Johnson and Johnson 2011 Annual Report Download - page 36

34 JOHNSON & JOHNSON 2011 ANNUAL REPORT
Company generally issues credit to customers for returned goods.
The Company’s sales returns reserves are accounted for in accor-
dance with the U.S. GAAP guidance for revenue recognition when
right of return exists. Sales returns reserves are recorded at full sales
value. Sales returns in the Consumer and Pharmaceutical segments
are almost exclusively not resalable. Sales returns for certain fran-
chises in the Medical Devices and Diagnostics segment are typically
resalable but are not material. The Company rarely exchanges prod-
ucts from inventory for returned products. The sales returns reserve
for the total Company has ranged between 1.0% and 1.2% of annual
net trade sales during the prior three fiscal reporting years 2011,
2010 and 2009.
Promotional programs, such as product listing allowances and
cooperative advertising arrangements, are recorded in the year
incurred. Continuing promotional programs include coupons and
volume-based sales incentive programs. The redemption cost of
consumer coupons is based on historical redemption experience by
product and value. Volume-based incentive programs are based on
estimated sales volumes for the incentive period and are recorded
as products are sold. The Company also earns service revenue for
co-promotion of certain products. For all years presented, service
revenues were less than 2% of total revenues and are included in
sales to customers. These arrangements are evaluated to determine
the appropriate amounts to be deferred.
In addition, the Company enters into collaboration arrange-
ments that contain multiple revenue generating activities. The
revenue for these arrangements is recognized as each activity is
performed or delivered, based on the relative fair value. Upfront
fees received as part of these arrangements are deferred and recog-
nized as revenue earned over the obligation period. See Note 1 to
the Consolidated Financial Statements for additional disclosures
on collaborations.
Reasonably likely changes to assumptions used to calculate the
accruals for rebates, returns and promotions are not anticipated to
have a material effect on the financial statements. The Company
currently discloses the impact of changes to assumptions in the
quarterly or annual filing in which there is a material financial
statement impact.
Below are tables that show the progression of accrued rebates,
returns, promotions, reserve for doubtful accounts and reserve for
cash discounts by segment of business for the fiscal years ended
January 1, 2012 and January 2, 2011.
CONSUMER SEGMENT
Balance at Balance at
Beginning Payments/ End
(Dollars in Millions) of Period Accruals Credits of Period
2011
Accrued rebates(1) $131 346 (350) 127
Accrued returns 145 103 (134) 114
Accrued promotions 294 1,520 (1,574) 240
Subtotal $570 1,969 (2,058) 481
Reserve for doubtful accounts 57 3 (17) 43
Reserve for cash discounts 21 226 (225) 22
Total $648 2,198 (2,300) 546
2010
Accrued rebates(1) $121 361 (351) 131
Accrued returns 127 156 (138) 145
Accrued promotions 272 2,418 (2,396) 294
Subtotal $520 2,935 (2,885) 570
Reserve for doubtful accounts 107 6 (56) 57
Reserve for cash discounts 21 249 (249) 21
Total $648 3,190 (3,190) 648
(1) Includes reserve for customer rebates of $34 million at January 1, 2012 and $50 million at
January 2, 2011, recorded as a contra asset.
PHARMACEUTICAL SEGMENT
Balance at Balance at
Beginning Payments/ End
(Dollars in Millions) of Period Accruals Credits of Period
2011
Accrued rebates(1)(2) $1,520 4,732 (4,661) 1,591
Accrued returns 294 105 (15) 384
Accrued promotions 83 187 (187) 83
Subtotal $1,897 5,024 (4,863) 2,058
Reserve for doubtful accounts 145 20 (8) 157
Reserve for cash discounts 54 392 (401) 45
Total $2,096 5,436 (5,272) 2,260
2010
Accrued rebates(1)(2) $1,064 4,768 (4,312) 1,520
Accrued returns 342 27 (75) 294
Accrued promotions 84 135 (136) 83
Subtotal $1,490 4,930 (4,523) 1,897
Reserve for doubtful accounts 83 91 (29) 145
Reserve for cash discounts 48 379 (373) 54
Total $1,621 5,400 (4,925) 2,096
(1) Includes reserve for customer rebates of $298 million at January 1, 2012 and $320 million
at January 2, 2011, recorded as a contra asset.
(2) Includes additional sales rebates to Medicaid managed care organizations as a result of
the U.S. health care reform legislation.