BUSINESS COMBINATIONS AND DIVESTITURES

During the fiscal first quarter of 2018, the Company announced a binding offer from Platinum Equity, a private investment firm, to acquire its LifeScan business for approximately $2.1 billion, subject to customary adjustments. As of April 1, 2018, the assets held for sale on the Consolidated Balance Sheet were $0.1 billion of inventory, $0.2 billion of property, plant and equipment, $0.1 billion of intangible assets, net and $1.0 billion of goodwill. The Company will retain certain net liabilities associated with the LifeScan business. Additionally, during the fiscal first quarter of 2018, the Company announced the acquisition of Orthotaxy, a privately-held developer of software-enabled surgery technologies, including a differentiated robotic-assisted surgery solution.

On June 16, 2017, the Company completed the acquisition of Actelion Ltd through an all cash tender offer in Switzerland for $280 per share, amounting to $29.6 billion, net of cash acquired. 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 exercised the option acquired 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 April 1, 2018, 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 April 1, 2018:



(Dollars in Millions)	June 16, 2017		April 1, 2018
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		6,161
Intangible assets	25,010		25,010
Deferred Taxes	3		99
Other non-current assets	19		19
Total Assets Acquired	32,928		33,199

Current liabilities	531		956
Deferred Taxes	1,960		1,776
Other non-current liabilities	383		413
Total Liabilities Assumed	2,874		3,145

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 and $0.4 billion to the current liabilities with the offset to goodwill. The assets acquired are recorded in the Pharmaceutical segment. The acquisition of Actelion resulted in approximately $6.2 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. As of April 1, 2018, patents and trademarks, net of a liability assumed, of $0.4 billion were classified as assets held for sale as they related to the pending divestiture of Valchlor, one of the acquired products. 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.

The following table provides pro forma results of operations for the fiscal first quarter ended April 2, 2017 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

(Dollars in Millions Except Per Share Data)	April 2, 2017

Net Sales	$	18,410
Net Earnings	4,099
Diluted Net Earnings per Common Share	$	1.49

In the fiscal first quarter of 2018, the Company recorded acquisition related costs, of approximately $0.1 billion before tax, which was recorded in Other (income)/expense and Cost of products sold.

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 $1.7 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 final purchase price allocation. 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.