Amgen 2015 Annual Report Download - page 54

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Operating expenses
Operating expenses were as follows (dollar amounts in millions):
Year ended
December 31,
Year ended
December 31,
Year ended
December 31,
2015 Change 2014 Change 2013
Operating expenses:
Cost of sales $ 4,227 (4)% $ 4,422 32 % $ 3,346
% of product sales 20.2% 22.9% 18.4%
% of total revenues 19.5% 22.0% 17.9%
Research and development $ 4,070 (5)% $ 4,297 5 % $ 4,083
% of product sales 19.4% 22.2% 22.4%
% of total revenues 18.8% 21.4% 21.9%
Selling, general and administrative $ 4,846 3 % $ 4,699 (9)% $ 5,184
% of product sales 23.1% 24.3% 28.5%
% of total revenues 22.4% 23.4% 27.8%
Other $ 49 (89)% $ 454 * $ 196
* Change in excess of 100%
Transformation and process improvement
During the second half of 2014, we announced process improvement and transformation initiatives that are enabling us to
invest in continuing innovation, expand into new countries and launch new products, while improving our cost structure. This
plan includes a restructuring, which is delivering cost savings and funding investments. The restructuring includes reducing our
geographic footprint, as well as reducing our staff by 3,500 to 4,000, both of which allow us to reinvest and hire in our strategic
areas of focus.
We estimate that this restructuring plan will result in pre-tax accounting charges in the range of $800 million to $900 million,
which is less than originally expected due to better than anticipated results from the exit of two of our closed facilities. Restructuring
costs to date of $672 million were incurred as of December 31, 2015. During the years ended December 31, 2015 and 2014, we
incurred restructuring costs of $114 million and $558 million, respectively. We expect that we will incur most of the remaining
estimated costs in 2016 and 2017 in order to support our ongoing transformation and process improvement efforts. Net savings
were not significant in 2015 and 2014 due to the investments in new product launch preparations, later stage clinical programs
and external business development.
Additional information required for our restructuring plan is incorporated herein by reference to Part IV—Note 2,
Restructuring and other cost savings initiatives, to the Consolidated Financial Statements.
Cost of sales
Cost of sales decreased to 19.5% of total revenues for 2015, driven primarily by lower royalties, higher net selling prices,
manufacturing efficiencies and lower costs related to our restructuring plan. The year ended December 31, 2014, also had a $99-
million charge related to the termination of the supply contract with Roche as a result of acquiring the licenses to filgrastim and
pegfilgrastim effective January 1, 2014.
Cost of sales increased to 22.0% of total revenues for 2014, driven by acquisition-related expenses that included an increase
of $642 million of non-cash amortization of intangible assets acquired in the Onyx acquisition. The year ended December 31,
2014, also included impairment and accelerated depreciation charges pursuant to our restructuring initiative of $104 million as
well as the aforementioned $99-million charge related to the termination of the supply contract with Roche.
The excise tax imposed by Puerto Rico on the gross intercompany purchase price of goods and services from our manufacturer
in Puerto Rico (Puerto Rico excise tax) is recorded as a cost of sales expense. Excluding the impact of the Puerto Rico excise tax,
cost of sales would have been 17.8%, 20.1% and 16.0% of total revenues for 2015, 2014 and 2013, respectively. See Part IV—
Note 5, Income taxes, to the Consolidated Financial Statements for further discussion of the Puerto Rico excise tax.