Amgen 2006 Annual Report Download - page 32

Amgen 2006 Annual Report 30
* “Adjusted” earnings per share, “adjusted” research and development expenses, and “adjusted” selling, general and administrative expenses are non-GAAP financial measures.
See the reconciliations of GAAP to “adjusted” on the tables that follow this section.
Financial performance
Our adjusted earnings per share grew 22 percent in 2006 to $3.90
from $3.20 in 2005. Under generally accepted accounting
principles in the United States (GAAP), our earnings per share
decreased 15 percent in 2006 to $2.48 compared to $2.93 in 2005.
GAAP results for 2006 were negatively impacted by the acquisitions
of Abgenix, Inc. (Abgenix) and Avidia, Inc. (Avidia) which resulted
in a combined $1,231 million charge related to acquired in-process
research and development. Adjusted earnings per share for 2006
and 2005 exclude, for the applicable periods, stock option
expense, certain expenses related to the acquisitions of Abgenix,
Avidia, Tularik Inc. (in 2004) and Immunex Corporation (in 2002)
and certain other items. These expenses and other items are
itemized on the reconciliation table that follows this section.
Our cash flow from operations totaled $5.4 billion in 2006. As of
December 31, 2006, our cash and short-term marketable securities
totaled $6.3 billion and our debt outstanding was $9 billion,
including $5 billion of convertible debt issued in February 2006.
These notes are convertible into cash, and under certain terms
and conditions, shares of our common stock. Of the $5 billion of
convertible notes, $2.5 billion pay interest at 0.125 percent and
are due in 2011 and the remaining $2.5 billion pay interest at
0.375 percent and are due in 2013. Concurrent with the issuance
of these notes, we purchased convertible note hedges and,
separately, issued warrants to acquire shares of our common stock.
The convertible note hedges and warrant transactions generally
had the effect of increasing the conversion price of the notes to
a 50 percent premium based on the last reported bid price of our
common stock on the date the convertible notes were priced.
We believe that existing funds, cash generated from operations
and existing sources of and access to financing are adequate to
satisfy our working capital, capital expenditure and debt service
requirements for the foreseeable future. Additionally, we believe
that our liquidity and access to financing are adequate to support
our stock repurchase program and other business initiatives,
including acquisitions and licensing activities. However, in order
to provide for greater financial flexibility and liquidity, we are
currently reviewing additional borrowing opportunities.
Investing in our business
Our 2006 adjusted R&D expenses increased 39 percent to
$3.2 billion, representing 23 percent of total product sales. The
increase in R&D expenses was primarily due to higher staff levels
and increased funding necessary to support clinical trials for our
late-stage programs, including nine “mega-trials” (involving 200
or more sites) initiated in 2006, and the continued expansion of
our research and preclinical organization to build the capacity to
advance more molecules into and through the clinic. In 2006,
adjusted selling, general and administrative expenses increased
16 percent, reflecting higher staff levels and additional infra-
structure costs to support the growing organization, in particular,
our Global Enterprise Resource Planning system, higher Wyeth
profit share expenses related to Enbrel® (etanercept) sales and
higher legal costs associated with ongoing litigation.
Financial Review
“Adjusted” earnings per share*
(Unaudited)
2006 $3.90
2005 3.20
2004 2.40
2003 1.90
2002 1.39
04 05 060302
Cash flow from operations
($ in millions)
2006 $5,389
2005 4,911
2004 3,697
2003 3,567
2002 2,249
04 05 060302
“Adjusted” research and
development expenses*
($ in millions)
(Unaudited)
2006 $3,191
2005 2,302
2004 1,996
2003 1,621
2002 1,099
04 05 060302
“Adjusted” selling, general
and administrative expenses*
($ in millions)
(Unaudited)
2006 $3,234
2005 2,792
2004 2,548
2003 1,893
2002 1,427
04 05 060302