Amgen 2000 Annual Report Download - page 31

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Foreign Currency Transactions
The Company has a program to manage foreign currency risk. As
part of this program, it has purchased foreign currency option and
forward contracts to hedge against possible reductions in values
of certain anticipated foreign currency cash flows generally over
the next 12 months. At December 31, 2000, the Company had
option contracts and forward contracts to exchange foreign cur-
rencies for U.S. dollars of $10.0 million and $150.6 million,
respectively, all having maturities of eleven months or less. The
option contracts, which have only nominal intrinsic value at the
time of purchase, are designated as effective hedges of anticipat-
ed foreign currency transactions for financial reporting purposes
and, accordingly, the net gains on such contracts are deferred and
recognized in the same period as the hedged transactions. The
forward contracts do not qualify as hedges for financial reporting
purposes and, accordingly, are marked-to-market. Net gains real-
ized on option contracts and changes in market values of forward
contracts are reflected in “Interest and other income, net” in the
accompanying consolidated statements of operations. The
deferred premiums on option contracts and fair values of forward
contracts are included in “Other current assets” in the accom-
panying consolidated balance sheets.
The Company has additional foreign currency forward contracts
to hedge exposures to foreign currency fluctuations of certain
assets and liabilities denominated in foreign currencies. At
December 31, 2000, the Company had forward contracts to
exchange foreign currencies for U.S. dollars of $37.8 million, all
having maturities of less than one month. These contracts are
designated as effective hedges and, accordingly, gains and loss-
es on these forward contracts are recognized in the same period
the offsetting gains and losses of hedged assets and liabilities are
realized and recognized. The fair values of the forward contracts
are included in the corresponding captions of the hedged assets
and liabilities. Gains and losses on forward contracts and the
related hedged assets and liabilities are included in “Interest and
other income, net” in the accompanying consolidated statements
of operations.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, “Accounting for Derivative Instruments and Hedging
Activities”. SFAS No. 133 establishes accounting and reporting
standards requiring that all derivatives be recorded in the balance
sheet as either an asset or liability measured at fair value and that
changes in fair value be recognized currently in earnings, unless
specific hedge accounting criteria are met. Certain provisions of
SFAS No. 133, including its required implementation date, were
subsequently amended. The Company will adopt SFAS No. 133, as
amended, in the first quarter of 2001 and its adoption will not have
a material effect on the Company’s results of operations or finan-
cial position.
In December 1999, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, “Revenue Recognition in
Financial Statements” (“SAB 101”). SAB 101 provides guidance on
applying generally accepted accounting principles to revenue
recognition issues in financial statements. The Company adopted
SAB 101 in the fourth quarter of 2000 and its adoption has not had
a material effect on the Company’s results of operations or finan-
cial position.
In July 2000, the Emerging Issues Task Force (“EITF”) issued EITF
00-15, “Classification in the Statement of Cash Flows of the
Income Tax Benefit Realized by a Company upon Employee
Exercise of a Nonqualified Stock Option”, which requires com-
panies to classify the income tax benefits related to employee
exercises of nonqualified stock options as an operating activity in
the statement of cash flows for both current and prior periods.
Prior to the adoption of EITF 00-15 in the third quarter of 2000,
Amgen had classified these amounts in financing activities in the
consolidated statements of cash flows. In addition, the Company
has included the income tax benefits related to disqualifying dis-
positions of incentive stock options within this reclassification.
Interest
Interest costs are expensed as incurred, except to the extent such
interest is related to construction in progress, in which case inter-
est is capitalized. Interest costs capitalized for the years ended
December 31, 2000, 1999 and 1998, were $12.3 million, $11.6
million and $19.2 million, respectively.
Employee Stock Option and Stock Purchase Plans
The Company’s employee stock option and stock purchase
plans are accounted for under Accounting Principles Board
Opinion No. 25, “Accounting for Stock Issued to Employees”
(“APB 25”). See Note 7, “Employee Stock Option, Stock Purchase
and Defined Contribution Plans”.
Earnings Per Share
Basic earnings per share is based upon the weighted-average
number of common shares outstanding. Diluted earnings per
share is based upon the weighted-average number of common
shares and dilutive potential common shares outstanding.
Potential common shares are outstanding options under the
Company’s employee stock option plans, restricted stock and
potential issuances of stock under the employee stock purchase
plan which are included under the treasury stock method.
Notes to Consolidated Financial Statements