Johnson & Johnson - Index

Johnson & Johnson - report - Index

Legal and Self Insurance Contingencies: The Company records
accruals for various contingencies including legal proceedings
and product liability cases as these arise in the normal course of
business. The accruals are based on management’s judgment as
to the probability of losses, opinions of legal counsel and, where
applicable, actuarially determined estimates. Additionally, the
Company records insurance receivable amounts from third-party
insurers when recovery is probable. As appropriate, reserves
against these receivables are recorded for estimated amounts
that may not be collected from third-party insurers.
Long-Lived and Intangible Assets: The Company assesses
changes in economic conditions and makes assumptions regarding
estimated future cash flows in evaluating the value of the
Company’s property, plant and equipment, goodwill and intangible
assets. As these assumptions and estimates may change
over time, it may or may not be necessary for the Company to
record impairment charges.
Employee Benefit Plans: The Company sponsors various retirement
and pension plans, including defined benefit, defined contribution
and termination indemnity plans, that cover most
employees worldwide. These plans are based on assumptions for
the discount rate, expected return on plan assets, expected
salary increases and health care cost trend rates. See Note 13 for
further detail on these rates and the effect a rate change would
have on the Company’s results of operations.
Stock Options: During the fiscal first quarter of 2006, the
Company adopted Statement of Financial Accounting Standards
(SFAS) No. 123(R), Share Based Payment. The Company has
applied the modified retrospective transition method to implement
SFAS No. 123(R). Previously reported financial statements
have been restated in accordance with the provisions of SFAS
No. 123(R). See Note 10 for further information regarding
stock options.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2006, the Financial Accounting Standards Board (FASB)
issued FASB Interpretation 48 (FIN 48), Accounting for Uncertainty
in Income Taxes — an interpretation of FASB Statement No.
109. This interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition
and measurement of a tax position taken or expected to be taken
in a tax return. The interpretation also provides guidance on
derecognition, classification and other matters. FIN 48 is effective
for the fiscal year 2007 and the Company adopted it in the
first quarter of 2007.
In September 2006, the FASB issued 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 is effective in the fiscal first quarter
of 2008 except for non-financial assets and liabilities recognized
or disclosed at fair value on a recurring basis, for which the
effective date is fiscal years beginning after November 15, 2008.
The Company believes that the adoption of SFAS No. 157 will not
have a material effect on its results of operations, cash flows or
financial position.
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 liabili-
ties at fair value. SFAS No. 159 is effective for fiscal year 2008
and the Company will adopt accordingly. The Company is
assessing the impact of the adoption of SFAS No. 159 and
currently does not believe that the adoption will have a material
impact on its results of operations, cash flows or financial
position.
In December 2007, FASB issued SFAS No. 141(R),
Business Combinations, and No. 160, Noncontrolling Interests in
Consolidated Financial Statements. These statements aim to
improve, simplify, and converge internationally the accounting
for business combinations and the reporting of noncontrolling
interests in consolidated financial statements. These statements
are effective for fiscal years beginning after December 15, 2008.
SFAS No. 141(R) will have a significant impact on the manner in
which the Company accounts for future acquisitions beginning in
the fiscal year 2009. Significant changes include the capitalization
of IPR&D, expensing of acquisition related restructuring actions
and transaction related costs and the recognition of contingent
purchase price consideration at fair value at the acquisition date.
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.
EITF Issue 07-1: 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 07-1 is not expected to have a significant impact on the
Company’s results of operations, cash flows or financial position.
EITF Issue 07-3: Accounting for Nonrefundable Advance Payments
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.
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 07-3 is not expected to have a
significant impact on the Company’s results of operations, cash
flows or financial position.
ECONOMIC AND MARKET FACTORS
The Company is aware that its products are used in an environment
where, for more than a decade, policymakers, consumers and businesses
have expressed concerns about the rising cost of health care.
In response to these concerns, The Company has a long-standing
policy of pricing products responsibly. For the period 1997–2007, in
the United States, the weighted average compound annual growth
rate of the Company’s net price increases for health care products
(prescription and over-the-counter drugs, hospital and professional
products) was below the U.S. Consumer Price Index (CPI).
Inflation rates, even though moderate in many parts of the
world during 2007, continue to have an effect on worldwide
economies and, consequently, on the way companies operate.
In the face of increasing costs, the Company strives to maintain
its profit margins through cost reduction programs, productivity
improvements and periodic price increases. The Company
faces various worldwide health care changes that may result
in pricing pressures that include health care cost containment
and government legislation relating to sales, promotions
and reimbursement.
46 JOHNSON & JOHNSON 2007 ANNUAL REPORT