Johnson and Johnson 2012 Annual Report Download - page 40

Goodwill as of December 30, 2012 and January 1, 2012, as allocated by segment of business, was as follows:
(Dollars in Millions) Consumer Pharmaceuticals
Med Devices
and
Diagnostics Total
Goodwill at January 2, 2011 $8,144 1,225 5,925 15,294
Acquisitions 251 538 198 987
Currency translation/other (97) (42) (4) (143)
Goodwill at January 1, 2012 $8,298 1,721 6,119 16,138
Acquisitions 10 46 6,045 6,101
Currency translation/other 211 25 (51) 185
Goodwill at December 30, 2012 $8,519 1,792 12,113 22,424
The weighted average amortization periods for patents and trademarks and customer relationships and other intangible
assets are 17 years and 24 years, respectively. The amortization expense of amortizable assets was $1,146 million,
$852 million and $748 million before tax, for the fiscal years ended December 30, 2012, January 1, 2012 and January 2,
2011, respectively. The estimated amortization expense for the five succeeding years approximates $1,350 million before
tax, per year. Amortization expense is included in cost of products sold.
Intangible assets and goodwill increased by $12.9 billion and $6.0 billion, respectively, based on the purchase price
allocation for the Synthes, Inc., acquisition. See Note 20 to the Consolidated Financial Statements for additional details on
the Synthes, Inc., acquisition. The increase in intangible assets was partially offset by $0.8 billion in intangible asset write-
downs and a $1.2 billion impairment of purchased in-process research and development, primarily related to the
discontinuation of the Phase III clinical development of bapineuzumab IV and the partial impairment related to the Crucell
vaccine business.
6. Fair Value Measurements
The Company uses forward exchange contracts to manage its exposure to the variability of cash flows, primarily related to
the foreign exchange rate changes of future intercompany product and third-party purchases of raw materials
denominated in foreign currency. 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 exposure 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 speculative 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 December 30, 2012, the Company had notional amounts outstanding for
forward foreign exchange contracts and cross currency interest rate swaps of $26.0 billion and $2.4 billion, respectively.
All derivative instruments are recorded on the balance sheet at fair value. Changes in the fair value of derivatives are
recorded each period in current earnings or other comprehensive 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 transaction. 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 derivative 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) expense, net.
As of December 30, 2012, the balance of deferred net gains on derivatives included in accumulated other comprehensive
income was $8 million after-tax. For additional information, see the Consolidated Statements of Comprehensive Income
and Note 13. The Company expects that substantially all of the amount related to foreign exchange contracts will be
32 •Johnson & Johnson 2012 Annual Report