JNJ offset by

Other (Income) Expense, Net: Other (income) expense, net is the account where the Company records gains and losses related to the sale and write-down of certain investments in equity securities held by Johnson & Johnson Innovation - JJDC, Inc. (JJDC), changes in the fair value of securities, investment (income)/loss related to employee benefit programs, gains and losses on divestitures, certain transactional currency gains and losses, acquisition and divestiture related costs, litigation accruals and settlements, as well as royalty income.


JNJ offset by

Other (income) expense, net for the fiscal year 2023 was unfavorable by $5.8 billion as compared to the prior year primarily due to the following: (Dollars in Billions)(Income)/Expense##2023##2022##Change Litigation related(1)##$6.9##0.9##6.0 Changes in the fair value of securities(2)##0.6##0.7##(0.1) COVID-19 vaccine manufacturing exit related costs##0.4##0.7##(0.3) Acquisition, Integration and Divestiture related(3)##0.3##0.2##0.1 Employee benefit plan related##(1.4)##(1.2)##(0.2) Other##(0.2)##(0.5)##0.3 Total Other (Income) Expense, Net##$6.6##0.8##5.8


JNJ offset by

(1)2023 was primarily related to the approximately $7.0 billion charge for talc (See Note 19 to the Consolidated Financial Statements for more details) and favorable intellectual property related litigation settlements of approximately $0.3 billion. 2022 was primarily related to pelvic mesh.


JNJ offset by

(2)The fiscal 2023 includes $0.4 billion related to the unfavorable change in the fair value of the remaining stake in Kenvue and $0.4 billion related to the partial impairment of Idorsia convertible debt and the change in the fair value of the Idorsia equity securities held.


JNJ offset by

(3)2023 primarily related to the impairment of Ponvory and one-time integration costs related to the acquisition of Abiomed. 2022 was primarily costs related to the acquisition of Abiomed.


JNJ offset by

Interest (Income) Expense: Interest income in the fiscal year 2023 was $1.3 billion as compared to interest income of $0.5 billion in the fiscal year 2022 primarily due to higher rates of interest earned on cash balances. Interest expense in the fiscal year 2023 was $0.8 billion as compared to interest expense of $0.3 billion in the fiscal year 2022 primarily due to higher interest rates on debt balances. Cash, cash equivalents and marketable securities totaled $22.9 billion at the end of 2023, and averaged $22.6 billion as compared to the cash, cash equivalents and marketable securities total of $22.3 billion and $26.9 billion average balance in 2022. The total debt balance at the end of 2023 was $29.3 billion with an average debt balance of $34.5 billion as compared to $39.6 billion at the end of 2022 and an average debt balance of $36.7 billion. The lower average cash, cash equivalents and marketable securities was primarily due to the acquisition of Abiomed in late December of 2022. The lower average debt balance was primarily due to the repayment of commercial paper.


JNJ Income before tax by segment

Income (loss) before tax by segment of business were as follows: ####Income Before Tax######Segment Sales########Percent of Segment Sales## (Dollars in Millions)##2023####2022##2023####2022##2023######2022 Innovative Medicine##$18,246####15,647##54,759####52,563##33.3##%####29.8 MedTech##4,669####4,447##30,400####27,427##15.4######16.2 Segment earnings before tax(1)##22,915####20,094##85,159####79,990##26.9######25.1 Less: Expenses not allocated to segments(2)##7,853####735############## Worldwide income before tax##$15,062####19,359##85,159####79,990##17.7##%####24.2


JNJ Income before tax by segment

(1)See Note 17 to the Consolidated Financial Statements for more details.


JNJ Income before tax by segment

(2)Amounts not allocated to segments include interest (income) expense and general corporate (income) expense. Fiscal 2023 includes an approximately $7.0 billion charge related to talc matters and the approximately $0.4 billion unfavorable change in the fair value of the retained stake in Kenvue.


JNJ 2023 Annual Report 31

Innovative Medicine segment:


JNJ 2023 Annual Report 31

In 2023, the Innovative Medicine segment income before tax as a percent to sales was 33.3% versus 29.8% in 2022. The increase in the income before tax as a percent of sales was primarily driven by the following: •Lower one-time COVID-19 Vaccine related exit costs of $0.7 billion in 2023 versus $1.5 billion in 2022 •Lower In-process research & development impairments of $0.2 billion in 2023 versus $0.8 billion in 2022 •Unfavorable changes in the fair value of securities in 2023 of $0.4 billion as compared to $0.7 billion in 2022 •Lower litigation related expense of $0.2 billion •Leveraging in selling and marketing expenses •R&D Portfolio prioritization


JNJ partially offset by

•Restructuring charges of $0.5 billion in 2023 versus $0.1 billion in 2022 •Impairment of Ponvory in 2023 •Higher milestone payments in 2023


JNJ partially offset by

MedTech segment:


JNJ partially offset by

In 2023, the MedTech segment income before tax as a percent to sales was 15.4% versus 16.2% in 2022. The decrease in the income before tax as a percent to sales was primarily driven by the following: •Higher amortization expense of $0.5 billion in 2023 related to Abiomed •Expense of $0.4 billion for an acquired in process research and development asset from the Laminar acquisition in 2023 •Commodity inflation in 2023


JNJ partially offset by

•Income from litigation settlements of $0.1 billion in 2023 versus expense of $0.6 billion in 2022 •Lower integration/acquisition costs related to Abiomed of $0.2 billion in 2023 versus $0.3 billion in 2022 •Leveraging in selling and marketing expenses in 2023


JNJ partially offset by

Restructuring: In the fiscal year 2023, the Company completed a prioritization of its research and development (R&D) investment within the Innovative Medicine segment to focus on the most promising medicines with the greatest benefit to patients. This resulted in the exit of certain programs within therapeutic areas. The R&D program exits are primarily in infectious diseases and vaccines including the discontinuation of its respiratory syncytial virus (RSV) adult vaccine program, hepatitis and HIV development. The pre-tax restructuring charge of approximately $0.5 billion in the fiscal year 2023, of which $449 million was recorded in Restructuring and $30 million was recorded in Cost of products sold on the Consolidated Statement of Earnings, included the termination of partnered and non-partnered program costs and asset impairments.


JNJ partially offset by

In the fiscal year 2023, the Company initiated a restructuring program of its Orthopaedics franchise within the MedTech segment to streamline operations by exiting certain markets, product lines and distribution network arrangements. The pre-tax restructuring expense of $0.3 billion in the fiscal year 2023, of which $40 million was recorded in Restructuring and $279 million was recorded in Cost of products sold on the Consolidated Statement of Earnings, primarily included inventory and instrument charges related to market and product exits.


JNJ partially offset by

In 2022, the Company recorded a pre-tax charge of $0.4 billion related to a restructuring program of its Global Supply Chain. The Global Supply Chain program was announced in the second quarter of 2018 and was completed in the fiscal fourth quarter of 2022.


JNJ partially offset by

See Note 20 to the Consolidated Financial Statements for additional details related to the restructuring programs.


JNJ partially offset by

Provision for Taxes on Income: The worldwide effective income tax rate from continuing operations was 11.5% in 2023 and 15.4% in 2022.


JNJ partially offset by

On December 15, 2022, the European Union (EU) Member States formally adopted the EU’s Pillar Two Directive, which generally provides for a minimum effective tax rate of 15%, as established by the Organization for Economic Co-operation and Development (OECD) Pillar Two Framework that was supported by over 130 countries worldwide. As of December 31, 2023, several EU and non-EU countries have enacted Pillar 2 legislation with an initial effective date of January 1, 2024, with other aspects of the law effective in 2025 or later. The Company is estimating that as result of this legislation the 2024 effective tax rate will increase by approximately 1.5% or 150 basis points compared to fiscal 2023. Further legislation, guidance and regulations that may be issued in fiscal 2024, as well as other business events, may impact this estimate.


JNJ partially offset by

For discussion related to the fiscal 2023 provision for taxes refer to Note 8 to the Consolidated Financial Statements.


JNJ Liquidity & cash flows

Cash and cash equivalents were $21.9 billion at the end of 2023 as compared to $14.1 billion at the end of 2022.


JNJ Liquidity & cash flows

The primary sources and uses of cash that contributed to the $7.8 billion increase were: ##(Dollars in billions)## $14.1####Q4 2022 Cash and cash equivalents balance 22.8####cash generated from operating activities 0.9####net cash from investing activities (15.8)####net cash used by financing activities (0.1)####effect of exchange rate and rounding $21.9####Q4 2023 Cash and cash equivalents balance


JNJ Liquidity & cash flows

In addition, the Company had $1.1 billion in marketable securities at the end of fiscal year 2023 and $9.4 billion at the end of fiscal year 2022. See Note 1 to the Consolidated Financial Statements for additional details on cash, cash equivalents and marketable securities.


JNJ Liquidity & cash flows

Cash flow from operations of $22.8 billion was the result of: ##(Dollars In billions)## $35.2####Net Earnings (14.9)####gain on the Kenvue separation, net gain on sale of assets/businesses and the deferred tax provision partially offset by non-cash expenses and other adjustments primarily for depreciation and amortization, stock-based compensation, asset write-downs and charge for purchase of in process research and development assets 5.6####an increase in current and non-current liabilities (3.5)####an increase in other current and non-current assets 2.3####an increase in accounts payable and accrued liabilities (1.9)####an increase in accounts receivable and inventories $22.8####Cash flow from operations


JNJ 2023 Annual Report 33

Cash flow from investing activities of $0.9 billion was primarily due to: ##(Dollars in billions)## $(4.5)####additions to property, plant and equipment 0.4####proceeds from the disposal of assets/businesses, net (0.5)####purchases of in-process research and development assets 8.5####net sales of investments (3.0)####credit support agreements activity, net $0.9####Net cash from investing activities


JNJ 2023 Annual Report 33

Cash flow used for financing activities of $15.8 billion was primarily due to: ##(Dollars in billions)## $(11.8)####dividends to shareholders (5.1)####repurchase of common stock (10.8)####net repayment from short and long term debt 1.1####proceeds from stock options exercised/employee withholding tax on stock awards, net (0.2)####Credit support agreements activity, net 8.0####Proceeds of short and long-term debt, net of issuance cost, related to the debt that transferred to Kenvue at separation 4.2####proceeds from Kenvue initial public offering (1.1)####Cash transferred to Kenvue at separation (0.1)####other and rounding $(15.8)####Net cash used for financing activities


JNJ 2023 Annual Report 33

As of December 31, 2023, the Company's notes payable and long-term debt was in excess of cash, cash equivalents and marketable securities. As of December 31, 2023, the net debt position was $6.4 billion as compared to the prior year of $17.4 billion. The debt balance at the end of 2023 was $29.3 billion as compared to $39.6 billion in 2022. Considering recent market conditions, the Company has re-evaluated its operating cash flows and liquidity profile and does not foresee any significant incremental risk. 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, including the Company's remaining balance to be paid on the agreement to settle opioid litigation for approximately $2.1 billion and the establishment of the approximately $9 billion reserve for talc matters (See Note 19 to the Consolidated Financial Statements for additional details). In addition, the Company monitors the global capital markets on an ongoing basis and from time to time may raise capital when market conditions are favorable.


JNJ 2023 Annual Report 33

On May 8, 2023, Kenvue, completed an initial public offering (the IPO) resulting in the issuance of 198,734,444 shares of its common stock, par value $0.01 per share (the Kenvue Common Stock), at an initial public offering of $22.00 per share for net proceeds of $4.2 billion. The excess of the net proceeds from the IPO over the net book value of the Johnson & Johnson divested interest was $2.5 billion and was recorded to additional paid-in capital. As of the closing of the IPO, Johnson & Johnson owned approximately 89.6% of the total outstanding shares of Kenvue Common Stock and at July 2, 2023, the non-controlling interest of $1.3 billion associated with Kenvue was reflected in equity attributable to non-controlling interests in the consolidated balance sheet.


JNJ 2023 Annual Report 33

On August 23, 2023, Johnson & Johnson completed the disposition of an additional 80.1% ownership of Kenvue Common Stock through an exchange offer, which resulted in Johnson & Johnson acquiring 190,955,436 shares of the Company’s common stock in exchange for 1,533,830,450 shares of Kenvue Common Stock. The $31.4 billion of Johnson & Johnson common stock received in the exchange offer is recorded in Treasury stock. Following the exchange offer, the Company owns 9.5% of the total outstanding shares of Kenvue Common Stock that was recorded in other assets within continuing operations at the fair market value of $4.3 billion as of August 23, 2023 and $3.9 billion as of December 31, 2023.


JNJ 2023 Annual Report 33

Johnson & Johnson divested net assets of $11.6 billion as of August 23, 2023, and the accumulated other comprehensive loss attributable to the Consumer Health business at that date was $4.3 billion. Additionally, at the date of the exchange offer,


JNJ 2023 Annual Report 33

Johnson & Johnson decreased the non-controlling interest by $1.2 billion to record the deconsolidation of Kenvue. This resulted in a gain on the exchange offer of $21.0 billion that was recorded in Net earnings from discontinued operations, net of taxes in the consolidated statements of earnings for the fiscal third quarter of 2023. This one-time gain includes a gain of $2.8 billion on the Kenvue Common Stock retained by Johnson & Johnson. The gain on the exchange offer qualifies as a tax-free transaction for U.S. federal income tax purposes.


JNJ 2023 Annual Report 33

On September 14, 2022, the Company announced that its Board of Directors approved a share repurchase program, authorizing the Company to purchase up to $5.0 billion of the Company’s Common Stock. In the fiscal year 2022, approximately $2.5 billion was repurchased under the program. In the fiscal year 2023, $2.5 billion has been repurchased and the repurchase program was completed.


JNJ 2023 Annual Report 33

The following table summarizes the Company’s material contractual obligations and their aggregate maturities as of December 31, 2023: To satisfy these obligations, the Company intends to use cash from operations. (Dollars in Millions)##Tax Legislation (TCJA)##Debt Obligations##Interest on Debt Obligations##Total 2024##$2,029##1,469##843##4,341 2025##2,536##1,700##789##5,025 2026##—##1,997##744##2,741 2027##—##2,320##736##3,056 2028##—##2,325##691##3,016 After 2028##—##17,539##8,706##26,245 Total##$4,565##27,350##12,509##44,424


JNJ 2023 Annual Report 33

For tax matters, see Note 8 to the Consolidated Financial Statements.


JNJ Financing and market risk

The Company uses financial instruments to manage the impact of foreign exchange rate changes on cash flows. Accordingly, the Company enters into forward foreign exchange contracts to protect the value of certain foreign currency assets and liabilities and to hedge future foreign currency transactions primarily related to product costs. Gains or losses on these contracts are offset by the gains or losses on the underlying transactions. A 10% appreciation of the U.S. Dollar from the December 31, 2023 market rates would increase the unrealized value of the Company’s forward contracts by $0.1 billion. Conversely, a 10% depreciation of the U.S. Dollar from the December 31, 2023 market rates would decrease the unrealized value of the Company’s forward contracts by $0.1 billion. In either scenario, the gain or loss on the forward contract would be offset by the gain or loss on the underlying transaction, and therefore, would have no impact on future anticipated earnings and cash flows.


JNJ Financing and market risk

The Company hedges the exposure to fluctuations in currency exchange rates, and the effect on certain assets and liabilities in foreign currency, by entering into currency swap contracts. A 1% change in the spread between U.S. and foreign interest rates on the Company’s interest rate sensitive financial instruments would either increase or decrease the unrealized value of the Company’s swap contracts by approximately $1.6 billion. In either scenario, at maturity, the gain or loss on the swap contract would be offset by the gain or loss on the underlying transaction, and therefore, would have no impact on future anticipated cash flows.


JNJ Financing and market risk

The Company does not enter into financial instruments for trading or speculative purposes. Further, the Company has a policy of only entering into contracts with parties that have at least an investment grade credit rating. The counterparties to these contracts are major financial institutions and there is no significant concentration of exposure with any one counterparty. Management believes the risk of loss is remote. The Company entered into credit support agreements (CSA) with certain derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. See Note 6 to the Consolidated Financial Statements for additional details on credit support agreements.


JNJ Financing and market risk

The Company invests in both fixed rate and floating rate interest earning securities which carry a degree of interest rate risk. The fair market value of fixed rate securities may be adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than predicted if interest rates fall. A 1% (100 basis points) change in spread on the Company’s interest rate sensitive investments would either increase or decrease the unrealized value of cash equivalents and current marketable securities by less than $0.8 billion.


JNJ Financing and market risk

The Company has access to substantial sources of funds at numerous banks worldwide. In September 2023, the Company secured a new 364-day Credit Facility of $10 billion, which expires on September 5, 2024. The Company early terminated the additional 364-day revolving Credit Facility of $10 billion, which had an expiration of November 21, 2023. Interest charged on borrowings under the credit line agreement is based on either Secured Overnight Financing Rate (SOFR) Reference Rate or other applicable market rate as allowed plus applicable margins. Commitment fees under the agreement are not material.


JNJ Financing and market risk

Total borrowings at the end of 2023 and 2022 were $29.3 billion and $39.6 billion, respectively. The decrease in the debt balance was due to the repayment of commercial paper. In 2023, net debt (cash and current marketable securities, net of debt) was $6.4 billion compared to net debt of $17.4 billion in 2022. Total debt represented 30.0% of total capital (shareholders’ equity and total debt) in 2023 and 34.0% of total capital in 2022. Shareholders’ equity per share at the end of 2023 was $28.57 compared to $29.39 at year-end 2022.


JNJ Financing and market risk

A summary of borrowings can be found in Note 7 to the Consolidated Financial Statements.


JNJ Dividends

The Company increased its dividend in 2023 for the 61st consecutive year. Cash dividends paid were $4.70 per share in 2023 and $4.45 per share in 2022.


JNJ Dividends

On January 2, 2024, the Board of Directors declared a regular cash dividend of $1.19 per share, payable on March 5, 2024 to shareholders of record as of February 20, 2024.


JNJ Critical accounting policies and estimates

Management’s discussion and analysis of results of operations and financial condition are based on the Company’s consolidated financial statements that have been prepared in accordance with accounting principles generally accepted in the U.S. (GAAP). The preparation of these financial statements requires that management make estimates and assumptions that affect the amounts reported for revenues, expenses, assets, liabilities and other related disclosures. Actual results may or may not differ from these estimates. The Company believes that the understanding of certain key accounting policies and estimates are essential in achieving more insight into the Company’s operating results and financial condition. These key accounting policies include revenue recognition, income taxes, legal and self-insurance contingencies, valuation of long-lived assets, assumptions used to determine the amounts recorded for pensions and other employee benefit plans and accounting for stock based awards.


Revenue Recognition: The Company recognizes revenue from product sales when obligations under the terms of a contract with the customer are satisfied; generally, this occurs with the transfer of control of the goods to customers. The Company's global payment terms are typically between 30 to 90 days. Provisions for certain rebates, sales incentives, trade promotions, coupons, product returns, discounts to customers and governmental clawback provisions are accounted for as variable consideration and recorded as a reduction in sales.


Product discounts granted are based on the terms of arrangements with direct, indirect and other market participants, as well as market conditions, including consideration of competitor pricing. Rebates are estimated based on contractual terms, historical experience, patient outcomes, trend analysis and projected market conditions in the various markets served. The Company evaluates market conditions for products or groups of products primarily through the analysis of wholesaler and other third-party sell-through and market research data, as well as internally generated information.


Sales returns are estimated and recorded based on historical sales and returns information. Products that exhibit unusual sales or return patterns due to dating, competition or other marketing matters are specifically investigated and analyzed as part of the accounting for sales return accruals.


Sales returns allowances represent a reserve for products that may be returned due to expiration, destruction in the field, or in specific areas, product recall. The sales returns reserve is based on historical return trends by product and by market as a percent to gross sales. In accordance with the Company’s accounting policies, the Company generally issues credit to customers for returned goods. The Company’s sales returns reserves are accounted for in accordance with the U.S. GAAP guidance for revenue recognition when right of return exists. Sales returns reserves are recorded at full sales value. Sales returns in the Innovative Medicine segments are almost exclusively not resalable. Sales returns for certain franchises in the MedTech 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 less than 1.0% of annual net trade sales during the fiscal years 2023, 2022 and 2021.


Promotional programs, such as product listing allowances are recorded in the same period as related sales and include volume-based sales incentive programs. Volume-based incentive programs are based on the estimated sales volumes for the incentive period and are recorded as products are sold. These arrangements are evaluated to determine the appropriate amounts to be deferred or recorded as a reduction of revenue. The Company also earns profit-share payments through collaborative arrangements of certain products, which are included in sales to customers. Profit-share payments were less than 2.0% of the total revenues in fiscal year 2023 and less than 3.0% of the total revenues in fiscal year 2022 and 2021 are included in sales to customers.


In addition, the Company enters into collaboration arrangements that contain multiple revenue generating activities. Amounts due from collaborative partners for these arrangements are recognized as each activity is performed or delivered, based on the relative selling price. Upfront fees received as part of these arrangements are deferred and recognized over the performance period. See Note 1 to the Consolidated Financial Statements for additional disclosures on collaborations.


Reasonably likely changes to assumptions used to calculate the accruals for rebates, returns and promotions are not anticipated to have a material effect on the financial statements. The Company currently discloses the impact of changes to assumptions in the quarterly or annual filing in which there is a material financial statement impact.


JNJ 2023 Annual Report 37

Below are tables that show the progression of accrued rebates, returns, promotions, reserve for doubtful accounts and reserve for cash discounts by segment of business for the fiscal years ended December 31, 2023 and January 1, 2023.


JNJ Innovative Medicine segment

(Dollars in Millions)##Balance at Beginning of Period##Accruals##Payments/ Credits(2)##Balance at End of Period 2023######## Accrued rebates (1)##$12,289##47,523##(45,151)##14,661 Accrued returns##649##332##(347)##634 Accrued promotions##1##12##(7)##6 Subtotal##$12,939##47,867##(45,505)##15,301 Reserve for doubtful accounts##44##0##(11)##33 Reserve for cash discounts##110##1,386##(1,385)##111 Total##$13,093##49,253##(46,901)##15,445 2022######## Accrued rebates (1)##$10,331##43,026##(41,068)##12,289 Accrued returns##520##444##(315)##649 Accrued promotions##3##5##(7)##1 Subtotal##$10,854##43,475##(41,390)##12,939 Reserve for doubtful accounts##50##0##(6)##44 Reserve for cash discounts##94##1,281##(1,265)##110 Total##$10,998##44,756##(42,661)##13,093


JNJ Innovative Medicine segment (2)Includes prior period adjustments

(1)Includes reserve for customer rebates of $165 million at December 31, 2023 and $203 million at January 1, 2023, recorded as a contra asset.


JNJ MedTech segment

(Dollars in Millions)##Balance at Beginning of Period##Accruals##Payments/ Credits##Balance at End of Period 2023######## Accrued rebates(1)##$1,470##6,241##(6,256)##1,455 Accrued returns##134##555##(564)##125 Accrued promotions##43##74##(92)##25 Subtotal##$1,647##6,870##(6,912)##1,605 Reserve for doubtful accounts##125##33##(25)##133 Reserve for cash discounts##9##96##(100)##5 Total##$1,781##6,999##(7,037)##1,743 2022######## Accrued rebates(1)##$1,446##6,131##(6,107)##1,470 Accrued returns##134##531##(531)##134 Accrued promotions##54##102##(113)##43 Subtotal##$1,634##6,764##(6,751)##1,647 Reserve for doubtful accounts##148##6##(29)##125 Reserve for cash discounts##10##99##(100)##9 Total##$1,792##6,869##(6,880)##1,781


JNJ MedTech segment

(1)Includes reserve for customer rebates of $740 million at December 31, 2023 and $802 million at January 1, 2023, recorded as a contra asset.


JNJ MedTech segment

Income Taxes: Income taxes are recorded based on amounts refundable or payable for the current year and include the results of any difference between U.S. GAAP accounting and tax reporting, recorded as deferred tax assets or liabilities. The Company estimates deferred tax assets and liabilities based on enacted tax regulations and rates. Future changes in tax laws and rates may affect recorded deferred tax assets and liabilities.


JNJ MedTech segment

The Company has unrecognized tax benefits for uncertain tax positions. The Company follows U.S. GAAP, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Management believes that changes in these estimates would not have a material effect on the Company's results of operations, cash flows or financial position.


JNJ MedTech segment

The Company has recorded deferred tax liabilities on all undistributed earnings prior to December 31, 2017 from its international subsidiaries. The Company has not provided deferred taxes on the undistributed earnings subsequent to January 1, 2018 from certain international subsidiaries where the earnings are considered to be indefinitely reinvested. The Company intends to continue to reinvest these earnings in those international operations. If the Company decides at a later date to repatriate these earnings to the U.S., the Company would be required to provide for the net tax effects on these amounts. The Company estimates that the tax effect of this repatriation would be approximately $0.5 billion under currently enacted tax laws and regulations and at current currency exchange rates. This amount does not include the possible benefit of U.S. foreign tax credits, which may substantially offset this cost.


JNJ MedTech segment

See Note 1 and Note 8 to the Consolidated Financial Statements for further information regarding income taxes.


JNJ MedTech segment

Legal and Self Insurance Contingencies: The Company records accruals for various contingencies, including legal proceedings and product liability claims as these arise in the normal course of business. The accruals are based on management’s judgment as to the probability of losses and, where applicable, actuarially determined estimates. The Company has self insurance through a wholly-owned captive insurance company. In addition to accruals in the self insurance program, claims that exceed the insurance coverage are accrued when losses are probable and amounts can be reasonably estimated.


JNJ MedTech segment

The Company follows the provisions of U.S. GAAP when recording litigation related contingencies. A liability is recorded when a loss is probable and can be reasonably estimated.


JNJ 2023 Annual Report 39

See Notes 1 and 19 to the Consolidated Financial Statements for further information regarding product liability and legal proceedings.


JNJ 2023 Annual Report 39

Long-Lived and Intangible Assets: The Company assesses changes, both qualitatively and quantitatively, in economic conditions and makes assumptions regarding estimated future cash flows in evaluating the value of the Company’s property, plant and equipment, goodwill and intangible assets. As these assumptions and estimates may change over time, it may or may not be necessary for the Company to record impairment charges.


JNJ 2023 Annual Report 39

Employee Benefit Plans: The Company sponsors various retirement and pension plans, including defined benefit, defined contribution and termination indemnity plans, which cover most employees worldwide. These plans are based on assumptions for the discount rate, expected return on plan assets, mortality rates, expected salary increases, healthcare cost trend rates and attrition rates. See Note 10 to the Consolidated Financial Statements for further details on these rates.


JNJ 2023 Annual Report 39

Stock Based Compensation: The Company recognizes compensation expense associated with the issuance of equity instruments to employees for their services. Based on the type of equity instrument, the fair value is estimated on the date of grant using either the Black-Scholes option valuation model or a combination of both the Black-Scholes option valuation model and Monte Carlo valuation model, and is expensed in the financial statements over the service period. The input assumptions used in determining fair value are the expected life, expected volatility, risk-free rate and expected dividend yield. For performance share units, the fair market value is calculated for the two component goals at the date of grant: adjusted operational earnings per share and relative total shareholder return. The fair values for the earnings per share goal of each performance share unit was estimated on the date of grant using the fair market value of the shares at the time of the award, discounted for dividends, which are not paid on the performance share units during the vesting period. The fair value for the relative total shareholder return goal of each performance share unit was estimated on the date of grant using the Monte Carlo valuation model. See Note 16 to the Consolidated Financial Statements for additional information.


JNJ New accounting pronouncements

Refer to Note 1 to the Consolidated Financial Statements for recently adopted accounting pronouncements and recently issued accounting pronouncements not yet adopted as of December 31, 2023.


JNJ Economic and market factors

The Company is aware that its products are used in an environment where, for more than a decade, policymakers, consumers and businesses have expressed concerns about the rising cost of healthcare. In response to these concerns, the Company has a long-standing policy of pricing products responsibly. For the period 2013 - 2023, in the U.S., the weighted average compound annual growth rate of the Company’s net price increases for healthcare products (prescription and over-the-counter drugs, hospital and professional products) was below the U.S. Consumer Price Index (CPI).


JNJ 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 continue to have an effect on worldwide economies and, consequently, on the way companies operate. The Company has accounted for operations in Argentina, Venezuela and Turkey (beginning in the fiscal second quarter of 2022) as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%. This did not have a material impact to the Company's results in the period. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases.


JNJ Economic and market factors

In December 2023, the Argentine government devalued the peso by approximately 50%. During 2023, the Company recorded a charge of approximately $130 million related to operations in Argentina due to the application of highly inflationary accounting. As of December 31, 2023, the Company’s Argentine subsidiaries represented less than 1.0% of the Company's consolidated assets, liabilities, revenues and profits from continuing operations; therefore, the effect of a change in the exchange rate is not expected to have a material adverse effect on the Company's 2024 full-year results.


JNJ Economic and market factors

In July 2023, Janssen Pharmaceuticals, Inc. (Janssen) filed litigation against the U.S. Department of Health and Human Services as well as the Centers for Medicare and Medicaid Services challenging the constitutionality of the Inflation Reduction Act’s (IRA) Medicare Drug Price Negotiation Program. The litigation requests a declaration that the IRA violates Janssen’s rights under the First Amendment and the Fifth Amendment to the Constitution and therefore that Janssen is not subject to the IRA’s mandatory pricing scheme.


JNJ Russia-Ukraine War

Although the long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time, the financial impact of the conflict in the fiscal year 2023, including accounts receivable or inventory reserves, was not material. As of and for each of the fiscal years ending December 31, 2023 and January 1, 2023, the business of the Company’s Russian subsidiaries represented less than 1% of the Company’s consolidated assets and represented 1% of revenues. The Company does not maintain Ukraine subsidiaries subsequent to the Kenvue separation.


JNJ Russia-Ukraine War

In early March of 2022, the Company took steps to suspend all advertising, enrollment in clinical trials, and any additional investment in Russia. The Company continues to supply products relied upon by patients for healthcare purposes.


JNJ Conflict in the Middle East

Although the long-term implications of Israel's conflict are difficult to predict at this time, the financial impact of the conflict in the fiscal year 2023, including accounts receivable or inventory reserves, was not material. As of and for the fiscal year ending December 31, 2023, the business of the Company’s Israel subsidiaries represented 1% of the Company’s consolidated assets and represented less than 1% of revenues.


JNJ Conflict in the Middle East

The Company is exposed to fluctuations in currency exchange rates. A 1% change in the value of the U.S. Dollar as compared to all foreign currencies in which the Company had sales, income or expense in 2023 would have increased or decreased the translation of foreign sales by approximately $0.4 billion and net income by approximately $0.2 billion.


JNJ Conflict in the Middle East

Governments around the world consider various proposals to make changes to tax laws, which may include increasing or decreasing existing statutory tax rates. In connection with various government initiatives, companies are required to disclose more information to tax authorities on operations around the world, which may lead to greater audit scrutiny of profits earned in other countries. A change in statutory tax rate in any country would result in the revaluation of the Company’s deferred tax assets and liabilities related to that particular jurisdiction in the period in which the new tax law is enacted. This change would result in an expense or benefit recorded to the Company’s Consolidated Statement of Earnings. The Company closely monitors these proposals as they arise in the countries where it operates. Changes to the statutory tax rate may occur at any time, and any related expense or benefit recorded may be material to the fiscal quarter and year in which the law change is enacted.


JNJ Conflict in the Middle East

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


JNJ Conflict in the Middle East

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


JNJ 2023 Annual Report 41

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 U.S. FDA 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 the resulting lawsuits, generic or biosimilar versions of the products at issue will 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.


JNJ Legal proceedings

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


JNJ Legal proceedings

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 December 31, 2023, 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, Contingencies. 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 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 including timing of related payments. The ability to make such estimates and judgments can be affected by various factors including, among other things, 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; procedural or jurisdictional issues; the uncertainty and unpredictability of the number of potential claims; ability to achieve comprehensive multi-party settlements; complexity of related cross-claims and counterclaims; and/or there are numerous parties involved. To the extent adverse awards, judgments or 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.


JNJ Legal proceedings

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.


JNJ Legal proceedings

See Note 19 to the Consolidated Financial Statements included in Item 8 of this report for further information regarding legal proceedings.


JNJ Common stock

The Company’s Common Stock is listed on the New York Stock Exchange under the symbol JNJ. As of February 9, 2024, there were 118,772 record holders of Common Stock of the Company.


JNJ Quantitative and qualitative disclosures about market risk

The information called for by this item is incorporated herein by reference to Item 7. Management’s discussion and analysis of results of operations and financial condition - Liquidity and capital resources - Financing and market risk of this Report; and Note 1 Summary of significant accounting policies - Financial instruments of the Notes to Consolidated Financial Statements included in Item 8 of this Report.


JNJ Index to audited Consolidated Financial Statements

Consolidated balance sheets##44 Consolidated statements of earnings##45 Consolidated statements of comprehensive income##46 Consolidated statements of equity##47 Consolidated statements of cash flows##48


JNJ Notes to consolidated financial statements##50

Report of independent registered public accounting firm (PCAOB ID 238)##106 Management’s report on internal control over financial reporting##109


JNJ At December 31, 2023 and January 1, 2023

(Dollars in Millions Except Share and Per Share Amounts) (Note 1) ##2023##2022 Assets#### Current assets#### Cash and cash equivalents (Notes 1 and 2)##$21,859##12,889 Marketable securities (Notes 1 and 2)##1,068##9,392 Accounts receivable trade, less allowances $166 (2022, $169)##14,873##14,039 Inventories (Notes 1 and 3)##11,181##10,268 Prepaid expenses and other receivables##4,514##2,876 Current assets of discontinued operations (Note 21)##—##5,830 Total current assets##53,495##55,294 Property, plant and equipment, net (Notes 1 and 4)##19,898##17,982 Intangible assets, net (Notes 1 and 5)##34,175##38,489 Goodwill (Notes 1 and 5)##36,558##36,047 Deferred taxes on income (Note 8)##9,279##8,947 Other assets##14,153##9,212 Noncurrent assets of discontinued operations (Note 21)##—##21,407 Total assets##$167,558##187,378 Liabilities and Shareholders’ Equity#### Current liabilities#### Loans and notes payable (Note 7)##$3,451##12,756 Accounts payable##9,632##9,889 Accrued liabilities##10,212##10,719 Accrued rebates, returns and promotions##16,001##13,579 Accrued compensation and employee related obligations##3,993##3,049 Accrued taxes on income (Note 8)##2,993##2,220 Current liabilities of discontinued operations (Note 21)##—##3,590 Total current liabilities##46,282##55,802 Long-term debt (Note 7)##25,881##26,886 Deferred taxes on income (Note 8)##3,193##3,991 Employee related obligations (Notes 9 and 10)##7,149##6,542 Long-term taxes payable (Note 1)##2,881##4,306 Other liabilities##13,398##10,146 Noncurrent liabilities of discontinued operations (Note 21)##—##2,901 Total liabilities##98,784##110,574 Commitments and Contingencies (Note 19)#### Shareholders’ equity#### Preferred stock — without par value (authorized and unissued 2,000,000 shares)##—##— Common stock — par value $1.00 per share (Note 12) (authorized 4,320,000,000 shares; issued 3,119,843,000 shares)##3,120##3,120 Accumulated other comprehensive income (loss) (Note 13)##(12,527)##(12,967) Retained earnings and Additional-paid-in-capital##153,843##128,345 Less: common stock held in treasury, at cost (Note 12) (712,765,000 shares and 506,246,000 shares)##75,662##41,694 Total shareholders’ equity##68,774##76,804 Total liabilities and shareholders’ equity##$167,558##187,378


JNJ Johnson & Johnson and subsidiaries consolidated statements of earnings

(Dollars and Shares in Millions Except Per Share Amounts) (Note 1) ##2023##2022##2021 Sales to customers##$85,159##79,990##78,740 Cost of products sold##26,553##24,596##23,402 Gross profit##58,606##55,394##55,338 Selling, marketing and administrative expenses##21,512##20,246##20,118 Research and development expense##15,085##14,135##14,277 In-process research and development impairments##313##783##900 Interest income##(1,261)##(490)##(53) Interest expense, net of portion capitalized (Note 4)##772##276##183 Other (income) expense, net##6,634##810##526 Restructuring (Note 20)##489##275##209 Earnings before provision for taxes on income##15,062##19,359##19,178 Provision for taxes on income (Note 8)##1,736##2,989##1,377 Net earnings from continuing operations##13,326##16,370##17,801 Net earnings from discontinued operations, net of tax (Note 21)##21,827##1,571##3,077 Net earnings##$35,153##17,941##20,878 Net earnings per share (Notes 1 and 15)###### Continuing operations - basic##$5.26##6.23##6.76 Discontinued operations - basic##$8.62##0.60##1.17 Total net earnings per share - basic##$13.88##6.83##7.93 Continuing operations - diluted##$5.20##6.14##6.66 Discontinued operations - diluted##$8.52##0.59##1.15 Total net earnings per share - diluted##$13.72##6.73##7.81 Average shares outstanding (Notes 1 and 15)###### Basic##2,533.5##2,625.2##2,632.1 Diluted##2,560.4##2,663.9##2,674.0


JNJ Johnson & Johnson and subsidiaries consolidated statements of comprehensive income (Dollars in Millions) (Note 1)

##2023##2022##2021 Net earnings##$35,153##17,941##20,878 Other comprehensive income (loss), net of tax###### Foreign currency translation##(3,221)##(1,796)##(1,079) Securities:###### Unrealized holding gain (loss) arising during period##26##(24)##(4) Reclassifications to earnings##—##—##— Net change##26##(24)##(4) Employee benefit plans:###### Prior service credit (cost), net of amortization##(149)##(160)##(169) Gain (loss), net of amortization##(1,183)##1,854##4,318 Consumer settlement/ curtailment##23##—##— Effect of exchange rates##(90)##111##106 Net change##(1,399)##1,805##4,255 Derivatives & hedges:###### Unrealized gain (loss) arising during period##422##454##(199) Reclassifications to earnings##(569)##(348)##(789) Net change##(147)##106##(988) Other comprehensive income (loss)##(4,741)##91##2,184 Comprehensive income##$30,412##18,032##23,062


The tax effects in other comprehensive income for the fiscal years 2023, 2022 and 2021 respectively: Foreign Currency Translation; $797 million, $460 million and $346 million; Employee Benefit Plans: $289 million, $461 million and $1,198 million, Derivatives & Hedges: $39 million, $30 million and $263 million.


JNJ Johnson & Johnson and subsidiaries consolidated statements of equity (Dollars in Millions) (Note 1)

##Total##Retained Earnings and Additional paid-in capital##Accumulated Other Comprehensive Income (Loss)##Common Stock Issued Amount##Treasury Stock Amount Balance, January 3, 2021##$63,278##113,890##(15,242)##3,120##(38,490) Net earnings##20,878##20,878###### Cash dividends paid ($4.19 per share)##(11,032)##(11,032)###### Employee compensation and stock option plans##2,171##(676)######2,847 Repurchase of common stock##(3,456)########(3,456) Other comprehensive income (loss), net of tax##2,184####2,184#### Balance, January 2, 2022##74,023##123,060##(13,058)##3,120##(39,099) Net earnings##17,941##17,941###### Cash dividends paid ($4.45 per share)##(11,682)##(11,682)###### Employee compensation and stock option plans##2,466##(974)######3,440 Repurchase of common stock##(6,035)########(6,035) Other comprehensive income (loss), net of tax##91####91#### Balance, January 1, 2023##76,804##128,345##(12,967)##3,120##(41,694) Net earnings##35,153##35,153###### Cash dividends paid ($4.70 per share)##(11,770)##(11,770)###### Employee compensation and stock option plans##2,193##(336)######2,529 Repurchase of common stock##(5,054)########(5,054) Other##(25)########(25) Kenvue Separation /IPO (Note 21)##(23,786)##2,451##5,181####(31,418) Other comprehensive income (loss), net of tax##(4,741)####(4,741)#### Balance, December 31, 2023##$68,774##153,843##(12,527)##3,120##(75,662)


JNJ Johnson & Johnson and subsidiaries consolidated statements of cash flows (Dollars in Millions) (Note 1)

##2023##2022##2021 Cash flows from operating activities###### Net earnings##$35,153##17,941##20,878 Adjustments to reconcile net earnings to cash flows from operating activities:###### Depreciation and amortization of property and intangibles##7,486##6,970##7,390 Stock based compensation##1,162##1,138##1,135 Asset write-downs##1,295##1,216##989 Charge for purchase of in-process research and development assets##483##—##— Gain on Kenvue separation##(20,984)##—##— Net gain on sale of assets/businesses##(117)##(380)##(617) Deferred tax provision##(4,194)##(1,663)##(2,079) Credit losses and accounts receivable allowances##—##(17)##(48) Changes in assets and liabilities, net of effects from acquisitions and divestitures:###### Increase in accounts receivable##(624)##(1,290)##(2,402) Increase in inventories##(1,323)##(2,527)##(1,248) Increase in accounts payable and accrued liabilities##2,346##1,098##2,437 (Increase)/Decrease in other current and non-current assets##(3,480)##687##(1,964) Increase/(Decrease) in other current and non-current liabilities##5,588##(1,979)##(1,061) Net cash flows from operating activities##22,791##21,194##23,410 Cash flows from investing activities###### Additions to property, plant and equipment##(4,543)##(4,009)##(3,652) Proceeds from the disposal of assets/businesses, net##358##543##711 Acquisitions, net of cash acquired (Note 18)##—##(17,652)##(60) Purchases of in-process research and development assets (Note 18)##(470)##—##— Purchases of investments##(10,906)##(32,384)##(30,394) Sales of investments##19,390##41,609##25,006 Credit support agreements activity, net##(2,963)##(249)##214 Other (including capitalized licenses and milestones)##12##(229)##(508) Net cash from/(used) by investing activities##878##(12,371)##(8,683) Cash flows from financing activities###### Dividends to shareholders##(11,770)##(11,682)##(11,032) Repurchase of common stock##(5,054)##(6,035)##(3,456) Proceeds from short-term debt##13,743##16,134##1,997 Repayment of short-term debt##(22,973)##(6,550)##(1,190) Proceeds from long-term debt, net of issuance costs##—##2##5 Repayment of long-term debt##(1,551)##(2,134)##(1,802) Proceeds from the exercise of stock options/employee withholding tax on stock awards, net##1,094##1,329##1,036 Credit support agreements activity, net##(219)##(28)##281 ##2023##2022##2021 Proceeds of short and long-term debt, net of issuance cost, related to the debt that transferred to Kenvue at separation##8,047##—##— Proceeds from Kenvue initial public offering##4,241##—##— Cash transferred to Kenvue at separation##(1,114)##—##— Other##(269)##93##114 Net cash used by financing activities##(15,825)##(8,871)##(14,047) Effect of exchange rate changes on cash and cash equivalents##(112)##(312)##(178) Increase/(Decrease) in cash and cash equivalents##7,732##(360)##502 Cash and cash equivalents from continuing operations, beginning of period##12,889##13,309##12,697 Cash and cash equivalents from discontinued operations, beginning of period##1,238##1,178##1,288 Cash and cash equivalents, beginning of year (Note 1)##14,127##14,487##13,985 Cash and cash equivalents from continuing operations, end of period##21,859##12,889##13,309 Cash and cash equivalents from discontinued operations, end of period##—##1,238##1,178 Cash and cash equivalents, end of year (Note 1)##$21,859##14,127##14,487 Supplemental cash flow data###### Cash paid during the year for:###### Interest##$1,836##982##990 Interest, net of amount capitalized##1,766##933##941 Income taxes, inclusive of discontinued operations##8,574##5,223##4,768 Supplemental schedule of non-cash investing and financing activities###### Treasury stock issued for employee compensation and stock option plans, net of cash proceeds/ employee withholding tax on stock awards##$1,435##2,114##1,811 Acquisitions###### Fair value of assets acquired##$—##18,710##61 Fair value of liabilities assumed##—##(1,058)##(1) Net cash paid for acquisitions (Note 18)##$—##17,652##60


JNJ See Notes to Consolidated Financial Statements

Amounts presented have not been recast to exclude discontinued operations.


JNJ Principles of consolidation

The consolidated financial statements include the accounts of Johnson & Johnson and its subsidiaries (the Company). Intercompany accounts and transactions are eliminated. Columns and rows within tables may not add due to rounding. Percentages have been calculated using actual, non-rounded figures.


JNJ Description of the company and business segments

The Company has approximately 131,900 employees worldwide engaged in the research and development, manufacture and sale of a broad range of products in the healthcare field. The Company conducts business in virtually all countries of the world and its primary focus is on products related to human health and well-being.


JNJ Kenvue IPO/separation and discontinued operations

On May 8, 2023, Kenvue, completed an initial public offering (the IPO) resulting in the issuance of 198,734,444 shares of its common stock, par value $0.01 per share (the “Kenvue Common Stock”), at an initial public offering of $22.00 per share for net proceeds of $4.2 billion. The excess of the net proceeds from the IPO over the net book value of the Johnson & Johnson divested interest was $2.5 billion and was recorded to additional paid-in capital. As of the closing of the IPO, Johnson & Johnson owned approximately 89.6% of the total outstanding shares of Kenvue Common Stock and at July 2, 2023, the non-controlling interest of $1.3 billion associated with Kenvue was reflected in equity attributable to non-controlling interests in the consolidated balance sheet in the fiscal second quarter of 2023.


On August 23, 2023, Johnson & Johnson completed the disposition of an additional 80.1% ownership of the shares of Kenvue through an exchange offer. Following the exchange offer, the Company owns 9.5% of the shares of Kenvue which are accounted for as an equity investment carried at fair value within continuing operations. The historical results of the Consumer Health business (which previously represented the Consumer Health business segment) are reflected as discontinued operations in the Company’s Consolidated Financial Statements through the date of the exchange offer (see Note 21 for additional details). Unless otherwise indicated, the information in the notes to the Consolidated Financial Statements refer only to Johnson & Johnson’s continuing operations.


JNJ Business segments

Following the completion of the exchange offer, the Company is organized into two business segments: Innovative Medicine and MedTech. The Innovative Medicine segment is focused on the following therapeutic areas, including Immunology, Infectious diseases, Neuroscience, Oncology, Pulmonary Hypertension, and Cardiovascular and Metabolic diseases. Products in this segment are distributed directly to retailers, wholesalers, distributors, hospitals and healthcare professionals for prescription use. The MedTech segment includes a broad portfolio of products used in the Orthopaedic, Surgery, Interventional Solutions and Vision fields. These products are distributed to wholesalers, hospitals and retailers, and used principally in the professional fields by physicians, nurses, hospitals, eye care professionals and clinics.


JNJ Recently adopted accounting standards

ASU 2022-04: Liabilities-Supplier Finance Programs (Topic 405-50) – Disclosure of Supplier Finance Program Obligations


The Company adopted the standard as of the beginning of fiscal year 2023, which requires that a buyer in a supplier finance program disclose additional information about the program for financial statement users.


The Company has agreements for supplier finance programs with third-party financial institutions. These programs provide participating suppliers the ability to finance payment obligations from the Company with the third-party financial institutions. The Company is not a party to the arrangements between the suppliers and the third-party financial institutions. The Company’s obligations to its suppliers, including amounts due, and scheduled payment dates (which have general payment terms of 90 days), are not affected by a participating supplier’s decision to participate in the program.


As of both December 31, 2023, and January 1, 2023, $0.7 billion were valid obligations under the program. The obligations are presented as Accounts payable on the Consolidated Balance Sheets.


JNJ Not adopted as of December 31, 2023

ASU 2023-07: Segment Reporting (Topic 280) – Improvements to Reportable Segment Disclosures


JNJ Not adopted as of December 31, 2023

This update requires expanded annual and interim disclosures for significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss. This update will be effective for fiscal years beginning after December 15, 2023, and is to be applied retrospectively to all periods presented in the financial statements. Early adoption is permitted. As this accounting standard only impacts disclosures, it will not have a material impact on the Company’s Consolidated Financial Statements.


JNJ Not adopted as of December 31, 2023

ASU 2023-09: Income Taxes (Topic 740) - Improvements to Income Tax Disclosures


JNJ Not adopted as of December 31, 2023

This update standardizes categories for the effective tax rate reconciliation, requires disaggregation of income taxes and additional income tax-related disclosures. This update is required to be effective for the Company for fiscal periods beginning after December 15, 2024. As this accounting standard only impacts disclosures, it will not have a material impact on the Company’s Consolidated Financial Statements.


JNJ Cash equivalents

The Company classifies all highly liquid investments with stated maturities of three months or less from date of purchase as cash equivalents and all highly liquid investments with stated maturities of greater than three months from the date of purchase as current marketable securities. The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating. The Company invests its cash primarily in government securities and obligations, corporate debt securities, money market funds and reverse repurchase agreements (RRAs).


JNJ Cash equivalents

RRAs are collateralized by deposits in the form of Government Securities and Obligations for an amount not less than 102% of their value. The Company does not record an asset or liability as the Company is not permitted to sell or repledge the associated collateral. The Company has a policy that the collateral has at least an A (or equivalent) credit rating. The Company utilizes a third party custodian to manage the exchange of funds and ensure that collateral received is maintained at 102% of the value of the RRAs on a daily basis. RRAs with stated maturities of greater than three months from the date of purchase are classified as marketable securities.


JNJ Investments

Investments classified as held to maturity investments are reported at amortized cost and realized gains or losses are reported in earnings. Investments classified as available-for-sale debt securities are carried at estimated fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income. Available-for-sale securities available for current operations are classified as current assets; otherwise, they are classified as long term. Management determines the appropriate classification of its investment in debt and equity securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company reviews its investments for impairment and adjusts these investments to fair value through earnings, as required.


JNJ Property, plant and equipment and depreciation

Property, plant and equipment are stated at cost. The Company utilizes the straight-line method of depreciation over the estimated useful lives of the assets: Building and building equipment 30 years Land and leasehold improvements 10 - 20 years Machinery and equipment 2 - 13 years


The Company capitalizes certain computer software and development costs, included in machinery and equipment, when incurred in connection with developing or obtaining computer software for internal use. Capitalized software costs are amortized over the estimated useful lives of the software, which generally range from 3 to 8 years.


The Company reviews long-lived assets to assess recoverability using undiscounted cash flows. When certain events or changes in operating or economic conditions occur, an impairment assessment may be performed on the recoverability of the


JNJ 2023 Annual Report 51

carrying value of these assets. If the asset is determined to be impaired, the loss is measured based on the difference between the asset’s fair value and its carrying value. If quoted market prices are not available, the Company will estimate fair value using a discounted value of estimated future cash flows.


JNJ Revenue recognition

The Company recognizes revenue from product sales when obligations under the terms of a contract with the customer are satisfied; generally, this occurs with the transfer of control of the goods to customers. The Company's global payment terms are typically between 30 to 90 days. Provisions for certain rebates, sales incentives, trade promotions, coupons, product returns, discounts to customers and governmental clawback provisions are accounted for as variable consideration and recorded as a reduction in sales. The liability is recognized within Accrued rebates, returns, and promotions on the consolidated balance sheet.


JNJ Revenue recognition

Product discounts granted are based on the terms of arrangements with direct, indirect and other market participants, as well as market conditions, including consideration of competitor pricing. Rebates are estimated based on contractual terms, historical experience, patient outcomes, trend analysis and projected market conditions in the various markets served. A significant portion of the liability related to rebates is from the sale of the Company's pharmaceutical products within the U.S., primarily the Managed Care, Medicare and Medicaid programs, which amounted to $11.5 billion and $9.6 billion as of December 31, 2023 and January 1, 2023, respectively. 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.


JNJ Revenue recognition

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.


JNJ Revenue recognition

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 Innovative Medicine segments are almost exclusively not resalable. Sales returns for certain franchises in the MedTech 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 less than 1.0% of annual net trade sales during each of the fiscal years 2023, 2022 and 2021.


JNJ Revenue recognition

Promotional programs, such as product listing allowances are recorded in the same period as related sales and include volume-based sales incentive programs. Volume-based incentive programs are based on the estimated sales volumes for the incentive period and are recorded as products are sold. These arrangements are evaluated to determine the appropriate amounts to be deferred or recorded as a reduction of revenue. The Company also earns profit-share payments through collaborative arrangements of certain products, which are included in sales to customers. Profit-share payments were less than 2.0% of the total revenues in fiscal year 2023 and less than 3.0% of the total revenues in the fiscal years 2022 and 2021 and are included in sales to customers.


JNJ Revenue recognition

See Note 17 to the Consolidated Financial Statements for further disaggregation of revenue.


JNJ Shipping and handling

Shipping and handling costs incurred were $0.9 billion, $0.8 billion and $0.8 billion in fiscal years 2023, 2022 and 2021, respectively, and are included in selling, marketing and administrative expense. The amount of revenue received for shipping and handling is less than 1.0% of sales to customers for all periods presented.


JNJ Inventories

Inventories are stated at the lower of cost or net realizable value determined by the first-in, first-out method.


JNJ Intangible assets and goodwill

The authoritative literature on U.S. GAAP requires that goodwill and intangible assets with indefinite lives be assessed annually for impairment. The Company completed its annual impairment test for 2023 in the fiscal fourth quarter. Future impairment


JNJ Intangible assets and goodwill

tests will be performed annually in the fiscal fourth quarter, or sooner if warranted. Purchased in-process research and development is accounted for as an indefinite lived intangible asset until the underlying project is completed, at which point the intangible asset will be accounted for as a definite lived intangible asset. If warranted the purchased in-process research and development could be written off or partially impaired depending on the underlying program.


JNJ Intangible assets and goodwill

Intangible assets that have finite useful lives continue to be amortized over their useful lives, and are reviewed for impairment when warranted by economic conditions. See Note 5 for further details on Intangible Assets and Goodwill.


JNJ Financial instruments

As required by U.S. GAAP, all derivative instruments are recorded on the balance sheet at fair value. Fair value is the exit


JNJ Financial instruments

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, with Level 1 having the highest priority and Level 3 having the lowest. 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.


JNJ Financial instruments

The Company documents all relationships between hedged items and derivatives. The overall risk management strategy includes reasons for undertaking hedge transactions and entering into derivatives. The objectives of this strategy are: (1) minimize foreign currency exposure’s impact on the Company’s financial performance; (2) protect the Company’s cash flow from adverse movements in foreign exchange rates; (3) ensure the appropriateness of financial instruments; and (4) manage the enterprise risk associated with financial institutions. See Note 6 for additional information on Financial Instruments.


JNJ Leases

The Company determines whether an arrangement is a lease at contract inception by establishing if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Right of Use (ROU) Assets and Lease Liabilities for operating leases are included in Other assets, Accrued liabilities, and Other liabilities on the consolidated balance sheet. The ROU Assets represent the right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. Commitments under finance leases are not significant, and are included in Property, plant and equipment, Loans and notes payable, and Long-term debt on the consolidated balance sheet.


JNJ Leases

ROU Assets and Lease Liabilities are recognized at the lease commencement date based on the present value of all minimum lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments, when the implicit rate is not readily determinable. Lease terms may include options to extend or terminate the lease. These options are included in the lease term when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term. The Company has elected the following policy elections on adoption: use of portfolio approach on leases of assets under master service agreements, exclusion of short term leases on the balance sheet, and not separating lease and non-lease components.


JNJ Leases

The Company primarily has operating lease for space, vehicles, manufacturing equipment and data processing equipment. The ROU asset pertaining to leases from continuing operation was $1.0 billion in both fiscal years 2023 and 2022. The lease liability from continuing operations was $1.1 billion in both fiscal years 2023 and 2022. The operating lease costs from continuing operations were $0.2 billion in fiscal years 2023, 2022 and 2021. Cash paid for amounts included in the measurement of lease liabilities from continuing operations were $0.2 billion in fiscal years 2023, 2022 and 2021.


JNJ Product liability

Accruals for product liability claims are recorded, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information and actuarially determined estimates where applicable. The accruals are adjusted periodically as additional information becomes available. The Company accrues an estimate of the legal defense costs needed to defend each matter when those costs are probable and can be reasonably estimated. To the extent adverse verdicts have been rendered against the Company, the Company does not record an accrual until a loss is determined to be probable and can be reasonably estimated.


JNJ 2023 Annual Report 53

The Company has self insurance through a wholly-owned captive insurance company. In addition to accruals in the self insurance program, claims that exceed the insurance coverage are accrued when losses are probable and amounts can be reasonably estimated.


JNJ Research and development

Research and development expenses are expensed as incurred in accordance with ASC 730, Research and Development. Upfront and milestone payments made to third parties in connection with research and development collaborations are expensed as incurred up to the point of regulatory approval. Payments made to third parties subsequent to regulatory approval are capitalized and amortized over the remaining useful life of the related product. Amounts capitalized for such payments are included in other intangibles, net of accumulated amortization.


JNJ Research and development

The Company enters into collaborative arrangements, typically with other pharmaceutical or biotechnology companies, to develop and commercialize drug candidates or intellectual property. These arrangements typically involve two (or more) parties who are active participants in the collaboration and are exposed to significant risks and rewards dependent on the commercial success of the activities. These collaborations usually involve various activities by one or more parties, including research and development, marketing and selling and distribution. Often, these collaborations require upfront, milestone and royalty or profit share payments, contingent upon the occurrence of certain future events linked to the success of the asset in development. Amounts due from collaborative partners related to development activities are generally reflected as a reduction of research and development expense because the performance of contract development services is not central to the Company’s operations. In general, the income statement presentation for these collaborations is as follows: Nature/Type of Collaboration##Statement of Earnings Presentation Third-party sale of product & profit share payments received##Sales to customers Royalties/milestones paid to collaborative partner (post-regulatory approval)*##Cost of products sold Royalties received from collaborative partner##Other income (expense), net Upfront payments & milestones paid to collaborative partner (pre-regulatory approval)##Research and development expense Research and development payments to collaborative partner##Research and development expense Research and development payments received from collaborative partner or government entity##Reduction of Research and development expense


JNJ Research and development

* Milestones are capitalized as intangible assets and amortized to cost of products sold over the useful life.


JNJ Research and development

For all years presented, there was no individual project that represented greater than 5% of the total annual consolidated research and development expense.


JNJ Research and development

The Company has a number of products and compounds developed in collaboration with strategic partners including XARELTO, co-developed with Bayer HealthCare AG and IMBRUVICA, developed in collaboration and co-marketed with Pharmacyclics LLC, an AbbVie company.


JNJ Research and development

Separately, the Company has a number of licensing arrangements for products and compounds including DARZALEX, licensed from Genmab A/S.


JNJ Advertising

Costs associated with advertising are expensed in the year incurred and are included in selling, marketing and administrative expenses. Advertising expenses worldwide, which comprised television, radio, print media and Internet advertising, were $0.5 billion, $0.7 billion and $1.2 billion in fiscal years 2023, 2022 and 2021, respectively.


JNJ Income taxes

Income taxes are recorded based on amounts refundable or payable for the current year and include the results of any difference between U.S. GAAP accounting and tax reporting, recorded as deferred tax assets or liabilities. The Company


JNJ Income taxes

estimates deferred tax assets and liabilities based on enacted tax regulations and rates. Future changes in tax laws and rates may affect recorded deferred tax assets and liabilities in the future.


JNJ Income taxes

The Company has unrecognized tax benefits for uncertain tax positions. The Company follows U.S. GAAP which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Management believes that changes in these estimates would not have a material effect on the Company's results of operations, cash flows or financial position.


JNJ Income taxes

In 2017, the United States enacted into law new U.S. tax legislation, the U.S. Tax Cuts and Jobs Act (TCJA). This law included provisions for a comprehensive overhaul of the corporate income tax code, including a reduction of the statutory corporate tax rate from 35% to 21%, effective on January 1, 2018. The TCJA included a provision for a tax on all previously undistributed earnings of U.S. companies located in foreign jurisdictions. Undistributed earnings in the form of cash and cash equivalents were taxed at a rate of 15.5% and all other earnings were taxed at a rate of 8.0%. This tax is payable over 8 years and will not accrue interest. These payments began in 2018 and will continue through 2025. The remaining balance at the end of the 2023 was approximately $4.5 billion, of which $2.5 billion is classified as noncurrent and reflected as “Long-term taxes payable” on the Company’s balance sheet.


JNJ Income taxes

The TCJA also includes provisions for a tax on global intangible low-taxed income (GILTI). GILTI is described as the excess of a U.S. shareholder’s total net foreign income over a deemed return on tangible assets, as provided by the TCJA. In January 2018, the FASB issued guidance that allows companies to elect as an accounting policy whether to record the tax effects of GILTI in the period the tax liability is generated (i.e., “period cost”) or provide for deferred tax assets and liabilities related to basis differences that exist and are expected to effect the amount of GILTI inclusion in future years upon reversal (i.e., “deferred method”). The Company has elected to account for GILTI under the deferred method. The deferred tax amounts recorded are based on the evaluation of temporary differences that are expected to reverse as GILTI is incurred in future periods.


JNJ Income taxes

The Company has recorded deferred tax liabilities on all undistributed earnings prior to December 31, 2017 from its international subsidiaries. The Company has not provided deferred taxes on the undistributed earnings subsequent to January 1, 2018 from certain international subsidiaries where the earnings are considered to be indefinitely reinvested. The Company intends to continue to reinvest these earnings in those international operations. If the Company decides at a later date to repatriate these earnings to the U.S., the Company would be required to provide for the net tax effects on these amounts. The Company estimates that the tax effect of this repatriation would be approximately $0.5 billion under currently enacted tax laws and regulations and at current currency exchange rates. This amount does not include the possible benefit of U.S. foreign tax credits, which may substantially offset this cost.


JNJ Income taxes

See Note 8 to the Consolidated Financial Statements for further information regarding income taxes.


JNJ Net earnings per share

Basic earnings per share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities were exercised or converted into common stock using the treasury stock method.


JNJ Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the amounts reported. Estimates are used when accounting for sales discounts, rebates, allowances and incentives, product liabilities, income taxes, withholding taxes, depreciation, amortization, employee benefits, contingencies and intangible asset and liability valuations. Actual results may or may not differ from those estimates.


JNJ Use of estimates

The Company follows the provisions of U.S. GAAP when recording litigation related contingencies. A liability is recorded when a loss is probable and can be reasonably estimated. The best estimate of a loss within a range is accrued; however, if no estimate in the range is better than any other, the minimum amount is accrued.


JNJ Annual closing date

The Company follows the concept of a fiscal year, which ends on the Sunday nearest to the end of the month of December. Normally each fiscal year consists of 52 weeks, but every five or six years the fiscal year consists of 53 weeks, and therefore includes additional shipping days, as was the case in fiscal year 2020, and will be the case again in fiscal year 2026.


JNJ 2. Cash, cash equivalents and current marketable securities

At the end of the fiscal year 2023 and 2022, cash, cash equivalents and current marketable securities comprised: (Dollars in Millions)####2023###### ##Carrying Amount##Unrecognized Loss##Estimated Fair Value##Cash & Cash Equivalents## Cash##$3,340##—##3,340####3,340 Non-U.S. Sovereign Securities(1)##522##—##522####174 U.S. Reverse repurchase agreements##4,377##—##4,377####4,377 Corporate debt securities(1)##338##—##338####189 Money market funds##4,814##—##4,814####4,814 Time deposits(1)##662##—##662####662 Subtotal##$14,053##—##14,053####13,556 U.S. Gov't Securities##$8,562##—##8,562####8,259 U.S. Gov't Agencies##71##(1)##70####— Other Sovereign Securities##5##—##5####1 Corporate and other debt securities##237##—##237####43 Subtotal available for sale(2)##$8,875##(1)##8,874####8,303 Total cash, cash equivalents and current marketable securities##########$21,859 (Dollars in Millions)####2022###### ##Carrying Amount##Unrecognized Loss##Estimated Fair Value##Cash & Cash Equivalents## Cash##$3,691##—##3,691####3,691 U.S. Reverse repurchase agreements##1,419##—##1,419####1,419 Corporate debt securities(1)##873##(1)##872####— Money market funds##5,368##—##5,368####5,368 Time deposits(1)##443##—##443####443 Subtotal##11,794##(1)##11,793####10,921 U.S. Gov't Securities##$9,959##(28)##9,931####1,922 U.S. Gov't Agencies##210##(5)##205####— Corporate and other debt securities##352##(1)##351####46 Subtotal available for sale(2)##$10,521##(34)##10,487####1,968 Total cash, cash equivalents and current marketable securities##########$12,889


(1)Held to maturity investments are reported at amortized cost and realized 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.


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


The contractual maturities of the available for sale debt securities at December 31, 2023 are as follows: (Dollars in Millions)##Cost Basis####Fair Value Due within one year####$8,865##8,864 Due after one year through five years####10##10 Due after five years through ten years####—##— Total debt securities####$8,875##8,874


The Company invests its excess cash in both deposits with major banks throughout the world and other high-quality money market instruments. The Company has a policy of making investments only with commercial institutions that have at least an investment grade credit rating.


JNJ 3. Inventories

At the end of fiscal years 2023 and 2022, inventories comprised: (Dollars in Millions)##2023##2022 Raw materials and supplies##$2,355##1,719 Goods in process##1,952##1,577 Finished goods##6,874##6,972 Total inventories##$11,181##10,268


JNJ 4. Property, plant and equipment

At the end of fiscal years 2023 and 2022, property, plant and equipment at cost and accumulated depreciation were: (Dollars in Millions)##2023##2022 Land and land improvements##$795##784 Buildings and building equipment##12,375##11,470 Machinery and equipment##28,979##26,603 Construction in progress##5,627##4,677 Total property, plant and equipment, gross##$47,776##43,534 Less accumulated depreciation##27,878##25,552 Total property, plant and equipment, net##$19,898##17,982


JNJ 4. Property, plant and equipment

The Company capitalizes interest expense as part of the cost of construction of facilities and equipment. Interest expense capitalized in fiscal years 2023, 2022 and 2021 was $70 million, $49 million and $49 million, respectively.


JNJ 4. Property, plant and equipment

Depreciation expense, including the amortization of capitalized interest in fiscal years 2023, 2022 and 2021 was $2.6 billion, $2.4 billion and $2.4 billion, respectively.


JNJ 4. Property, plant and equipment

Upon retirement or other disposal of property, plant and equipment, the costs and related amounts of accumulated depreciation or amortization are eliminated from the asset and accumulated depreciation accounts, respectively. The difference, if any, between the net asset value and the proceeds are recorded in earnings.


JNJ 5. Intangible assets and goodwill (1)The majority is comprised of customer relationships

At the end of fiscal years 2023 and 2022, the gross and net amounts of intangible assets were: (Dollars in Millions)##2023##2022 Intangible assets with definite lives:#### Patents and trademarks — gross##$40,417##39,388 Less accumulated amortization##(24,808)##(20,616) Patents and trademarks — net##$15,609##18,772 Customer relationships and other intangibles — gross##$20,322##19,764 Less accumulated amortization##(12,685)##(11,363) Customer relationships and other intangibles — net(1)##$7,637##8,401 Intangible assets with indefinite lives:#### Trademarks##$1,714##1,630 Purchased in-process research and development##9,215##9,686 Total intangible assets with indefinite lives##$10,929##11,316 Total intangible assets — net##$34,175##38,489


Goodwill as of December 31, 2023 and January 1, 2023, as allocated by segment of business, was as follows: (Dollars in Millions)##Innovative Medicine##MedTech####Total Goodwill at January 2, 2022##$10,580##14,856####25,436 Goodwill, related to acquisitions##—##11,056####11,056 Goodwill, related to divestitures##—##—####— Currency translation/other##(396)##(49)####(445) Goodwill at January 1, 2023##10,184##25,863####36,047 Goodwill, related to acquisitions##—##—####— Goodwill, related to divestitures##—##—####— Currency translation/other##223##288##*##511 Goodwill at December 31, 2023##$10,407##26,151####36,558


JNJ *Includes purchase price allocation adjustments for Abiomed

The weighted average amortization period for patents and trademarks is approximately 11 years. The weighted average amortization period for customer relationships and other intangible assets is approximately 19 years. The amortization expense of amortizable assets included in Cost of products sold was $4.5 billion, $3.9 billion and $4.2 billion before tax, for the fiscal years ended December 31, 2023, January 1, 2023 and January 2, 2022, respectively. Intangible asset write-downs are included in Other (income) expense, net.


The estimated amortization expense related to intangible assets for approved products, before tax, for the five succeeding years is approximately: ##(Dollars in Millions)######## 2024####2025##2026##2027##2028 $4,300####3,500##2,900##2,300##1,600


See Note 18 to the Consolidated Financial Statements for additional details related to acquisitions and divestitures.


JNJ 6. 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. Both types of derivatives are designated as cash flow hedges.


JNJ 6. Fair value measurements

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


JNJ 6. Fair value measurements

The Company does not enter into derivative financial instruments for trading or speculative purposes, or that contain credit risk related contingent features. The Company maintains credit support agreements (CSA) with certain derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. As of December 31, 2023 and January 1, 2023, the total amount of cash collateral paid by the Company under the CSA amounted to $4.0 billion and $0.8 billion net respectively, related to net investment and cash flow hedges. 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 December 31, 2023, the Company had notional amounts outstanding for forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps of $42.9 billion, $39.7 billion and $10.0 billion, respectively. As of January 1, 2023, the Company had notional amounts outstanding for forward foreign exchange contracts, cross currency interest rate swaps and interest rate swaps of $41.5 billion, $36.2 billion and $10.0 billion, respectively.


JNJ 6. Fair value measurements

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.


JNJ 6. Fair value measurements

The designation as a cash flow hedge is made at the entrance date of the derivative contract. At inception, all derivatives are expected to be highly effective. Foreign exchange contracts designated as cash flow hedges are accounted for under the forward method and all gains/losses associated with these contracts will be recognized in the income statement when the hedged item impacts earnings. Changes in the fair value of these derivatives are recorded in accumulated other comprehensive income until the underlying transaction affects earnings, and are then reclassified to earnings in the same account as the hedged transaction.


JNJ 6. Fair value measurements

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 through the currency translation account within accumulated other comprehensive income. The portion excluded from effectiveness testing is recorded through interest (income) expense using the spot method. On an ongoing basis, the Company assesses whether each derivative continues to be highly effective in offsetting changes of hedged items. If and when a derivative is no longer expected to be highly effective, hedge accounting is discontinued.


JNJ 6. Fair value measurements

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.


JNJ 6. Fair value measurements

As of December 31, 2023, the balance of deferred net loss on derivatives included in accumulated other comprehensive income was $377 million after-tax. For additional information, see the Consolidated Statements of Comprehensive Income and Note 13. 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 and net investment hedges. 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.


JNJ 2023 Annual Report 59

The following table is a summary of the activity related to derivatives and hedges for the fiscal years ended December 31, 2023 and January 1, 2023, net of tax: ######December 31, 2023##########January 1, 2023#### (Dollars in Millions)##Sales##Cost of Products Sold##R&D Expense##Interest (Income) Expense##Other (Income) Expense##Sales##Cost of Products Sold##R&D Expense##Interest (Income) Expense##Other (Income) Expense The effects of fair value, net investment and cash flow hedging:#################### Gain (Loss) on fair value hedging relationship:#################### Interest rate swaps contracts:#################### Hedged items##$—##—##—##(930)##—##—##—##—##(1,098)##— Derivatives designated as hedging instruments##—##—##—##930##—##—##—##—##1,098##— Gain (Loss) on net investment hedging relationship:#################### Cross currency interest rate swaps contracts:#################### Amount of gain or (loss) recognized in income on derivative amount excluded from effectiveness testing##$—##—##—##130##—##—##—##—##140##— Amount of gain or (loss) recognized in AOCI##—##—##—##130##—##—##—##—##140##— Gain (Loss) on cash flow hedging relationship:#################### Forward foreign exchange contracts:#################### Amount of gain or (loss) reclassified from AOCI into income##7##186##(37)##—##8##(72)##(271)##149##—##(23) Amount of gain or (loss) recognized in AOCI##10##447##(18)##—##9##5##319##61##—##(113) Cross currency interest rate swaps contracts:#################### Amount of gain or (loss) reclassified from AOCI into income##—##—##—##275##—##—##—##—##425##— Amount of gain or (loss) recognized in AOCI##$—##—##—##(156)##—##—##—##—##42##—


JNJ 2023 Annual Report 59

As of December 31, 2023 and January 1, 2023, the following amounts were recorded on the consolidated balance sheet related to cumulative basis adjustment for fair value hedges Line item in the Consolidated Balance Sheet in which the hedged item is included####Carrying Amount of the Hedged Liability######Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability## (Dollars in Millions)##December 31, 2023####January 1, 2023##December 31, 2023####January 1, 2023 Long-term Debt##$8,862####$8,665##$(1,216)####$(1,435)


JNJ 2023 Annual Report 59

The following table is the effect of derivatives not designated as hedging instrument for the fiscal years ended December 31, 2023 and January 1, 2023: (Dollars in Millions)##Location of Gain /(Loss) Recognized in Income on Derivative####Gain/(Loss) Recognized In Income on Derivative## Derivatives Not Designated as Hedging Instruments####December 31, 2023####January 1, 2023 Foreign Exchange Contracts##Other (income) expense##$(60)####94


JNJ 2023 Annual Report 59

The following table is the effect of net investment hedges for the fiscal years ended December 31, 2023 and January 1, 2023: ####Gain/(Loss) Recognized In Accumulated OCI####Location of Gain or (Loss) Reclassified from Accumulated Other Comprehensive Income Into Income####Gain/(Loss) Reclassified From Accumulated OCI Into Income## (Dollars in Millions)##December 31, 2023####January 1, 2023####December 31, 2023####January 1, 2023 Debt##$(131)####197##Interest (income) expense##—####— Cross Currency interest rate swaps##$642####766##Interest (income) expense##—####—