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Business Combinations and Divestitures | 9 Months Ended
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Oct. 01, 2017
Business Combinations [Abstract] |
Business Combinations and Divestitures | BUSINESS COMBINATIONS AND DIVESTITURES Subsequent to the quarter, on October 2, 2017 the Company completed the divestiture of the Codman Neurosurgery business, to Integra LifeSciences Holdings Corporation for approximately $1.0 billion. As of October 1, 2017, the assets held for sale were $63 million of inventory, classified as prepaid expenses and other on the Consolidated Balance Sheet. The non-current assets classified as held for sale were $33 million of property, plant and equipment, net and $106 million of goodwill, classified as other assets on the Consolidated Balance Sheet. During the fiscal third quarter of 2017, the Company completed the acquisitions of TearScience Inc., a manufacturer of products dedicated to treating meibomian gland dysfunction and Sightbox, Inc., a privately-held company that developed a subscription vision care service that connects consumers with eye care professionals and a supply of contact lenses. Additionally, during the fiscal third quarter of 2017, the Company completed the divestiture of COMPEED® to HRA Pharma. On June 16, 2017, the Company completed the acquisition of Actelion Ltd through an all cash tender offer in Switzerland for $280 per share, payable in U.S. dollars. As of October 1, 2017, the Company paid $29.1 billion, net of cash acquired, representing 98.4% of the shares to which the offer was extended. The Company recorded a current liability of $0.5 billion for the shares not tendered as of October 1, 2017, which the Company expects to pay by the end of 2017 as it takes steps to acquire the remaining outstanding shares of Actelion. The liability decreased by approximately $0.2 billion from the second quarter based on the tendered shares in the third quarter. As part of the transaction, immediately prior to the completion of the acquisition, Actelion spun out its drug discovery operations and early-stage clinical development assets into a newly created Swiss biopharmaceutical company, Idorsia Ltd. The shares of Idorsia are listed on the SIX Swiss Exchange (SIX). The Company currently holds 9.9% of the shares of Idorsia and has rights to an additional 22.1% of Idorsia equity through a convertible loan with a principal amount of approximately $0.5 billion. The convertible loan may be converted into Idorsia shares as follows: (i) up to an aggregate shareholding of 16% of Idorsia shares as a result of certain shareholders holding more than 20% of the issued Idorsia shares, and (ii) up to the balance of the remaining amount within 20 business days of the maturity date of the convertible loan, which has a ten year term, or if Idorsia undergoes a change of control transaction. The investment in Idorsia was recorded as a cost method investment in Other assets in the Company's consolidated Balance Sheet. The Company also acquired an option on ACT-132577, a product within Idorsia being developed for resistant hypertension currently in phase 2 of clinical development. The Company has also entered into an agreement to provide Idorsia with a Swiss franc denominated credit facility of approximately $250 million. As of October 1, 2017, Idorsia has not made any draw-downs under the credit facility. Actelion has entered into a transitional services agreement with Idorsia. Actelion has established a leading franchise of differentiated, innovative products for pulmonary arterial hypertension (PAH) that are highly complementary to the existing portfolio of the Company. The addition of Actelion’s specialty in-market medicines and late-stage products is consistent with the Company's efforts to grow in attractive and complementary therapeutic areas and serve patients with serious illnesses and significant unmet medical need. The Company is still finalizing the allocation of the purchase price to the individual assets acquired and liabilities assumed. The allocation of the purchase price included in the current period balance sheet is based on the best estimate of management and is preliminary and subject to change. To assist management in the allocation, the Company engaged valuation specialists to prepare appraisals. The Company will finalize the amounts recognized as the information necessary to complete the analysis is obtained. The Company expects to finalize these amounts as soon as possible but no later than one year from the acquisition date. The following table presents the preliminary amounts recognized for assets acquired and liabilities assumed as of the acquisition date as well as the adjustments made up to October 1, 2017:
(Dollars in Millions) | June 16, 2017 |  | October 1, 2017 |
Cash & Cash equivalents | $ | 469 |  | 469 |
Inventory(1) | 759 |  | 759 |
Accounts Receivable | 485 |  | 485 |
Other current assets | 93 |  | 93 |
Property, plant and equipment | 104 |  | 104 |
Goodwill | 5,986 |  | 5,757 |
Intangible assets | 25,010 |  | 25,010 |
Deferred Taxes | 3 |  | 3 |
Other non-current assets | 19 |  | 19 |
Total Assets Acquired | 32,928 |  | 32,699 |
Current liabilities | 531 |  | 531 |
Deferred Taxes | 1,960 |  | 1,731 |
Other non-current liabilities | 383 |  | 383 |
Total Liabilities Assumed | 2,874 |  | 2,645 |
Net Assets Acquired | $ | 30,054 |  | 30,054 |
(1) Includes adjustment of $642 million to write-up the acquired inventory to its estimated fair value. Subsequent to the date of acquisition there was an adjustment of $0.2 billion to the deferred taxes with the offset to goodwill. The assets acquired are recorded in the Pharmaceutical segment. The acquisition of Actelion resulted in approximately $5.8 billion of goodwill. The goodwill is primarily attributable to synergies expected to arise from the acquisition. The goodwill is not expected to be deductible for tax purposes. The purchase price allocation to the identifiable intangible assets is as follows:
(Dollars in Millions) |  |
Intangible assets with definite lives: |  |
Patents and trademarks |  | $ | 24,230 |
Total amortizable intangibles |  | 24,230 |
In-process research and development |  | 780 |
Total intangible assets |  | $ | 25,010 |
The patents and trademarks acquired are comprised of developed technology with a weighted average life of 9 years and was primarily based on the patent life of the marketed products. The intangible assets with definite lives were assigned asset lives ranging from 4 to 10 years. The in-process research and development intangible assets were valued for technology programs for unapproved products. The value of the IPR&D was calculated using probability adjusted cash flow projections discounted for the risk inherent in such projects. The discount rate applied was 9%. The acquisition was accounted for using the acquisition method and, accordingly, the results of operations of Actelion were reported in the Company's financial statements beginning on June 16, 2017, the date of acquisition. Total sales and a net loss for Actelion for the third quarter ended October 1, 2017 were $670 million and $552 million, respectively. Total sales and a net loss for Actelion since the date of acquisition were $761 million and $668 million, respectively. The following table provides pro forma results of operations for the fiscal third quarters and the fiscal nine months ended October 1, 2017 and October 2, 2016, as if Actelion had been acquired as of January 4, 2016. The pro forma results include the effect of 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 Actelion. 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
| Fiscal Nine Months Ended |  | Fiscal Third Quarters Ended
(Dollars in Millions Except Per Share Data) | October 1, 2017 | October 2, 2016 |  | October 1, 2017 | October 2, 2016
Net Sales | 57,486 |  | 55,606 |  |  | 19,650 |  | 18,441 |
Net Earnings | 11,909 |  | 10,760 |  |  | 4,019 |  | 3,885 |
Diluted Net Earnings per Common Share | 4.34 |  | 3.85 |  |  | 1.47 |  | 1.39 |
In the fiscal third quarter and fiscal nine months of 2017, the Company recorded acquisition related costs, of approximately $0.4 billion and $0.6 billion before tax, which was recorded in Other (income)/expense and Cost of products sold. Additionally, during the fiscal second quarter of 2017, the Company completed the acquisition of Neuravi Limited, a privately-held medical device company that develops and markets medical devices for neurointerventional therapy. During the fiscal first quarter of 2017, the Company acquired Abbott Medical Optics (AMO), a wholly-owned subsidiary of Abbott Laboratories, for $4.3 billion, net of cash acquired. The acquisition included ophthalmic products related to: cataract surgery, laser refractive surgery and consumer eye health. The net purchase price was primarily recorded as amortizable intangible assets for $2.3 billion and goodwill for $1.8 billion. The weighted average life of total amortizable intangibles, the majority being customer relationships, is approximately 14.4 years. The goodwill is primarily attributable to synergies expected to arise from the business acquisition and is not deductible for tax purposes. The intangible assets and goodwill amounts are based on the preliminary purchase price allocation which is under review by the Company and is subject to change. The assets acquired were recorded in the Medical Devices segment. Additionally, during the fiscal first quarter of 2017, the Company completed the acquisitions of Torax Medical, Inc., a privately-held medical device company that manufactures and markets the LINX™ Reflux Management System for the surgical treatment of gastroesophageal reflux disease and Megadyne Medical Products, Inc., a privately-held medical device company that develops, manufactures and markets electrosurgical tools. During the fiscal first quarter of 2017, the Company announced it is engaging in a process to evaluate potential strategic options for the Johnson & Johnson Diabetes Care Companies, specifically LifeScan, Inc., Animas Corporation, and Calibra Medical, Inc. Strategic options may include the formation of operating partnerships, joint ventures or strategic alliances, a sale of the businesses, or other alternatives either separately or together. During the fiscal second quarter of 2017, the Company recorded an impairment charge of $0.2 billion, primarily related to the insulin pump business. Subsequent to the fiscal third quarter of 2017, the Company announced its decision to exit the Animas insulin pump business. The Company is continuing to evaluate potential strategic options for LifeScan, Inc. and determine the best opportunity to drive future growth and maximize shareholder value. There were no assets held for sale as of October 1, 2017 related to the announcement. During the fiscal third quarter of 2016, the Company completed the acquisition of Vogue International LLC, a privately-held company focused on the marketing, development and distribution of salon-influenced and nature inspired hair care and other personal products for $3.3 billion in cash. The net purchase price of $3.3 billion was primarily recorded as amortizable intangible assets for $2.3 billion and goodwill for $1.1 billion. The weighted average life for the $2.3 billion of total amortizable intangibles is approximately 22 years. The trademark asset values were determined to have definite lives ranging from 10 to 22 years, with the majority being 22 years. The customer relationship asset values were determined to have definite lives of 15 years. The goodwill is primarily attributable to synergies expected to arise from the business acquisition and is expected to be deductible for tax purposes. The assets acquired were recorded in the Consumer segment. During the fiscal second quarter of 2016, the Company completed the acquisitions of NeuWave Medical, Inc., a privately-held medical device company that manufactures and markets minimally invasive soft tissue microwave ablation systems and NeoStrata Company, Inc., a global leader in dermocosmetics. Additionally, during the fiscal second quarter of 2016, the Company completed the divestiture of its controlled substance raw material and active pharmaceutical ingredient (API) business. The proceeds from the divestiture were $0.6 billion.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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