JOHNSON A JOHNSON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AI December 3e, 2018 and December 31, 2017 (Dollars in Millios Except Share and Per Share Amoun (Nete 1) 2018 2017 Assets Curreat asets Cash and cash equivalents (Notes I and 2) Marketable securities (Notes I and 2) 18107 17824 1580 472 Accounts receivable trade, less allowances for doubtful accousts $248 (2017, 5291) 14.098 13,490 Inventories (Notes I and 3) 8599 8.765 Prepaid expenses and other receivables 2,699 2,537 Assets held for sale (Note 20) 950 46.033 Tetal current assets 43,a88 17.035 47611 Property, plant and equipment, net (Notes I and 4) Intangible assets, net (Notes I and 5) 17.005 53.228 31906 30,453 Goodwill (Notes I and 5) 7,105 Defemed taxes on income (Note 8) 7,640 4,182 4,971 Other assets 152954 157,303 Tetal assets Liabilities and Shareholders' Equity Carreat liabilities Loans and notes payable Note 7) Accounts payable Accrued liabilities Accrued rebates, retums and promotions 3.906 2,796 7537 7310 7,601 7304 7210 9,380 2953 L354 3,098 Accrued compensation and employee elated obligations Aconied taxes on income (NoteR) S18 30537 31.230 Total cerrent liabilides 30675 27,684 Long-em debt (Note 7) Defemed taxes en income (Note 8) 7.506 10,074 9,951 Employee elated obligations (Notes 9 and 10) Long-tem tases payable (Note 8) Other liabilities Tetal liabilides 8472 8242 9017 97.143 93.202 Sharehelders' equity Prefered stock-without par value (authorized and unissued 2.000,000 shares) Common stock-par value SI00 per share (Note 12) (muthorized4320.000.000 hares issed 3,119,843,000 shares) Accumulated otcher comprehensive income (loss) (Note 13) Retained eamings 3,120 (13,199) 101,793 3,120 15222) 106216 91714 31.554 94114 34,362 Less: common stock held in treasury, at cost (Note 12)(457,519,000 shares and 437.JI8000 sham 59,752 Tetal shareholders' equity 157303 152,954 Tetal liabilides and shareholders' equity See Notes to Consolidated Financial Satements JOHNSON A JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dellars in Mallen te 2017 Cash ews frm prg tde Net ings 16540 Mjte ncle net mings h f on oping vte Depreciion ndoriion of propeny d Stock hased compnsaon 3.754 Asset wredow 1258 79 Gain on sale of t n Defed provi Acelt ble awan Chnge ed , of effoc fom aquiitons d divet 10.a1) 2406 04 Increase o ovale (433) (LMS) dsrt ein iv e (644) Increse om eyeed wned Incree ine o do (Decreytoo er Net ch tremp g the Cash fes e g 2725 456 (275) (19 Enm-comehios a,340 (5 18747 Addion propeny, pland opupennt Proed tem he dpal of te, et Acquisi Punha Sales of invest 1, 1.267 et of cash acquend (Ne 20 OS1S) (4,50 33,9 35.T (464 (234 Oer irily ntgbien Net ch edby ng 14.76) Cash flew fre feng te Dividende to shatede Rapundaeof comm Prood f hon em d Rutran ofhened Praced fe kong , et of iance costs Re Pred fm e ce of k opt wihhelding te e GAN (130) 12.04 (177) k , et (4) (I Oher TATN (ILSI Ne c edby fiencing acte Efst ef nchang changen on bdc IomtD chnd ce ogual le 0,148 fyor Ne) I734 I8972 Cahnd ch uiva 1T14 Cash nd c qalva,df year Nete Sepplmtl eh few dat Cah paid during he yo for Taountald 2343 JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (Dollars in Millions) (Note 1) Accumulated Other Treasury Stock Amount Retained Comprehensive Income Common Stock Total Earnings Issued Amount Balance, January 3, 2016 Net camings (13,165) 71,150 103,879 3,120 (22,684) 16,540 16,540 (8,621) Cash dividends paid (S3.15 per share) (8,621) 3,311 Employee compensation and stock option plans Repurchase of common stock (1,181) 2,130 (8,979) (8,979) (66) (66) Other (1,736) (1,736) Other comprehensive income (loss), net of tax (14,901) 3,120 (28.352) 110,551 70,418 Balance, January 1, 2017 1,300 1,300 Net eamings (8,943) Cash dividends paid (53.32 per share) Employee compensation and stock option plans Repurchase of common stock (8,943) 3,156 (1,079) 2,077 (6,358) (6,358) (36) (36) Other 1.702 1,702 Other comprehemsive income (loss), net of tax (31,554) (13,199) 3,120 101,793 60,160 Balance, December 31, 2017 (232) (486) Cumulative adjustment 15.297 15,297 Net eamings Cash dividends paid ($3.54 per share) Employee compensation and stock option plans Repurchase of common stock (9494) (9,494) 3,060 (1,111) 1,949 (5,868) (5,868) (15) (15) Other (1,791) (1,791) Other comprehensive income (loss), net of tax (34,362) 3,120 (15,222) 106,216 59,752 Balance, December 30, 2018 I to Consolidated Financial Statements for additional details on the effect of cumulative adjustments to retained carnings ) See Note See Notes to Consolidated Financial Statements 38 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 cumrent 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, corponte debt securities, money market funds and reverse repurchase agreements (RRAS). RRAS are collateralized by deposits in the fom of Govemment 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 pemitted 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 collateml 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 eamings. 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 tem. 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 10-20 yean 2-13 years Building and building equipment Land and leasehold improvements Machinery and equipment The Company capitalizes certain computer software and development costs, included in machinery and equipment, when incured in connection with developing or obtaining computer software for intemal use. Capitalized software colts are amortized over the estimated useful lives of the software, which genemally range firom 3 to 8 years. The Company reviews long-lived assets to assess ecoverability using undiscounted cash flows. When certain events or changes in operating or economic conditions occur, an impaiment assessment may be perfomed 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 canrying 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 tems are typically between 30 to 90 days. Provisions for certain rebates, sales incentives, trade promotions, coupons, product retums and discounts to customens are accounted for as variable consideration and reconded as a reduction in sales. Product discounts granted are based on the tems of aangements with direct, indirect and other market participants, as well as market conditions, including consideration of competitor pricing. Rebates are estimated based on contractual tems, 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 intemally generated infomation. Sales retums 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 retum accnuals Sales retums allowances represent a reserve for products that may be retumed due to expiration, destruction in the field, or in specific areas, product recall. The sales retuns reserve is based on historical retum trends by product and by market as a percent to grosss sales In accondance with the Company's waliaier th Company generally issues credit to 100% 4. Preperty, Plant and Equipment At the end of 2018 and 2017. property, plant and equipment at cont and accumolated depeeciatioe were: (Dellars in Mle 2018 2017 Land and land improvements Buildings and building equipment Machinery and equipment Constraction in pogres Total property. plant and equipment, gross Less accumulated depreciation Total property.plant and equipment, set O Net of asets held for sale on the Consoldaed Balanoe Sheet for epinaly $0 ee reled o he divestiune of the Advancel Seriliadion Product bins and 50.1 billion related o the segic collaboration with Jabil In hoth of which were pding wof Deceeber 30, 2018. s07 829 11.176 11,240 25,992 25.949 3876 3,448 41.851 41.466 24,816 24,461 17.005 17.035 0 The Company capitalizes interest expense as pan of the cost of construction of facilities and nuipnnt Inteest expense capitalined in 2018, 2017 and 2016 was $86 million, $94 million and $102 million, respectively. Depreciation expense, including the anonization of capitalized interest in 20IN, 2017 and 2016 was $2.6 billion, $26 billion and $25 billion, respectively. Upon retirement or other dispoal of propernty.plant and equipment, the cots and related aments of accoulated depreciation or amortization are eliminated from the asset and accuulated depeciarion accounts, respectively. The difference, ifany, beteen the net asset value and the poceeds are receeded in eamings 5. Intangible Amets and Goodwill At the end of 2018 and 2017, the gros and net amounts of intangible asets were 2018 2017 (Dallars in Milien Intangihde amets with definite lives Patents and trademarks- gross Less accumulated amortization 35,194 36,427 7223 9,784 25,410 29,204 Patents and trademarksnet 21334 20,204 Customer elationships and other intangiblesgs 7463 8323 Less accumulated amortization 13.011 12,741 Customer elationships and other intangihles et Intangible assets with indefinite livese 7O82 6,937 Trademarks Purchased in pocess reseanch and developnent Total intangible assets with indefinite lives Total intangible assets- net The decre was prianly erbuable o he wredown of SI.I Nos eled o the uired in the itces of Alis eph Inc. (Alo)d XOI Liited (XOI or he SLI bilion, de Coepany rordeda panial painne charge of So reament of Respiraory Syncytal Vina (RSV)and bunan ina MPV)qued wih the 2014 agaon of Alis. The impairmet charge w calulated baed on updaled cah flew peojetions discoued far the inherent ka the asset devdepent and rele the inpect of the phase 2b cdinil dpansiond e nthe pbablity of succms facors and the ongng ealysis ofat devekpesntavide d , epime chege develpeent project for antioobin body socted with the 2015 on ofX01. A aly, S ion of PRADad LEADATN lassified define ved intngble t pon commerlati 4,201 2,253 11283 9.190 53.218 S 47411 the vesigatenal dug f ohe devekneet peogram of AL-BI of the eeded far the do billen w JOHNSON & JOHNSON AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Dollars and Shares in Millions Except Per Share Amounts) (Note 1) 2018 2017 2016 Sales to customers %24 71,890 81,581 76,450 Cost of products sold Gross profit Selling, marketing and administrative expenses 27,091 25,439 21,789 50,101 20,067 54,490 51,011 22,540 21,520 10,594 9,143 10,775 Research and development expense 408 1,126 29 In-process research and development (368) (611) (385) Interest income 726 934 1,005 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) (42) 210 1,405 309 491 251 17,999 17,673 19,803 3,263 16,373 2,702 16,540 15,297 1,300 Net earnings Net earnings per share (Notes I and 15) 6.04 0.48 5.70 Basic 5.93 0.47 5.61 Diluted Average shares outstanding (Notes I and 15) 2,737.3 2,692.0 2,681.5 2,788.9 Basic 2,745.3 2,728.7 Diluted *Prior years amounts were reclassified to confom to cumrent year presentation (adoption of ASU 2017-07) See Notes to Consolidated Financial Statements Calculate Johnson & Johnson's return on assets ratio (net earnings /total assets) for the last two reporting periods. Round to two decimal places. Based on the company's return on assets ratio, the company's management used its assets more efficiently to generate earnings used its assets less efficiently to generate earnings. used earnings more efficiently to generate assets. o d. used earnings less efficiently to generate assets. Johnson & Johnson increased which account when it originally issued shares of its stock for cash? Retained earnings a. Short-term investments b. Common stock O C. d. Long-term investments At the most recent balance sheet date, Johnson & Johnson's shareholder claims to the company's assets totaled (in millions): $152,954 Oa. $3,120 b. $59,752 Od. $106,216 uestion 14 At the most recent balance sheet date, Johnson & Johnson's contributed capital totaled (in millions): $3.120 a. b. $34,362 $106,216 C. $94,114 Johnson & Johnson's undistributed earnings at the most recent balance sheet date was (in millions): $94.114 a. O b. $3,120 $106,216 $59,752 Od