Johnson and Johnson 2010 Annual Report Download - page 50

USE OF ESTIMATES
The preparation of consolidated financial statements in conformity
with accounting principles generally accepted in the U.S. requires
management to make estimates and assumptions that affect the
amounts reported. Estimates are used when accounting for sales
discounts, rebates, allowances and incentives, product liabilities,
income taxes, depreciation, amortization, employee benefits, con-
tingencies and intangible asset and liability valuations. For instance,
in determining annual pension and post-employment benefit costs,
the Company estimates the rate of return on plan assets, and the
cost of future health care benefits. Actual results may or may not
differ from those estimates.
The Company follows the provisions of U.S. GAAP when record-
ing litigation related contingencies. A liability is recorded when a loss
is probable and can be reasonably estimated. The best estimate of
aloss within a range is accrued; however, if no estimate in the range
is better than any other, the minimum amount is accrued.
ANNUAL CLOSING DATE
The Company follows the concept of a fiscal year, which ends on the
Sunday nearest to the end of the month of December. Normally
each fiscal year consists of 52 weeks, but every five or six years the
fiscal year consists of 53 weeks, as was the case in 2009 and will be
the case again in 2014.
RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to
current year presentation.
2. Cash, Cash Equivalents and Current
Marketable Securities
At the end of 2010 and 2009, the amortized cost of cash, cash
equivalents and current marketable securities were comprised of:
Amortized Cost
_________________________
(Dollars in Millions) 2010 2009
Cash $2,293 2,517
Government securities and obligations 22,349 13,370
Corporate debt securities 225 426
Money market funds 2,135 1,890
Time deposits656 1,222
Total cash, cash equivalents and
current marketable securities $27,658 19,425
The estimated fair value was the same as the amortized cost as
of January 2, 2011. The estimated fair value was $19,426 million
as of January 3, 2010 reflecting a $1 million unrealized gain in
As of January 2, 2011, current marketable securities consisted
of $8,153 million and $150 million of government securities and
obligations and corporate debt securities, respectively.
As of January 3, 2010, current marketable securities consisted
of $3,434 million and $181 million of government securities and
obligations and corporate debt securities, respectively.
Fair value of government securities and obligations and corpo-
rate debt securities were estimated using quoted broker prices in
active markets.
The Company invests its excess cash in both deposits with
major banks throughout the world and other high-quality money
market instruments. The Company has a policy of making
investments only with commercial institutions that have at least an
A (or equivalent) credit rating.
3. Inventories
At the end of 2010 and 2009, inventories were comprised of:
(Dollars in Millions) 2010 2009
Raw materials and supplies $1,073 1,144
Goods in process 1,460 1,395
Finished goods 2,845 2,641
Total inventories $5,378 5,180
4. Property, Plant and Equipment
At the end of 2010 and 2009, property, plant and equipment at cost
and accumulated depreciation were:
(Dollars in Millions) 2010 2009
Land and land improvements $738 714
Buildings and building equipment 9,079 8,863
Machinery and equipment 18,032 17,153
Construction in progress 2,577 2,521
Total property, plant and equipment, gross $30,426 29,251
Less accumulated depreciation 15,873 14,492
Total property, plant and equipment, net$14,553 14,759
The Company capitalizes interest expense as part of the cost of
construction of facilities and equipment. Interest expense capital-
ized in 2010, 2009 and 2008 was $73 million, $101 million and
$147million, respectively.
Depreciation expense, including the amortization of capitalized
interest in 2010, 2009 and 2008, was $2.2 billion, $2.1 billion and
$2.0 billion, respectively.
Upon retirement or other disposal of property, plant and equip-
ment, the costs and related amounts of accumulated depreciation
or amortization are eliminated from the asset and accumulated
depreciation accounts, respectively. The difference, if any, between
the net asset value and the proceeds are recorded in earnings.
48 JOHNSON & JOHNSON 2010 ANNUAL REPORT
government securities and obligations.