Johnson & Johnson - Index

Johnson & Johnson - report - Index

services, including investment banking services, to the Company
in 2008. The Company does not anticipate payments for these
services to be significant to either the bank or the Company
in 2008.
7. Intangible Assets and Goodwill
At the end of 2007 and 2006, the gross and net amounts of
intangible assets and goodwill were:
(Dollars in Millions) 2007 2006
Trademarks (non-amortizable) — gross $ 6,457 6,609
Less accumulated amortization 144 134
Trademarks (non-amortizable) — net $ 6,313 6,475
Patents and trademarks — gross $ 4,597 5,282
Less accumulated amortization 1,615 1,695
Patents and trademarks — net $ 2,982 3,587
Other intangibles — gross $ 7,399 6,923
Less accumulated amortization 2,054 1,637
Other intangibles — net $ 5,345 5,286
Subtotal intangible assets — gross $18,453 18,814
Less accumulated amortization 3,813 3,466
Subtotal intangible assets — net $14,640 15,348
Goodwill — gross $14,866 14,075
Less accumulated amortization 743 735
Goodwill — net $14,123 13,340
Total intangible assets and goodwill — gross $33,319 32,889
Less accumulated amortization 4,556 4,201
Total intangible assets and goodwill — net $28,763 28,688
Goodwill as of December 30, 2007 and December 31, 2006, as
allocated by segment of business is as follows:
Med Dev
(Dollars in Millions) Consumer Pharm and Diag Total
Goodwill at
January 1, 2006 $1,090 874 4,026 5,990
Acquisitions 6,720 — 533 7,253
Translation/other 56 28 13 97
Goodwill at
December 31, 2006 $7,866 902 4,572 13,340
Acquisitions 3 — 449 452
Translation/other 256 62 13 331
Goodwill at
December 30, 2007 $8,125 964 5,034 14,123
The weighted average amortization periods for patents and trademarks
and other intangible assets are 16 years and 28 years,
respectively. The amortization expense of amortizable intangible
assets for the fiscal years ended December 30, 2007, December
31, 2006 and January 1, 2006 was $844 million, $594 million and
$521 million before tax, respectively. Certain patents and intangible
assets were written down to fair value during fiscal years
2007, 2006 and 2005, with the resulting charge included in
amortization expense. The reduction in total patent and trademarks
compared to 2006 is primarily due to a write-down of
$678 million before tax, related to the NATRECOR® intangible
asset. The remaining unamortized intangible value associated
with NATRECOR® was $200 million at the end of 2007. This
charge results from revised estimates of future cash flows from
this product due primarily to a recent decline in NATRECOR®
sales trends. NATRECOR® will continue to be marketed by Scios
Inc., a subsidiary of the Company.
The estimated amortization expense for the five succeeding years
approximates $753 million before tax, per year. Substantially all of
the amortization expense is included in cost of products sold.
8. Income Taxes
The provision for taxes on income consists of:
(Dollars in Millions) 2007 2006 2005
Currently payable:
U.S. taxes $2,990 3,625 2,181
International taxes 1,479 1,077 1,110
4,469 4,702 3,291
Deferred:
U.S. taxes (722) (726) 77
International taxes (1,040) (442) (312)
(1,762) (1,168) (235)
$2,707 3,534 3,056
A comparison of income tax expense at the U.S. statutory rate of
35% in 2007, 2006 and 2005, to the Company’s effective tax
rate is as follows:
(Dollars in Millions) 2007 2006 2005
U.S. $ 5,237 8,110 6,949
International 8,046 6,477 6,167
Earnings before taxes
on income: $13,283 14,587 13,116
Tax rates:
U.S. statutory rate 35.0% 35.0 35.0
Puerto Rico and
Ireland operations (8.8) (7.5) (7.3)
Research and orphan drug tax credits (0.8) (0.7) (0.7)
U.S. state and local 2.1 1.6 1.1
International subsidiaries
excluding Ireland (7.3) (3.5) (2.7)
Technical Corrections Act impact
on 2004 tax liability — — (1.7)
U.S. manufacturing deduction (0.3) (0.2) (0.2)
In process research and
development (IPR&D) 2.1 0.6 0.9
U.S. Tax international income (1.9) (0.7) (0.7)
All other 0.3 (0.4) (0.4)
Effective tax rate 20.4% 24.2 23.3
The Company has subsidiaries manufacturing in Ireland under
an incentive tax rate. In addition, the Company has subsidiaries
operating in Puerto Rico under various tax incentive grants. Also,
the U.S. possessions tax credit, which expired in 2006, applies
to certain operations in Puerto Rico. The decrease in the 2007
tax rate was mainly attributed to increases in taxable income in
lower tax jurisdictions relative to taxable income in higher jurisdictions
and lower international tax rates in certain countries. The
international tax rate also benefited from a business restructuring
of certain international subsidiaries, resulting in a one-time
benefit of $267 million, which reduced the effective tax rate by 2%.
56 JOHNSON & JOHNSON 2007 ANNUAL REPORT