Johnson and Johnson 2013 Annual Report Download - page 63

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. Total
sales and net earnings for Synthes for the fiscal year ended December 30, 2012 were $2,159 million and $324 million,
respectively.
The following table provides pro forma results of operations for the fiscal year ended December 30, 2012 and January 1,
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 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 Amounts) 2012 2011
Net Sales $68,894 68,741
Net Earnings attributable to Johnson & Johnson $11,564 9,427
Diluted Net Earnings per share attributable to Johnson & Johnson $4.11 3.40
The Company recorded acquisition related costs before tax of $683 million and $1,028 million in 2013 and 2012,
respectively, 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.
Certain businesses were acquired for $2,797 million in cash and $228 million of liabilities assumed during 2011. These
acquisitions were accounted for using the acquisition method and, accordingly, results of operations have been included
in the financial statements from their respective dates of acquisition.
The 2011 acquisitions included: Crucell N.V., a global biopharmaceutical company focused on the research &
development, production and marketing of vaccines and antibodies against infectious disease worldwide; the over-the-
counter brands of J.B. Chemicals & Pharmaceuticals Limited, including RINZA®, Russia’s leading multi-symptom cough
and cold brand, and DOKTOR MOM®, Russia’s number two selling cough brand, as well as several other brands; full
ownership of the Johnson & Johnson-Merck Consumer Pharmaceuticals Co. joint venture in the U.S. from Merck Sharp &
Dohme Corp; and SterilMed, Inc., a leader in the reprocessing and remanufacturing of medical devices in the U.S.
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