Johnson and Johnson 2014 Annual Report Download - page 39

historically been longer than those experienced in the U.S. and other international markets. The total net trade accounts
receivable balance in the Southern European Region was approximately $1.8 billion as of December 28, 2014 and
approximately $2.3 billion as of December 29, 2013. Approximately $1.1 billion as of December 28, 2014 and
approximately $1.3 billion as of December 29, 2013 of the Southern European Region net trade accounts receivable
balance related to the Company’s Consumer, Vision Care and Diabetes Care businesses as well as certain
Pharmaceutical and Medical Devices customers which are in line with historical collection patterns.
The remaining balance of net trade accounts receivable in the Southern European Region has been negatively impacted
by the timing of payments from certain government owned or supported health care customers as well as certain
distributors of the Pharmaceutical and Medical Devices local affiliates. The total net trade accounts receivable balance for
these customers were approximately $0.7 billion at December 28, 2014 and $1.0 billion at December 29, 2013. The
Company continues to receive payments from these customers and in some cases late payment premiums. For customers
where payment is expected over periods of time longer than one year, revenue and trade receivables have been
discounted over the estimated period of time for collection. Allowances for doubtful accounts have been increased for
these customers, but have been immaterial to date. The Company will continue to work closely with these customers on
payment plans, monitor the economic situation and take appropriate actions as necessary.
Research and Development
Research and development expenses are expensed as incurred. Upfront and milestone payments made to third parties in
connection with research and development collaborations are expensed as incurred up to the point of regulatory approval.
Payments made to third parties subsequent to regulatory approval are capitalized and amortized over the remaining useful
life of the related product. Amounts capitalized for such payments are included in other intangibles, net of accumulated
amortization.
The Company enters into collaborative arrangements, typically with other pharmaceutical or biotechnology companies, to
develop and commercialize drug candidates or intellectual property. These arrangements typically involve two (or more)
parties who are active participants in the collaboration and are exposed to significant risks and rewards dependent on the
commercial success of the activities. These collaborations usually involve various activities by one or more parties,
including research and development, marketing and selling and distribution. Often, these collaborations require upfront,
milestone and royalty or profit share payments, contingent upon the occurrence of certain future events linked to the
success of the asset in development. Amounts due from collaborative partners related to development activities are
generally reflected as a reduction of research and development expense because the performance of contract
development services is not central to the Company’s operations. In general, the income statement presentation for these
collaborations is as follows:
Nature/Type of Collaboration Statement of Earnings Presentation
Third-party sale of product Sales to customers
Royalties/milestones paid to collaborative partner
(post-regulatory approval)*
Cost of products sold
Royalties received from collaborative partner Other income (expense), net
Upfront payments & milestones paid to collaborative partner
(pre-regulatory approval)
Research and development expense
Research and development payments to collaborative
partner
Research and development expense
Research and development payments received from
collaborative partner
Reduction of Research and development expense
* Milestones are capitalized as intangible assets and amortized to cost of goods sold over the useful life.
For all years presented, there was no individual project that represented greater than 5% of the total annual consolidated
research and development expense.
Advertising
Costs associated with advertising are expensed in the year incurred and are included in selling, marketing and
administrative expenses. Advertising expenses worldwide, which comprised television, radio, print media and Internet
advertising, were $2.6 billion, $2.5 billion and $2.3 billion in 2014, 2013 and 2012, respectively.
Johnson & Johnson 2014 Annual Report •29