0000200406-21-000008 | 10-K | XBRL Viewer

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Cover Page - USD ($) $ in Billions	12 Months Ended
Cover Page - USD ($) $ in Billions	Jan. 03, 2021	Feb. 16, 2021	Jun. 28, 2020
Document Information [Line Items]
Document Type	10-K
Document Annual Report	true
Document Period End Date	Jan. 03, 2021
Document Transition Report	false
Entity File Number	1-3215
Entity Registrant Name	JOHNSON & JOHNSON
Entity Incorporation, State or Country Code	NJ
Entity Tax Identification Number	22-1024240
Entity Address, Address Line One	One Johnson & Johnson Plaza
Entity Address, City or Town	New Brunswick
Entity Address, State or Province	NJ
Entity Address, Postal Zip Code	08933
City Area Code	732
Local Phone Number	524-0400
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Emerging Growth Company	false
Entity Small Business	false
ICFR Auditor Attestation Flag	true
Entity Shell Company	false
Entity Public Float			$ 363
Entity Common Stock, Shares Outstanding		2,628,679,824
Entity Central Index Key	0000200406
Current Fiscal Year End Date	--01-03
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	FY
Amendment Flag	false
Common Stock, Par Value $1.00
Document Information [Line Items]
Title of 12(b) Security	Common Stock, Par Value $1.00
Trading Symbol	JNJ
Security Exchange Name	NYSE
0.250% Notes Due January 2022
Document Information [Line Items]
Title of 12(b) Security	0.250% Notes Due January 2022
Trading Symbol	JNJ22
Security Exchange Name	NYSE
0.650% Notes Due May 2024
Document Information [Line Items]
Title of 12(b) Security	0.650% Notes Due May 2024
Trading Symbol	JNJ24C
Security Exchange Name	NYSE
5.50% Notes Due November 2024
Document Information [Line Items]
Title of 12(b) Security	5.50% Notes Due November 2024
Trading Symbol	JNJ24BP
Security Exchange Name	NYSE
1.150% Notes Due November 2028
Document Information [Line Items]
Title of 12(b) Security	1.150% Notes Due November 2028
Trading Symbol	JNJ28
Security Exchange Name	NYSE
1.650% Notes Due May 2035
Document Information [Line Items]
Title of 12(b) Security	1.650% Notes Due May 2035
Trading Symbol	JNJ35
Security Exchange Name	NYSE

Consolidated Balance Sheets - USD ($) $ in Millions	Jan. 03, 2021	Dec. 29, 2019
Current assets:
Cash and cash equivalents (Notes 1 and 2)	$ 13,985	$ 17,305
Marketable securities (Notes 1 and 2)	11,200	1,982
Accounts receivable trade, less allowances for doubtful accounts $293 (2019, $226)	13,576	14,481
Inventories (Notes 1 and 3)	9,344	9,020
Prepaid expenses and other receivables	3,132	2,392
Assets held for sale (Note 18)	0	94
Total current assets	51,237	45,274
Property, plant and equipment, net (Notes 1 and 4)	18,766	17,658
Intangible assets, net (Notes 1 and 5)	53,402	47,643
Goodwill (Notes 1 and 5)	36,393	33,639
Deferred taxes on income (Note 8)	8,534	7,819
Other assets	6,562	5,695
Total assets	174,894	157,728
Current liabilities:
Loans and notes payable (Note 7)	2,631	1,202
Accounts payable	9,505	8,544
Accrued liabilities	13,968	9,715
Accrued rebates, returns and promotions	11,513	10,883
Accrued compensation and employee related obligations	3,484	3,354
Accrued taxes on income (Note 8)	1,392	2,266
Total current liabilities	42,493	35,964
Long-term debt (Note 7)	32,635	26,494
Deferred taxes on income (Note 8)	7,214	5,958
Employee related obligations (Notes 9 and 10)	10,771	10,663
Long-term taxes payable (Note 1)	6,559	7,444
Other liabilities	11,944	11,734
Total liabilities	111,616	98,257
Shareholders' equity:
Preferred stock — without par value (authorized and unissued 2,000,000 shares)	0	0
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)	(15,242)	(15,891)
Retained earnings	113,890	110,659
Stockholders' Equity before Treasury Stock	101,768	97,888
Less: common stock held in treasury, at cost (Note 12) (487,331,000 shares and 487,336,000 shares)	38,490	38,417
Total shareholders’ equity	63,278	59,471
Total liabilities and shareholders’ equity	$ 174,894	$ 157,728
Preferred stock, shares authorized (in shares)	2,000,000	2,000,000
Common Stock, Par or Stated Value Per Share	$ 1.00	$ 1.00
Common Stock, Shares Authorized	4,320,000,000	4,320,000,000
Common Stock, Shares, Issued	3,119,843,000	3,119,843,000

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions	Jan. 03, 2021	Dec. 29, 2019
Current assets:
Allowances for doubtful accounts	$ 293	$ 226
Shareholders' equity:
Preferred stock, shares authorized (in shares)	2,000,000	2,000,000
Common stock, par value per share (in dollars per share)	$ 1.00	$ 1.00
Common stock, shares authorized (in shares)	4,320,000,000	4,320,000,000
Common stock, shares issued (in shares)	3,119,843,000	3,119,843,000
Treasury stock, shares	487,331,000	487,336,000

Consolidated Statements of Earnings - USD ($) shares in Millions, $ in Millions	12 Months Ended
	Jan. 03, 2021	Dec. 29, 2019	Dec. 30, 2018
Income Statement [Abstract]
Sales to customers	$ 82,584	$ 82,059	$ 81,581
Cost of products sold	28,427	27,556	27,091
Gross profit	54,157	54,503	54,490
Selling, marketing and administrative expenses	22,084	22,178	22,540
Research and development expense	12,159	11,355	10,775
In-process research and development (Note 5)	181	890	1,126
Interest income	(111)	(357)	(611)
Interest expense, net of portion capitalized (Note 4)	201	318	1,005
Other (income) expense, net	2,899	2,525	1,405
Restructuring (Note 20)	247	266	251
Earnings before provision for taxes on income	16,497	17,328	17,999
Provision for taxes on income (Note 8)	1,783	2,209	2,702
Net earnings	$ 14,714	$ 15,119	$ 15,297
Net earnings per share (Notes 1 and 15)
Basic (in dollars per share)	$ 5.59	$ 5.72	$ 5.70
Diluted (in dollars per share)	$ 5.51	$ 5.63	$ 5.61
Average shares outstanding (Notes 1 and 15)
Basic (in shares)	2,632.8	2,645.1	2,681.5
Diluted (in shares)	2,670.7	2,684.3	2,728.7

Consolidated Statements of Comprehensive Income - USD ($) $ in Millions	12 Months Ended
	Jan. 03, 2021	Dec. 29, 2019	Dec. 30, 2018
Statement of Comprehensive Income [Abstract]
Net earnings	$ 14,714	$ 15,119	$ 15,297
Other Comprehensive Income (Loss), net of tax
Foreign currency translation	(233)	164	(1,518)
Securities
Unrealized holding gain (loss) arising during period	1	0	(1)
Reclassifications to earnings	0	0	1
Net change	1	0	0
Employee benefit plans
Prior service credit (cost), net of amortization	1,298	(18)	(44)
Gain (loss), net of amortization	(1,135)	(714)	(56)
Effect of exchange rates	(229)	(1)	92
Net change	(66)	(733)	(8)
Derivatives & hedges
Unrealized gain (loss) arising during period	1,000	(107)	(73)
Reclassifications to earnings	(53)	7	(192)
Net change	947	(100)	(265)
Other comprehensive income (loss)	649	(669)	(1,791)
Comprehensive income	$ 15,363	$ 14,450	$ 13,506

Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	Jan. 03, 2021	Dec. 29, 2019	Dec. 30, 2018
Statement of Comprehensive Income [Abstract]
Foreign currency translation	$ 536	$ 19	$ 236
Employee benefits	21	(222)	4
Derivatives & hedges	$ 252	$ (27)	$ (70)

Consolidated Statements of Equity - USD ($) $ in Millions	Total	Cumulative Effect, Period of Adoption, Adjustment	Retained Earnings	Retained Earnings Cumulative Effect, Period of Adoption, Adjustment	Accumulated Other Comprehensive Income (Loss)	Accumulated Other Comprehensive Income (Loss) Cumulative Effect, Period of Adoption, Adjustment	Common Stock Issued Amount	Treasury Stock Amount
Beginning Balance at Dec. 31, 2017	$ 60,160	$ (486)	$ 101,793	$ (254)	$ (13,199)	$ (232)	$ 3,120	$ (31,554)
Net earnings	15,297		15,297
Cash dividends paid	(9,494)		(9,494)
Employee compensation and stock option plans	1,949		(1,111)					3,060
Repurchase of common stock	(5,868)							(5,868)
Other	(15)		(15)
Other comprehensive income (loss), net of tax	(1,791)				(1,791)
Ending Balance at Dec. 30, 2018	59,752		106,216		(15,222)		3,120	(34,362)
Net earnings	15,119		15,119
Cash dividends paid	(9,917)		(9,917)
Employee compensation and stock option plans	1,933		(758)					2,691
Repurchase of common stock	(6,746)							(6,746)
Other	(1)		(1)
Other comprehensive income (loss), net of tax	(669)				(669)
Ending Balance at Dec. 29, 2019	59,471		110,659		(15,891)		3,120	(38,417)
Net earnings	14,714		14,714
Cash dividends paid	(10,481)		(10,481)
Employee compensation and stock option plans	2,217		(931)					3,148
Repurchase of common stock	(3,221)							(3,221)
Other	(71)		(71)
Other comprehensive income (loss), net of tax	649				649
Ending Balance at Jan. 03, 2021	$ 63,278		$ 113,890		$ (15,242)		$ 3,120	$ (38,490)

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

+ References + Details

Consolidated Statements of Equity (Parenthetical) - $ / shares	12 Months Ended
	Jan. 03, 2021	Dec. 29, 2019	Dec. 30, 2018
Statement of Stockholders' Equity [Abstract]
Cash dividends paid (in dollars per share)	$ 3.98	$ 3.75	$ 3.54

Consolidated Statements of Cash Flows - USD ($) $ in Millions	12 Months Ended
	Jan. 03, 2021	Dec. 29, 2019	Dec. 30, 2018
Cash flows from operating activities
Net earnings	$ 14,714	$ 15,119	$ 15,297
Adjustments to reconcile net earnings to cash flows from operating activities:
Depreciation and amortization of property and intangibles	7,231	7,009	6,929
Stock based compensation	1,005	977	978
Asset write-downs	233	1,096	1,258
Contingent consideration reversal	(1,148)	0	0
Net gain on sale of assets/businesses	(111)	(2,154)	(1,217)
Deferred tax provision	(1,141)	(2,476)	(1,016)
Credit losses and accounts receivable allowances	63	(20)	(31)
Changes in assets and liabilities, net of effects from acquisitions and divestitures:
Decrease/(Increase) in accounts receivable	774	(289)	(1,185)
Increase in inventories	(265)	(277)	(644)
Increase in accounts payable and accrued liabilities	5,141	4,060	3,951
Increase in other current and non-current assets	(3,704)	(1,054)	(275)
Increase/(Decrease) in other current and non-current liabilities	744	1,425	(1,844)
Net cash flows from operating activities	23,536	23,416	22,201
Cash flows from investing activities
Additions to property, plant and equipment	(3,347)	(3,498)	(3,670)
Proceeds from the disposal of assets/businesses, net	305	3,265	3,203
Acquisitions, net of cash acquired (Note 18)	(7,323)	(5,810)	(899)
Purchases of investments	(21,089)	(3,920)	(5,626)
Sales of investments	12,137	3,387	4,289
Credit support agreements activity, net	(987)	338	0
Other (primarily licenses and milestones)	(521)	44	(464)
Net cash used by investing activities	(20,825)	(6,194)	(3,167)
Cash flows from financing activities
Dividends to shareholders	(10,481)	(9,917)	(9,494)
Repurchase of common stock	(3,221)	(6,746)	(5,868)
Proceeds from short-term debt	3,391	39	80
Repayment of short-term debt	(2,663)	(100)	(2,479)
Proceeds from long-term debt, net of issuance costs	7,431	3	5
Repayment of long-term debt	(1,064)	(2,823)	(1,555)
Proceeds from the exercise of stock options/employee withholding tax on stock awards, net	1,114	954	949
Credit support agreements activity, net	(333)	100	25
Other	(294)	475	(173)
Net cash used by financing activities	(6,120)	(18,015)	(18,510)
Effect of exchange rate changes on cash and cash equivalents	89	(9)	(241)
(Decrease)/Increase in cash and cash equivalents	(3,320)	(802)	283
Cash and cash equivalents, beginning of year (Note 1)	17,305	18,107	17,824
Cash and cash equivalents, end of year (Note 1)	13,985	17,305	18,107
Cash paid during the year for:
Interest	904	995	1,049
Interest, net of amount capitalized	841	925	963
Income taxes	4,619	4,191	4,570
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	1,937	1,736	2,095
Conversion of debt	27	1	6
Acquisitions
Fair value of assets acquired	7,755	7,228	1,047
Fair value of liabilities assumed and noncontrolling interests	(432)	(1,418)	(148)
Net cash paid for acquisitions (Note 18)	$ 7,323	$ 5,810	$ 899

Summary of Significant Accounting Policies

12 Months Ended

Jan. 03, 2021

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

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.

Description of the Company and Business Segments

The Company has approximately 134,500 employees worldwide engaged in the research and development, manufacture and sale of a broad range of products in the health care 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.

The Company is organized into three business segments: Consumer Health (previously referred to as Consumer), Pharmaceutical and Medical Devices. The Consumer Health segment includes a broad range of products used in the baby care, oral care, skin health/beauty, over-the-counter pharmaceutical, women’s health and wound care markets. These products are marketed to the general public and sold online (eCommerce) and to retail outlets and distributors throughout the world. The Pharmaceutical segment is focused on six 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, hospitals and health care professionals for prescription use. The Medical Devices segment includes a broad range of products used in the orthopaedic, surgery, interventional solutions (cardiovascular and neurovascular) and eye health fields, which are distributed to wholesalers, hospitals and retailers, and used principally in the professional fields by physicians, nurses, hospitals, eye care professionals and clinics.

New Accounting Standards

Recently Adopted Accounting Standards

ASU 2018-18: Collaborative Arrangements

The Company adopted this standard as of the beginning of the fiscal year 2020. This update clarifies the interaction between ASC 808, Collaborative Arrangements and ASC 606, Revenue from Contracts with Customers. The update clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue if the counterparty is not a customer for that transaction. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

ASU 2016-13: Financial Instruments - Credit Losses

The Company adopted this standard as of the beginning of the fiscal year 2020. This update introduces the current expected credit loss (CECL) model, which requires an entity to measure credit losses for certain financial instruments and financial assets, including trade receivables. Under this update, on initial recognition and at each reporting period, an entity is required to recognize an allowance that reflects the entity’s current estimate of credit losses expected to be incurred over the life of the financial instrument. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.

ASU 2018-14: Compensation - Defined Benefit Plans

The Company adopted this standard in the fiscal year ended 2020. This standard revised the financial statement note disclosure requirements of ASC 715-20 for defined benefit plan sponsors. The adoption of this standard had no impact on the Company's consolidated financial statements. See Note 10 to the Consolidated Financial Statements for defined benefit plan disclosures.

Accounting Standards adopted in the fiscal 2018 with a cumulative effect to the 2018 opening balance of Retained Earnings

The following table summarizes the cumulative effect adjustments made to the 2018 opening balance of retained earnings upon adoption of these accounting standards in 2018:


(Dollars in Millions)	Cumulative Effect Adjustment Increase (Decrease) to Retained Earnings
ASU 2014-09 - Revenue from Contracts with Customers	$	(47)
ASU 2016-01 - Financial Instruments	232
ASU 2016-16 - Income Taxes: Intra-Entity Transfers	(439)
Total	$	(254)

Recently Issued Accounting Standards

Not Adopted as of January 3, 2021

The Company assesses the adoption impacts of recently issued accounting standards by the Financial Accounting Standards Board on the Company's financial statements as well as material updates to previous assessments, if any, from the Company’s Annual Report on Form 10-K for the fiscal year ended December 29, 2019. There were no new material accounting standards issued in fiscal 2020 that impacted the Company.

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).

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.

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.

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			20 - 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 carrying value of these assets. If the asset is determined to be impaired, the loss is measured based on the difference between

the asset’s fair value and its carrying value. If quoted market prices are not available, the Company will estimate fair value using a discounted value of estimated future cash flows.

Revenue Recognition

The Company recognizes revenue from product sales when obligations under the terms of a contract with the customer are satisfied; generally, this occurs with the transfer of control of the goods to customers. The Company's global payment terms are typically between 30 to 90 days. Provisions for certain rebates, sales incentives, trade promotions, coupons, product returns and discounts to customers 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.

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 $7.2 billion and $7.0 billion as of January 3, 2021 and December 29, 2019, 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.

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

Sales returns allowances represent a reserve for products that may be returned due to expiration, destruction in the field, or in specific areas, product recall. The sales returns reserve is based on historical return trends by product and by market as a percent to gross sales. In accordance with the Company’s accounting policies, the Company generally issues credit to customers for returned goods. The Company’s sales returns reserves are accounted for in accordance with the U.S. GAAP guidance for revenue recognition when right of return exists. Sales returns reserves are recorded at full sales value. Sales returns in the Consumer Health and Pharmaceutical segments are almost exclusively not resalable. Sales returns for certain franchises in the Medical Devices segment are typically resalable but are not material. The Company infrequently exchanges products from inventory for returned products. The sales returns reserve for the total Company has been approximately 1.0% of annual net trade sales during each of the fiscal years 2020, 2019 and 2018.

Promotional programs, such as product listing allowances and cooperative advertising arrangements, are recorded in the same period as related sales. Continuing promotional programs include coupons and volume-based sales incentive programs. The redemption cost of consumer coupons is based on historical redemption experience by product and value. Volume-based incentive programs are based on the estimated sales volumes for the incentive period and are recorded as products are sold. These arrangements are evaluated to determine the appropriate amounts to be deferred or recorded as a reduction of revenue. The Company also earns profit-share payments through collaborative arrangements for certain products, which are included in sales to customers. For all years presented, profit-share payments were less than 3.0% of the total revenues and are included in sales to customers.

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

Shipping and Handling

Shipping and handling costs incurred were $1.0 billion, $1.0 billion and $1.1 billion in fiscal years 2020, 2019 and 2018, respectively, and are included in selling, marketing and administrative expense. The amount of revenue received for shipping and handling is less than 0.5% of sales to customers for all periods presented.

Inventories

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

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 2020 in the fiscal fourth quarter. Future impairment tests will be performed annually in the fiscal fourth quarter, or sooner if warranted. Purchased in-process research and development is accounted for 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, or abandoned, at which point the intangible asset will be written off or partially impaired.

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

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 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.

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.

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.

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.

The Company primarily has operating lease for space, vehicles, manufacturing equipment and data processing equipment. The ROU asset pertaining to operating leases was $1.0 billion and $1.0 billion in 2020 and 2019, respectively. The lease liability was $1.1 billion and $1.0 billion in 2020 and 2019, respectively. The operating lease costs were $0.3 billion, $0.3 billion and $0.3 billion in 2020, 2019 and 2018, respectively. Cash paid for amounts included in the measurement of lease liabilities were $0.3 billion and $0.3 billion in 2020 and 2019, respectively.

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.

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.

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.

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


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

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

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.

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

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 $2.1 billion, $2.2 billion and $2.6 billion in fiscal years 2020, 2019 and 2018, respectively.

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 in the future.

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.

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 2020 was approximately $7.7 billion, of which $6.9 billion is classified as noncurrent and reflected as “Long-term taxes payable” on the Company’s balance sheet. The balance of this account is related to receivables from tax authorities not expected to be received in the next 12 months.

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”). In 2018, the Company 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.

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 total tax effect of this repatriation would be approximately $0.7 billion under current enacted tax laws and regulations and at current currency exchange rates.

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

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.

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.

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.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to: the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions including interest rates, employment rates and health insurance coverage, the speed of the anticipated recovery, and governmental and business reactions to the pandemic. The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts of COVID-19 as of January 3, 2021 and through the date of this report. The accounting matters assessed included, but were not limited to, the Company’s allowance for doubtful accounts and credit losses, inventory and related reserves, accrued rebates and associated reserves, and the carrying value of the goodwill and other long-lived assets. While there was not a material impact to the Company’s consolidated financial statements as of and for the fiscal year ended January 3, 2021, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

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.

Reclassification

Certain prior period amounts have been reclassified to conform to current year presentation.

Cash, Cash Equivalents and Current Marketable Securities

12 Months Ended

Jan. 03, 2021

Cash and Cash Equivalents [Abstract]

Cash, Cash Equivalents and Current Marketable Securities

At the end of the fiscal year 2020 and 2019, cash, cash equivalents and current marketable securities were comprised of:


(Dollars in Millions)	2020
	Carrying Amount		Unrecognized Gain	Estimated Fair Value	Cash & Cash Equivalents		Current Marketable Securities
Cash	$	2,863	—	2,863	2,863		—

Non-U.S. Sovereign Securities(1)	690		—	690	—		690
U.S. Reverse repurchase agreements	1,937		—	1,937	1,937		—

Corporate debt securities(1)	2,674		—	2,674	1,451		1,223
Money market funds	2,102		—	2,102	2,102		—
Time deposits(1)	877		—	877	877		—
Subtotal	$	11,143	—	11,143	9,230		1,913

U.S. Gov't Securities	$	13,777	1	13,778	4,731		9,047
Other Sovereign Securities	14		—	14	—		14
Corporate debt securities	250		—	250	24		226

Subtotal available for sale(2)	$	14,041	1	14,042	4,755		9,287

Total cash, cash equivalents and current marketable securities					$	13,985	11,200


(Dollars in Millions)	2019
	Carrying Amount		Cash & Cash Equivalents		Current Marketable Securities
Cash	$	2,637	2,637		—

Non-U.S. Sovereign Securities(1)	439		149		290
U.S. Reverse repurchase agreements	6,375		6,375		—
Other Reverse repurchase agreements	375		375		—
Corporate debt securities(1)	1,323		889		434
Money market funds	2,864		2,864		—
Time deposits(1)	906		906		—
Subtotal	$	14,919	14,195		724

Gov't Securities	$	4,102	3,095		1,007

Corporate debt securities	266		15		251

Subtotal available for sale(2)	$	4,368	3,110		1,258

Total cash, cash equivalents and current marketable securities			$	17,305	1,982

(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.

At the end of fiscal year 2019, the carrying amount was the same as the estimated fair value.

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 January 3, 2021 are as follows:


(Dollars in Millions)	Cost Basis		Fair Value
Due within one year	$	14,026	14,027
Due after one year through five years	15		15
Due after five years through ten years	—		—
Total debt securities	$	14,041	14,042

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.

Inventories

12 Months Ended

Jan. 03, 2021

Inventory Disclosure [Abstract]

Inventories

At the end of fiscal years 2020 and 2019, inventories were comprised of:


(Dollars in Millions)	2020		2019
Raw materials and supplies	$	1,410	1,117
Goods in process	2,040		1,832
Finished goods	5,894		6,071
Total inventories (1)	$	9,344	9,020

(1) See Note 18 to the Consolidated Financial Statements for details on assets held for sale and the related divestitures for the fiscal year ended December 29, 2019. There were no assets held for sale at January 3, 2021.

Property, Plant and Equipment

12 Months Ended

Jan. 03, 2021

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment

At the end of fiscal years 2020 and 2019, property, plant and equipment at cost and accumulated depreciation were:


(Dollars in Millions)	2020		2019
Land and land improvements	$	882	854
Buildings and building equipment	12,502		11,877
Machinery and equipment	29,104		26,964
Construction in progress	4,316		3,637
Total property, plant and equipment, gross	$	46,804	43,332
Less accumulated depreciation	28,038		25,674
Total property, plant and equipment, net(1)	$	18,766	17,658

The Company capitalizes interest expense as part of the cost of construction of facilities and equipment. Interest expense capitalized in fiscal years 2020, 2019 and 2018 was $63 million, $70 million and $86 million, respectively.

Depreciation expense, including the amortization of capitalized interest in fiscal years 2020, 2019 and 2018 was $2.6 billion, $2.5 billion and $2.6 billion, respectively.

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.

Intangible Assets and Goodwill

12 Months Ended

Jan. 03, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

At the end of fiscal years 2020 and 2019, the gross and net amounts of intangible assets were:


(Dollars in Millions)	2020		2019
Intangible assets with definite lives:
Patents and trademarks — gross	$	39,990	36,634
Less accumulated amortization	17,618		13,154
Patents and trademarks — net	$	22,372	23,480
Customer relationships and other intangibles — gross	$	22,898	22,056
Less accumulated amortization	10,912		9,462
Customer relationships and other intangibles — net*	$	11,986	12,594
Intangible assets with indefinite lives:
Trademarks	$	7,195	6,922
Purchased in-process research and development(1)	11,849		4,647
Total intangible assets with indefinite lives	$	19,044	11,569
Total intangible assets — net	$	53,402	47,643

*The majority is comprised of customer relationships

(1) In fiscal year 2020, the Company completed multiple acquisitions and recorded in-process research and development intangible assets of $6.0 billion from Momenta Pharmaceuticals, Inc., $0.8 billion for bermekimab and certain related assets from XBiotech, Inc., and $0.4 billion from the acquisition of all outstanding shares in Verb Surgical, Inc.

Goodwill as of January 3, 2021 and December 29, 2019, as allocated by segment of business, was as follows:


(Dollars in Millions)	Consumer Health		Pharmaceutical	Medical Devices	Total
Goodwill at December 30, 2018	$	8,670	9,063	12,720	30,453
Goodwill, related to acquisitions	1,188		75	2,018	3,281

Currency translation/other	(122)		31	(4)	(95)
Goodwill at December 29, 2019	$	9,736	9,169	14,734	33,639
Goodwill, related to acquisitions	—		1,222	238	1,460

Currency translation/other	600		618	76	1,294
Goodwill at January 3, 2021	$	10,336	11,009	15,048	36,393

The weighted average amortization period for patents and trademarks is 12 years. The weighted average amortization period for customer relationships and other intangible assets is 21 years. The amortization expense of amortizable assets included in cost of products sold was $4.7 billion, $4.5 billion and $4.4 billion before tax, for the fiscal years ended January 3, 2021, December 29, 2019 and December 30, 2018, respectively. Intangible asset write-downs are included in Other (income) expense, net.

The estimated amortization expense for approved products, before tax, for the five succeeding years is approximately:


(Dollars in Millions)
2021	2022	2023	2024	2025
$4,600	4,200	4,100	3,900	3,200

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

Fair Value Measurements

12 Months Ended

Jan. 03, 2021

Fair Value Disclosures [Abstract]

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.

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

The Company 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 January 3, 2021, the total amount of cash collateral paid by the Company under the CSA amounted to $1.1 billion net, 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 January 3, 2021, the Company had notional amounts outstanding for forward foreign exchange contracts, and cross currency interest rate swaps of $37.8 billion and $30.6 billion, respectively. As of December 29, 2019, the Company had notional amounts outstanding for forward foreign exchange contracts and cross currency interest rate swaps of $45.3 billion and $20.1 billion, respectively.

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

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

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. The effect of which are immaterial for the fiscal years ended January 3, 2021 and December 29, 2019. Gains and losses on net investment hedge 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.

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.

As of January 3, 2021, the balance of deferred net gain on derivatives included in accumulated other comprehensive income was $652 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, 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.

The following table is a summary of the activity related to derivatives and hedges for the fiscal years ended January 3, 2021 and December 29, 2019, net of tax:



	January 3, 2021						December 29, 2019
(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 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	$	—	—	—	153	—	—	—	—	159	—
Amount of gain or (loss) recognized in AOCI	—		—	—	153	—	—	—	—	159	—

Gain (Loss) on cash flow hedging relationship:
Forward foreign exchange contracts:
Amount of gain or (loss) reclassified from AOCI into income	12		(329)	(137)	—	(16)	(54)	(321)	(105)	—	22



Amount of gain or (loss) recognized in AOCI	44		298	(191)	—	(52)	(20)	(606)	(94)	—	39

Cross currency interest rate swaps contracts:
Amount of gain or (loss) reclassified from AOCI into income	—		—	—	370	—	—	—	—	292	—

Amount of gain or (loss) recognized in AOCI	$	—	—	—	748	—	—	—	—	417	—

The following table is the effect of derivatives not designated as hedging instrument for the fiscal years ended January 3, 2021 and December 29, 2019:

(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

January 3, 2021

December 29, 2019

Foreign Exchange Contracts

Other (income) expense

(144)

The following table is the effect of net investment hedges for the fiscal years ended January 3, 2021 and December 29, 2019:


	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)	January 3, 2021		December 29, 2019		January 3, 2021	December 29, 2019
Debt	$	(473)	121	Interest (income) expense	—	—
Cross Currency interest rate swaps	$	65	488	Interest (income) expense	—	—

The Company holds equity investments with readily determinable fair values and equity investments without readily determinable fair values. The Company measures equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The following table is a summary of the activity related to equity investments for the fiscal years ended January 3, 2021 and December 29, 2019:


	December 29, 2019				January 3, 2021
(Dollars in Millions)	Carrying Value		Changes in Fair Value Reflected in Net Income (1)	Sales/ Purchases/Other(2)	Carrying Value	Non Current Other Assets
Equity Investments with readily determinable value	$	1,148	527	(194)	1,481	1,481

Equity Investments without readily determinable value	$	712	(55)	81	738	738


	December 30, 2018				December 29, 2019
(Dollars in Millions)	Carrying Value		Changes in Fair Value Reflected in Net Income (1)	Sales/ Purchases/Other(2)	Carrying Value	Non Current Other Assets
Equity Investments with readily determinable value	$	511	533	104	1,148	1,148

Equity Investments without readily determinable value	$	681	(38)	69	712	712

(1) Recorded in Other Income/Expense

(2) Other includes impact of currency

For the fiscal years ended January 3, 2021 and December 29, 2019 for equity investments without readily determinable market values, $76 million and $57 million, respectively, of the changes in fair value reflected in net income were the result of impairments. There were $21 million and $19 million, respectively, of changes in fair value reflected in net income due to changes in observable prices.

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

The fair value of a derivative financial instrument (i.e., forward foreign exchange contracts, interest rate contracts) is the aggregation by currency of all future cash flows discounted to its present value at the prevailing market interest rates and subsequently converted to the U.S. Dollar at the current spot foreign exchange rate. The Company does not believe that fair values of these derivative instruments materially differ from the amounts that could be realized upon settlement or maturity, or

that the changes in fair value will have a material effect on the Company’s results of operations, cash flows or financial position. The Company also holds equity investments which are classified as Level 1 and debt securities which are classified as Level 2. The Company holds acquisition related contingent liabilities based upon certain regulatory and commercial events, which are classified as Level 3, whose values are determined using discounted cash flow methodologies or similar techniques for which the determination of fair value requires significant judgment or estimations.

The following three levels of inputs are used to measure fair value:

Level 1 — Quoted prices in active markets for identical assets and liabilities.

Level 2 — Significant other observable inputs.

Level 3 — Significant unobservable inputs.

The Company’s significant financial assets and liabilities measured at fair value as of the fiscal year ended January 3, 2021 and December 29, 2019 were as follows:


	2020					2019
(Dollars in Millions)	Level 1		Level 2	Level 3	Total	Total (1)
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts	$	—	849	—	849	209
Interest rate contracts (2)(3)	—		240	—	240	693

Total	$	—	1,089	—	1,089	902
Liabilities:
Forward foreign exchange contracts	—		702	—	702	426
Interest rate contracts (3)	—		1,569	—	1,569	193


Total	$	—	2,271	—	2,271	619
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts	$	—	49	—	49	23
Liabilities:
Forward foreign exchange contracts	—		38	—	38	33
Available For Sale Other Investments:
Equity investments(4)	1,481		—	—	1,481	1,148
Debt securities(5)	—		14,042	—	14,042	4,368
Other Liabilities
Contingent Consideration(6)	$			633	633	1,715


Gross to Net Derivative Reconciliation	2020		2019
(Dollars in Millions)
Total Gross Assets	$	1,138	925
Credit Support Agreement (CSA)	(1,107)		(841)
Total Net Asset	31		84

Total Gross Liabilities	2,309		652
Credit Support Agreement (CSA)	(2,172)		(586)
Total Net Liabilities	$	137	66

Summarized information about changes in liabilities for contingent consideration is as follows:


	2020		2019	2018
(Dollars in Millions)
Beginning Balance	$	1,715	397	600
Changes in estimated fair value (7)	(1,089)		151	(156)
Additions	106		1,246	125
Payments	(99)		(79)	(172)
Ending Balance	$	633	1,715	397

(1)2019 assets and liabilities are all classified as Level 2 with the exception of equity investments of $1,148 million, which are classified as Level 1 and contingent consideration of $1,715 million, classified as Level 3.

(2)Includes $1 million of non-current assets as of December 29, 2019.

(3)Includes cross currency interest rate swaps and interest rate swaps.

(4)Classified as non-current other assets.

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

(6)Includes $594 million, $1,631 million (primarily related to Auris Health) and $397 million, classified as non-current other liabilities as of January 3, 2021, December 29, 2019 and December 30, 2018, respectively. Includes $39 million and $84 million classified as current liabilities as of January 3, 2021 and December 29, 2019, respectively.

(7)Ongoing fair value adjustment amounts are recorded primarily in Research and Development expense. The Company recorded a contingent consideration reversal of $1,148 million in 2020 related to the timing of certain developmental milestones associated with the Auris Health acquisition. The reversal of the contingent consideration was recorded in Other income and expense

See Notes 2 and 7 for financial assets and liabilities held at carrying amount on the Consolidated Balance Sheet.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Borrowings

12 Months Ended

Jan. 03, 2021

Debt Disclosure [Abstract]

Borrowings

The components of long-term debt are as follows:


(Dollars in Millions)	2020			Effective Rate %	2019		Effective Rate %
3% Zero Coupon Convertible Subordinated Debentures due 2020	$	—		—	51		3.00
2.95% Debentures due 2020	—			—	549		3.15
1.950% Notes due 2020	—			—	500		1.99
3.55% Notes due 2021	450			3.67	449		3.67
2.45% Notes due 2021	350			2.48	349		2.48
1.65% Notes due 2021	999			1.65	999		1.65
0.250% Notes due 2022 (1B Euro 1.2281)(2)/(1B Euro 1.1096)(3)	1,227		(2)	0.26	1,108	(3)	0.26
2.25% Notes due 2022	999			2.31	998		2.31
6.73% Debentures due 2023	250			6.73	250		6.73
3.375% Notes due 2023	803			3.17	804		3.17
2.05% Notes due 2023	499			2.09	498		2.09
0.650% Notes due 2024 (750MM Euro 1.2281)(2)/(750MM Euro 1.1096)(3)	919		(2)	0.68	829	(3)	0.68
5.50% Notes due 2024 (500MM 1.3654 GBP )(2)/(500MM GBP 1.2987)(3)	679		(2)	6.75	645	(3)	6.75
2.625% Notes due 2025	748			2.63	748		2.63
0.55% Notes due 2025(5)	996			0.57	—		—
2.45% Notes due 2026	1,994			2.47	1,993		2.47
2.95% Notes due 2027	997			2.96	996		2.96
0.95% Notes due 2027(5)	1,494			0.96	—		—
1.150% Notes due 2028 (750MM Euro 1.2281)(2)/(750MM Euro 1.1096)(3)	915		(2)	1.21	825	(3)	1.21
2.90% Notes due 2028	1,495			2.91	1,494		2.91
6.95% Notes due 2029	297			7.14	297		7.14
1.30% Notes due 2030(5)	1,743			1.30	—		—
4.95% Debentures due 2033	498			4.95	498		4.95
4.375% Notes due 2033	855			4.24	855		4.24
1.650% Notes due 2035 (1.5B Euro 1.2281)(2)/(1.5B Euro 1.1096)(3)	1,827		(2)	1.68	1,649	(3)	1.68
3.55% Notes due 2036	989			3.59	989		3.59
5.95% Notes due 2037	992			5.99	992		5.99
3.625% Notes due 2037	1,488			3.64	1,487		3.64
5.85% Debentures due 2038	696			5.85	696		5.85
3.400% Notes due 2038	991			3.42	991		3.42
4.50% Debentures due 2040	539			4.63	539		4.63
2.10% Notes due 2040(5)	986			2.14	—		—
4.85% Notes due 2041	297			4.89	297		4.89
4.50% Notes due 2043	496			4.52	495		4.52
3.70% Notes due 2046	1,974			3.74	1,973		3.74
3.75% Notes due 2047	991			3.76	991		3.76
3.500% Notes due 2048	742			3.52	742		3.52
2.250% Notes due 2050(5)	984			2.29	—		—


2.450% Notes due 2060(5)	1,228			2.49			—		—
Other	7			—			18		—
Subtotal	34,434		(4)	2.85	%	(1)	27,594	(4)	3.19	(1)
Less current portion	1,799						1,100
Total long-term debt	$	32,635					26,494

(1)Weighted average effective rate.

(2)Translation rate at January 3, 2021.

(3)Translation rate at December 29, 2019.

(4)The excess of the fair value over the carrying value of debt was $5.4 billion at the end of fiscal year 2020 and $3.0 billion at the end of fiscal year 2019.

(5)In the fiscal third quarter of 2020, the Company issued senior unsecured notes for a total of $7.5 billion.

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

The Company has access to substantial sources of funds at numerous banks worldwide. In September 2020, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires on September 9, 2021. Interest charged on borrowings under the credit line agreement is based on either bids provided by banks, London Interbank Offered Rates (LIBOR), Secured Overnight Financing Rate (SOFR) Swap Curve or other applicable market rate as allowed plus applicable margins. Commitment fees under the agreements are not material.

Throughout fiscal year 2020, the Company continued to have access to liquidity through the commercial paper market. Short-term borrowings and the current portion of long-term debt amounted to approximately $2.6 billion at the end of fiscal year 2020, of which $1.8 billion is the current portion of the long-term debt, and the remainder is commercial paper and local borrowings by international subsidiaries.

Throughout fiscal year 2019, the Company continued to have access to liquidity through the commercial paper market. Short-term borrowings and the current portion of long-term debt amounted to approximately $1.2 billion at the end of fiscal year 2019, of which $1.1 billion is the current portion of the long term debt, and the remainder principally represents local borrowing by international subsidiaries.

Aggregate maturities of long-term debt obligations commencing in 2021 are:


(Dollars in Millions)
2021	2022	2023	2024	2025	After 2025
$1,799	2,226	1,552	1,598	1,744	25,515

Income Taxes

12 Months Ended

Jan. 03, 2021

Income Tax Disclosure [Abstract]

Income Taxes

The provision for taxes on income consists of:


(Dollars in Millions)	2020		2019	2018
Currently payable:
U.S. taxes	$	1,026	1,941	1,284

International taxes	1,898		2,744	2,434
Total currently payable	2,924		4,685	3,718
Deferred:
U.S. taxes	(76)		(814)	1,210	(1)

International taxes	(1,065)		(1,662)	(2,226)
Total deferred	(1,141)		(2,476)	(1,016)
Provision for taxes on income	$	1,783	2,209	2,702

(1) Includes $1.4 billion of deferred tax expense for the adoption of the deferred method to account for GILTI.

A comparison of income tax expense at the U.S. statutory rate of 21% in fiscal years 2020, 2019 and 2018, to the Company’s effective tax rate is as follows:


(Dollars in Millions)	2020			2019		2018
U.S.	$	4,312		3,543		5,575
International	12,185			13,785		12,424
Earnings before taxes on income:	$	16,497		17,328		17,999
Tax rates:
U.S. statutory rate	21.0		%	21.0		21.0
International operations (1)	(9.9)			(5.9)		(3.7)



U.S. taxes on international income (2)	2.7			1.8		1.4
Tax benefits on Capital Loss	(1.2)			(0.3)	(4)	—
Tax benefits on share-based compensation	(1.5)			(0.5)		(1.5)

TCJA and related impacts	0.7			(3.9)	(3)	(1.9)	(3)
All other	(1.0)			0.5	(4)	(0.3)
Effective Rate	10.8		%	12.7		15.0

(1) For all periods presented the Company has subsidiaries operating in Puerto Rico under various tax incentives. International operations reflects the impacts of operations in jurisdictions with statutory tax rates different than the U.S., particularly Ireland, Switzerland and Puerto Rico, which is a favorable impact on the effective tax rate as compared with the U.S. statutory rate. The 2020 and 2019 amounts include the impact of the new tax legislation enactment in Switzerland, which is further described below.

(2) Includes the impact of the GILTI tax, the Foreign-Derived Intangible Income deduction and other foreign income that is taxable under the U.S. tax code.

(3) Represents impact of adjustments to balances originally recorded as part of the 2017 TCJA provisional tax charge. Further information provided below.

(4) Certain prior year amounts have been reclassified to conform to current year presentation.

The fiscal year 2020 tax rate decreased by 1.9% compared to the fiscal year 2019 tax rate, which was primarily driven by the following items. In fiscal year 2019, Switzerland enacted the Federal Act on Tax Reform and AHV Financing (TRAF) which became effective on January 1, 2020. The Federal transitional provisions of TRAF allow companies, under certain conditions, to adjust the tax basis in certain assets to fair value (i.e., “step-up”) to be depreciated and amortized resulting in an incremental Swiss tax deduction over the transitional period.

TRAF also provides for parameters which enable the Swiss cantons to establish localized tax rates and regulations for companies. The new cantonal tax parameters include favorable tax benefits for patents and additional research and development tax deductions. The cantonal transitional provisions of TRAF allowed companies to elect either 1) tax basis step-up similar to the Federal transition benefit or 2) alternative statutory tax rate for a period not to exceed 5 years. The Company currently has operations located in various Swiss cantons. During the fiscal year 2019, as described in further detail below, the Company recorded the impacts of the TRAF that were enacted in that period.

During the fiscal year 2020, the final canton where the Company maintains significant operations enacted TRAF legislation. Additionally, the Company received rulings from the Swiss Federal and cantonal tax authorities in the remaining jurisdictions where it has significant operations. These rulings resulted in the Company revising its estimate on the tax basis adjustment (i.e., “step-up”) for its assets and as a result, the Company recorded additional deferred tax benefits in 2020. The Company recognized a net benefit in the fiscal year 2020 for Swiss Tax Reform of approximately $0.4 billion or 2.6% benefit to the Company’s annual effective tax rate, comprised of the following items:

•approximately $0.3 billion tax benefit relating to the remeasurement of Swiss deferred tax assets and liabilities for the change in the Federal and cantonal tax rates, where enactment occurred in the fiscal year 2020; this benefit has been reflected as “International Operations” on the Company’s effective tax rate reconciliation.

•a $450 million deferred tax asset related to the estimated value of a Federal tax basis step-up of the Company’s Swiss subsidiaries’ assets as described above; this benefit has been reflected as “International Operations” on the Company’s effective tax rate reconciliation.

•approximately $0.3 billion of U.S. deferred tax expense relating to the GILTI deferred tax liability resulting from the remeasurement of the Swiss deferred tax assets and liabilities in the fiscal year 2020. This benefit has been reflected as “U.S. tax on international income” on the Company’s effective tax rate reconciliation.

The Company does not expect to receive future rulings regarding the transitional provisions of TRAF.

Also, in the fiscal fourth quarter of 2020, the Company recognized a capital loss on certain U.S. affiliates related to the previously impaired book value of certain intangibles, which reduced the 2020 tax rate by approximately 1.2% which is

reflected as a “Tax Benefits on Capital Loss” on the effective tax rate reconciliation. In addition in the fiscal year 2020, the Company had lower income in higher tax jurisdictions, primarily driven by:

•the impact of the accrual of litigation costs related to Talc for $4.0 billion which reduced the U.S. earnings before taxes at an effective tax rate of 23.5%;

•the accrual of additional legal costs, including an additional $1.0 billion associated with a revised agreement in principle to settle opioid litigation at an effective tax rate of 21.4%

The Company also generated additional tax benefits from stock-based compensation that were either exercised or vested; reduced the contingent consideration liability related to the Auris Health acquisition (see Note 18); and reversal of some of its unrecognized tax benefits due to the completion of several years of tax examinations in certain jurisdictions during the fiscal year 2020.

The fiscal year 2019 tax rate decreased by 2.3% compared to the fiscal year 2018 tax rate. In addition to the impact of TRAF discussed in more detail below, the primary drivers of the net decrease were as follows:

•The Company reorganized the ownership structure of certain wholly-owned international subsidiaries in the fiscal fourth quarter of 2019, which resulted in a reduction of certain withholding and local taxes that it had previously recognized as part of the provisional Tax Cuts and Jobs Act (TCJA) tax charge in the fiscal year 2017 and finalized in the fiscal year 2018. Following the completion of this restructuring and approval by the applicable local authorities, the Company reversed a deferred tax liability of $0.6 billion and a related deferred tax asset of $0.2 billion for U.S. foreign tax credits, for a net deferred tax benefit of $0.4 billion decreasing the annual effective tax rate by 2.2%. This benefit has been reflected as “TCJA and related impacts” on the Company’s effective tax rate reconciliation.

•The impact of the agreement in principle to settle opioid litigation for $4 billion (see Note 19 to the Consolidated Financial Statements) which reduced the U.S. earnings before taxes at an effective tax rate of 23.5% and decreased the Company’s annual effective tax rate by approximately 2.1%.

•In December of fiscal year 2019, the U.S. Treasury issued final foreign tax credit regulations, which resulted in the Company revising the amount of foreign tax credits that were initially recorded in the fiscal year 2017 as part of the provisional TCJA tax charge. As a result, the Company recorded an increased deferred tax asset related to these foreign tax credits of approximately $0.3 billion or 1.7% to the annual effective tax rate. This benefit has been reflected as “TCJA and related impacts” on the Company’s effective tax rate reconciliation.

•The Company reassessed its uncertain tax positions related to the current IRS audit and increased its unrecognized tax benefit by $0.3 billion liability which increased the annual effective tax rate by approximately 1.5% (see section on Unrecognized Tax Benefits for additional information). As these positions were related to uncertain tax regarding international transfer pricing, this expense has been classified as “International Operations” on the Company’s effective tax rate reconciliation. Subsequent to December 29, 2019, the Company received and agreed to Notices of Proposed Adjustments (NOPAs) from the IRS. The Company believes it is adequately reserved for potential exposures.

•There were several one-time tax impacts that resulted in a cumulative net tax benefit to the 2018 annual effective tax rate of 1.2%. These items included the LifeScan divestiture, the adjustment to the 2017 provisional TCJA tax charge and the acceleration of certain tax deductions as part of the 2017 tax return.

•More income in higher tax jurisdictions relative to lower tax jurisdictions as compared to 2018.

As described above for the Swiss tax legislation, in the fiscal year 2019, the Company recorded a net tax expense of $0.1 billion which increased the effective tax rate for the fiscal year 2019 by approximately 0.6%. This net tax expense related to federal and certain cantonal enactments in the fiscal year 2019 consisting of the following provisions:

•approximately $0.6 billion tax expense relating to the remeasurement of Swiss deferred tax assets and liabilities for the change in the Federal and cantonal tax rates, where enactment occurred by December 29, 2019; this expense has been reflected as “International Operations” on the Company’s effective tax rate reconciliation.

•a $0.9 billion deferred tax asset related to the estimated value of a Federal tax basis step-up of the Company’s Swiss subsidiaries’ assets; this benefit has been reflected as “International Operations” on the Company’s effective tax rate reconciliation.

•approximately $450 million of U.S. deferred tax expense relating to the GILTI deferred tax liability resulting from the remeasurement of the Swiss deferred tax assets and liabilities and the new deferred tax asset for the Federal step-up. This benefit has been reflected as “U.S. tax on international income” on the Company’s effective tax rate reconciliation.

In the fiscal year 2018, the Company completed its full assessment and finalized the accounting for the impact of the TCJA. The Company recorded net adjustments to the above components of the provisional charge of approximately $0.2 billion. These revisions were based on updated estimates and additional analysis by management as well as applying interpretative guidance issued by the U.S. Department of Treasury to the facts and circumstances that existed as of the TCJA enactment date. This charge was primarily related to additional deferred tax liabilities for foreign local and withholding taxes for the remaining balance of undistributed foreign earnings as of December 31, 2017 that were not provided for in the 2017 provisional charge.

As described in Note 1, in the fiscal year 2018, the Company elected to treat GILTI as a period expense under the deferred method and recorded a deferred tax cost of approximately $1.4 billion in the fiscal year 2018 related to facts and circumstances that existed on the date of TCJA enactment. During 2018, the Company reorganized the ownership structure of certain foreign subsidiaries which resulted in a reduction of certain foreign withholding taxes that it had recognized as part of the provisional TCJA tax charge in the fourth quarter of 2017. Following the completion of this restructuring and as a result of clarification by Swiss tax authorities regarding the applicability of withholding tax to repatriation of certain earnings, the Company reversed a deferred tax liability of $2.8 billion and a related deferred tax asset of $0.9 billion for U.S. foreign tax credits, for a net deferred tax benefit of $1.9 billion. This benefit has been reflected as “TCJA and related impacts” on the Company’s effective tax rate reconciliation.

Temporary differences and carryforwards at the end of fiscal years 2020 and 2019 were as follows:


	2020 Deferred Tax			2019 Deferred Tax*
(Dollars in Millions)	Asset		Liability	Asset	Liability
Employee related obligations	$	2,434		2,473
Stock based compensation	627			595
Depreciation & amortization	721			1,122
Non-deductible intangibles			(6,567)		(5,835)
International R&D capitalized for tax	1,517			1,189
Reserves & liabilities	3,466			2,337
Income reported for tax purposes	1,705			1,605
Net operating loss carryforward international	990			838
Undistributed foreign earnings	812		(1,435)	765	(1,289)
Global intangible low-taxed income			(3,606)		(2,965)
Miscellaneous international	854		(211)	696	(81)
Miscellaneous U.S.	12