Question#1

Answer the following question based on Johnson & Johnson (JnJ) 2016 Annual Report (attached)

1.What is the total amount of deferred taxes (assets and/or liabilities) at year end 2016?

2.How much of the net deferred tax assets at fiscal year-end 2016 are due to employee-related obligations (which include pension plans)?

3.Explain why deferred taxes might result due to benefit plans.

4.Prepare the journal entry to record income tax expense for fiscal year 2016 (present any deferred tax asset and any deferred tax liability as a net amount in the journal entry)

5.How much of the employee-related obligations reflected on the balance sheet for year-end 2016 are due specifically to pension plans?

6.How much was pension expense for fiscal year 2016?

7.How much did JnJ contribute to its defined benefit plans for fiscal year 2016?

8.Are JnJs defined benefit pension plans over-funded or under-funded at year-end 2016?Show your reasoning.

9.How much is the asset gain or loss (unexpected asset gain or loss) for 2016?

10.How much is the liability gain or loss (unexpected liability gain or loss) for 2016?

11.How much of the liability gains or losses are amortized into pension expense for 2016?

12.Suppose that after preparation of the 2016 financial statements, it was discovered that the ending inventory for 2016 had been understated by $1,350.Furthermore, the ending inventory for 2015 had been understated by $900.What is the proper amount that should be shown for Retained Earnings for 2016 (assume the income tax rate is equal to the effective tax rate for 2016)?

A N N U A L R E P O R T 2 016 MARCH 2017 TO OUR SHAREHOLDERS ALEX GORSKY Chairman and Chief Executive Ofcer I've worked in the health care industry for nearly 30 years. It's been both an honor and a privilege to work for Johnson & Johnson, a company that touches the lives of over a billion people every day, around the world. As I look at today's health care landscape, it's incredibly clear that the pace of change has never been greater, or frankly, more exciting. Rather, true innovations are the result of collaboration. And that collaboration is driven by a diversity of ideas, individuals and disciplines - working together toward a common goal. Today's rapid change brings both Today, more than ever, the world needs leaders who are committed to working together to help bring improved health and wellness to every person in every corner of the globe. As the world's largest opportunities and risks for any company in health care, and we are prepared to address both. There are signicant challenges to overcome, but the tools, the insights, the technologies, the innovations - both evolutions and revolutions - all combine to make today one of the most promising times for human health and for and most broadly based health care company, we are uniquely positioned to help transform global health care; to shine a light on the most important issues we are facing; to collaborate across boundaries and borders; to uncover scientic insights and ideas; and to dedicate resources towards creating tomorrow's breakthroughs. WE ARE UNITED AND INSPIRED BY OUR CREDO, WHICH RINGS AS TRUE TODAY AS IT DID WHEN IT WAS WRITTEN MORE THAN 70 YEARS AGO. Johnson & Johnson. For over 130 years, our company has been inventing the future of health care. From the beginning, we learned that innovation is seldom the product of a solitary genius. We are united and inspired by Our Credo, which rings as true today as it did when it was written more than 70 years ago. It reminds us that our rst responsibility is to our customers and patients, and it CHAI R MAN'S LETTE R I compels us to deliver on our responsibilities to our employees, our communities, our environment, and our shareholders. With that strong foundation, we will continue to use our breadth to comprehensively advance human health; invest for enduring, long-term impact; position our businesses to deliver strong, consistent and sustainable results; hold ourselves accountable for our responsibilities; and put people rst. ADVANCING HUMAN HEALTH WE HAVE TO PUT THE PATIENT IN THE CENTER AND REWARD INNOVATIONS THAT DRIVE BETTER OUTCOMES & LONG-TERM VALUE. I I CHAI R MAN'S LETTE R We believe having a business that is broadly based in health care has been and will continue to be a major factor in our success. It has allowed us to deliver strong and consistent growth, as well as return signicant value to our shareholders, throughout various economic cycles. world's largest and most comprehensive health care company, no one is better positioned than Johnson & Johnson to lead this important work. In addition to our commitment to advance health comprehensively, we also employ disciplined portfolio management to ensure we are focused on solving the most important medical and consumer health needs, investing in promising future growth areas and that all of our businesses continue meeting our expectations. During 2016, we completed 14 acquisitions or signicant licensing deals, as well as eight divestitures, positioning us for continued protable growth. Our company's structure also allows us to interconnect our breadth and depth to drive innovation, and to take advantage of growth opportunities wherever they may be across the dynamic health industry. This is particularly important as the industry continues to evolve, and as the political Our acquisition of Abbott Medical Optics, which closed in early 2017, is an excellent example of our exibility to invest in areas of opportunity across the spectrum of health care. Our consumer expertise, particularly in the vision care space, combined with our medical device expertise, made this opportunity uniquely complementary to our portfolio. We are excited about adding a strong and differentiated surgical ophthalmic offering - particularly in cataract surgery - to our environment poses new challenges and opportunities. In 2016, this was incredibly clear in the emerging area of HealthTech. The potential for the intersection of technology and health care to completely change and disrupt the existing health care ecosystem has never been more imminent. This new HealthTech space is becoming integral to everything that we do, and as the vision care business. That, coupled with our world-leading ACUVUE contact lens business, will help us become a broadbased leader in vision care. This transaction is an excellent example of our approach to acquisitions - it was the right deal, at the right time and at the right price, to drive growth and create value for our shareholders. Our broad base across health care and strong global footprint also gives us unique insight and opportunities to work with governments and health care systems around the world to inuence investments in health. The volatility that we see in emerging markets, and the health care cost challenges that exist in both developed and emerging markets, clearly demonstrate the importance of advocating for improved access to quality health care, as well as rewards for innovations that drive better outcomes and long-term value. We will continue to be a leading voice in these discussions, advocating for solutions that are in the best interests of the health and wellness of patients and consumers. INVESTING FOR LONG-TERM GROWTH In the same way that we are driven to save and improve lives, we have a very clear perspective on the imperatives for our nancial performance: our objective is for Johnson & Johnson to grow sales organically at a faster rate than the market, and grow our earnings faster than sales; an objective we met in 2016. Additionally, our focus on having a strong cash ow ensures we are able to make the appropriate investments in our business, and then capitalize on the right opportunities to create greater long-term value for our shareholders. OUR BROAD BASE IN HUMAN HEALTH CARE EXTENDS OUR REACH, CAPABILITIES AND STRATEGIC ADVANTAGES FOR PATIENTS, PROVIDERS AND CONSUMERS AROUND THE WORLD. We start by funding our internal growth initiatives, including our investments in research and development. After funding our organic growth, we have a strategic capital allocation framework that outlines how we will use our remaining free cash ow. $ 15.5B In 2016, our free cash ow was $15.5 billion*. 9.1B $ Our rst priority is delivering a competitive dividend to our shareholders, which we have increased for 54 consecutive years. 8.6B $ After meeting our dividend goals, we target value creating acquisitions. 5B $ In 2016, we invested approximately $5 billion in acquisitions and major licensing deals. In 2016, our R&D investments totaled $9.1 billion. In 2016, we paid $8.6 billion in dividends. Finally, we consider other prudent ways to return value to shareholders, such as share repurchase programs. $ 10B In 2016, we completed two-thirds of our $10 billion share repurchase program. CHAI R MAN'S LETTE R I I I Our total shareholder return for 2016 was a strong 15.3%, signicantly exceeding our competitor composite, as well as exceeding most major indices, including the S&P 500. This is not only true for 2016, but I'm proud to say it's also the case over the last three, ve, ten and twenty year periods. Historically, approximately 70 percent of our free cash ow deployed over the last 10 years has been returned to shareholders in the form of dividends or share repurchases. ALL THREE OF OUR BUSINESS SECTORS ARE WELLPOSITIONED TO MEET THE CHANGING NEEDS OF PATIENTS AND CONSUMERS Our strong record of total shareholder returns is the result of our approach to managing for the long term, our relentless drive for innovation, our disciplined portfolio management and our capital allocation strategy - all of which are regularly discussed as part of our ongoing strategic planning with our Board of Directors. DRIVING STRONG, CONSISTENT, SUSTAINABLE RESULTS As the health care landscape continues to evolve, all three of our business sectors are well-positioned to meet the changing needs of patients and consumers. In terms of our nancial performance, we expect each business segment to grow and contribute to our sales and income growth in 2017. PHARMACEUTICALS In our Pharmaceuticals business, our priority is to drive continued growth while delivering on our near-term pipeline. We will do this by focusing on our therapeutic areas of high unmet medical need, our robust innovation engine and strong commercial capabilities. IV CHAI R MAN'S LETTE R For 2017, we expect our key catalysts for growth will include: Continued strong performance of our in-line products - increasing penetration in markets such as anti-coagulants, psoriasis, and long-acting anti-psychotics Capitalizing on the early launch success from key products such as DARZALEX, IMBRUVICA, and STELARA for Crohn's Disease Anticipated regulatory approval for two new immunology products, guselkumab and sirukumab, each with greater than $1 billion in sales potential Further, we will continue to vigorously defend our patents on REMICADE, while remaining competitive against at-risk biosimilar entries, given the product's long track record of efcacy and safety. We are condent in our robust Pharmaceutical pipeline and will continue working toward our goal of ling 10 new products by 2019, each with at least $1 billion in potential sales, as well as ling an additional 40 line extensions by 2019, 10 of which have more than $500 million in potential sales. In addition, in January 2017 we announced a denitive agreement to acquire Actelion Ltd. for approximately $30 billion. The transaction is expected to accelerate our near- and long-term revenue and earnings growth rates and be immediately accretive to Johnson & Johnson's adjusted earnings per share**. The acquisition would expand and complement our existing Janssen portfolio with differentiated in- market medicines for pulmonary arterial hypertension, and reinforces Janssen's already robust late-stage pipeline. The transaction is subject to satisfaction of closing conditions and is expected to close by the end of the second quarter of 2017. CONSUMER In our Consumer segment, in the near-term, our priority is to enhance our leadership in priority categories and continue to improve protability to benchmark levels by focusing on critical geographies and our iconic mega-brands. Our plans for Consumer growth in 2017 include: Continuing to grow faster than the market, and gaining market share across our mega brands Bringing innovation to the market, and launching key, science-based new products Accelerating the growth from recent acquisitions in our Beauty franchise, including Vogue International with OGX and PROGANIX hair care brands Continuing to utilize supply chain and operational efciencies to ensure operating margins are at benchmark levels MEDICAL DEVICES Our near-term priority in Medical Devices is to accelerate growth through innovation, portfolio management and new business models. We are driving growth in priority platforms, sustaining leadership in our core platforms, implementing novel commercial models and seeking expansion opportunities in large, growing markets with signicant unmet needs. Our goal is to return to above market growth by the second half of this year, and we plan to drive that growth through: More than doubling the number of new products in 2016, with at least 12 major launches planned for 2017 Accelerating the impact from strategic acquisitions made in 2016 Incorporating a suite of holistic, insightsdriven capabilities to help health systems navigate value-based care through our CareAdvantage & Orthopaedic Episodeof-Care partnerships Continuing progress on the restructuring initiative in our hospital medical device businesses, which is on track to achieve savings of $800 million to $1 billion, with the majority expected to be realized by the end of 2018 OUR RESPONSIBILITY As the world's largest and most broadlybased health care company, we have a WE HAVE A UNIQUE PERSPECTIVE ON THE HEALTH AND WELLNESS NEEDS, WANTS, HOPES AND FEARS OF THE PEOPLE WHOSE LIVES WE TOUCH AROUND THE WORLD EVERY DAY. unique perspective on the health and wellness needs, wants, hopes and fears of the people whose lives we touch around the world every day. We will continue providing leadership on the health and wellness issues that we understand better than anyone else. And we will continue reporting on the social and environmental performance of our business through our Citizenship & Sustainability Report, available at www.jnj.com/caring. In September 2016, in addition to our CHAI R MAN'S LETTE R V Citizenship & Sustainability 2020 goals, we announced a comprehensive UN Sustainable Development Goals (SDG) commitment focused on ve key areas where we are uniquely positioned to create sustainable and scalable impact: Global Disease Challenges, Essential Surgery, Women's & Children's Health, Health Workforce, and Environmental Health. Our SDG vision for 2030 is that by galvanizing partners, mobilizing employees and engaging communities, we will profoundly improve the course of human health. health care system to address the important issue of U.S. health care costs. We will continue to defend the interests of all of the stakeholders dened in Our Credo: the doctors, nurses and patients; the mothers and fathers and all others who use our products; our employees and suppliers; and the communities in which we live and work. We will also continue to provide positive economic impact wherever we do business, pay our fair share of taxes and deliver a fair return to our shareholders. PUTTING PEOPLE FIRST WE ARE COMMITTED TO ALWAYS PUTTING PEOPLE FIRST. We are also an industry leader in keeping the patient and consumer at the center of everything we do. In the last few years, we have taken unprecedented steps like creating the Johnson & Johnson Bioethics Committee and the industry's rst Compassionate Use Advisory Committee; collaborating to develop massive real world data sets, such as the Observational Health Data Sciences and Informatics (OHDSI); and developing industry-leading clinical trial data transparency through the Yale Open Data Access (YODA) Project. Whether it is a human-centered insight that drives the innovation of a breakthrough product, our advocacy for access to health care, or our humanitarian work treating some of the world's most debilitating diseases, we are committed to always putting people rst. In the rst quarter of 2017, we were also passion has helped Johnson & Johnson to be named by top industry and business publications as being among the most admired, most respected, most innovative and best places to work year after year. pleased to release the inaugural Janssen U.S. Transparency Report, in which we are disclosing more information about our business practices, including those related to pricing. This report builds on our history of responsible pricing practices and our ongoing efforts to provide more transparency into how we operate. These disclosures are just one way we are continuing to work with others in the VI CHAI R MAN'S LETTE R This is also true in how we support our more than 126,000 employees around the world. All of our compelling strategies and strong results would not be possible without our talented, diverse and dedicated employees. Their commitment and For all they do to ensure our success, we believe employers have an opportunity and responsibility, as well as an incentive, to ensure their employees are healthy and engaged. Our goal for 2020 and beyond is to lead by example, cultivating the world's healthiest workforce. We have a number of programs in place to help us achieve that goal across many facets of our employees' lives. From programs that encourage healthy eating, movement, and resilience; to ensuring the nancial health of our employees through competitive compensation programs, Health and Wellness benets, recognition programs, long-term incentives, and robust retirement plans - including a dened benet pension plan in the U.S.; as well as supporting healthy families, through programs such as our new parental leave policy, fertility benets, and global breast milk shipping benets. We not only feel that this is the right thing to do, but we also believe these programs help us to achieve our goals of attracting, developing, and retaining the best talent to deliver the best outcomes; positioning us to deliver another 130 years of strong growth and shareholder returns. and resilience; and one way to achieve this is through the practice of gratitude. I would like to say how grateful I am to be the Chairman and Chief Executive Ofcer of Johnson & Johnson. I am grateful for the passion, commitment and unique contributions of our more than 126,000 employees around the world. I am grateful to the billions of health care workers, parents and consumers who place their trust in our products every day. And nally, I am grateful to our Board of Directors and you, our shareholders, for entrusting me with the great responsibility of leading this amazing company. Thank you for your support. With Our Credo as our inspiration, the strength of our broad base across human health care, and our commitment to delivering strong, consistent, long-term growth, I am incredibly condent in the continued success of Johnson & Johnson. Sincerely, CONFIDENT IN THE FUTURE OF JOHNSON & JOHNSON One of the teachings from our wellness business is the importance of mindfulness Alex Gorsky Chairman and Chief Executive Ofcer Johnson & Johnson * Non-GAAP measure - Free cash ow is dened as operating cash ow less capital spending ($18.7 billion $3.2 billion = $15.5 billion) ** Non-GAAP measure; excludes intangible amortization expense and special items NOTE REGARDING FORWARD-LOOKING STATEMENTS This letter contains forward-looking statements relating to, among other things, future operating and nancial performance, product development, market position and business strategy. The reader is cautioned not to rely on these statements, which are based on current expectations of future events. For important information about these statements, including the risks, uncertainties and other factors that could cause actual results to vary materially from the assumptions, expectations, and projections expressed in any forward-looking statements, the reader should review the enclosed Annual Report on Form 10-K for the scal year ended January 1, 2017, including in the sections captioned \"Cautionary Note Regarding Forward-Looking Statements\" and \"Item 1A. Risk Factors\". Johnson & Johnson does not undertake to update any forward-looking statement as a result of new information or future events or developments. CHAI R MAN'S LETTE R VI I UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended January 1, 2017 Commission file number 1-3215 JOHNSON & JOHNSON (Exact name of registrant as specified in its charter) New Jersey 22-1024240 (State of incorporation) (I.R.S. Employer Identification No.) One Johnson & Johnson Plaza New Brunswick, New Jersey 08933 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (732) 524-0400 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT Title of each class Name of each exchange on which registered Common Stock, Par Value $1.00 New York Stock Exchange 4.75% Notes Due November 2019 New York Stock Exchange 0.250% Notes Due January 2022 New York Stock Exchange 0.650% Notes Due May 2024 New York Stock Exchange 5.50% Notes Due November 2024 New York Stock Exchange 1.150% Notes Due November 2028 New York Stock Exchange 1.650% Notes Due May 2035 New York Stock Exchange Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No ' Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ' No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ' Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No ' Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ' Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of \"large accelerated filer,\" \"accelerated filer\" and \"smaller reporting company\" in Rule 12b-2 of the Exchange Act. Large accelerated filer Accelerated filer ' Non-accelerated filer ' Smaller reporting company ' (Do not check if a smaller reporting company) Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ' No The aggregate market value of the Common Stock held by non-affiliates computed by reference to the price at which the Common Stock was last sold as of the last business day of the registrant's most recently completed second fiscal quarter was approximately $332 billion. On February 23, 2017, there were 2,713,346,602 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE Parts I and III: Portions of registrant's proxy statement for its 2017 annual meeting of shareholders filed within 120 days after the close of the registrant's fiscal year (the \"Proxy Statement\"), are incorporated by reference to this report on Form 10-K (this \"Report\"). Item Page PART I 1 1A. 1B. 2 3 4 Business General Segments of Business Geographic Areas Raw Materials Patents Trademarks Seasonality Competition Research and Development Environment Regulation Available Information Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Executive Officers of the Registrant 1 1 1 2 2 2 3 3 3 4 4 4 4 5 9 9 10 10 11 PART II 5 6 7 7A. 8 9 9A. 9B. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Results of Operations and Financial Condition Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information 13 14 15 35 35 89 89 89 PART III 10 11 12 13 14 Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services 90 90 90 91 91 PART IV 15 16 Exhibits and Financial Statement Schedules Form 10-K Summary Signatures Exhibit Index 92 92 93 94 CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K and Johnson & Johnson's other publicly available documents contain \"forward-looking statements\" within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Management and representatives of Johnson & Johnson and its subsidiaries (the \"Company\") also may from time to time make forward-looking statements. Forward-looking statements do not relate strictly to historical or current facts and reflect management's assumptions, views, plans, objectives and projections about the future. Forward-looking statements may be identified by the use of words such as \"plans,\" \"expects,\" \"will,\" \"anticipates,\" \"estimates\" and other words of similar meaning in conjunction with, among other things: discussions of future operations; expected operating results and financial performance; impact of planned acquisitions and dispositions; the Company's strategy for growth; product development; regulatory approvals; market position and expenditures. Because forward-looking statements are based on current beliefs, expectations and assumptions regarding future events, they are subject to uncertainties, risks and changes that are difficult to predict and many of which are outside of the Company's control. Investors should realize that if underlying assumptions prove inaccurate, or known or unknown risks or uncertainties materialize, the Company's actual results and financial condition could vary materially from expectations and projections expressed or implied in its forward-looking statements. Investors are therefore cautioned not to rely on these forward-looking statements. Risks and uncertainties include, but are not limited to: Risks Related to Product Development, Market Success and Competition Challenges and uncertainties inherent in innovation and development of new and improved products and technologies on which the Company's continued growth and success depend, including uncertainty of clinical outcomes, obtaining regulatory approvals, health plan coverage and customer access, and initial and continued commercial success; Challenges to the Company's ability to obtain and protect adequate patent and other intellectual property rights for new and existing products and technologies in the U.S. and other important markets; The impact of patent expirations, typically followed by the introduction of competing biosimilars and generics and resulting revenue and market share losses; Increasingly aggressive and frequent challenges to the Company's patents by competitors and others seeking to launch competing generic, biosimilar or other products, potentially resulting in loss of market exclusivity and rapid decline in sales for the relevant product; Competition in research and development of new and improved products, processes and technologies, which can result in product and process obsolescence; Competition to reach agreement with third parties for collaboration, licensing, development and marketing agreements for products and technologies; Competition on the basis of cost-effectiveness, product performance, technological advances and patents attained by competitors; and Allegations that the Company's products infringe the patents and other intellectual property rights of third parties, which could adversely affect the Company's ability to sell the products in question and require the payment of money damages and future royalties. Risks Related to Product Liability, Litigation and Regulatory Activity Product efficacy or safety concerns, whether or not based on scientific evidence, potentially resulting in product withdrawals, recalls, regulatory action on the part of the U.S. Food and Drug Administration (or international counterparts), declining sales and reputational damage; Impact of significant litigation or government action adverse to the Company, including product liability claims; Increased scrutiny of the health care industry by government agencies and state attorneys general resulting in investigations and prosecutions, which carry the risk of significant civil and criminal penalties, including, but not limited to, debarment from government business; Failure to meet compliance obligations in the McNEIL-PPC, Inc. Consent Decree or the Corporate Integrity Agreements of the Johnson & Johnson Pharmaceutical Affiliates, or any other compliance agreements with governments or government agencies, which could result in significant sanctions; Potential changes to applicable laws and regulations affecting U.S. and international operations, including relating to: approval of new products; licensing and patent rights; sales and promotion of health care products; access to, and reimbursement and pricing for, health care products and services; environmental protection and sourcing of raw materials; Johnson & Johnson 2016 Annual Report Changes in tax laws and regulations, increasing audit scrutiny by tax authorities around the world and exposures to additional tax liabilities potentially in excess of reserves; and Issuance of new or revised accounting standards by the Financial Accounting Standards Board and the Securities and Exchange Commission. Risks Related to the Company's Strategic Initiatives and Health Care Market Trends Pricing pressures resulting from trends toward health care cost containment, including the continued consolidation among health care providers, trends toward managed care and the shift toward governments increasingly becoming the primary payers of health care expenses; Restricted spending patterns of individual, institutional and governmental purchasers of health care products and services due to economic hardship and budgetary constraints; Challenges to the Company's ability to realize its strategy for growth including through externally sourced innovations, such as development collaborations, strategic acquisitions, licensing and marketing agreements, and the potential heightened costs of any such external arrangements due to competitive pressures; The potential that the expected strategic benefits and opportunities from any planned or completed acquisition or divestiture by the Company, including the planned acquisition of Actelion Ltd., may not be realized or may take longer to realize than expected; The potential that the expected benefits and opportunities related to the planned restructuring actions in the Medical Device segment may not be realized or may take longer to realize than expected, including due to any required consultation procedures relating to restructuring of workforce; and Market conditions and the possibility that the Company's share repurchase program may be delayed, suspended or discontinued. Risks Related to Economic Conditions, Financial Markets and Operating Internationally Impact of inflation and fluctuations in interest rates and currency exchange rates and the potential effect of such fluctuations on revenues, expenses and resulting margins; Potential changes in export/import and trade laws, regulations and policies of the U.S., U.K. and other countries, including any increased trade restrictions and potential drug reimportation legislation; The impact on international operations from financial instability in international economies, sovereign risk, possible imposition of governmental controls and restrictive economic policies, and unstable international governments and legal systems; Changes to global climate, extreme weather and natural disasters that could affect demand for the Company's products and services, cause disruptions in manufacturing and distribution networks, alter the availability of goods and services within the supply chain, and affect the overall design and integrity of the Company's products and operations; and The impact of armed conflicts and terrorist attacks in the U.S. and other parts of the world including social and economic disruptions and instability of financial and other markets. Risks Related to Supply Chain and Operations Difficulties and delays in manufacturing, internally or within the supply chain, that may lead to voluntary or involuntary business interruptions or shutdowns, product shortages, withdrawals or suspensions of products from the market, and potential regulatory action; Interruptions and breaches of the Company's information technology systems, and those of the Company's vendors, could result in reputational, competitive, operational or other business harm as well as financial costs and regulatory action; and Reliance on global supply chains and production and distribution processes that are complex and subject to increasing regulatory requirements that may adversely affect supply, sourcing and pricing of materials used in the Company's products. Investors also should carefully read the Risk Factors described in Item 1A of this Annual Report on Form 10-K for a description of certain risks that could, among other things, cause the Company's actual results to differ materially from those expressed in its forward-looking statements. Investors should understand that it is not possible to predict or identify all such factors and should not consider the risks described above and in Item 1A to be a complete statement of all potential risks and uncertainties. The Company does not undertake to publicly update any forward-looking statement that may be made from time to time, whether as a result of new information or future events or developments. Johnson & Johnson 2016 Annual Report PART I Item 1. BUSINESS General Johnson & Johnson and its subsidiaries (the \"Company\") have approximately 126,400 employees worldwide engaged in the research and development, manufacture and sale of a broad range of products in the health care field. Johnson & Johnson is a holding company, which has more than 230 operating companies conducting business in virtually all countries of the world. The Company's primary focus is products related to human health and well-being. Johnson & Johnson was incorporated in the State of New Jersey in 1887. The Executive Committee of Johnson & Johnson is the principal management group responsible for the strategic operations and allocation of the resources of the Company. This Committee oversees and coordinates the activities of the Company's three business segments: Consumer, Pharmaceutical and Medical Devices. Within the strategic parameters provided by the Committee, senior management groups at U.S. and international operating companies are each responsible for their own strategic plans and the day-to-day operations of those companies. Each subsidiary within the business segments is, with limited exceptions, managed by residents of the country where located. Segments of Business The Company is organized into three business segments: Consumer, Pharmaceutical and Medical Devices. Additional information required by this item is incorporated herein by reference to the narrative and tabular descriptions of segments and operating results under: \"Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition\" of this Report; and Note 18 \"Segments of Business and Geographic Areas\" of the Notes to Consolidated Financial Statements included in Item 8 of this Report. Consumer The Consumer segment includes a broad range of products used in the baby care, oral care, beauty (previously referred to as skin care), over-the-counter pharmaceutical, women's health and wound care markets. Baby Care includes the JOHNSON'S line of products. Oral Care includes the LISTERINE product line. Major brands in Beauty include the AVEENO; CLEAN & CLEAR; DABAO; JOHNSON'S Adult; LE PETITE MARSEILLAIS; NEUTROGENA; RoC and OGX product lines. Over-the-counter medicines include the broad family of TYLENOL acetaminophen products; SUDAFED cold, flu and allergy products; BENADRYL and ZYRTEC allergy products; MOTRIN IB ibuprofen products; and the PEPCID line of acid reflux products. Major brands in Women's Health outside of North America are STAYFREE and CAREFREE sanitary pads and o.b. tampon brands. Wound Care brands include the BAND-AID Brand Adhesive Bandages and NEOSPORIN First Aid product lines. These products are marketed to the general public and sold both to retail outlets and distributors throughout the world. Pharmaceutical The Pharmaceutical segment is focused on five therapeutic areas: immunology (e.g., rheumatoid arthritis, inflammatory bowel disease and psoriasis), infectious diseases and vaccines (e.g., HIV, hepatitis, respiratory infections and tuberculosis), neuroscience (e.g., Alzheimer's disease, mood disorders and schizophrenia), oncology (e.g., prostate cancer, hematologic malignancies and lung cancer), and cardiovascular and metabolic diseases (e.g., thrombosis and diabetes). Products in this segment are distributed directly to retailers, wholesalers, hospitals and health care professionals for prescription use. Key products in the Pharmaceutical segment include: REMICADE (infliximab), a treatment for a number of immune-mediated inflammatory diseases; SIMPONI (golimumab), a subcutaneous treatment for adults with moderate to severe rheumatoid arthritis, active psoriatic arthritis, active ankylosing spondylitis and moderately active to severely active ulcerative colitis; SIMPONI ARIA (golimumab), an intravenous treatment for adults with moderate to severe rheumatoid arthritis; STELARA (ustekinumab), a treatment for adults with moderate to severe plaque psoriasis and active psoriatic arthritis, and for adults with moderately to severely active Crohn's disease; PREZISTA (darunavir), EDURANT (rilpivirine), and PREZCOBIX /REZOLSTA (darunavir/cobicistat), antiretroviral medicines for the treatment of human immunodeficiency virus (HIV-1) in combination with other antiretroviral products; Johnson & Johnson 2016 Annual Report 1 CONCERTA (methylphenidate HCl) extended-release tablets CII, a treatment for attention deficit hyperactivity disorder; INVEGA (paliperidone) extended-release tablets, for the treatment of schizophrenia and schizoaffective disorder; INVEGA SUSTENNA /XEPLION (paliperidone palmitate), for the treatment of schizophrenia and schizoaffective disorder in adults; INVEGA TRINZA /TREVICTA (paliperidone palmitate), for the treatment of schizophrenia in patients after they have been adequately treated with INVEGA SUSTENNA for at least four months; RISPERDAL CONSTA (risperidone long-acting injection), for the treatment of schizophrenia and the maintenance treatment of Bipolar 1 Disorder in adults; VELCADE (bortezomib), a treatment for multiple myeloma and for use in combination with rituximab, cyclophosphamide, doxorubicin and prednisone for the treatment of adult patients with previously untreated mantle cell lymphoma; ZYTIGA (abiraterone acetate), used in combination with prednisone as a treatment for metastatic castrationresistant prostate cancer; IMBRUVICA (ibrutinib), an oral, once-daily therapy approved for use in treating certain B-cell malignancies, or blood cancers, and Waldenstrm's Macroglobulinemia; DARZALEX (daratumumab), for the treatment of relapsed/refractory multiple myeloma; PROCRIT (epoetin alfa, sold outside the U.S. as EPREX ), to stimulate red blood cell production; XARELTO (rivaroxaban), an oral anticoagulant for the prevention of deep vein thrombosis (DVT), which may lead to pulmonary embolism (PE) in patients undergoing hip or knee replacement surgery, to reduce the risk of stroke and systemic embolism in patients with nonvalvular atrial fibrillation, for the treatment and reduction of risk of recurrence of DVT and PE; INVOKANA (canagliflozin), for the treatment of adults with type 2 diabetes; INVOKAMET /VOKANAMET (canagliflozin/metformin HCl), a combination therapy of fixed doses of canagliflozin and metformin hydrochloride for the treatment of adults with type 2 diabetes; and INVOKAMET XR (canagliflozin/metformin hydrochloride extended-release), a once-daily, fixed-dose combination therapy of canagliflozin and metformin hydrochloride extended-release, for the treatment of adults with type 2 diabetes. Many of these medicines were developed in collaboration with strategic partners or are licensed from other companies and maintain active lifecycle development programs. Medical Devices The Medical Devices segment includes a broad range of products used in the orthopaedic, surgery, cardiovascular, diabetes care and vision care 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. They include orthopaedic products; general surgery, biosurgical, endomechanical and energy products; electrophysiology products to treat cardiovascular disease; sterilization and disinfection products to reduce surgical infection; diabetes care products, such as blood glucose monitoring and insulin delivery products; and disposable contact lenses. For details regarding acquisitions and divestitures see Note 20 to the Consolidated Financial Statements included in Item 8. Geographic Areas The business of Johnson & Johnson is conducted by more than 230 operating companies located in 60 countries, including the U.S., in virtually all countries throughout the world. The products made and sold in the international business include many of those described above under \"- Segments of Business - Consumer,\" \"- Pharmaceutical\" and \"- Medical Devices.\" However, the principal markets, products and methods of distribution in the international business vary with the country and the culture. The products sold in international business include those developed in the U.S. and by subsidiaries abroad. Investments and activities in some countries outside the U.S. are subject to higher risks than comparable U.S. activities because the investment and commercial climate may be influenced by financial instability in international economies, restrictive economic policies and political and legal system uncertainties. Raw Materials Raw materials essential to the Company's business are generally readily available from multiple sources. Where there are exceptions, the temporary unavailability of those raw materials would not likely have a material adverse effect on the financial results of the Company. Patents The Company's subsidiaries have made a practice of obtaining patent protection on their products and processes where possible. They own, or are licensed under, a significant number of patents in the U.S. and other countries relating to their products, product uses, formulations and manufacturing processes, which in the aggregate are believed to be of material 2 Johnson & Johnson 2016 Annual Report importance to the Company in the operation of its businesses. The Company's subsidiaries face patent challenges from third parties, including challenges seeking to manufacture and market generic and biosimilar versions of the Company's key pharmaceutical products prior to expiration of the applicable patents covering those products. Significant legal proceedings and claims involving the Company's patent and other intellectual property are described in Note 21, \"Legal Proceedings - Intellectual Property\" of the Notes to Consolidated Financial Statements included in Item 8 of this Report. Sales of the Company's largest product, REMICADE (infliximab), accounted for approximately 9.7% of the Company's total revenues for fiscal 2016. Accordingly, the patents related to this product are believed to be material to the Company. There are two sets of patents related specifically to REMICADE . The first set of patents is co-owned by Janssen Biotech, Inc., a wholly-owned subsidiary of Johnson & Johnson, and NYU Langone Medical Center (NYU). Janssen Biotech, Inc. has an exclusive license to NYU's interests in the patents. These patents have expired in all countries outside the United States. In the United States, the one remaining patent, which expires in September 2018, stands rejected following reexamination proceedings instituted by a third party in the United States Patent and Trademark Office (USPTO). The patent has also been held invalid by the Federal District Court in the District of Massachusetts. The decisions by the USPTO and the Federal District Court have been appealed to the U.S. Court of Appeals for the Federal Circuit. The appeals are pending. The second set of patents specifically related to REMICADE was granted to The Kennedy Institute of Rheumatology in Europe, Canada, Australia and the United States. Janssen Biotech, Inc. has licenses (exclusive for human anti-TNF antibodies and semi-exclusive for non-human anti-TNF antibodies) to these patents, which expire in 2017 outside of the United States and 2018 in the United States. Certain of these patents have been successfully challenged and invalidated, and others are under review in various patent offices around the world and are also subject to litigation in Canada. The Company does not expect that any extensions will be available for the above described patents specifically related to REMICADE . In 2016, a third party received approval from the Food and Drug Administration for sale of its infliximab biosimilar in the United States and introduced its biosimilar to the U.S. market in late 2016. For a more extensive description of legal matters regarding the patents related to REMICADE, see Note 21 \"Legal Proceedings - Intellectual Property - Pharmaceutical - REMICADE Related Cases\" of the Notes to Consolidated Financial Statements included in Item 8 of this Report. In addition to competing in the immunology market with REMICADE, the Company is currently marketing STELARA (ustekinumab), SIMPONI (golimumab) and SIMPONI ARIA (golimumab), next generation immunology products with remaining patent lives of up to seven years. Trademarks The Company's subsidiaries have made a practice of selling their products under trademarks and of obtaining protection for these trademarks by all available means. These trademarks are protected by registration in the U.S. and other countries where such products are marketed. The Company considers these trademarks in the aggregate to be of material importance in the operation of its businesses. Seasonality Worldwide sales do not reflect any significant degree of seasonality; however, spending has been heavier in the fourth quarter of each year than in other quarters. This reflects increased spending decisions, principally for advertising and research and development activity. Competition In all of their product lines, the Company's subsidiaries compete with companies both locally and globally. Competition exists in all product lines without regard to the number and size of the competing companies involved. Competition in research, both internally and externally sourced, involving the development and the improvement of new and existing products and processes, is particularly significant. The development of new and innovative products, as well as protecting the underlying intellectual property of the Company's product portfolio, is important to the Company's success in all areas of its business. The competitive environment requires substantial investments in continuing research. In addition, the development and maintenance of customer demand for the Company's consumer products involve significant expenditures for advertising and promotion. Johnson & Johnson 2016 Annual Report 3 Research and Development Research activities represent a significant part of the Company's businesses. Research and development expenditures relate to the processes of discovering, testing and developing new products, improving existing products, as well as demonstrating product efficacy and regulatory compliance prior to launch. The Company remains committed to investing in research and development with the aim of delivering high quality and innovative products. Worldwide costs of research and development activities amounted to $9.1 billion, $9.0 billion and $8.5 billion for fiscal years 2016, 2015 and 2014, respectively. Research facilities are located in the United States, Belgium, Brazil, Canada, China, France, Germany, India, Israel, Japan, the Netherlands, Singapore, Switzerland and the United Kingdom. Environment The Company is subject to a variety of U.S. and international environmental protection measures. The Company believes that its operations comply in all material respects with applicable environmental laws and regulations. The Company's compliance with these requirements did not change during the past year, and is not expected to have a material effect upon its capital expenditures, cash flows, earnings or competitive position. Regulation The Company's businesses are subject to varying degrees of governmental regulation in the countries in which operations are conducted, and the general trend is toward increasingly stringent regulation. In the U.S., the drug, device and cosmetic industries have long been subject to regulation by various federal and state agencies, primarily as to product safety, efficacy, manufacturing, advertising, labeling and safety reporting. The exercise of broad regulatory powers by the U.S. Food and Drug Administration (the \"FDA\") continues to result in increases in the amounts of testing and documentation required for FDA approval of new drugs and devices and a corresponding increase in the expense of product introduction. Similar trends are also evident in major markets outside of the U.S. The costs of human health care have been and continue to be a subject of study, investigation and regulation by governmental agencies and legislative bodies around the world. In the U.S., attention has been focused on drug prices and profits and programs that encourage doctors to write prescriptions for particular drugs, or to recommend, use or purchase particular medical devices. Payers have become a more potent force in the market place and increased attention is being paid to drug and medical device pricing, appropriate drug and medical device utilization and the quality and costs of health care generally. U.S. government agencies continue to implement the extensive requirements of the Patient Protection and Affordable Care Act (the \"ACA\"). These have both positive and negative impacts on the U.S. healthcare industry with much remaining uncertain as to how various provisions of the ACA, and potential modification or repeal of ACA provisions, will ultimately affect the industry. The regulatory agencies under whose purview the Company operates have administrative powers that may subject it to actions such as product withdrawals, recalls, seizure of products and other civil and criminal sanctions. In some cases, the Company's subsidiaries may deem it advisable to initiate product recalls. In addition, business practices in the health care industry have come under increased scrutiny, particularly in the United States, by government agencies and state attorneys general, and resulting investigations and prosecutions carry the risk of significant civil and criminal penalties. Further, the Company relies on global supply chains, and production and distribution processes, that are complex, are subject to increasing regulatory requirements that may affect sourcing, supply and pricing of materials used in the Company's products. These processes also are subject to lengthy regulatory approvals. Available Information The Company's main corporate website address is www.jnj.com. Copies of the Company's Quarterly Reports on Form 10-Q, Annual Report on Form 10-K and Current Reports on Form 8-K filed or furnished to the U.S. Securities and Exchange Commission (the \"SEC\"), and any amendments to the foregoing, will be provided without charge to any shareholder submitting a written request to the Secretary at the principal executive offices of the Company or by calling 1-800-950-5089. All of the Company's SEC filings are also available on the Company's website at www.investor.jnj.com/ sec.cfm, as soon as reasonably practicable after having been electronically filed or furnished to the SEC. All SEC filings 4 Johnson & Johnson 2016 Annual Report are also available at the SEC's website at www.sec.gov. In addition, the written charters of the Audit Committee, the Compensation & Benefits Committee, the Nominating & Corporate Governance Committee, the Regulatory, Compliance & Government Affairs Committee and the Science, Technology & Sustainability Committee of the Board of Directors and the Company's Principles of Corporate Governance, Code of Business Conduct (for employees), Code of Business Conduct & Ethics for Members of the Board of Directors and Executive Officers, and other corporate governance materials, are available at www.investor.jnj.com/gov.cfm on the Company's website and will be provided without charge to any shareholder submitting a written request, as provided above. The information on the Company's website is not, and will not be deemed, a part of this Report or incorporated into any other filings the Company makes with the SEC. Item 1A. Risk Factors The Company faces a number of uncertainties and risks that are difficult to predict and many of which are outside of the Company's control. In addition to the other information in this report and the Company's other filings with the SEC, investors should consider carefully the factors set forth below. Investors should be aware that it is not possible to predict or identify all such factors and that the following is not meant to be a complete discussion of all potential risks or uncertainties. If known or unknown risks or uncertainties materialize, the Company's business, results of operations or financial condition could be adversely affected, potentially in a material way. One of the Company's key products, REMICADE (infliximab), is experiencing biosimilar competition, which will result in a reduction in U.S. sales of REMICADE. The Company has experienced significant challenges to patents covering its largest product, REMICADE (infliximab) (accounting for approximately 9.7% of the Company's total revenues for fiscal 2016), and continues to assert certain patents related to the product. In April 2016, the FDA approved for sale in the United States an infliximab biosimilar to be marketed by a subsidiary of Pfizer Inc. In October 2016, the notice of launch period under the U.S. Biologics Price Competition and Innovation Act (the BPCIA) passed and in November 2016 Pfizer began shipment of an infliximab biosimilar to wholesalers in the United States. Sales of an infliximab biosimilar in the U.S. market will result in a reduction in U.S. sales of REMICADE. Global sales in the Company's Pharmaceutical and Medical Devices segments may be negatively impacted by healthcare reforms and increasing pricing pressures. Sales of the Company's pharmaceutical and medical device products are significantly affected by reimbursements by third-party payers such as government healthcare programs, private insurance plans and managed care organizations. As part of various efforts to contain healthcare costs, these payers are putting downward pressure on prices at which products will be reimbursed. In the United States, increased purchasing power of entities that negotiate on behalf of Medicare, Medicaid, and private sector beneficiaries, in part due to continued consolidation among health care providers, could result in further pricing pressures. Outside the United States, numerous major markets, including the EU and Japan, have pervasive government involvement in funding healthcare and, in that regard, directly or indirectly impose price controls, limit access to, or reimbursement for, the Company's products, or reduce the value of its intellectual property protection. The Company is subject to significant legal proceedings that can result in significant expenses, fines and reputational damage. In the ordinary course of business, Johnson & Johnson and its subsidiaries are subject to numerous claims and lawsuits involving various issues such as patent disputes, product liability and claims that their product sales, marketing and pricing practices violate various antitrust, unfair trade practices and/or consumer protection laws. The most significant of these proceedings are described in Note 21, \"Legal Proceedings\" under Notes to the Consolidated Financial Statements included in Item 8 of this Report. While the Company believes it has substantial defenses in these matters, it is not feasible to predict the ultimate outcome of litigation. The Company could in the future be required to pay significant amounts as a result of settlements or judgments in these matters, potentially in excess of accruals. The resolution of, or increase in accruals for, one or more of these matters in any reporting period could have a material adverse effect on the Company's results of operations and cash flows for that period. Furthermore, as a result of cost and availability factors, effective November 1, 2005, the Company ceased purchasing third-party product liability insurance. Product reliability, safety and effectiveness concerns can have significant negative impacts on sales and results of operations, lead to litigation and cause reputational damage. Concerns about product safety, whether raised internally or by regulators or consumer advocates, and whether or not based on scientific evidence, can result in safety alerts, product recalls, governmental investigations, regulatory action on Johnson & Johnson 2016 Annual Report 5 the part of the FDA (or its counterpart in other countries), private claims and lawsuits, payment of fines and settlements, declining sales and reputational damage. These circumstances can also result in damage to brand image, brand equity and consumer trust in the Company's products. Product recalls have in the past, and could in the future, prompt government investigations and inspections, the shutdown of manufacturing facilities, continued product shortages and related sales declines, significant remediation costs, reputational damage, possible civil penalties and criminal prosecution. Changes in tax laws or exposures to additional tax liabilities could negatively impact the Company's operating results. Changes in tax laws or regulations, including tax reform proposals in the U.S., Belgium and Switzerland, could negatively impact the Company's effective tax rate and results of operations. A change in statutory tax rate may result in the revaluation of the Company's deferred tax assets and liabilities related to the relevant jurisdiction in the period in which the new tax law is enacted, potentially resulting in a material expense or benefit recorded to the Company's Consolidated Statement of Earnings for that period. For a discussion of risks of changes in tax rates in other countries, including Belgium, please see \"Management's Discussion and Analysis of Results of Operations and Financial Condition - Other Information - Economic and Market Factors\" in Item 7 of this Report. The Company conducts business and files tax returns in numerous countries and currently has tax audits in progress with many tax authorities. In connection with the Organization for Economic Cooperation and Development Base Erosion and Profit Shifting (BEPS) project, starting in 2017, 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. The Company regularly assesses the likely outcomes of its tax audits to determine the appropriateness of its tax reserves. However, any tax authority could take a position on tax treatment that is contrary to the Company's expectations, which could result in tax liabilities in excess of reserves. The Company may not be able to successfully secure and defend intellectual property rights essential to the Company's businesses. The Company owns or licenses a significant number of patents and other proprietary rights, determined by patent offices, courts and lawmakers in various countries, relating to its products and manufacturing processes. These rights are essential to the Company's businesses and materially important to the Company's results of operations. Public policy, both within and outside the U.S., has become increasingly unfavorable toward intellectual property rights. The Company cannot be certain that it will obtain adequate patent protection for new products and technologies in the U.S. and other important markets or that such protections, once granted, will last as long as originally anticipated. Competitors routinely challenge the validity or extent of the Company's owned or licensed patents and proprietary rights through litigation, interferences, oppositions and other proceedings. These proceedings absorb resources and can be protracted as well as unpredictable. In addition, challenges that the Company's products infringe the patents of third parties could result in the need to pay past damages and future royalties and adversely affect the competitive position and sales of the products in question. The Company has faced increasing patent challenges from third parties seeking to manufacture and market generic and biosimilar versions of the Company's key pharmaceutical products prior to expiration of the applicable patents covering those products. In the United States, manufacturers of generic versions of innovative human pharmaceutical products may challenge the validity, or claim non-infringement, of innovator products through the Abbreviated New Drug Application, or ANDA, process with the FDA. The BPCIA, enacted in 2010, which created a new regulatory pathway for the approval by the FDA of biosimilar alternatives to innovator-developed biological products, also created mechanisms for biosimilar applicants to challenge the patents on the innovator biologics. The inter partes review (IPR) process with the USPTO, created under the 2011 America Invents Act, is also being used by competitors to challenge patents held by the Company's subsidiaries. For example, a key patent for ZYTIGA is currently subject to patent litigation and several IPR proceedings brought by generic companies seeking to invalidate the patent. In the event the Company is not successful in defending its patents against such challenges, or upon the \"at-risk\" launch (despite pending patent infringement litigation) by the generic or biosimilar firm of its product, the Company can lose a major portion of revenues for the referenced product in a very short period of time. Current legal proceedings involving the Company's patents and other intellectual property rights are described in Note 21, \"Legal Proceedings - Intellectual Property\" of the Notes to the Consolidated Financial Statements included in Item 8 of this Report. 6 Johnson & Johnson 2016 Annual Report The Company's businesses operate in highly competitive product markets and competitive pressures could adversely affect the Company's earnings. The Company faces substantial competition in all three operating segments and in all geographic markets. The Company's businesses compete with companies of all sizes on the basis of cost-effectiveness, technological innovations, intellectual prop