Johnson and Johnson 2009 Annual Report Download - page 36

34 J O H N S O N & J O H N S O N 2 0 0 9 A N N U A L R E P O R T
PHARMACEUTICAL SEGMENT
Balance at Balance at
Beginning Payments/ End
(Dollars in Millions) of Period Accruals Other of Period
2009
Accrued rebates(1) $1,261 3,975 (4,172) 1,064
Accrued returns 490 147 (295) 342
Accrued promotions 107 330 (353) 84
Subtotal $1,858 4,452 (4,820) 1,490
Reserve for doubtful accounts 48 37 (2) 83
Reserve for cash discounts 23 462 (437) 48
Total $1,929 4,951 (5,259) 1,621
2008
Accrued rebates(1) $1,249 3,331 (3,319) 1,261
Accrued returns 345 168 (23) 490
Accrued promotions 263 414 (570) 107
Subtotal $1,857 3,913 (3,912) 1,858
Reserve for doubtful accounts 26 24 (2) 48
Reserve for cash discounts 24 376 (377) 23
Total $1,907 4,313(2) (4,291) 1,929
(1) Includes reserve for customer rebates of $372 million at January 3, 2010 and $344
million at December 28, 2008, recorded as a contra asset.
(2) Includes $115 million adjustment related to previously estimated accrued sales reserves.
MEDICAL DEVICES AND DIAGNOSTICS SEGMENT
Balance at Balance at
Beginning Payments/ End
(Dollars in Millions) of Period Accruals Other of Period
2009
Accrued rebates(1) $416 2,229 (2,191) 454
Accrued returns 189 74 (43) 220
Accrued promotions 47 120 (94) 73
Subtotal $652 2,423 (2,328) 747
Reserve for doubtful accounts 109 50 (16) 143
Reserve for cash discounts 34 416 (418) 32
Total $795 2,889 (2,762) 922
2008
Accrued rebates(1) $336 1,947 (1,867) 416
Accrued returns 190 99 (100) 189
Accrued promotions 18 208 (179) 47
Subtotal $544 2,254 (2,146) 652
Reserve for doubtful accounts 96 36 (23) 109
Reserve for cash discounts 24 257 (247) 34
Total $664 2,547(2) (2,416) 795
(1) Includes reserve for customer rebates of $311 million at January 3, 2010 and $304 million
at December 28, 2008, recorded as a contra asset.
(2) Includes $56 million adjustment related to previously estimated sales rebate reserve.
Income Taxes: Income taxes are recorded based on amounts refund-
able or payable for the current year and include the results of any
difference between GAAP accounting and tax reporting, recorded
as deferred tax assets or liabilities. The Company estimates deferred
tax assets and liabilities based on current tax regulations and rates.
Changes in tax laws and rates may affect recorded deferred tax
assets and liabilities in the future. Management believes that
changes in these estimates would not have a material effect on the
Company’s results of operations, cash flows or financial position.
In 2007, in accordance with U.S. GAAP the Company adopted
the standard related to accounting for uncertainty in income taxes.
The Codification prescribes a recognition threshold and measure-
ment attribute for the financial statement recognition and measure-
ment of a tax position taken or expected to be taken in a tax return.
The Codification also provides guidance on derecognition, classifi-
cation and other matters. See Note 8 to the Consolidated Financial
Statements for further information regarding income taxes.
At January 3, 2010 and December 28, 2008, the cumulative
amounts of undistributed international earnings were approximately
$32.2 billion and $27.7 billion, respectively. The Company intends
to continue to reinvest its undistributed international earnings to
expand its international operations; therefore, no U.S. tax expense
has been recorded with respect to the undistributed portion not
intended for repatriation.
Legal and Self Insurance Contingencies: The Company records
accruals for various contingencies including legal proceedings and
product liability cases as these arise in the normal course of busi-
ness. The accruals are based on management’s judgment as to the
probability of losses and, where applicable, actuarially determined
estimates. Additionally, the Company records insurance receivable
amounts from third-party insurers when recovery is probable. As
appropriate, reserves against these receivables are recorded for esti-
mated amounts that may not be collected from third-party insurers.
Long-Lived and Intangible Assets: The Company assesses changes
in economic conditions and makes assumptions regarding estimated
future cash flows in evaluating the value of the Company’s property,
plant and equipment, goodwill and intangible assets. As these
assumptions and estimates may change over time, it may or may not
be necessary for the Company to record impairment charges.
Employee Benefit Plans: The Company sponsors various retirement
and pension plans, including defined benefit, defined contribution
and termination indemnity plans, which cover most employees
worldwide. These plans are based on assumptions for the discount
rate, expected return on plan assets, expected salary increases and
health care cost trend rates. See Note 10 to the Consolidated Finan-
cial Statements for further details on these rates and the effect a
rate change would have on the Company’s results of operations.
Stock Based Compensation: The Company recognizes compensa-
tion expense associated with the issuance of equity instruments to
employees for their services. The fair value of each award is esti-
mated on the date of grant using the Black-Scholes option valuation
model and is expensed in the financial statements over the vesting
period. The input assumptions used in determining fair value are
the expected life, expected volatility, risk-free rate and the dividend
yield. See Note 17 to the Consolidated Financial Statements for
additional information.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1 to the Consolidated Financial Statements for recently
adopted accounting pronouncements and recently issued account-
ing pronouncements not yet adopted as of January 3, 2010.
ECONOMIC AND MARKET FACTORS
The Company is aware that its products are used in an environment
where, for more than a decade, policymakers, consumers and busi-
nesses have expressed concerns about the rising cost of health care.
In response to these concerns, the Company has a long-standing
policy of pricing products responsibly. For the period 1999–2009, in
the United States, the weighted average compound annual growth
rate of the Company’s net price increases for health care products