Edgar Filing: AMGEN INC

AMGN-2013.9.30-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-12477

Amgen Inc.

(Exact name of registrant as specified in its charter)



Delaware		95-3540776
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Amgen Center Drive, Thousand Oaks, California		91320-1799
(Address of principal executive offices)		(Zip Code)

(805) 447-1000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or Section 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



Large accelerated filer þ	Accelerated filer ¨	Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No þ

As of October 22, 2013, the registrant had 754,126,197 shares of common stock, $0.0001 par value, outstanding.

AMGEN INC.

INDEX



		Page No.
PART I - FINANCIAL INFORMATION		1
Item 1.	FINANCIAL STATEMENTS	1
	CONDENSED CONSOLIDATED STATEMENTS OF INCOME	1
	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME	2
	CONDENSED CONSOLIDATED BALANCE SHEETS	3
	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS	4
	NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS	5
Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	23
Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	33
Item 4.	CONTROLS AND PROCEDURES	33
PART II - OTHER INFORMATION		34
Item 1.	LEGAL PROCEEDINGS	34
Item 1A.	RISK FACTORS	34
Item 5.	OTHER INFORMATION	34
Item 6.	EXHIBITS	35
SIGNATURES		36
INDEX TO EXHIBITS		37

PART I — FINANCIAL INFORMATION



Item 1.	FINANCIAL STATEMENTS

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In millions, except per share data)

(Unaudited)



	Three months ended				Nine months ended
	September 30,				September 30,
	2013		2012		2013		2012
Revenues:
Product sales	$	4,647	$	4,201	$	13,393	$	12,302
Other revenues	101		118		272		542
Total revenues	4,748		4,319		13,665		12,844

Operating expenses:
Cost of sales	788		775		2,317		2,277
Research and development	989		880		2,834		2,442
Selling, general and administrative	1,249		1,131		3,663		3,441
Other	34		110		171		195
Total operating expenses	3,060		2,896		8,985		8,355

Operating income	1,688		1,423		4,680		4,489

Interest expense, net	257		271		761		762
Interest and other income, net	72		111		332		359

Income before income taxes	1,503		1,263		4,251		4,086

Provision for income taxes	135		156		191		529

Net income	$	1,368	$	1,107	$	4,060	$	3,557

Earnings per share:
Basic	$	1.81	$	1.44	$	5.40	$	4.57
Diluted	$	1.79	$	1.41	$	5.31	$	4.51

Shares used in calculation of earnings per share:
Basic	754		771		752		779
Diluted	766		783		764		789

Dividends paid per share	$	0.47	$	0.36	$	1.41	$	1.08

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)



	Three months ended						Nine months ended
	September 30,						September 30,
	2013			2012			2013			2012
Net income	$	1,368		$	1,107		$	4,060		$	3,557
Other comprehensive income (loss), net of reclassification adjustments and taxes:
Foreign currency translation gains (losses)	12			22			(36		)	(20		)
Effective portion of cash flow hedges	(84		)	(117		)	13			(92		)
Net unrealized gains (losses) on available-for-sale securities	48			88			(219		)	85
Other	(2		)	3			(1		)	3
Other comprehensive loss, net of tax	(26		)	(4		)	(243		)	(24		)
Comprehensive income	$	1,342		$	1,103		$	3,817		$	3,533

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except per share data)

(Unaudited)



	September 30, 2013			December 31, 2012
ASSETS
Current assets:
Cash and cash equivalents	$	8,281		$	3,257
Marketable securities	14,277			20,804
Receivable from sale of investments	560			—
Trade receivables, net	2,670			2,518
Inventories	2,838			2,744
Other current assets	2,049			1,886
Total current assets	30,675			31,209

Property, plant and equipment, net	5,283			5,326
Intangible assets, net	3,682			3,968
Goodwill	12,572			12,662
Restricted investments	3,411			—
Other assets	1,450			1,133
Total assets	$	57,073		$	54,298

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	895		$	905
Accrued liabilities	3,937			4,791
Current portion of long-term debt	11			2,495
Total current liabilities	4,843			8,191

Long-term debt	27,178			24,034
Other noncurrent liabilities	3,324			3,013

Contingencies and commitments

Stockholders’ equity:
Common stock and additional paid-in capital; $0.0001 par value; 2,750.0 shares authorized; outstanding - 754.1 shares in 2013 and 756.3 shares in 2012	29,665			29,337
Accumulated deficit	(7,840		)	(10,423		)
Accumulated other comprehensive (loss) income	(97		)	146
Total stockholders’ equity	21,728			19,060
Total liabilities and stockholders’ equity	$	57,073		$	54,298

See accompanying notes.

AMGEN INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)



	Nine months ended
	September 30,
	2013			2012
Cash flows from operating activities:
Net income	$	4,060		$	3,557
Depreciation and amortization	842			815
Stock-based compensation expense	304			271
Other items, net	119			(72		)
Changes in operating assets and liabilities, net of acquisitions:
Trade receivables, net	(132		)	198
Inventories	(71		)	(175		)
Other assets	(174		)	213
Accounts payable	6			189
Accrued income taxes	(483		)	(85		)
Other liabilities	(15		)	159
Net cash provided by operating activities	4,456			5,070
Cash flows from investing activities:
Purchases of property, plant and equipment	(492		)	(489		)
Cash paid for acquisitions, net of cash acquired	—			(1,990		)
Purchases of marketable securities	(17,878		)	(18,864		)
Proceeds from sales of marketable securities	15,743			12,544
Proceeds from maturities of marketable securities	4,846			878
Restriction of investments	(526		)	—
Other	(44		)	(38		)
Net cash provided by (used in) investing activities	1,649			(7,959		)
Cash flows from financing activities:
Repayment of debt	(2,500		)	(102		)
Net proceeds from issuance of debt	3,074			4,933
Repurchases of common stock	(832		)	(3,390		)
Dividends paid	(1,061		)	(844		)
Net proceeds from issuance of common stock in connection with the Company’s equity award programs	268			1,129
Other	(30		)	40
Net cash (used in) provided by financing activities	(1,081		)	1,766
Increase (decrease) in cash and cash equivalents	5,024			(1,123		)
Cash and cash equivalents at beginning of period	3,257			6,946
Cash and cash equivalents at end of period	$	8,281		$	5,823

See accompanying notes.

AMGEN INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013

(Unaudited)

1. Summary of significant accounting policies

Business

Amgen Inc. (including its subsidiaries, referred to as “Amgen,” “the Company,” “we,” “our” or “us”) is a global biotechnology pioneer that discovers, develops, manufactures and delivers innovative human therapeutics. We operate in one business segment: human therapeutics.

Basis of presentation

The financial information for the three and nine months ended September 30, 2013 and 2012, is unaudited but includes all adjustments (consisting of only normal recurring adjustments, unless otherwise indicated), which Amgen considers necessary for a fair presentation of its condensed consolidated results of operations for those periods. Interim results are not necessarily indicative of results for the full fiscal year.

Prior-period amounts for amortization of certain acquired intangible assets have been reclassified within Operating expenses in our Condensed Consolidated Statements of Income to conform to the current-period presentation.

The condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2012 and in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2013, and June 30, 2013.

Principles of consolidation

The condensed consolidated financial statements include the accounts of Amgen as well as its majority-owned subsidiaries. We do not have any significant interests in any variable interest entities. All material intercompany transactions and balances have been eliminated in consolidation.

Use of estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results may differ from those estimates.

Product sales for U.S. federal government stockpiles

Amgen recognizes revenue from the sales of product to the U.S. federal government for stockpile in accordance with Securities and Exchange Commission (SEC) Interpretation, Commission Guidance Regarding Accounting for Sales of Vaccines and Bioterror Countermeasures to the Federal Government for Placement into the Pediatric Vaccine Stockpile or the Strategic National Stockpile (SNS). We recognized $155 million of revenue for NEUPOGEN^® (filgrastim) during the three months ended September 30, 2013, for purchases by the government for the SNS. We are contracted to manage this inventory of product until the government requests shipment.

Property, plant and equipment, net

Property, plant and equipment is recorded at historical cost, net of accumulated depreciation and amortization of $6.8 billion and $6.6 billion as of September 30, 2013, and December 31, 2012, respectively.

Restricted investments

We have restricted investments on our Condensed Consolidated Balance Sheet that are owned by ATL Holdings Limited (ATL Holdings), a wholly-owned subsidiary. ATL Holdings is an entity distinct from the Company and its other subsidiaries, with separate assets and liabilities. Because a third party owns Class A preferred shares of ATL Holdings, this entity is required to hold restricted cash or investments. See Note 7, Financing arrangements. On September 30, 2013, $2,881 million of marketable securities, $526 million of cash and cash equivalents and $4 million of related interest receivable were reclassified to Restricted investments on our Condensed Consolidated Balance Sheet.

Comprehensive income

In January 2013, we adopted a new accounting standard that requires additional disclosures regarding amounts that are reclassified out of accumulated other comprehensive income (AOCI). In accordance with the requirements of the standard, the effects of significant reclassifications out of AOCI, by component, on the respective lines in the Condensed Consolidated Statements of Income are presented in Note 8, Stockholders' equity. The standard was required to be applied prospectively beginning January 1, 2013.

Cost savings initiatives

Included in Other operating expenses for the three and nine months ended September 30, 2013, are charges for certain costs savings initiatives of $35 million and $46 million, respectively, compared with $36 million and $106 million for the corresponding periods of the prior year.

2. Business combinations

deCODE Genetics

On December 10, 2012, we acquired all of the outstanding stock of deCODE Genetics (deCODE), a privately held company that is a global leader in human genetics, for total consideration of $401 million in cash. The transaction, which was accounted for as a business combination, provides us with an opportunity to enhance our efforts to identify and validate human disease targets. deCODE's operations, which are not material, have been included in our consolidated financial statements commencing on the acquisition date.

We allocated the consideration to acquire deCODE to finite-lived intangible assets of $465 million comprised of discovery capacity in the genetics of human diseases with an estimated useful life of 10 years, $47 million to goodwill which is not deductible for tax purposes, deferred tax liabilities of $93 million and other net liabilities of $18 million. These amounts reflect adjustments recognized during the nine months ended September 30, 2013, to the acquisition date fair values of assets acquired and liabilities assumed in this acquisition which did not have a material effect on our current or prior period financial statements. These adjustments reduced goodwill by $46 million due primarily to a revision which increased the acquisition date fair value of finite-lived intangible assets by $64 million.

Our accounting for the acquisition is preliminary and will be finalized upon completion of our analysis to determine the acquisition date fair values of certain tax-related items and residual impact on goodwill.

3. Income taxes

The effective tax rates for the three and nine months ended September 30, 2013 were 9.0% and 4.5%, respectively, compared with 12.4% and 12.9% for the corresponding periods of the prior year. The effective rates are different from the federal statutory rates primarily as a result of indefinitely invested earnings of our foreign operations. We do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are intended to be invested indefinitely outside of the United States. In addition, the effective tax rates were reduced by foreign tax credits associated with the Puerto Rico excise tax described below. The effective tax rate for the nine months ended September 30, 2013, was further reduced by two significant events that occurred during the three months ended March 31, 2013. First, we settled our examination with the Internal Revenue Service (IRS) for the years ended December 31, 2007, 2008 and 2009 in which we agreed to certain adjustments proposed by the IRS and remeasured our unrecognized tax benefits (UTBs) accordingly. Second, the American Taxpayer Relief Act of 2012, enacted during the first quarter of 2013, reinstated the federal research and development (R&D) tax credit for 2012 and 2013. Therefore, our effective tax rate for the nine months ended September 30, 2013, includes a benefit for the full-year 2012 R&D tax credit, recorded as a discrete item in the first quarter.

As of January 1, 2011, Puerto Rico began imposing a temporary excise tax on the purchase of goods and services from a related manufacturer in Puerto Rico. The excise tax is imposed on the gross intercompany purchase price of the goods and services and was initially effective for a six-year period beginning in 2011, with the excise tax rate declining in each year (from 4% in 2011 to 1% in 2016). During the three months ended March 31, 2013, the Puerto Rico government enacted an amendment to the excise tax legislation which increased the excise tax rate to a flat 4% effective July 1, 2013 through December 31, 2017. We account for the excise tax as a manufacturing cost that is capitalized in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, the excise tax results in foreign tax credits that are generally recognized in our provision for income taxes when the excise tax is incurred. Excluding the impact of the Puerto Rico excise tax, our effective tax rates for the three and nine months ended September 30, 2013, would have been 13.8% and 9.8%, respectively, compared with 17.7% and 18.3% for the corresponding periods of the prior year.

Several of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and certain foreign jurisdictions. Our income tax returns are routinely audited by the tax authorities in those jurisdictions. Significant

disputes may arise with these tax authorities involving issues of the timing and amount of deductions, the use of tax credits and allocations of income among various tax jurisdictions because of differing interpretations of tax laws and regulations. The U.S. federal income tax examinations for years ended on or before December 31, 2009, and the California state income tax examinations for years ended on or before December 31, 2005, have been completed.

During the three and nine months ended September 30, 2013, the gross amount of our UTBs increased by approximately $85 million and $240 million, respectively, as a result of tax positions taken during the current year. Also, our UTBs decreased by approximately $200 million in the nine months ended September 30, 2013, due to settlement of federal and state tax matters in the first and second quarter. The settlements resulted in recognition of net tax benefits of approximately $195 million for the nine months ended September 30, 2013 including interest, penalties and the federal benefit of state taxes. Substantially all of the UTBs as of September 30, 2013, if recognized, would affect our effective tax rate. As of September 30, 2013, we believe it is reasonably possible that our gross liabilities for UTBs may decrease by approximately $70 million within the succeeding 12 months due to the resolution of state audits.

4. Earnings per share

The computation of basic earnings per share (EPS) is based on the weighted-average number of our common shares outstanding. The computation of diluted EPS is based on the weighted-average number of our common shares outstanding and dilutive potential common shares, which include principally shares that may be issued under: our stock option, restricted stock and performance unit awards, determined using the treasury stock method; and our convertible notes and warrants while outstanding, as discussed below (collectively, “dilutive securities”). The convertible note hedges purchased in connection with the issuance of our convertible notes, which terminated in February 2013, are excluded from the calculation of diluted EPS because their impact is always anti-dilutive.

Prior to the conversion/maturity of our 0.375% 2013 Convertible Notes in February 2013 which were cash settled, the excess of the notes' conversion value, as defined, over their principal amount were considered dilutive potential common shares for purposes of calculating diluted EPS. Warrants sold concurrent with the issuance of our 0.375% 2013 Convertible Notes were cash settled in May 2013. While outstanding, the 0.375% 2013 Convertible Notes and warrants did not have a significant impact on the number of shares used for purposes of computing diluted EPS for any periods presented. See Note 7, Financing arrangements.

The computation for basic and diluted EPS was as follows (in millions, except per share data):



	Three months ended				Nine months ended
	September 30,				September 30,
	2013		2012		2013		2012
Income (Numerator):
Net income for basic and diluted EPS	$	1,368	$	1,107	$	4,060	$	3,557

Shares (Denominator):
Weighted-average shares for basic EPS	754		771		752		779
Effect of dilutive securities	12		12		12		10
Weighted-average shares for diluted EPS	766		783		764		789

Basic EPS	$	1.81	$	1.44	$	5.40	$	4.57
Diluted EPS	$	1.79	$	1.41	$	5.31	$	4.51

For the three and nine months ended September 30, 2013, the number of anti-dilutive shares of our common stock excluded from the computation of diluted EPS were not material. For the three and nine months ended September 30, 2012, there were employee stock-based awards, calculated on a weighted-average basis, to acquire 1 million and 8 million shares of our common stock, respectively, that are not included in the computation of diluted EPS because their impact would have been anti-dilutive.

5. Available-for-sale investments

The amortized cost, gross unrealized gains, gross unrealized losses and estimated fair values of available-for-sale investments by type of security were as follows (in millions):



Type of security as of September 30, 2013	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
U.S. Treasury securities	$	6,172	$	5	$	(4	)	$	6,173
Other government-related debt securities:
U.S.	1,130		—		(8		)	1,122
Foreign and other	1,234		12		(38		)	1,208
Corporate debt securities:
Financial	3,455		30		(25		)	3,460
Industrial	3,457		29		(28		)	3,458
Other	335		4		(2		)	337
Residential mortgage-backed securities	1,410		3		(16		)	1,397
Other mortgage- and asset-backed securities	1,491		—		(39		)	1,452
Money market mutual funds	6,907		—		—			6,907
Total interest-bearing securities	25,591		83		(160		)	25,514
Equity securities	72		19		—			91
Total available-for-sale investments	$	25,663	$	102	$	(160	)	$	25,605



Type of security as of December 31, 2012	Amortized cost		Gross unrealized gains		Gross unrealized losses			Estimated fair value
U.S. Treasury securities	$	4,443	$	15	$	—		$	4,458
Other government-related debt securities:
U.S.	1,018		12		—			1,030
Foreign and other	1,549		60		(1		)	1,608
Corporate debt securities:
Financial	3,266		96		(1		)	3,361
Industrial	4,283		100		(3		)	4,380
Other	441		11		—			452
Residential mortgage-backed securities	1,828		9		(8		)	1,829
Other mortgage- and asset-backed securities	1,769		7		(9		)	1,767
Money market mutual funds	2,620		—		—			2,620
Other short-term interest-bearing securities	2,186		—		—			2,186
Total interest-bearing securities	23,403		310		(22		)	23,691
Equity securities	52		2		—			54
Total available-for-sale investments	$	23,455	$	312	$	(22	)	$	23,745

The fair values of available-for-sale investments by classification in the Condensed Consolidated Balance Sheets were as follows (in millions):



Classification in the Condensed Consolidated Balance Sheets	September 30, 2013		December 31, 2012
Cash and cash equivalents	$	7,830	$	2,887
Marketable securities	14,277		20,804
Other assets — noncurrent	91		54
Restricted investments	3,407		—
Total available-for-sale investments	$	25,605	$	23,745

Cash and cash equivalents in the table above excludes cash of $451 million and $370 million as of September 30, 2013, and December 31, 2012, respectively. Restricted investments in the table above excludes $4 million of interest receivable related to ATL Holdings as of September 30, 2013.

The fair values of available-for-sale interest-bearing security investments by contractual maturity, except for mortgage- and asset- backed securities that do not have a single maturity date, were as follows (in millions):



Contractual maturity	September 30, 2013		December 31, 2012
Maturing in one year or less	$	10,820	$	7,175
Maturing after one year through three years	4,671		5,014
Maturing after three years through five years	5,742		6,286
Maturing after five years through ten years	1,432		1,620
Mortgage- and asset-backed securities	2,849		3,596
Total interest-bearing securities	$	25,514	$	23,691

For the three months ended September 30, 2013 and 2012, realized gains totaled $24 million and $31 million, respectively, and realized losses totaled $26 million and $11 million, respectively. For the nine months ended September 30, 2013 and 2012, realized gains totaled $142 million and $147 million, respectively, and realized losses totaled $70 million and $41 million, respectively. The cost of securities sold is based on the specific identification method. Substantially all of our available-for-sale investments that were in an unrealized loss position, which totaled $160 million as of September 30, 2013, have been in a continuous unrealized loss position for less than 12 months. These investments had an aggregate fair value of $8.5 billion as of September 30, 2013.

The primary objective of our investment portfolio is to enhance overall returns in an efficient manner while maintaining safety of principal, prudent levels of liquidity and acceptable levels of risk. Our investment policy limits interest-bearing security investments to certain types of debt and money market instruments issued by institutions with primarily investment grade credit ratings and places restrictions on maturities and concentration by asset class and issuer.

We review our available-for-sale investments for other-than-temporary declines in fair value below our cost basis each quarter and whenever events or changes in circumstances indicate that the cost basis of an asset may not be recoverable. This evaluation is based on a number of factors, including the length of time and the extent to which the fair value has been below our cost basis and adverse conditions related specifically to the security, including any changes to the credit rating of the security. As of September 30, 2013, and December 31, 2012, we believe the cost bases for our available-for-sale investments were recoverable in all material respects.

6. Inventories

Inventories consisted of the following (in millions):



	September 30, 2013		December 31, 2012
Raw materials	$	218	$	192
Work in process	1,807		1,723
Finished goods	813		829
Total inventories	$	2,838	$	2,744

7. Financing arrangements

The carrying values and the fixed contractual coupon rates of our long-term borrowings were as follows (in millions):



	September 30, 2013			December 31, 2012
0.375% convertible notes due 2013 (0.375% 2013 Convertible Notes)	$	—		$	2,488
1.875% notes due 2014 (1.875% 2014 Notes)	1,000			1,000
4.85% notes due 2014 (4.85% 2014 Notes)	1,000			1,000
2.30% notes due 2016 (2.30% 2016 Notes)	749			749
2.50% notes due 2016 (2.50% 2016 Notes)	999			999
2.125% notes due 2017 (2.125% 2017 Notes)	1,248			1,248
5.85% notes due 2017 (5.85% 2017 Notes)	1,099			1,099
6.15% notes due 2018 (6.15% 2018 Notes)	500			499
Master Repurchase Agreement obligation due 2018	3,100			—
4.375% euro-denominated notes due 2018 (4.375% 2018 euro Notes)	741			723
5.70% notes due 2019 (5.70% 2019 Notes)	999			999
2.125% euro-denominated notes due 2019 (2.125% 2019 euro Notes)	910			887
4.50% notes due 2020 (4.50% 2020 Notes)	300			300
3.45% notes due 2020 (3.45% 2020 Notes)	898			897
4.10% notes due 2021 (4.10% 2021 Notes)	998			998
3.875% notes due 2021 (3.875% 2021 Notes)	1,746			1,745
3.625% notes due 2022 (3.625% 2022 Notes)	747			747
5.50% pound-sterling-denominated notes due 2026 (5.50% 2026 pound sterling Notes)	763			763
4.00% pound-sterling-denominated notes due 2029 (4.00% 2029 pound sterling Notes)	1,118			1,117
6.375% notes due 2037 (6.375% 2037 Notes)	899			899
6.90% notes due 2038 (6.90% 2038 Notes)	499			499
6.40% notes due 2039 (6.40% 2039 Notes)	996			996
5.75% notes due 2040 (5.75% 2040 Notes)	697			697
4.95% notes due 2041 (4.95% 2041 Notes)	596			595
5.15% notes due 2041 (5.15% 2041 Notes)	2,232			2,232
5.65% notes due 2042 (5.65% 2042 Notes)	1,244			1,244
5.375% notes due 2043 (5.375% 2043 Notes)	1,000			1,000
Other notes	111			109
Total debt	27,189			26,529
Less current portion	(11		)	(2,495		)
Total noncurrent debt	$	27,178		$	24,034

In connection with the acquisition of Onyx Pharmaceuticals, Inc. (Onyx), we entered into a Master Repurchase Agreement and a Term Loan Credit Facility described below. See Note 12, Subsequent event.

Master Repurchase Agreement

We entered into a Master Repurchase Agreement (Repurchase Agreement) pursuant to which Amgen sold 34,097 Class A preferred shares of one of its wholly-owned subsidiaries, ATL Holdings, to the counterparty on September 30, 2013. The Class A preferred shares have a liquidation preference of $100,000 per share. Pursuant to the Repurchase Agreement, we are obligated to repurchase the Class A preferred shares from the counterparty for the aggregate sale price of $3.1 billion, plus any accrued and unpaid payment obligations described below, on September 28, 2018. The $3.1 billion obligation to repurchase the preferred shares is accounted for as long-term debt on our Condensed Consolidated Balance Sheet. Debt issuance costs of $26 million incurred with respect to this transaction will be amortized over the life of the Repurchase Agreement.

Under the Repurchase Agreement, we are obligated to make payments to the counterparty based on the sale price of the outstanding preferred shares at a floating interest rate based on the London Interbank Offered Rate (LIBOR) plus 1.1%. The Repurchase Agreement contains customary events of default, and we have the right to repurchase all or a portion of the Class A preferred shares at any time prior to September 28, 2018, the required repurchase date for the Class A preferred shares.

Term Loan Credit Facility

On October 1, 2013, we borrowed $5.0 billion under a Term Loan Credit Facility which bears interest at a floating rate based on LIBOR plus additional interest, initially 1%, which can vary based on the credit ratings assigned to our long-term debt by Standard & Poor’s Financial Services LLC (S&P) and Moody’s Investor Service, Inc. (Moody’s). A portion of the principal amount of this debt is to be repaid at the end of each quarter equal to 2.5% of the original amount of the loan, or $125 million, with the balance due on October 1, 2018. The outstanding balance of this loan may be prepaid in whole or in part at any time without penalty. This credit facility includes the same financial covenant as our revolving credit facility with respect to our level of borrowings in relation to our equity, as defined.

Convertible notes

In February 2013, our 0.375% 2013 Convertible Notes matured/converted, and accordingly, the $2.5 billion principal amount was settled in cash. We also elected to pay the note holders who converted their notes $99 million of cash for the conversion value that exceeded the principal amount of the notes, as allowed under the original terms of the notes. As a result of this conversion, we received $99 million of cash from the counterparty to the related convertible note hedge to offset the corresponding payment to the convertible note holders. In addition, on May 1, 2013, warrants to acquire 32 million shares of our common stock at an exercise price of $104.80 originally sold in connection with the issuance of the 0.375% 2013 Convertible Notes were exercised, resulting in a net cash payment of $100 million.

8. Stockholders’ equity

Stock repurchase program

Activity under our stock repurchase program was as follows (in millions):



	2013			2012
	Shares	Dollars		Shares	Dollars
First quarter	9.1	$	771	21.0	$	1,429
Second quarter	—	—		17.4	1,203
Third quarter	—	—		9.7	797
Total stock repurchases	9.1	$	771	48.1	$	3,429

As of September 30, 2013, $1.6 billion remained available under our Board of Directors-approved stock repurchase program.

Dividends

On December 13, 2012, the Board of Directors declared a quarterly cash dividend of $0.47 per share of common stock, which was paid on March 7, 2013. On March 6, 2013, the Board of Directors declared a quarterly cash dividend of $0.47 per share of common stock, which was paid on June 7, 2013. On July 26, 2013, the Board of Directors declared a quarterly cash dividend of $0.47 per share of common stock, which was paid on September 6, 2013. On October 16, 2013, the Board of Directors declared a quarterly cash dividend of $0.47 per share of common stock, which will be paid on December 6, 2013 to all stockholders of record as of the close of business on November 14, 2013.

Accumulated other comprehensive income

The components of AOCI were as follows (in millions):



	Foreign currency translation			Cash flow hedges			Available-for-sale securities			Other			AOCI
Balance as of December 31, 2012	$	12		$	(35	)	$	183		$	(14	)	$	146
Foreign currency translation adjustments	(36		)	—			—			—			(36		)
Unrealized gains (losses)	—			(25		)	(32		)	1			(56		)
Reclassification adjustments to income	—			144			(67		)	—			77
Income taxes	13			(44		)	37			—			6
Balance as of March 31, 2013	(11		)	40			121			(13		)	137
Foreign currency translation adjustments	(39		)	—			—			—			(39		)
Unrealized gains (losses)	—			53			(318		)	—			(265		)
Reclassification adjustments to income	—			(18		)	(7		)	—			(25		)
Income taxes	14			(13		)	120			—			121
Balance as of June 30, 2013	(36		)	62			(84		)	(13		)	(71		)
Foreign currency translation adjustments	18			—			—			—			18
Unrealized gains (losses)	—			26			74			(2		)	98
Reclassification adjustments to income	—			(159		)	2			—			(157		)
Income taxes	(6		)	49			(28		)	—			15
Balance as of September 30, 2013	$	(24	)	$	(22	)	$	(36	)	$	(15	)	$	(97	)

The reclassifications out of AOCI to Net income were as follows (in millions):



	Amounts reclassified out of AOCI
	Three months ended			Nine months ended
Components of AOCI	September 30, 2013			September 30, 2013			Line item affected in the Statements of Income
Cash flow hedges:
Foreign currency contract gains	$	6		$	9		Product sales
Cross-currency swap contract gains	153			25			Interest and other income, net
Forward interest rate contract losses	—			(1		)	Interest expense, net
	159			33			Total before income tax
	(59		)	(13		)	Tax (expense)/benefit
	$	100		$	20		Net of taxes
Available-for-sale securities:
Net realized gains (losses)	$	(2	)	$	72		Interest and other income, net
	1			(27		)	Tax (expense)/benefit
	$	(1	)	$	45		Net of taxes

9. Fair value measurement

To estimate the fair value of our financial assets and liabilities we use valuation approaches within a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available in the circumstances. The fair value hierarchy is divided into three levels based on the source of inputs as follows:



Level 1	—	Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access
Level 2	—	Valuations for which all significant inputs are observable, either directly or indirectly, other than level 1 inputs
Level 3	—	Valuations based on inputs that are unobservable and significant to the overall fair value measurement

The availability of observable inputs can vary among the various types of financial assets and liabilities. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used for measuring fair value may fall into different levels of the fair value hierarchy. In such cases, for financial statement disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is categorized is based on the lowest level of input used that is significant to the overall fair value measurement.

The fair value of each major class of the Company’s financial assets and liabilities measured at fair value on a recurring basis was as follows (in millions):



	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Fair value measurement
as of September 30, 2013, using:							Total
Assets:
Available-for-sale investments:
U.S. Treasury securities	$	6,173	$	—	$	—	$	6,173
Other government-related debt securities:
U.S.	—		1,122		—		1,122
Foreign and other	—		1,208		—		1,208
Corporate debt securities:
Financial	—		3,460		—		3,460
Industrial	—		3,458		—		3,458
Other	—		337		—		337
Residential mortgage-backed securities	—		1,397		—		1,397
Other mortgage- and asset-backed securities	—		1,452		—		1,452
Money market mutual funds	6,907		—		—		6,907
Equity securities	91		—		—		91
Derivatives:
Foreign currency contracts	—		36		—		36
Cross-currency swap contracts	—		133		—		133
Interest rate swap contracts	—		13		—		13
Total assets	$	13,171	$	12,616	$	—	$	25,787

Liabilities:
Derivatives:
Foreign currency contracts	$	—	$	71	$	—	$	71
Cross-currency swap contracts	—		7		—		7
Interest rate swap contracts	—		97		—		97
Contingent consideration obligations in connection with a business combination	—		—		332		332
Total liabilities	$	—	$	175	$	332	$	507



	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Fair value measurement
as of December 31, 2012, using:							Total
Assets:
Available-for-sale investments:
U.S. Treasury securities	$	4,458	$	—	$	—	$	4,458
Other government-related debt securities:
U.S.	—		1,030		—		1,030
Foreign and other	—		1,608		—		1,608
Corporate debt securities:
Financial	—		3,361		—		3,361
Industrial	—		4,380		—		4,380
Other	—		452		—		452
Residential mortgage-backed securities	—		1,829		—		1,829
Other mortgage- and asset-backed securities	—		1,767		—		1,767
Money market mutual funds	2,620		—		—		2,620
Other short-term interest-bearing securities	—		2,186		—		2,186
Equity securities	54		—		—		54
Derivatives:
Foreign currency contracts	—		46		—		46
Cross-currency swap contracts	—		65		—		65
Total assets	$	7,132	$	16,724	$	—	$	23,856

Liabilities:
Derivatives:
Foreign currency contracts	$	—	$	59	$	—	$	59
Cross-currency swap contracts	—		6		—		6
Contingent consideration obligations in connection with a business combination	—		—		221		221
Total liabilities	$	—	$	65	$	221	$	286

The fair values of our U.S. Treasury securities, money market mutual funds and equity securities are based on quoted market prices in active markets with no valuation adjustment.

Most of our other government-related and corporate debt securities are investment grade with maturity dates of five years or less from the balance sheet date. Our other government-related debt securities portfolio is composed of securities with weighted-average credit ratings of A+ by S&P, AA- or equivalent by Moody's or Fitch, Inc. (Fitch); and our corporate debt securities portfolio has a weighted-average credit rating of A- or equivalent by S&P, BBB+ by Moody's or Fitch. We estimate the fair values of these securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; and other observable inputs.

Our residential mortgage-, other mortgage- and asset-backed securities portfolio is composed entirely of senior tranches, with credit ratings of AAA by S&P, Moody's or Fitch. We estimate the fair values of these securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

We value our other short-term interest-bearing securities at amortized cost, which approximates fair value given their near term maturity dates.

All of our foreign currency forward and option derivatives contracts have maturities of three years or less and all are with counterparties that have minimum credit ratings of A- or equivalent by S&P, Moody’s or Fitch. We estimated the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based

industry standard valuation model for which all significant inputs are observable, either directly or indirectly. These inputs include foreign currency rates, LIBOR cash and swap rates and obligor credit default swap rates. In addition, inputs for our foreign currency option contracts also include implied volatility measures. These inputs, where applicable, are at commonly quoted intervals. See Note 10, Derivative instruments.

Our cross-currency swap contracts are with counterparties that have minimum credit ratings of A- or equivalent by S&P, Moody’s or Fitch. We estimated the fair values of these contracts by taking into consideration valuations obtained from a third-party valuation service that utilizes an income-based industry standard valuation model for which all significant inputs are observable either directly or indirectly. These inputs include foreign currency exchange rates, LIBOR, swap rates, obligor credit default swap rates and cross-currency basis swap spreads. See Note 10, Derivative instruments.

Our interest rate swap contracts are with counterparties that have minimum credit ratings of A- or equivalent by S&P, Moody’s or Fitch. We estimated the fair values of these contracts by using an income-based industry standard valuation model for which all significant inputs were observable either directly or indirectly. These inputs included LIBOR, swap rates and obligor credit default swap rates. See Note 10, Derivative instruments.

As a result of our acquisition of BioVex Group, Inc. in March 2011, we are obligated to pay its former shareholders up to $575 million of additional consideration contingent upon achieving up to eight separate regulatory and sales-related milestones with regard to talimogene laherparepvec, which was acquired in the acquisition and is currently in phase 3 clinical development for the treatment of melanoma. The three largest of these potential payments are $125 million each, including the amount due if a Biologics License Application (BLA) is filed with the U.S. Food and Drug Administration (FDA). Potential payments are also due upon the first commercial sale in each of the United States and the European Union (EU) following receipt of marketing approval which includes use of the product in specified patient populations and upon achievement of specified levels of sales within specified periods of time.

These contingent consideration obligations are recorded at their estimated fair values with any changes in fair value recognized in earnings. The fair value measurements of these obligations are based on significant unobservable inputs, including the estimated probabilities and timing of achieving the related regulatory and commercial events in connection with these milestones and, as applicable, estimated annual sales. Significant changes (increases or decreases) in these inputs would result in corresponding changes in the fair values of the contingent consideration obligations.

We revalue these contingent consideration obligations each reporting period until the related contingencies are resolved. We estimate the fair values of these obligations by using a combination of probability-adjusted discounted cash flows, option pricing techniques and a simulation model of expected annual sales. Quarterly, management in our R&D and commercial sales organizations review key assumptions used in the fair value measurements of these obligations. In the absence of any significant changes in key assumptions, the changes in fair values of these contingent consideration obligations reflect the passage of time and changes in our credit risk adjusted rate used to discount obligations to present value. During the three months ended June 30, 2013, there were increases in management's estimates of the probabilities of completing the BLA filing and receiving approval to market talimogene laherparepvec in specified patient populations in the United States and EU. Due primarily to these changes in key assumptions, the estimated aggregate fair value of the contingent consideration obligations increased $111 million during the nine months ended September 30, 2013. There was no change in the estimated aggregate fair value of the contingent consideration obligations during the three months ended September 30, 2013. During the three and nine months ended September 30, 2012, the estimated aggregate fair value of the contingent consideration obligations increased $2 million and $5 million, respectively. Changes in contingent consideration obligations were recorded in Other operating expenses in the Condensed Consolidated Statements of Income.

There have been no transfers of assets or liabilities between the fair value measurement levels, and there were no material remeasurements to fair value during the nine months ended September 30, 2013 and 2012, of assets and liabilities that are not measured at fair value on a recurring basis.

Summary of the fair value of other financial instruments

Cash equivalents

The estimated fair values of cash equivalents approximate their carrying values due to the short-term nature of these financial instruments.

Borrowings

We estimated the fair values of our long-term notes (Level 2) by taking into consideration indicative prices obtained from a third-party financial institution that utilizes industry standard valuation models, including both income- and market-based approaches, for which all significant inputs are observable either directly or indirectly. These inputs include reported trades of and

broker/dealer quotes on the same or similar securities; credit spreads; benchmark yields; foreign currency exchange rates, as applicable; and other observable inputs. As of September 30, 2013, and December 31, 2012, the aggregate fair values of our long-term debt were $28.3 billion and $29.9 billion, respectively, and the carrying values were $27.2 billion and $26.5 billion, respectively.

10. Derivative instruments

The Company is exposed to foreign currency exchange rate and interest rate risks related to its business operations. To reduce our risks related to these exposures, we utilize or have utilized certain derivative instruments, including foreign currency forward, foreign currency option, cross-currency swap, forward interest rate and interest rate swap contracts. We do not use derivatives for speculative trading purposes.

Cash flow hedges

We are exposed to possible changes in the values of certain anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, associated primarily with our euro-denominated international product sales. Increases and decreases in the cash flows associated with our international product sales due to movements in foreign currency exchange rates are offset partially by the corresponding increases and decreases in our international operating expenses resulting from these foreign currency exchange rate movements. To further reduce our exposure to foreign currency exchange rate fluctuations on our international product sales, we enter into foreign currency forward and option contracts to hedge a portion of our projected international product sales primarily over a three-year time horizon, with, at any given point in time, a higher percentage of nearer-term projected product sales being hedged than in successive periods. As of September 30, 2013, and December 31, 2012, we had open foreign currency forward contracts with notional amounts of $3.8 billion and $3.7 billion, respectively, and open foreign currency option contracts with notional amounts of $210 million and $200 million, respectively. These foreign currency forward and option contracts, primarily euro based, have been designated as cash flow hedges, and accordingly, the effective portions of the unrealized gains and losses on these contracts are reported in AOCI in the Condensed Consolidated Balance Sheets and reclassified to earnings in the same periods during which the hedged transactions affect earnings.

To hedge our exposure to foreign currency exchange rate risk associated with certain of our long-term notes denominated in foreign currencies, we entered into cross-currency swap contracts. Under the terms of these contracts, we paid euros/pounds sterling and received U.S. dollars for the notional amounts at the inception of the contracts, and we exchange interest payments based on these notional amounts at fixed rates over the lives of the contracts in which we pay U.S. dollars and receive euros/pounds sterling. In addition, we will pay U.S. dollars to and receive euros/pounds sterling from the counterparties at the maturities of the contracts for these same notional amounts. The terms of these contracts correspond to the related hedged notes, effectively converting the interest payments and principal repayment on these notes from euros/pounds sterling to U.S. dollars. These cross-currency swap contracts have been designated as cash flow hedges, and accordingly, the effective portions of the unrealized gains and losses on these contracts are reported in AOCI and reclassified to earnings in the same periods during which the hedged debt affects earnings. The notional amounts and interest rates of our cross-currency swaps are as follows (notional amounts in millions):



	Foreign currency				U.S. dollars
Hedged notes	Notional Amount		Interest rate		Notional Amount		Interest rate
2.125% 2019 euro Notes	€	675	2.125	%	$	864	2.6	%
5.50% 2026 pound sterling Notes	£	475	5.50	%	$	748	5.8	%
4.00% 2029 pound sterling Notes	£	700	4.00	%	$	1,122	4.3	%

In connection with the anticipated issuance of long-term fixed-rate debt, we occasionally enter into forward interest rate contracts in order to hedge the variability in cash flows due to changes in the applicable Treasury rate between the time we enter into these contracts and the time the related debt is issued. Gains and losses on such contracts, which are designated as cash flow hedges, are reported in AOCI and amortized into earnings over the lives of the associated debt issuances.

The effective portion of the unrealized gain/(loss) recognized in other comprehensive income for our derivative instruments designated as cash flow hedges was as follows (in millions):



	Three months ended						Nine months ended
	September 30,						September 30,
Derivatives in cash flow hedging relationships	2013			2012			2013			2012
Foreign currency contracts	$	(137	)	$	(127	)	$	(16	)	$	(25	)
Cross-currency swap contracts	163			38			70			11
Forward interest rate contracts	—			—			—			(7		)
Total	$	26		$	(89	)	$	54		$	(21	)

The location in the Condensed Consolidated Statements of Income and the effective portion of the gain/(loss) reclassified out of AOCI into earnings for our derivative instruments designated as cash flow hedges were as follows (in millions):



		Three months ended				Nine months ended
		September 30,				September 30,
Derivatives in cash flow hedging relationships	Statements of Income location	2013		2012		2013			2012
Foreign currency contracts	Product sales	$	6	$	38	$	9		$	67
Cross-currency swap contracts	Interest and other income, net	153		58		25			54
Forward interest rate contracts	Interest expense, net	—		—		(1		)	(1		)
Total		$	159	$	96	$	33		$	120

No portions of our cash flow hedge contracts are excluded from the assessment of hedge effectiveness, and the gains and losses on the ineffective portions of these hedging instruments were not material for the three and nine months ended September 30, 2013 and 2012. As of September 30, 2013, the amounts expected to be reclassified out of AOCI into earnings over the next 12 months are approximately $20 million of net losses on our foreign currency and cross-currency swap contracts and approximately $1 million of losses on forward interest rate contracts.

Fair value hedges

To achieve a desired mix of fixed and floating interest rates on our long-term debt, we entered into interest rate swap contracts, which qualified and were designated as fair value hedges. The terms of these interest rate swap contracts corresponded to the related hedged debt instruments and effectively converted a fixed interest rate coupon to a floating LIBOR-based coupon over the lives of the respective notes. Due to historically low interest rates, during the three months ended June 30, 2012, we terminated our interest rate swap contracts with an aggregate notional amount of $3.6 billion with respect to our 4.85% 2014 Notes, 5.85% 2017 Notes, 6.15% 2018 Notes and 5.70% 2019 Notes with rates that ranged from LIBOR plus 0.3% to LIBOR plus 2.6%.

During the three months ended March 31, 2013, we entered into interest rate swap contracts with an aggregate notional amount of $2.5 billion with respect to our 3.875% 2021 Notes and our 3.625% 2022 Notes. During the three months ended June 30, 2013, we entered into interest rate swap contracts with an aggregate notional amount of $1.9 billion with respect to our 3.45% 2020 Notes and our 4.10% 2021 Notes. The contracts have rates that range from three-month LIBOR plus 1.1% to three-month LIBOR plus 2.0%.

For derivative instruments that are designated and qualify as fair value hedges, the unrealized gain or loss on the derivative resulting from the change in fair value during the period as well as the offsetting unrealized loss or gain of the hedged item resulting from the change in fair value during the period attributable to the hedged risk is recognized in current earnings. For the three and nine months ended September 30, 2013, we included the unrealized losses on the hedged debt of $7 million and gains of $84 million, respectively, in the same line item, Interest expense, net, in the Condensed Consolidated Statements of Income, as the offsetting unrealized gains of $7 million and losses of $84 million, respectively, on the related interest rate swap contracts. For the nine months ended September 30, 2012, we included the unrealized losses on the hedged debt of $20 million in the same line item, Interest expense, net, in the Condensed Consolidated Statements of Income, as the offsetting unrealized gains of $20 million on the related interest rate swap contracts.

Derivatives not designated as hedges

We enter into foreign currency forward contracts that are not designated as hedging transactions to reduce our exposure to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies. These exposures are hedged on a month-to-month basis. As of September 30, 2013, and December 31, 2012, the total notional amounts of these foreign currency forward contracts were $694 million and $629 million, respectively.

The location in the Condensed Consolidated Statements of Income and the amount of gain/(loss) recognized in earnings for our derivative instruments not designated as hedging instruments were as follows (in millions):



		Three months ended				Nine months ended
		September 30,				September 30,
Derivatives not designated as hedging instruments	Statements of Income location	2013		2012		2013		2012
Foreign currency contracts	Interest and other income, net	$	15	$	3	$	10	$	13

The fair values of derivatives included in the Condensed Consolidated Balance Sheets were as follows (in millions):



	Derivative assets			Derivative liabilities
September 30, 2013	Balance Sheet location	Fair value		Balance Sheet location	Fair value
Derivatives designated as hedging instruments:
Cross-currency swap contracts	Other current assets/ Other noncurrent assets	$	133	Accrued liabilities/ Other noncurrent liabilities	$	7
Foreign currency contracts	Other current assets/ Other noncurrent assets	36		Accrued liabilities/ Other noncurrent liabilities	71
Interest rate swap contracts	Other current assets/ Other noncurrent assets	13		Accrued liabilities/ Other noncurrent liabilities	97
Total derivatives designated as hedging instruments		182			175
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	—		Accrued liabilities	—
Total derivatives not designated as hedging instruments		—			—
Total derivatives		$	182		$	175



	Derivative assets			Derivative liabilities
December 31, 2012	Balance Sheet location	Fair value		Balance Sheet location	Fair value
Derivatives designated as hedging instruments:
Cross-currency swap contracts	Other current assets/ Other noncurrent assets	$	65	Accrued liabilities/ Other noncurrent liabilities	$	6
Foreign currency contracts	Other current assets/ Other noncurrent assets	45		Accrued liabilities/ Other noncurrent liabilities	58
Total derivatives designated as hedging instruments		110			64
Derivatives not designated as hedging instruments:
Foreign currency contracts	Other current assets	1		Accrued liabilities	1
Total derivatives not designated as hedging instruments		1			1
Total derivatives		$	111		$	65

Our derivative contracts that were in liability positions as of September 30, 2013, contain certain credit-risk-related contingent provisions that would be triggered if: (i) we were to undergo a change in control and (ii) our or the surviving entity’s creditworthiness deteriorates, which is generally defined as having either a credit rating that is below investment grade or a materially weaker creditworthiness after the change in control. If these events were to occur, the counterparties would have the right, but not the obligation, to close the contracts under early-termination provisions. In such circumstances, the counterparties could request immediate settlement of these contracts for amounts that approximate the then current fair values of the contracts. In addition, our derivative contracts are not subject to any type of master netting arrangement, and amounts due to or from a counterparty under these contracts may only be offset against other amounts due to or from the same counterparty if an event of default or termination, as defined, were to occur.

The cash flow effects of our derivatives contracts for the nine months ended September 30, 2013 and 2012, are included within Net cash provided by operating activities in the Condensed Consolidated Statements of Cash Flows.

11. Contingencies and commitments

Contingencies

In the ordinary course of business, we are involved in various legal proceedings and other matters, including those discussed in this Note, that are complex in nature and have outcomes that are difficult to predict. See Note 18, Contingencies and commitments to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2012, and Note 11, Contingencies and commitments to our condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2013 and June 30, 2013 for further discussion of certain of our legal proceedings and other matters.

We record accruals for loss contingencies to the extent that we conclude that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause an increase or decrease in the amount of the liability that has been accrued previously.

Our legal proceedings range from cases brought by a single plaintiff to class actions with thousands of putative class members. These legal proceedings, as well as other matters, involve various aspects of our business and a variety of claims (including but not limited to patent infringement, marketing, pricing and trade practices and securities law), some of which present novel factual allegations and/or unique legal theories. In each of the matters described in this filing, in Note 18 to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2012, or in Note 11 to our condensed consolidated financial statements in our Quarterly Reports on Form 10-Q for the periods ended March 31, 2013, and June 30, 2013, plaintiffs seek an award of a not-yet-quantified amount of damages or an amount that is not material. In addition, a number of the matters pending against us are at very early stages of the legal process (which in complex proceedings of the sort faced by us often extend for several years). As a result, none of the matters described in these filings have progressed sufficiently through discovery and/or development of important factual information and legal issues to enable us to estimate a range of possible loss, if any, or such amounts are not material. While it is not possible to accurately predict or determine the eventual outcomes of these items, an adverse determination in one or more of these items currently pending could have a material adverse effect on our consolidated results of operations, financial position or cash flows.

Certain recent developments concerning our legal proceedings and other matters are discussed below:

Sandoz Patent Litigation

As previously disclosed, Sandoz, Inc. filed a complaint against Amgen and Hoffman-La Roche, Inc. (Roche) alleging that U.S. Patent Nos. 8,063,182 and 8,163,522 are invalid and seeking a declaratory judgment of non-infringement, invalidity and unenforceability of the '182 and '522 patents. On August 16, 2013, Amgen and Roche filed a motion to dismiss Sandoz’s complaint for lack of subject matter jurisdiction. A hearing on the motion to dismiss is set for November 15, 2013.

Onyx Litigation

Between August 28, 2013 and September 16, 2013, nine plaintiffs filed purported class action lawsuits against Onyx, its directors, Amgen and Arena Acquisition Company, and unnamed “John Doe” defendants in connection with Amgen’s acquisition of Onyx. Seven of those purported class actions were brought in the Superior Court of the State of California for the County of San Mateo, captioned Lawrence I. Silverstein and Phil Rosen v. Onyx Pharmaceuticals, Inc., et al. (August 28, 2013) (“Silverstein”), Laura Robinson v. Onyx Pharmaceuticals, Inc., et al. (originally filed in the Superior Court for the County of San Francisco on August 28, 2013, and re-filed in the Superior Court for the County of San Mateo on August 29, 2013) (“Robinson”), John Solak v. Onyx Pharmaceuticals, Inc., et al. (August 30, 2013), Louisiana Municipal Police Employees’ Retirement System and Hubert Chow v. Onyx Pharmaceuticals, Inc., et al. (September 3, 2013) (“Louisiana Municipal”), Laurine Jonopulos v. Onyx Pharmaceuticals, Inc., et al. (September 4, 2013) (“Jonopulos”), Clifford G. Martin v. Onyx Pharmaceuticals, Inc., et al. (September 9, 2013) (“Martin”) and Merrill L. Magowan v. Onyx Pharmaceuticals, Inc. et al. (September 9, 2013) (“Magowan”). The eighth and ninth purported class actions were brought in the Court of Chancery of the State of Delaware, captioned Mark D. Smilow, IRA v. Onyx Pharmaceuticals Inc., et al. (August 29, 2013) and William L. Fitzpatric v. Onyx Pharmaceuticals, Inc., et al. (September 16, 2013) (“Fitzpatric”). On September 5, 2013, the plaintiff in the John Solak case filed a request for dismissal of the case without prejudice. On September 10, 2013, the plaintiff in the Mark D. Smilow, IRA case filed a notice and proposed order of voluntary dismissal of the case without prejudice. On September 10, 2013, plaintiffs in the Silverstein and Louisiana Municipal cases filed an amended complaint alleging substantially the same claims and seeking substantially the same relief as in their individual purported class action lawsuits. Each of the lawsuits alleges that the Onyx director defendants breached their fiduciary duties to Onyx shareholders, and that the other defendants aided and abetted such breaches, by seeking to sell Onyx through an allegedly unfair process and for an unfair price and on unfair terms. The Magowan and Fitzpatric complaints and the amended complaint filed in the Silverstein and Louisiana Municipal cases also allege that the individual defendants breached their fiduciary duties with respect to the contents of the tender offer solicitation material. Each of the lawsuits seeks, among other things, equitable relief that would enjoin the consummation of the proposed merger, rescission of the merger agreement (to the extent it has already been implemented), and attorneys’ fees and costs, and certain of the lawsuits seek other relief. The Silverstein, Robinson, Louisiana Municipal and Jonopulos cases were designated as “complex” and assigned to the Honorable Marie S. Weiner, who subsequently entered an order consolidating the Silverstein, Robinson, Louisiana Municipal, Jonopulos, Martin and Magowan cases.

Federal Securities Litigation - In re Amgen Inc. Securities Litigation

The trial date for this securities class action lawsuit pending against Amgen has been set by the U.S. District Court for the Central District of California for June 1, 2015.

Government Investigations and Qui Tam Actions

As previously disclosed, Amgen accrued an immaterial amount to resolve the last remaining Original Qui Tam Action (as defined in Note 18, Contingencies and commitments to our consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2012). In September 2013, the U.S. District Court for the Eastern District of New York granted the government’s motion to dismiss the complaint of the relator plaintiffs based on prosecutorial discretion.

12. Subsequent event

On October 1, 2013, we completed our acquisition of Onyx, a publicly held biopharmaceutical company engaged in the development and commercialization of innovative therapies for improving the lives of people with cancer, which became a wholly owned subsidiary of Amgen. This transaction, which was accounted for as a business combination, provides us with an important and growing multiple myeloma franchise, with Kyprolis^® (carfilzomib) for Injection already approved in the United States, and with oprozomib being evaluated in clinical trials for patients with hematologic malignancies. In addition, Onyx has collaborations with Bayer HealthCare Pharmaceuticals, Inc., for two of Bayer’s marketed oncology products: Nexavar^® (sorafenib) tablets, for which Onyx and Bayer have a profit-sharing relationship, and Stivarga^® (regorafenib) tablets, for which Onyx receives sales-based royalties from Bayer. Onyx also has a collaboration with Pfizer related to palbociclib, an oncology product being developed by Pfizer for which Onyx will receive sales-based royalties.

The net cash consideration to acquire Onyx totaled approximately $9.7 billion which equals a price of $125 per share of common stock.

Given the timing of the closing of this transaction, we are currently in the process of valuing the assets acquired and liabilities assumed in the business combination. As a result, we are not yet able to provide the amounts to be recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed and other related disclosures. We will include this and other related information in our 2013 Annual Report on Form 10-K.

We financed the transaction with approximately $1.6 billion cash on hand, $3.1 billion in bank debt issued on September 30, 2013, and $5.0 billion in bank debt issued on October 1, 2013. See Note 7, Financing arrangements.



Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-looking statements

This report and other documents we file with the SEC contain forward-looking statements that are based on current expectations, estimates, forecasts and projections about us, our future performance, our business, our beliefs and our management’s assumptions. In addition, we, or others on our behalf, may make forward-looking statements in press releases or written statements or in our communications and discussions with investors and analysts in the normal course of business through meetings, webcasts, phone calls and conference calls. Such words as “expect,” “anticipate,” “outlook,” “could,” “target,” “project,” “intend,” “plan,” “believe,” “seek,” “estimate,” “should,” “may,” “assume,” and “continue,” as well as variations of such words and similar expressions, are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. We describe our respective risks, uncertainties and assumptions that could affect the outcome or results of operations in Part I, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. We have based our forward-looking statements on our management’s beliefs and assumptions based on information available to our management at the time the statements are made. We caution you that actual outcomes and results may differ materially from what is expressed, implied or forecast by our forward-looking statements. Reference is made in particular to forward-looking statements regarding product sales, regulatory activities, clinical trial results, reimbursement, expenses, EPS, liquidity and capital resources, trends and planned dividends and stock repurchases. Except as required under the federal securities laws and the rules and regulations of the SEC, we do not have any intention or obligation to update publicly any forward-looking statements after the distribution of this report, whether as a result of new information, future events, changes in assumptions or otherwise.

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to assist the reader in understanding Amgen’s business. MD&A is provided as a supplement to, and should be read in conjunction with, our Annual Report on Form 10-K for the year ended December 31, 2012 and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2013, and June 30, 2013. Our results of operations discussed in MD&A are presented in conformity with GAAP.

Amgen discovers, develops, manufactures, and delivers innovative human therapeutics. A biotechnology pioneer since 1980, Amgen was one of the first companies to realize the new science's promise by bringing safe, effective medicines from lab to manufacturing plant to patient. Amgen therapeutics have changed the practice of medicine, helping people around the world in the fight against serious illnesses. With a deep and broad pipeline of potential new medicines, Amgen remains committed to advancing science to dramatically improve people's lives. Amgen operates in one business segment: human therapeutics. Therefore, our results of operations are discussed on a consolidated basis.

Currently, we market primarily recombinant protein therapeutics for supportive cancer care, inflammation, nephrology and bone disease. Our principal products are Neulasta^® (pegfilgrastim), NEUPOGEN^® (filgrastim), Enbrel^® (etanercept), XGEVA^® (denosumab), Prolia^® (denosumab) and our erythropoiesis-stimulating agents: Aranesp^® (darbepoetin alfa) and EPOGEN^® (epoetin alfa). Our product sales outside the United States consist principally of sales in Europe. For the three and nine months ended September 30, 2013, our principal products represented 89% and 88% of worldwide product sales, respectively, compared with 89% for the corresponding periods of the prior year. Our other marketed products include principally Sensipar^®/Mimpara^® (cinacalcet), Vectibix^® (panitumumab) and Nplate^® (romiplostim).

Significant developments

Following is a summary of selected significant developments affecting our business that have occurred since June 30, 2013. For additional developments or for a more comprehensive discussion of certain developments discussed below, see our Annual Report on Form 10-K for the year ended December 31, 2012 and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2013, and June 30, 2013.

Acquisition

•

In October 2013, we acquired Onyx, a biopharmaceutical company engaged in the development and commercialization of innovative therapies for improving the lives of people with cancer. Onyx has an important and growing multiple myeloma franchise, with Kyprolis^® (carfilzomib) for Injection already approved in the United States, and with oprozomib being evaluated in clinical trials for patients with hematologic malignancies. In addition, Onyx has collaborations with Bayer HealthCare Pharmaceuticals, Inc., for two of Bayer’s marketed oncology products: Nexavar^® (sorafenib) tablets, for which Onyx and Bayer have a profit-sharing relationship, and Stivarga^® (regorafenib) tablets, for which Onyx receives sales-based royalties from Bayer. Onyx also has a collaboration with Pfizer related to palbociclib, an oncology product being developed by Pfizer for which Onyx will receive sales-based royalties. See Note 12, Subsequent event to the condensed consolidated financial statements.

We believe there is a significant opportunity to grow Kyprolis^®. Ongoing studies to support and extend the position of Kyprolis^® in multiple myeloma include:


•	The FOCUS trial, which could support the EU filing for the indication of relapsed/refractory multiple myeloma, is expected to read out in the first half of 2014.


•	The ASPIRE trial is the confirmatory trial for full U.S. approval as well as a registration-enabling study for relapsed multiple myeloma in the United States and the EU. The Independent Data Monitoring Committee review of interim analysis is projected to occur in the first half of 2014.


•	The ENDEAVOR trial compares Kyprolis^® with Velcade^® (bortezomib) in patients with relapsed multiple myeloma who have received one to three prior therapies.


•	The CLARION trial compares Kyprolis^® with Velcade^® in patients with newly diagnosed multiple myeloma.

Products/Pipeline

Vectibix^®

•

In September 2013, we presented results from the phase 3 ASPECCT ('763) trial comparing Vectibix^®with Erbitux^®(cetuximab) for the treatment of wild-type KRAS metastatic colorectal cancer in patients who have not responded to chemotherapy. The study met its primary endpoint, demonstrating that panitumumab was non-inferior to cetuximab for overall survival. In Europe, the ASPECCT trial is a Specific Obligation for Vectibix^® as part of the European Medicine Agency's conditional marketing authorization.

Trebananib


•	In October 2013, we announced that the primary analysis of the event-driven overall survival secondary endpoint from the ongoing pivotal phase 3 study in recurrent ovarian cancer (TRINOVA-1) is projected to occur in the second half of 2014.


•	In October 2013, we announced that enrollment has been closed in a phase 3 study in recurrent ovarian cancer (TRINOVA-2) due to DOXIL^®(doxorubicin HCl liposome injection) supply issues.


•	In October 2013, we discussed that enrollment will be reduced in the phase 3 study in first-line ovarian cancer (TRINOVA-3) while maintaining the integrity of the primary endpoint (progression-free survival).

Evolocumab (AMG 145)


•	In October 2013, we announced that all of the pivotal lipid lowering studies of evolocumab have completed enrollment and that data are expected in the first quarter of 2014.

Brodalumab


•	In October 2013, we announced that all phase 3 studies in subjects with psoriasis have completed enrollment and that data are expected in 2014.

Ivabradine


•	In August 2013, we obtained the commercial rights in the United States to Servier's novel oral drug ivabradine. Ivabradine is approved in the EU for chronic heart failure and stable angina in patients with elevated heart rates, as well as approved in more than 100 other countries, excluding the United States.

Biosimilars


•	In October 2013, we announced that we commenced a pivotal study in subjects with psoriasis for our biosimilar Humira^® (adalimumab).

Selected financial information

The following is an overview of our results of operations (in millions, except percentages and per share data):



	Three months ended						Nine months ended
	September 30,						September 30,
	2013		2012		Change		2013		2012		Change
Product sales:
U.S.	$	3,625	$	3,248	12	%	$	10,358	$	9,500	9	%
Rest-of-the-world (ROW)	1,022		953		7	%	3,035		2,802		8	%
Total product sales	4,647		4,201		11	%	13,393		12,302		9	%
Other revenues	101		118		(14	)%	272		542		(50	)%
Total revenues	$	4,748	$	4,319	10	%	$	13,665	$	12,844	6	%
Operating expenses	$	3,060	$	2,896	6	%	$	8,985	$	8,355	8	%
Operating income	$	1,688	$	1,423	19	%	$	4,680	$	4,489	4	%
Net income	$	1,368	$	1,107	24	%	$	4,060	$	3,557	14	%
Diluted EPS	$	1.79	$	1.41	27	%	$	5.31	$	4.51	18	%
Diluted shares	766		783		(2	)%	764		789		(3	)%

The increases in global product sales for the three and nine months ended September 30, 2013, were driven by ENBREL, Neulasta^®, XGEVA^®and Prolia^®. Product sales included a $155-million order for NEUPOGEN^® from the U.S. government in the third quarter. Product sales for the nine months ended September 30, 2013, also included a positive adjustment of $164 million to previous years' estimates for managed Medicaid rebates based on recent claims experience. In the United States, we pay rebates to the states for our products that are covered and reimbursed by state Medicaid programs. One of the provisions of the Affordable Care Act—a U.S. healthcare reform law that became effective in 2010—was the extension of the Medicaid drug rebate program to patients in Medicaid managed care insurance plans for whom rebates were not previously required. As we sell product, we estimate the amount of Medicaid rebate that will be paid by us based on the product sold, contractual terms, estimated patient population, historical experience and wholesaler inventory levels, and we accrue these rebates in the period the related sale is recorded. We then adjust the rebate accruals as more information becomes available and to reflect actual claims experience. Estimating such rebates is complicated, in part, due to the limited availability of actual claims data as a result of the time delay between the date of sale and the actual settlement of the liability, which can take more than one year.

Other revenues for the three months ended September 30, 2013, decreased slightly. The decrease in other revenues for the nine months ended September 30, 2013, was due primarily to revenue recognized in the prior year related to changes in our motesanib collaboration with Takeda and milestone payments received in the prior year from AstraZeneca and Astellas Pharma Inc.

The increases in operating expenses for the three and nine months ended September 30, 2013, were driven primarily by R&D and Selling, general & administrative (SG&A) spending.

Net income for the three months ended September 30, 2013, increased due primarily to higher operating income. The increase in net income for the nine months ended September 30, 2013, was due primarily to a lower effective income tax rate driven by tax benefits recognized in the first quarter as well as higher operating income.

The increases in diluted EPS for the three and nine months ended September 30, 2013, were driven primarily by an increase in net income and, to a lesser extent, by the favorable impact of our stock repurchase program in 2012 and the first quarter of 2013, which reduced the number of shares used to compute diluted EPS. We did not repurchase any shares during the second or third quarter of 2013.

Results of operations

Product sales

Worldwide product sales were as follows (dollar amounts in millions):



	Three months ended						Nine months ended
	September 30,						September 30,
	2013		2012		Change		2013		2012		Change
Neulasta^®/NEUPOGEN^®	$	1,601	$	1,355	18	%	$	4,383	$	4,046	8	%
ENBREL	1,155		1,079		7	%