Johnson and Johnson 2011 Annual Report Download - page 50

48 JOHNSON & JOHNSON 2011 ANNUAL REPORT
Temporary differences and carryforwards for 2011 and 2010
were as follows:
2011 2010
Deferred Tax Deferred Tax
(Dollars in Millions) Asset Liability Asset Liability
Employee related obligations $ 3,028 2,211
Stock based compensation 1,358 1,225
Depreciation (865) (769)
Non-deductible intangibles (2,997) (2,725)
International R&D capitalized
for tax 1,509 1,461
Reserves & liabilities 1,527 948
Income reported for tax purposes 903 691
Net operating loss
carryforward international 1,183 1,134
Miscellaneous international 1,261 (422) 1,326 (106)
Miscellaneous U.S. 817 470
Total deferred income taxes $11,586 (4,284) 9,466 (3,600)
The difference between the net deferred tax on income per the
balance sheet and the net deferred tax above is included in taxes
on income on the balance sheet. The Company has wholly-owned
international subsidiaries that have cumulative net losses. The
Company believes that it is more likely than not that these sub-
sidiaries will realize future taxable income sufficient to utilize these
deferred tax assets.
The following table summarizes the activity related to
unrecognized tax benefits:
(Dollars in Millions) 2011 2010 2009
Beginning of year $2,307 2,403 1,978
Increases related to current year tax positions 402 465 555
Increases related to prior period tax positions 87 68 203
Decreases related to prior period tax positions (77) (431) (163)
Settlements (16) (186) (87)
Lapse of statute of limitations (4) (12) (83)
End of year $2,699 2,307 2,403
The unrecognized tax benefits of $2.7 billion at January 1, 2012, if
recognized, would affect the Company’s annual effective tax rate.
The Company conducts business and files tax returns in numerous
countries and currently has tax audits in progress with a number of
tax authorities. The U.S. Internal Revenue Service (IRS) has com-
pleted its audit for the tax years through 2005; however, there are a
limited number of issues remaining open for prior tax years going
back to 1999. In other major jurisdictions where the Company con-
ducts business, the years remain open generally back to the year
2003. The Company does not expect that the total amount of
unrecognized tax benefits will significantly change over the next
twelve months. The Company is not able to provide a reasonably
reliable estimate of the timing of any other future tax payments
relating to uncertain tax positions.
The Company classifies liabilities for unrecognized tax benefits
and related interest and penalties as long-term liabilities. Interest
expense and penalties related to unrecognized tax benefits are clas-
sified as income tax expense. The Company recognized after tax
interest of $47 million expense, $34 million income and $36 million
expense in 2011, 2010 and 2009, respectively. The total amount of
accrued interest was $350 million and $264 million in 2011 and
2010, respectively.
9. Employee Related Obligations
At the end of 2011 and 2010, employee related obligations recorded
on the Consolidated Balance Sheet were:
(Dollars in Millions) 2011 2010
Pension benefits $3,937 2,175
Postretirement benefits 2,843 2,359
Postemployment benefits 1,129 1,379
Deferred compensation 863 820
Total employee obligations 8,772 6,733
Less current benefits payable 419 646
Employee related obligations — non-current $8,353 6,087
Prepaid employee related obligations of $249 million and $615 mil-
lion for 2011 and 2010, respectively, are included in other assets on
the Consolidated Balance Sheet.
10. Pensions and Other Benefit Plans
The Company sponsors various retirement and pension plans,
including defined benefit, defined contribution and termination
indemnity plans, which cover most employees worldwide. The
Company also provides post-retirement benefits, primarily health
care, to all U.S. retired employees and their dependents.
Many international employees are covered by government-
sponsored programs and the cost to the Company is not significant.
Retirement plan benefits are primarily based on the employee’s
compensation during the last three to five years before retirement
and the number of years of service. International subsidiaries have
plans under which funds are deposited with trustees, annuities are
purchased under group contracts, or reserves are provided.
The Company does not fund retiree health care benefits in
advance and has the right to modify these plans in the future.
The Company uses the date of its consolidated financial
statements (January 1, 2012 and January 2, 2011, respectively) as
the measurement date for all U.S. and international retirement and
other benefit plans.