Amgen 2012 Annual Report Download - page 109

F-10
Goodwill and other intangible assets
Finite-lived intangible assets are recorded at cost, net of accumulated amortization and, if applicable, impairment charges.
Amortization of finite-lived intangible assets is provided over their estimated useful lives on a straight-line basis. We review our
finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. See Note 12, Goodwill and other intangible assets.
The estimated fair values of IPR&D projects acquired in a business combination which have not reached technological
feasibility are capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the related
R&D efforts. Upon successful completion of the project, the capitalized amount is amortized over its estimated useful life. If a
project is abandoned, all remaining capitalized amounts are written-off immediately. There are often major risks and uncertainties
associated with IPR&D projects as we are required to obtain regulatory approvals in order to be able to market these products.
Such approvals require completing clinical trials that demonstrate a product candidate is safe and effective. Consequently, the
eventual realized value of the acquired IPR&D project may vary from its estimated fair value at the date of acquisition, and IPR&D
impairment charges may occur in future periods.
Capitalized IPR&D projects are tested for impairment annually and whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. We consider various factors for potential impairment including the current legal
and regulatory environment and the competitive landscape. Adverse clinical trial results, significant delays in obtaining market
approval and the inability to bring a product to market could result in the related intangible assets to be partially or fully impaired.
We perform an impairment test of goodwill annually and whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. To date, an impairment of goodwill has not been recorded. See Note 12, Goodwill and
other intangible assets.
Contingencies
In the ordinary course of business, we are involved in various legal proceedings and other matters such as intellectual property
disputes, contractual disputes, governmental investigations and class action suits which are complex in nature and have outcomes
that are difficult to predict. Certain of these proceedings are discussed in Note 18, Contingencies and commitments. We record
accruals for loss contingencies to the extent that we conclude that it is probable that a liability has been incurred and the amount
of the related loss can be reasonably estimated. We consider all relevant factors when making assessments regarding these
contingencies.
While it is not possible to accurately predict or determine the eventual outcomes of these items, an adverse determination
in one or more of these items currently pending could have a material adverse effect on our consolidated results of operations,
financial position or cash flows.
Convertible debt
The debt and equity components of convertible debt instruments that may be partially or wholly cash settled (cash settleable
convertible notes), including our 0.375% 2013 Convertible Notes, are bifurcated and accounted for separately. The debt component
of cash settleable convertible notes, which excludes the associated equity conversion option, is recorded at fair value as of the
issuance date. The difference between the amount allocated to the debt component and the proceeds received upon issuance of the
debt is allocated to the equity component and recorded in Common stock and additional paid-in capital in the Consolidated Balance
Sheets. The reduced or discounted carrying value of cash settleable convertible notes resulting from bifurcation is subsequently
accreted back to its principal amount through the recognition of non-cash interest expense. This results in recognizing interest
expense on the borrowing at an effective rate approximating what would have been incurred had nonconvertible debt with otherwise
similar terms been issued. See Note 14, Financing arrangements.
Foreign currency translation
The net assets of international subsidiaries where the local currencies have been determined to be the functional currencies
are translated into U.S. dollars using current exchange rates. The U.S. dollar effects that arise from translating net assets of these
subsidiaries at changing rates are recognized in other comprehensive income. The earnings of these subsidiaries are translated into
U.S. dollars using average exchange rates.