Johnson and Johnson 2006 Annual Report Download - page 69

NOTES TO CONSOLIDATED FINANCIAL ST A TEMENTS67
17. Mergers, Acquisitions and Divestitures
Certain businesses were acquired for $18.0 billion in cash and
were accounted for by the purchase method and, accordingly,
results of operations have been included in the financial state-
ments from their respective dates of acquisitions except as
noted below.
On December 20, 2006, the Company completed the
acquisition of the Consumer Healthcare business of Pfizer Inc.
for a purchase price of $16.6 billion in cash. The operating
results of the Consumer Healthcare business of Pfizer Inc. will
be reported in the Company’s financial statements beginning
in 2007, as 2006 results subsequent to the acquisition date were
not significant.
In order to obtain regulatory approval of the transaction, the
Company agreed to divest certain overlapping businesses. The
Company completed the divestiture of the ZANTAC®product on
December 20, 2006 and the divestitures of KAOPECTATE®,
UNISOM®, CORTIZONE®, BALMEX®and ACT®products on
January 2, 2007.
The following table provides pro forma results of operations
for the fiscal year ended January 1, 2006 and the fiscal year
ended December 31, 2006, as if the Consumer Healthcare busi-
ness of Pfizer Inc. had been acquired as of the beginning of each
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 Health-
care 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.
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 Common Share $3.64 3.26
The Company is in the process of finalizing the allocation of the
purchase price to the individual assets acquired and liabilities
assumed. The preliminary allocation of the purchase price
included in the current period balance sheet is based on the best
estimates of management. The completion of the purchase price
allocation may result in adjustments to the carrying value of the
Consumer Healthcare business of Pfizer Inc.’s recorded assets
and liabilities, revisions of the useful lives of intangible assets
and the determination of any residual amount that will be allo-
cated to goodwill. The related depreciation and amortization
from the acquired assets is also subject to revision based on the
final allocation.
The following table presents the preliminary allocation of
the purchase price related to the Consumer Healthcare business
of Pfizer Inc. as of the date of acquisition:
(Dollars in Millions)
Current assets $1,992
Property, plant and equipment 809
Goodwill 6,567
Intangible assets 8,895
Total assets acquired $18,263
Current liabilities
Non-current liabilities
Total liabilities assumed $1,986
Net assets acquired $16,277
The acquisition of the Consumer Healthcare business of Pfizer
Inc. resulted in $6.6 billion in goodwill, which is allocated to the
Consumer segment.
The preliminary purchase price allocation to the identifiable
intangible assets 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 5,205
Total intangible assets $8,895
The weighted average life of the $3,690 million of total
amortizable intangibles is approximately 31 years.
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 macro-
economic environment of the countries in which the brands are
sold. The indefinite-life 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 attri-
tion 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
on a pre-tax basis and $217 million on an after-tax basis and is
primarily associated with rights obtained to the pending switch
of ZYRTEC®from U.S. prescription to over the counter status.
Consumer Healthcare business of Pfizer Inc. was $320 million
$1.3 billion of liabilities assumed during 2006. These acquisitions
831
1,155