Johnson and Johnson 2008 Annual Report Download - page 43

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION 41
SHARE REPURCHASE AND DIVIDENDS
On July 9, 2007, the Company announced that its Board of Directors
approved a stock repurchase program, authorizing the Company to
buy back up to $10.0 billion of the Company’s Common Stock. 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 funds the
share repurchase program through a combination of available cash
and debt. As of December 28, 2008, the Company repurchased an
aggregate of 124.9 million shares of Johnson & Johnson common
stock under the current repurchase program at a cost of $8.1 billion.
In addition, the Company has an annual program to repurchase
shares for use in employee stock and incentive plans.
The Company increased its dividend in 2008 for the 46th con-
secutive year. Cash dividends paid were $1.795 per share in 2008,
compared with dividends of $1.620 per share in 2007 and $1.455
per share in 2006. The dividends were distributed as follows:
2008 2007 2006
First quarter $0.415 0.375 0.330
Second quarter 0.460 0.415 0.375
Third quarter 0.460 0.415 0.375
Fourth quarter 0.460 0.415 0.375
Total $1.795 1.620 1.455
On January 5, 2009,the Board of Directors declared a regular
cash dividend of $0.460 per share, payable on March 10, 2009, to
shareholders of record as of February 24, 2009. The Company
expects to continue the practice of paying regular cash dividends.
Other Information
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’sdiscussion and analysis of results of operations
and financial condition arebased on the Company’sconsolidated
financial statements that have been prepared in accordance with
accounting principles generally accepted in the U.S. The preparation
of these financial statements requires that management make esti-
mates and assumptions that affect the amounts reported for rev-
enues, expenses, assets, liabilities and other related disclosures.
Actual results may or may not differ from these estimates. The
Company believes that the understanding of certain key accounting
policies and estimates are essential in achieving more insight into
the Company’s operating results and financial condition. These key
accounting policies include revenue recognition, income taxes, legal
and self-insurance contingencies, valuation of long-lived assets,
assumptions used todetermine the amounts recorded for pensions
and other employee benefit plans and accounting for stock options.
Revenue Recognition: The Company recognizes revenue from
product sales when goods are shipped or delivered, and title and
risk of loss pass to the customer. Provisions for certain rebates,
sales incentives, trade promotions, coupons, product returns and
discounts to customers are accounted for as reductions in sales
in the same period the related sales are recorded.
Product discounts granted are based on the terms of arrange-
ments with direct, indirect and other market participants, as well
as market conditions, including prices charged by competitors.
Rebates, the largest being the Medicaid rebate provision, are esti-
mated based on contractual terms, historical experience, trend
analysis and projected market conditions in the various markets
served. The Companyevaluates market conditions for products or
groups of products primarily through the analysis of wholesaler and
other third-party sell-through and market research data, as well as
internally generated information.
Sales returns are generally estimated and recorded based
on historical sales and returns information. Products that exhibit
unusual sales or return patterns due to dating, competition or other
marketing matters are specifically investigated and analyzed as
part of the accounting for sales return accruals.
Sales returns allowances represent a reserve for products that
may be returned due to expiration, destruction in the field, or in spe-
cific areas, product recall. The returns reserve is based on historical
return trends by product and by market as a percent to gross sales.
Promotional programs, such as product listing allowances
and cooperative advertising arrangements, are recorded in the year
incurred. Continuing promotional programs include coupons and
volume-based sales incentive programs. The redemption cost of
consumer coupons is based on historical redemption experience
by product and value. Volume-based incentive programs are based
on estimated sales volumes for the incentive period and are recorded
as products are sold. The Company also earns service revenue for
co-promotion of certain products and includes it in sales to cus-
tomers. Promotional arrangements are evaluated to determine
the appropriate amounts to be deferred.
In addition, the Company enters into collaboration arrange-
ments, which contain multiple revenue generating activities. The
revenue for these arrangements is recognized as each activity is per-
formed or delivered, based on the relative fair value. Upfront fees
received as part of these arrangements are deferred and recognized
as revenue earned over the obligation period.
Reasonably likely changes to assumptions used to calculate
the accruals for rebates, returns and promotions are not anticipated
to have a material effect on the financial statements. The Company
currently discloses the impact of changes to assumptions in the
quarterly or annual filing in which thereis a material financial
statement impact.
Below are tables which show the progression of accrued
rebates, returns, promotions, reserve for doubtful accounts and
reserve for cash discounts by segment of business for the fiscal
years ended December 28, 2008 and December 30, 2007.
CONSUMER SEGMENT
Balanceat Balanceat
Beginning Payments/ End
(Dollars in Millions) of Period Accruals Other of Period
2008
Accrued rebates(1) $217 300 (386) 131
Accrued returns 113 135 (133) 115
Accrued promotions 297 2,369 (2,464) 202
Subtotal $627 2,804 (2,983) 448
Reserve for doubtful accounts 71 41 (2) 110
Reserve for cash discounts 23 272 (273) 22
Total $721 3,117 (3,258) 580
2007
Accrued rebates(1) $164 492 (439) 217
Accrued returns 92 257 (236) 113
Accrued promotions 211 2,249 (2,163) 297
Subtotal $467 2,998 (2,838) 627
Reserve for doubtful accounts 42 17 12 71
Reserve for cash discounts 15 278 (270) 23
Total $524 3,293 (3,096) 721
(1) Includes reserve for customer rebates of $73 million at December 28, 2008 and
$76 million at December 30,2007, recorded as a contra asset.