Johnson and Johnson 2006 Annual Report Download - page 64

62 JOHNSON & JOHNSON 2006 ANNUAL REPORT
12. Accumulated Other Comprehensive Income
Components of other comprehensive income/(loss) consist of
the following:
Total
Unrealized Gains/ Accumulated
Foreign Gains/ (Losses) on Other
Currency(Losses) on Employee Derivatives Comprehensive
(Dollars in Millions) Translation Securities Benefit Plans & Hedges Income/(Loss)
Dec. 28, 2003$(373) 27 (64) (180) (590)
2004 changes
Net change due to
hedging transactions — — — 15
Net amount reclassed
to net earnings — — — 15
Net 2004 changes 268 59 (282) 30 75
Jan. 2, 2005 $(105) 86 (346) (150) (515)
2005 changes
Net change due to
hedging transactions — — — 112
Net amount reclassed
to net earnings — — — 53
Net 2005 changes (415) (16) 26 165 (240)
Jan. 1, 2006 $(520) 70 (320) 15 (755)
2006 changes
Net change due to
hedging transactions 17
Net amount reclassed
to net earnings (23)
Net 2006 changes 362 (9) (1,710) (6) (1,363)
Dec. 31, 2006 $(158) 61 (2,030) 9(2,118)
Total other comprehensive income for 2006 includes reclassifi-
cation adjustment gains of $13 million realized from the sale of
equity securities and the associated tax expense of $4 million.
Total other comprehensive income for 2005 includes reclassifi-
cation adjustment gains of $23 million realized from the sale of
equity securities and the associated tax expense of $8 million.
Total other comprehensive income for 2004 includes reclassifi-
cation adjustment gains of $16 million realized from the sale of
equity securities and the associated tax expense of $6 million.
The tax effect on the unrealized gains/(losses) on the equity
securities balance is an expense of $33 million, $38 million and $47
million in 2006, 2005 and 2004, respectively. The tax effect related
to employee benefit plans was $891 million in 2006 and $160 million
in 2005. The tax effect on the gains/(losses) on derivatives and
hedges are losses of $4 million and $11 million in 2006 and 2005 and
a benefit of $81 million in 2004. See Note 15 for additional
information relating to derivatives and hedging.
The currency translation adjustments are not currently
adjusted for income taxes as they relate to permanent
investments in international subsidiaries.
13. 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 bene-
fits, primarily health care insurance, to all U.S. retired employees
and their dependents.
Many international employees are covered by government-
sponsored programs for which the direct 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. Interna-
tional 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
statements (December 31, 2006 and January 1, 2006, respec-
tively) as the measurement date for all U.S. and international
retirement and other benefit plans.
In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 158, Employers Accounting for Defined
Benefit Pension and Other Postretirement Plans — an amendment of
FASB Statements No. 87, 88, 106, and 132(R) which requires an
employer to fully recognize the over-funded or under-funded sta-
tus of its pension and other postretirement benefit plans as an
asset or liability in its financial statements. In addition, the Com-
pany is required to recognize as a component of other compre-
hensive income (loss) the actuarial gains and losses and the prior
service costs and credits that arise during the period but are not
immediately recognized as components of net periodic benefit
cost. The incremental effect of applying SFAS No. 158 is a $1.7 bil-
lion reduction in shareholder’s equity, net of deferred taxes.