Notes to Financial Statements
December 31,
2015
1. Description of the Plan
The following description of the Amgen Retirement and Savings Plan (the Plan) provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
General
The Plan was established effective April 1, 1985, and was most recently amended and restated effective January 1, 2015, and subsequently amended, with the most recent amendment adopted on November 5, 2015. The Plan is a defined contribution plan covering substantially all domestic employees of Amgen Inc. (the Company or Amgen) and participating subsidiaries. The Plan, as amended and restated, is intended to qualify under sections 401(a) and 401(k) of the Internal Revenue Code of 1986 (the Code) (see Note 4,
Income Tax Status
) and section 407(d)(3)(A) of the Employee Retirement Income Security Act of 1974 (ERISA).
Contributions
Subject to certain limitations (as defined in the Plan), participants may elect to contribute up to 30% of their eligible compensation in pre-tax contributions, Roth contributions (in accordance with the Code), after-tax contributions or a combination of these types of contributions. A participant’s combined pre-tax contributions and Roth contributions (exclusive of catch-up contributions discussed below) are subject to Internal Revenue Service (IRS) and Plan limits and could not exceed a maximum of $18,000 in 2015 and $17,500 in 2014. Participant after-tax contributions are subject to IRS and Plan limitations and could not exceed a maximum of $8,500 in 2015 and 2014. Unless an employee has voluntarily enrolled in the Plan or has declined to participate in the Plan within the first 30 days of employment, all newly eligible participants are automatically enrolled in the Plan, and contributions equal to 5% of their eligible compensation are withheld and contributed to the Plan as pre-tax contributions; such contributions are automatically increased by 1% per year until their contributions reach 10% of their eligible compensation. Participants may elect to adjust, cease or resume their contributions at any time.
Participants who are at least age 50 by the close of the Plan year may also elect to make certain additional contributions, referred to as catch-up contributions, that are subject to IRS and Plan limitations and could not exceed $6,000 in 2015 and $5,500 in 2014. Catch-up contributions may be made as pre-tax contributions, Roth contributions or a combination of these types of contributions. Participants may also contribute pre-tax, Roth and after-tax amounts representing distributions from certain other retirement plans qualified in the United States or certain individual retirement accounts (IRAs), referred to as rollover contributions (as defined in the Plan).
Each pay period, the Company makes a non-elective contribution for all eligible participants, whether or not they have elected to make contributions to the Plan, equal to 5% of each participant’s eligible compensation (Core Contributions) up to a maximum of $13,250 in 2015 and $13,000 in 2014. In addition, the Company makes a contribution equal to amounts contributed by the participant as pre-tax contributions or Roth contributions, including such contributions designated as catch-up contributions, of up to 5% of eligible compensation (Matching Contributions) up to a maximum of $13,250 in 2015 and $13,000 in 2014.
Amgen Retirement and Savings Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Contributions (continued)
Also, the Company can, in its discretion, make a special non-elective contribution on behalf of a participant who is in his or her initial year of employment with the Company and who could not make the maximum participant contribution permitted under the Plan because in the same Plan year he or she previously made pre-tax salary deferrals under a prior unrelated employer’s qualified plan.
Participants select the investments in which their contributions, including their Core Contributions and Matching Contributions (collectively, Company Contributions), are to be invested, electing among various alternatives, including Amgen Inc. common stock (Amgen stock). Participants may direct a maximum of 20% of contributions to be invested in Amgen stock. In addition, participants may transfer amounts among the investment options at any time, subject to certain limitations. Notwithstanding the foregoing, if 20% or more of the value of a participant’s Plan account is invested in Amgen stock, the Plan document provides that no transfers from other investment options can be made to invest in Amgen stock.
The accounts of participants who had never made an investment election are allocated to investments under a qualified default investment alternative, which is intended to be compliant with ERISA regulations. At any time, participants may elect to alter the investments in their accounts made under a qualified default investment alternative.
Vesting
Participants are immediately vested with respect to their contributions, Company Contributions, and earnings and losses (hereafter referred to as earnings) thereon.
Participant Accounts
Each participant’s account is credited with: (a) the participant’s contributions; (b) an allocation of Company Contributions; and (c) earnings. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s account.
Plan Investments
Participants can invest in any of 16 different asset classes as well as Amgen stock or may actively manage their account under a self-directed brokerage arrangement in which a wider array of investment options are available. The value of an investment in an asset class is determined by its underlying investment vehicles, which may include one or more of the following: mutual funds, collective trust funds and portfolios, which are separately managed exclusively for the benefit of Plan participants and their beneficiaries (separately managed portfolios). The separately managed portfolios invest in various types of assets, including publicly traded common and preferred stocks, fixed income securities, collective trust funds and investment contracts. The asset classes are designed to provide participants with choices among a variety of investment objectives.
Amgen Retirement and Savings Plan
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Payments of Benefits
Subject to Plan limitations, upon termination of employment, including termination due to disability (as defined in the Plan) or retirement, participants may elect to receive an amount equal to the entire value of their account balance in: (a) a single payment in cash; (b) a single distribution in full shares of Amgen stock (with any fractional shares paid in cash); (c) a single distribution paid in a combination of cash and full shares of Amgen stock; (d) cash installments over 10 years; or (e) a rollover distribution to an eligible retirement plan. Effective January 1, 2015, a participant may also elect to receive a partial distribution of his or her account balance no more than once per year.
If a participant dies before receiving the value of his or her account balance, the participant’s beneficiary may elect to receive the distribution of remaining funds from among the alternatives described above, subject to certain Plan limitations.
Subsequent to termination of employment, participants may also elect to maintain their account balance in the Plan, provided that their account balance is greater than $1,000.
Certain restrictions apply to withdrawals from the Plan while a participant continues to be employed by the Company.
Amgen Stock Dividends
Participants that invest in Amgen stock may elect to receive distributions of cash with respect to dividends the Company pays on Amgen stock or reinvest such dividends to acquire additional shares of Amgen stock.
Notes Receivable from Participants
Subject to certain restrictions, a participant can have up to two loans outstanding at any one time from his or her Plan account with a combined maximum loan amount which may not exceed the lesser of: (a) 50% of the participant’s account balance (exclusive of amounts related to Roth contributions and earnings thereon) or (b) $50,000 less certain adjustments, as applicable (as defined in the Plan). A participant’s loan is secured by his or her Plan account balance. Loans made prior to July 1, 2003, bear interest at fixed rates based on the average borrowing rates of certain major banks. Loans made on or after July 1, 2003, bear interest at fixed rates which, until changed by the Company, are based on the prime rate plus one percentage point as published in The Wall Street Journal, determined as of the last day of the calendar quarter preceding origination or such other rate as may be required by law. Loans are generally payable in installments over periods of up to five years, unless the loan is used to acquire a principal residence for which the term of the loan may be up to 20 years. Principal and interest payments are allocated to the participant’s account.
Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan subject to the provisions of ERISA. Upon termination, participants would receive distributions of their account balances.
Trustees
Bank of America, N.A. and The Northern Trust Company are the Plan’s co-trustees.
Amgen Retirement and Savings Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies
Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of accounting.
Fair Value Measurement
The investments of the Plan are reported at fair value, except for fully benefit-responsive investment contracts, discussed below. Fair value is generally defined as the price that would be received to sell an asset or paid to transfer a liability (the exit price) in an orderly transaction between market participants at the measurement date (see Note 3,
Fair Value Measurements
).
Investment Income and Losses
Dividend income is recognized on the ex-dividend date, and interest income is recorded on an accrual basis. Unrealized gains and losses on investments are measured by the change in the difference between the fair value and cost of the securities held at the beginning of the year (or date purchased if acquired during the Plan year) and the end of the year. Realized gains and losses from security transactions are recorded based on the weighted-average cost of securities sold.
Fully Benefit-Responsive Investment Contracts
As of December 31,
2015
and
2014
, the Plan had fully benefit-responsive investment contracts, including synthetic investment contracts and an insurance separate accounts contract (collectively, security-backed contracts). The synthetic investment contracts are comprised of wrapper contracts issued by insurance companies backed by the Plan’s ownership in collective trust funds that invest in fixed income securities. The insurance separate accounts contract is a contract issued by an insurance company backed by specified separate accounts of the issuer which are comprised of fixed income securities. Contract value is the relevant measurement attribute for security-backed contracts because this is the amount participants would receive if they were to initiate qualified transactions related to these investments. The issuers of the Plan’s security-backed contracts credit the Plan with stated rates of interest, and the issuers guarantee that all qualified participant withdrawals related to the contracts will be at contract value, except as discussed below. The crediting rates provide for realized and unrealized gains and losses on the underlying assets to be amortized over the expected duration of the underlying investments through adjustments to the future interest crediting rates rather than being reflected immediately in the net assets of the Plan. The contract values of the Plan’s security-backed contracts were at December 31, 2015 and 2014, were as follows:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2015
|
|
2014
|
Synthetic investment contracts
|
$
|
185,803,751
|
|
|
$
|
185,878,219
|
|
Insurance separate accounts contract
|
65,127,221
|
|
|
56,471,058
|
|
Total fully benefit-responsive investment contracts
|
$
|
250,930,972
|
|
|
$
|
242,349,277
|
|
Amgen Retirement and Savings Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The security-backed contracts provide for withdrawals at other than contract value associated with certain events which are not in the ordinary course of Plan operations. These withdrawals are made at contract value, modified by a market value adjustment as defined in the contract. Circumstances which may trigger a market value adjustment are generally defined as any event which, in the reasonable determination of the issuer, has or will have a material adverse effect on the issuer’s interest under the contract. Such events may include, but are not limited to: (i) material amendments to the Plan’s structure or administration; (ii) changes in or the creation of competing investment options; (iii) complete or partial termination of the Plan; (iv) removal of a specifically identifiable group of employees from coverage under the Plan; (v) a change in law, regulation, ruling, administrative position, or accounting standard applicable to the Plan; or (vi) communication to Plan participants designed to influence a participant not to invest in the asset class that contains these contracts. The Company does not believe that the occurrence of any such event, which would limit the Plan’s ability to transact at contract value with participants, is probable.
These security-backed contracts are evergreen contracts with no maturity dates, but do contain termination provisions. The issuer is obligated to pay the excess contract value when the fair value of the underlying investments equals zero. In addition, if the Plan defaults in its obligations under the security-backed contract and such default is not corrected within the time permitted by the contract, then the contract may be terminated by the issuer and the Plan will receive the fair value of the underlying investments as of the date of termination.
Notes Receivable from Participants
Notes receivable from participants are carried at their unpaid balance plus accrued but unpaid interest, as applicable.
Due from/to Brokers
Purchases and sales of investments are recorded on a trade-date basis. Amounts due from and due to brokers arise from unsettled sale and purchase transactions as of December 31,
2015
and
2014
.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Amgen Retirement and Savings Plan
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements
During the year ended December 31, 2015, the Plan retrospectively adopted a new accounting standard that eliminated certain disclosure requirements, including: (i) net appreciation/depreciation of plan assets disaggregated by class of investment; (ii) identification of individual investments that represent 5% or more of the net assets available for benefits; (iii) certain disclosures regarding fully benefit-responsive investment contracts; and (iv) significant investment strategies for investments for which fair value is estimated using the net asset value per share provided by the fund manager as a practical expedient, such as the Plan’s investments in collective trust funds. The new standard also specified that plan assets measured at fair value may be disaggregated by general type (including assets in self-directed brokerage accounts) and eliminated the requirement for disaggregation by nature and risk of investment (see Note 3,
Fair Value Measurements
). In addition, the new standard simplified the presentation of direct investments in fully benefit-responsive investment contracts by eliminating the requirement to disclose the fair value of such contracts with a corresponding adjustment from fair value to contract value in the Statements of Net Assets Available for Benefits. Investments in these contracts are now presented solely at contract value. The reporting requirements for indirect investments in fully benefit-responsive investment contracts (investments in collective trust funds that own fully benefit-responsive investment contracts) were eliminated.
During the year ended December 31, 2015, the Plan also retrospectively adopted a new accounting standard that eliminated the requirement to categorize within the fair value hierarchy investments for which fair value is estimated using the net asset value per share provided by the fund manager as a practical expedient, such as the Plan’s investments in collective trust funds. These investments are now shown as a reconciling item between the amount in the fair value hierarchy table and the total of the Plan’s investments recognized at fair value in the Statements of Net Assets Available for Benefits (see Note 3,
Fair Value Measurements
).
3. Fair Value Measurements
The Plan uses various valuation approaches in determining the fair value of investments 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 investment based on market data obtained from independent sources. Unobservable inputs are inputs that reflect assumptions about the inputs that market participants would use in pricing the investment 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 investments that the Plan 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.
Amgen Retirement and Savings Plan
Notes to Financial Statements (continued)
3. Fair Value Measurements (continued)
The availability of observable inputs can vary among the various types of investments. 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 following fair value hierarchy table presents information about each major class/category of the Plan’s investments measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at December 31, 2015, using
|
|
|
Quoted prices in active markets for identical assets
(Level 1)
|
|
Significant
other observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Total
|
Amgen stock
|
|
$
|
295,705,743
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
295,705,743
|
|
Cash and cash equivalents
|
|
2,734,210
|
|
|
—
|
|
|
—
|
|
|
2,734,210
|
|
Common and preferred stocks
|
|
874,221,841
|
|
|
3,305,492
|
|
|
—
|
|
|
877,527,333
|
|
Debt securities
|
|
68,513,288
|
|
|
238,776,610
|
|
|
—
|
|
|
307,289,898
|
|
Mutual funds
|
|
331,413,649
|
|
|
—
|
|
|
—
|
|
|
331,413,649
|
|
Self-directed brokerage accounts
|
|
297,167,287
|
|
|
510,416
|
|
|
—
|
|
|
297,677,703
|
|
|
|
$
|
1,869,756,018
|
|
|
$
|
242,592,518
|
|
|
$
|
—
|
|
|
$
|
2,112,348,536
|
|
Collective trust funds measured at net asset value
|
|
|
|
|
|
|
|
1,590,815,283
|
|
Total assets at fair value
|
|
|
|
|
|
|
|
$
|
3,703,163,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at December 31, 2014, using
|
|
|
Quoted prices in active markets for identical assets
(Level 1)
|
|
Significant
other observable
inputs
(Level 2)
|
|
Significant
unobservable
inputs
(Level 3)
|
|
Total
|
Amgen stock
|
|
$
|
309,990,445
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
309,990,445
|
|
Cash and cash equivalents
|
|
3,542,572
|
|
|
—
|
|
|
—
|
|
|
3,542,572
|
|
Common and preferred stocks
|
|
1,018,885,111
|
|
|
2,071,763
|
|
|
—
|
|
|
1,020,956,874
|
|
Debt securities
|
|
36,890,567
|
|
|
143,299,604
|
|
|
—
|
|
|
180,190,171
|
|
Mutual funds
|
|
368,899,331
|
|
|
—
|
|
|
—
|
|
|
368,899,331
|
|
Self-directed brokerage accounts
|
|
309,574,113
|
|
|
341,485
|
|
|
—
|
|
|
309,915,598
|
|
|
|
$
|
2,047,782,139
|
|
|
$
|
145,712,852
|
|
|
$
|
—
|
|
|
$
|
2,193,494,991
|
|
Collective trust funds measured at net asset value
|
|
|
|
|
|
|
|
1,755,830,437
|
|
Total assets at fair value
|
|
|
|
|
|
|
|
$
|
3,949,325,428
|
|
The fair values of common stocks (including Amgen stock), preferred stocks, publicly traded mutual funds and U.S. treasury securities are valued using quoted market prices in active markets with no valuation adjustment.
Amgen Retirement and Savings Plan
Notes to Financial Statements (continued)
3. Fair Value Measurements (continued)
Debt securities other than U.S. treasury securities are valued 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, when applicable, prepayment/default projections based on historical data and other observable inputs.
Collective trust funds represent interests in pooled investment vehicles designed typically for collective investment of employee benefit trusts. The fair values of these investments are determined by reference to the net asset value per unit provided by the fund managers as a practical expedient. The unit values are based on the fair values of the trusts’ underlying assets, which are principally equity and fixed income securities and short-term investments. The only redemption restriction with respect to these investments is on the Wells Fargo Stable Value Fund W (fair value of $37,866,002 as of December 31, 2015), which requires a one-year notice to be given in the event of complete liquidation.
4. Income Tax Status
The Plan received a determination letter from the IRS dated September 18, 2013, stating that the Plan is qualified, in form, under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. Subsequent to this determination by the IRS, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Company believes the Plan is currently being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan is qualified and the related trust is tax exempt. The Company has indicated that it currently intends to continue to take the necessary steps to maintain the Plan’s compliance with the applicable requirements of the Code.
GAAP requires the Company to evaluate uncertain tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the technical merits, to be sustained upon examination. As of December 31,
2015
, no uncertain tax positions have been taken or are expected to be taken, and no amounts related to uncertain tax positions have been recorded in the Plan’s financial statements. The Plan is subject to audits by the IRS, however there are currently no audits for any periods in progress. The Company believes the Plan is no longer subject to IRS examinations with respect to annual reports for years prior to 2012.
5. Services Provided by the Company
During
2015
and
2014
, the Company paid trustee fees and certain other administrative costs on behalf of the Plan.
Amgen Retirement and Savings Plan
Notes to Financial Statements (continued)
6. Reconciliation of Financial Statements to Form 5500
The reconciliation of net assets available for benefits per the financial statements to the Form 5500 as of December 31,
2015
and
2014
, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2015
|
|
2014
|
Net assets available for benefits per the financial statements
|
|
$
|
3,988,615,953
|
|
|
$
|
4,227,149,413
|
|
Adjustment from fair value to contract value for fully benefit-responsive investment contracts
|
|
617,171
|
|
|
3,402,352
|
|
Amounts allocated to withdrawing participants
|
|
(2,713,632
|
)
|
|
(3,534,073
|
)
|
Deemed loans
|
|
(325,519
|
)
|
|
(396,949
|
)
|
Net assets per the Form 5500
|
|
$
|
3,986,193,973
|
|
|
$
|
4,226,620,743
|
|
For the year ended December 31,
2015
, the following is a reconciliation of the net investment loss per the financial statements to the Form 5500:
|
|
|
|
|
|
|
|
Year Ended
December 31,
2015
|
Interest and dividend income
|
|
$
|
43,666,455
|
|
Net realized/unrealized losses
|
|
(88,349,679
|
)
|
Total net investment loss per the financial statements
|
|
(44,683,224
|
)
|
Adjustment from fair value to contract value for fully benefit-responsive investment contracts:
|
|
|
Less prior year adjustment
|
|
(3,402,352
|
)
|
Add current year adjustment
|
|
617,171
|
|
Total net investment loss per the Form 5500
|
|
$
|
(47,468,405
|
)
|
For the year ended December 31,
2015
, the following is a reconciliation of distributions per the financial statements to the Form 5500:
|
|
|
|
|
|
|
|
Year Ended
December 31,
2015
|
Benefits paid
|
|
$
|
(490,737,270
|
)
|
Investment and administrative fees
|
|
(9,036,668
|
)
|
Total distributions per the financial statements
|
|
(499,773,938
|
)
|
Add prior year amounts allocated to withdrawing participants
|
|
3,534,073
|
|
Less current year amounts allocated to withdrawing participants
|
|
(2,713,632
|
)
|
Add prior year deemed loan balance
|
|
396,949
|
|
Less current year deemed loan balance
|
|
(325,519
|
)
|
Total distributions per the Form 5500
|
|
$
|
(498,882,067
|
)
|