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: 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 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) 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 The following three levels of inputs are used to measure fair value: 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. Level 1 — Quoted prices in active markets for identical assets and liabilities. Level 2 — Significant other observable inputs. Level 3 — Significant unobservable inputs. JOHNSON & JOHNSON 2010 ANNUAL REPORT 50