Amgen 2009 Annual Report Download - page 96

(2) Purchase obligations primarily relate to (i) our long-term supply agreements with third party manufacturers,
which are based on firm commitments for the purchase of production capacity; (ii) R&D commitments
(including those related to clinical trials) for new and existing products; (iii) capital expenditures; (iv) open
purchase orders for the acquisition of goods and services in the ordinary course of business and (v) our
agreement with International Business Machines Corporation (“IBM”), which we entered into on Oc-
tober 22, 2008, for certain information systems’ infrastructure services. The term of the agreement is five
years with three one-year renewals, at our option, for a total of up to eight years. The cost to us for the initial
five-year term, is estimated to be $505 million, included in the table above is $363 million for the remaining
obligation. The estimated aggregate additional cost of the three one-year renewal options not included in the
table above is approximately $219 million. Our obligation to pay certain of these amounts may be reduced
based on certain future events.
Long-term liabilities for unrecognized tax benefits (“UTBs”) (net of federal tax benefits on state taxes) and
related accrued interest and penalty totaling approximately $1.1 billion at December 31, 2009 are not included in
the table above because, due to their nature, there is a high degree of uncertainty regarding the timing of future
cash outflows and other events that extinguish these liabilities. As of December 31, 2009, we do not have any li-
abilities for UTBs classified as current liabilities.
In addition to the above table, we are contractually obligated to make potential future success-based
development, regulatory and commercial milestone payments in conjunction with collaborative agreements we
have entered into with third-parties. These payments are contingent upon the occurrence of certain future events
and, given the nature of these events, it is unclear when, if ever, we may be required to pay such amounts. As
payment of these amounts is not considered probable, these contingent payments have not been included in the
table above or recorded on our Consolidated Balance Sheets. Further, the timing of any future payment is not
reasonable estimable. Individually, future payment of any amounts under these arrangements is not expected to
be material in any one reporting period. As of December 31, 2009, the maximum amount that may be payable in
the future under all such arrangement is approximately $1.8 billion.
Summary of Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with GAAP requires management to
make estimates and assumptions that affect the amounts reported in the financial statements and the notes to the
financial statements. Some of those judgments can be subjective and complex, and therefore, actual results could
differ materially from those estimates under different assumptions or conditions.
Product sales, sales deductions and returns
Revenues from sales of our products are recognized when the products are shipped and title and risk of loss
have passed. Product sales are recorded net of accruals for estimated rebates, wholesaler chargebacks, cash dis-
counts and other deductions (collectively, “sales deductions”) and returns, which are established at the time of
sale.
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