Johnson and Johnson 2006 Annual Report Download - page 56

54 JOHNSON & JOHNSON 2006 ANNUAL REPORT
1. Summary of Significant Accounting Policies
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Johnson & Johnson and subsidiaries (the “Company”). Inter-
company accounts and transactions are eliminated.
DESCRIPTION OF THE COMPANY AND BUSINESS SEGMENTS
The Company has approximately 122,200 employees worldwide
engaged in the research and development, manufacture and sale
of a broad range of products in the health care field. The Com-
pany conducts business in virtually all countries of the world and
itsprimary 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 Diagnos-
tics. The Consumer segment manufactures and markets a broad
range of products used in the baby and kids care, skin care,
oral care, wound care and women’s health care fields, as well as
nutritional and over-the-counter pharmaceutical products.
These products are marketed principally to the general public
and sold both to wholesalers and directly to independent and
chain retail outlets throughout the world. The Pharmaceutical
segment includes products in the following therapeutic areas:
anti-fungal, anti-infective, cardiovascular, contraceptive, derma-
tology, gastrointestinal, hematology, immunology, neurology,
oncology, pain management, psychotropic (central nervous sys-
tem), urology and virology areas. These products are distributed
directly to retailers, wholesalers and health care professionals for
prescription use by the general public. The Medical Devices and
Diagnostics segment includes a broad range of products used
principally in the professional fields byphysicians, nurses, thera-
pists, hospitals, diagnostic laboratories and clinics. These prod-
ucts include Cordis’ circulatory disease management products;
DePuy’s orthopaedic joint reconstruction and spinal care prod-
ucts; Ethicon’s wound care and women’s health products;
Ethicon Endo-Surgery’s minimally invasive surgical products;
LifeScan’s blood glucose monitoring and insulin delivery
products; Ortho-Clinical Diagnostics’ professional diagnostic
products and Vision Care’s disposable contact lenses.
NEW ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued SFAS No. 123(R), Share
Based Payment. This statement establishes standards for the
accounting for transactions in which an entity exchanges its
equity instruments for goods and services. It focuses primarily
on accounting for transactions in which an entity obtains
employee services in share-based payment transactions (such
as employee stock options and restricted stock units). The state-
ment requires the measurement of the cost of employee services
received in exchange for an award of equity instruments (such as
employee stock options and restricted stock units) at fair value
on the grant date. That cost will be recognized over the period
during which an employee is required to provide services in
exchange for the award (the requisite service period). The Com-
pany adopted this statement in the fiscal first quarter of 2006,
applying the modified retrospective transition method.
Previously reported financial statements have been restated to
reflect the adoption of SFAS No. 123(R). (See Note 10.)
The Company implemented SFAS 151, Inventory Costs,
an amendment of ARB No. 43in the fiscal first quarter of 2006. The
adoption of this statement did not have a material effect on the
Company’s results of operations, cash flows or financial position.
In June 2006, the FASB issued FASB Interpretation 48 [FIN
48], Accounting for Uncertainty in Income Taxes — an interpretation
of FASB Statement No. 109. This interpretation prescribes a recog-
nition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. The interpretation also
provides guidance on derecognition, classification and other
matters. FIN 48 is effective for the fiscal year 2007 and the
Company will adopt accordingly. The Company is assessing the
impact of the adoption of FIN 48 and currently does not believe
that the adoption will have a material effect on its results of
operations, cash flows or financial position.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurements. This
statement defines fair value, establishes a framework for measur-
ing fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. The state-
ment is effective in the fiscal first quarter of 2008 and the Com-
pany will adopt the statement at that time. The Company believes
that the adoption of SFAS No. 157 will not have a material effect
on its results of operations, cash flows or financial position.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 158, Employer’s Accounting for Defined
Pension and Other Postretirement Plans — an amendment of FASB
Statements No. 87, 88, 106 and 132(R). This statement requires the
recognition of the funded status of a benefit plan in the state-
ment of financial position. It also requires the recognition as a
component of other comprehensive income (OCI), net of tax, of
the gains or losses and prior service costs or credits that arise
during the period but are not recognized as components of net
periodic benefit cost pursuant to statements 87 or 106. The
statement also has new provisions regarding the measurement
date as well as certain disclosure requirements. The statement
was effective at fiscal year end 2006 and the Company adopted
the statement at that time. (See Note 13.)
In September 2006, the SEC issued Staff Accounting
Bulletin (SAB) 108, which expresses the Staff’s views regarding
the process of quantifying financial statement misstatements.
The bulletin was effective at fiscal year end 2006. The imple-
mentation of this bulletin had no impact on the Company’s
results of operations, cash flows or financial position.
The following accounting pronouncements became
effective in 2005 and did not have a material impact on the
Company’s results of operations, cash flows or financial position:
•FIN 47: Accounting for Conditional Asset Retirement
Obligations — an interpretation of FASB Statement No. 143.
•SFAS 153: Exchanges of Non-monetary Assets, an amendment of
APB 29.
Notes to Consolidated Financial Statements