Johnson and Johnson 2009 Annual Report Download - page 35

M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S O F R E S U L T S O F O P E R A T I O N S A N D F I N A N C I A L C O N D I T I O N 33
aggregate of 140.4 million shares of Johnson & Johnson Common
Stock under the current repurchase program at a cost of $8.9 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 2009 for the 47th con-
secutive year. Cash dividends paid were $1.930 per share in 2009,
compared with dividends of $1.795 per share in 2008 and $1.620
per share in 2007. The dividends were distributed as follows:
2009 2008 2007
First quarter $0.460 0.415 0.375
Second quarter 0.490 0.460 0.415
Third quarter 0.490 0.460 0.415
Fourth quarter 0.490 0.460 0.415
Total $1.930 1.795 1.620
On January 4, 2010, the Board of Directors declared a regular quar-
terly cash dividend of $0.490 per share, payable on March 9, 2010,
to shareholders of record as of February 23, 2010. The Company
expects to continue the practice of paying regular cash dividends.
Other Information
CR I TICA L ACCO UNT I NG PO L ICI E S AND E S T IMAT ES
Management’s discussion and analysis of results of operations
and financial condition are based on the Company’s consolidated
financial statements that have been prepared in accordance with
accounting principles generally accepted in the U.S. (GAAP). The
preparation of these financial statements requires that management
make estimates and assumptions that affect the amounts reported
for revenues, expenses, assets, liabilities and other related disclo-
sures. 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 to determine 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 dis-
counts 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 Company evaluates 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.
The Company’s sales return reserves are accounted for in accor-
dance with the U.S. GAAP guidance for revenue recognition when
right of return exists. Sales return reserves are recorded at full sales
value. Sales returns in the Consumer and Pharmaceutical segments
are almost exclusively not resalable. Sales returns for certain fran-
chises in the Medical Devices and Diagnostics segment are typically
resalable but are not material. The Company rarely exchanges
products from inventory for returned products. The sales returns
reserve for the total Company has ranged between 1.1% and 1.2% of
annual net trade sales during the prior three fiscal reporting years
2007–2009.
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. For all years presented, service
revenues were less than 2% of total revenues and are included in
sales to customers. Additionally, these arrangements are evaluated
to determine the appropriate amounts to be deferred.
In addition, the Company enters into collaboration arrangements,
which contain multiple revenue generating activities. The revenue for
these arrangements is recognized as each activity is performed 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. See Note 1 to the Consolidated
Financial Statements for additional disclosures on collaborations.
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 there is 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 January 3, 2010 and December 28, 2008.
CONSUMER SEGMENT
Balance at Balance at
Beginning Payments/ End
(Dollars in Millions) of Period Accruals Other of Period
2009
Accrued rebates(1) $131 380 (390) 121
Accrued returns 115 134 (122) 127
Accrued promotions 202 1,996 (1,926) 272
Subtotal $448 2,510 (2,438) 520
Reserve for doubtful accounts 110 23 (26) 107
Reserve for cash discounts 22 285 (286) 21
Total $580 2,818 (2,750) 648
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
(1) Includes reserve for customer rebates of $46 million at January 3, 2010 and $73 million
at December 28, 2008, recorded as a contra asset.