Johnson and Johnson 2006 Annual Report Download - page 59

NOTES TO CONSOLIDATED FINANCIAL ST A TEMENTS57
3. Property, Plant and Equipment
At the end of 2006 and 2005, property, plant and equipment at
cost and accumulated depreciation were:
(Dollars in Millions) 2006 2005
Land and land improvements $611 502
Buildings and building equipment 7,347 5,875
Machinery and equipment 13,108 10,835
Construction in progress 2,962 2,504
24,028 19,716
Less accumulated depreciation 10,984 8,886
$13,044 10,830
The Company capitalizes interest expense as part of the cost of
construction of facilities and equipment. Interest expense capi-
talized in 2006, 2005 and 2004 was $118 million, $111 million
and $136 million, respectively.
Depreciation expense, including the amortization of capital-
ized interest in 2006, 2005 and 2004 was $1.6 billion, $1.5 bil-
lion and $1.5 billion, respectively.
Upon retirement or other disposal of property, plant and equip-
ment, the cost and related amount 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 is recorded in earnings.
4. Rental Expense and Lease Commitments
Rentals of space, vehicles, manufacturing equipment and
officeand data processing equipment under operating leases
were approximately $285 million in 2006, $248 million in 2005
and $254 million in 2004.
The approximate minimum rental payments required under
operating leases that have initial or remaining noncancelable
lease terms in excess of one year at December 31, 2006 are:
After
(Dollars in Millions) 2007 2008 2009 2010 2011 2011 Total
$187 162 137 115 98 150 849
Commitments under capital leases are not significant.
5. Employee Related Obligations
At the end of 2006 and 2005, employee related obligations were:
(Dollars in Millions) 2006 2005
Pension benefits1,264
Postretirement benefits1,157
Postemployment benefits322
Deferred compensation 511
3,254
Less current benefits payable 189
Employee related obligations 3,065
Prepaid employee related obligations of $259 million and
$1,218 million for 2006 and 2005, respectively, are included in
other assets on the consolidated balance sheet. Prepaid
employee related obligations decreased significantly in 2006
due to the implementation of SFAS No. 158.
6. Borrowings
The components of long-term debt are as follows:
EffectiveEffective
(Dollars in Millions) 2006 Rate% 2005 Rate%
3% Zero Coupon
Convertible Subordinated
Debentures due 2020 $182 3.00 202 3.00
4.95% Debentures due 2033 500 4.95 500 4.95
3.80% Debentures due 2013 500 3.82 500 3.82
6.95% Notes due 2029 293 7.14 293 7.14
6.73% Debentures due 2023 250 6.73 250 6.73
6.625% Notes due 2009 199 6.80 199 6.80
Industrial Revenue Bonds 29 5.21 31 3.90
Other 70 —55 —
2,023 5.23(1) 2,030 5.18(1)
Less current portion 9 13
$2,014 2,017
(1)Weighted average effective rate.
The Company has access to substantial sources of funds at
numerous banks worldwide. Total unused credit available to the
Company approximates $10.8 billion, including $9 billion of
credit commitments, of which $3.75 billion expire September 27,
2007, $4 billion expire October 30, 2007 and $1.25 billion
expire September 28, 2011. Also included are $0.75 billion of
uncommitted lines with various banks worldwide that expire
during 2007. Interest charged on borrowings under the credit
line agreements is based on either bids provided by banks, the
prime rate or London Interbank Offered Rates (LIBOR), plus
applicable margins. Commitment fees under the agreement are
not material.
The Company filed a shelf registration with the Securities
and Exchange Commission (SEC) that became effective Novem-
ber 13, 2006 which enables the Company to issue up to $10 bil-
lion in debt securities and warrants to purchase debt securities.
There was no debt issued during 2006 and the full amount
remained available as of December 31, 2006.
On July 28, 2000, ALZA completed a private offering of the
3% Zero Coupon Convertible Subordinated Debentures, which
were issued at a price of $551.26 per $1,000 principal amount at
maturity. At December 31, 2006 the outstanding 3% Debentures
had a total principal amount at maturity of $272.5 million with a
yield to maturity of 3% per annum, computed on a semiannual
bond equivalent basis. There are no periodic interest payments.
Under the terms of the 3% debentures, holders are entitled to
convert their debentures into approximately 15.0 million shares
of Johnson & Johnson stock at a price of $40.102 per share.
Approximately 11.2 million shares have been issued as of Decem-
ber 31, 2006, due to voluntary conversions by note holders. At
the option of the holder, the 3% Debentures may be repurchased
by the Company on July 28, 2008 or 2013, at a purchase price
equal to the issue price plus accreted original issue discount to
such purchase date. The Company, at its option, may elect to
deliver either Johnson & Johnson common stock or cash, or a
combination of stock and cash, in the event of repurchase of the
3% Debentures. The Company, at its option, may also redeem
any or all of the 3% Debentures after July 28, 2003 at the issue
$2,380
2,009
781
631
5,801
217
$5,584