Amgen 2015 Annual Report Download - page 86

F-8
In arrangements involving the delivery of more than one element, each required deliverable is evaluated to determine whether
it qualifies as a separate unit of accounting. For Amgen, this determination is generally based on whether the deliverable has “stand-
alone value” to the customer. The arrangement’s consideration that is fixed and determinable is then allocated to each separate
unit of accounting based on the relative selling price of each deliverable. The estimated selling price of each deliverable is determined
using the following hierarchy of values: (i) vendor-specific objective evidence of fair value, (ii) third-party evidence of selling
price and (iii) best estimate of selling price (BESP). The BESP reflects our best estimate of what the selling price would be if the
deliverable was regularly sold by us on a stand-alone basis. In general, the consideration allocated to each unit of accounting is
recognized as the related goods or services are delivered, limited to the consideration that is not contingent upon future deliverables.
Consideration associated with at-risk substantive performance milestones is recognized as revenue upon the achievement of the
related milestone, as defined in the respective contracts.
Research and development costs
R&D costs are expensed as incurred and include primarily salaries, benefits and other staff-related costs; facilities and
overhead costs; clinical trial and related clinical manufacturing costs; contract services and other outside costs; information systems’
costs and amortization of acquired technology used in R&D with alternative future uses. R&D expenses also include costs and
cost recoveries associated with third-party R&D arrangements such as with K-A, including upfront fees and milestones paid to
third parties in connection with technologies which had not reached technological feasibility and did not have an alternative future
use. Net payment or reimbursement of R&D costs is recognized when the obligations are incurred or as we become entitled to the
cost recovery. See Note 7, Collaborative arrangements, and Note 8, Related party transactions.
Selling, general and administrative costs
Selling, general and administrative (SG&A) costs are comprised primarily of salaries, benefits and other staff-related costs
associated with sales and marketing, finance, legal and other administrative personnel; facilities and overhead costs; outside
marketing, advertising and legal expenses; the U.S. healthcare reform federal excise fee on Branded Prescription Pharmaceutical
Manufacturers and Importers; and other general and administrative costs. Advertising costs are expensed as incurred. SG&A
expenses also include costs and cost recoveries associated with marketing and promotion efforts under certain collaboration
arrangements. Net payment or reimbursement of SG&A costs is recognized when the obligations are incurred or we become entitled
to the cost recovery. See Note 7, Collaborative arrangements.
Stock-based compensation
We have stock-based compensation plans under which various types of equity-based awards are granted, including restricted
stock units (RSUs), performance units and stock options. The estimated fair values of RSUs and stock option awards which are
subject only to service conditions with graded vesting are generally recognized as compensation expense on a straight-line basis
over the service period. The estimated fair values of performance unit awards are generally recognized as compensation expense
ratably from the grant date to the end of the performance period. See Note 4, Stock-based compensation.
Income taxes
We provide for income taxes based on pretax income and applicable tax rates available in the various jurisdictions in which
we operate. Deferred income taxes are recorded for the expected tax consequences of temporary differences between the bases of
assets and liabilities for financial reporting purposes and amounts recognized for income tax purposes. We record a valuation
allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained upon examination by the taxing authorities based on the technical merits of the position. The tax benefit recognized in
the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized. The
amount of unrecognized tax benefits (UTBs) is adjusted as appropriate for changes in facts and circumstances, such as significant
amendments to existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a
tax examination, or resolution of an examination. We recognize both accrued interest and penalties, where appropriate, related to
UTBs in income tax expense. See Note 5, Income taxes.
Business combinations
Business combinations are accounted for using the acquisition method of accounting. Under the acquisition method, assets
acquired, including in-process research and development (IPR&D) projects, and liabilities assumed are recorded at their respective
fair values as of the acquisition date in our consolidated financial statements. The excess of the fair value of consideration transferred
over the fair value of the net assets acquired is recorded as goodwill. Contingent consideration obligations incurred in connection