Johnson and Johnson 2008 Annual Report Download - page 55

Temporary differences and carry forwards for 2008 and 2007
are as follows:
2008 2007
Deferred Tax Deferred Tax
_ ____________________ ____________________
(Dollars in Millions) Asset Liability Asset Liability
Employee related obligations $ 2,615 1,727
Stock based compensation 1,296 1,173
Depreciation (523) (463)
Non-deductible intangibles (1,791) (1,554)
International R&D capitalized
for tax 1,914 1,773
Reserves & liabilities 688 1,155
Income reported for
tax purposes 629 487
Miscellaneous international 1,357 (251) 1,177 (127)
Capitalized intangibles 74 89
Miscellaneous U.S. 1,754 542
Total deferred income taxes $10,327 (2,565) 8,123 (2,144)
The difference between the net deferred tax on income per the
balance sheet and the net deferred tax above is included in taxes
on income on the balance sheet. The 2008 deferred tax Miscella-
neous U.S. includes current year tax receivables.
The Company adopted FIN No. 48, Accounting for Uncertainty in
Income Taxes effective January 1, 2007. The Company had $1.7 billion
of gross unrecognized tax benefits, as of December 30, 2007. The
Company classifies liabilities for unrecognized tax benefits and
related interest and penalties as long-term liabilities. Interest expense
and penalties related tounrecognized tax benefits are classified as
income tax expense. During the fiscal year ended December 28,
2008, the Company recognized $106 million of interest expense with
an after-tax impact of $69 million. For the year ended December 30,
2007, the Company recognized $58 million of interest expense and
$42 million of interest income with an after-tax impact of $10 million
expense. The total amount of accrued interest was $227 million and
$187 million in 2008 and 2007, respectively.
The following table summarizes the activity related to
unrecognized tax benefits:
(Dollars in Millions) 2008 2007
Beginning of year $1,653 1,262
Increases related to current year tax positions 545 487
Increases related to prior period tax positions 87 77
Decreases related to prior period tax positions (142) (117)
Settlements(137) (14)
Lapse of statute of limitations (28) (42)
End of year $1,978 1,653
All of the unrecognized tax benefits of approximately $2.0 billion
at December 28, 2008, if recognized, would affect the Company’s
annual effective tax rate. The Company conducts business and
files tax returns in numerous countries and currently has tax audits
in progresswith a number of tax authorities. The U.S. Internal
Revenue Service (IRS) has completed its audit for the tax years
through 2002. In other major jurisdictions where the Company
conducts business, the years remain open generally back to the
year 2002 with some jurisdictions remaining open as far back as
1995. The Company does not expect that the total amount of
unrecognized tax benefits will significantly change over the next
twelve months. The Company does not expect a significant pay-
ment within the next twelve months, and is not able to provide
a reasonably reliable estimateof the timing of anyfuture tax
payments relating to uncertain tax positions.
9. International Currency Translation
For translation of its subsidiaries operating in non-U.S. Dollar cur-
rencies, the Company has determined that the local currencies of
its international subsidiaries are the functional currencies except
those in highly inflationary economies, which are defined as those
which have had compound cumulative rates of inflation of 100%
or more during the past three years, or where a substantial portion
of its cash flows are not in the local currency.
In consolidating international subsidiaries, balance sheet cur-
rency effects are recorded as a component of accumulated other
comprehensive income. This equity account includes the results
of translating all balance sheet assets and liabilities at current
exchange rates, except for those located in highly inflationary
economies. The translation of balance sheet accounts for highly
inflationary economies are reflected in the operating results.
An analysis of the changes during 2008, 2007 and 2006 for
foreign currency translation adjustments is included in Note 12.
Net currency transaction and translation gains and losses
included in other (income) expense were losses of $31 million,
$23 million and $18 million in 2008, 2007 and 2006, respectively.
10. Common Stock, Stock Option Plans and
Stock Compensation Agreements
STOCK OPTIONS
AtDecember 28, 2008, the Company had 14 stock-based compen-
sation plans. The shares outstanding are for contracts under the
Company’s1995 and 2000 Stock Option Plans, the 2005 Long-
Term IncentivePlan, the 1997Non-Employee Director’s Plan and
the Centocor, Innovasive Devices, ALZA, Inverness, and Scios Stock
Option Plans. During 2008, no options or restricted shares were
granted under any of these plans except under the 2005 Long-Term
Incentive Plan.
The compensation cost recorded under SFAS No.123(R) that
has been charged against income for these plans was $627 million
for 2008, $698 million for 2007 and $659 million for 2006. The total
income tax benefit recognized in the income statement for share-
based compensation costs was $210 million for 2008, $238 million
for 2007 and $228 million for 2006. Share-based compensation
costs capitalized as part of inventory were insignificant in all periods.
Stock options expire 10 years from the date of grant and vest
over service periods that range from six months to five years. All
options are granted at the average of the high and low prices of the
Company’s common stock on the New York Stock Exchange on the
date of grant. Under the 2005 Long-Term Incentive Plan, the Com-
pany may issue up to 260 million shares of common stock. Shares
available for future grants under the 2005 Long-Term Incentive Plan
were167.6 million at the end of 2008.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 53