Johnson and Johnson 2009 Annual Report Download - page 49

N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 47
Temporary differences and carry forwards for 2009 and 2008
are as follows:
2009 2008
Deferred Tax Deferred Tax
____________________ ____________________
(Dollars in Millions) Asset Liability Asset Liability
Employee related obligations $2,153 2,615
Stock based compensation 1,291 1,296
Depreciation (661) (523)
Non-deductible intangibles (2,377) (1,791)
International R&D capitalized
for tax 1,989 1,914
Reserves & liabilities 1,014 688
Income reported for
tax purposes 648 629
Net operating loss
carryforward international 615 393
Miscellaneous international 1,474 (110) 964 (251)
Miscellaneous U.S. 799 1,828
Total deferred income taxes $9,983 (3,148) 10,327 (2,565)
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 2009 and 2008 deferred
tax Miscellaneous U.S. includes current year tax receivables. The
Company has a wholly-owned international subsidiary which has
cumulative net losses. The Company believes that it is more likely
than not that the subsidiary will realize future taxable income
sufficient to utilize these deferred tax assets.
The following table summarizes the activity related to
unrecognized tax benefits:
(Dollars in Millions) 2009 2008 2007
Beginning of year $1,978 1,653 1,262
Increases related to current year tax positions 555 545 487
Increases related to prior period tax positions 203 87 77
Decreases related to prior period tax positions (163) (142) (117)
Settlements (87) (137) (14)
Lapse of statute of limitations (83) (28) (42)
End of year $2,403 1,978 1,653
The Company had $2.4 billion and $2.0 billion of unrecognized tax
benefits, as of January 3, 2010 and December 28, 2008, respec-
tively. All of the unrecognized tax benefits of $2.4 billion at January
3, 2010, 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 progress with 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 believes that it is
possible that within the next twelve months, the IRS may complete
its audit of the tax years 2003–2005. The close of the audit may
result in the reduction of unrecognized tax benefits. The Company is
not able to provide a reasonably reliable estimate of the timing of
any other future tax payments relating to uncertain tax positions.
The Company classifies liabilities for unrecognized tax benefits
and related interest and penalties as long-term liabilities. Interest
expense and penalties related to unrecognized tax benefits are clas-
sified as income tax expense. During the fiscal year ended January 3,
2010, the Company recognized $85 million of interest expense and
$30 million of interest income with an after-tax impact of $36 mil-
lion expense. For 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 fiscal 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 mil-
lion expense. The total amount of accrued interest was $309 million
and $227 million in 2009 and 2008, respectively.
9. Employee Related Obligations
At the end of 2009 and 2008, employee related obligations
recorded on the Consolidated Balance Sheet were:
(Dollars in Millions) 2009 2008
Pension benefits $2,792 4,382
Postretirement benefits 2,245 2,217
Postemployment benefits 1,504 870
Deferred compensation 790 772
Total employee obligations 7,331 8,241
Less current benefits payable 562 450
Employee related obligations — long-term $6,769 7,791
Prepaid employee related obligations of $266 million and $136 mil-
lion for 2009 and 2008, respectively, are included in other assets on
the consolidated balance sheet.
10. Pensions and Other Benefit Plans
The Company sponsors various retirement and pension plans,
including defined benefit, defined contribution and termination
indemnity plans, which cover most employees worldwide. The
Company also provides postretirement benefits, primarily health
care, to all U.S. retired employees and their dependents.
Many international employees are covered by government-
sponsored programs and the cost to the Company is not significant.
Retirement plan benefits are primarily based on the employee’s
compensation during the last three to five years before retirement
and the number of years of service. International subsidiaries have
plans under which funds are deposited with trustees, annuities are
purchased under group contracts, or reserves are provided.
The Company does not fund retiree health care benefits in
advance and has the right to modify these plans in the future.
The Company uses the date of its consolidated financial state-
ments (January 3, 2010 and December 28, 2008, respectively) as
the measurement date for all U.S. and international retirement and
other benefit plans.
In accordance with U.S. GAAP the Company has adopted
the recent standards related to employers’ accounting for defined
benefit pension and other postretirement plans.