Johnson and Johnson 2005 Annual Report Download - page 50

PAGE 48 JOHNSON & JOHNSON 2005 ANNUAL REPORT
The weighted average amortization periods for patents and
trademarks and other intangible assets are 15 years and 17
years, respectively. The amortization expense of amortizable
intangible assets for the fiscal years ended January 1, 2006,
January 2, 2005 and December 28, 2003, was $521 million,
$603 million and $454 million before tax, respectively. Certain
patents and intangibles were written down to fair value during
fiscal years 2005, 2004 and 2003, with the resulting charge
included in amortization expense. The estimated amortization
expense for the five succeeding years approximates $565 mil-
lion 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) 2005 2004 2003
Currently payable:
U.S. taxes $2,181 3,654 2,934
International taxes 1,110 1,173 897
3,291 4,827 3,831
Deferred:
U.S. taxes 228 (70) (409)
International taxes (274) (428) (311)
(46) (498) (720)
$3,245 4,329 3,111
A comparison of income tax expense at the federal statutory
rate of 35% in 2005, 2004 and 2003, to the Company’s effective
tax rate is as follows:
(Dollars in Millions) 2005 2004 2003
U.S. $7,381 7,895 6,333
International 6,275 4,943 3,975
Earnings before taxes
on income: $13,656 12,838 10,308
Tax rates:
Statutory 35.0% 35.0% 35.0%
Puerto Rico and
Ireland operations (7.0) (5.6) (6.1)
Research tax credits (0.6) (0.8) (1.0)
U.S. state and local 1.0 1.6 2.0
International subsidiaries
excluding Ireland (2.6) (1.7) (2.0)
Repatriation of
International earnings (1.6) 6.1 —
IPR&D 0.9 — 3.1
All other (1.3) (0.9) (0.8)
Effective tax rate 23.8% 33.7% 30.2%
During 2005, the Company had subsidiaries operating in
Puerto Rico under various tax incentive grants. Also, the U.S.
possessions tax credit, which expires in 2006, applies to certain
operations in Puerto Rico. In addition, the Company had sub-
sidiaries manufacturing in Ireland under an incentive tax rate.
During the second quarter of 2005, a tax benefit of $225 mil-
lion was recorded due to the reversal of a tax liability related to
a technical correction associated with the American Jobs Cre-
ation Act of 2004. The decrease in the 2005 tax rate was attrib-
uted to increases in taxable income in lower tax jurisdictions
relative to taxable income in higher tax jurisdictions, as a result
of increased expenditures in higher tax jurisdictions and a shift
in sales mix.
Temporary differences and carry forwards for 2005 and
2004 are as follows:
2005 2004
Deferred Tax Deferred Tax
(Dollars in Millions) Asset Liability Asset Liability
Employee related
obligations $ 670 483
Depreciation (428) (378)
Non-deductible
intangibles (1,401) (1,366)
International R&D
capitalized for tax 999 905
Reserves & liabilities 788 720
Income reported
for tax purposes 458 463
Miscellaneous
international 495 (149) 535 (236)
Capitalized intangibles 140 147
Miscellaneous U.S. 342 515
Total deferred
income taxes $3,892 (1,978) 3,768 (1,980)
The difference between the net deferred tax on income per
the balance sheet and the net deferred tax above is included in
taxes on income on the balance sheet.