Johnson and Johnson 2009 Annual Report Download - page 46

Goodwill as of January 3, 2010 and December 28, 2008, as
allocated by segment of business is as follows:
Med Dev
(Dollars in Millions) Consumer Pharm and Diag Total
Goodwill at December 30, 2007 $8,125 964 5,034 14,123
Acquisitions 191 —286 477
Currency translation/other (842) (1) (38) (881)
Goodwill at December 28, 2008 $7,474 963 5,282 13,719
Acquisitions —271 401 672
Currency translation/other* 600 10 (139) 471
Goodwill at January 3, 2010 $8,074 1,244 5,544 14,862
* Includes reclassification between segments.
The weighted average amortization periods for patents and
trademarks and other intangible assets are 17 years and 28 years,
respectively. The amortization expense of amortizable assets for
the fiscal years ended January 3, 2010, December 28, 2008 and
December 30, 2007 was $675 million, $788 million and $844 mil-
lion before tax, respectively. Certain patents and intangible assets
were written down to fair value during fiscal years 2009, 2008 and
2007, with the resulting charge included in amortization expense.
The estimated amortization expense for the five succeeding
years approximates $700 million before tax, per year. Substantially
all of the amortization expense is included in cost of products sold.
6. Fair Value Measurements
During the fiscal first quarter of 2009, in accordance with U.S.
GAAP the Company adopted the standard related to disclosures
about derivative instruments and hedging activities. This standard
requires qualitative disclosures about objectives and strategies for
using derivatives, quantitative disclosures about fair value amounts
of gain and losses on derivative instruments, and disclosures about
credit-risk-related contingent features in derivative agreements.
The Company uses forward exchange contracts to manage its
exposure to the variability of cash flows, primarily related to the for-
eign exchange rate changes of future intercompany product and
third-party purchases of raw materials denominated in foreign cur-
rency. The Company also uses cross currency interest rate swaps to
manage currency risk primarily related to borrowings. Both types of
derivatives are designated as cash flow hedges. The Company also
uses forward exchange contracts to manage its exposure to the
variability of cash flows for repatriation of foreign dividends. These
contracts are designated as net investment hedges. Additionally,
the Company uses forward exchange contracts to offset its expo-
sure to certain foreign currency assets and liabilities. These forward
exchange contracts are not designated as hedges and therefore,
changes in the fair values of these derivatives are recognized in
earnings, thereby offsetting the current earnings effect of the
related foreign currency assets and liabilities. The Company does
not enter into derivative financial instruments for trading or specu-
lative purposes, or contain credit risk related contingent features or
requirements to post collateral. On an ongoing basis the Company
monitors counterparty credit ratings. The Company considers credit
non-performance risk to be low, because the Company enters into
agreements with commercial institutions that have at least an A
(or equivalent) credit rating. As of January 3, 2010, the Company
had notional amounts outstanding for forward foreign exchange
contracts and cross currency interest rate swaps of $21 billion and
$4 billion, respectively.
As required by U.S. GAAP for derivative instruments and hedg-
ing activities, all derivative instruments are to be recorded on the
balance sheet at fair value. Changes in the fair value of derivatives
are recorded each period in current earnings or other comprehen-
sive income, depending on whether the derivative is designated as
part of a hedge transaction, and if so, the type of hedge transaction.
The designation as a cash flow hedge is made at the entrance
date into the derivative contract. At inception, all derivatives are
expected to be highly effective. Changes in the fair value of a
derivative that is designated as a cash flow hedge and is highly
effective are recorded in accumulated other comprehensive income
until the underlying transaction affects earnings, and are then
reclassified to earnings in the same account as the hedged transac-
tion. Gains/losses on net investment hedges are accounted for
through the currency translation account and are insignificant.
On an ongoing basis, the Company assesses whether each deriva-
tive continues to be highly effective in offsetting changes in the
cash flows of hedged items. If and when a derivative is no longer
expected to be highly effective, hedge accounting is discontinued.
Hedge ineffectiveness, if any, is included in current period earnings
in other (income) and expense, net, and was insignificant for the
fiscal year ended January 3, 2010 and December 28, 2008. Refer
to Note 13 for disclosures of movements in Accumulated Other
Comprehensive Income.
As of January 3, 2010, the balance of deferred net gains on
derivatives included in accumulated other comprehensive income
was $145 million after-tax. For additional information, see Note 13.
The Company expects that substantially all of the amount related
to foreign exchange contracts 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 excluding
interest rate swaps. 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 derivative.
The following table is a summary of the activity for the fiscal
year ended January 3, 2010 related to designated derivatives as
defined in the Codification:
Gain/(Loss) Gain/(Loss)
Gain/(Loss) reclassed from recognized
recognized in Accumulated in Other
Cash Flow Hedges Accumulated OCI into Income/
(Dollars in Millions) OCI(1) income(1) Expense(2)
Foreign exchange contracts $ (63) (47)(A) 1
Foreign exchange contracts (173) 70(B) (1)
Foreign exchange contracts 5 13(C) —
Cross currency interest rate swaps 241 (16)(D) —
Foreign exchange contracts 28 (6)(E) (12)
Total $ 38 14 (12)
(1) Effective portion
(2) Ineffective portion
(A) Included in Sales to customer
(B) Included in Cost of products sold
(C) Included in Research expense
(D) Included in Interest (Income)/Interest Expense, net
(E) Included in Other (Income)/Expense, net
For the fiscal year ended January 3, 2010, a gain of $21 million was
recognized in Other (income)/expense, net, relating to foreign
exchange contracts not designated as hedging instruments under
the Codification.
44 J O H N S O N & J O H N S O N 2 0 0 9 A N N U A L R E P O R T