Amgen 2002 Annual Report Download - page 31

Page 29
AMGEN 2002 ANNUAL REPORT
and had no alternative future use. The estimated fair value
of these projects was determined based on the use of a dis-
counted cash flow model. For each project, the estimated
after-tax cash flows were probability weighted to take into
account the stage of completion and the risks surrounding
the successful development and commercialization. These
cash flows were then discounted to a present value using dis-
count rates ranging from 12% to 14%. In addition, solely
for the purposes of estimating the fair values of these IPR&D
projects as of July 15, 2002, the following assumptions
were made:
•Future R&D costs of $500 million to $600 million per
therapeutic area would be incurred to complete the inflam-
mation and the oncology research projects, and future
costs of $200 million to $250 million would be incurred
to complete all other research projects. These estimates
are net of any R&D costs that will be shared under col-
laborations with corporate partners.
•The research projects, which were in various stages of
development from pre-clinical through phase 3 clinical
trials, are expected to reach completion at various dates
ranging from 2003 through 2009.
The major risks and uncertainties associated with the
timely and successful completion of these projects consist
of the ability to confirm the safety and efficacy of the tech-
nology based on the data from clinical trials and obtaining
necessary regulatory approvals. In addition, no assurance can
be given that the underlying assumptions used to forecast
the cash flows or the timely and successful completion of
such projects will materialize, as estimated. For these rea-
sons, among others, actual results may vary significantly from
the estimated results.
Amortization of intangible assets
In 2002, amortization expense related to the intangible
assets acquired in connection with the Immunex acquisi-
tion was $155.2 million. Amortization of intangible assets
is provided over their estimated useful lives ranging from
7 to 15 years on a straight-line basis.
Other items, net
In 2002, other items, net consisted of three items: 1) a one-
time, non-recurring benefit of $40.1 million related to the
recovery of certain expenses accrued in the fourth quarter
of 2001 related to terminating collaboration agreements
with various third parties, 2) a legal award associated with
the product license arbitration with Johnson & Johnson of
$151.2 million, and 3) a charitable contribution to the
Amgen Foundation of $50 million.
In 2001, other items, net primarily consisted of costs
associated with the termination of collaboration agreements
with various third parties, including PRAECIS PHARMA-
CEUTICALS INCORPORATED and certain academic institu-
tions totaling $203.1 million.
In 2000, other items, net consisted of two items:
1) a legal award associated with the spillover arbitration with
Johnson & Johnson of $73.9 million, and 2) a charitable
contribution to the Amgen Foundation of $25 million.
See Note 4 to the Consolidated Financial Statements
for a discussion of the 2002, 2001, and 2000 items.
Interest and other income, net
In 2002, interest and other income, net decreased $24.5 mil-
lion or 15% over the prior year. This decrease was princi-
pally due to higher realized losses related to equity securities
and higher losses on foreign currency transactions. The
decrease was partially offset by higher interest income gen-
erated from the Company’s investment portfolio as a result
of higher average cash balances. Higher average cash
balances during 2002 offset the impact of lower average
interest rates.
In 2001, interest and other income, net increased $22.5
million or 15% over the prior year. This increase was due
to higher interest income generated from the Company’s
investment portfolio as a result of higher average cash bal-
ances, partially offset by lower interest rates in 2001 and
higher gains on the sale of equity investments that occurred
in 2000.
Income taxes
The Company’s effective tax rate was (103.3%), 33.6%,
and 32.0% for 2002, 2001, and 2000, respectively. The
Company’s negative effective tax rate for 2002 was pri-
marily due to the pre-tax loss resulting from the write-off
of IPR&D costs in connection with the Immunex acquisi-
tion which is not deductible for income tax purposes.
Excluding the effect of the IPR&D write-off, the 2002
effective tax rate would have been 30.7%. This effective