Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Sales to Customers

Analysis of Consolidated Sales

For the fiscal first quarter of 2022, worldwide sales were $23.4 billion, a total increase of 5.0%, which included operational growth of 7.7% and a negative currency impact of 2.7% as compared to 2021 fiscal first quarter sales of $22.3 billion. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on worldwide operational sales growth was a negative 0.2%.

Sales by U.S. companies were $11.4 billion in the fiscal first quarter of 2022, which represented an increase of 2.7% as compared to the prior year. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on the U.S. operational sales growth was a negative 0.1%. Sales by international companies were $12.0 billion, a total increase of 7.2%, which included operational growth of 12.6% and a negative currency impact of 5.4%. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on the international operational sales growth was a negative 0.3%.

In the fiscal first quarter of 2022, sales by companies in Europe achieved growth of 11.3%, which included operational growth of 19.5% and a negative currency impact of 8.2%. Sales by companies in the Western Hemisphere, excluding the U.S., achieved growth of 4.1%, including operational growth of 5.1% and a negative currency impact of 1.0%. Sales by companies in the Asia-Pacific, Africa region achieved growth 3.1%, including operational growth of 6.6% and a negative currency impact of 3.5%.

Note: values may have been rounded

Table of Content

Analysis of Sales by Business Segments

Consumer Health

Consumer Health segment sales in the fiscal first quarter of 2022 were $3.6 billion, a decrease of 1.5% as compared to the same period a year ago, including operational growth of 0.8% offset by a negative currency impact of 2.3%. U.S. Consumer Health segment sales decreased by 3.4%. International Consumer Health segment sales were flat including operational growth of 4.1% and a negative currency impact of 4.1%. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on the Consumer Health segment operational sales growth was a negative 0.8% primarily due to the DR. CI:LABO - Sedona divestiture in Asia Pacific.

Major Consumer Health Franchise Sales* — Fiscal First Quarter Ended

(Dollars in Millions)						April 3, 2022						April 4, 2021						Total Change						Operations Change						Currency Change
OTC(1)						$	1,461					$	1,273					14.8		%				17.1		%				(2.3)		%
Skin Health/Beauty						1,012						1,163						(13.0)						(11.0)						(2.0)
Oral Care						366						417						(12.2)						(10.2)						(2.0)
Baby Care						355						389						(8.6)						(6.4)						(2.2)
Women’s Health						228						222						2.6						8.3						(5.7)
Wound Care/Other						164						177						(7.4)						(7.2)						(0.2)
Total Consumer Health Sales						$	3,586					$	3,641					(1.5)		%				0.8		%				(2.3)		%

*Certain prior year amounts have been reclassified to conform to current year presentation

(1)In the fiscal first quarter of 2021, approximately $0.1 billion of certain international OTC products, primarily in China, were reclassified from the Pharmaceutical segment to the Consumer Health segment based on operational changes

The OTC franchise achieved operational growth of 17.1% as compared to the prior year fiscal first quarter. Growth was driven by upper respiratory products, TYLENOL and MOTRIN and IMODIUM and PEPCID products in digestive health.

The Skin Health/Beauty franchise experienced an operational decline of 11.0% as compared to the prior year fiscal first quarter. The decline was driven by external supply constraints, the DR. CI:LABO - Sedona divestiture in Asia Pacific and competitive pressures. The decline was partially offset by U.S. category recovery and strength in the Latin America and Asia Pacific regions.

The Oral Care franchise experienced an operational decline of 10.2% as compared to the prior year fiscal first quarter. The decline was primarily driven by strategic SKU rationalization in the U.S. and lapping prior year COVID-19 related increased demand outside the U.S.

The Baby Care franchise experienced an operational decline of 6.4% as compared to the prior year fiscal first quarter. The decline was driven by supply constraints in the U.S. and EMEA.

The Women’s Health franchise achieved operational growth of 8.3% as compared to the prior year fiscal first quarter primarily driven by growth in EMEA due to increased stocking and LATAM due to price increases.

The Wound Care/Other franchise experienced an operational decline of 7.2% as compared to the prior year fiscal first quarter primarily driven by the professional tape divestiture along with comparison to prior year COVID-19 recovery for NEOSPORIN in the U.S. and BAND-AID® Brand Adhesive Bandages outside the U.S. This decline was partially offset by growth of U.S. BAND-AID® Brand Adhesive Bandages.

In November 2021, the Company announced its intention to separate the Company’s Consumer Health business, with the intention to create a new, publicly traded company. The Company is targeting completion of the planned separation in 18 to 24 months after the initial announcement.

Table of Content

Pharmaceutical

Pharmaceutical segment sales in the fiscal first quarter of 2022 were $12.9 billion, an increase of 6.3% as compared to the same period a year ago, including an operational increase of 9.3% and a negative currency impact of 3.0%. U.S. Pharmaceutical sales increased 2.9% as compared to the same period a year ago. International Pharmaceutical sales increased by 10.3%, including operational growth of 16.7% and a negative currency impact of 6.4%. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on the Pharmaceutical segment operational sales growth was negligible. Adjustments to previous sales reserve estimates were negligible in the fiscal first quarter of 2022 and approximately $0.2 billion in the fiscal first quarter of 2021.

Major Pharmaceutical Therapeutic Area Sales** — Fiscal First Quarter Ended

(Dollars in Millions)						April 3, 2022						April 4, 2021						Total Change						Operations Change						Currency Change
Immunology						$	4,119					$	3,914					5.2		%				7.5		%				(2.3)		%
REMICADE						663						777						(14.7)						(14.2)						(0.5)
SIMPONI/ SIMPONI ARIA						571						562						1.5						4.7						(3.2)
STELARA						2,288						2,148						6.5						9.0						(2.5)
TREMFYA						590						418						41.3						44.5						(3.2)
Other Immunology						6						8						(22.0)						(22.0)						0.0
Infectious Diseases						1,297						998						30.0						33.1						(3.1)
COVID-19 VACCINE						457						100						*						*						*
EDURANT/rilpivirine						248						243						1.8						9.6						(7.8)
PREZISTA/ PREZCOBIX/ REZOLSTA/ SYMTUZA						501						546						(8.3)						(6.9)						(1.4)
Other Infectious Diseases(2)						91						108						(15.3)						(11.0)						(4.3)
Neuroscience						1,741						1,715						1.5						5.0						(3.5)
CONCERTA/ methylphenidate						157						171						(8.3)						(4.8)						(3.5)
INVEGA SUSTENNA/ XEPLION/ INVEGA TRINZA/ TREVICTA						1,048						965						8.6						11.3						(2.7)
RISPERDAL CONSTA						129						157						(17.6)						(13.9)						(3.7)
Other Neuroscience(2)						408						422						(3.5)						1.7						(5.2)
Oncology						3,950						3,570						10.6						14.9						(4.3)
DARZALEX						1,856						1,365						36.0						40.3						(4.3)
ERLEADA						400						261						53.0						57.5						(4.5)
IMBRUVICA						1,038						1,125						(7.7)						(3.9)						(3.8)
ZYTIGA/ abiraterone acetate						539						638						(15.6)						(10.1)						(5.5)
Other Oncology						118						182						(35.1)						(32.3)						(2.8)
Pulmonary Hypertension						852						861						(1.1)						1.2						(2.3)
OPSUMIT						443						450						(1.6)						1.1						(2.7)
UPTRAVI						325						305						6.5						7.7						(1.2)
Other Pulmonary Hypertension						83						105						(20.8)						(16.8)						(4.0)
Cardiovascular / Metabolism / Other						910						1,044						(12.8)						(11.9)						(0.9)
XARELTO						508						589						(13.8)						(13.8)						—
INVOKANA/ INVOKAMET						128						150						(14.6)						(13.1)						(1.5)
Other(1,2)						274						305						(10.0)						(7.5)						(2.5)
Total Pharmaceutical Sales						$	12,869					$	12,101					6.3		%				9.3		%				(3.0)		%

• Percentage greater than 100% or not meaningful

**Certain prior year amounts have been reclassified to conform to current year presentation

(1) Inclusive of PROCRIT / EPREX which was previously disclosed separately

(2)In the fiscal first quarter of 2021, approximately $0.1 billion of certain international OTC products, primarily in China, were reclassified from the Pharmaceutical segment to the Consumer Health segment based on operational changes

Table of Content

Immunology products achieved operational growth of 7.5% as compared to the same period a year ago driven by continued strong uptake of STELARA (ustekinumab) in Crohn's disease and Ulcerative Colitis partially offset by share declines in Psoriasis and Psoriatic Arthritis and strength of TREMFYA (guselkumab) in Psoriasis and uptake in Psoriatic Arthritis. This was partially offset by lower sales of REMICADE (infliximab) due to biosimilar competition.

Biosimilar versions of REMICADE have been introduced in the United States and certain markets outside the United States and additional competitors continue to enter the market. Continued infliximab biosimilar competition will result in a further reduction in sales of REMICADE.

The latest expiring United States patent for STELARA (ustekinumab) will expire in September 2023. STELARA (ustekinumab) U.S. sales in fiscal 2021 were approximately $5.9 billion. The expiration of a product patent or loss of market exclusivity is likely to result in a reduction in sales.

Infectious disease products achieved operational growth of 33.1% as compared to the same period a year ago. Growth was primarily driven by the contribution of the COVID-19 vaccine. This was partially offset by lower sales of PREZISTA and PREZCOBIX/REZOLSTA (darunavir/cobicistat) due to increased competition and loss of exclusivity of PREZISTA in certain countries outside the U.S.

Neuroscience products achieved operational sales growth of 5.0% as compared to the same period a year ago. Growth of Paliperidone long-acting injectables INVEGA SUSTENNA/XEPLION (paliperidone palmitate) and INVEGA TRINZA/TREVICTA was due to patient mix, new patient starts and persistence of treatment as well as the launch of INVEGA HAFYERA.

Oncology products achieved operational sales growth of 14.9% as compared to the same period a year ago. Contributors to the growth were strong sales of DARZALEX (daratumumab) driven by share gains in all regions, continued strong market growth, and solid uptake of the subcutaneous formulation; the continued global launch uptake of ERLEADA (apalutamide) and IMBRUVICA (ibrutinib) growth in all regions outside the U.S. In the U.S. IMBRUVICA (ibrutinib) declined due to competitive pressures from novel oral agents.

Pulmonary Hypertension achieved operational sales growth of 1.2% as compared to the same period a year ago. Sales growth of OPSUMIT (macitentan) and UPTRAVI (selexipag) were due to demand and share gains partially offset by COVID-19 related market constraints as well as entrants in Other Pulmonary Hypertension.

Cardiovascular / Metabolism / Other products experienced an operational decline of 11.9% as compared to the same period a year ago. The decline was primarily attributable to lower sales of XARELTO due to a one-time favorable prior period pricing adjustment in the fiscal first quarter of 2021 and INVOKANA/INVOKAMET (canagliflozin) due to continued share erosion.

Starting in the second quarter of fiscal 2022, the Company updated its policy so that no end customer will be permitted to direct delivery of product to a location other than the billing location. The updated policy will impact contract pharmacy transactions involving non-grantee 340B covered entities for most of the Company’s drugs, subject to multiple exceptions. Both grantee and non-grantee covered entities can maintain unlimited contract pharmacy arrangements under policy exceptions. The Company will continue to offer 340B discounts to covered entities on all of its covered outpatient drugs, and it believes its policy will improve its ability to identify inappropriate duplicate discounts and diversion prohibited by the 340B statute. The 340B Drug Pricing Program is a U.S. federal government program requiring drug manufacturers to provide significant discounts on covered outpatient drugs to covered entities. This policy update could have potential discount and volume implications going forward.

Table of Content

MedTech*

The MedTech segment sales in the fiscal first quarter of 2022 were $7.0 billion, an increase of 5.9% as compared to the same period a year ago, which included operational growth of 8.5% and a negative currency impact of 2.6%. U.S. MedTech sales increased 5.6%. International MedTech sales increased by 6.3%, including operational growth of 11.1% and a negative currency impact of 4.8%. In the fiscal first quarter of 2022, the net impact of acquisitions and divestitures on the MedTech segment operational sales growth was a negative 0.1%.

Major MedTech Franchise Sales — Fiscal First Quarter Ended

(Dollars in Millions)						April 3, 2022						April 4, 2021						Total Change						Operations Change						Currency Change
Surgery						$	2,434					$	2,372					2.6		%				5.0		%				(2.4)		%
Advanced						1,146						1,118						2.5						4.5						(2.0)
General						1,288						1,254						2.7						5.5						(2.8)
Orthopaedics						2,188						2,113						3.5						5.6						(2.1)
Hips						389						356						9.3						11.3						(2.0)
Knees						339						317						6.7						8.8						(2.1)
Trauma						748						733						2.1						4.2						(2.1)
Spine, Sports & Other						712						707						0.6						2.7						(2.1)
Vision						1,257						1,145						9.8						13.9						(4.1)
Contact Lenses/Other						910						857						6.2						10.6						(4.4)
Surgical						347						288						20.4						23.8						(3.4)
Interventional Solutions						1,092						949						15.1						17.4						(2.3)
Total MedTech Sales						$	6,971					$	6,579					5.9		%				8.5		%				(2.6)		%

*Previously referred to as Medical Devices

The Surgery franchise achieved operational sales growth of 5.0% as compared to the prior year fiscal first quarter. The operational growth in Advanced Surgery was primarily driven by Endocutter and Biosurgery products attributable to market recovery, market expansion and the success of new products. Growth of Endocutter products was offset by COVID-19 market slow down in the Asia Pacific region and competitive pressures in the U.S. Energy products growth was flat to the prior year fiscal first quarter with market recovery and new product penetration mostly offset by COVID-19 market slow downs in Asia Pacific. The operational growth in General Surgery was primarily driven by market recovery, strength of the Suture portfolio, and technology penetration.

The Orthopaedics franchise achieved operational sales growth of 5.6% as compared to the prior year fiscal first quarter. The operational growth in hips reflects the market recovery, continued strength of the portfolio including the ACTIS stem and enabling technologies – KINCISE and VELYS Hip Navigation and momentum in the U.S. Ambulatory Surgery Center channel. The operational growth in knees was primarily driven by market recovery and uptake of new products and momentum in the U.S. Ambulatory Surgery Center channel. The operational growth in Trauma was driven by global market recovery and uptake of new products. The operational growth in Spine, Sports & Other was driven by recovery across most specialties, new products in Sports, Spine & VELYS Digital Solutions and a prior year China distribution channel change. Growth was partially offset by market softness and competitive pressures in Spine.

The Vision franchise achieved operational sales growth of 13.9% as compared to the prior year fiscal first quarter. The Contact Lenses/Other operational growth was due to market recovery, new products and the U.S. benefit related to a current year forward buy ahead of a list price increase. The growth was partially offset by the negative impact from prior year stocking. The Surgical operational growth was primarily due to market recovery and uptake of recently launched products.

The Interventional Solutions franchise achieved operational sales growth of 17.4% as compared to the prior year fiscal first quarter driven by the market recovery, success of new products and commercial strategies.

Table of Content

ANALYSIS OF CONSOLIDATED EARNINGS BEFORE PROVISION FOR TAXES ON INCOME

Consolidated earnings before provision for taxes on income for the fiscal first quarter of 2022 was $5.9 billion representing 25.0% of sales as compared to $7.4 billion in the fiscal first quarter of 2021, representing 33.3% of sales.

Cost of Products Sold

(Dollars in billions. Percentages in chart are as a percent to total sales)

Q1 2022 versus Q1 2021

Cost of products increased as a percent to sales driven by:

• Unfavorable volume/mix in the MedTech segment

• Commodity inflation in the Consumer Health segment

The intangible asset amortization expense included in cost of products sold for the fiscal first quarters of 2022 and 2021 was $1.1 billion and $1.2 billion, respectively.

Selling, Marketing and Administrative Expenses

(Dollars in billions. Percentages in chart are as a percent to total sales)

Q1 2022 versus Q1 2021

Selling, Marketing and Administrative Expenses increased as a percent to sales driven by:

• Higher brand marketing expenses in the Pharmaceutical and Consumer Health businesses

Table of Content

Research and Development Expense

(Dollars in billions. Percentages in chart are as a percent to total sales)

Q1 2022 versus Q1 2021

Research and Development increased as a percent to sales driven by:

• General portfolio progression in the Pharmaceutical business

In-Process Research and Development (IPR&D)

In the fiscal first quarter of 2022, the Company recorded an intangible asset impairment charge of approximately $0.6 billion related to an in-process research and development asset, bermekimab (JnJ-77474462), an investigational drug for the treatment of Atopic Dermatitis (AD) and Hidradenitis Suppurativa (HS). Additional information regarding efficacy of the AD indication became available which led the Company to the decision to terminate the development of bermekimab for AD. The Company acquired all rights to bermekimab from XBiotech, Inc. in the fiscal year 2020.

Interest (Income) Expense

Interest (Income) Expense in the fiscal first quarter of 2022 was a net interest income of $12 million as compared to interest expense of $48 million in the same period a year ago primarily due to the benefit from net investment hedging, a higher average cash balance and a lower average debt balance. The balance of cash, cash equivalents and current marketable securities was $30.4 billion at the end of the fiscal first quarter of 2022 as compared to $24.6 billion at the end of the fiscal first quarter of 2021. The Company’s debt position was $33.1 billion as of April 3, 2022 as compared to $33.6 billion the same period a year ago.

Other (Income) Expense, Net*

Q1 2022 versus Q1 2021

Other (income) expense, net for the fiscal first quarter of 2022 was unfavorable by $0.8 billion as compared to the prior year primarily due to the following:

Fiscal First Quarter
(Dollars in Billions)(Income)/Expense						2022						2021						Change
Changes in the fair value of securities						$	0.4					0.0						0.4
Acquisition, integration and divestiture related(1)						0.0						(0.5)						0.5
Consumer Health separation costs						0.1						0.0						0.1
Employee benefit plan related						(0.3)						(0.2)						(0.1)
Other						(0.3)						(0.2)						(0.1)
Total Other (Income) Expense, Net						$	(0.1)					$	(0.9)					$	0.8

(1) Primarily related to divestiture gains of two pharmaceutical brands outside the U.S. in the fiscal first quarter of 2021.

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

Table of Content

EARNINGS BEFORE PROVISION FOR TAXES BY SEGMENT

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

						Income Before Tax												Segment Sales												Percent of Segment Sales
(Dollars in Millions)						April 3, 2022						April 4, 2021						April 3, 2022						April 4, 2021						April 3, 2022						April 4, 2021
Consumer Health						$	686					$	842					$	3,586					$	3,641					19.1		%				23.1		%
Pharmaceutical						3,924						5,169						12,869						12,101						30.5						42.7
MedTech						1,477						1,629						6,971						6,579						21.2						24.8
Segment earnings before tax						6,087						7,640						23,426						22,321						26.0						34.2
Less: Expenses not allocated to segments (1)						123						211
Less: Consumer Health separation costs						102						—
Worldwide income before tax						$	5,862					$	7,429					$	23,426					$	22,321					25.0		%				33.3		%

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

Consumer Health Segment

The Consumer Health segment income/(loss) before tax as a percent of sales in the fiscal first quarter of 2022 was 19.1% versus 23.1% for the same period a year ago. The decrease in the income before tax as a percent of sales in the fiscal first quarter of 2022 as compared to the prior year was primarily driven by the following:

• An increase in brand marketing expenses

• Commodity inflation

Pharmaceutical Segment

The Pharmaceutical segment income before tax as a percent of sales in the fiscal first quarter of 2022 was 30.5% versus 42.7% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal first quarter of 2021 as compared to the prior year was primarily driven by the following:

• An IPR&D charge of $0.6 billion in 2022 related to bermekimab (JnJ-77474462), an investigational drug for the treatment of AD and Hidradenitis Suppurativa (HS)

• Divestiture gains of $0.6 billion in 2021.

• Net mark-to-market loss related to the change in the fair value of securities ($0.4 billion in 2022 vs. $0.0 billion in 2021)

• Increased Research & Development investment for general portfolio progression

• Higher brand marketing expenses

MedTech Segment

The MedTech segment income before tax as a percent of sales in the fiscal first quarter of 2022 was 21.2% versus 24.8% for the same period a year ago. The decrease in the income before tax as a percent of sales for the fiscal first quarter was primarily driven by the following:

• Product mix within the MedTech franchises

Table of Content

Restructuring

In the fiscal second quarter of 2018, the Company announced plans to implement actions across its Global Supply Chain that are intended to enable the Company to focus resources and increase investments in critical capabilities, technologies and solutions necessary to manufacture and supply its product portfolio of the future, enhance agility and drive growth. The Company expects these supply chain actions will include expanding its use of strategic collaborations, and bolstering its initiatives to reduce complexity, improving cost-competitiveness, enhancing capabilities and optimizing its network. Discussions regarding specific future actions are ongoing and are subject to all relevant consultation requirements before they are finalized. In total, the Company expects these actions to generate approximately $0.6 to $0.8 billion in annual pre-tax cost savings that will be substantially delivered by the end of 2022. The Company expects to record pre-tax restructuring charges of approximately $2.1 to $2.3 billion by the completion of the program in December 2022. In the fiscal first quarter of 2022, the Company recorded a net pre-tax charge of $72 million, which is included on the following lines of the Consolidated Statement of Earnings, $70 million in restructuring, $16 million in cost of products sold and income of $14 million (from property sales) in other (income) expense, net. In the fiscal first quarter of 2021, the Company recorded a pre-tax charge of $104 million, which is included on the following lines of the Consolidated Statement of Earnings, $53 million in restructuring, $27 million in cost of products sold and $24 million in other (income) expense, net. Restructuring charges of approximately $1.8 billion have been recorded since the restructuring was announced.

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

Provision for Taxes on Income

The worldwide effective income tax rate was 12.2% in 2022 and 16.6% in 2021. During fiscal year 2022, the Company is expected to incur significant additional international tax costs related to the legal separation of the Consumer Health businesses.

For discussion related to the fiscal first quarter of 2022 provision for taxes refer to Note 5 to the Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

Cash and cash equivalents were $10.5 billion at the end of the fiscal first quarter of 2022 as compared with $14.5 billion at the end of fiscal year 2021. The primary sources and uses of cash that contributed to the $4.0 billion decrease were:

(Dollars In Billions)
$	14.5		Q4 2021 Cash and cash equivalents balance
4.0			cash generated from operating activities
(3.6)			net cash used by investing activities
(4.4)			net cash used by financing activities
$	10.5		Q1 2022 Cash and cash equivalents balance

Table of Content

In addition, the Company had $19.9 billion in marketable securities at the end of the fiscal first quarter of 2022 and $17.1 billion at the end of fiscal year 2021.

Cash flow from operations of $4.0 billion was the result of:

(Dollars In Billions)
$	5.1		Net Earnings
1.6			non-cash expenses and other adjustments primarily for depreciation and amortization, stock-based compensation, asset write-downs and credit losses and accounts receivable allowances partially offset by the deferred tax provision and net gain on sale of assets/businesses
(1.0)			an increase in accounts receivable and inventories
(2.8)			a decrease in accounts payable and accrued liabilities
1.0			a decrease in other current and non-current assets
0.1			an increase in other current and non-current liabilities
$	4.0		Cash Flow from operations

Investing activities use of $3.6 billion of cash was primarily used for:

(Dollars In Billions)
$	(0.6)		additions to property, plant and equipment
0.2			proceeds from the disposal of assets/businesses, net
(0.3)			acquisitions, net of cash acquired and other
(2.7)			net purchases of investments
(0.2)			credit support agreements activity, net
$	(3.6)		Net cash used for investing activities

Financing activities use of $4.4 billion of cash was primarily used for:

(Dollars In Billions)
$	(2.8)		dividends to shareholders
(1.6)			repurchase of common stock
0.0			net repayment of short and long term debt
0.3			proceeds from stock options exercised/employee withholding tax on stock awards, net
(0.2)			credit support agreements activity, net
(0.1)			other and rounding
$	(4.4)		Net cash used for financing activities

The Company has access to substantial sources of funds at numerous banks worldwide. In September 2021, the Company secured a new 364-day Credit Facility. Total credit available to the Company approximates $10 billion, which expires on September 8, 2022. Interest charged on borrowings under the credit line agreement is based on either Term Secured Overnight Financing Rate (SOFR) Reference Rate or other applicable market rates as allowed under the terms of the agreement, plus applicable margins. Commitment fees under the agreement are not material.

In the fiscal first quarter of 2022, the Company's notes payable and long-term debt was in excess of cash, cash equivalents and marketable securities. As of April 3, 2022, the net debt position was $2.8 billion as compared to the prior year of $9.0 billion. Considering recent market conditions and the on-going COVID-19 crisis, the Company has re-evaluated its operating cash flows and liquidity profile and does not foresee any significant incremental risk. The Company anticipates that operating cash flows, the ability to raise funds from external sources, borrowing capacity from existing committed credit facilities and access

Table of Content

to the commercial paper markets will continue to provide sufficient resources to fund operating needs, including the Company's approximate $0.9 billion in contractual supply commitments associated with its development of the COVID-19 vaccine, the agreement to settle opioid litigation for $5 billion and the establishment of the $2 billion trust for talc related liabilities (See Note 11 to the Consolidated Financial Statements for additional details). In addition, the Company monitors the global capital markets on an ongoing basis and from time to time may raise capital when market conditions are favorable. Subsequent to April 3, 2022, the Company paid approximately $1.0 billion to the U.S. Treasury including $0.8 billion related to the current installment due on foreign undistributed earnings as part of the TCJA charge (see Note 1 to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2022) and $0.2 billion primarily related to the normal estimated payment for the fiscal first quarter of 2022.

Dividends

On January 4, 2022, the Board of Directors declared a regular cash dividend of $1.06 per share, payable on March 8, 2022 to shareholders of record as of February 22, 2022.

On April 19, 2022, the Board of Directors declared a regular cash dividend of $1.13 per share, payable on June 7, 2022 to shareholders of record as of May 24, 2022. The Company expects to continue the practice of paying regular quarterly cash dividends.

OTHER INFORMATION

New Accounting Pronouncements

Refer to Note 1 to the Consolidated Financial Statements for new accounting pronouncements.

Economic and Market Factors

COVID-19 considerations and business continuity

The Company has considered various internal and external factors in assessing the potential impact of COVID-19 on its business and financial results based upon information available at this time, as follows:

• Operating Model: The Company has a diversified business model across the healthcare industry with flexibility designed into its manufacturing, research and development clinical operations and commercial capabilities.

• Supply Chain: The Company continues to leverage its global manufacturing footprint and dual-source capabilities while closely monitoring and maintaining critical inventory at major distribution centers away from high-risk areas to ensure adequate and effective distribution.

• Business Continuity: The robust, active business continuity plans across the Company's network have been instrumental in preparing the Company for events like COVID-19 and the ability to meet the majority of patient and consumer needs remains uninterrupted.

• Workforce: The Company has put procedures in place to protect its essential workforce in manufacturing, distribution, commercial and research operations while ensuring appropriate remote working protocols have been established for other employees.

• Liquidity: The Company's high-quality credit rating allows the Company superior access to the financial capital markets for the foreseeable future.

• Domestic and Foreign Legislation: The Company will continue to assess and evaluate the on-going global legislative efforts to combat the COVID-19 impact on economies and the sectors in which it participates. Currently, the recent legislative acts put in place are not expected to have a material impact on the Company’s operations.

In fiscal 2021 and 2020, the Company entered into a series of contract manufacturing arrangements for vaccine production with third party contract manufacturing organizations. These arrangements provide the Company with future supplemental commercial capacity for vaccine production and potentially transferable rights to such production if capacity is not required. Amounts paid for services to be delivered and contractually obligated to be paid to these contract manufacturing organizations of approximately $0.9 billion are reflected in the prepaid expenses and other, other assets, accrued liabilities and other liabilities accounts in the Company's consolidated balance sheet upon execution of each agreement. Additionally, the Company has entered into certain vaccine development cost sharing arrangements with government related organizations. The Company continues to evaluate the global demand for the Covid-19 vaccine and its related supply.

The Company continues to evaluate and monitor both its internal and external supply arrangements, including its contract with Emergent BioSolutions and related production activities at its Bayview, Maryland facility. The Company has established a global vaccine supply network, where, in addition to its internal manufacturing site in Leiden, the Netherlands, ten other

Table of Content

manufacturing sites will be involved in the production of vaccine across different countries and continents. The Company does not believe that a disruption at a vaccine manufacturing site, or the resulting delay would have a material financial impact on the Company’s consolidated financial statements or results.

Russia-Ukraine War

Although the long-term implications of Russia’s invasion of Ukraine are difficult to predict at this time, the financial impact of the conflict in the fiscal first quarter of 2022, including accounts receivable or inventory reserves, was not material. As of both the 2021 fiscal year ending January 2, 2022, and the fiscal first quarter ending April 3, 2022, the business of the Company’s Ukraine subsidiaries represented less than 1% of the Company’s consolidated assets and revenues. As of both the 2021 fiscal year ending January 2, 2022, and the fiscal first quarter ending April 3, 2022, the business of the Company’s Russian subsidiaries represented less than 1% of the Company’s consolidated assets and represented 1% of revenues.

The Company continued to supply its products throughout the first quarter as patients rely on many of the products for healthcare purposes. However, in early March, the Company took steps to suspend all advertising, enrollment in clinical trials, and any additional investment in Russia. Additionally, at the end of March, the Company made the decision to suspend supply of personal care products in Russia.

The Company operates in certain countries where the economic conditions continue to present significant challenges. The Company continues to monitor these situations and take appropriate actions. Inflation rates and currency exchange rates continue to have an effect on worldwide economies and, consequently, on the way the Company operates. The Company has accounted for operations in Venezuela and Argentina as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%. Beginning in the fiscal second quarter of 2022, the Company will account for operations in Turkey as highly inflationary, as the prior three-year cumulative inflation rate surpassed 100%. This will not have a material impact on the Company's results in the period. In the face of increasing costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and periodic price increases.

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

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

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

The Company also operates in an environment increasingly hostile to intellectual property rights. Firms have filed Abbreviated New Drug Applications or Biosimilar Biological Product Applications with the FDA or otherwise challenged the coverage and/or validity of the Company's patents, seeking to market generic or biosimilar forms of many of the Company’s key pharmaceutical products prior to expiration of the applicable patents covering those products. In the event the Company is not successful in defending the patent claims challenged in the resulting lawsuits, generic or biosimilar versions of the products at issue will be introduced to the market, resulting in the potential for substantial market share and revenue losses for those products, and which may result in a non-cash impairment charge in any associated intangible asset. There is also a risk that one or more competitors could launch a generic or biosimilar version of the product at issue following regulatory approval even though one or more valid patents are in place.