Johnson & Johnson - Index

Johnson & Johnson - report - Index

period presented. The pro forma results include the effect of
divestitures and certain purchase accounting adjustments such
as the estimated changes in depreciation and amortization
expense on the acquired tangible and intangible assets. However,
pro forma results do not include any anticipated cost savings
or other effects of the planned integration of the Consumer
Healthcare business of Pfizer Inc. Accordingly, such amounts
are not necessarily indicative of the results if the acquisition had
occurred on the dates indicated or which may occur in the future.
(Unaudited) Pro forma results
________________________
Year ended Year ended
December 31, January 1,
(Dollars in Millions Except Per Share Data) 2006 2006
Net sales $57,115 54,156
Net earnings 10,770 9,784
Diluted net earnings per share $ 3.64 3.26
During 2007, the Company completed the allocation of the
purchase price to the individual assets acquired and liabilities
assumed. The following table presents the completed allocation
of the purchase price for the Consumer Healthcare business of
Pfizer Inc. as of the date of the acquisition.
(Dollars in Millions)
Current assets $ 2,250
Property, plant and equipment 552
Deferred tax asset 499
Goodwill 6,547
Intangible assets 8,585
Total assets acquired $18,433
Current liabilities 1,095
Non-current liabilities 1,061
Total liabilities assumed $ 2,156
Net assets acquired $16,277
The acquisition of the Consumer Healthcare business of Pfizer
Inc. resulted in $6.5 billion in goodwill, which is allocated to the
Consumer segment.
The purchase price allocation to the identifiable intangible
assets before the effect of any amortization included in the
current period balance sheet is as follows:
(Dollars in Millions)
Intangible assets with determinable lives:
Brands $ 302
Patents and technology 321
Customer relationships 3,067
Total amortizable intangibles 3,690
Brands with indefinite lives 4,895
Total intangible assets $8,585
The weighted average life of the $3,690 million of total
amortizable intangibles is approximately 31 years from the
date of acquisition.
The majority of the intangible asset valuation relates to
brands. The assessment as to brands that have an indefinite life
and those that have a determinable life was based on a number
of factors, including the competitive environment, market share,
brand history, product life cycles, operating plan and the macroeconomic
environment of the countries in which the brands
are sold. The brands that account for over 90% of the total value
of all indefinite-life brands include LISTERINE®, NICORETTE®,
NEOSPORIN®, SUDAFED®, BENADRYL®, VISINE® and
BENYLIN®. The determinable-life brands include PURELL®,
ACTIFED®, EFFERDENT® and other regional or country specific
brands. The determinable-life brands have asset lives ranging
from 5 to 40 years. The patents and technology intangibles are
concentrated in the upper respiratory, oral care, medicated skin
care, tobacco dependence and hair growth businesses and have
asset lives ranging from 5 to 20 years. The estimated customer
relationship intangible asset useful lives, ranging from 30 to 40
years, reflect the very low historical and projected customer
attrition rates among the Consumer Healthcare business of
Pfizer Inc.’s major retailer and distributor customers.
The IPR&D charge related to the acquisition of the
Consumer Healthcare business of Pfizer Inc. was $320 million on
a pre-tax basis and $217 million on an after-tax basis and is primarily
associated with rights obtained to the switch of ZYRTEC®
from U.S. prescription to over-the-counter status. The switch
was approved by the FDA effective November 2007. The value of
the IPR&D was calculated using cash flow projections discounted
for the risk inherent in such projects. A probability of
success factor of 95% was used to reflect inherent regulatory
risk as of the acquisition date and the discount rate applied
was 11%.
The Company completed the analysis of integration plans,
pursuant to which the Company is incurring costs primarily
related to the elimination of certain duplicate selling, general
and administrative functions between the two companies in
areas such as global business services, corporate staff and goto-market
support, as well as excess manufacturing capacity.
In addition to the acquisition of the Consumer Healthcare
business of Pfizer Inc., 2006 acquisitions included: Animas Corporation,
a leading maker of insulin infusion pumps and related
products; Hand Innovations LLC, a privately held manufacturer
of fracture fixation products for the upper extremities; Future
Medical Systems S.A., a privately held company that primarily
develops, manufactures and markets arthroscopic fluid management
systems; Vascular Control Systems, Inc., a privately held
company focused on developing medical devices to treat fibroids
and to control bleeding in obstetric and gynecologic applications;
Groupe Vendôme S.A., a privately held French marketer of adult
and baby skin care products; ColBar Lifescience Ltd., a privately
held company specializing in reconstructive medicine and tissue
engineering and Ensure Medical, Inc., a privately held company
that develops devices for post-catheterization closure of the
femoral artery.
Excluding the acquisition of the Consumer Healthcare
business of Pfizer Inc., the excess of purchase price over the
estimated fair value of tangible assets acquired in 2006
amounted to $1,209 million and has been assigned to identifiable
intangible assets, with any residual recorded to goodwill.
Approximately $239 million has been identified as the value of
IPR&D primarily associated with the acquisitions of Hand Innovations
LLC, Future Medical Systems S.A., Vascular Control Systems,
Inc., ColBar Lifescience Ltd. and Ensure Medical, Inc.
The IPR&D charge related to the acquisition of Hand
Innovations LLC was $22 million and is associated with fracture
NOTES TO CONSOLIDA TED FINANCIAL ST A TEMENTS 65