JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS Al December 30, 2018 and Deerber 31, 2017 (Dollars in Millions Except Share and Per Share Anul Note 1) Cash and cash equivalents (Notes 1 and 2) Marketable securities (Notes 1 and 2) Accounts receivable trade, less allowances for doubtful secounts $248 2017,5291) Inventaries (Note Prepaid expenses and other receivables Assets held for sale (Note 20) Total current assets Property, plant and equipment, net (Notes 1 and 4) Intangible assets, net (Notes 1 and 5) Goodwill (Notes and 5) Deferred taxes on income (Note 8) Other assets Tatal assets Nire and Shareholders Loans and notes payable Note 7) 2,796 spalle Accrued compensation and employee wiated obligations Accrued taxes on ince (Notes) Total current liabilities Lengterm debt (Note 7) Defemed tanesco income (Note 8) Employee wlated obligations (Notes 9 and 10 Long-tetases payable (Note 8) Other liabilities Total liabilities Shareholders' equity Preferred wock without par value authorized and und 2.000.000 ha ) Common stock par value $1.00 pershare (Note 12) (uthorized 320,000,000 3,119,843,000 shares) Accumulated other comprehensive income foss) (Note 13) Retained earings 106216 4162 037318 000 h Les common stock held in treasury, at cost (Note 1)(457310 000 shares Total shareholders' equality Total liabilies and shareholders'equiry 59,753 152,954 See Notes to Consolidated Poncia JOHNSON A JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW Momencement Depreca n of of efforts from P rom the care of wisdom with JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Dollars in Millions) (Note 1) Accumulated Other Comprehensive Income Retained Treasury Stock Farning Common Stock Issued Amount Total 71,150 16.540 103,879 (13,165) (22.684) 16,540 (1.181) 3.311 (8.979) (8,621) 2,130 (8,979) (66) (1.736) 70.418 110,551 (14.901) 3.120 (28,352) 1.300 (941) (1,079) Balance, January 3, 2016 Net earnings Cash dividends paid (53.15 per share) Employee compensation and stock option plans Repurchase of common stock Other Other comprehensive income (loss), net of tax Balance, January 1, 2017 Net earnings Cash dividends paid (53.32 per share) Employee compensation and stock option plans Repurchase of common stock Other Other comprehensive income (loss), net of tax Balance, December 31, 2017 Cumulative adjustment Na c Things Cash dividends paid (53.54 per share) Employee compensation and stock option plans Repurchase of common stock Other Other comprehensive income (loss), net of tax Balance, December 30, 2018 1,300 (8.943) 2,077 (6,358) (36) 1.702 60,160 3.156 (6,358) (13,199) (31.554) 101,793 I254) 15.297 (9,494) (1,111) (486) 15.297 (9,494) 1.9.49 (5,868) (15) (1,791) 59,752 (15) 106,216 (15,222) (1) See Note I to Consolidated Financial Statements for additional details on the effect of cumulative adjustments for See Notes to Consolidated Financial Statements customers for retumed goods. The Company's sales retums reserves are accounted for in accordance with the US GAAP guidance for revenge recognition when right of retur exists. Sales retums reserves are recorded at fall sales value. Sales turns in the Consumer and Pharmaceutical segments are almost exclusively not realable. Sales returns for certain franchises in the Medical Devices woment are typically able but are not material. The Company infrequently exchanges products from inventory formed products. The sales mans ve for the Company has been app l y 1.0 of angal net trade les during the fiscal reporting year 2018, 2017 and 2016 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 a gents are evaluated to determine the appropriate amounts to be defend or recorded as a docties of revenue. The Company also cans profi-share payments through collaborative a ngements for certain products, which included is les to customer For all years presented, profit-share payments were less than 2.0% of the total revenues and are included in sales to customers Shipping and Handling Shipping and handling costs incurred were $1,090 million, $1,042 million and $974 million in 2018, 2017 and 2016, respectively, and are included in selling, marketing and administrative expense. The amount of revenue received for shipping and handling is less than 0.5of sales to customers for all periods presented Inventories Inventories are stated at the lower of cost or net realizable value determined by the finis,ficut method. Intangible Assets and Goodwill The authoritative literature on US. GAAP requires that goodwill and intangible with indefinite lives hea d wally for impairment. The Company completed the annual impairment test for 2018 in the fiscal fourth quarter Future impairment tests will be performed annually in the fiscal fourth quarter, or sooner if warranted. Purchased in process research and development is accounted for an indefinite lived intangible asset until the underlying project is completed, at which point the intangible asset will be accounted for as a definite lived intangible asset, or abandoned, at which point the intangible asset will be written off or partially impaired. Intangible assets that have finite useful lives continue to be amortized over their useful lives, and are reviewed for impairment when warranted by economic conditions. See Notes for further details on Intangible Assets and Goodwill Financial Instruments As required by US. GAAP, all derivative instruments are recorded on the balance sheet at fair value. Fair value is the exit price that would be received to sell an asset or paid to transfer a liability, Fair value is a market-based measurement determined using assumptions that market participants would use in pricing an asset or liability. The authoritative literature establishes a three-level hierarchy to prioritize the inputs used in m asuring fair value, with Level 1 having the highest priority and Level having the lowest Changes in the fair value of derivatives are recorded each period is current earnings or other comprehensive income, depending on whether the derivative is designated as part of a hedge transaction, and if so, the type of hedge transaction The Company documents all relationships between hedged items and derivatives. The overall risk management strategy includes rens for undertaking hedge transactions and entering into derivatives. The objectives of this strategy are: (1) minimize foreign currency exposure's impact on the Company's financial performance (2) protect the Company's cash flow from adverse movements in foreign exchange rates; (3) ensure the appropriateness of financial instruments, and (4) manage the enterprise risk associated with financial institutions. See Note 6 for additional infomation on Financial Instruments Product Llawly Accruals for product liability claims are recorded, on an undiscounted basis, when it is probable that liability has been incurred and the meat of the liability can be reasonably estimated based on existing information and actuarially determined estimates where applicable. The areas are adjusted periodically as additional information becomes available. The Company accrues an estimate of the legal defense costs needed to defend each matter when those costs are probable and can be reasonably estimated. To the extent adverse verdicts have been rendered against the Company, the Company does not record an accrual until a loss is determined to be probable and can be reasonably estimated As a result of cost and availability factors, elective November 1, 2005, the Company ceased purchasing thind party product liability in c e. The Company has self insurance through a wholly-owned captive rance company is addition to accruals in the finance program, class that exceed the insurance coverage are accrued when losses are probable and amounts can be reasonably estimated presented in the financial statements. The Company's operating leases will result in the recognition of additional assets and the corresponding liabilities on its Consolidated Balance Sheets. The adoption of this standard will not have a material impact on the Company's consolidated financial statements. Cash Equivalents The Company classifies all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months from the date of purchase as current marketable securities. The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating. The Company invests its cash primarily in govemment securities and obligations, corporate debt securities, money market funds and reverse repurchase agreements (RRAS). RRAs are collateralized by deposits in the form of Goverment Securities and Obligations for an amount not less than 102% of their value. The Company does not record an asset or liability as the Company is not permitted to sell or repledge the associated collateral. The Company has a policy that the collateral has at least an A (or equivalent) credit rating. The Company utilizes a third party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the RRAs on a daily basis. RRAs with stated maturities of greater than three months from the date of purchase are classified as marketable securities. Investments Investments classified as held to maturity investments are reported at amortized cost and realized gains or losses are reported in camings. Investments classified as available-for-sale are carried at estimated fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income. Available for sale securities available for current operations are classified as current assets otherwise, they are classified as long term Management determines the appropriate classification of its investment in debt and equity securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company reviews its investments in equity securities for impaiment and adjusts these investments to fair value through eamings, as required. Property, Plant and Equipment and Depreciation Property, plant and equipment are stated at cost. The Company utilizes the straight-line method of depreciation over the estimated useful lives of the assets: 20 - 30 years Building and building equipment 10 - 20 years Land and leasehold improvements 2- 13 years Machinery and equipment The Company capitalizes certain computer software and development costs, included in machinery and equipment, when incurred in connection with developing or obtaining computer software for intemal use. Capitalized software cots are amortized over the estimated useful lives of the software, which generally range from 3 to 8 years. The Company reviews long-lived assets to assess recoverability using undiscounted cash flow. When certain events or changes in operating or economic conditions occur, an impaiment assessment may be performed on the recoverability of the carrying value of these assets. If the asset is determined to be impaired, the loss is measured based on the difference between the asset's fair value and its carrying value. If quoted market prices are not available, the Company will estimate fair value using a discounted value of estimated future cash flows. Revenue Recognition The Company recognizes revenue from product sales when obligations under the terms of a contract with the customer are satisfied generally, this occurs with the transfer of control of the goods to customers. The Company's global payment terms are typically between 30 to 90 days. Provisions for certain rebates, sales incentives, trade promotions, coupons, product retums and discounts to customers are accounted for 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 consideration of competitor pricing. Rebates are estimated based on contractual terms, historical experience, patient outcomes, trend analysis and projected market conditions in the various markets served. 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 retums information Products that exhibit unusual sales or retum pattems due to dating competition or other marketing matters are specifically investigated and analyzed as part of the accounting for sales retam accruals. Sales retums 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 alia as the Company generally issues credit to U U 12 U 100% 4. Property, Plant and Equipment At the end of 2018 and 2017, property, plant and equipment at cost and comel (Dollars ia Miss Land and land improvements Buildings and building equipment Machinery and equipment Construction in progress Total property, plant and equipment, gross Les accumulated depreciation Total property, plant and equipment, net Net ofb eld for sale on the sided BlueSheet for a billion t o the regie obowi with Jabillne, both of which were pending of real 2013 The Company capitalines interest expense as part of the cost of construction of facilities and Inte expense capitained in 2018, 2017 and 2016 was 586 million, 594 million and $10 million, respectively Depreciation expense, including the mo tion of capitalized interest in 2018 2017 2016 2,6 Million $2.6 billion and $2 billion respectively Upon retirement or other disposal of property, plant and equipment, the co l lants of accumulated depreciation of morti eliminated from these and oculared depreciation accounts, respectively. The difference, Itany, beseen the net asset value and the proceeds are recorded in earnings 35.194 15 410T 5. Intangible Assets and Goodwill At the end of 2018 and 2017, the grow and net amounts of integible we were (Dallari Intangible assets with definite lives Patents and trademarks oss Less accumulated amortization Patents and trademarks -- net Customer relationships and other intangibles gross Less accumulated amortization Customer relationships and other intangibles Intangible assets with indefinite lives Trademarks Purchased in process research and development Total intangible assets with indefinite lives Total intangible assets-net There was primary axbable to the widow of si bon cxoil of the Libii, the Company and a part charge of tend of Respiratory Syncytial (RSV) und e i ne (MMPV) update blood the where the even of factors and the ongoing wysis of event s , develgement project for the body we the 2015 XI define lived imples por comme 47.611 e s of Alone ( A XOIL e desde of AL812 veg g for the the 2014 of All The pro b ado ing of the b e st w h ile ended the othe SOS IPA S RADA JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1) 2017 2016 71,890 21,789 50.101 20,067 9.143 Sales to customers Cost of products sold Gross profit Selling, marketing and administrative expenses Research and development expense In-process research and development Interest income Interest expense, net of portion capitalized (Note 4) Other (income) expense, net Restructuring (Note 22) Earnings before provision for taxes on income Provision for taxes on income (Note 8) Net earnings 2018 81,581 27,091 54,490 22,540 10,775 1.126 (611) 1,005 1,405 251 17,999 2,702 15,297 76,450 25,439 51,011 21,520 10,594 408 (385) 934 (42) 309 17,673 16,373 1.300 (368) 726 210 491 19,803 3,263 16.540 5.70 6.04 0.48 0.47 5.61 Net earnings per share (Notes 1 and 15) Basic Diluted Average shares outstanding (Notes 1 and 15) Basie Diluted *Prior years amounts were reclassified to conform to current year presentation (adoption of ASU 2017.07) 2,737.3 2.681.5 2,728.7 2,692.0 2.745.1 See Notes to Consolidated Financial Statements Question 6 Which of Johnson & Johnson's accounts is a current liability? a. Accounts receivable,net. b. Accrued liabilities. oc Deferred taxes on income d. Long-term debt. Question 7 At the most recent balance sheet date. Johnson & Johnson urrent liabilities were a larger percentage of total liabilities than its non current liabilities a. True b. False. estion 8 At the most recent balance date, the amount of cash that Johnson & Johnson expected to collect from its customers from sales on credit was in millions a $22.201 b. $14.098 c. 5248 d. $81,581 Jestion 9 Which of Johnson & Johnson's balance sheet accounts represents future cash outflows for expenses already incurred? a. Accounts payable. b. Prepaid Expenses. c. Accounts receivable.net. d. Accrued liabilities. Question 10 At the most recent balance sheet date, the amount of cash Johnson & Johnson collected in advance of providing goods to customers was in millions a $14,098 b. 57.601 c. $2.699 Od 50