Amgen 2002 Annual Report Download - page 52

Page 50
AMGEN 2002 ANNUAL REPORT
ated with collaborations with third parties. Revenue from
non-refundable, upfront license fees where the Company has
continuing involvement is recognized ratably over the devel-
opment or agreement period. Revenue associated with
performance milestones is recognized based upon the achieve-
ment of the milestones, as defined in the respective agree-
ments. The Company’s collaboration agreements with third
parties are performed on a “best efforts” basis with no guar-
antee of either technological or commercial success.
Royalty income
Royalties from licensees are based on third-party sales of
licensed products and are recorded in accordance with con-
tract terms when third-party results are reliably measurable
and collectibility is reasonably assured. Royalty estimates
are made in advance of amounts collected using historical
and forecasted trends. Pursuant to the license agreement with
Johnson & Johnson, noted above, the Company earns a
10% royalty on sales of Epoetin alfa by Johnson & Johnson
in the United States.
Advertising costs
Advertising costs are expensed as incurred. For the years
ended December 31, 2002, 2001, and 2000, advertising costs
were $49.4 million, $26.1 million, and $16.4 million,
respectively.
Research and development costs
Research and development expenses are comprised of the
following types of costs incurred in performing R&D activ-
ities: salaries and benefits, allocated overhead and occu-
pancy costs, clinical trial and related clinical manufacturing
costs, contract services, and other outside costs. Research
and development expenses also include such costs related
to activities performed on behalf of corporate partners.
Research and development costs are expensed as incurred.
Acquired in-process research and development
Costs to acquire in-process research and development
(“IPR&D”) projects and technologies which have no alter-
native future use and which have not reached technologi-
cal feasibility at the date of acquisition are expensed as
incurred (see Note 3, “Immunex acquisition”). Acquired
IPR&D is considered as part of total R&D expense.
Derivative instruments
The Company adopted SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities”, as amended,
on January 1, 2001 and its adoption has not had a mater-
ial effect on the Company’s financial statements. SFAS No.
133 requires companies to recognize all of its derivative
instruments as either assets or liabilities in the balance
sheet at fair value. The accounting for changes in the fair
value (i.e., unrealized gains or losses) of a derivative instru-
ment depends on whether it has been designated and qual-
ifies as part of a hedging relationship and further, on the
type of hedging relationship. Derivatives that are not hedges
must be adjusted to fair value through current earnings. Prior
to the adoption of SFAS No. 133, all of the Company’s for-
eign exchange forward contracts were adjusted to fair value
through current earnings.
Periodically, the Company enters into foreign currency
forward contracts to protect against possible changes in
values of certain anticipated foreign currency cash flows, pri-
marily resulting from sales outside the United States. These
contracts are designated as cash flow hedges and accordingly,
the gains and losses on these forward contracts are reported
as a component of other comprehensive income and reclas-
sified into interest and other income, net in the same peri-
ods during which the hedged transactions affect earnings.
No portions of these foreign currency forward contracts are
excluded from the assessment of hedge effectiveness, and
there are no ineffective portions of these hedging instruments.
At December 31, 2002 and 2001, amounts in accumulated
other comprehensive income related to cash flow hedges
were not material. The Company also enters into foreign cur-
rency forward contracts to reduce exposures to foreign
currency fluctuations of certain assets and liabilities denom-
inated in foreign currencies. These forward contracts have
not been designated as hedges under SFAS No. 133 and
accordingly gains and losses on these foreign currency
forward contracts are recognized in interest and other
income, net in the current period. During the years ended
December 31, 2002 and 2001, gains and losses on these
foreign currency forward contracts were not material.
To protect against possible reductions in value of cer-
tain of its available-for-sale marketable equity securities
and certain available-for-sale fixed income investments, the
Company has entered into equity forward contracts and