Johnson and Johnson 2011 Annual Report Download - page 43

Notes to Consolidated Financial Statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 41
1. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Johnson & Johnson and its subsidiaries (the Company).
Intercompany accounts and transactions are eliminated.
DESCRIPTION OF THE COMPANY AND BUSINESS SEGMENTS
The Company has approximately 117,900 employees worldwide
engaged in the research and development, manufacture and sale of
a broad range of products in the health care field. The Company
conducts business in virtually all countries of the world and its pri-
mary focus is on products related to human health and well-being.
The Company is organized into three business segments:
Consumer, Pharmaceutical and Medical Devices and Diagnostics.
The Consumer segment includes a broad range of products used in
the baby care, skin care, oral care, wound care and women’s health
fields, as well as nutritional and over-the-counter pharmaceutical
products and wellness and prevention platforms. These products
are marketed to the general public and sold both to retail outlets
and distributors throughout the world. The Pharmaceutical segment
includes products in the following areas: anti-infective, antipsychotic,
contraceptive, dermatology, gastrointestinal, hematology, immunol-
ogy, neurology, oncology, pain management, thrombosis, vaccines
and infectious diseases. These products are distributed directly to
retailers, wholesalers and health care professionals for prescription
use. The Medical Devices and Diagnostics segment includes a broad
range of products distributed to wholesalers, hospitals and retailers,
used principally in the professional fields by physicians, nurses, thera-
pists, hospitals, diagnostic laboratories and clinics. These products
include Cardiovascular Care’s electrophysiology and circulatory
disease management products; DePuy’s orthopaedic joint recon-
struction, spinal care, neurological and sports medicine products;
Ethicon’s surgical care, aesthetics and women’s health products;
Ethicon Endo-Surgery’s minimally invasive surgical products and
advanced sterilization products; Diabetes Care’s blood glucose moni-
toring and insulin delivery products; Ortho-Clinical Diagnostics’
professional diagnostic products and Vision Care’s disposable
contact lenses.
NEW ACCOUNTING PRONOUNCEMENTS
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
During the fiscal first quarter of 2011, the Company adopted the
Financial Accounting Standards Board (FASB) guidance and amend-
ments issued related to revenue recognition under the milestone
method. The objective of the accounting standard update is to pro-
vide guidance on defining a milestone and determining when it may
be appropriate to apply the milestone method of revenue recognition
for research or development transactions. This update became effec-
tive on a prospective basis for milestones achieved in fiscal years, and
interim periods within those years, beginning on or after June 15,
2010. The adoption of this standard did not have a material impact on
the Company’s results of operations, cash flows or financial position.
During the fiscal first quarter of 2011, the Company adopted
the FASB guidance on how pharmaceutical companies should recog-
nize and classify in the Company’s financial statements, the non-
deductible annual fee paid to the Government in accordance with the
Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Reconciliation Act. This fee is based on an
allocation of a company’s market share of total branded prescription
drug sales to U.S. government programs from the prior year. The esti-
mated fee was recorded as a selling, marketing and administrative
expense in the Company’s financial statement and will be amortized
on a straight-line basis for the year as per the FASB guidance. The
adoption of this standard did not have a material impact on the
Company’s results of operations, cash flows or financial position.
RECENTLY ISSUED ACCOUNTING STANDARDS
NOT ADOPTED AS OF JANUARY 1, 2012
During the fiscal third quarter of 2011, the FASB issued amendments
to goodwill impairment testing. Under the amendments in this update,
an entity has the option to first assess qualitative factors to determine
whether the existence of events or circumstances leads to a determi-
nation that it is more likely than not that the fair value of a reporting
unit is less than its carrying amount. If, after assessing the totality of
events or circumstances, an entity determines it is not more likely than
not that the fair value of a reporting unit is less than its carrying
amount, then performing the two-step impairment test is unneces-
sary. However, if an entity concludes otherwise, then it is required to
perform the first step of the two-step impairment test. This guidance
is effective for annual and interim goodwill impairment tests per-
formed for fiscal years beginning after December 15, 2011. The adop-
tion of this standard is not expected to have a material impact on the
Company’s results of operations, cash flows or financial position.
During the fiscal second quarter of 2011, the FASB issued an
amendment to the disclosure requirements for presentation of com-
prehensive income. The amendment requires that all non-owner
changes in stockholders’ equity be presented either in a single con-
tinuous statement of comprehensive income or in two separate but
consecutive statements. This guidance is effective retrospectively
for the interim periods and annual periods beginning after Decem-
ber 15, 2011; however, the FASB agreed to an indefinite deferral of
the reclassification requirement. The adoption of this standard is not
expected to have a material impact on the Company’s results of
operations, cash flows or financial position.
During the fiscal second quarter of 2011, the FASB issued
amendments to disclosure requirements for common fair value
measurement. These amendments result in convergence of fair
value measurement and disclosure requirements between U.S. Gen-
erally Accepted Accounting Principles (GAAP) and International
Financial Reporting Standards (IFRS). This guidance is effective
prospectively for the interim periods and annual periods beginning
after December 15, 2011. Early adoption is prohibited. The adoption
of this standard is not expected to have a material impact on the
Company’s results of operations, cash flows or financial position.
CASH EQUIVALENTS
The Company considers securities with maturities of three months
or less, when purchased, to be cash equivalents.
INVESTMENTS
Short-term marketable securities are carried at cost, which approxi-
mates fair value. Investments classified as available-for-sale are
carried at estimated fair value with unrealized gains and losses
recorded as a component of accumulated other comprehensive
income. Long-term debt securities that the Company has the ability
and intent to hold until maturity are carried at amortized cost.
Management determines the appropriate classification of its invest-
ment in debt and equity securities at the time of purchase and
re-evaluates such determination at each balance sheet date. The
Company periodically reviews its investments in equity securities
for impairment and adjusts these investments to their fair value
when a decline in market value is deemed to be other than