gain of $0.1 billion related to divestitures. This was partially offset by $0.1 billion of higher unrealized gains on securities and leveraging in selling, marketing and administrative as compared to the increase in sales.prior year.


Medical Devices Segment


The Medical Devices segment income before tax as a percent of sales in the first fiscal ninesix months of 20182019 was 17.9%36.2% versus 20.1%17.3% for the same period a year ago. The increase in the income before tax as a percent of sales for the first fiscal six months was primarily attributable to a gain of $2.0 billion related to the divestiture of the ASP business, lower litigation expense of $0.4 billion, lower restructuring charges of $0.1 billion and lower intangible asset amortization expense of $0.1 billion. This was partially offset by increased investment spending. The Medical Devices segment income before tax as a percent of sales in the fiscal thirdsecond quarter of 20182019 was 19.2%49.1% versus 21.0%11.4% for the same period a year ago. The decreaseincrease in the income before tax as a percent of sales for the fiscal nine months of 2018 as compared to 2017second quarter was primarily dueattributable to a gain of $2.0 billion related to the divestiture of the ASP business, lower litigation expense of $0.7 billion in 2018 as compared to $0.5 billion in 2017, and investments in the business.lower restructuring charges of $0.1 billion. This was partially offset by an asset impairment charge of $0.2 billion primarily related to the insulin pump business in the fiscal nine months of 2017. The decrease in the income before tax as a percent of sales for the fiscal third quarter of 2018 as compared to 2017 was primarily due to increased investments in the business. This was partially offset by $0.1 billion of higher litigation expense in 2017.investment spending.


Restructuring

In the first quarter of 2016, the Company announced restructuring actions in its Medical Devices segment. The restructuring actions are expected to result in annualized pre-tax cost savings of $800 million to $1.0 billion, the majority of which is expected to be realized by the end of 2018. Approximately $500 million in savings were realized in 2017. The savings will provide the Company with added flexibility and resources to fund investment in new growth opportunities and innovative solutions for customers and patients. The Company estimates that, in connection with its plans, it will record pre-tax restructuring related charges of approximately $2.4 billion. In the fiscal third quarter of 2018, the Company recorded a pre-tax charge of $101 million, of which $9 million is included in cost of products sold and $45 million is included in other (income) expense. Restructuring charges of $2.4 billion have been recorded since the restructuring was announced.


In the second quarter of 2018, the Company announced plans to implement actions across its global supply chain that are intended to enable the Company to focus resources and increase investments in critical capabilities, technologies and solutions necessary to manufacture and supply its product portfolio of the future, enhance agility and drive growth. The Company expects these supply chain actions will include expanding its use of strategic collaborations, and bolstering its initiatives to reduce complexity, improving cost-competitiveness, enhancing capabilities and optimizing its network. Discussions regarding specific future actions are ongoing and are subject to all relevant consultation requirements before they are finalized. In total, the Company expects these actions to generate approximately $0.6 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 to $2.3 billion. In the fiscal thirdsecond quarter of 2018,2019, the Company recorded a pre-tax charge of $89$142 million, of which $14$38 million is included in cost of products sold and $34$47 million is included in other (income) expense. Restructuring charges of $148 million$0.5 billion have been recorded since the restructuring was announced.


See Note 12 to the Consolidated Financial Statements for additional details related to the restructuring.


Provision for Taxes on Income

For discussion on the provision for taxes refer to Note 5 to the Consolidated Financial Statements.

Swiss Tax Reform
On September 28, 2018 the Swiss Parliament approved the Federal Act on Tax Reform and AHV Financing (TRAF). On May 19, 2019 a public referendum was held in Switzerland that approved the federal reform proposals and subsequently announced the TRAF will become effective on January 1, 2020. In the third fiscal quarter of 2019, the Swiss Federal Council enacted TRAF.

TRAF provides for parameters which enable the Swiss cantons to establish localized tax rates and regulations for multinational companies. The new cantonal tax parameters include favorable tax benefits for patents and an additional research and development tax deduction to encourage investment. The cantons are required to implement new local legislation by January 1, 2020 or the new federal law will be directly applied.
The worldwide effective incomesignificant cantons in which the Company operates have not yet enacted legislation in response to TRAF. The transitional provisions of TRAF are also expected to allow companies to elect tax ratesbasis adjustments to fair value which is used for tax depreciation and amortization purposes resulting in a deduction over the transitional period. The adjustment in the Company’s asset tax basis will likely require review and approval by the federal and cantonal tax agencies. The Company has not yet applied for the adjustment to the tax basis.
As TRAF was not enacted as of June 30, 2019, the Company has not reflected the financial impacts in its fiscal nine months of 2018 and 2017 were 17.6% and 20.5%, respectively.second quarter results. The Company estimates that the netimpact of revaluing its deferred tax assets and liabilities as a result of Swiss Federal enactment of TRAF, without consideration of future cantonal tax rate changes or the transitional provisions, to result in an incremental tax expense between $0.3 billion to $0.5 billion in the fiscal third quarter of 2019. This amount does not include the impact of cantonal law changes expected to be enacted later in fiscal 2019. It also does not include the tax benefit derived from the transitional provisions previously described. Due to the uncertainty of the cantonal legislation and the approval of the transitional provisions, the Company is unable to reasonably estimate the combined financial impact of both the federal and cantonal component of Swiss Tax Reform for the remainder of 2019 or the impact to the consolidated effective tax rate beginning in 2020. The Company is continually assessing the impact of the U.S.proposed Swiss Tax Cuts and Jobs Act (TCJA) includingReform. When all aspects are fully enacted, the reduction of the U.S. statutory corporate tax rate, offset by the elimination of the corporate income tax deductions, measurement period adjustmentsfederal and the global intangible low-taxed income (GILTI)cantonal tax but excluding certain one-time tax benefits, decreased the Company’s worldwide effective rate by approximately 1.0% to 2.0% compared to the same period of the prior year.

Provisional amounts recorded as part of the adoption of the TCJA and estimates used to develop the current quarter's effective tax ratelaw changes may require further adjustments and changes to the Company’s estimates as new guidance is made available. These estimates are subject to the finalization of management’s analysis related to certain matters, such as developing interpretations of the provision of the TCJA, changes to certain estimates and amounts related to the earnings and profits of certain subsidiaries and the filing of tax returns. Revisions to the provisional charge may be material to the Company's future financial results.

On August 1, 2018, the U.S. Treasury Department issued Proposed Regulations (REG-104226-18) related to the TCJA transition tax. On September 13, 2018 the U.S. Treasury Department issued Proposed Regulations (REG-104390-18) related to the GILTI tax. The Company has assessed the impact of these Proposed Regulations and at this time does not expect either proposal to have a material impact on the Company’s future results.

See Note 5 to the Consolidated Financial Statements for additional details regarding the impactresults of the TCJA and adjustments to provisional amounts recorded in fiscal 2017.

The Company completed its acquisition of AMO in the first fiscal quarter of 2017 and incurred incremental tax costs that were discretely recorded in the first quarter of 2017, which had increased the effective tax rate by 1.4% for the first nine months of 2017 compared to the same period in 2018. Additionally, in 2018 the Company had more income in higher tax jurisdictions relative to lower tax jurisdictions as compared to 2017. These increases to the effective tax rate were partially offset by additional tax benefits received from stock-based compensation that either vested or were exercised during the fiscal nine months of 2018 and 2017, which reduced the effective tax rate by 1.2% and 2.1%, respectively.

As of September 30, 2018, the Company had approximately $3.2 billion of liabilities from unrecognized tax benefits. The Company believes it is possible that audits may be completed by tax authorities in some jurisdictions over the next twelve months. The Company is not able to provide a reasonably reliable estimate of the timing of any future tax payments relating to uncertain tax positions. The IRS has completed its audit for the tax years through 2009 and is currently auditing the tax years 2010 through 2012. The Company currently expects completion of this audit during 2019. Final conclusion of the tax audit may result in an outcome that is different than the Company’s estimates and may result in a material impact on the Company’s current and future operating results or cash flows in the period that the audit is concluded. 

See Note 8 to the Consolidated Financial Statements in the Annual Report on Form 10-K for the fiscal year ended December 31, 2017 for more detailed information regarding unrecognized tax benefits.


operations.
LIQUIDITY AND CAPITAL RESOURCES


Cash Flows


Cash and cash equivalents were $16.1$14.4 billion at the end of the fiscal thirdsecond quarter of 20182019 as compared with $17.8$18.1 billion at the end of fiscal year 2017.2018. The primary sources and uses of cash that contributed to the $1.7$3.7 billion decrease were approximately $16.0$9.5 billion of cash generated from operating activities offset by $5.4$3.2 billion net cash used by investing activities $12.1and $10.1 billion net cash used by financing activities and $0.2 billion due to the effect on exchange rate changes on cash and cash

equivalents.activities. In addition, the Company had $3.3$0.9 billion in marketable securities at the end of the fiscal thirdsecond quarter of 20182019 and $0.5$1.6 billion at the end of 2017.2018.


Cash flow from operations of $16.0$9.5 billion was the result of $12.3$9.4 billion of net earnings and $7.3$5.0 billion of non-cash expenses and other adjustments primarily for depreciation and amortization, stock-based compensation and asset write-downs primarily(primarily related to the Alios and XO1 assets and the deferred tax provision. Additionally, an increase of $0.7 billion in accounts payable and accrued liabilities contributed to cash flows from operating activities.IPR&D asset). This was reduced by $3.9$2.1 billion related to an increase in accounts receivable, an increase in inventories, a decrease in accounts payable and accrued liabilities, an increase in other current and non-current assets, a decrease in other liabilities and $0.4net gain on sale of assets/businesses of $2.1 billion (primarily related to the sales of assets/businesses. InASP divestiture) and $0.7 billion for the fiscal third quarter of 2018, the Company contributed $0.6 billion to its U.S. pension plan.deferred tax provision.


Investing activities use of $5.4$3.2 billion of cash was primarily used for acquisitions of $5.3 billion and additions to property, plant and equipment of $2.4 billion, $3.0 billion from the net purchases of investments in marketable securities and acquisitions of $0.9$1.5 billion. Investing activities also included a source of $0.9$3.0 billion of proceeds from the disposal of assets/businesses, net.primarily ASP, and $0.6 billion from the net sales of investments.


Financing activities use of $12.1$10.1 billion of cash was primarily used for dividends to shareholders of $7.1$4.9 billion, the repurchase of common stock of $4.7 billion and the net retirement of short and long term debt of $3.2 billion and the repurchase of common stock of $2.1$1.0 billion. Financing activities also included a source of $0.5 billion from proceeds from stock options exercised/employee withholding tax on stock awards, net.awards.


In the fiscal second quarter of 2019, the Company completed the divestiture of its ASP business and received $2.7 billion of cash proceeds. Additionally, the Company completed the acquisition of Auris Health, Inc. for approximately $3.4 billion, net of cash acquired.

The Company has access to substantial sources of funds at numerous banks worldwide. In September 2018, the Company secured a new 364-day Credit Facility. Total credit available to the Company under the facility, which expires on September 12, 2019, approximates $10.0 billion. Interest charged on borrowings under the credit line agreement is based on either bids provided by banks, the prime rate or London Interbank Offered Rates (LIBOR), plus applicable margins. Commitment fees under the agreement are not material.


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. The repurchase program has no time limit and may be suspended for periods or discontinued at any time. Any shares acquired will be available for general corporate purposes. The Company intends to finance the share repurchase program through available cash. Through June 30, 2019, $3.8 billion has been repurchased under the program.

In the fiscal thirdsecond quarter of 2018,2019, the Company's notes payable and long-term debt was in excess of cash, cash equivalents and marketable securities. As of June 30, 2019, the net debt position was $14.1 billion as compared to the prior year of $14.0 billion. The Company anticipates that operating cash flows, the ability to raise funds from external sources, borrowing capacity from existing committed credit facilities and access to the commercial paper markets will continue to provide sufficient resources to fund operating needs. Additionally, as a result of the TCJA, the Company has access to its cash outside the U.S. at a significantly reduced cost. The Company monitors the global capital markets on an ongoing basis and from time to time may raise capital when market conditions are favorable. The Company filed a shelf registration on February 27, 2017, which will enable it to issue debt securities on a timely basis.


Dividends


On July 16, 2018,April 25, 2019, the Board of Directors declared a regular cash dividend of $0.90$0.95 per share, payable on SeptemberJune 11, 20182019 to shareholders of record as of AugustMay 28, 2018.2019.


On October 18, 2018,July 15, 2019, the Board of Directors declared a regular cash dividend of $0.90$0.95 per share, payable on December 11, 2018September 10, 2019 to shareholders of record as of NovemberAugust 27, 2018.2019. The Company expects to continue the practice of paying regular quarterly cash dividends.




OTHER INFORMATION


New Accounting Pronouncements


Refer to Note 1 to the Consolidated Financial Statements for new accounting pronouncements.


Economic and Market Factors


The Company operates in certain countries where the economic conditions continue to present significant challenges. The Company continues to monitor these situations and take appropriate actions. Inflation rates and currency exchange rates continue to have an effect on worldwide economies and, consequently, on the way the Company operates. The Company has accounted for operations in Venezuela and Argentina as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%. Beginning in the fiscal third quarter of 2018, the Company accounted for operations in Argentina as highly inflationary. This did not have a material impact to the Company's results in the period. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases.


In June 2016, the United Kingdom (U.K.) held a referendum in which voters approved an exit from the European Union (E.U.), commonly referred to as “Brexit”, and in March 2017 the U.K. formally started the process for the U.K. to leave the E.U.  Given the lack of comparable precedent, it is unclear what financial, trade, regulatory and legal implications the withdrawal of the U.K. from the E.U. will have. Brexit creates global political and economic uncertainty, which may cause, among other consequences, volatility in exchange rates and interest rates, additional cost containment by third-party payors and changes in regulations.  However, the Company currently does not believe that these and other related effects will have a material impact on the Company’s consolidated financial position or operating results. As of SeptemberJune 30, 2018,2019, the business of the Company’s U.K. subsidiaries represented less than 3% of both the Company’s consolidated assets and fiscal ninesix months revenues,revenue, respectively.


Governments around the world consider various proposals to make changes to tax laws, which may include increasing or decreasing existing statutory tax rates. A change in statutory tax rate in any country would result in the revaluation of the Company’s deferred tax assets and liabilities related to that particular jurisdiction in the period in which the new tax law is enacted.  This change would result in an expense or benefit recorded to the Company’s Consolidated Statement of Earnings.  The Company closely monitors these proposals as they arise in the countries where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted. On September 28, 2018 the Swiss Parliament approved theFor discussion on Federal Act on Tax Reform and AHV Financing (“Swiss(Swiss Tax Reform”). The proposed Swiss Tax Reform is subject to approval by a possible public referendum. If no referendum is called, the Swiss Tax Reform could come into forceReform) see Provision for Taxes on Income in January 2020. If a referendum is held, the public vote is likely to take place in May 2019Management's Discussion and if adopted, the measures could come into force in either January 2020 or January 2021. As result, the proposed Swiss Tax Reform is not considered enactedAnalysis of Financial Condition and therefore the Company has not reflected anyResults of the potential impacts in its fiscal third quarter results. The Company is currently assessing the impact of the proposed Swiss Tax Reform, but when enacted, the law may have a material impact on the Company’s operating results.Operations.


The Company faces various worldwide health care changes that may continue to result in pricing pressures that include health care cost containment and government legislation relating to sales, promotions and reimbursement of health care products.


Changes in the behavior and spending patterns of purchasers of health care products and services, including delaying medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing health care insurance coverage, may continue to impact the Company’s businesses.


The Company also operates in an environment increasingly hostile to intellectual property rights. Firms have filed Abbreviated New Drug Applications or Biosimilar Biological Product Applications with the FDA, initiated Inter Partes Review proceedings in the United States Patent and Trademark Office, or otherwise challenged the coverage and/or validity of the Company's patents, seeking to market generic or biosimilar forms of many of the Company’s key pharmaceutical products prior to expiration of the applicable patents covering those products. In the event the Company is not successful in defending the patent claims challenged in these actions, generic or biosimilar versions of the products at issue may be introduced to the market, resulting in the potential for substantial market share and revenue losses for those products, and which may result in a non-cash impairment charge in any associated intangible asset. There is also a risk that one or more competitors could launch a generic or biosimilar version of the product at issue following regulatory approval even though one or more valid patents are in place. For further information, see the discussion on “REMICADE® Related Cases” and “Litigation Against Filers of Abbreviated New Drug Applications” in Note 11 to the Consolidated Financial Statements.




Item 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


There has been no material change in the Company’s assessment of its sensitivity to market risk since its presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in its Annual Report on Form 10-K for the fiscal year ended December 31, 201730, 2018.


Item 4 — CONTROLS AND PROCEDURES


Disclosure controls and procedures. At the end of the period covered by this report, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act is

accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Alex Gorsky, Chairman and Chief Executive Officer, and Joseph J. Wolk, Executive Vice President, Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Gorsky and Wolk concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective.


Internal control. During the period covered by this report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
The Company is implementing a multi-year, enterprise-wide initiative to integrate, simplify and standardize processes and systems for the human resources, information technology, procurement, supply chain and finance functions. These are enhancements to support the growth of the Company’s financial shared service capabilities and standardize financial systems. This initiative is not in response to any identified deficiency or weakness in the Company’s internal control over financial reporting. In response to this initiative, the Company has and will continue to align and streamline the design and operation of its financial control environment.



Part II — OTHER INFORMATION


Item 1 — LEGAL PROCEEDINGS


The information called for by this item is incorporated herein by reference to Note 11 included in Part I, Item 1, Financial Statements (unaudited) — Notes to Consolidated Financial Statements.


Item 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


(c) Purchases of Equity Securities by the Issuer and Affiliated Purchasers.


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 Common Stock. Share repurchases take place from time to time on the open market or through privately negotiated transactions. The repurchase program has no time limit and may be suspended for periods or discontinued at any time.

The following table provides information with respect to Common Stock purchases by the Company during the fiscal thirdsecond quarter of 2018.2019. The repurchases below also include the stock-for-stock option exercises that settled in the fiscal thirdsecond quarter.
Period 
Total Number
of Shares Purchased(1)
 
Avg. Price
Per Share
 Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 2, 2018 through July 29, 2018 200,000
 128.19
 —
 —
July 30, 2018 through August 26, 2018 265,958
 135.10
 —
 —
August 27, 2018 through September 30, 2018 2,958,890
 138.58
 —
 —
Total 3,424,848
   —
 
Fiscal Month Period 
Total Number
of Shares Purchased(1)
 
Avg. Price
Per Share
 
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(2)
 
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (3)
April 1, 2019 through April 28, 2019 2,109,811
 138.04
 523,925
 —
April 29, 2019 through May 26, 2019 2,258,105
 140.29
 —
 —
May 27, 2019 through June 30, 2019 13,559,098
 138.57
 13,558,885
 —
Total 17,927,014
   14,082,810
 8,827,270


(1)
During the fiscal second quarter of 2019, the Company repurchased an aggregate of 17,927,014 shares of Johnson & Johnson Common Stock in open-market transactions, of which 14,082,810 shares were purchased pursuant to the repurchase program that was publicly announced on December 17, 2018, and of which 3,844,204 shares were purchased in open-market transactions as part of a systematic plan to meet the needs of the Company’s compensation programs.
(2)
As of June 30, 2019, an aggregate of 27,739,317 shares were purchased for a total of $3.8 billion since the inception of the repurchase program announced on December 17, 2018.
(3)
As of June 30, 2019, the maximum number of shares that may yet be purchased under the plan is 8,827,270 based on the closing price of Johnson & Johnson Common Stock on the New York Stock Exchange on June 28, 2019 of $139.28 per share.
(1) During the fiscal third quarter of 2018, the Company repurchased an aggregate of 3,424,848 shares of Johnson & Johnson Common Stock in open-market transactions as part of a systematic plan to meet the needs of the Company’s compensation programs.



Item 6 — EXHIBITS


Exhibit 31.1Certification of Chief Executive Officer under Rule 13a-14(a) of the Securities Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — Filed with this document.


Exhibit 31.2Certification of Chief Financial Officer under Rule 13a-14(a) of the Securities Exchange Act pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — Filed with this document.


Exhibit 32.1Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Furnished with this document.


Exhibit 32.2 Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — Furnished with this document.

Exhibit 101:
EX-101.INSInstance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
EX-101.SCHXBRL Taxonomy Extension Schema
EX-101.CALXBRL Taxonomy Extension Calculation Linkbase
EX-101.LABXBRL Taxonomy Extension Label Linkbase
EX-101.PREXBRL Taxonomy Extension Presentation Linkbase
EX-101.DEFXBRL Taxonomy Extension Definition Document







Exhibit 101 XBRL (Extensible Business Reporting Language) The following materials from Johnson & Johnson’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018, formatted in Extensive Business Reporting Language (XBRL), (i) consolidated balance sheets, (ii) consolidated statements of earnings, (iii) consolidated statements of comprehensive income (iv) consolidated statements of cash flows, and (v) the notes to the consolidated financial statements.


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 
JOHNSON & JOHNSON
(Registrant) 
  
Date: October 31, 2018July 29, 2019By /s/ J. J. WOLK
 J. J. WOLK
 Executive Vice President, Chief Financial Officer (Principal Financial Officer) 
  
Date: October 31, 2018July 29, 2019By /s/ R. A. KAPUSTA  
 R. A. KAPUSTA 
 Controller (Principal Accounting Officer) 




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