Johnson and Johnson 2008 Annual Report Download - page 44

42 JOHNSON & JOHNSON 2008 ANNUAL REPORT
PHARMACEUTICAL SEGMENT
Balance at Balance at
Beginning Payments/ End
(Dollars in Millions) of Period Accruals Other of Period
2008
Accrued rebates(1) $1,249 3,331 (3,319) 1,261
Accrued returns 345 168 (23) 490
Accrued promotions 263 414 (570) 107
Subtotal $1,857 3,913 (3,912) 1,858
Reserve for doubtful accounts 26 24 (2) 48
Reserve for cash discounts 24 376 (377) 23
Total $1,907 4,313(2) (4,291) 1,929
2007
Accrued rebates(1) $1,233 3,175 (3,159) 1,249
Accrued returns 324 36 (15) 345
Accrued promotions 205 523 (465) 263
Subtotal $1,762 3,734 (3,639) 1,857
Reserve for doubtful accounts 30 —(4) 26
Reserve for cash discounts 29 531 (536) 24
Total $1,821 4,265 (4,179) 1,907
(1) Includes reserve for customer rebates of $344 million at December 28, 2008 and
$321 million at December 30, 2007, recorded as a contra asset.
(2) Includes $115 million adjustment related to previously estimated accrued sales reserves.
MEDICAL DEVICES AND DIAGNOSTICS SEGMENT
Balance at Balance at
Beginning Payments/ End
(Dollars in Millions) of Period Accruals Other of Period
2008
Accrued rebates(1) $336 1,947 (1,867) 416
Accrued returns 190 99 (100) 189
Accrued promotions 18 208 (179) 47
Subtotal $544 2,254 (2,146) 652
Reserve for doubtful accounts 96 36 (23) 109
Reserve for cash discounts 24 257 (247) 34
Total $664 2,547(2) (2,416) 795
2007
Accrued rebates(1) $294 1,576 (1,534) 336
Accrued returns 183 102 (95) 190
Accrued promotions 41 136 (159) 18
Subtotal $518 1,814 (1,788) 544
Reserve for doubtful accounts 88 25 (17) 96
Reserve for cash discounts 18 213 (207) 24
Total $624 2,052 (2,012) 664
(1) Includes reserve for customer rebates of $304 million at December 28, 2008 and
$313 million at December 30, 2007, recorded as a contra asset.
(2) Includes $56 million adjustment related to previously estimated sales rebate reserve.
The Company also earns service revenue for co-promotion of cer-
tain products. For all yearspresented, service revenues were less
than 2% of total revenues and are included in sales to customers.
Income Taxes: Income taxes are recorded based on amounts
refundable or payable for the current year and include the results of
any difference between GAAP accounting and tax reporting,
recorded as deferred tax assets or liabilities. The Company esti-
mates deferred tax assets and liabilities based on current tax regula-
tions and rates. Changes in tax laws and rates may affect recorded
deferred tax assets and liabilities in the future. Management
believes that changes in these estimates would not have a material
effect on the Company’s results of operations, cash flows or
financial position.
In 2007, the Company adopted FASB Interpretation 48
(FIN48), Accounting for Uncertainty in Income Taxes — an interpre-
tation of FASB Statement No. 109. This interpretation prescribes a
recognition 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. See
Note 8 to the Consolidated Financial Statements for further
information regarding income taxes.
At December 28, 2008 and December 30, 2007, the
cumulative amounts of undistributed international earnings were
approximately $27.7 billion and $23.7 billion, respectively. The Com-
pany intends to continue to reinvest its undistributed international
earnings to expand its international operations; therefore, no U.S.
tax expense has been recorded with respect to the undistributed
portion not intended for repatriation.
Legal and Self Insurance Contingencies: The Company records
accruals for various contingencies including legal proceedings and
product liability cases as these arise in the normal course of busi-
ness. The accruals are based on management’s judgment as to
the probability of losses and, where applicable, actuarially deter-
mined estimates. Additionally, the Company records insurance
receivable amounts from third-party insurers when recovery is
probable. As appropriate, reserves against these receivables are
recorded for estimated amounts that may not be collected from
third-party insurers.
Long-Lived and Intangible Assets: The Companyassesses 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 Companysponsorsvarious retirement
and pension plans, including defined benefit, defined contribution
and termination indemnityplans, which cover most employees
worldwide. These plans are based on assumptions for the discount
rate, expected return on plan assets, expected salary increases and
health care cost trend rates. See Note 13 to the Consolidated Finan-
cial Statements for further details on these rates and the effect a
ratechangewould have on the Company’s results of operations.
Stock Options: During the fiscal first quarter of 2006, the Company
adopted Statement of Financial Accounting Standards (SFAS) No.
123(R), Share Based Payment. The Company has applied the modi-
fied retrospective transition method to implement SFAS No. 123(R).
Previously reported financial statements have been restated in
accordance with the provisions of SFAS No. 123(R). See Note 10 for
further information regarding stock options.
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, 2008.