Johnson and Johnson 2005 Annual Report Download - page 57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PAGE 55
14. CASH EQUIVALENTS AND MARKETABLE SECURITIES
January 1, 2006 January 2, 2005
Amortized Unrealized Estimated Amortized Unrealized Estimated
(Dollars in Millions) Cost Gains/(Losses) Fair Value Cost Gains/(Losses) Fair Value
Current Investments
Government securities
and obligations $ 1,743 — 1,743 4,213 (1) 4,212
Corporate debt securities 67 — 67 2,798 (1) 2,797
Money market funds 11,918 — 11,918 2,153 — 2,153
Time deposits 985 — 985 1,325 — 1,325
Collateralized mortgage obligations
and asset backed securities — — — 397 — 397
Bank notes — — — 20 — 20
Total cash equivalents and current
marketable securities $14,713 — 14,713 10,906 (2) 10,904
Non-Current Investments
Marketable securities $ 20 — 20 46 — 46
Current marketable securities include $14.6 billion and $7.2 billion that are classified as cash equivalents on the balance sheet at
January 1, 2006 and January 2, 2005, respectively.
15. FINANCIAL INSTRUMENTS
The Company follows the provisions of SFAS 133 requiring that
all derivative instruments be recorded on the balance sheet at
fair value.
As of January 1, 2006, the balance of deferred net gains on
derivatives included in accumulated other comprehensive
income was $15 million after-tax. For additional information,
see Note 12. The Company expects that substantially all of this
amount will be reclassified into earnings over the next 12
months as a result of transactions that are expected to occur
over that period. The maximum length of time over which the
Company is hedging transaction exposure is 18 months. The
amount ultimately realized in earnings will differ as foreign
exchange rates change. Realized gains and losses are ultimately
determined by actual exchange rates at maturity of the deriva-
tive. Derivative gains/(losses), initially reported as a component
of other comprehensive income, are reclassified to earnings in
the period when the forecasted transaction affects earnings.
For the years ended January 1, 2006, January 2, 2005 and
December 28, 2003, the net impact of hedge ineffectiveness,
transactions not qualifying for hedge accounting and
discontinuance of hedges, to the Company’s financial statements
was insignificant.
Refer to Note 12 for disclosures of movements in Accumu-
lated Other Comprehensive Income.
Concentration of Credit Risk
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 mak-
ing investments only with commercial institutions that have
at least an A (or equivalent) credit rating. On average, these
investments mature within six months, and the Company has
not incurred any related losses.
16. SAVINGS PLAN
The Company has voluntary 401(k) savings plans designed to
enhance the existing retirement programs covering eligible
employees. The Company matches a percentage of each
employee’s contributions consistent with the provisions of the
plan for which he/she is eligible.
In the U.S. salaried plan, through 2004, one-third of the
Company match was paid in Company stock under an employee
stock ownership plan (ESOP) unless the employee chose to
On December 8, 2003, the Medicare Prescription Drug
Improvement and Modernization Act of 2003 was enacted that
introduces a prescription drug benefit under Medicare as well
as a subsidy to sponsors of retiree health care benefit plans.
The Company’s application to the Centers for Medicare and
Medicaid Services attesting to the plan’s “actuarial equivalence”
to Medicare has been accepted, and subsidy reimbursements
are expected beginning in 2006. There is no change in esti-
mated participation rates or per capita claims costs as a result
of the Act. The Company has recognized the effect of the sub-
sidy on a prospective basis from June 28, 2004. The recogni-
tion reduces before-tax and after-tax expense by $16 million
and the accumulated postretirement benefit obligation by
$163 million.