JOHNSON & JOHNSON (Form: 10-Q, Received: 05/01/2018 16:48:11)

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 April 1, 2018




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

(Exact name of registrant as specified in its charter)



NEW JERSEY (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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 filer þ		Accelerated filer o
	Non-accelerated filer o		(Do not check if a smaller reporting company)
	Smaller reporting company o		Emerging growth company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

On April 26, 2018, 2,682,149,964 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 — April 1, 2018 and December 31, 2017		1

Consolidated Statements of Earnings for the Fiscal First Quarters Ended April 1, 2018 and April 2, 2017		2

Consolidated Statements of Comprehensive Income for the Fiscal First Quarters Ended April 1, 2018 and April 2, 2017		3

Consolidated Statements of Cash Flows for the Fiscal Three Months Ended April 1, 2018 and April 2, 2017		4

Notes to Consolidated Financial Statements		5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		39

Item 3. Quantitative and Qualitative Disclosures About Market Risk		48

Item 4. Controls and Procedures		48

Part II — Other Information		49

Item 1 - Legal Proceedings		49

Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds		49

Item 6 - Exhibits		49

Signatures		50
EX-10.1
EX-10.2
EX-10.3
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, 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 on the basis of 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 and reputational damage;


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


•	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;


•	Changes in tax laws and regulations, including changes related to The Tax Cuts and Jobs Act in the United States, 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, 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;


•	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, including the integration of Actelion Ltd., 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 future restructuring actions may not be realized or may take longer to realize than expected, including due to any required consultation procedures relating to restructuring of workforce.

Risks Related to Economic Conditions, Financial Markets and Operating Internationally


•	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 or 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, and those of the Company's vendors, 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 consultation procedures relating to restructuring of workforce and 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, 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.

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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)



	April 1, 2018			December 31, 2017
ASSETS
Current assets:
Cash and cash equivalents	$	14,639		17,824
Marketable securities	565			472
Accounts receivable, trade, less allowances for doubtful accounts $281 (2017, $291)	14,166			13,490
Inventories (Note 2)	9,014			8,765
Prepaid expenses and other	2,641			2,537
Assets held for sale (Note 10)	1,743			—
Total current assets	42,768			43,088
Property, plant and equipment at cost	41,996			41,466
Less: accumulated depreciation	(24,956		)	(24,461	)
Property, plant and equipment, net	17,040			17,005
Intangible assets, net (Note 3)	52,365			53,228
Goodwill (Note 3)	31,149			31,906
Deferred taxes on income	8,785			7,105
Other assets	4,518			4,971
Total assets	$	156,625		157,303
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Loans and notes payable	$	2,696		3,906
Accounts payable	6,443			7,310
Accrued liabilities	6,535			7,304
Accrued rebates, returns and promotions	7,956			7,210
Accrued compensation and employee related obligations	1,892			2,953
Accrued taxes on income	1,559			1,854
Total current liabilities	27,081			30,537
Long-term debt (Note 4)	29,837			30,675
Deferred taxes on income	8,057			8,368
Employee related obligations	10,066			10,074
Long-term taxes payable	9,453			8,472
Other liabilities	8,876			9,017
Total liabilities	93,370			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)	(12,608		)	(13,199	)
Retained earnings	104,339			101,793
Less: common stock held in treasury, at cost (437,654,000 and 437,318,000 shares)	31,596			31,554
Total shareholders’ equity	63,255			60,160
Total liabilities and shareholders' equity	$	156,625		157,303

See Notes to Consolidated Financial Statements

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JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited; Dollars & Shares in Millions Except Per Share Amounts)



	Fiscal First Quarters Ended
	April 1, 2018			Percent to Sales		April 2, 2017			Percent to Sales
Sales to customers (Note 9)	$	20,009		100.0	%	$	17,766		100.0	%
Cost of products sold	6,614			33.1		5,409			30.4
Gross profit	13,395			66.9		12,357			69.6
Selling, marketing and administrative expenses	5,263			26.3		4,763			26.8
Research and development expense	2,404			12.0		2,070			11.7
Interest income	(114		)	(0.6	)	(121		)	(0.7	)
Interest expense, net of portion capitalized	259			1.3		204			1.2
Other (income) expense, net	60			0.3		(219		)	(1.3	)
Restructuring (Note 12)	42			0.2		85			0.5
Earnings before provision for taxes on income	5,481			27.4		5,575			31.4
Provision for taxes on income (Note 5)	1,114			5.6		1,153			6.5
NET EARNINGS	$	4,367		21.8	%	$	4,422		24.9	%

NET EARNINGS PER SHARE (Note 8)
Basic	$	1.63				$	1.63
Diluted	$	1.60				$	1.61
CASH DIVIDENDS PER SHARE	$	0.84				$	0.80
AVG. SHARES OUTSTANDING
Basic	2,682.2					2,706.6
Diluted	2,731.9					2,754.5

Prior year amounts have been reclassified to conform to current year presentation

See Notes to Consolidated Financial Statements

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JOHNSON & JOHNSON AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited; Dollars in Millions)



	Fiscal Three Months Ended
	April 1, 2018			April 2, 2017

Net earnings	$	4,367		4,422

Other comprehensive income (loss), net of tax
Foreign currency translation	623			395

Securities: ⁽¹⁾
Unrealized holding gain (loss) arising during period	—			89
Reclassifications to earnings	—			(179	)
Net change	—			(90	)

Employee benefit plans:
Prior service cost amortization during period	(6		)	(4	)
Gain (loss) amortization during period	192			123
Net change	186			119

Derivatives & hedges:
Unrealized gain (loss) arising during period	(164		)	(224	)
Reclassifications to earnings	178			179
Net change	14			(45	)

Other comprehensive income (loss)	823			379

Comprehensive income	$	5,190		4,801

⁽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 first quarters were as follows for 2018 and 2017, respectively: Foreign Currency Translation: $163 million in 2018 due to the enactment of the U.S. Tax Cuts and Jobs Act; Securities: $0 million and $48 million; Employee Benefit Plans: $52 million and $60 million; Derivatives & Hedges: $4 million and $24 million.

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

	Fiscal Three Months Ended
	April 1, 2018			April 2, 2017
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings	$	4,367		4,422
Adjustments to reconcile net earnings to cash flows from operating activities:
Depreciation and amortization of property and intangibles	1,746			912
Stock based compensation	268			229
Asset write-downs	—			37
Deferred tax provision	44			(27	)
Accounts receivable allowances	(20		)	(13	)
Changes in assets and liabilities, net of effects from acquisitions and divestitures:
Increase in accounts receivable	(479		)	(96	)
Increase in inventories	(322		)	(368	)
Decrease in accounts payable and accrued liabilities	(1,686		)	(2,030	)
Increase in other current and non-current assets	(907		)	(424	)
Increase in other current and non-current liabilities	595			271

NET CASH FLOWS FROM OPERATING ACTIVITIES	3,606			2,913

CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment	(658		)	(560	)
Proceeds from the disposal of assets/businesses, net	20			31
Acquisitions, net of cash acquired	(82		)	(4,852	)
Purchases of investments	(548		)	(4,550	)
Sales of investments	341			8,994
Other	2			1

NET CASH USED BY INVESTING ACTIVITIES	(925		)	(936	)

CASH FLOWS FROM FINANCING ACTIVITIES
Dividends to shareholders	(2,253		)	(2,171	)
Repurchase of common stock	(1,444		)	(3,342	)
Proceeds from short-term debt	26			719
Retirement of short-term debt	(2,484		)	(195	)
Proceeds from long-term debt, net of issuance costs	2			4,464
Retirement of long-term debt	(8		)	(2	)
Proceeds from the exercise of stock options/employee withholding tax on stock awards, net	66			402
Other	125			(25	)

NET CASH USED BY FINANCING ACTIVITIES	(5,970		)	(150	)

Effect of exchange rate changes on cash and cash equivalents	104			110
(Decrease)/Increase in cash and cash equivalents	(3,185		)	1,937
Cash and Cash equivalents, beginning of period	17,824			18,972
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	14,639		20,909

Acquisitions
Fair value of assets acquired	$	119		5,250
Fair value of liabilities assumed and noncontrolling interests	(37		)	(398	)
Net cash paid for acquisitions	$	82		4,852

Prior year amounts have been reclassified to conform to current year presentation

See Notes to Consolidated Financial Statements

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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, 2017 . 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.

New Accounting Standards

Recently Adopted Accounting Standards

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 occurs 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 three months ended April 1, 2018
(Dollars in millions)	As Reported		Effect of change		Balance without adoption of ASC 606
Sales to customers	$	20,009	(29	)	19,980

Net earnings	4,367		(25	)	4,342

Balance Sheet - As of April 1, 2018
	As Reported		Effect of change		Balance without adoption of ASC 606
Assets	156,625		19		156,644
Liabilities	93,370		(3	)	93,367

Equity	$	63,255	22		63,277

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, which include the Medicaid rebate provision, 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.

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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. The Company also earns service revenue for co-promotion of certain products, which is included in sales to customers. These arrangements are evaluated to determine the appropriate amounts to be deferred or recorded as a reduction of revenue.

ASU 2016-01 : Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities

The Company adopted this standard as of the beginning of the fiscal year 2018 on a modified retrospective 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 Company does not expect the adoption of this standard to have a significant impact on the Company's 2018 financial results.

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 first quarter Consolidated Statement of Earnings to retroactively apply classification of the service cost component and the other components of NPBC:

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(Dollars In millions)	Increase (Decrease) to Net Expense
Cost of products sold	$	23
Selling, marketing and administrative expenses	26
Research and development expense	10
Other (income) expense, net	(59		)
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 April 1, 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 2017-12 : Targeted Improvements to Accounting for Hedging Activities

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. 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 is planning to early adopt this standard in the fiscal second quarter of 2018 and does not expect the adoption to have a material impact on its 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 leases 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. The Company anticipates that most of its operating leases will result in the recognition of additional assets and the corresponding liabilities on its Consolidated Balance Sheets, however it does not expect the standard to have a material impact on the financial position. The actual impact will depend on the Company's lease portfolio at the time of adoption. The Company continues to assess all implications of the standard and related financial disclosures.

NOTE 2 — INVENTORIES



(Dollars in Millions)	April 1, 2018		December 31, 2017
Raw materials and supplies	$	1,200	1,140
Goods in process	2,339		2,317
Finished goods	5,475		5,308
Total inventories ⁽¹⁾	$	9,014	8,765

⁽¹⁾ Net 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 April 1, 2018

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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 2017 . 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)	April 1, 2018		December 31, 2017
Intangible assets with definite lives:
Patents and trademarks — gross	$	35,980	36,427
Less accumulated amortization	7,594		7,223
Patents and trademarks — net ⁽¹⁾	28,386		29,204
Customer relationships and other intangibles — gross	21,141		20,204
Less accumulated amortization	7,748		7,463
Customer relationships and other intangibles — net	13,393		12,741
Intangible assets with indefinite lives:
Trademarks	7,113		7,082
Purchased in-process research and development	3,473		4,201
Total intangible assets with indefinite lives	10,586		11,283
Total intangible assets — net	$	52,365	53,228

⁽¹⁾ Net of approximately $0.6 billion classified as assets held for sale on the Consolidated Balance Sheet. $0.5 billion is related to the divestiture of Valchlor and $0.1 billion is related to the divestiture of the LifeScan business, both of which were pending as of April 1, 2018.

Goodwill as of April 1, 2018 was allocated by segment of business as follows:



(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	—		—	53			53
Goodwill, related to divestitures	—		—	—			—
Currency translation/Other	24		147	(981	)	(1)	(810	)
Goodwill, net at April 1, 2018	$	8,899	9,256	12,994			31,149

⁽¹⁾ Net of approximately $1.0 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 April 1, 2018.

The weighted average amortization periods for patents and trademarks and customer relationships and other intangible assets are 11 years and 22 years, respectively. The amortization expense of amortizable intangible assets included in cost of products sold was $1.1 billion and $0.3 billion for the fiscal three months ended April 1, 2018 and April 2, 2017 , respectively. The estimated amortization expense for the five succeeding years approximates $4.4 billion , before tax, per year. Intangible asset write-downs 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 products and third-party purchases of materials denominated in a foreign currency. The Company uses cross currency interest rate swaps to manage currency risk primarily related to borrowings.

The Company also uses equity collar contracts to manage exposure to market risk associated with certain equity investments.

All three types of derivatives are designated as cash flow hedges.

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 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

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the fair values of these derivatives are recognized in earnings, thereby offsetting the current earnings effect of the related foreign currency assets and liabilities.

The Company does not enter into derivative financial instruments for trading or speculative purposes, or that contain credit risk related contingent features. During the fiscal second quarter of 2017, the Company entered into credit support agreements (CSA) with certain derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. As of April 1, 2018 , the total amount of collateral paid under the credit support agreements amounted to $32 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 April 1, 2018 , the Company had notional amounts outstanding for forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps of $35.3 billion , $2.3 billion and $1.1 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. Changes in the fair value of a derivative that is designated as a cash flow hedge and is highly effective 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. On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsetting changes of hedged items. If a derivative is no longer expected to be highly effective, hedge accounting is discontinued. Hedge ineffectiveness, if any, is included in current period earnings in Other (income) expense, net for forward foreign exchange contracts, cross currency interest rate swaps, net investment hedges and equity collar contracts. For interest rate swaps designated as fair value hedges, hedge ineffectiveness, if any, is included in current period earnings within interest expense. For the current reporting period, hedge ineffectiveness associated with interest rate swaps was not material.

During the fiscal second quarter of 2016, the Company designated its Euro denominated notes issued in May 2016 with due dates ranging from 2022 to 2035 as a net investment hedge of the Company's investments in certain of its international subsidiaries that use the Euro as their functional currency in order to reduce the volatility caused by changes in exchange rates.

The change in the carrying value due to remeasurement of these Euro notes resulted in a $150 million unrealized pretax loss for the fiscal first quarter of April 1, 2018 reflected in foreign currency translation adjustment, within the Consolidated Statements of Comprehensive Income. The change in the carrying value due to remeasurement of these Euro notes resulted in a cumulative $372 million unrealized pretax loss from hedge inception through the fiscal first quarter of 2018, reflected in foreign currency translation adjustment, within the Consolidated Statements of Comprehensive Income.

As of April 1, 2018 , the balance of deferred net gains on derivatives included in accumulated other comprehensive income was $84 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.

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The following table is a summary of the activity related to derivatives designated as cash flow hedges for the fiscal first quarters in 2018 and 2017 :



	Gain/(Loss) Recognized In Accumulated OCI ⁽¹⁾					Gain/(Loss) Reclassified From Accumulated OCI Into Income ⁽¹⁾				Gain/(Loss) Recognized In Other Income/Expense ⁽²⁾
(Dollars in Millions)	Fiscal First Quarters Ended
Cash Flow Hedges By Income Statement Caption	April 1, 2018			April 2, 2017		April 1, 2018		April 2, 2017		April 1, 2018	April 2, 2017
Sales to customers ⁽³⁾	$	31		(13	)	29		(33	)	—	—
Cost of products sold ⁽³⁾	3			(97	)	2		(31	)	12	(17	)
Research and development expense ⁽³⁾	(237		)	(109	)	(238	)	(102	)	—	5
Interest (income)/Interest expense, net ⁽⁴⁾	57			28		40		22		—	—
Other (income) expense, net ^{(3) (5)}	(18		)	(33	)	(11	)	(35	)	5	1
Total	$	(164	)	(224	)	(178	)	(179	)	17	(11	)

All amounts shown in the table above are net of tax.

⁽¹⁾ Effective portion

⁽²⁾ Ineffective portion

⁽³⁾ Forward foreign exchange contracts

⁽⁴⁾ Cross currency interest rate swaps

⁽⁵⁾ Includes equity collar contracts. The equity collar contracts expired in December of 2017

For the fiscal first quarters ended April 1, 2018 and April 2, 2017 , a loss of $19 million and $29 million , respectively, was recognized in Other (income) expense, net, relating to forward foreign exchange contracts not designated as hedging instruments.

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The Company adopted ASU 2016-01: Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities as of the beginning of the fiscal year 2018. This ASU amends prior guidance to classify equity investments with readily determinable market values into different categories (that is, trading or available-for-sale) 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.

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 for the fiscal first quarter of 2018:



(Dollars in Millions)	December 31, 2017					April 1, 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	(27	)	7	731	731

Equity Investments without readily determinable value	$	510	(20	)	83	573	573

⁽¹⁾ Recorded in Other Income/Expense

⁽²⁾ Other includes impact of currency

For equity investments without readily determinable market values, $20 million of the changes in fair value reflected in net income that were the result of impairments. There were no changes related to adjustments due to changes in observable prices.

For the fiscal first quarter ended April 2, 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 $349 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 establishes a three-level hierarchy 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 other significant financial assets or liabilities which would require revised valuations under this standard that are recognized at fair value.

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.

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The Company’s significant financial assets and liabilities measured at fair value as of April 1, 2018 and December 31, 2017 were as follows:



	April 1, 2018					December 31, 2017
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total ⁽¹⁾
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts ^{(7) (8)}	$	—	351	—	351	342
Interest rate contracts ⁽²⁾⁽⁴⁾	—		3	—	3	7
Total	—		354	—	354	349
Liabilities:
Forward foreign exchange contracts ^{(7) (9)}	—		269	—	269	314
Interest rate contracts ^{(3)(4)(7) (10)}	—		19	—	19	15
Total	—		288	—	288	329
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts	—		25	—	25	38
Liabilities:
Forward foreign exchange contracts	—		53	—	53	38
Other Investments:
Equity investments ⁽⁵⁾	731		—	—	731	751
Debt securities ⁽⁶⁾	$	—	2,967	—	2,967	5,310


⁽¹⁾	2017 assets and liabilities are all classified as Level 2 with the exception of equity investments of $751 million , which are classified as Level 1.


⁽²⁾	Includes $2 million and $7 million of non-current other assets for April 1, 2018 and December 31, 2017, respectively.


⁽³⁾	Includes $14 million and $9 million of non-current other liabilities for April 1, 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 $731 million and $751 million as of April 1, 2018 and December 31, 2017, respectively.


⁽⁶⁾	Classified as cash equivalents and current marketable securities.


⁽⁷⁾	Includes collateral exchanged on the credit support agreements on derivatives


⁽⁸⁾	Forward foreign exchange contracts excluding CSA were $478 million and $418 million for April 1, 2018 and December 31, 2017, respectively.


⁽⁹⁾	Forward foreign exchange contracts excluding CSA were $364 million and $402 million for April 1, 2018 and December 31, 2017, respectively.


⁽¹⁰⁾	Interest rate contracts excluding CSA were $83 million and $165 million for April 1, 2018 and December 31, 2017, respectively.

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The Company's cash, cash equivalents and current marketable securities as of April 1, 2018 comprised:



	April 1, 2018
(Dollars in Millions)	Carrying Amount		Estimated Fair Value	Cash & Cash Equivalents	Current Marketable Securities
Cash	$	2,656	2,656	2,656
Other Sovereign Securities ⁽¹⁾	529		529	529
U.S. Reverse repurchase agreements	2,682		2,682	2,682
Other Reverse repurchase agreements	398		398	398
Corporate debt securities ⁽¹⁾	1,869		1,869	1,864	5
Money market funds	2,944		2,944	2,944
Time deposits ⁽¹⁾	1,159		1,159	1,159
Subtotal	12,237		12,237	12,232	5


Gov't securities	2,705		2,705	2,370	335
Other Sovereign Securities	2		2	—	2
Corporate debt securities	260		260	37	223
Subtotal available for sale debt ⁽²⁾	$	2,967	2,967	2,407	560
Total cash, cash equivalents and current marketable securities				14,639	565

⁽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 first quarter ended April 1, 2018 and the fiscal year ended December 31, 2017 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 April 1, 2018 are as follows:



(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	2,887	2,887
Due after one year through five years	80		80
Due after five years through ten years	—		—
Total debt securities	$	2,967	2,967

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Financial Instruments not measured at Fair Value:

The following financial liabilities are held at carrying amount on the consolidated balance sheet as of April 1, 2018 :



(Dollars in Millions)	Carrying Amount		Estimated Fair Value

Financial Liabilities

Current Debt	$	2,696	2,696

Non-Current Debt
4.75% Notes due 2019 (1B Euro 1.2323)	1,230		1,330
1.875% Notes due 2019	495		492
3% Zero Coupon Convertible Subordinated Debentures due in 2020	52		92
1.950% Notes due 2020	499		492
2.95% Debentures due 2020	547		553
3.55% Notes due 2021	448		461
2.45% Notes due 2021	349		347
1.65% Notes due 2021	998		973
0.250% Notes due 2022 (1B Euro 1.2323)	1,229		1,236
2.25% Notes due 2022	995		975
6.73% Debentures due 2023	250		298
3.375% Notes due 2023	806		827
2.05% Notes due 2023	498		478
0.650% Notes due 2024 (750MM Euro 1.2323)	920		926
5.50% Notes due 2024 (500 MM GBP 1.4063)	697		865
2.625% Notes due 2025	747		722
2.45% Notes due 2026	1,991		1,877
2.95% Notes due 2027	995		968
2.90% Notes due 2028	1,492		1,443
1.150% Notes due 2028 (750MM Euro 1.2323)	916		923
6.95% Notes due 2029	296		397
4.95% Debentures due 2033	498		580
4.375% Notes due 2033	856		938
1.650% Notes due 2035 (1.5B Euro 1.2323)	1,830		1,907
3.55% Notes due 2036	987		978
5.95% Notes due 2037	991		1,289
3.625% Notes due 2037	1,486		1,479
3.40% Notes due 2038	990		961
5.85% Debentures due 2038	696		908
4.50% Debentures due 2040	538		604
4.85% Notes due 2041	296		340
4.50% Notes due 2043	495		545
3.70% Notes due 2046	1,971		1,966
3.75% Notes due 2047	991		991
3.50% Notes due 2048	742		716
Other	20		20
Total Non-Current Debt	$	29,837	30,897

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

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The excess of the estimated fair value over the carrying value of debt was $2.0 billion at December 31, 2017.

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 fiscal three months of 2018 and 2017 were 20.3% and 20.7% , respectively. The U.S. Tax Cuts and Jobs Act (TCJA) was enacted into law effective January 1, 2018. This law reduces the U.S. statutory corporate tax rate from 35% to 21% , eliminates or reduces certain corporate income tax deductions and introduces a tax on global intangible low-taxed income (GILTI). In December 2017, the Company recorded a provisional tax cost 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 estimate based on the most recent information and guidance available related to the calculation 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, the Company made adjustments in the first 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-K for the fiscal year ended December 31, 2017 for further details on the TCJA and SAB 118.

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 increased the effective tax rate by 3.8% for the first three 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. Remeasurement of deferred tax liabilities and assets recorded for the foreign withholding taxes and related U.S. foreign tax credits, respectively, increased the Company’s effective tax rate in 2018 by approximately 1.4% due to changes in the foreign currency exchange rates. Tax benefits received from stock-based compensation during the fiscal three months of 2018 and 2017, reduced the effective tax rate by 2.2% and 3.6% , respectively. The reduction of the U.S. statutory corporate tax rate, offset by the elimination of the corporate income tax deductions, measurement period adjustments ⁽¹⁾ and the GILTI tax ⁽²⁾ , 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.

⁽¹⁾ The following adjustments were made to the provisional tax amounts in the first fiscal quarter of 2018 due to issued Treasury guidance and revisions to the Company’s estimates since the assessment date:


•	$0.2 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


•	$0.3 billion decrease to the deferred tax liability for foreign local taxes, partially offset by a decrease of $0.1 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 0.5% in the first fiscal quarter of 2018 as compared to the same period of the prior year.

⁽²⁾ The impact of GILTI on the first quarter effective tax rate was an increase of 2.6% .

As of April 1, 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.

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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 first quarters of 2018 and 2017 include the following components:



	Fiscal First Quarters Ended
	Retirement Plans					Other Benefit Plans
(Dollars in Millions)	April 1, 2018			April 2, 2017		April 1, 2018		April 2, 2017
Service cost	$	309		251		67		61
Interest cost	252			230		37		39
Expected return on plan assets	(560		)	(505	)	(2	)	(2	)
Amortization of prior service cost/(credit)	1			—		(8	)	(7	)
Recognized actuarial losses	215			152		30		34
Curtailments and settlements	(2		)	—		—		—
Net periodic benefit cost	$	215		128		124		125

As per the adoption of ASU 2017-07, the service cost component of net periodic benefit cost was 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 three months ended April 1, 2018 , the Company contributed $18 million and $9 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 31, 2017	$	(7,351	)	232			(6,150	)	70	(13,199	)
Net change	623			—			186		14	823
Cumulative adjustment to retained earnings				(232	)	⁽¹⁾				(232	)
April 1, 2018	$	(6,728	)	—			(5,964	)	84	(12,608	)

⁽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.

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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 first quarters ended April 1, 2018 and April 2, 2017 :



	Fiscal First Quarters Ended
(Shares in Millions)	April 1, 2018			April 2, 2017
Basic net earnings per share	$	1.63		1.63
Average shares outstanding — basic	2,682.2			2,706.6
Potential shares exercisable under stock option plans	139.5			141.2
Less: shares which could be repurchased under treasury stock method	(90.6		)	(94.6	)
Convertible debt shares	0.8			1.3
Average shares outstanding — diluted	2,731.9			2,754.5
Diluted net earnings per share	$	1.60		1.61

The diluted net earnings per share calculation for both the fiscal first quarters ended April 1, 2018 and April 2, 2017 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 first quarters ended April 1, 2018 and April 2, 2017 included all shares related to stock options, as there were no options or other instruments which were anti-dilutive.

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NOTE 9 — SEGMENTS OF BUSINESS AND GEOGRAPHIC AREAS

SALES BY SEGMENT OF BUSINESS



	Fiscal First Quarters Ended
(Dollars in Millions)	April 1, 2018		April 2, 2017	Percent Change

CONSUMER
Baby Care
U.S.	$	97	113	(14.2	)%
International	360		342	5.3
Worldwide	457		455	0.4
Beauty
U.S.	611		567	7.8
International	473		414	14.3
Worldwide	1,084		981	10.5
Oral Care
U.S.	157		156	0.6
International	222		206	7.8
Worldwide	379		362	4.7
OTC
U.S.	465		477	(2.5	)
International	607		536	13.2
Worldwide	1,072		1,013	5.8
Women's Health
U.S.	3		3	0.0
International	240		239	0.4
Worldwide	243		242	0.4
Wound Care/Other
U.S.	103		98	5.1
International	60		77	(22.1	)
Worldwide	163		175	(6.9	)
TOTAL CONSUMER
U.S.	1,436		1,414	1.6
International	1,962		1,814	8.2
Worldwide	3,398		3,228	5.3

PHARMACEUTICAL
Immunology
U.S.	2,000		2,123	(5.8	)
International	1,042		807	29.1
Worldwide	3,042		2,930	3.8
REMICADE ^®
U.S.	916		1,182	(22.5	)
U.S. Exports	142		165	(13.9	)
International	331		325	1.8
Worldwide	1,389		1,672	(16.9	)
SIMPONI / SIMPONI ARIA ^®

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U.S.	224	229	(2.2	)
International	294	199	47.7
Worldwide	518	428	21.0
STELARA ^®
U.S.	652	547	19.2
International	409	276	48.2
Worldwide	1,061	823	28.9
OTHER IMMUNOLOGY
U.S.	66	—	*
International	8	7	14.3
Worldwide	74	7	*

Infectious Diseases
U.S.	333	326	2.1
International	497	423	17.5
Worldwide	830	749	10.8
EDURANT ^® / rilpivirine
U.S.	14	12	16.7
International	196	137	43.1
Worldwide	210	149	40.9
PREZISTA ^® / PREZCOBIX ^® / REZOLSTA ^® / SYMTUZA ^®
U.S.	273	259	5.4
International	205	171	19.9
Worldwide	478	430	11.2
OTHER INFECTIOUS DISEASES
U.S.	46	55	(16.4	)
International	96	115	(16.5	)
Worldwide	142	170	(16.5	)

Neuroscience
U.S.	624	664	(6.0	)
International	935	833	12.2
Worldwide	1,559	1,497	4.1
CONCERTA ^® / Methylphenidate
U.S.	66	108	(38.9	)
International	107	101	5.9
Worldwide	173	209	(17.2	)
INVEGA SUSTENNA ^® / XEPLION ^® / TRINZA ^® / TREVICTA ^®
U.S.	400	372	7.5
International	296	232	27.6
Worldwide	696	604	15.2
RISPERDAL CONSTA ^®
U.S.	82	95	(13.7	)
International	114	112	1.8
Worldwide	196	207	(5.3	)
OTHER NEUROSCIENCE
U.S.	76	89	(14.6	)

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International	418	388	7.7
Worldwide	494	477	3.6

Oncology
U.S.	933	664	40.5
International	1,378	930	48.2
Worldwide	2,311	1,594	45.0
DARZALEX ^®
U.S.	264	201	31.3
International	168	54	*
Worldwide	432	255	69.4
IMBRUVICA ^®
U.S.	227	190	19.5
International	360	219	64.4
Worldwide	587	409	43.5
VELCADE ^®
U.S.	—	—	—
International	313	280	11.8
Worldwide	313	280	11.8
ZYTIGA ^®
U.S.	407	233	74.7
International	438	290	51.0
Worldwide	845	523	61.6
OTHER ONCOLOGY
U.S.	35	40	(12.5	)
International	99	87	13.8
Worldwide	134	127	5.5

Pulmonary Hypertension
U.S.	361	—	*
International	224	—	*
Worldwide	585	—	*
OPSUMIT ^®
U.S.	149	—	*
International	122	—	*
Worldwide	271	—	*
TRACLEER ^®
U.S.	68	—	*
International	72	—	*
Worldwide	140	—	*
UPTRAVI ^®
U.S.	124	—	*
International	16	—	*
Worldwide	140	—	*
OTHER
U.S.	20	—	*
International	14	—	*
Worldwide	34	—	*

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Cardiovascular / Metabolism / Other
U.S.	1,103	1,095	0.7
International	414	380	8.9
Worldwide	1,517	1,475	2.8
XARELTO ^®
U.S.	578	513	12.7
International	—	—	—
Worldwide	578	513	12.7
INVOKANA ^® / INVOKAMET ^®
U.S.	204	247	(17.4	)
International	44	37	18.9
Worldwide	248	284	(12.7	)
PROCRIT ^® / EPREX ^®
U.S.	189	169	11.8
International	87	78	11.5
Worldwide	276	247	11.7
OTHER
U.S.	132	166	(20.5	)
International	283	265	6.8
Worldwide	415	431	(3.7	)
TOTAL PHARMACEUTICAL
U.S.	5,354	4,872	9.9
International	4,490	3,373	33.1
Worldwide	9,844	8,245	19.4

MEDICAL DEVICES
Diabetes Care
U.S.	117	154	(24.0	)
International	222	245	(9.4	)
Worldwide	339	399	(15.0	)
Diagnostics
U.S.	—	—	—
International	—	1	*
Worldwide	—	1	*
Interventional Solutions
U.S.	304	279	9.0
International	336	270	24.4
Worldwide	640	549	16.6
Orthopaedics
U.S.	1,307	1,359	(3.8	)
International	943	916	2.9
Worldwide	2,250	2,275	(1.1	)
HIPS
U.S.	209	209	0.0
International	154	143	7.7
Worldwide	363	352	3.1

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KNEES
U.S.	228	246	(7.3	)
International	159	152	4.6
Worldwide	387	398	(2.8	)
TRAUMA
U.S.	407	391	4.1
International	289	251	15.1
Worldwide	696	642	8.4
SPINE & OTHER
U.S.	463	513	(9.7	)
International	341	370	(7.8	)
Worldwide	804	883	(8.9	)
Surgery
U.S.	993	995	(0.2	)
International	1,430	1,276	12.1
Worldwide	2,423	2,271	6.7
ADVANCED
U.S.	393	392	0.3
International	573	485	18.1
Worldwide	966	877	10.1
GENERAL
U.S.	423	423	0.0
International	704	651	8.1
Worldwide	1,127	1,074	4.9
SPECIALTY
U.S.	177	180	(1.7	)
International	153	140	9.3
Worldwide	330	320	3.1
Vision Care
U.S.	440	305	44.3
International	675	493	36.9
Worldwide	1,115	798	39.7
CONTACT LENSES / OTHER
U.S.	309	256	20.7
International	498	427	16.6
Worldwide	807	683	18.2
SURGICAL
U.S.	131	49	*
International	177	66	*
Worldwide	308	115	*
TOTAL MEDICAL DEVICES
U.S.	3,161	3,092	2.2
International	3,606	3,201	12.7
Worldwide	6,767	6,293	7.5
WORLDWIDE
U.S.	9,951	9,378	6.1

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International	10,058		8,388	19.9
Worldwide	$	20,009	17,766	12.6	%

*Percentage greater than 100% or not meaningful

EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT



	Fiscal First Quarters Ended
(Dollars in Millions)	April 1, 2018		April 2, 2017	Percent Change
Consumer ⁽¹⁾	$	548	596	(8.1	)%
Pharmaceutical ⁽²⁾	3,666		3,663	0.1
Medical Devices ⁽³⁾	1,579		1,563	1.0
Segment earnings before provision for taxes	5,793		5,822	(0.5	)
Less: Expense not allocated to segments ⁽⁴⁾	312		247
Worldwide income before tax	$	5,481	5,575	(1.7	)%

⁽¹⁾ Includes amortization expense of $0.1 billion in the fiscal first quarters of 2018 and 2017.

⁽²⁾ Includes acquisition costs related to the Actelion acquisition of $0.1 billion in the fiscal first quarter of 2018. Includes a gain of $0.2 billion in the fiscal first quarter of 2017 related to the sale of certain investments in equity securities held by Johnson & Johnson Innovation - JJDC, Inc. Includes amortization expense of $0.8 billion and $0.1 billion in the fiscal first quarters of 2018 and 2017, respectively.

⁽³⁾ Includes a restructuring related charge of $0.1 billion and $0.2 billion in the fiscal first quarters of 2018 and 2017, respectively. Includes amortization expense of $0.3 billion and $0.2 billion in the fiscal first quarters of 2018 and 2017, respectively.

⁽⁴⁾ Amounts not allocated to segments include interest income/expense and general corporate income/expense.

SALES BY GEOGRAPHIC AREA



	Fiscal First Quarters Ended
(Dollars in Millions)	April 1, 2018		April 2, 2017	Percent Change
United States	$	9,951	9,378	6.1	%
Europe	4,797		3,858	24.3
Western Hemisphere, excluding U.S.	1,567		1,454	7.8
Asia-Pacific, Africa	3,694		3,076	20.1
Total	$	20,009	17,766	12.6	%

NOTE 10— BUSINESS COMBINATIONS AND DIVESTITURES

During the fiscal first quarter of 2018, the Company announced a binding offer from Platinum Equity, a private investment firm, to acquire its LifeScan business for approximately $2.1 billion , subject to customary adjustments. As of April 1, 2018, the assets held for sale on the Consolidated Balance Sheet were $0.1 billion of inventory, $0.2 billion of property, plant and equipment, $0.1 billion of intangible assets, net and $1.0 billion of goodwill. The Company will retain certain net liabilities associated with the LifeScan business. Additionally, during the fiscal first quarter of 2018, the Company announced the acquisition of Orthotaxy, a privately-held developer of software-enabled surgery technologies, including a differentiated robotic-assisted surgery solution.

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

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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 April 1, 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.

The Company is still finalizing the allocation of the purchase price to the individual assets acquired and liabilities assumed. The allocation of the purchase price included in the current period balance sheet is based on the best estimate of management and is preliminary and subject to change. To assist management in the allocation, the Company engaged valuation specialists to prepare appraisals. The Company will finalize the amounts recognized as the information necessary to complete the analysis is obtained. The Company expects to finalize these amounts as soon as possible but no later than one year from the acquisition date.

The following table presents the preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date as well as the adjustments made up to April 1, 2018:



(Dollars in Millions)	June 16, 2017		April 1, 2018
Cash & Cash equivalents	$	469	469
Inventory ⁽¹⁾	759		759
Accounts Receivable	485		485
Other current assets	93		93
Property, plant and equipment	104		104
Goodwill	5,986		6,161
Intangible assets	25,010		25,010
Deferred Taxes	3		99
Other non-current assets	19		19
Total Assets Acquired	32,928		33,199

Current liabilities	531		956
Deferred Taxes	1,960		1,776
Other non-current liabilities	383		413
Total Liabilities Assumed	2,874		3,145

Net Assets Acquired	$	30,054	30,054

⁽¹⁾ Includes adjustment of $642 million to write-up the acquired inventory to its estimated fair value.

Subsequent to the date of acquisition there was an adjustment of $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.

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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

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 . As of April 1, 2018, patents and trademarks, net of a liability assumed, of $0.4 billion were classified as assets held for sale as they related to the pending divestiture of Valchlor, one of the acquired products. 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 first quarter ended April 2, 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)	April 2, 2017

Net Sales	$	18,410
Net Earnings	4,099
Diluted Net Earnings per Common Share	$	1.49

In the fiscal first quarter of 2018, the Company recorded acquisition related costs, of approximately $0.1 billion before tax, which was recorded in Other (income)/expense and Cost of products sold.

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.

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NOTE 11 — LEGAL PROCEEDINGS

Johnson & Johnson and certain of its subsidiaries are involved in various lawsuits and claims regarding product liability, intellectual property, commercial 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 April 1, 2018 , 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. 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; and INVOKANA ^® . As of April 1, 2018 , in the U.S. there were approximately 2,000 plaintiffs with direct claims in pending lawsuits regarding injuries allegedly due to the DePuy ASR™ XL Acetabular System and DePuy ASR™ Hip Resurfacing System; 10,200 with respect to the PINNACLE ^® Acetabular Cup System; 54,000 with respect to pelvic meshes; 14,000 with respect to RISPERDAL ^®; 26,300 with respect to XARELTO ^®; 9,100 with respect to body powders containing talc; and 1,100 with respect to INVOKANA ^® .

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, with more expected from the recent extension, therefore bringing to resolution significant ASR Hip litigation activity in the United States. However,

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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, and the proposed settlements will be presented for approval to the Québec Superior Court and the Supreme Court of British Columbia respectively in May 2018. 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 relating to the PINNACLE ^® Acetabular Cup System used in hip replacement surgery. 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 Northern District of Texas. Litigation has also been filed in some state courts and in countries outside of the United States, primarily in the United Kingdom. In the United Kingdom, a trial was completed regarding common issues of liability and a decision is expected in the first half of 2018. The Company has established an accrual for defense costs only in connection with product liability litigation associated with the PINNACLE ^® Acetabular Cup System.

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 costs associated with these settlements 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 is ongoing and a decision is expected in 2018. The Company has established accruals with respect to product liability litigation associated with Ethicon's pelvic mesh 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 established an accrual with respect to product liability litigation associated with RISPERDAL ^® .

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; and there are coordinated proceedings in Delaware, California and Missouri. Class action lawsuits also have been filed in Canada. The Company has established an accrual for defense costs only in connection with product liability litigation associated with XARELTO ^® .

Claims for personal injury have been made against Johnson & Johnson Consumer Inc. and Johnson & Johnson arising out of the use of body powders containing talc, primarily JOHNSONS ^® 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. 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. The Company has established an accrual for defense costs only in connection with product liability litigation associated with body powders containing talc.

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. 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.

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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. Cases have also been filed in state courts in Pennsylvania, California and New Jersey. Class action lawsuits have been filed in Canada. The Company has established an accrual with respect to product liability litigation associated with INVOKANA ^® .

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 Court denied. In April 2016, the Court of Appeals overturned that ruling and remanded the case to the District 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.

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. After trial in January 2014, the District Court dismissed the case, finding Medinol unreasonably delayed bringing its claims (the laches defense). In September 2014, the District 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 and in April 2018, the United States Court of Appeals for the Federal Circuit remanded the case back to the District Court to reconsider Medinol's motion for a new trial.

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. MedIdea alleges infringement of United States Patent Nos. 6,558,426 (’426); 8,273,132; 8,721,730 and 9,492,280 relating to posterior stabilized knee systems. Specifically, MedIdea alleges that the SOFCAM ^TM Contact feature of the ATTUNE ^® posterior stabilized knee products infringes the patents-in-suit. MedIdea is seeking monetary damages and injunctive relief. In June 2017, the case was transferred to the United States District Court for the District of Massachusetts. In December 2017, DePuy Synthes Products, Inc. filed a Petition for Inter Partes Review with the United States Patent and Trademark Office, seeking to invalidate 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; 9,084,608; 9,241,759 and 9,113,882, and seeking damages and an injunction. Covidien filed a motion for preliminary injunction, which was denied in October 2017. Trial is scheduled to begin in September 2019.

In November 2017, Board of Regents, The University of Texas System and Tissuegen, Inc. 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

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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 directed to implantable polymer drug releasing biodegradable fibers containing a therapeutic agent. A claim construction hearing is scheduled in October 2018.

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 Court entered a decision holding that the SPC is valid and granting a final injunction. Sandoz has appealed the Court’s decision and the injunction will be stayed pending the appeal. In January 2018, the Court 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.

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'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). In August 2016, the District Court granted both Celltrion's and Hospira'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. Although the ’083 patent is already asserted in the existing lawsuit against Celltrion, the additional lawsuit expands the claims to include the sale in the United States of Celltrion's biosimilar product manufactured with cell culture media made in the United States. This additional lawsuit against Celltrion has been consolidated with the existing lawsuit discussed above. Hospira has moved to dismiss all counts of the lawsuit related to the ’083 patent as to it. Trial is scheduled to begin in July 2018. 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 unenforceability of the applicable patents. In the event the subsidiaries are not successful in these actions, or the statutory 30-month stays of the ANDAs expire before the United States District Court rulings are obtained, the third-party companies involved will have the

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ability, upon approval of the FDA, to introduce generic versions of the products at issue 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. In addition, from time to time, subsidiaries may settle these 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 by generic companies in conjunction with these ANDAs and lawsuits to challenge patents held by the Company’s subsidiaries.

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 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.

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.

In February 2018, Janssen and BTG filed a patent infringement lawsuit against MSN Pharmaceuticals, Inc. and MSN Laboratories Private Limited (collectively, MSN) based on its ANDA seeking approval for a generic version of ZYTIGA ^® prior to the expiration of the ‘438 patent.

In February 2018, the court heard oral arguments on a motion for summary judgment of non-infringement filed by certain defendants. The parties await a decision. If the decision is unfavorable, the stay could be lifted and a generic version of ZYTIGA ^® could enter the market. Trial on the matter is scheduled for July 2018.

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 each of the above lawsuits, Janssen is seeking an order enjoining the defendants from marketing their generic versions of ZYTIGA ^® before the expiration of the ’438 patent.

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 patent claims unpatentable, and Janssen has requested rehearing. The IPR decisions are not binding on the district court in the pending litigation.

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 ^® 500mg before the expiration of Canadian Patent No. 2,661,422. The federal court of Canada scheduled the Final Hearing for May 2019.

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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 April 2019.

In each of these Notices of Application, Janssen is seeking an order prohibiting the Minister of Health from issuing a Notice of Compliance with respect to Teva's and Apotex's ANDS before the expiration of Janssen's patent.

XARELTO ^®

B eginning 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). All defendants except Mylan and Sigmapharm 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. Trial concluded in April 2018 and the parties are awaiting a decision.

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 ^® . The following generic companies are named defendants: Alembic Pharmaceuticals Limited, Alembic Global Holding SA and Alembic Pharmaceuticals, Inc.; 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 has counterclaimed for a 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 and Breckenridge 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, and are currently set for trial in April 2019.

In each of these lawsuits, JPI is seeking an order enjoining the defendants from marketing their generic versions of XARELTO ^® before the expiration of the relevant patents.

PREZISTA ^®

In November 2017, Janssen Inc. initiated Notices 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 PREZISTA ^® before the expiration of Canadian Patent Nos. 2,485,834 and 2,336,160, which is owned by the United States and the Board of Trustees of the University of Illinois. Janssen is seeking an order prohibiting the Minister of Health from issuing a Notice of Compliance with respect to Apotex's ANDS before the expiration of the relevant patents.

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INVOKANA ^® /INVOKAMET ^®

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 and/or 8,513,202 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.

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

VELETRI ^®

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), who 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.

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 (together, 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

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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's ANDS before the expiration of these patents. The Court scheduled the Final Hearing to begin in September 2019.

IMBRUVICA ^®

Beginning in January 2018, Pharmacyclics LLC (Pharmacyclics) and Janssen Biotech, Inc. (Janssen) 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 ^® before expiration of Pharmacyclics’ United States Patent Nos. 8,008,309, 7,514,444, 8,697,711, 8,735,403, 8,957,079, 9,181,257, 8,754,091, 8,497,277, 8,925,015, 8,476,284, 8,754,090, 8,999,999, 9,125,889, 9,801,881, 9,801,883, 9,814,721, 9,795,604, 9,296,753, 9,540,382, 9,713,617 and/or 9,725,455 relating to IMBRUVICA ^® . Janssen 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).

In each of the lawsuits, Pharmacyclics and Janssen are seeking an order enjoining the defendants from marketing generic versions of IMBRUVICA ^® before the expiration of the relevant patents.

GOVERNMENT PROCEEDINGS

Like other companies in the pharmaceutical 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 a case brought by Illinois, the parties are awaiting assignment of a trial date. 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 numerous lawsuits brought by certain state and local governments related to the marketing of opioids, including DURAGESIC ^® , NUCYNTA ^® and NUCYNTA ^® ER. To date, complaints against pharmaceutical companies, including Johnson & Johnson and JPI, have been filed in state court by the state Attorneys General in Arkansas, Louisiana, Mississippi, Missouri, New Mexico, Ohio and Oklahoma. 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; Massachusetts; Mississippi; Missouri; Nevada; New Hampshire; New Jersey; New Mexico; New York; North Carolina; Ohio; Oklahoma; Oregon; Pennsylvania; South Carolina; South Dakota; Tennessee; Texas; Utah; Virginia; Washington; Wisconsin and West Virginia. 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. These cases are in early stages of litigation. In October 2017, Johnson &

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Johnson and JPI were both served with a motion to consolidate 66 pending matters into a federal Multi District Litigation in the Southern District of Ohio. In December 2017, the MDL was approved in the Northern District of Ohio and there are over 300 cases that have been transferred to the MDL.

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, New Hampshire, New Jersey, Tennessee and Washington. In September 2017, Johnson & Johnson and JPI were contacted by the Texas and Colorado Attorney General’s Offices on behalf of approximately 38 states regarding a multi-state Attorney General investigation. 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 DePuy Synthes, Inc.), and Johnson & Johnson Services, Inc. (collectively DePuy) received an informal request from the United States Attorney's Office for the District of Massachusetts and the Civil Division of the United States Department of Justice (the United States) for the production of materials relating to the DePuy ASR™ XL Hip device. In July 2014, the United States notified the United States District Court for the District of Massachusetts that it had declined to intervene in a qui tam case filed pursuant to the False Claims Act against the companies. In February 2016, the District Court granted the companies’ motion to dismiss with prejudice, unsealed the qui tam complaint, and denied the qui tam relators’ request for leave to file a further amended complaint. The qui tam relators appealed the case to the United States Court of Appeals for the First Circuit. In July 2017, the First Circuit affirmed the District Court’s dismissal in part, reversed in part, and affirmed the decision to deny the relators’ request to file a third amended complaint. The relators’ remaining claims are now pending before the District Court. 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 petition in April 2018.

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 investigation with 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 Inc. and Ethicon US, LLC alleging violations of their consumer protection statutes. Similar complaints were filed against the companies by Kentucky in August 2016 and by Mississippi in October 2017. 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 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) and seeks injunctive and monetary relief. Trial is currently scheduled to begin in the fall of 2019.

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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 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 February 2017, Johnson & Johnson received a subpoena from the United States Attorney's Office for the 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 inquiries similar to this one and the one described below.

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 Company employees with physicians at these hospitals.

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. 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. Trial has been set for June 2018. OCD was divested in 2014 and Johnson & Johnson retained any liability that may result from these cases.

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

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consolidated with the Indiana case. In August 2017, the court denied DePuy’s motions for summary judgment. A trial date has not been set.

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 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 Court granted Johnson & Johnson's and JJCI’s motion to dismiss one of the cases. The plaintiff has appealed. In September 2017, the plaintiff in the second case voluntarily dismissed their 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 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, the Court denied motions to dismiss filed by JJVCI and other defendants. Discovery is ongoing. In March 2017, the plaintiffs filed a motion for class certification. The class certification hearing has been set for July 2018.

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, 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.

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). Lonza alleges that Janssen 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.

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

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is attempting to monopolize the market for blood glucose meter test strips compatible with certain Lifescan meters. The complaint seeks damages.

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.

Beginning in September 2017, multiple purported class actions 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.

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.

Andover Healthcare, Inc. filed a Lanham act case against Johnson & Johnson Consumer Inc. in April 2017 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.

In February 2018, a securities class action lawsuit was filed against Johnson & Johnson 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 JOHNSONS ^® Baby Powder. The lawsuit was assigned to the District Court Judge managing the personal injury multi-district litigation.

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.

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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 first quarter of 2018, the Company recorded a pre-tax charge of $107 million , of which $6 million was included in cost of products sold and $59 million was included in other (income) expense. See the following table for additional details. Total project costs of $2.1 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 2,500 positions have been eliminated of which 1,800 received separation payments since the restructuring announcement.

Subsequent to the fiscal first quarter, the Company announced plans on April 17, 2018, 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 Company expects 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. 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 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 fiscal three months of 2018:



(Dollars in Millions)	Severance			Asset Write-offs		Other**		Total
Reserve balance, December 31, 2017	$	229		—		38		267

Current year activity:
Charges	—			5		102		107
Cash payments	(16		)	—		(122	)	(138	)
Settled non cash	—			(5	)	—		(5	)
Accrual adjustment	—			—		—		—

Reserve balance, April 1, 2018*	$	213		—		18		231

*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 recently announced 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.

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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 fiscal first quarter of 2018 , worldwide sales were $20.0 billion, a total increase of 12.6%, including operational growth of 8.4% as compared to 2017 fiscal first quarter sales of $17.8 billion. Currency fluctuations had a positive impact of 4.2% for the fiscal first quarter of 2018 . In the fiscal first quarter of 2018, the net impact of acquisitions and divestitures on worldwide operational sales growth was a positive 4.1%.

Sales by U.S. companies were $10.0 billion in the fiscal first quarter of 2018 , which represented an increase of 6.1% as compared to the prior year. In the fiscal first quarter of 2018, the net impact of acquisitions and divestitures on the U.S. operational sales growth was a positive 4.8%. Sales by international companies were $10.1 billion, an increase of 19.9%, including operational growth of 10.9%, and a positive currency impact of 9.0% as compared to the fiscal first quarter sales of 2017 . In the fiscal first quarter of 2018, the net impact of acquisitions and divestitures on the international operational sales growth was a positive 3.3%.

In the fiscal first quarter of 2018, sales by companies in Europe achieved growth of 24.3%, which included operational growth of 10.0% and a positive currency impact of 14.3%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 7.8%, which included operational growth of 7.2%, and a positive currency impact of 0.6%. Sales by companies in the Asia-Pacific, Africa region achieved growth of 20.1%, including operational growth of 13.7% and a positive currency impact of 6.4%.

Note: values may have been rounded

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Analysis of Sales by Business Segments

Consumer

Consumer segment sales in the fiscal first quarter of 2018 were $3.4 billion, an increase of 5.3% as compared to the same period a year ago, including operational growth of 1.3% and a positive currency impact of 4.0%. U.S. Consumer segment sales increased by 1.6%. International Consumer segment sales increased by 8.2%, including operational growth of 1.2% and a positive currency impact of 7.0%. In the fiscal first quarter of 2018, the net impact of acquisitions and divestitures on the Consumer segment operational sales growth was a negative 0.7%.

Major Consumer Franchise Sales — Fiscal First Quarters Ended



(Dollars in Millions)	April 1, 2018		April 2, 2017		Total Change		Operations Change		Currency Change
Beauty	$	1,084	$	981	10.5	%	7.1	%	3.4	%
OTC	1,072		1,013		5.8		0.9		4.9
Baby Care	457		455		0.4		(2.6	)	3.0
Oral Care	379		362		4.7		0.6		4.1
Women’s Health	243		242		0.4		(4.6	)	5.0
Wound Care/Other	163		175		(6.9	)	(8.9	)	2.0
Total Consumer Sales	$	3,398	$	3,228	5.3	%	1.3	%	4.0	%

The Beauty franchise achieved operational growth of 7.1% as compared to the prior year fiscal first quarter. Growth was primarily driven by the positive impact of timing of NEUTROGENA ^® and AVEENO ^® suncare products season, market growth in the U.S. and strength of Dr. Ci: Labo.

The OTC franchise achieved operational growth of 0.9% as compared to the prior year fiscal first quarter. Growth was primarily driven by sales outside the U.S. from the recent acquisition of RHINOCORT ^® and a strong cough/cold season in the U.S. and Asia Pacific primarily reflected in pediatric MOTRIN ^® and TYLENOL ^® .

The Baby Care franchise experienced an operational decline of 2.6% as compared to the prior year fiscal first quarter due to competitive pressure partially offset by geographic expansion in the Asia Pacific region.

The Oral Care franchise achieved operational growth of 0.6% as compared to the prior year fiscal first quarter attributable to share gains driven by successful marketing campaigns and new products partially offset by divestitures outside the U.S.

The Women’s Health franchise experienced an operational decline of 4.6% as compared to the prior year fiscal first quarter due to competitive pressures and category declines in the EU and India.

The Wound Care/Other franchise experienced an operational decline of 8.9% as compared to the prior year fiscal first quarter due to the divestiture of COMPEED ^® partially offset by strength in BAND-AID ^® Brand Adhesive Bandages.

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Pharmaceutical

Pharmaceutical segment sales in the fiscal first quarter of 2018 were $9.8 billion, an increase of 19.4% as compared to the same period a year ago, with an operational increase of 15.1% and a positive currency impact of 4.3%. U.S. Pharmaceutical sales increased 9.9% as compared to the same period a year ago. International Pharmaceutical sales increased by 33.1%, including operational growth of 22.5% and a positive currency impact of 10.6%. In the fiscal first quarter of 2018, the net impact of acquisitions and divestitures on the Pharmaceutical segment operational sales growth was a positive 7.6%.

Major Pharmaceutical Therapeutic Area Sales — Fiscal First Quarters Ended



(Dollars in Millions)	April 1, 2018		April 2, 2017		Total Change		Operations Change		Currency Change
Total Immunology	$	3,042	$	2,930	3.8	%	1.1	%	2.7	%
REMICADE ^®	1,389		1,672		(16.9	)	(18.0	)	1.1
SIMPONI ^® / SIMPONI ARIA ^®	518		428		21.0		16.2		4.8
STELARA ^®	1,061		823		28.9		24.1		4.8
Other Immunology	74		7		*		*		*
Total Infectious Diseases	830		749		10.8		4.2		6.6
EDURANT ^® /rilpivirine	210		149		40.9		24.5		16.4
PREZISTA ^® / PREZCOBIX ^® / REZOLSTA ^®/ SYMTUZA ^®	478		430		11.2		7.0		4.2
Other Infectious Diseases	142		170		(16.5	)	(20.5	)	4.0
Total Neuroscience	1,559		1,497		4.1		(0.8	)	4.9
CONCERTA ^® / methylphenidate	173		209		(17.2	)	(20.5	)	3.3
INVEGA SUSTENNA ^® / XEPLION ^® / TRINZA ^®/ TREVICTA ^®	696		604		15.2		10.5		4.7
RISPERDAL CONSTA ^®	196		207		(5.3	)	(10.2	)	4.9
Other Neuroscience	494		477		3.6		(2.3	)	5.9
Total Oncology	2,311		1,594		45.0		37.0		8.0
DARZALEX ^®	432		255		69.4		63.5		5.9
IMBRUVICA ^®	587		409		43.5		35.3		8.2
VELCADE ^®	313		280		11.8		1.6		10.2
ZYTIGA ^®	845		523		61.6		53.7		7.9
Other Oncology	134		127		5.5		(1.2	)	6.7
Pulmonary Hypertension	585		—		**		**		—
OPSUMIT ^®	271		—		**		**		—
TRACLEER ^®	140		—		**		**		—
UPTRAVI ^®	140		—		**		**		—
Other	34		—		**		**		—
Cardiovascular / Metabolism / Other	1,517		1,475		2.8		0.9		1.9
XARELTO ^®	578		513		12.7		12.7		—
INVOKANA ^® / INVOKAMET ^®	248		284		(12.7	)	(13.8	)	1.1
PROCRIT ^® / EPREX ^®	276		247		11.7		9.0		2.7
Other	415		431		(3.7	)	(8.0	)	4.3
Total Pharmaceutical Sales	$	9,844	$	8,245	19.4	%	15.1	%	4.3	%

*Percentage greater than 100% or not meaningful

**Products acquired from Actelion acquisition on June 16, 2017

Immunology products achieved operational growth of 1.1% as compared to the same period a year ago driven by strong uptake of STELARA ^® (ustekinumab) in Crohn's disease, U.S. immunology market growth, the launch of TREMFYA ^® (guselkumab) and sales growth of SIMPONI ^® /SIMPONI ARIA ^® (golimumab) outside the U.S. Immunology was negatively

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impacted by lower sales of REMICADE ^® (infliximab) due to increased discounts/rebates, biosimilar competition and a prior period rebate adjustment.

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 4.2% as compared to the same period a year ago. Sales growth of EDURANT ^® /rilpivirine, PREZCOBIX ^® /REZOLSTA ^® and the launch of SYMTUZA ^® was partially offset by lower sales of PREZISTA ^® .

Neuroscience products experienced an operational decline of 0.8% as compared to the same period a year ago. Strong sales of INVEGA SUSTENNA ^® /XEPLION ^® / TRINZA ^® /TREVICTA ^® (paliperidone palmitate) were offset by cannibalization of RISPERDAL CONSTA ^® (risperidone) and generic competition for CONCERTA ^® /methylphenidate.

Oncology products achieved strong operational sales growth of 37.0% 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 and sales of ZYTIGA ^® (abiraterone acetate) driven by market growth. 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 February 2018, the court heard oral arguments on a motion for summary judgment of non-infringement filed by certain defendants, and the parties await a decision. If the decision is unfavorable, the stay could be lifted and a generic version of ZYTIGA ^® could enter the market. A trial on the matter is scheduled for July 2018. See Note 11 to the Consolidated Financial Statements for a description of the legal matters regarding the ZYTIGA ^® patents.

Pulmonary Hypertension is a new therapeutic area which was established with the acquisition of Actelion on June 16, 2017. See Note 10 to the Consolidated Financial Statements for additional details regarding the acquisition.

Cardiovascular / Metabolism / Other products achieved operational growth of 0.9% as compared to the same period a year ago. Sales growth of XARELTO ^® (rivaroxaban) due to increased market share was partially offset by lower sales of INVOKANA ^® /INVOKAMET ^® (canagliflozin) in the U.S. primarily due to an increase in price discounts and market share decline driven by competitive pressure.

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Medical Devices

The Medical Devices segment sales in the fiscal first quarter of 2018 were $6.8 billion, an increase of 7.5% as compared to the same period a year ago, with operational growth of 3.2% and a positive currency impact of 4.3%. U.S. Medical Devices sales increased 2.2%. International Medical Devices sales increased by 12.7%, including an operational increase of 4.2% and a positive currency impact of 8.5%. In the fiscal first quarter of 2018, the net impact of acquisitions and divestitures on the Medical Devices segment operational sales growth was a positive 2.1%.

Major Medical Devices Franchise Sales* — Fiscal First Quarters Ended



(Dollars in Millions)	April 1, 2018		April 2, 2017		Total Change		Operations Change		Currency Change
Surgery	$	2,423	$	2,271	6.7	%	2.1	%	4.6	%
Advanced	966		877		10.1		5.3		4.8
General	1,127		1,074		4.9		0.0		4.9
Specialty	330		320		3.1		0.2		2.9
Orthopaedics	2,250		2,275		(1.1	)	(4.6	)	3.5
Hips	363		352		3.1		(0.5	)	3.6
Knees	387		398		(2.8)		(6.2	)	3.4
Trauma	696		642		8.4		4.7		3.7
Spine & Other	804		883		(8.9	)	(12.2	)	3.3
Vision Care	1,115		798		39.7		34.4		5.3
Contact Lenses/Other	807		683		18.2		13.6		4.6
Surgical	308		115		**		**		**
Interventional Solutions ⁽¹⁾	640		549		16.6		11.6		5.0
Diabetes Care	339		399		(15.0	)	(19.5	)	4.5
Diagnostics ⁽²⁾	—		1		**		**		**
Total Medical Devices Sales	$	6,767	$	6,293	7.5	%	3.2	%	4.3	%

*Prior year amounts have been reclassified to conform to current year presentation

**Percentage greater than 100% or not meaningful

⁽¹⁾ Previously referred to as Cardiovascular

⁽²⁾ On June 30, 2014, the Company divested the Ortho-Clinical Diagnostics business (the Diagnostics Franchise)

The Surgery franchise achieved operational sales growth of 2.1% as compared to the prior year fiscal first quarter. Operational growth in Advanced Surgery was primarily driven by endocutter, energy (including recent acquisitions) and biosurgery products. Operational growth in General Surgery was flat as compared to the prior year. The operational sales growth in Specialty Surgery was primarily driven by Advanced Sterilization products.

The Orthopaedics franchise experienced an operational sales decline of 4.6% as compared to the prior year fiscal first quarter. The decline was primarily due to the Codman Neurosurgery divestiture and share loss in Spine, competitive pressure in U.S. knees and market softness. This was partially offset by volume growth in U.S. hips and sales growth of trauma due to market growth and continued uptake of the TFN-ADVANCED ^™ nailing system in the U.S. coupled with strength of new products in Japan and tender timing in the Middle East.

The Vision Care franchise achieved operational sales growth of 34.4% as compared to the prior year fiscal first quarter. Operational growth was driven by sales from the acquisition of Abbot Medical Optics (AMO), with the majority of AMO sales in the surgical category, and new product launches in the contact lenses category. AMO, now referred to as the Vision Surgical business, was acquired on February 27, 2017.

The Interventional Solutions franchise (includes the Cerenovus business previously included in Spine and Other in Orthopaedics) achieved strong operational sales growth of 11.6% as compared to the prior year fiscal first quarter. Strong operational growth in the electrophysiology business was driven by Atrial Fibrillation procedure growth and continued uptake of the THERMOCOOL SMARTTOUCH ^® Contact Force Sensing Catheter.

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The Diabetes Care franchise experienced an operational sales decline of 19.5% as compared to the prior year fiscal first quarter. Lower sales were primarily due to the Company's decision to exit the Animas insulin pump business, price declines in the U.S. and competitive pressure. During the first quarter of 2018, the Company announced a binding offer from Platinum Equity to acquire its LifeScan business.

ANALYSIS OF CONSOLIDATED EARNINGS BEFORE PROVISION FOR TAXES ON INCOME

Consolidated earnings before provision for taxes on income for the fiscal first quarter of 2018 was $5.5 billion representing 27.4% of sales as compared to $5.6 billion in the fiscal first quarter of 2017, representing 31.4% of sales.

Cost of Products Sold

Consolidated costs of products sold for the fiscal first quarter of 2018 increased to 33.1% from 30.4% of sales as compared to the same period a year ago. The unfavorable increase was primarily driven by higher amortization expense and acquisition related costs, primarily related to Actelion and AMO. This was partially offset by favorable product mix. The intangible asset amortization expense for the fiscal three months of 2018 and 2017 was $1.1 billion and $0.3 billion, respectively.

Selling, Marketing and Administrative Expenses

Consolidated selling, marketing and administrative expenses for the fiscal first quarter of 2018 decreased to 26.3% from 26.8% of sales as compared to the same period a year ago primarily due to lower costs relative to sales growth in the Pharmaceutical business partially offset by investments in recent acquisitions and new product launches in the Medical Devices segment.

Research and Development Expense

Worldwide costs of research and development activities for the fiscal first quarter of 2018 increased to 12.0% from 11.7% of sales as compared to the same period a year ago. The increase was primarily due to continued investment spending to advance the product development pipeline.

Interest (Income) Expense

Interest income in the fiscal first quarter of 2018 was lower than the same period a year ago due to lower cash, cash equivalents and marketable securities balances during the period partially offset by higher average interest rates. The ending balance of cash, cash equivalents and current marketable securities was $15.2 billion at the end of the fiscal first quarter of 2018 , which is a decrease of $24.1 billion as compared to the same period a year ago. The decrease in the 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.

Interest expense in the fiscal first quarter of 2018 was higher as compared to the same period a year ago due to a higher average debt balance of $33.6 billion as compared to $29.7 billion a year ago. The Company’s debt position was $32.5 billion as of April 1, 2018 as compared to $32.4 billion the same period a year ago.

Other (Income) Expense, Net

Other (income) expense, net for the fiscal first quarter of 2018 was unfavorable by $0.3 billion as compared to the same period a year ago primarily attributable to higher gains in the fiscal first quarter of 2017 on the sale of certain investments in equity securities held by Johnson & Johnson Innovation - JJDC, Inc.

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EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT

Income before tax by segment of business for the fiscal first quarters were as follows:



	Income Before Tax				Segment Sales				Percent of Segment Sales
(Dollars in Millions)	April 1, 2018		April 2, 2017		April 1, 2018		April 2, 2017		April 1, 2018		April 2, 2017
Consumer	$	548	$	596	$	3,398	$	3,228	16.1	%	18.5	%
Pharmaceutical	3,666		3,663		9,844		8,245		37.2		44.4
Medical Devices	1,579		1,563		6,767		6,293		23.3		24.8
Segment earnings before provision for taxes	5,793		5,822		20,009		17,766		29.0		32.8
Less: Expenses not allocated to segments ⁽¹⁾	312		247
Worldwide income before tax	$	5,481	$	5,575	$	20,009	$	17,766	27.4	%	31.4	%

⁽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 fiscal first quarter of 2018 was 16.1% versus 18.5% for the same period a year ago. The decrease in the income before tax as a percent of sales in the fiscal first quarter of 2018 as compared to 2017 was attributable to higher selling, marketing and administrative expenses as compared to the prior year due to higher brand marketing expenses supporting the launch of new products.

Pharmaceutical Segment

The Pharmaceutical segment income before tax as a percent of sales in the fiscal first quarter of 2018 was 37.2% versus 44.4% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal first quarter of 2018 was primarily due to higher amortization expense and other costs related to acquisitions. This was partially offset by favorable product mix and slower increases in expenses relative to the increase in sales.

Medical Devices Segment

The Medical Devices segment income before tax as a percent of sales in the fiscal first quarter of 2018 was 23.3% versus 24.8% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal first quarter of 2018 as compared to 2017 was primarily due to higher amortization and other expenses related to acquisitions and increased spending for new product launches.

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 first quarter of 2018, the Company recorded a pre-tax charge of $107 million, of which $6 million is included in cost of products sold and $59 million is included in other (income) expense. Restructuring charges of $2.1 billion have been recorded since the restructuring was announced.

Subsequent to the first 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

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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.

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

Provision for Taxes on Income

The worldwide effective income tax rates for the first fiscal three months of 2018 and 2017 were 20.3% and 20.7%, respectively. The Company estimates that the net impact of the U.S. Tax Cuts and Jobs Act (TCJA) including the reduction of the U.S. statutory corporate tax rate, offset by the elimination of the corporate income tax deductions, measurement period adjustments and the global intangible low-taxed income (GILTI) tax, 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 rate 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.

See Note 5 to the Consolidated Financial Statements for additional details regarding the impact 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 increased the effective tax rate by 3.8% for the first three months of 2017 compared to the same period in 2018. Additionally, the Company had more income in higher tax jurisdictions relative to lower tax jurisdictions as compared to 2017. Remeasurement of deferred tax liabilities and assets recorded for the foreign withholding taxes and related U.S. foreign tax credits, respectively, increased the Company’s effective tax rate by approximately 1.4% due to changes in the foreign currency exchange rates. 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 three months of 2018 and 2017, which reduced the effective tax rate by 2.2% and 3.6%, respectively.

As of April 1, 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.

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.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Cash and cash equivalents were $14.6 billion at the end of the fiscal first quarter of 2018 as compared with $17.8 billion at the end of fiscal year 2017 . The primary sources and uses of cash that contributed to the $3.2 billion decrease were approximately $3.6 billion of cash generated from operating activities and $0.1 billion due to the effect on exchange rate changes on cash and cash equivalents offset by $0.9 billion net cash used by investing activities and $6.0 billion net cash used by financing activities. In addition, the Company had $0.6 billion in marketable securities at the end of the fiscal first quarter of 2018 and $0.5 billion at the end of 2017.

Cash flow from operations of $3.6 billion was the result of $4.4 billion of net earnings and $2.0 billion of non-cash expenses and other adjustments for depreciation and amortization, stock-based compensation and deferred tax provision, reduced by $3.4 billion related to an increase in accounts receivable, an increase in inventories, a decrease in accounts payable and accrued liabilities and an increase in other current and non-current assets. Additional sources of operating cash flow of $0.6 billion resulted from an increase in other current and non-current liabilities.

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Investing activities use of $0.9 billion of cash was primarily used for additions to property, plant and equipment of $0.7 billion, $0.2 billion from the net purchases of investments in marketable securities and acquisitions of $0.1 billion.

Financing activities use of $6.0 billion of cash was primarily used for the net retirement of short term debt of $2.5 billion, $2.3 billion for dividends to shareholders and repurchase of common stock of $1.4 billion. Financing activities also included a source of $0.2 billion from other financing and proceeds from stock options exercised/employee withholding tax on stock awards, net.

The Company has access to substantial sources of funds at numerous banks worldwide. In September 2017, the Company secured a new 364-day Credit Facility. Total credit available to the Company under the facility, which expires September 13, 2018, 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.

In the fiscal first quarter of 2018 , the Company's notes payable and long-term debt was in excess of cash, cash equivalents and marketable securities. 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 January 2, 2018, the Board of Directors declared a regular cash dividend of $0.84 per share, payable on March 13, 2018 to shareholders of record as of February 27, 2018.

On April 26, 2018, the Board of Directors declared a regular cash dividend of $0.90 per share, payable on June 12, 2018 to shareholders of record as of May 29, 2018. 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. 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 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 April 1, 2018, the business of the Company’s U.K. subsidiaries represented less than 3% of both the Company’s consolidated assets and fiscal three months revenues, 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

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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.

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, 2017 .

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 Dominic J. Caruso, Executive Vice President, Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Gorsky and Caruso 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.

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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

The following table provides information with respect to Common Stock purchases by the Company during the fiscal first quarter of 2018. The repurchases below also include the stock-for-stock option exercises that settled in the fiscal first 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
January 1, 2018 through January 28, 2018	1,612,632	141.30	—	—
January 29, 2018 through February 25, 2018	7,921,443	137.31	—	—
February 26, 2018 through April 1, 2018	986,820	131.63	—	—
Total	10,520,895		—

(1) During the fiscal first quarter of 2018, the Company repurchased an aggregate of 10,520,895 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 10.1 Global nonqualified Stock Option Award Agreement

Exhibit 10.2 Global Restricted Share Unit Award Agreement

Exhibit 10.3 Global Performance Share Unit Award Agreement

Exhibit 31.1 Certification 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 31.2 Certification 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 32.1 Certification 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 XBRL (Extensible Business Reporting Language) The following materials from Johnson & Johnson’s Quarterly Report on Form 10-Q for the quarter ended April 1, 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.

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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: May 1, 2018	By /s/ D. J. CARUSO
	D. J. CARUSO
	Executive Vice President, Chief Financial Officer (Principal Financial Officer)

Date: May 1, 2018	By /s/ R. A. KAPUSTA
	R. A. KAPUSTA
	Controller (Principal Accounting Officer)

Exhibit 10.1

JOHNSON & JOHNSON

2012 LONG-TERM INCENTIVE PLAN

GLOBAL NONQUALIFIED STOCK OPTION AWARD AGREEMENT

Grant Date:

Granted To:



WWID #		Total Shares:
Vesting Date:		Purchase Price:



Grant No.	Grant Type	No. of Shares
	NQSO

In addition to such other conditions as may be established by the Committee, in consideration of the granting of an award under the terms of the Johnson & Johnson 2012 Long-Term Incentive Plan, as amended from time to time (the “ Plan ”), you agree as follows:

1. Grant of Nonqualified Stock Option .

(a) Award . Subject to the terms and conditions of this Nonqualified Stock Option Agreement, including any country-specific terms in Appendix A hereto and any other exhibits or addendums to these documents (collectively, this “ Agreement ”) and the Plan, Johnson & Johnson, a New Jersey corporation (the “ Corporation ”), hereby grants you an option (this “Option”) to purchase from it the above-stated number of shares of common stock of the Corporation, par value $1.00 per share (“ Common Stock ”), at the above-stated price per share. This Option, and the exercise of this Option, is subject to all of the terms and conditions relating to Non-Qualified Stock Options (“ NQSOs ”) contained in the Plan. The terms of the Plan are hereby incorporated herein by reference. Except where the context clearly indicates otherwise, each capitalized term used herein shall have the definition assigned to it by this Agreement or, to the extent that this Agreement does not define a capitalized term used herein, by the Plan. A copy of the Plan is available in and from the Office of the Secretary of Johnson & Johnson, One Johnson & Johnson Plaza, New Brunswick, NJ 08933 (732-524-0400).

(b) Conditions . This Option grant is conditioned on your (i) electronically accepting this grant on the website of the Plan recordkeeper (or in such other manner as the Corporation may establish or permit from time to time) and (ii) opening and maintaining a brokerage account that is permitted for use with respect to awards granted under the Plan, in each case by the deadline established by the Corporation and/or set forth on the website of the Plan recordkeeper. By accepting this Option grant, you will have confirmed your acceptance of all of the terms and conditions of this Agreement. If you do not accept this Option grant by the applicable deadline, your grant will be cancelled.

2. Vesting of Option; Competition with the Corporation Group.

(a) Vesting. The Option shall become vested in full on the Vesting Date, provided , that , (i) except as otherwise provided in Section 3, you are Employed on the Vesting Date and have been Employed at all times since the Grant Date and (ii) you have complied and are in compliance with the terms of this Agreement.

(b) Competition With the Corporation Group . In order to protect the Corporation Group’s goodwill and investments in research and development and Customer and business relationships and to prevent the disclosure of the Corporation Group’s confidential and trade secret information, thereby promoting the long-term success of the Corporation Group’s business, you agree to the following:

(i) During your Employment, you will not, without the prior written consent of the Corporation, directly or indirectly engage in Competitive Activities.

(ii) For a period of eighteen (18) months following your Date of Termination, you will not, without the prior written consent of the Corporation, directly or indirectly perform, or assist others to perform, work for a Competitor in a position or in any geographic location in which you could disadvantage the Corporation Group or advantage the Competitor through (a) your disclosure or use of the Corporation Group’s confidential or trade secret information and/or (b) your use of the Corporation Group’s Customer relationships and goodwill.

(iii) Rescission and Forfeiture . You understand and agree that if the Corporation determines you have violated Section 2(b)(i) and/or Section 2(b)(ii) and/or any non-competition or non-solicitation agreement that you have with any member of the Corporation Group, then, in addition to injunctive relief, damages, and all other equitable and legal rights and remedies:

(A) the Option (whether or not vested) shall be forfeited for no consideration on the earliest date on which you are first in violation of Section 2(b)(i) and/or Section 2(b)(ii) or any non-competition or non-solicitation agreement that you have with any member of the Corporation Group; and

(B) upon the Corporation’s demand, you shall immediately deliver to the Corporation (I) a number of shares of Common Stock equal to the number of shares of Common Stock with respect to which you exercised the Option (for the avoidance of doubt, without reduction for any shares of Common Stock that may have been withheld and/or sold to satisfy applicable withholding taxes) within the twelve (12) month period of time immediately preceding the earliest date on which you are first in violation of Section 2(b)(i) and/or Section 2(b)(ii) or any non-competition or non-solicitation agreement that you have with any member of the Corporation Group, less (II) the number of shares of Common Stock withheld upon exercise to satisfy the Option purchase price (or, if you paid the purchase price in cash, the number of shares that would have been withheld had the purchase price been paid via cashless exercise). To the extent that you do not, as of the date of the Corporation’s demand for repayment, hold a number of shares of Common Stock sufficient to satisfy the obligation set forth in the preceding sentence, you shall pay the Corporation an amount in cash equal to (x) (i) the number shares required to be delivered

by you pursuant to the preceding sentence, less (ii) the number of shares actually delivered by you pursuant to the preceding sentence, multiplied by (y) the Fair Market Value per share of Common Stock as of the business day immediately preceding the date of the Corporation’s demand for repayment. You agree to deliver and execute such documents (including, if applicable, share certificates) as the Corporation may deem necessary to effect the repayment obligations referred to in this Section 2(b)(iii)(B).

(iv) You understand and agree that the remedies set forth in Section 2(b)(iii) shall not be the Corporation Group’s exclusive remedies in the event of a breach of the non-competition obligations set forth in Section 2(b)(i) and/or Section 2(b)(ii) or in any other applicable non-competition or non-solicitation agreement that you have with any member of the Corporation Group, and that the Corporation Group reserves all other rights and remedies available to it at law or in equity.

3. Termination of Employment.

(a) Termination of Employment - General . If you cease to be Employed for any reason, then, except as otherwise provided in this Section 3, (i) if the Option has not vested as of your Date of Termination, the Option shall be forfeited for no consideration on your Date of Termination; or (ii) if the Option has vested as of your Date of Termination, any unexercised portion of the Option shall terminate in full on the earlier of (A) the date that is three (3) months after your Date of Termination or (B) the Expiration Date.

(b) Termination due to Death . If you die while Employed, then the Option shall immediately become vested as of your date of death, and your estate, beneficiary or any person who acquires the Option by inheritance or devise shall have the right to exercise any unexercised portion of the Option until the Expiration Date.

(c) Termination due to Disability. If you cease to be Employed due to Disability, then the Option shall immediately become vested as of the Date of Termination, and you (or should you die within said period, then by your estate, beneficiary or any person who acquires the Option by inheritance or devise) shall have the right to exercise any unexercised portion of the Option until the Expiration Date.

(d) Termination due to Specified Divestiture or Reduction in Force . If, prior to the Vesting Date, (A) your Employment terminates as a result of a Specified Divestiture or a Reduction in Force and (B) as of the Date of Termination, you were not eligible for a Qualifying Separation, then you shall (i) become vested in a Pro-Rata Portion of the Option on the Date of Termination and (ii) the remainder of the Option shall be forfeited for no consideration. The Pro-Rata Portion of the Option that vests in accordance with the preceding sentence shall terminate on the earlier of (A) the date that is three (3) months after your Date of Termination or (B) the Expiration Date. For purposes of this Agreement, a “ Pro Rata Portion of the Option ” means a portion of the Option equal to the result, rounded to the nearest whole number, of (i) the aggregate number of shares subject to the Option, multiplied by (ii) a fraction, the numerator of which is the number of days that elapsed from the Grant Date through and including the Date of Termination and the denominator of which is the total number of days in the Vesting Period.

(e) Certain other Terminations .

(i) If your Employment terminates after the date that is six (6) months following the Grant Date for any reason (including due to a Specified Divestiture or a Reduction in Force) other than due to a termination for Cause or your death or Disability and either (A) you have attained age fifty-five (55) and have at least ten (10) years of Service with at least five (5) consecutive years of Service immediately before your Date of Termination or (B) you have attained age sixty-two (62) as of your Date of Termination (a “ Qualifying Separation ”), then you (or should you die within said period, then your estate, beneficiary or any person who acquires the Option by inheritance or devise) shall have the right to exercise the Option during the remaining term of the Option at such times and to the extent you could have exercised the Option had your Employment not terminated. For the avoidance of doubt, this Section 3(e)(i) shall not apply (w) if your Employment terminates within six (6) months following the Grant Date, in which case the Option shall be forfeited for no consideration on the Date of Termination (unless clause (y) or (z) below applies), (x) if your Employment is terminated for Cause, in which case the Option (whether or not vested) shall be forfeited for no consideration on the Date of Termination, (y) if your Employment terminates due to your death or Disability, in which case Section 3(b) or Section 3(c) will apply, as applicable, or (z) if your Employment is terminated due to a Specified Divestiture or a Reduction in Force within six (6) months following the Grant Date, in which case Section 3(d) will apply.

(ii) If, on or after the Vesting Date, your Employment terminates for any reason other than due to a termination for Cause or your death or Disability and you have attained age fifty-five (55), but you do not meet the conditions set forth in Section 3(e)(i), your right to exercise any unexercised portion of the Option shall terminate on the third (3 ^rd ) anniversary of your Date of Termination or the Expiration Date, whichever occurs first. For the avoidance of doubt, this Section 3(e)(ii) shall not apply (w) if the Option is not vested as of your Date of Termination, in which case the Option shall be forfeited for no consideration on that date (unless clause (y) or (z) below applies), (x) if your Employment is terminated for Cause, in which case the Option shall be forfeited for no consideration on the Date of Termination, (y) if your Employment terminates due to your death or Disability, in which case Section 3(b) or Section 3(c) will apply, as applicable, or (z) if your Employment terminates prior to the Vesting Date due to a Specified Divestiture or a Reduction in Force, in which case Section 3(d) will apply.

Notwithstanding the foregoing, you will be treated as having terminated Employment pursuant to Section 3(a) hereof (or, if applicable, Section 3(d)) if, at any time prior to the Vesting Date, the Committee determines that applying Section 3(e)(i) or Section 3(e)(ii) to employees based on age at the time of termination and not to all employees may violate any law or public policy applicable to you and/or the Option (whether as applied to all holders of options or to only holders of options in the jurisdiction where you are employed).

(f) Death Following Certain Terminations . Notwithstanding the foregoing, if you die following (i) a Qualifying Separation or (ii) a termination of Employment due to a Specified Divestiture or Reduction in Force, then, to the extent the Option (or a portion thereof) remains outstanding as of the date of your death, your estate, beneficiary or any person who acquires the Option (or portion thereof) by inheritance or devise shall become vested in the Option (or portion

thereof) on the date of your death (to the extent unvested as of such date) and shall have the right to exercise any unexercised portion of the Option (or portion thereof) until the Expiration Date.

(g) Termination for Cause . Notwithstanding the foregoing, if you ceased to be Employed due to a termination for Cause (regardless of whether you otherwise would be eligible for a Qualifying Separation), then the Option, whether or not vested, shall immediately be forfeited for no consideration on the Date of Termination.

(h) Conditions on Vesting Upon or Following Termination of Employment . Your eligibility to vest in or exercise the Option (or any portion thereof) upon or following the date of your termination of Employment shall be subject to (i) your compliance with the non-competition obligations in Section 2(b)(i) and/or Section 2(b)(ii) and/or any other applicable non-competition or non-solicitation agreement with any member of the Corporation Group and (ii) if required by the Corporation at the time of your termination of Employment, your execution of a general release of claims in favor of the Corporation and its subsidiaries and affiliates in the form required by the Corporation that becomes effective within sixty (60) days following the date of termination (or such earlier date as the Corporation may require).

4. Exercise of Option; Payment of Purchase Price .

(a) Exercise of Option .

(i) General . This Option may not be exercised until the Vesting Date. Once vested, this Option shall be exercisable in its entirety. This Option shall terminate and shall not be exercisable after the close of the New York Stock Exchange on the Expiration Date or, if applicable, such earlier date on which the Option terminates in accordance with this Agreement.

(ii) Exercise Procedure . Subject to the conditions set forth in this Agreement and the Plan, you must exercise the Option by providing a written notice of exercise in accordance with procedures established by the Corporation from time to time. This notice must be accompanied by payment in full of the Option purchase price and any applicable taxes required by law in accordance with the terms of this Agreement. You may purchase less than the number of shares of Common Stock covered by the Option. You may not exercise the Option for a fractional share.

(b) Payment of Purchase Price . The purchase price payable upon exercise of the Option shall be paid in U.S. dollars or, to the extent permitted by the Corporation from time to time, (i) pursuant to any cashless exercise procedure through the use of a brokerage arrangement approved by the Corporation; (ii) in Common Stock valued at Fair Market Value at the close of the business day immediately preceding the date of exercise; or (iii) a combination of such Common Stock and cash; provided , that ,: (A) fractional shares of Common Stock shall not be accepted as payment of the Exercise Price; (B) shares of Common Stock that you acquired within the six (6) month period immediately preceding the date of exercise may not be used to pay the exercise price; (C) shares of Common Stock that were issued to you by the Corporation upon your exercise of an incentive stock option within the one (1) year period immediately preceding the exercise of the Option may not be used to pay the purchase price; and (D) any shares of Common Stock used to pay the purchase

price (or any portion thereof) must be owned by you free and clear of any liens, encumbrances or security interests. Notwithstanding the foregoing, if you are a Section 16 officer of the Corporation under the Act, payment of the purchase price by means of methods (ii) and (iii) hereof is subject to approval by the Committee.

5. Delivery of Shares; Tax Withholding; Compliance With Securities Laws; Compensation Recoupment Policy .

(a) General . The Corporation shall, after receiving the purchase price for the shares of Common Stock purchased and paid for under the Option, make delivery of such shares to you, reduced by any whole shares of Common Stock that are withheld or sold or any cash withheld to satisfy applicable Federal, state and local income taxes, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to your participation in the Plan and legally applicable to you (the “ Tax-Related Items ") in the amount determined by the Corporation. If the proceeds of any such sale of Common Stock exceed the amount necessary to satisfy your tax-withholding obligation, the excess shall be paid to you in cash. In lieu of the foregoing, the Committee may allow you to pay the Tax-Related Items withholding to the Corporation in Common Stock, cash or such other form as approved by the Committee. Notwithstanding the foregoing, if you are a Section 16 officer of the Corporation under the Act, then, unless otherwise determined by the Committee, if the purchase price upon exercise of the Option is paid (i) in cash or shares of Common Stock held prior to the date of exercise, then any Tax-Related Items shall be satisfied in cash and (ii) pursuant to a cashless exercise procedure, then any Tax-Related Items shall be satisfied by the disposition of shares pursuant to such cashless exercise (with such withholding obligations determined based on the applicable statutory withholding rates). Further, notwithstanding anything to the contrary in this Section 5(a), if any law or regulation requires the Corporation to take any action with respect to such shares before the issuance thereof, the date of delivery of such shares shall be extended for the period necessary to complete such action.

(b) Registration and Listing . The Option shall not be exercisable unless at the time of exercise there is in effect a current registration statement or amendment thereto under the Securities Act of 1933, as amended, covering the shares of Common Stock to be issued upon exercise of the Option and such shares are authorized for listing on the New York Stock Exchange or another securities exchange as determined by the Committee. Nothing herein shall be deemed to require the Corporation to apply for, to effect or to obtain such registration or listing.

(c) Compensation Recoupment Policy . You hereby acknowledge and agree that you and the Option, including any shares of Common Stock that may be delivered to you pursuant to this Option, are subject to the Corporation’s Compensation Recoupment Policy, as amended from time to time, a current copy of which can be found on the Corporation’s website at http://www.investor.jnj.com/gov/compensation-recoupment-policy.cfm . The terms and conditions of the Compensation Recoupment Policy hereby are incorporated by reference into this Agreement.

6. Nontransferability of Option . The Option is exercisable during your lifetime only by you, and no rights granted hereunder may be sold, transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), other than by will or the laws of descent and distribution or in accordance with any beneficiary designation procedures that may be

established by the Corporation. Nor shall any such rights be subject to execution, attachment or similar process, other than in accordance with the terms of the Plan. Upon any attempt to sell, transfer, assign, pledge, hypothecate or otherwise dispose of the Option or of such rights contrary to the provisions of the Plan or this Agreement, or upon the levy of any attachment or similar process upon the Option or such rights, the Option and such rights shall, at the election of the Corporation, be forfeited for no consideration.

7. No Special Employment Rights; No Rights to Awards . Nothing contained in the Plan or this Agreement shall be construed or deemed by any person under any circumstances to bind any member of the Corporation Group to continue your employment for the period within which the Option may be exercised or for any other period, to create a right to employment with the Corporation, to form or amend an employment or service contract with the Corporation or to interfere in any way with any right of a member of the Corporation Group to terminate your employment at any time. You hereby acknowledge and agree that (i) the Plan is established voluntarily by the Corporation, is discretionary in nature and may be modified, amended, or terminated by the Corporation at any time, as provided in the Plan, (ii) your participation in the Plan is voluntary and you are voluntarily accepting the Option grant, (iii) the Option and shares of Common Stock subject to the Option, and the income and value of same, does not constitute part of your normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination indemnities, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or welfare benefits or similar payments, and in no event should be considered as compensation for, or in any way relating to, past services to the Corporation Group, (iv) the Option and shares of Common Stock subject to the Option, and the income and value of same, is not intended to replace any pension rights or compensation, (v) the grant of the Option is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options, even if options have been granted in the past, (vi) unless otherwise agreed with the Corporation, the Option and the shares of Common Stock subject to the Option, and the income and value of same, are not granted as consideration, or in connection with, the service you may provide as a director of a subsidiary of the Corporation, (vii) the future value of the underlying shares of Common Stock is unknown, indeterminable and cannot be predicted with certainty, (viii) if the underlying shares of Common Stock do not increase in value, the Option will have no value, (ix) if you exercise the Option and acquire shares of Common Stock, the value of such shares of Common Stock may increase or decrease in value, even below the purchase price (x) no claim or entitlement to compensation or damages shall arise from forfeiture or recoupment of the Option resulting from the termination of your Employment or other service relationship (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any), (xi) you shall seek all necessary approvals under, make all required notifications under, and comply with all laws, rules, and regulations applicable to the ownership of the Option and, if applicable, shares of Common Stock, including currency and exchange laws, rules, and regulations, (xii) neither the Corporation nor any of its subsidiaries or affiliates shall be liable for any foreign exchange rate fluctuation between your local currency and the U.S. dollar that may affect the value of the Option or of any amounts due to you upon exercise of the Option or the subsequent sale of any shares of Common Stock acquired upon exercise, and (xiii) the Corporation is not providing

any tax, legal, or financial advice, nor is the Corporation making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying shares of Common Stock and you should consult your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the Option.

8. Notices . Unless the Corporation notifies you otherwise in writing, all notices, designations, and payments to be submitted to the Corporation in connection with the Option shall be addressed to:

Equity Compensation Resources
One Johnson & Johnson Plaza
New Brunswick, NJ 08933

9. Definitions . The following capitalized terms shall have the definitions set forth below for purposes of this Agreement:

(a) “ Cause ” means your termination by the Corporation Group: (i) following your conviction for or a plea of nolo contendere to the commission of a felony under federal or state law, or (ii) for any act that, in the Committee’s opinion, constitutes fraud, embezzlement, dishonesty, disclosure of confidential information, the willful and deliberate failure to perform your employment duties in any material respect, a conflict of interest, a violation of the non-competition obligations set forth in Section 2(b)(i) of this Agreement or any other applicable non-competition, non-solicitation, or confidentiality agreement or obligation that you have with any member of the Corporation Group, or any other event that is inimical or contrary to the best interests of the Corporation Group. Any determination of “Cause” shall be made by the Committee in its sole discretion, and its determination shall be final and binding.

(b) “ Committee ” means the Compensation & Benefits Committee of the Board of Directors of the Corporation (or any successor committee).

(c) “ Competitor ” means any person or entity including, but not limited to, you or anyone acting on your behalf, that is engaged or preparing to be engaged in research, development, production, manufacturing, marketing or selling of, or consulting on, any product, process, technology, machine, invention or service in existence or under development that resembles, competes with, may now or in the future compete with, can be substituted for or can be marketed as a substitute for any product, process, technology, machine, invention, or service of the Corporation Group that is in existence or that is, was, or is planned to be under development. The Committee shall determine whether any individual or entity is a “Competitor” in its sole discretion, and its determination shall be final.

(d) “ Competitive Activities ” means any and all activities (including preparations) which compete with, are intended to compete with, or which otherwise may adversely affect or interfere with the Corporation Group’s business or advantage a Competitor whether immediately or in the future. The Committee shall determine whether any conduct constitutes “Competitive Activities” in its sole discretion, and its determination shall be final.

(e) “ Corporation Group ” means the Corporation and its subsidiaries and affiliates, as determined by the Committee.

(f) “ Customer ” means any entity, client, account, or person, including the employees, agents, or representatives of the foregoing, or any entity or person who participates, influences or has any responsibility in making purchasing decisions on behalf of such entities, clients, accounts, or persons, to whom or to which you contacted, solicited any business from, sold to, rendered any service to, were assigned to, had responsibilities for, received commissions or any compensation on, or promoted or marketed any products or services to during the eighteen (18) month period of time preceding your Date of Termination. The Committee shall determine whether any individual or entity is a “Customer” in its sole discretion, and its determination shall be final.

(g) “ Date of Termination ” means the date on which your Employment terminates.

(h) “ Disability ” means that due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, you are unable to perform the duties of your position of employment or any substantially similar position of employment, as determined by the Corporation.

(i) “ Divestiture ” means the disposition of an organizational unit or business unit by the Corporation or one of its subsidiaries, whether pursuant to merger, reorganization, consolidation, spinoff, sale of assets, sale of stock, outsourcing arrangement, or asset transfer, in each case that (i) the Committee determines constitutes a Divestiture and (ii) directly results in (A) the termination of your Employment and the employment of a group of employees of the Corporation Group and (B) you and such other employees becoming employed by an acquiring company or staffing firm.

(j) “ Employed ” or “ Employment ” means any period of time during which you are an employee of the Corporation Group, as determined by the Corporation in accordance with its applicable practices, policies and records; provided , that , during such period you are (i) in active employment status with the Corporation Group, (ii) on a Corporation-approved leave of absence for up to six months (or greater than six months if you have a right to reemployment under a statute or contract), or (iii) on leave due to Disability for up to twenty-nine (29) months. For the avoidance of doubt, you shall not be considered to be Employed (x) for any period during which you are not considered to be an employee pursuant to the Corporation’s practices, policies and records, (y) during any notice period or salary continuation period required by local law (such as a "garden leave" or similar period) or any severance period (if you are covered by a severance agreement or arrangement) or (z) for any period of leave in excess of the periods set forth in clauses (ii) and (iii) above, as applicable.

(k) “ Expiration Date ” means the tenth anniversary of the Grant Date.

(l) “ Grant Date ” means the date on which the Option is granted, as set forth above.

(m) “ Reduction in Force ” means a termination of Employment (i) due to a position elimination or (ii) in connection with a site closing or plant closing. The determination of whether a termination of Employment is in connection with a Reduction in Force shall be made by the Committee in its sole discretion.

(n) “ Service ” means Employment with the Corporation or one of its subsidiaries or affiliates, while that corporation or other legal entity was a subsidiary or affiliate of the Corporation, unless the Committee has otherwise provided on or before the Grant Date.

(o) “ Specified Divestiture ” means a Divestiture in which the Option (or portion thereof) that would otherwise be forfeited hereunder as a result of a Termination of Employment due to such Divestiture is not replaced (with cash-based compensation, equity-based compensation, or any other compensation or benefit) in whole or in part by the acquiring company, staffing firm, or other entity involved in such Divestiture, or any affiliate of the foregoing. The determination of whether any compensation or benefit is provided in replacement of a forfeited Option (or portion thereof) shall be made by the Committee in its sole discretion.

(p) “ Vesting Date ” means the date on which the Option vests, as set forth above, provided , that , if the Option vests pursuant to Sections 3(b), 3(c), 3(d) or 3(f) hereof, then “Vesting Date” shall mean the date specified in such section.

10. Miscellaneous .

(a) Amendments . Except as provided herein, this Agreement may not be amended or otherwise modified unless evidenced in writing and signed by an authorized representative of the Corporation.

(b) Third-Party Beneficiaries . You acknowledge and agree that all affiliates and subsidiaries of the Corporation have, or will as the result of a future acquisition, merger, assignment, or otherwise have, an interest in your Employment and your compliance with the obligations in Section 2(b), and that those entities are each express, third-party beneficiaries of this Agreement.

(c) Binding Effect . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

(d) Severability . In the event that Section 2(b) of this Agreement is invalidated or not enforced under applicable law, this shall not affect the validity or enforceability of the remaining provisions of this Agreement or the Plan. To the extent that Section 2(b) of this Agreement is unenforceable because it is deemed overbroad, the provision shall be applied and enforced in a more limited manner to the fullest extent permissible under the applicable law. You further understand and agree that, in the event Section 2(b) of this Agreement is declared invalid, void, overbroad, or unenforceable, in whole or in part, for any reason, you shall remain bound by any non-competition, confidentiality, non-solicitation, and/or non-disclosure agreement previously entered between you and any member of the Corporation Group.

(e) Appendix A . Notwithstanding any provisions in this Agreement, the Option shall be subject to any special terms and conditions set forth in Appendix A for your country. Moreover, if you relocate to one of the countries included in Appendix A, the special terms and conditions for such country will apply to you, to the extent the Corporation determines that the application of such terms and conditions is necessary and advisable for legal or administrative reasons. Appendix A constitutes part of this Agreement.

(f) Data Privacy Consent . By accepting this grant, you hereby consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, your employing entity (the “ Employer ”) and the Corporation and the Corporation Group for the exclusive purpose of implementing, administering and managing any awards issued to you under the Plan. You understand that the Corporation and your Employer may hold certain personal information about you, including, but not limited to, your name, home address, email address, telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, details of all Option grants or any other entitlement to shares of stock awarded, canceled, vested, unvested or outstanding in your favor (" Data "), for the purpose of implementing, administering and managing any grants issued to you under the Plan. The Controller of personal data processing is Johnson & Johnson Services, Inc., with its registered address at One Johnson & Johnson Plaza, New Brunswick, NJ 08933, USA, and the Corporation and its subsidiaries and affiliates. You understand that Data may be transferred to any third parties, as may be selected by the Corporation, which are assisting in the implementation, administration and management of the Plan. You understand that the recipients may be located in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections from your country. You understand that if you reside outside of the United States, you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the recipients which may assist the Corporation (presently or in the future) with implementing, administering and managing the Plan, to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing grants under the Plan. You understand the Data will be held only as long as is necessary to implement, administer and manage grants under the Plan. You understand that if you reside outside of the United States, you may, at any time, view Data, request information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your human resources representative. Further, you understand that your consent herein is being provided on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, your Employment status or Service will not be affected; the only consequence of refusing or withdrawing your consent is that the Corporation would not be able to grant options or other equity awards to you or administer or maintain such awards. Therefore, you understand that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative. Finally, upon request of the Corporation or the Employer, you agree to provide an executed data privacy consent form (or any other agreements or consents that may be required by the Corporation and/or the Employer) that the Corporation and/or the Employer may deem necessary to obtain from you

for the purpose of administering your participation in the Plan in compliance with the data privacy laws in your country, either now or in the future. You understand and agree that you will not be able to participate in the Plan if you fail to provide any such consent or agreement requested by the Corporation and/or the Employer.

(g) Entire Agreement . This Agreement and the Plan constitute the entire agreement between the parties relating to the subject matter hereof, and any previous agreement or understanding between the parties with respect thereto is superseded by this Agreement and the Plan.

(h) Section 409A . The intent of the parties is that payments and benefits under this Agreement shall be exempt from or shall comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and guidance issued thereunder (“ Section 409A ”), to the extent subject thereto, and accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith or exempt therefrom, as applicable. Notwithstanding anything to the contrary in the Plan or this Agreement, the Corporation reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without your consent, to comply with Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A. However, the Corporation makes no representation that the Option is not subject to Section 409A nor makes any undertaking to preclude Section 409A from applying to the Option. The Corporation shall not have any liability under the Plan or this Agreement for any taxes, penalties or interest due on amounts paid or payable pursuant to the Plan or this Agreement, including any taxes, penalties or interest imposed under Section 409A. For purposes of the Plan and this Agreement, to the extent necessary to avoid accelerated taxation and/or tax penalties under Section 409A, a termination of Employment shall not be deemed to have occurred for purposes of settlement of any portion of the Option unless such termination constitutes a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of Employment” or similar terms shall mean “separation from service.”

(i) Acknowledgement . By electing to accept this Agreement, you acknowledge receipt of this Agreement and hereby confirm your understanding that the terms set forth in this Agreement constitute, subject to the terms of the Plan, which terms shall control in the event of any conflict between the Plan and this Agreement. The Corporation may, in its sole discretion, decide to deliver any documents (including, without limitation, information required to be delivered to you pursuant to applicable securities laws) related to current or future participation in the Plan by electronic means. You hereby consent to receive such documents by electronic delivery and agree to participate in the Plan through an online or electronic system established and maintained by the Corporation or a third party designated by the Corporation.

(j) Language . If you have received this Agreement or any other document related to the Plan translated into a language other than English, and the meaning of the translated version is different than the English version, the English version will control.

(k) Imposition of Other Requirements . The Corporation reserves the right to impose other requirements on your participation in the Plan, on the Option and on any shares of

Common Stock acquired under the Plan, to the extent the Corporation determines it is necessary or advisable in order to comply with local law or to facilitate the administration of the Plan, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

(l) Waiver . You acknowledge that a waiver by the Corporation of breach of any provision of this Agreement shall not operate or be construed as a waiver of any other provision of this Agreement, or of any subsequent breach by you or any other grantee.

(m) Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflict of laws principles, except to the extent superseded by federal law and as set forth in this Section 9(m). Provided that you primarily resided and worked in California during and in connection with your employment with the Corporation Group and at the time that you accepted this Agreement and participation in the Plan, (i) this Agreement shall be governed by and construed in accordance with the laws of the State of California; and (ii) Section 2(b)(ii) shall not apply with respect to services you render in California that do not involve your use or disclosure of the Corporation Group’s confidential or trade secret information.

JOHNSON & JOHNSON

By: ______________________________

Carolyn Hoenisch

Senior Finance Director

Savings Plan & Equity Compensation

Johnson & Johnson

One Johnson & Johnson Plaza

New Brunswick, NJ 08933

Exhibit 10.2

JOHNSON & JOHNSON

2012 LONG-TERM INCENTIVE PLAN

GLOBAL RESTRICTED SHARE UNIT AWARD AGREEMENT

Granted To:



WWID #		Total Units:
Grant Date:		Vesting Date:



Grant No.	Grant Type	No. of Units
	Restricted Share Units

1. Grant of Restricted Share Units.

(a) Award . Subject to the terms and conditions of this Restricted Share Unit Award Agreement, including any country-specific terms in Appendix A hereto and any other exhibits or addendums to these documents (collectively, this “ Agreement ”) and the Plan, Johnson & Johnson, a New Jersey corporation (the “ Corporation ”), hereby grants you the above-stated number of Restricted Share Units (“ RSUs ”), which will become vested in accordance with Section 2 hereof. Upon vesting of each RSU, you will receive one share of Common Stock of the Corporation, par value $1.00 per share (“ Common Stock ”), or cash in lieu thereof, in either case subject to and in accordance with the terms of Section 4 hereof. Except where the context clearly indicates otherwise, each capitalized term used herein shall have the definition assigned to it by this Agreement or, to the extent that this Agreement does not define a capitalized term used herein, by the Plan. The RSUs granted herein are subject to all of the terms and conditions relating to RSUs contained in the Plan, and the terms of the Plan are hereby incorporated herein by reference. A copy of the Plan is available in and from the Office of the Secretary of the Corporation, One Johnson & Johnson Plaza, New Brunswick, NJ 08933 (732-524-0400).

(b) Conditions . This grant of RSUs is conditioned on your (i) electronically accepting this grant on the website of the Plan recordkeeper (or in such other manner as the Corporation may establish or permit from time to time) and (ii) opening and maintaining a brokerage account that is permitted for use with respect to awards granted under the Plan, in each case by the deadline established by the Corporation and/or set forth on the website of the Plan recordkeeper. By accepting this grant of RSUs, you will have confirmed your acceptance of all of the terms and conditions of this Agreement. If you do not accept this award of RSUs by the applicable deadline, your grant will be cancelled.

2. Vesting of RSUs; Competition with the Corporation Group.

(a) General . Except as otherwise provided in this Section 2, each RSU granted herein shall become vested on the Vesting Date, provided , that , (i) you are Employed on the Vesting Date and have been Employed at all times since the Grant Date and (ii) you have complied and are in compliance with the terms of this Agreement.

(b) Termination of Employment - General . If, prior to the Vesting Date, you cease to be Employed for any reason, including, without limitation, due to a termination for Cause, then except as otherwise provided in Section 2(c) hereof, the RSUs shall be forfeited for no consideration on the Date of Termination.

( c) Certain Terminations .

(i) Termination of Employment due to Death . If, prior to the Vesting Date, you die while Employed, then the RSUs shall immediately become vested as of your date of death, and your estate, beneficiary or any person who acquires the RSUs by inheritance or devise, as applicable, shall receive a number of shares of Common Stock (or cash in lieu thereof), as provided in Section 4 hereof.

(ii) Termination of Employment due to Disability . If, prior to the Vesting Date, your Employment terminates due to Disability, then, subject to the terms and conditions of this Section 2, you shall immediately become vested in the RSUs on the Date of Termination.

(iii) Termination due to Specified Divestiture or Reduction in Force . If, prior to the Vesting Date, (A) your Employment terminates as a result of a Specified Divestiture or a Reduction in Force and (B) at the time of such termination of Employment, you were not eligible for a Qualifying Separation, then, subject to the terms and conditions of this Section 2, you shall become vested in a Pro-Rata Number of RSUs on the Vesting Date. For purposes of this Agreement, a “ Pro Rata Number of RSUs ” means the number of RSUs equal to the result, rounded to the nearest whole number, of (i) the aggregate number of RSUs granted hereunder, multiplied by (ii) a fraction, the numerator of which is the number of days that elapsed from the Grant Date through and including the Date of Termination and the denominator of which is the total number of days in the Vesting Period.

or the RSUs (whether as applied to all holders of RSUs or to only holders of RSUs in the jurisdiction where you are employed). For the avoidance of doubt, this Section 2(c)(iv) shall not apply (w) if your Employment terminates within six (6) months following the Grant Date, in which case the RSUs shall be forfeited for no consideration on the Date of Termination (unless clause (y) or (z) below applies), (x) if your Employment is terminated for Cause, in which case the RSUs shall be forfeited for no consideration on the Date of Termination, (y) if your Employment is terminated due to your death or Disability, in which case Section 2(c)(i) or 2(c)(ii), will apply, as applicable, or (z) if your Employment is terminated due to a Specified Divestiture or a Reduction in Force within six (6) months following the Grant Date, in which case Section 2(c)(iii) will apply.

( d) Competition With the Corporation Group . In order to protect the Corporation Group’s goodwill and investments in research and development and Customer and business relationships and to prevent the disclosure of the Corporation Group’s confidential and trade secret information, thereby promoting the long-term success of the Corporation Group’s business, you agree to the following:

(i) During your Employment, you will not, without the prior written consent of the Corporation, directly or indirectly engage in Competitive Activities.

(iii) Rescission and Forfeiture . You understand and agree that if the Corporation determines you have violated Section 2(d)(i) and/or Section 2(d)(ii) and/or any non-competition or non-solicitation agreement that you have with any member of the Corporation Group, then, in addition to injunctive relief, damages, and all other equitable and legal rights and remedies:

(A) the RSUs shall be forfeited for no consideration on the earliest date on which you are first in violation of Section 2(d)(i) and/or
Section 2(d)(ii) or any non-competition or non-solicitation agreement that you have with any member of the Corporation Group; and

(B) upon the Corporation’s demand, you shall immediately deliver to the Corporation (I) a number of shares of Common Stock equal to the number of RSUs

that vested and were settled in the form of Common Stock (for the avoidance of doubt, without reduction for any shares of Common Stock that may have been withheld and/or sold to satisfy applicable withholding taxes) and (II) the gross amount of cash paid to you (for the avoidance of doubt, without reduction for amounts withheld to satisfy applicable withholding taxes) for any RSUs that were settled in the form of cash, in each case in respect of any RSUs that vested within the twelve (12) month period of time immediately preceding the earliest date on which you are first in violation of Section 2(d)(i) and/or Section 2(d)(ii) or any non-competition or non-solicitation agreement that you have with any member of the Corporation Group. To the extent that you do not, as of the date of the Corporation’s demand for repayment, hold a number of shares of Common Stock sufficient to satisfy your obligation set forth in clause (I) above, you shall pay the Corporation an amount in cash equal to the result of (x) (i) the number shares required to be delivered by you pursuant to clause (I) above, less (ii) the number of shares actually delivered by you pursuant to clause (I), multiplied by (y) the Fair Market Value per share of Common Stock as of the business day immediately preceding the date of the Corporation’s demand for repayment. You agree to deliver and execute such documents (including, if applicable, share certificates) as the Corporation may deem necessary to effect the repayment obligations referred to in this Section 2(d)(iii)(B).

(iv) You understand and agree that the remedies set forth in Section 2(d)(iii) shall not be the Corporation Group’s exclusive remedies in the event of a breach of the non-competition obligations set forth in Section 2(d)(i) and/or Section 2(d)(ii) or in any other applicable non-competition or non-solicitation agreement that you have with any member of the Corporation Group, and that the Corporation Group reserves all other rights and remedies available to it at law or in equity.

( e) Conditions on Vesting upon or following Termination of Employment . Your eligibility to vest in any of the RSUs upon or following the date of your termination of Employment shall be subject to (i) your compliance with the non-competition obligations in Section 2(d)(i) and/or Section 2(d)(ii) and/or any other applicable non-competition or non-solicitation agreement with any member of the Corporation Group and (ii) if required by the Corporation at the time of your termination of Employment, your execution of a general release of claims in favor of the Corporation and its subsidiaries and affiliates in the form required by the Corporation that becomes effective prior to the latest date for settlement of the RSUs set forth in Section 4(a) (or such earlier date as the Corporation may require). In the event a release of claims is required by the Corporation and (A) the RSUs vest upon the Date of Termination or (B) the scheduled Vesting Date falls within the period that you have to provide such release of claims, and (C) the period in which the RSUs must be settled pursuant to Section 4(a) spans two calendar years, settlement of the vested RSUs will be made in the second calendar year.

3. Rights to Common Stock. Prior to delivery of shares of Common Stock to you pursuant to Section 4(a) (if applicable), you shall not have any rights in, or with respect to, any of the shares of Common Stock underlying the RSUs, including, but not limited to, any voting rights and the right to receive any dividends (or dividend equivalents) that may be paid or any distributions that may be made with respect to such Common Stock.

4. Issuance of Shares; Tax Withholding; Compliance With Securities Laws; Compliance with Compensation Recoupment Policy.

(a) General . Subject to the provisions in Section 4(a) and Section 9(h), as soon as practicable after the Vesting Date (but in all events by the end of the year in which the Vesting Date occurs), you will receive from the Corporation one share of Common Stock for each RSU that vested on that date, or, at the discretion of the Committee, the cash equivalent of the Fair Market Value on the Vesting Date, reduced by any whole shares of Common Stock that are withheld or sold or any cash withheld to satisfy applicable Federal, state and local income taxes, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to your participation in the Plan and legally applicable to you (the “ Tax-Related Items ”) in the amount determined by the Corporation. If the proceeds of any such sale of Common Stock exceed the amount necessary to satisfy your tax-withholding obligation, the excess shall be paid to you in cash. In lieu of the foregoing, the Committee may allow you to pay the Tax-Related Items withholding to the Corporation in Common Stock, cash or such other form as approved by the Committee. Notwithstanding the foregoing, if you are a Section 16 officer of the Corporation under the Act, then the Corporation will satisfy any applicable tax withholding obligations by withholding in shares of Common Stock upon the relevant taxable event (with such withholding obligations determined based on the applicable statutory withholding rates and without regard to Section 83(c)(3) of the Internal Revenue Code of 1986, as amended), unless otherwise determined by the Committee. Further, notwithstanding anything to the contrary in this Section 4(a), if any law or regulation requires the Corporation to take any action with respect to such shares before the issuance thereof, the date of delivery of such shares shall be extended for the period necessary to complete such action.

(b) Registration and Listing . Notwithstanding Section 4(a) hereof, shares of Common Stock shall not be issued pursuant to this Agreement unless, on the Vesting Date, there is in effect a current registration statement or amendment thereto under the Securities Act of 1933, as amended, covering the shares of Common Stock to be issued upon vesting of the RSUs, and such shares are authorized for listing on the New York Stock Exchange or another securities exchange as determined by the Committee. Nothing herein shall be deemed to require the Corporation to apply for, to effect, or to obtain such registration or listing.

(c) Compensation Recoupment Policy . You hereby acknowledge and agree that you and the RSUs, including any cash and/or shares of Common Stock that may be delivered to you pursuant to the RSUs, are subject to the Corporation’s Compensation Recoupment Policy, as amended from time to time, a current copy of which can be found on the Corporation’s website at http://www.investor.jnj.com/gov/compensation-recoupment-policy.cfm . The terms and conditions of the Compensation Recoupment Policy hereby are incorporated by reference into this Agreement.

5. Nontransferability of RSUs. The RSUs and any rights granted hereunder may not be sold, transferred, assigned, pledged, or hypothecated in any way (whether by operation of law or otherwise), other than by will or the laws of descent and distribution or in accordance with any beneficiary designation procedures that may be established by the Corporation. Nor shall any such rights be subject to execution, attachment, or similar process, other than in accordance with the

terms of the Plan. Upon any attempt to sell, transfer, assign, pledge, hypothecate, or otherwise dispose of the RSUs or of any rights granted herein contrary to the provisions of the Plan or this Agreement, or upon the levy of any attachment or similar process upon the RSUs or such rights, the RSUs and such rights shall, at the election of the Corporation, be forfeited for no consideration.

6. No Special Employment Rights; No Rights to Awards. Nothing contained in the Plan or this Agreement shall be construed or deemed by any person under any circumstances to bind any member of the Corporation Group to continue your employment for the Vesting Period or for any other period, to create a right to employment with the Corporation, to form or amend an employment or service contract with the Corporation or to interfere in any way with any right of of a member of the Corporation Group to terminate your employment at any time. You hereby acknowledge and agree that (i) the Plan is established voluntarily by the Corporation, is discretionary in nature and may be modified, amended, or terminated by the Corporation at any time, as provided in the Plan, (ii) your participation in the Plan is voluntary and you are voluntarily accepting the grant of RSUs, (iii) the RSUs and the shares of Common Stock subject to the RSUs, and the income and value of same, do not constitute part of your normal or expected compensation or salary for any purposes, including, but not limited to, calculating any severance, resignation, termination indemnities, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement benefits or welfare benefits or similar payments, and in no event should be considered as compensation for, or in any way relating to, past services to the Corporation Group, (iv) the RSUs and shares of Common Stock subject to the RSUs, and the income and value of same, are not intended to replace any pension rights or compensation, (v) the grant of the RSUs is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of RSUs, or benefits in lieu of RSUs, even if RSUs have been granted in the past, (vi) unless otherwise agreed with the Corporation, the RSUs and the shares of Common Stock subject to the RSUs, and the income and value of same, are not granted as consideration, or in connection with, the service you may provide as a director of a subsidiary of the Corporation, (vii) the future value of the underlying shares of Common Stock is unknown, indeterminable and cannot be predicted with certainty, (vii) no claim or entitlement to compensation or damages shall arise from forfeiture or recoupment of the RSU resulting from the termination of your Employment or other service relationship (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any), (ix) you shall seek all necessary approvals under, make all required notifications under, and comply with all laws, rules, and regulations applicable to the ownership of the RSUs and, if applicable, shares of Common Stock, including currency and exchange laws, rules, and regulations, (x) neither the Corporation nor any of its subsidiaries or affiliates shall be liable for any foreign exchange rate fluctuation between your local currency and the US dollar that may affect the value of the RSUs or of any amounts due to you pursuant to settlement of the RSUs or the subsequent sale of any shares of Common Stock acquired upon settlement, and (xi) the Corporation is not providing any tax, legal, or financial advice, nor is the Corporation making any recommendations regarding your participation in the Plan, or your acquisition or sale of the underlying shares of Common Stock, you should consult your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the RSUs.

7. Notices. Unless the Corporation notifies you otherwise in writing, all notices, designations, and payments to be submitted to the Corporation in connection with the RSUs shall be addressed to:

Equity Compensation Resources
One Johnson & Johnson Plaza
New Brunswick, NJ 08933

8. Definitions. The following capitalized terms shall have the definitions set forth below for purposes of this Agreement:

(a) “ Cause ” means your termination by the Corporation Group: (i) following your conviction for or a plea of nolo contendere to the commission of a felony under federal or state law, or (ii) for any act that, in the Committee’s opinion, constitutes fraud, embezzlement, dishonesty, disclosure of confidential information, the willful and deliberate failure to perform your employment duties in any material respect, a conflict of interest, a violation of the non-competition obligations set forth in Section 2(d)(i) of this Agreement or any other applicable non-competition, non-solicitation, or confidentiality agreement or obligation that you have with any member of the Corporation Group, or any other event that is inimical or contrary to the best interests of the Corporation Group. Any determination of “Cause” shall be made by the Committee in its sole discretion, and its determination shall be final and binding.

(b) “ Committee ” means the Compensation & Benefits Committee of the Board of Directors of the Corporation (or any successor committee).

(e) “ Corporation Group ” means the Corporation and its subsidiaries and affiliates, as determined by the Committee.

(f) “ Customer ” means any entity, client, account, or person, including the employees, agents, or representatives of the foregoing, or any entity or person who participates,

influences or has any responsibility in making purchasing decisions on behalf of such entities, clients, accounts, or persons, to whom or to which you contacted, solicited any business from, sold to, rendered any service to, were assigned to, had responsibilities for, received commissions or any compensation on, or promoted or marketed any products or services to during the eighteen (18) month period of time preceding your Date of Termination. The Committee shall determine whether any individual or entity is a “Customer” in its sole discretion, and its determination shall be final.

(g) “ Date of Termination ” means the date on which your Employment terminates.

(j) “ Employed ” or “ Employment ” means any period of time during which you are an employee of the Corporation Group, as determined by the Corporation in accordance with its applicable practices, policies and records; provided , that , during such period you are (i) in active employment status with the Corporation Group, (ii) on a Corporation-approved leave of absence for up to six months (or greater than six months if you have a right to reemployment under a statute or contract), or (iii) on leave due to Disability for up to twenty-nine (29) months. For the avoidance of doubt, you shall not be considered to be Employed (x) for any period during which you are not considered to be an employee pursuant to the Corporation's practices, policies and records, (y) during any notice period or salary continuation period required by local law (such as a "garden leave" or similar period) or any severance period (if you are covered by a severance agreement or arrangement) or (z) for any period of leave in excess of the periods set forth in clauses (ii) and (iii) above, as applicable.

(k) “ Grant Date ” means the date on which the RSUs are granted, as set forth above.

(l) “ Reduction in Force ” means a termination of Employment (i) due to a position elimination or (ii) in connection with a site closing or plant closing. The determination of whether a termination of Employment is in connection with a Reduction in Force shall be made by the Committee in its sole discretion.

(m) “ Service ” means Employment with the Corporation or one of its subsidiaries or affiliates, while that corporation or other legal entity was a subsidiary or affiliate of the Corporation, unless the Committee has otherwise provided on or before the Grant Date.

(n) “ Specified Divestiture ” means a Divestiture in which any RSUs forfeited hereunder as a result of a Termination of Employment due to such Divestiture are not replaced (with cash-based compensation, equity-based compensation, or any other compensation or benefit) in whole or in part by the acquiring company, staffing firm, or other entity involved in such Divestiture, or any affiliate of the foregoing. The determination of whether any compensation or benefit is provided in replacement of forfeited RSUs shall be made by the Committee in its sole discretion.

(o) “ Vesting Date ” means the date on which the RSUs vest, as set forth above, provided that if the RSUs vest pursuant to Sections 2(c)(i), 2(c)(ii) or 2(c)(v), then “Vesting Date” shall mean the Date of Termination (in the case of Section 2(c)(ii)) or the date of death (in the case of Sections 2(c)(i) or 2(c)(v)).

(p) “ Vesting Period ” means the period between the Grant Date and the Vesting Date.

9. Miscellaneous.

(a) Amendments . Except as provided herein, this Agreement may not be amended or otherwise modified unless evidenced in writing and signed by an authorized representative of the Corporation.

(b) Third-Party Beneficiaries . You acknowledge and agree that all affiliates and subsidiaries of the Corporation have, or will as the result of a future acquisition, merger, assignment, or otherwise have, an interest in your employment and your compliance with the obligations in Section 2(d), and that those entities are each express, third-party beneficiaries of this Agreement.

(c) Binding Effect . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

(d) Severability . In the event that Section 2(d) of this Agreement is invalidated or not enforced under applicable law, this shall not affect the validity or enforceability of the remaining provisions of this Agreement or the Plan. To the extent that Section 2(d) of this Agreement is unenforceable because it is deemed overbroad, the provision shall be applied and enforced in a more limited manner to the fullest extent permissible under the applicable law. You further understand and agree that, in the event Section 2(d) of this Agreement is declared invalid, void, overbroad, or unenforceable, in whole or in part, for any reason, you shall remain bound by any non-competition, confidentiality, non-solicitation, and/or non-disclosure agreement previously entered between you and any member of the Corporation Group.

(e) Appendix A . Notwithstanding any provisions in this Agreement, the RSUs shall be subject to any special terms and conditions set forth in Appendix A for your country. Moreover, if you relocate to one of the countries included in Appendix A, the special terms and

conditions for such country will apply to you, to the extent the Corporation determines that the application of such terms and conditions is necessary and advisable for legal or administrative reasons. Appendix A constitutes part of this Agreement.

(f) Data Privacy Consent. By accepting this grant, you hereby consent to the collection, use and transfer, in electronic or other form, of your personal data as described in this document by and among, as applicable, your employing entity (the “ Employer ”) and the Corporation and the Corporation Group for the exclusive purpose of implementing, administering and managing any awards issued to you under the Plan. You understand that the Corporation and your Employer may hold certain personal information about you, including, but not limited to, your name, home address, email address, telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, details of all RSUs or any other entitlement to shares of stock awarded, canceled, vested, unvested or outstanding in your favor (" Data "), for the purpose of implementing, administering and managing any grants issued to you under the Plan. The Controller of personal data processing is Johnson & Johnson Services, Inc., with its registered address at One Johnson & Johnson Plaza, New Brunswick, NJ 08933, USA, and the Corporation and its subsidiaries and affiliates. You understand that Data may be transferred to any third parties, as may be selected by the Corporation, which are assisting in the implementation, administration and management of the Plan. You understand that the recipients of the Data may be located in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections from your country. You understand that if you reside outside of the United States, you may request a list with the names and addresses of any potential recipients of the Data by contacting your local human resources representative. You authorize the recipients, which may assist the Corporation (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing grants under the Plan. You understand the Data will be held only as long as is necessary to implement, administer and manage grants under the Plan. You understand that if you reside outside of the United States, you may, at any time, view Data, request information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your human resources representative. Further, you understand that your consent herein is being provided on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, your Employment status or Service will not be affected; the only consequence of refusing or withdrawing your consent is that the Corporation would not be able to grant RSUs or other equity awards to you or administer or maintain such awards. Therefore, you understand that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative. Finally, upon request of the Corporation or the Employer, you agree to provide an executed data privacy consent form (or any other agreements or consents that may be required by the Corporation and/or the Employer) that the Corporation and/or the Employer may deem necessary to obtain from you for the purpose of administering your participation in the Plan in compliance with the data privacy laws in your country, either now or in the future. You understand

and agree that you will not be able to participate in the Plan if you fail to provide any such consent or agreement requested by the Corporation and/or the Employer.

(h) Section 409A . The intent of the parties is that payments and benefits under this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and guidance issued thereunder (“ Section 409A ”), to the extent subject thereto, and accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith. Notwithstanding anything to the contrary in the Plan or this Agreement, the Corporation reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without your consent, to comply with Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A prior to the actual payment of cash or shares of Common Stock pursuant to the RSUs. However, the Corporation makes no representation that the RSUs are not subject to Section 409A nor makes any undertaking to preclude Section 409A from applying to the RSUs. The Corporation shall not have any liability under the Plan or this Agreement for any taxes, penalties or interest due on amounts paid or payable pursuant to the Plan or this Agreement, including any taxes, penalties or interest imposed under Section 409A. For purposes of the Plan and this Agreement, to the extent necessary to avoid accelerated taxation and/or tax penalties under Section 409A, a termination of Employment shall not be deemed to have occurred for purposes of settlement of any portion of the RSUs unless such termination constitutes a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of Employment” or similar terms shall mean “separation from service.” Each amount to be paid under this Agreement shall be construed as a separately identified payment for purposes of Section 409A. In addition, notwithstanding anything herein to the contrary, if you are deemed on the Date of Termination to be a “specified employee” within the meaning of that term under Section 409A and you are subject to U.S. federal taxation, then, to the extent the settlement of the RSUs following such termination of Employment is considered the payment of “non-qualified deferred compensation” under Section 409A payable on account of a “separation from service” that is not exempt from Section 409A, such settlement shall be delayed until the date that is the earlier of (i) the expiration of the six-month period measured from the date of such “separation from service” or (ii) the date of your death.

to participate in the Plan through an online or electronic system established and maintained by the Corporation or a third party designated by the Corporation.

(k) Imposition of Other Requirements . The Corporation reserves the right to impose other requirements on your participation in the Plan, on the RSUs and on any shares of Common Stock acquired under the Plan, to the extent the Corporation determines it is necessary or advisable in order to comply with local law or to facilitate the administration of the Plan, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

(m) Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflict of laws principles, except to the extent superseded by federal law and as set forth in this Section 9(m). Provided that you primarily resided and worked in California during and in connection with your employment with the Corporation Group and at the time that you accepted this Agreement and participation in the Plan, (i) this Agreement shall be governed by and construed in accordance with the laws of the State of California; and (ii) Section 2(d)(ii) shall not apply with respect to services you render in California that do not involve your use or disclosure of the Corporation Group’s confidential or trade secret information.

JOHNSON & JOHNSON

By: ______________________________

Carolyn Hoenisch

Senior Finance Director

Savings Plan & Equity Compensation

Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933

Exhibit 10.3

JOHNSON & JOHNSON
2012 LONG-TERM INCENTIVE PLAN

GLOBAL PERFORMANCE SHARE UNIT AWARD AGREEMENT

Granted To:



WWID #		Target Number of PSUs:
Grant Date:		Performance Period:
Vesting Date:	The third anniversary of the Grant Date
Certification Date:	The date following the end of the Performance Period on which the Committee certifies the achievement of all remaining performance-based vesting criteria, the achievement of which has not yet been certified, as set forth in Appendix A hereto



Grant No.	Grant Type	Target No. of PSUs
	Performance Share Units

1. Grant of Performance Share Units.

(a) Award . Subject to the terms and conditions of this Performance Share Unit Award Agreement, including any country-specific terms in Appendix B hereto and any other exhibits or addendums to these documents (collectively, this “Agreement”) and the Plan, Johnson & Johnson, a New Jersey corporation (the “ Corporation ”), hereby grants you Performance Share Units (“ PSUs ”) in the above-stated target number (the “ Target Number of PSUs ”). The actual number of PSUs that become vested (which may be more or less than the Target Number of PSUs) shall be determined as provided in Section 2 and Appendix A of this Agreement. Each PSU that becomes vested in accordance with this Agreement will be settled in one share of Common Stock of the Corporation, par value $1.00 per share (“ Common Stock ”), or cash in lieu thereof, in either case subject to and in accordance with the terms of Section 4 hereof. Except where the context clearly indicates otherwise, each capitalized term used herein shall have the definition assigned to it by this Agreement or, to the extent that this Agreement does not define a capitalized term used herein, by the Plan. The PSUs granted herein are subject to all of the terms and conditions relating to “Performance Share Units” contained in the Plan, including, but not limited to, Section 7(c) of the Plan, and the terms of the Plan are hereby incorporated herein by reference. A copy of the Plan is available in and from the Office of the Secretary of the Corporation, One Johnson & Johnson Plaza, New Brunswick, NJ 08933 (732-524-0400).

(b) Conditions . This grant of PSUs is conditioned on your (i) electronically accepting this grant on the website of the Plan recordkeeper (or in such other manner as the Corporation may establish or permit from time to time) and (ii) opening and maintaining a brokerage account that is permitted for use with respect to awards granted under the Plan, in each case by the deadline established by the Corporation and/or set forth on the website of the Plan recordkeeper. By accepting this grant of PSUs, you will have confirmed your acceptance of all of the terms and conditions of this Agreement. If you do not accept this award of PSUs by the applicable deadline, your grant will be cancelled.

2. Vesting of PSUs; Competition with the Corporation Group .

(a) General. Except as otherwise provided in this Section 2, on the later of the Vesting Date or the Certification Date you shall vest in a number of PSUs, if any, based upon the achievement of specified levels of performance during the Performance Period, as set forth in Appendix A hereto (the “ Performance Goals ”), provided , that , (i) you are Employed on the Vesting Date and have been Employed at all times since the Grant Date and (ii) you have complied and are in compliance with the terms of this Agreement.

(b) Termination of Employment - General. If, prior to the Vesting Date, you cease to be Employed for any reason, including, without limitation, due to a termination for Cause, then except as otherwise provided in Section 2(c) hereof, the PSUs shall be forfeited for no consideration on the Date of Termination.

(i) Termination of Employment due to Death . If, prior to the Vesting Date, you die while Employed, then your estate, beneficiary or any person who acquires the PSUs by inheritance or devise shall (i) become vested in the Target Number of PSUs on your date of death and (ii) be eligible to vest in the Top-up Number of PSUs on the Certification Date based upon actual achievement relative to the Performance Goals during the Performance Period.

(ii) Termination of Employment due to Disability. If, prior to the Vesting Date, your Employment terminates due to Disability, then you (or should you die, your estate, beneficiary or any person who acquires the PSUs by inheritance or devise) shall (i) become vested in the Target Number of PSUs on the Date of Termination and (ii) be eligible to vest in the Top-Up Number of PSUs on the Certification Date based upon actual achievement relative to the Performance Goals during the Performance Period.

(iii) Termination due to Specified Divestiture or Reduction in Force . If, prior to the Vesting Date, (A) your Employment terminates as a result of a Specified Divestiture or a Reduction in Force and (B) at the time of such termination of Employment, you were not eligible for a Qualifying Separation, then, subject to the terms and conditions of this Section 2, a Pro-Rata Number of PSUs shall remain outstanding and you shall be eligible to become vested in a number of PSUs (which may be more or less than the Pro Rata Number of PSUs) on the Certification Date in accordance with Section 2(a) of this Agreement, based upon actual achievement relative to the Performance Goals during the Performance Period using the Pro Rata Number of PSUs (and not

the Target Number of PSUs) as a base. For purposes of this Agreement, a “ Pro Rata Number of PSUs ” means the number of PSUs equal to the result, rounded to the nearest whole number, of (I) the Target Number of PSUs, multiplied by (II) a fraction, the numerator of which is the number of days that elapsed from the Grant Date through and including the Date of Termination and the denominator of which is the total number of days in the Vesting Period.

(iv) Qualifying Separation . If, prior to the Vesting Date, (i) your Employment terminates after the date that is six (6) months following the Grant Date for any reason (including due to a Specified Divestiture or a Reduction in Force) other than due to (A) a termination for Cause or (B) your death or Disability and (ii) either (A) you have attained age fifty-five (55) and have at least ten (10) years of Service with at least five (5) consecutive years of Service immediately before your Date of Termination or (B) you have attained age sixty-two (62) as of your Date of Termination (a “ Qualifying Separation ”), then the PSUs shall remain outstanding and eligible to become vested on the Certification Date in accordance with Section 2(a) of this Agreement, based upon actual achievement relative to the Performance Goals during the Performance Period. Notwithstanding the foregoing, you will be treated as having terminated Employment pursuant to Section 2(b) hereof if, at any time prior to the Vesting Date, the Committee determines that applying this Section 2(c)(iv) to employees based on age at the time of termination of Employment and not to all employees may violate any law or public policy applicable to you and/or the PSUs (whether as applied to all holders of PSUs or only holders of PSUs in the jurisdiction where you are employed). For the avoidance of doubt, this Section 2(c)(iv) shall not apply (w) if your Employment terminates within six (6) months following the Grant Date, in which case the PSUs shall be forfeited for no consideration (unless clause (y) or clause (z) below applies), (x) if your Employment is terminated for Cause, in which case the PSUs shall be forfeited for no consideration on the Date of Termination, (y) if your Employment is terminated due to your death or Disability, in which case Section 2(c)(i) or Section 2(c)(ii) will apply, as applicable, or (z) if your Employment is terminated due to a Specified Divestiture or Reduction in Force within six (6) months following the Grant Date, in which case Section 2(c)(iii) will apply.

(v) Death Following Certain Terminations . Notwithstanding the foregoing, if you die following (i) a Qualifying Separation or (ii) a termination of Employment due to Specified Divestiture or Reduction in Force, but in any case prior to the Vesting Date, then (subject to Section 2(e)), your estate, beneficiary or any person who acquires the PSUs by inheritance or devise shall (A) become vested in (x) the Target Number of PSUs on the date of your death following a Qualifying Separation or (y) the Pro Rata Number of PSUs on the date of your death following a Specified Divestiture or Reduction in Force, and (B) be eligible to vest in the Top-Up Number of PSUs on the Certification Date based upon actual achievement relative to the Performance Goals during the Performance Period; provided , that , in the event of your death following a Specified Divestiture or Reduction in Force, the Top-Up Number of PSUs shall be equal to the positive difference, if any, between the number of PSUs that would have vested based on actual achievement relative to the Performance Goals during the Performance Period (based on the Pro Rata Number of PSUs that remain outstanding following the Date of Termination), less the Pro Rata Number of PSUs (the “ Pro Rata Top-Up Number of PSUs ”).

(d) Competition With the Corporation Group . In order to protect the Corporation Group’s goodwill and investments in research and development and Customer and business relationships and to prevent the disclosure of the Corporation Group’s confidential and trade secret information, thereby promoting the long-term success of the Corporation Group’s business, you agree to the following:

(i) During your Employment, you will not, without the prior written consent of the Corporation, directly or indirectly engage in Competitive Activities.

(A) the PSUs shall be forfeited for no consideration on the earliest date on which you are first in violation of Section 2(d)(i) and/or
Section 2(d)(ii) or any non-competition or non-solicitation agreement that you have with any member of the Corporation Group; and

(B) upon the Corporation’s demand, you shall immediately deliver to the Corporation (I) a number of shares of Common Stock equal to the number of PSUs that vested and were settled in the form of Common Stock (for the avoidance of doubt, without reduction for any shares of Common Stock that may have been withheld to satisfy applicable withholding taxes) and (II) the gross amount of cash paid to you (for the avoidance of doubt, without reduction for amounts withheld to satisfy applicable withholding taxes) for any PSUs that were settled in the form of cash, in each case in respect of any PSUs that vested within the twelve (12) month period of time immediately preceding the earliest date on which you are first in violation of Section 2(d)(i) and/or Section 2(d)(ii) or any non-competition or non-solicitation agreement that you have with any member of the Corporation Group. To the extent that you do not, as of the date of the Corporation’s demand for repayment, hold a number of shares of Common Stock sufficient to satisfy your obligation set forth in clause (I) above, you shall pay the Corporation an amount in cash equal to the result of (x) (i) the number shares required to be delivered by you pursuant to clause (I) above, less (ii) the number of shares actually delivered by you pursuant to clause (I), multiplied by (y) the Fair Market Value per share of Common Stock as of the business day immediately preceding the date of the Corporation’s demand for repayment. You agree to deliver and execute such documents (including, if applicable, share certificates) as the Corporation may deem necessary to effect the repayment obligations referred to in this Section 2(d)(iii)(B).

(iv) You understand and agree that the remedies set forth in Section 2(d)(iii) shall not be the Corporation Group’s exclusive remedies in the event of a breach of the non-competition obligations set forth in Section 2(d)(i) and/or Section 2(d)(ii) or in any other applicable non-competition or non-solicitation agreement that you have with any member of the Corporation Group, and that the Corporation reserves all other rights and remedies available to it at law or in equity.

(e) Conditions on Vesting upon or following Termination of Employment . Your eligibility to vest in any of the PSUs upon or following the date of your termination of Employment shall be subject to (i) your compliance with the non-competition obligations in Section 2(d)(i) and/or Section 2(d)(ii) and/or any other applicable non-competition or non-solicitation agreement with any member of the Corporation Group and (ii) if required by the Corporation at the time of your termination of Employment, your execution of a general release of claims in favor of the Corporation and its subsidiaries and affiliates in the form required by the Corporation that becomes effective within sixty (60) days following the Date of Termination (or such earlier date as the Corporation may require).

3. Rights to Common Stock. Prior to the delivery of shares of Common Stock to you pursuant to Section 4(a) (if applicable), you shall not have any rights in, or with respect to, any of the shares of Common Stock underlying the PSUs, including, but not limited to, any voting rights and the right to receive any dividends (or dividend equivalents) that may be paid or any distributions that may be made with respect to such Common Stock.

4. Issuance of Shares; Tax Withholding; Compliance With Securities Laws; Compliance With Compensation Recoupment Policy .

(a) General. On the Settlement Date, you will receive from the Corporation one share of Common Stock for each PSU that became vested in accordance with Section 2 hereof, or, at the discretion of the Committee, the cash equivalent of the Fair Market Value as of the Determination Date, reduced by any whole shares of Common Stock that are withheld or sold or any cash withheld to satisfy applicable Federal, state and local income taxes, social insurance, payroll tax, fringe benefits tax, payment on account or other tax-related items related to your participation in the Plan and legally applicable to you (the “ Tax-Related Items ") in the amount determined by the Corporation. If the proceeds of any such sale of Common Stock exceed the amount necessary to satisfy your tax-withholding obligation, the excess shall be paid to you in cash. In lieu of the foregoing, the Committee may allow you to pay the Tax-Related Items withholding to the Corporation in Common Stock, cash or such other form as approved by the Committee. Notwithstanding the foregoing, if you are a Section 16 officer of the Corporation under the Act, then the Corporation will satisfy any applicable tax withholding obligations by withholding in shares of Common Stock upon the relevant taxable event (with such withholding obligations determined based on the applicable statutory withholding rates and without regard to Section 83(c)(3) of the Internal Revenue Code of 1986, as amended), unless otherwise determined by the Committee. Further, notwithstanding anything to the contrary in this Section 4(a), if any law or regulation requires the Corporation to take any action with respect to such shares before the issuance thereof,

the date of delivery of such shares shall be extended for the period necessary to complete such action.

(b) Registration and Listing . Notwithstanding Section 4(a), shares of Common Stock shall not be issued pursuant to this Agreement, unless, on the Vesting Date, there is in effect a current registration statement or amendment thereto under the Securities Act of 1933, as amended, covering the shares of Common Stock to be issued upon vesting of the PSUs, and such shares are authorized for listing on the New York Stock Exchange or another securities exchange as determined by the Committee. Nothing herein shall be deemed to require the Corporation to apply for, to effect, or to obtain such registration or listing.

(c) Compensation Recoupment Policy . You hereby acknowledge and agree that you and the PSUs, including any cash and/or shares of Common Stock that may be delivered to you pursuant to the PSUs, are subject to the Corporation’s Compensation Recoupment Policy, as amended from time to time, a current copy of which can be found on the Corporation’s website at http://www.investor.jnj.com/gov/compensation-recoupment-policy.cfm . The terms and conditions of the Compensation Recoupment Policy hereby are incorporated by reference into this Agreement.

5. Nontransferability of PSUs . The PSUs and any rights granted hereunder may not be sold, transferred, assigned, pledged or hypothecated in any way (whether by operation of law or otherwise), other than by will or the laws of descent and distribution or in accordance with any beneficiary designation procedures that may be established by the Corporation. Nor shall any such rights be subject to execution, attachment or similar process, other than in accordance with the terms of the Plan. Upon any attempt to sell, transfer, assign, pledge, hypothecate, or otherwise dispose of the PSUs or of any rights granted herein contrary to the provisions of the Plan or this Agreement, or upon the levy of any attachment or similar process upon the PSUs or such rights, the PSUs and such rights shall, at the election of the Corporation, be forfeited for no consideration.

grant of the PSUs is exceptional, voluntary and occasional and does not create any contractual or other right to receive future grants of PSUs, or benefits in lieu of PSUs, even if PSUs have been granted in the past, (vi) unless otherwise agreed with the Corporation, the PSUs and the shares of Common Stock subject to the PSUs, and the income and value of same, are not granted as consideration, or in connection with, the service you may provide as a director of a subsidiary of the Corporation, (vii) the future value of the underlying shares of Common Stock is unknown, indeterminable and cannot be predicted with certainty, (viii) no claim or entitlement to compensation or damages shall arise from forfeiture or recoupment of the PSU resulting from the termination of your Employment or other service relationship (regardless of the reason for such termination and whether or not later found to be invalid or in breach of employment laws in the jurisdiction where you are employed or the terms of your employment agreement, if any), (ix) you shall seek all necessary approvals under, make all required notifications under, and comply with all laws, rules, and regulations applicable to the ownership of the PSUs and, if applicable, shares of Common Stock, including currency and exchange laws, rules, and regulations, (x) neither the Corporation nor any of its subsidiaries or affiliates shall be liable for any foreign exchange rate fluctuation between your local currency and the US dollar that may affect the value of the PSUs or of any amounts due to you pursuant to settlement of the PSUs or the subsequent sale of any shares of Common Stock acquired upon settlement, and (xi) the Corporation is not providing any tax, legal, or financial advice, nor is the Corporation making any recommendations regarding your participation in the Plan or your acquisition or sale of the underlying shares of Common Stock, and you should consult your own personal tax, legal and financial advisors regarding your participation in the Plan before taking any action related to the PSUs.

7. Notices. Unless the Corporation notifies you otherwise in writing, all notices, designations, and payments to be submitted to the Corporation in connection with the PSUs shall be addressed to:

Equity Compensation Resources
One Johnson & Johnson Plaza
New Brunswick, NJ 08933

8. Adjustments for Changes in the Corporation’s Corporate Structure. The PSUs granted hereunder shall be subject to the provisions of the Plan relating to adjustments for changes in the Corporation’s corporate structure.

9. Definitions . The following capitalized terms shall have the definitions set forth below for purposes of this Agreement:

(a) “ Cause ” means your termination by the Corporation Group: (i) following your conviction for or a plea of nolo contendere to the commission of a felony under federal or state law, or (ii) for any act that, in the Committee’s opinion, constitutes fraud, embezzlement, dishonesty, disclosure of confidential information, the willful and deliberate failure to perform your employment duties in any material respect, a conflict of interest, a violation of the non-competition obligations set forth in Section 2(d)(i) of this Agreement or any other applicable non-competition, non-solicitation, or confidentiality agreement or obligation that you have with any member of the Corporation Group, or any other event that is inimical or contrary to the best interests of the

Corporation Group. Any determination of “Cause” shall be made by the Committee in its sole discretion, and its determination shall be final and binding.

(b) “ Certification Date ” means the date set forth above.

(c) “ Committee ” means the Compensation & Benefits Committee of the Board of Directors of the Corporation (or any successor committee).

(d) “ Competitor ” means any person or entity including, but not limited to, you or anyone acting on your behalf, that is engaged or preparing to be engaged in research, development, production, manufacturing, marketing or selling of, or consulting on, any product, process, technology, machine, invention or service in existence or under development that resembles, competes with, may now or in the future compete with, can be substituted for or can be marketed as a substitute for any product, process, technology, machine, invention, or service of the Corporation Group that is in existence or that is, was, or is planned to be under development. The Committee shall determine whether any individual or entity is a “Competitor” in its sole discretion, and its determination shall be final.

(e) “ Competitive Activities ” means any and all activities (including preparations) which compete with, are intended to compete with, or which otherwise may adversely affect or interfere with the Corporation Group’s business or advantage a Competitor whether immediately or in the future. The Committee shall determine whether any conduct constitutes “Competitive Activities” in its sole discretion, and its determination shall be final.

(f) “ Corporation Group ” means the Corporation and its subsidiaries and affiliates, as determined by the Committee.

(g) “ Customer ” means any entity, client, account, or person, including the employees, agents, or representatives of the foregoing, or any entity or person who participates, influences or has any responsibility in making purchasing decisions on behalf of such entities, clients, accounts, or persons, to whom or to which you contacted, solicited any business from, sold to, rendered any service to, were assigned to, had responsibilities for, received commissions or any compensation on, or promoted or marketed any products or services to during the eighteen (18) month period of time preceding your Date of Termination. The Committee shall determine whether any individual or entity is a “Customer” in its sole discretion, and its determination shall be final.

(h) “ Date of Termination ” means the date on which your Employment terminates.

(i) “ Determination Date ” means (i) the later to occur of the Certification Date or the Vesting Date, or (ii) in the event that you terminate Employment pursuant to either Section 2(c)(i) or Section 2(c)(ii) hereof or die following a Qualifying Separation or a termination due to Specified Divestiture or Reduction in Force in accordance with Section 2(c)(v), (A) with respect to the Target Number of PSUs or the Pro Rata Number of PSUs, as applicable, the Date of Termination

or death, as applicable, and (B) with respect to the Top-Up Number of PSUs or the Pro Rata Top-Up Number of PSUs, as applicable, the Certification Date.

(j) “ Disability ” means that due to any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than six (6) months, you are unable to perform the duties of your position of employment or any substantially similar position of employment, as determined by the Corporation.

(k) “ Divestiture ” means the disposition of an organizational unit or business unit by the Corporation or one of its subsidiaries, whether pursuant to merger, reorganization, consolidation, spinoff, sale of assets, sale of stock, outsourcing arrangement, or asset transfer, in each case that (i) the Committee determines constitutes a Divestiture and (ii) directly results in (A) the termination of your Employment and the employment of a group of employees of the Corporation Group and (B) you and such other employees becoming employed by an acquiring company or staffing firm.

(l) “ Employed ” or “ Employment ” means any period of time during which you are an employee of the Corporation Group, as determined by the Corporation Group in accordance with its applicable practices, policies and records; provided , that , during such period you are (i) in active employment status with the Corporation Group, (ii) on a Corporation Group-approved leave of absence for up to six months (or greater than six months if you have a right to reemployment under a statute or by contract), or (iii) on leave due to Disability for up to twenty-nine (29) months. For the avoidance of doubt, you shall not be considered to be Employed (x) for any period during which you are not considered to be an employee pursuant to the Corporation’s practices, policies and records, (y) during any notice period or salary continuation period required by local law (such as a “garden leave” or similar period) or any severance period (if you are covered by a severance agreement or arrangement) or (z) for any period of leave in excess of the periods set forth in clauses (ii) and (iii) above, as applicable.

(m) “ Grant Date ” means the date on which the PSUs are granted, as set forth above.

(n) “ Performance Period ” means the period set forth above.

(o) “ Reduction in Force ” means a termination of Employment (i) due to a position elimination or (ii) in connection with a site closing or plant closing. The determination of whether a termination of Employment is in connection with a Reduction in Force shall be made by the Committee in its sole discretion.

(p) “ Service ” means Employment with the Corporation or one of its subsidiaries or affiliates, while that corporation or other legal entity was a subsidiary or affiliate of the Corporation, unless the Committee has otherwise provided on or before the Grant Date.

(q) “ Settlement Date ” means (i) the fiscal year of the Corporation immediately following the fiscal year in which the Performance Period ends (but no later than the 15 ^th day of

the third calendar month following the month in which the Performance Period ends), or (ii) in the event of your termination due to death or Disability pursuant to either Section 2(c)(i) or Section 2(c)(ii), or in the event of your death following a Qualifying Separation or termination due to Specified Divestiture or Reduction in Force pursuant to Section 2(c)(v), (A) with respect to the Target Number of PSUs or Pro Rata Number of PSUs, as applicable, a date that is no later than the 15 ^th day of the third calendar month following the end of the fiscal year in which the Date of Termination (in the case of Section 2(c)(ii)) or the date of death (in the case of Section 2(c)(i) or Section 2(c)(v)) occurs, and (B) with respect to the Top-up Number of PSUs or the Pro Rata Top-Up Number of PSUs, the fiscal year of the Corporation immediately following the fiscal year in which the Performance Period ends (but no later than the 15 ^th day of the third calendar month following the month in which the Performance Period ends).

(r) “ Specified Divestiture ” means a Divestiture in which any PSUs forfeited hereunder as a result of a Termination of Employment due to such Divestiture are not replaced (with cash-based compensation, equity-based compensation, or any other compensation or benefit) in whole or in part by the acquiring company, staffing firm, or other entity involved in such Divestiture, or any affiliate of the foregoing. The determination of whether any compensation or benefit is provided in replacement of forfeited PSUs shall be made by the Committee in its sole discretion.

(s) “ Top-Up Number of PSUs ” means the positive difference, if any, between (i) the number of PSUs that would have become vested based upon actual achievement relative to the Performance Goals during the Performance Period, less (ii) the Target Number of PSUs; provided , that , the Top-up Number of PSUs shall not be less than zero.

(t) “ Vesting Date ” means the date on which the PSUs vest, as set forth above, provided , that , if the PSUs vest pursuant to Sections 2(c)(i) or Section 2(c)(ii), or upon your death following a Qualifying Separation or termination due to Specified Divestiture or Reduction in Force pursuant to Section 2(c)(v), then “Vesting Date” shall mean (i) with respect to the Target Number of PSUs or the Pro Rata Number of PSUs, as applicable, the Date of Termination (in the case of Section 2(c)(ii)) or the date of death (in the case of Section 2(c)(i) or Section 2(c)(v)) and (ii) with respect to the Top-up Number of PSUs or the Pro Rata Top-Up Number of PSUs, as applicable, the Certification Date.

(u) “ Vesting Period ” means the period between the Grant Date and the Vesting Date.

10. Miscellaneous .

(a) Amendment s. Except as provided herein, this Agreement may not be amended or otherwise modified unless evidenced in writing and signed by an authorized representative of the Corporation.

(b) Third-Party Beneficiaries . You acknowledge and agree that all affiliates and subsidiaries of the Corporation have, or will as the result of a future acquisition, merger, assignment, or otherwise have, an interest in your employment and your compliance with the obligations in Section 2(d), and that those entities are each express, third-party beneficiaries of this Agreement.

(c) Binding Effect . This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.

(e) Appendix B . Notwithstanding any provisions in this Agreement, the PSUs shall be subject to any special terms and conditions set forth in Appendix B for your country. Moreover, if you relocate to one of the countries included in Appendix B, the special terms and conditions for such country will apply to you, to the extent the Corporation determines that the application of such terms and conditions is necessary and advisable for legal or administrative reasons. Appendix B constitutes part of this Agreement.

time, view Data, request information about the storage and processing of Data, require any necessary amendments to Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing your human resources representative. Further, you understand that your consent herein is being provided on a purely voluntary basis. If you do not consent, or if you later seek to revoke your consent, your Employment status or Service will not be affected; the only consequence of refusing or withdrawing your consent is that the Corporation would not be able to grant PSUs or other equity awards to you or administer or maintain such awards. Therefore, you understand that refusing or withdrawing your consent may affect your ability to participate in the Plan. For more information on the consequences of your refusal to consent or withdrawal of consent, you understand that you may contact your local human resources representative. Finally, upon request of the Corporation or the Employer, you agree to provide an executed data privacy consent form (or any other agreements or consents that may be required by the Corporation and/or the Employer) that the Corporation and/or the Employer may deem necessary to obtain from you for the purpose of administering your participation in the Plan in compliance with the data privacy laws in your country, either now or in the future. You understand and agree that you will not be able to participate in the Plan if you fail to provide any such consent or agreement requested by the Corporation and/or the Employer.

(h) Section 409A . The intent of the parties is that payments and benefits under this Agreement are exempt from or comply with Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations and guidance issued thereunder (“ Section 409A ”), to the extent subject thereto, and accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered to be in compliance therewith or exempt therefrom, as applicable. Notwithstanding anything to the contrary in the Plan or this Agreement, the Corporation reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without your consent, to comply with Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A prior to the actual payment of cash or shares of Common Stock pursuant to the PSUs. However, the Corporation makes no representation that the PSUs are not subject to Section 409A nor makes any undertaking to preclude Section 409A from applying to the PSUs. The Corporation shall not have any liability under the Plan or this Agreement for any taxes, penalties or interest due on amounts paid or payable pursuant to the Plan or this Agreement, including any taxes, penalties or interest imposed under Section 409A. For purposes of the Plan and this Agreement, to the extent the PSUs constitute “non-qualified deferred compensation” within the meaning of Section 409A and necessary to avoid accelerated taxation and/or tax penalties under Section 409A, a termination of Employment shall not be deemed to have occurred for purposes of settlement of any portion of the PSUs unless such termination constitutes a “separation from service” within the meaning of Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of Employment” or similar terms shall mean “separation from service.” Each amount to be paid under this Agreement shall be construed as a separately identified payment for purposes of Section 409A. In addition,

notwithstanding anything herein to the contrary, if you are deemed on the Date of Termination to be a “specified employee” within the meaning of that term under Section 409A and you are subject to U.S. federal taxation, then, to the extent the settlement of the PSUs following such termination of Employment is considered the payment of non-qualified deferred compensation under Section 409A payable on account of a “separation from service” that is not exempt from Section 409A, such settlement shall be delayed until the date that is the earlier of (i) the expiration of the six-month period measured from the date of such “separation from service” or (ii) the date of your death.

(k) Imposition of Other Requirements . The Corporation reserves the right to impose other requirements on your participation in the Plan, on the PSUs and on any shares of Common Stock acquired under the Plan, to the extent the Corporation determines it is necessary or advisable in order to comply with local law or to facilitate the administration of the Plan, and to require you to sign any additional agreements or undertakings that may be necessary to accomplish the foregoing.

(m) Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey without giving effect to conflict of laws principles, except to the extent superseded by federal law and as set forth in this Section 9(m). Provided that you primarily resided and worked in California during and in connection with your employment with the Corporation Group and at the time that you accepted this Agreement and participation in the Plan, (i) this Agreement shall be governed by and construed in accordance with the laws of the State of California; and (ii) Section 2(d)(ii) shall not apply with respect to services you render in California that do not involve your use or disclosure of the Corporation Group’s confidential or trade secret information.

JOHNSON & JOHNSON

By: ______________________________

Carolyn Hoenisch

Senior Finance Director

Savings Plan & Equity Compensation

Johnson & Johnson
One Johnson & Johnson Plaza
New Brunswick, NJ 08933

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Alex Gorsky, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2018 (the “report”) of Johnson & Johnson (the "Company");

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

4. The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Company and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting; and

5. The Company's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

/s/ Alex Gorsky

__________________________

Alex Gorsky

Chief Executive Officer

Date: May 1, 2018

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Dominic J. Caruso, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2018 (the “report”) of Johnson & Johnson (the "Company");

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting.

/s/ Dominic J. Caruso

______________________________

Dominic J. Caruso

Chief Financial Officer

Date: May 1, 2018

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT


	The undersigned, Alex Gorsky, the Chief Executive Officer of Johnson & Johnson, a New Jersey corporation (the “Company”), pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certifies that, to the best of my knowledge:



(1)	the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2018 (the“Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		/s/ Alex Gorsky
		Alex Gorsky
		Chief Executive Officer

Dated: May 1, 2018


	This certification is being furnished to the SEC with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section.

Exhibit 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT


	The undersigned, Dominic J. Caruso, the Chief Financial Officer of Johnson & Johnson, a New Jersey corporation (the “Company”), pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, hereby certifies that, to the best of my knowledge:



(1)	the Company's Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2018 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		/s/ Dominic J. Caruso
		Dominic J. Caruso
		Chief Financial Officer

Dated: May 1, 2018


	This certification is being furnished to the SEC with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by such Act, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section.