Johnson and Johnson 2014 Annual Report Download - page 44

For the fiscal years ended December 28, 2014 and December 29, 2013, a gain of $5 million and a gain of $32 million,
respectively, was recognized in Other (income) expense, net, relating to forward foreign exchange contracts not
designated as hedging instruments.
Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based
measurement determined using assumptions that market participants would use in pricing an asset or liability. The
authoritative literature establishes a three-level hierarchy to prioritize the inputs used in measuring fair value. The levels
within the hierarchy are described below with Level 1 having the highest priority and Level 3 having the lowest.
The fair value of a derivative financial instrument (i.e., forward foreign exchange contracts, interest rate contracts) is the
aggregation by currency of all future cash flows discounted to its present value at the prevailing market interest rates and
subsequently converted to the U.S. Dollar at the current spot foreign exchange rate. The Company does not believe that
fair values of these derivative instruments materially differ from the amounts that could be realized upon settlement or
maturity, or that the changes in fair value will have a material effect on the Company’s results of operations, cash flows or
financial position. The Company also holds equity investments which are classified as Level 1 because they are traded in
an active exchange market. The Company did not have any other significant financial assets or liabilities which would
require revised valuations under this standard that are recognized at fair value.
The following three levels of inputs are used to measure fair value:
Level 1 — Quoted prices in active markets for identical assets and liabilities.
Level 2 — Significant other observable inputs.
Level 3 — Significant unobservable inputs.
The Company’s significant financial assets and liabilities measured at fair value as of December 28, 2014 and
December 29, 2013 were as follows:
2014 2013
(Dollars in Millions) Level 1 Level 2 Level 3 Total Total(1)
Derivatives designated as hedging instruments:
Assets:
Forward foreign exchange contracts $ – 996 – 996 537
Interest rate contracts(2) – 31 – 31 169
Total – 1,027 – 1,027 706
Liabilities:
Forward foreign exchange contracts – 751 – 751 133
Interest rate contracts(3)(4) –8– 826
Total – 759 – 759 159
Derivatives not designated as hedging instruments:
Assets:
Forward foreign exchange contracts – 29 – 29 25
Liabilities:
Forward foreign exchange contracts – 51 – 51 29
Other investments(5) $679 – – 679 333
(1) 2013 assets and liabilities are all classified as Level 2 with the exception of Other investments of $333 million, which are classified as
Level 1.
(2) Includes $29 million and $169 million of non-current assets for the fiscal years ending December 28, 2014 and December 29, 2013,
respectively.
(3) Includes $8 million and $19 million of non-current liabilities for the fiscal years ending December 28, 2014 and December 29, 2013,
respectively.
(4) Includes cross currency interest rate swaps and interest rate swaps.
(5) Classified as non-current other assets.
See Notes 2 and 7 for financial assets and liabilities held at carrying amount on the Consolidated Balance Sheet.
34 •Johnson & Johnson 2014 Annual Report