Johnson and Johnson 2013 Annual Report Download - page 42

Goodwill as of December 29, 2013 and December 30, 2012, as allocated by segment of business, was as follows:
(Dollars in Millions) Consumer Pharmaceuticals
Med Devices
and
Diagnostics Total
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
Acquisitions 83 246 9 338
Currency translation/other (71) 30 77 36
Goodwill at December 29, 2013 $8,531 2,068 12,199 22,798
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 $1,363 million,
$1,146 million and $852 million before tax, for the fiscal years ended December 29, 2013, December 30, 2012 and
January 1, 2012, 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.
During the fiscal year ended December 30, 2012, goodwill increased by $6.0 billion, related to the Synthes, Inc.
acquisition. See Note 20 to the Consolidated Financial Statements for additional details on the Synthes, Inc. acquisition.
6. Fair Value Measurements
The Company uses forward foreign 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 materials
denominated in foreign currency. The Company uses cross currency interest rate swaps to manage currency risk primarily
related to borrowings. Both types of derivatives are designated as cash flow hedges.
Additionally, the company uses interest rate swaps as an instrument to manage interest rate risk related to fixed rate
borrowings. These derivatives are treated as fair value hedges. The Company also uses forward foreign 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 foreign exchange contracts to offset its
exposure to certain foreign currency assets and liabilities. These forward foreign 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 that 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 29,
2013, the Company had notional amounts outstanding for forward foreign exchange contracts, cross currency interest
rate swaps and interest rate swaps of $26.9 billion, $2.4 billion and $1.0 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 of 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 and losses associated with
interest rate swaps are recorded to interest expense in the period in which they occurred. Gains and 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 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 for forward foreign exchange
32 •Johnson & Johnson 2013 Annual Report