.Analysis of Goodwill and Intangible Assets
Difficulty: Advanced
Goodwill and Intangible Assets Accounting Policy
Finite-lived intangible assets are recorded at cost, net of accumulated amortization and, if applicable, impairment charges. Amortization of finite-lived intangible assets is provided over their estimated useful lives on a straight-line basis or the pattern in which economic benefits are consumed, if reliably determinable. Amgen reviews the finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The fair values of IPR&D projects acquired in a business combination which are not complete are capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the related R&D efforts. Upon successful completion of the project, the capitalized amount is amortized over its estimated useful life. If a project is abandoned, all remaining capitalized amounts are written-off immediately. There are often major risks and uncertainties associated with IPR&D projects as Amgen is required to obtain regulatory approvals in order to be able to market the resulting products. Such approvals require completing clinical trials that demonstrate a product candidate is safe and effective. Consequently, the eventual realized value of the acquired IPR&D project may vary from its fair value at the date of acquisition, and IPR&D impairment charges may occur in future periods.
Capitalized IPR&D projects are tested for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Amgen considers various factors for potential impairment, including the current legal and regulatory environment and the competitive landscape. Adverse clinical trial results, significant delays in obtaining marketing approval, the inability to bring a product to market and the introduction or advancement of competitors' products could result in partial or full impairment of the related intangible assets.
Amgen performs an impairment test of goodwill annually and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. To date, an impairment of goodwill has not been recorded.
Source: Amgen Inc., Annual Report
Goodwill and Intangible Assets Disclosure
Amgen Inc., Statement of Financial Position, Goodwill and Intangible Assets
USD $ in millions
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| | Developed product technology rights | |||||
| | Licensing rights | |||||
| | Marketing-related rights | |||||
| | R&D technology rights | |||||
| | Finite-lived intangible assets, gross carrying amount | |||||
| | Accumulated amortization | |||||
| | Finite-lived intangible assets, net | |||||
| | IPR&D | |||||
| | Indefinite-lived intangible assets | |||||
| | Other intangible assets | |||||
| | Goodwill | |||||
| | Goodwill and other intangible assets |
Source: Based on data from Amgen Inc. Annual Reports
| Item | Description | The company |
|---|---|---|
| Other intangible assets | Sum of the carrying amounts of all intangible assets, excluding goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. | Amgen Inc.'s other intangible assets declined from 2015 to 2016 and from 2016 to 2017. |
| Goodwill | Carrying amount as of the balance sheet date, which is the cumulative amount paid and (if applicable) the fair value of any noncontrolling interest in the acquiree, adjusted for any amortization recognized prior to the adoption of any changes in generally accepted accounting principles (as applicable) and for any impairment charges, in excess of the fair value of net assets acquired in one or more business combination transactions. | Amgen Inc.'s goodwill declined from 2015 to 2016 but then slightly increased from 2016 to 2017. |
| Goodwill and other intangible assets | Sum of the carrying amounts of all intangible assets, including goodwill, as of the balance sheet date, net of accumulated amortization and impairment charges. | Amgen Inc.'s goodwill and other intangible assets declined from 2015 to 2016 and from 2016 to 2017. |
Analyst Adjustments: Removal of Goodwill
Amgen Inc., adjustments to financial data
USD $ in millions
Adjusted Ratios: Removal of Goodwill (Summary)
Amgen Inc., adjusted ratios
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| Total Asset Turnover | ||||||
| | Reported total asset turnover | |||||
| | Adjusted total asset turnover | |||||
| Financial Leverage | ||||||
| | Reported financial leverage | |||||
| | Adjusted financial leverage | |||||
| Return on Equity (ROE) | ||||||
| | Reported ROE | % | % | % | % | % |
| | Adjusted ROE | % | % | % | % | % |
| Return on Assets (ROA) | ||||||
| | Reported ROA | % | % | % | % | % |
| | Adjusted ROA | % | % | % | % | % |
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Amgen Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Adjusted financial leverage | A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
Amgen Inc.'s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders' equity. | Amgen Inc.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017. |
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Amgen Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
Adjusted Total Asset Turnover
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Product sales (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | Total asset turnover1 | |||||
| Adjusted for Goodwill | ||||||
| | Product sales (USD $ in millions) | |||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted total asset turnover2 | |||||
2017 Calculations
1 Total asset turnover = Product sales ÷ Total assets
= ÷ =
2 Adjusted total asset turnover = Product sales ÷ Adjusted total assets
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted total asset turnover | An activity ratio calculated as total revenue divided by adjusted total assets. | Amgen Inc.'s adjusted total asset turnover deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Financial Leverage
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Total assets (USD $ in millions) | |||||
| | Stockholders' equity (USD $ in millions) | |||||
| | Financial leverage1 | |||||
| Adjusted for Goodwill | ||||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted stockholders' equity (USD $ in millions) | |||||
| | Adjusted financial leverage2 | |||||
2017 Calculations
1 Financial leverage = Total assets ÷ Stockholders' equity
= ÷ =
2 Adjusted financial leverage = Adjusted total assets ÷ Adjusted stockholders' equity
= ÷ =
| Ratio | Description | The company |
|---|---|---|
| Adjusted financial leverage | A measure of financial leverage calculated as adjusted total assets divided by adjusted total equity. Financial leverage is the extent to which a company can effect, through the use of debt, a proportional change in the return on common equity that is greater than a given proportional change in operating income. |
Amgen Inc.'s adjusted financial leverage declined from 2015 to 2016 but then increased from 2016 to 2017 exceeding 2015 level. |
Adjusted Return on Equity (ROE)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (USD $ in millions) | |||||
| | Stockholders' equity (USD $ in millions) | |||||
| | ROE1 | % | % | % | % | % |
| Adjusted for Goodwill | ||||||
| | Net income (USD $ in millions) | |||||
| | Adjusted stockholders' equity (USD $ in millions) | |||||
| | Adjusted ROE2 | % | % | % | % | % |
2017 Calculations
1 ROE = 100 × Net income ÷ Stockholders' equity
= 100 × ÷ = %
2 Adjusted ROE = 100 × Net income ÷ Adjusted stockholders' equity
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROE | A profitability ratio calculated as net income divided by adjusted shareholders' equity. | Amgen Inc.'s adjusted ROE deteriorated from 2015 to 2016 and from 2016 to 2017. |
Adjusted Return on Assets (ROA)
| Dec 31, 2017 | Dec 31, 2016 | Dec 31, 2015 | Dec 31, 2014 | Dec 31, 2013 | ||
|---|---|---|---|---|---|---|
| As Reported | ||||||
| | Net income (USD $ in millions) | |||||
| | Total assets (USD $ in millions) | |||||
| | ROA1 | % | % | % | % | % |
| Adjusted for Goodwill | ||||||
| | Net income (USD $ in millions) | |||||
| | Adjusted total assets (USD $ in millions) | |||||
| | Adjusted ROA2 | % | % | % | % | % |
2017 Calculations
1 ROA = 100 × Net income ÷ Total assets
= 100 × ÷ = %
2 Adjusted ROA = 100 × Net income ÷ Adjusted total assets
= 100 × ÷ = %
| Ratio | Description | The company |
|---|---|---|
| Adjusted ROA | A profitability ratio calculated as net income divided by adjusted total assets. | Amgen Inc.'s adjusted ROA improved from 2015 to 2016 but then deteriorated significantly from 2016 to 2017. |
