Amgen 2007 Annual Report Download - page 99

annual periods have been less than 1.5% of the estimated rebate amounts charged against product sales for such
periods. These changes in annual estimates substantially relate to sales made in the immediately preceding annual
period. A 1.5% change in our rebate estimate attributable to rebates recognized in 2007 would have had an im-
pact of approximately $32 million on our 2007 product sales and a corresponding impact on our financial
condition and liquidity.
Wholesaler chargebacks are another type of arrangement included in “sales incentives” that relate to our con-
tractual agreements to sell products to healthcare providers in the United States at fixed prices that are lower than
the prices we charge wholesalers. When the healthcare providers purchase our products through wholesalers at
these reduced prices, the wholesaler charges us for the difference between the prices they pay us and the prices
they sold the products to the healthcare providers. These chargebacks from wholesalers totaled $1.6 billion for
each of the years ended December 31, 2007, 2006 and 2005. Accruals for wholesaler chargebacks are less diffi-
cult to estimate than rebates and closely approximate actual results since chargeback amounts are fixed at the
date of purchase by the healthcare provider and we settle these deductions generally within a few weeks of incur-
ring the liability.
Amounts accrued for sales incentives are adjusted when trends or significant events indicate that adjustment
is appropriate. Accruals are also adjusted to reflect actual results. However, such adjustments to date have not
been material to our results of operations or financial position. The following table summarizes amounts recorded
in accrued liabilities regarding sales incentives (in millions):
Balance at
Beginning of
Period
Amounts Charged
Against Product
Sales (1) Payments
Balance at
End of
Period
Year ended:
December 31, 2007 ............................ $1,079 $4,499 $4,514 $1,064
December 31, 2006 ............................ $ 864 $4,453 $4,238 $1,079
(1) Includes immaterial amounts related to prior year product sales based on changes in estimates. Such
amounts represented approximately 1% of incentive amounts charged against product sales for both 2007
and 2006.
Accruals for estimated sales returns are recorded in the same period that the related product sales are re-
corded and are recognized as reductions in product sales. Returns are estimated through comparison of historical
return data to their related sales on a production lot basis. Historical rates of return are determined for each prod-
uct and are adjusted for known or expected changes in the marketplace specific to each product when
appropriate. Historically, sales return provisions have been insignificant, amounting to approximately 1% of
gross product sales.
Deferred income taxes
Our effective tax rate reflects the impact of undistributed foreign earnings for which no U.S. taxes have been
provided because such earnings are intended to be invested indefinitely outside the United States based on our
projected cash flow, working capital and long-term investment requirements of our U.S. and foreign operations.
If future events, including material changes in estimates of cash, working capital and long-term investment re-
quirements necessitate that certain assets associated with these earnings be repatriated to the United States, an
additional tax provision and related liability would be required which could materially impact our future effective
tax rate.
Contingencies
In the ordinary course of business, we are involved in various legal proceedings such as intellectual property
disputes, contractual disputes, governmental investigations and class action suits. Certain of these proceedings
are discussed in Note 10, “Contingencies” to the Consolidated Financial Statements. We record accruals for such
contingencies to the extent we conclude their occurrence is both probable and estimable. We consider all relevant
factors when making assessments regarding these contingencies.
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