Johnson and Johnson 2015 Annual Report Download - page 33

Financing activities use of $10.8 billion was primarily for dividends to shareholders of $8.2 billion and $5.3 billion for the
repurchase of common stock. Financing activities also included a source of $1.4 billion from net proceeds of short and
long-term debt and $1.3 billion of net proceeds from stock options exercised and associated tax benefits.
On October 13, 2015, the Company announced that its Board of Directors approved a share repurchase program,
authorizing the Company to purchase up to $10.0 billion of the Company’s shares of common stock. As of January 3,
2016, $1.0 billion has been repurchased under the program. The repurchase program has no time limit and may be
suspended for periods or discontinued at any time. Any shares acquired will be available for general corporate purposes.
The Company intends to finance the share repurchase program through available cash and access to the capital markets.
The previous share repurchase program approved on July 21, 2014, authorizing the Company to purchase up to $5.0
billion of the Company’s shares of common stock, was completed on April 28, 2015.
In 2015, the Company continued to have access to liquidity through the commercial paper market. The Company has a
shelf registration with the U.S. Securities and Exchange Commission that enables the Company to issue debt securities
and warrants to purchase debt securities on a timely basis. For additional details on borrowings, see Note 7 to the
Consolidated Financial Statements.
The Company anticipates that operating cash flows, existing credit facilities and access to the capital markets will provide
sufficient resources to fund operating needs in 2016.
Concentration of Credit Risk
Global concentration of credit risk with respect to trade accounts receivables continues to be limited due to the large
number of customers globally and adherence to internal credit policies and credit limits. Economic challenges in Italy,
Spain, Greece and Portugal (the Southern European Region) have impacted certain payment patterns, which have
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 $1.3 billion as of January 3, 2016 and $1.8 billion
as of December 28, 2014. Approximately $0.8 billion as of January 3, 2016 and approximately $1.1 billion as of
December 28, 2014 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 $0.5 billion at January 3, 2016 and $0.7 billion at December 28, 2014. The
Company continues to receive payments from these customers and, in some cases, late payments with interest. 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.
Financing and Market Risk
The Company uses financial instruments to manage the impact of foreign exchange rate changes on cash flows.
Accordingly, the Company enters into forward foreign exchange contracts to protect the value of certain foreign currency
assets and liabilities and to hedge future foreign currency transactions primarily related to product costs. Gains or losses
on these contracts are offset by the gains or losses on the underlying transactions. A 10% appreciation of the U.S. Dollar
from the January 3, 2016 market rates would increase the unrealized value of the Company’s forward contracts by
$15 million. Conversely, a 10% depreciation of the U.S. Dollar from the January 3, 2016 market rates would decrease the
unrealized value of the Company’s forward contracts by $18 million. In either scenario, the gain or loss on the forward
contract would be offset by the gain or loss on the underlying transaction, and therefore, would have no impact on future
anticipated earnings and cash flows.
The Company hedges the exposure to fluctuations in currency exchange rates, and the effect on certain assets and
liabilities in foreign currency, by entering into currency swap contracts. A 1% change in the spread between U.S. and
foreign interest rates on the Company’s interest rate sensitive financial instruments would either increase or decrease the
unrealized value of the Company’s swap contracts by approximately $115 million. In either scenario, at maturity, the gain or
loss on the swap contract would be offset by the gain or loss on the underlying transaction, and therefore, would have no
impact on future anticipated cash flows.
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