Johnson and Johnson 2014 Annual Report Download - page 27

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, mortality rates, expected salary increases and health
care cost trend rates. See Note 10 to the Consolidated Financial Statements for further details on these rates and the
effect a rate change to the health care cost trend would have on the Company’s results of operations.
Stock Based Compensation: The Company recognizes compensation expense associated with the issuance of equity
instruments to employees for their services. Based on the type of equity instrument, the fair value is estimated on the date
of grant using either the Black-Scholes option valuation model or a combination of both the Black-Scholes option
valuation model and Monte Carlo 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 accounting pronouncements not yet adopted as of December 28, 2014.
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 businesses 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 2004-2014, in the United States,
the weighted average compound annual growth rate of the Company’s net price increases for health care products
(prescription and over-the-counter drugs, hospital and professional products) was below the U.S. Consumer Price Index
(CPI).
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 continue to have an effect on
worldwide economies and, consequently, on the way companies operate. The Company has accounted for operations in
Venezuela as highly inflationary as the prior three-year cumulative inflation rate surpassed 100%. In the face of increasing
costs, the Company strives to maintain its profit margins through cost reduction programs, productivity improvements and
periodic price increases.
The Venezuelan government has established or is in the process of establishing alternative systems and offerings of
various foreign currency exchanges. In 2014, the Company continued to have access to an official government rate of 6.3
Bolivares Fuertes to one U.S. dollar to settle imports of various products into Venezuela. Through the fourth quarter of
2014, the Company has primarily utilized the official government rate of 6.3 Bolivares Fuertes to one U.S. dollar in
preparing its financial statements. During the second fiscal quarter, the Company applied to settle an outstanding dividend
payable at one of the alternative foreign exchange rates. As a result, the Company has applied this alternative exchange
rate to translate certain transactions, as appropriate. As of December 28, 2014, the Company’s Venezuelan subsidiaries
represented less than 0.5% of the Company’s consolidated assets, liabilities, revenues and profits; therefore, the effect of
a change in the exchange rate is not expected to have a material adverse effect on the Company’s 2015 full-year results.
The Company is exposed to fluctuations in currency exchange rates. A 1% change in the value of the U.S. Dollar as
compared to all foreign currencies in which the Company had sales, income or expense in 2014 would have increased or
decreased the translation of foreign sales by approximately $390 million and income by $100 million.
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 health care products and services, including delaying
medical procedures, rationing prescription medications, reducing the frequency of physician visits and foregoing health
care insurance coverage, as a result of the current global economic downturn, may continue to impact the Company’s
businesses.
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