Amgen 2007 Annual Report Download - page 138

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
with respect to the 2032 Modified Convertible Notes), if any, are considered as dilutive potential common shares
for purposes of calculating diluted EPS. For the years ended December 31, 2007, 2006 and 2005, the conversion
values for our convertible notes were less than the related principal amounts (or accreted value) and, accordingly,
no shares were assumed to be issued for purposes of computing diluted EPS. For further information regarding
our convertible notes, see Note 6, “Financing arrangements.”
The following table sets forth the computation for basic and diluted EPS (in millions, except per share
information):
Years ended December 31,
2007 2006 2005
Income (Numerator):
Net income for basic EPS .............................................. $3,166 $2,950 $3,674
Adjustment for interest expense on 2032 Convertible Notes, net of tax .......... — — 6
Income for diluted EPS, after assumed conversion .......................... $3,166 $2,950 $3,680
Shares (Denominator):
Weighted-average shares for basic EPS ................................... 1,117 1,176 1,236
Effect of Dilutive Securities, primarily stock options ........................ 6 14 12
Effect of 2032 Convertible Notes, after assumed conversion ..................——10
Weighted-average shares for diluted EPS ................................. 1,123 1,190 1,258
Basic EPS .......................................................... $ 2.83 $ 2.51 $ 2.97
Diluted EPS ........................................................ $ 2.82 $ 2.48 $ 2.93
For the years ended December 31, 2007, 2006 and 2005, there were employee stock options, calculated on a
weighted average basis, to purchase 48 million, 13 million and 16 million shares, respectively, with exercise
prices greater than the average market prices of common stock that are not included in the computation of diluted
EPS as their impact would have been anti-dilutive. In addition, shares which may be issued upon conversion of
our convertible debt or upon exercise of our warrants are not included above as their impact on diluted EPS
would have been anti-dilutive. Shares which may be issued under our 2007 and 2006 performance award pro-
grams were also excluded because conditions under the programs were not met as of December 31, 2007.
Derivative instruments
We use financial instruments, including foreign currency forward, foreign currency option and interest rate
swap contracts to manage our exposures to movements in foreign exchange rates and interest rates. The use of
these financial instruments modifies the exposure of these risks with the intent to reduce the risk or cost to us.
We do not use derivatives for speculative trading purposes and are not a party to leveraged derivatives.
We recognize all of our derivative instruments as either assets or liabilities at fair value in our Consolidated
Balance Sheets. Fair value is determined based on quoted market prices. The accounting for changes in the fair
value of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging
relationship and further, on the type of hedging relationship. For derivatives designated as hedges, we formally
assess, both at inception and periodically thereafter, whether the hedging derivatives are highly effective in off-
setting changes in either the fair value or cash flows of the hedged item. Our derivatives that are not designated
and do not qualify as hedges are adjusted to fair value through current earnings.
We enter into foreign currency forward and option contracts to protect against possible changes in values of
certain anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates,
primarily associated with sales in Europe. These contracts are designated as cash flow hedges and accordingly,
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