Amgen 2010 Annual Report Download - page 98

The following table represents our contractual obligations as of December 31, 2010, aggregated by type
(in millions):
Contractual obligations Total
Year
1
Years
2 and 3
Years
4 and 5
Years
6 and beyond
Payments due by period
Long-term debt obligations
(1)
........ $22,259 $2,900 $3,389 $1,892 $14,078
Operating lease obligations .......... 1,009 140 246 189 434
Purchase obligations
(2)
............. 3,263 1,020 560 131 1,552
Unrecognized tax benefits
(3)
......... 200 200 — — —
Total contractual obligations ....... $26,731 $4,260 $4,195 $2,212 $16,064
(1) The long-term debt obligation amounts include future interest payments. Future interest payments are
included on our financing arrangements at the fixed contractual coupon rates. To achieve a desired mix of
fixed and floating interest rate debt, we enter into interest rate swap agreements, which effectively convert a
fixed rate interest coupon to a floating LIBOR-based coupon over the life of the respective note. We used an
interest rate forward curve at December 31, 2010 to compute the net amounts to be included in the table above
for future interest payments on our variable rate interest rate swaps. See Note 15, Financing arrangements to
the Consolidated Financial Statements for further discussion of our long-term debt obligations and our interest
swap agreements.
(2) Purchase obligations relate primarily 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; and
(iv) open purchase orders for the acquisition of goods and services in the ordinary course of business. Our
obligation to pay certain of these amounts may be reduced based on certain future events.
(3) Long-term liabilities for unrecognized tax benefits (“UTBs”) (net of foreign tax credits and federal tax benefit
of state taxes) and related accrued interest and penalties totaling approximately $625 million at December 31,
2010 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.
In addition to the above table, we are contractually obligated to pay additional amounts, which in the aggregate
are significant, upon the achievement of various development, regulatory and commercial milestones in conjunc-
tion with collaborative agreements we have entered into with third parties. These payments are contingent upon the
occurrence of various future events, which have a high degree of uncertainty of occurring. These contingent
payments have not been included in the table above or recorded on our Consolidated Balance Sheets. As of
December 31, 2010, the maximum amount that may be payable in the future under all such arrangements is
approximately $2.1 billion.
Summary of Critical Accounting Policies
The preparation of our consolidated financial statements in conformity with US 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
discounts and other deductions (collectively, “sales deductions”) and returns, which are established at the time of
sale.
We analyze the adequacy of our accruals for sales deductions quarterly. Amounts accrued for sales deductions
are adjusted when trends or significant events indicate that adjustment is appropriate. Accruals are also adjusted to
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