Johnson and Johnson 2008 Annual Report Download - page 50

Notes to Consolidated Financial Statements
48 JOHNSON & JOHNSON 2008 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 118,700 employees worldwide
engaged in the research and development, manufacture and sale of
abroad range of products in the health care field. The Company
conducts business in virtually all countries of the world and its pri-
mary 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 Diagnostics.
The Consumer segment manufactures and markets a broad range
of products used in the baby 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 to
the general public and sold both to distributors and directly to inde-
pendent and chain retail outlets throughout the world. The Pharma-
ceutical segment includes products in the following therapeutic
areas: anti-infective, antipsychotic, cardiovascular, contraceptive,
dermatology, gastrointestinal, hematology, immunology, neurology,
oncology,pain management, urology and virology. These products
aredistributed directly toretailers, wholesalers and health care pro-
fessionals for prescription use. The Medical Devices and Diagnos-
tics segment includes a broad rangeof products used principally in
the professional fields by physicians, nurses, therapists, hospitals,
diagnostic laboratories and clinics. These products include Cordis’
circulatory disease management products; DePuy’s orthopaedic
joint reconstruction, spinal care and sports medicine products;
Ethicon’s surgical 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 Vistakon’s
disposable contact lenses.
NEW ACCOUNTING PRONOUNCEMENTS
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS)
No.157, Fair Value Measurements. This statement defines fair value,
establishes a framework for measuring fair value in generally
accepted accounting principles, and expands disclosures about fair
value measurements. The statement was effective in the fiscal first
quarter of 2008 except for non-financial assets and liabilities recog-
nized or disclosed at fair value on a recurring basis, for which the
effective date is for fiscal years beginning after November 15, 2008.
The Company adopted SFAS No. 157 in the fiscal first quarter of
2008, the impact of which is discussed in Note 23.
In February 2007, the FASB issued SFAS No. 159, Fair Value
Option for Financial Assets and Financial Liabilities,which permits an
entity to measure certain financial assets and financial liabilities at
fair value. SFAS No. 159 was effective for fiscal year 2008 and the
Companyadopted it in the fiscal first quarter of 2008. The adoption
of SFAS No. 159 did not have a material effect on the Company’s
results of operations, cash flows or financial position.
EITF Issue 07-03: Accounting for Nonrefundable Advance Pay-
ments for Goods or Services Received for Use in Future Research and
Development Activities. This issue is effective for financial statements
issued for fiscal years beginning after December 15, 2007 and was
adopted by the Company in the fiscal first quarter of 2008. This
issue requires nonrefundable advance payments for research and
development to be capitalized and recognized as an expense as
related goods are delivered or services are performed. The adoption
of EITF 07-03 did not have a significant impact on the Company’s
results of operations, cash flows or financial position.
RECENTLY ISSUED ACCOUNTING STANDARDS,
NOT ADOPTED AS OF DECEMBER 28, 2008
In December 2007, FASB issued SFAS No. 141(R), Business Combina-
tions,and No. 160, Noncontrolling Interests in Consolidated Financial
Statements.These statements aim to improve, simplify and con-
verge internationally the accounting for business combinations and
the reporting of noncontrolling interests in consolidated financial
statements. These statements are effective for fiscal years begin-
ning after December 15, 2008. SFAS No. 141(R) will have a signifi-
cant impact on the manner in which the Companyaccounts for
future acquisitions beginning in the fiscal year 2009. Significant
changes include the capitalization of in-process research and devel-
opment (IPR&D), expensing of acquisition related restructuring
actions and transaction related costs and the recognition of contin-
gent purchase price consideration at fair value at the acquisition
date. In addition, changes in accounting for deferred tax asset
valuation allowances and acquired income tax uncertainties after
the measurement period will be recognized in earnings rather than
as an adjustment tothe cost of acquisition. This accounting treat-
ment for taxes is applicable to acquisitions that occurred both prior
and subsequent to the adoption of SFAS No. 141(R). The Company
believes that the adoption of SFAS No. 141(R) and SFAS No. 160 will
not have a material effect on its results of operations, cash flows or
financial position.
In March 2008, the FASB issued SFAS Statement No. 161,
Disclosures About Derivative Instruments and Hedging Activities, an
amendment of FASB Statement No. 133, to enhance the disclosure
regarding the Company’s derivative and hedging activities, to
improvethe transparency of financial reporting. This statement is
effective for fiscal years beginning after November 15, 2008. The
adoption of SFAS No. 161 will have no impact on the Company’s
results of operations, cash flows or financial position.
EITF Issue 07-01: Accounting for Collaborative Arrangements
Related to the Development and Commercialization of Intellectual
Property. This issue is effective for financial statements issued
for fiscal years beginning after December 15, 2008. This issue
addresses the income statement classification of payments made
between parties in a collaborative arrangement. The adoption of
EITF 07-01 is not expected to have a significant impact on the
Company’s results of operations, cash flows or financial position.
EITF Issue 08-07: Accounting for Defensive Intangible Assets.
This issue applies to acquired intangible assets in situations in
which an entity does not intend to actively use the asset, but intends
tohold the asset toprevent others from obtaining access to the
asset, except for intangible assets that are used in research and
development activities. This issue is effective for fiscal years
beginning after December 15, 2008. The adoption of EITF 08-07 is
not expected to have a significant impact on the Company’s results
of operations, cash flows or financial position.