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66 JOHNSON & JOHNSON 2006 ANNUAL REPORT
14. Cash, Cash Equivalents and Marketable Securities
December 31, 2006 January 1, 2006
____________________________________________ ____________________________________________
Amortized Unrealized Estimated Amortized Unrealized Estimated
(Dollars in Millions) Cost Gains/(Losses) Fair Value Cost Gains/(Losses) Fair Value
Current Investments
Cash $1,909 —1,909 1,425 —1,425
Government securities
and obligations ———1,743 —1,743
Corporate debt securities ———67 —67
Money market funds 1,116 —1,116 11,918 —11,918
Time deposits1,059 —1,059 985 —985
Total cash, cash equivalents and current marketable securities $4,084 —4,084 16,138 —16,138
Non-Current Investments
Marketable securities $ 16 —16 20 —20
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 December 31, 2006, the balance of deferred net gains on
derivatives included in accumulated other comprehensive income
was $9 million after-tax. 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 ulti-
mately 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 derivative. Derivative
gains/(losses), initially reported as a component of other compre-
hensive income, are reclassified to earnings in the period when the
forecasted transaction affects earnings.
For the years ended December 31, 2006, January 1, 2006, and
January 2, 2005, the net impact of hedge ineffectiveness, transac-
tions 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 making 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
redirect his or her investment. In 1990, to establish the ESOP, the
Company loaned $100 million to the ESOP Trust to purchase
shares of the Company stock on the open market. In exchange, the
Company received a note, the balance of which was recorded as a
reduction of shareholders’ equity. The remaining shares held by the
ESOP trust were allocated to participant accounts by the end of
February 2005. From March 2005, and going forward, the Com-
pany match is made in cash and follows the individual employee’s
investment elections.
Total Company contributions to the plans were $158 million
in 2006, $148 million in 2005 and $143 million in 2004.