Amgen 2007 Annual Report Download - page 137

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
We have a co-promotion agreement with Wyeth. Under the terms of this agreement, Amgen and Wyeth mar-
ket and sell ENBREL in the United States and Canada and develop certain future indications of ENBREL for use
in these geographic territories. Wyeth is paid a share of the resulting profits on our sales of ENBREL, after de-
ducting the applicable costs of sales, including manufacturing costs and royalties paid to third parties, and
expenses associated with R&D and sales and marketing. Such amounts paid to Wyeth are included in “Selling,
general and administrative” expense in the Consolidated Statements of Income. The rights to market ENBREL
outside of the United States and Canada are reserved to Wyeth. We also have a global supply agreement with
Wyeth related to the manufacture, supply, inventory and allocation of bulk supplies of ENBREL.
Advertising costs are expensed as incurred. For the years ended December 31, 2007, 2006 and 2005, adver-
tising costs were $93 million, $134 million and $109 million, respectively.
Acquired in-process research and development
The estimated fair value of acquired in-process R&D (“IPR&D”) projects, which have not reached techno-
logical feasibility at the date of acquisition and which do not have an alternative future use, are immediately
expensed. In 2007, we wrote-off $270 million and $320 million of acquired IPR&D related to the Alantos and
Ilypsa acquisitions, respectively. In 2006, we wrote-off $1.1 billion and $130 million of acquired IPR&D related
to the Abgenix and Avidia, Inc. (“Avidia”) acquisitions, respectively. Acquired IPR&D is considered part of total
R&D expense (see Note 8, “Acquisitions”).
Interest costs
Interest costs are expensed as incurred, except to the extent such interest is related to construction in prog-
ress, in which case interest is capitalized. Interest expense, net for the years ended December 31, 2007, 2006 and
2005 was $328 million, $129 million and $99 million, respectively. Interest costs capitalized for the years ended
December 31, 2007, 2006 and 2005, were $28 million, $43 million and $30 million, respectively. Interest paid,
net of interest rate swap settlement activity, during the years ended December 31, 2007, 2006 and 2005, totaled
$258 million, $122 million and $84 million, respectively. Included in interest expense, net, for the year ended
December 31, 2007, is a pro rata portion, $51 million, of deferred financing and related costs, which were imme-
diately charged to interest expense upon the repurchase of the 2032 Modified Convertible Notes (See Note 6,
“Financing arrangements”).
Earnings per share
Basic earnings per share (“EPS”) is based upon the weighted-average number of common shares out-
standing. Diluted EPS is based upon the weighted-average number of common shares and dilutive potential
common shares outstanding. Potential common shares outstanding principally include stock options, restricted
stock (including restricted stock units) and other equity awards under our employee compensation plans and po-
tential issuance of stock upon the assumed conversion of our 2011 Convertible Notes, 2013 Convertible Notes,
2032 Modified Convertible Notes, as discussed below, and upon the assumed exercise of our warrants using the
treasury stock method (collectively “Dilutive Securities”). Potential common shares also include common stock
to be issued upon the assumed conversion of our 2032 Convertible Notes under the if-converted method. The
convertible note hedges purchased in connection with the issuance of our 2011 Convertible Notes and 2013 Con-
vertible Notes are excluded from the calculation of diluted EPS as their impact is always anti-dilutive. For further
information regarding our convertible notes and warrants, see Note 6, “Financing arrangements”.
Our 2011 Convertible Notes, 2013 Convertible Notes and 2032 Modified Convertible notes are considered
Instrument C securities as defined by Emerging Issues Task Force Issue (“EITF”) No. 90-19 “Convertible Bonds
with Issuer Option to Settle for Cash upon Conversion.” Therefore, only the shares of common stock potentially
issueable with respect to the excess of the notes’ conversion value over their principal amount (or accreted value
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