Johnson and Johnson 2010 Annual Report Download - page 52

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The following table is a summary of the activity related to designated derivatives for the fiscal years ended January 2, 2011 and
January 3, 2010:
Gain/(Loss)
Gain/(Loss) reclassified from Gain/(Loss)
recognized in Accumulated OCI recognized in
Cash Flow Hedges Accumulated OCI(1)into income(1)Other income/expense(2)
_______________________ _______________________ _______________________
(Dollars in Millions) 2010 2009 2010 2009 2010 2009
Foreign exchange contracts $(66) (63) (52)(A)(47)(A)(2) 1
Foreign exchange contracts (296) (173) (300)(B)70(B)(38) (1)
Foreign exchange contracts 51 5 57(C)13(C)5—
Cross currency interest rate swaps (40) 241 6(D)(16)(D)— —
Foreign exchange contracts 18 28 1(E)(6)(E)3(12)
Total $(333) 38 (288) 14 (32) (12)
All amounts shown in the table above are net of tax.
(1)Effective portion
(2) Ineffective portion
(A) Included in Sales to customer
(B)Included in Cost of products sold
(C) Included in Research and development expense
(D)Included in Interest (income)/Interest expense, net
(E) Included in Other (income)/expense, net
50 JOHNSON & JOHNSON 2010 ANNUAL REPORT
For the fiscal years ended January 2, 2011 and January 3, 2010, a loss
of $31 million and a gain of $21 million, respectively, was recognized
in Other (income)/expense, net, relating to 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 that should be determined using assumptions that
market participants would use in pricing an asset or liability. The
authoritative literature establishes a three-level hierarchy to priori-
tize 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
exchange contract, currency swap) 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 posi-
tion. The Company also holds equity investments that are classified
as Level 1 as they are traded in an active exchange market.
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.