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Business Combinations and Divestitures | 9 Months Ended
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Sep. 29, 2013
Business Combinations [Abstract] |
BUSINESS COMBINATIONS AND DIVESTITURES | BUSINESS COMBINATIONS AND DIVESTITURES During the fiscal third quarter of 2013, the Company completed the acquisitions of Aragon Pharmaceuticals, Inc., a privately-held, pharmaceutical discovery and development company focused on drugs to treat hormonally-driven cancers. Under the terms of the agreement, the Company made an upfront cash payment of $650 million. Additional contingent payments of up to $350 million may be paid in the future based on reaching predetermined milestones. The purchase price for the acquisition including the fair value of the contingent consideration of $0.2 billion was allocated primarily to purchased IPR&D for $0.8 billion and goodwill for $0.2 billion. During the fiscal first quarter of 2013, the Company completed the acquisitions of Flexible Stenting Solutions, Inc., a leading developer of innovative flexible peripheral arterial, venous and biliary stents and Shanghai Elsker Mother & Baby Co., Ltd, a baby care company in China. During the fiscal third quarter of 2012, the Company acquired Calibra Medical, developer of a unique, wearable three-day insulin patch for convenient and discreet mealtime dosing for people with diabetes who take multiple daily injections of insulin and Spectrum Vision LLC, a full service distributor of contact lenses serving Russia and with facilities in the Ukraine and Kazakhstan. During the fiscal third quarter of 2012, the Company completed the initial closing related to the divestiture of the RhoGAM® business. The Company also completed the sale of certain consumer brands in the United States and Canada to Valeant Pharmaceuticals. During the fiscal second quarter of 2012, the Company completed the acquisition of Synthes, Inc., a global developer and manufacturer of orthopaedics devices, for a purchase price of $20.2 billion in cash and stock. The net acquisition cost of the transaction was $17.5 billion based on cash on hand at closing of $2.7 billion. Under the terms of the agreement, each share of Synthes, Inc. common stock was exchanged for CHF 55.65 in cash and 1.717 shares of Johnson & Johnson common stock, based on the calculated exchange ratio. The exchange ratio was calculated on June 12, 2012 and based on the relevant exchange rate and closing price of Johnson & Johnson common stock on that date, the total fair value of consideration transferred was $19.7 billion. When the acquisition was completed on June 14, 2012, based on the relevant exchange rate and closing price of Johnson & Johnson common stock on that date, the total fair value of the consideration transferred was $20.2 billion. Janssen Pharmaceutical, a company organized under the laws of Ireland and a wholly-owned subsidiary of Johnson & Johnson, used cash on hand to satisfy the cash portion of the merger consideration. The stock portion of the merger consideration consisted of shares of Johnson & Johnson common stock purchased by Janssen Pharmaceutical, from two banks, pursuant to two accelerated share repurchase (ASR) agreements dated June 12, 2012. On June 13, 2012, Janssen Pharmaceutical purchased an aggregate of approximately 203.7 million shares of Johnson & Johnson common stock at an initial purchase price of $12.9 billion under the ASR agreements, with all of the shares delivered to Janssen Pharmaceutical on June 13, 2012. During the fiscal third quarter of 2013, the Company settled the remaining liabilities under the ASR agreements for $2.9 billion in cash which was recorded as a reduction to equity. In addition, while the Company believes that the transactions under each ASR agreement and a series of related internal transactions were consummated in a tax efficient manner in accordance with applicable law, it is possible that the Internal Revenue Service could assert one or more contrary positions to challenge the transactions from a tax perspective. If challenged, an amount up to the total purchase price for the Synthes shares could be treated as subject to applicable U.S. tax at approximately the statutory rate to the Company, plus interest. The following table summarizes the consideration transferred to acquire Synthes, Inc. valued on the acquisition date of June 14, 2012:
(Dollars in Millions) |  |
Cash (multiply 55.65CHF by shares of Synthes common stock outstanding by the exchange rate)(A) |  | $ | 6,902 |
Common stock (multiply 1.717 by shares of Synthes common stock outstanding by J&J stock price)(B) |  | $ | 13,335 |
Total fair value of consideration transferred |  | $ | 20,237 |
(A) Synthes common stock outstanding of 118.7 million shares as of the acquisition date and CHF/USD exchange rate of .95674 (B) Johnson & Johnson closing stock price on the New York Stock Exchange as of the acquisition date of $65.45 per share. During the fiscal second quarter the Company finalized the purchase price allocation to the individual assets acquired and liabilities assumed using the acquisition method. The following table presents the amounts recognized for assets acquired and liabilities assumed as of the acquisition date with adjustments made through June 30, 2013:
(Dollars in Millions) |
Cash & Cash equivalents | $ | 2,749 |
Inventory | 1,194 |
Accounts Receivable, net | 738 |
Other current assets | 238 |
Property, plant and equipment | 1,253 |
Goodwill | 6,074 |
Intangible assets | 12,861 |
Other non-current assets | 46 |
Total Assets Acquired | 25,153 |
Current liabilities | 1,081 |
Deferred Taxes | 3,506 |
Other non-current liabilities | 329 |
Total Liabilities Assumed | 4,916 |
Net Assets Acquired | $ | 20,237 |
The adjustments made since the date of acquisition were to account for changes to inventory, based on the results of the physical inventory counts and deferred taxes, to reflect the statutory tax rate that is being applied to the intangible assets. The revisions to the purchase price allocation were not material to the Statements of Consolidated Earnings or the Consolidated Balance Sheet for the fiscal second quarter of 2013 and prior fiscal quarters. The assets acquired are recorded in the Medical Devices and Diagnostics segment. The acquisition of Synthes, Inc. resulted in $6.1 billion of goodwill. The goodwill is primarily attributable to synergies expected to arise from the acquisition of Synthes, Inc. The goodwill is not deductible for tax purposes. The purchase price allocation to the identifiable intangible assets is as follows:
(Dollars in Millions) |  |
Intangible assets with definite lives: |  |
Customer Relationships |  | $ | 9,870 |
Patents and Technology |  | 1,508 |
Total amortizable intangibles |  | 11,378 |
Trademark and Trade name |  | 1,420 |
In-process research and development |  | 63 |
Total intangible assets |  | $ | 12,861 |
The Customer Relationship intangible lives were determined using the projected customer retention period based on historical experience. Synthes has a broad product portfolio, including trauma, spine, cranio-maxillofacial, biomaterials and power tools. An analysis was performed to determine the lives for each of the Customer Relationship assets in the distinct product areas. The calculations to determine useful lives included attrition rates and discounted future cash flows by product area. This analysis resulted in a weighted average life of 22 years for the Customer Relationship assets. The Patents and Technology intangible lives were derived based on technology obsolescence rates that are commensurate with the nature of the Synthes businesses. New product introductions are predominantly incremental enhancements to existing platforms and are infrequently transformational. An analysis was performed to determine the lives for each of the Patents and Technology assets in each distinct product area. The calculations to determine useful lives included assumptions on technology obsolescence and discounted future cash flows by product area. This analysis resulted in a weighted average life of 18 years for the Patents and Technology assets. A weighted average of the values and lives ascribed to the Customer Relationship and Patents and Technology intangible assets results in a 21 year weighted average life. The Trademark and Trade name asset values were determined to have an indefinite life based on a number of factors, including trade name history, the competitive environment, market share and future operating plans. Additionally, in-process research and development intangible assets were valued for technology programs for unapproved products. The value of the IPR&D was calculated using cash flow projections discounted for the risk inherent in such projects. The discount rate applied was 14%. The Company is in the process of executing the integration plans to combine businesses, sales organizations, systems and locations as a result of which the Company has and will continue to incur integration costs. The operating results of Synthes were reported in the Company's financial statements beginning on June 14, 2012. The following table provides pro forma results of operations for the fiscal nine months ended September 30, 2012, as if Synthes, Inc. had been acquired as of January 3, 2011. 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 Synthes, 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 Consolidated Results
(Dollars in Millions Except Per Share Data) | Fiscal Nine Months Ended September 30, 2012
Net Sales | $ | 51,336 |
Net Earnings Attributable to Johnson & Johnson | $ | 8,734 |
Diluted Net Earnings per Common Share Attributable to Johnson & Johnson | $ | 3.11 |
In the fiscal nine months of 2013, the Company recorded acquisition-related costs of $502 million before tax, which were recorded in Cost of products sold and Other (income)expense. In connection with the Synthes acquisition, DePuy Orthopaedics, Inc. agreed to divest certain rights and assets related to its trauma business to Biomet, Inc. and completed the initial closing for this transaction in the fiscal second quarter of 2012, including those countries that represented the majority of sales. As of December 30, 2012, the transaction had closed worldwide. Additionally, during the fiscal second quarter of 2012, the Company acquired Guangzhou Bioseal Biotech Co., Ltd., a privately held biopharmaceutical company specializing in the design, development and commercialization of a porcine plasma-derived biologic product for controlling bleeding during surgery; CorImmun GmbH, a privately held drug development company in Germany; and certain assets of the Angiotech Pharmaceuticals, Inc. barbed suture business. During the fiscal third quarter of 2013, the Company recorded a charge of $0.2 billion for the impairment of the in-process research and development associated with CorImmun. During the fiscal first quarter of 2012, the Company completed the divestiture of its U.S. patents and other U.S. and Canadian intellectual property for BYSTOLIC® (nebivolol), which is currently approved in the U.S. for the treatment of hypertension, to Forest Laboratories, Inc. Proceeds received from the divestiture were $357 million.

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