Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. JOHNSON & JOHNSON (200406) 10-Q published on May 01, 2019 at 4:33 pm
Reporting Period: Mar 30, 2019
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 worldwide effective income tax rates for the fiscal first quarters of 2019 and 2018 were 15.2% and 20.3%, respectively. The U.S. Tax Cuts and Jobs Act (TCJA) was enacted into law on December 22, 2017 with a January 1, 2018 effective date for most provisions. This law reduced the U.S. statutory corporate tax rate from 35% to 21%, eliminated or reduced certain corporate income tax deductions and introduced a tax on global intangible low-taxed income (GILTI) and a Base Erosion and Anti Abuse Tax (BEAT). During the first fiscal quarter of 2018, the Company estimated the impact of the tax law change based on the best information and guidance available at that time. Subsequent U.S. Treasury guidance on the application of these provisions allowed the Company to better refine these calculations for fiscal year 2018 and when combined with the election to account for GILTI under the deferred method reduced the first fiscal quarter of 2019 effective income tax rate by approximately 4.0% versus the first fiscal quarter of 2018. Additionally, in the fiscal first quarter of 2019, the Company had less income in higher tax jurisdictions relative to lower tax jurisdictions, driven primarily by the one-time charges in the U.S. related to the impairment of the Alios in-process research and development intangible asset and litigation expense as compared to the same period in 2018.
On October 23, 2018, the Company entered into an agreement to acquire Ci:z Holdings Co., Ltd., (DR.CI:LABO) a Japanese company focused on the marketing, development and distribution of a broad range of dermocosmetic, cosmetic and skincare products for a total purchase price of approximately ¥230 billion, which equates to approximately $2.1 billion, using the exchange rate of 109.06 Japanese Yen to each U.S. Dollar on January 16, 2019. The acquisition was completed on January 17, 2019, through a series of transactions that included an all-cash tender offer to acquire the publicly held shares not already held by the Company for ¥5,900 per share. The Company previously held a 20% ownership in Ci:z Holdings Co., Ltd. Upon completion of the tender offer and the related transactions, the Company acquired 89% of the outstanding shares. As of March 31, 2019, the Company paid approximately $1.6 billion, net of cash acquired, representing 69% of the shares to which the offer was extended. As of March 31, 2019, the Company also reflected a current liability of $0.3 billion on its consolidated balance sheet for the remaining 11% of the untendered shares, which the Company subsequently acquired in April 2019, through a share consolidation under Japanese law. The acquired company was then delisted from the Tokyo Stock Exchange. The Company expects to settle the outstanding liability in 2019. Additionally, in the fiscal first quarter of 2019, the Company recognized a pre-tax gain recorded in Other (income) expense, net, of approximately $0.3 billion related to the Company's previously held equity investment in Ci:z Holdings Co., Ltd.
In February 2019, the Company’s talc supplier, Imerys Talc America, Inc. and two of its affiliates, Imerys Talc Vermont, Inc. and Imerys Talc Canada, Inc. (collectively, “Imerys”) filed a voluntary chapter 11 petition commencing a reorganization under the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Delaware ("Imerys Bankruptcy"). The Imerys Bankruptcy relates to potential liability on account of Imerys’s sales of talc, including to the Company for the Company’s body powders. In its bankruptcy filing, Imerys noted certain claims it alleged it had against the Company for indemnification and rights to joint insurance proceeds. Based on such claims as well as indemnity and insurance claims the Company has against Imerys, the Company has petitioned the United States District Court for the District of Delaware to establish federal jurisdiction of the state court talc lawsuits under the “related to” jurisdictional provisions of the Bankruptcy Code.
In December 2016, Dr. Ford Albritton sued Acclarent, Inc. (“Acclarent”) in United States District Court for the Northern District of Texas alleging that Acclarent’s RELIEVA® Spin and RELIEVEA SpinPlus® products infringe U.S. Patent No. 9,011,412 (the ’412 patent). Dr. Albritton also alleges breach of contract, fraud and that he is the true owner of Acclarent’s U.S. Patent No. 8,414,473. In December 2016, Acclarent filed a petition for Inter Partes Review (IPR) with the United States Patent and Trademark Office (USPTO) challenging the validity of the ’412 patent. The USPTO instituted the IPR in July 2017. In July 2018, the USPTO ruled in favor of Albritton in the IPR, finding that Acclarent had not met its burden of proof that the challenged claims were invalid. Acclarent appealed the IPR decision in September 2018. A second IPR petition was not instituted. Trial is scheduled for October 2019.