Celgene Corporation
CELGENE CORP /DE/ (Form: 10-Q, Received: 04/30/2013 16:12:50)

Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

 

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

 

For the quarterly period ended March 31, 2013

 

OR

 

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

 

For the transition period from _____________to _____________

 

Commission File Number 001-34912

 

CELGENE CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

22-2711928

(State or other jurisdiction of incorporation

 

(I.R.S. Employer Identification

or organization)

 

Number)

 

 

 

86 Morris Avenue, Summit, NJ

 

07901

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(908) 673-9000

 

 

 

(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 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

X

 

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

X

 

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.

 

Large accelerated filer

X

 

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 Exchange Act).

 

 

Yes

 

 

No

X

 

 

At April 23, 2013, 417,122,477 shares of Common Stock, par value $.01 per share, were outstanding.

 



Table of Contents

 

CELGENE CORPORATION

 

FORM 10-Q TABLE OF CONTENTS

 

 

 

 

Page No.

PART I

FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1

Financial Statements

 

 

 

 

 

Consolidated Statements of Income -
Three-Month Periods Ended March 31, 2013 and 2012

2

 

 

 

 

Consolidated Statements of Comprehensive Income -
Three-Month Periods Ended March 31, 2013 and 2012

3

 

 

 

 

Consolidated Balance Sheets -
As of March 31, 2013 and December 31, 2012

4

 

 

 

 

Consolidated Statements of Cash Flows -
Three-Month Periods Ended March 31, 2013 and 2012

5

 

 

 

 

Notes to Unaudited Consolidated Financial Statements

7

 

 

 

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29

 

 

 

Item 3

Quantitative and Qualitative Disclosures About Market Risk

44

 

 

 

Item 4

Controls and Procedures

49

 

 

 

 

 

 

PART II

OTHER INFORMATION

 

 

 

 

Item 1

Legal Proceedings

49

 

 

 

Item 1A

Risk Factors

49

 

 

 

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

66

 

 

 

Item 6

Exhibits

67

 

 

 

Signature

 

68

 

1


 


Table of Contents

 

PART I – FINANCIAL INFORMATION

 

Item 1.  Financial Statements.

 

CELGENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In millions, except per share amounts)

 

 

 

 

Three-Month Periods Ended

 

 

 

 

March 31,

 

 

 

 

2013

 

 

 

2012

 

 

 

 

 

 

 

 

 

 

Revenue:

 

 

 

 

 

 

 

 

Net product sales

 

 

$

1,429.3

 

 

 

$

1,245.5

 

Collaborative agreements and other revenue

 

 

7.1

 

 

 

2.6

 

Royalty revenue

 

 

28.2

 

 

 

25.2

 

Total revenue

 

 

1,464.6

 

 

 

1,273.3

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Cost of goods sold (excluding amortization of acquired intangible assets)

 

 

80.5

 

 

 

72.5

 

Research and development

 

 

452.4

 

 

 

362.0

 

Selling, general and administrative

 

 

369.0

 

 

 

325.8

 

Amortization of acquired intangible assets

 

 

65.7

 

 

 

41.8

 

Acquisition related (gains) charges and restructuring, net

 

 

33.2

 

 

 

(11.1

)

Total costs and expenses

 

 

1,000.8

 

 

 

791.0

 

 

 

 

 

 

 

 

 

 

Operating income

 

 

463.8

 

 

 

482.3

 

 

 

 

 

 

 

 

 

 

Other income and (expense):

 

 

 

 

 

 

 

 

Interest and investment income, net

 

 

4.8

 

 

 

3.7

 

Interest (expense)

 

 

(17.9

)

 

 

(11.4

)

Other income (expense), net

 

 

(2.3

)

 

 

(0.6

)

Income before income taxes

 

 

448.4

 

 

 

474.0

 

 

 

 

 

 

 

 

 

 

Income tax provision

 

 

63.5

 

 

 

72.5

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

384.9

 

 

 

$

401.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per common share:

 

 

 

 

 

 

 

 

Basic

 

 

$

0.92

 

 

 

$

0.92

 

Diluted

 

 

$

0.89

 

 

 

$

0.90

 

 

 

 

 

 

 

 

 

 

Weighted average shares:

 

 

 

 

 

 

 

 

Basic

 

 

417.9

 

 

 

438.3

 

Diluted

 

 

432.2

 

 

 

448.6

 

 

 

 

 

 

 

 

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

2



Table of Contents

 

CELGENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(Dollars in millions)

 

 

 

 

 

Three-Month Periods Ended

 

 

 

 

March 31,

 

 

 

 

2013

 

 

 

2012

 

 

 

 

 

 

 

 

 

 

Net income

 

 

$

384.9

 

 

 

$

401.5

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(5.9

)

 

 

18.4

 

Change in functional currency of a foreign subsidiary

 

 

-

 

 

 

13.1

 

Net unrealized gains (losses) related to cash flow hedges:

 

 

 

 

 

 

 

 

Unrealized holding gains (losses), net of tax expense (benefit) of $0.2 for the three-months ended March 31, 2013, and 2012, respectively

 

 

74.9

 

 

 

23.3

 

Reclassification adjustment for (gains) losses included in net income, net of tax (expense) benefit of $3.4 and ($2.6) for the three-months ended March 31, 2013 and 2012, respectively

 

 

3.8

 

 

 

(16.4

)

Net unrealized gains (losses) on marketable securities available for sale:

 

 

 

 

 

 

 

 

Unrealized holding gains (losses), net of tax expense (benefit) of $0 for the three-months ended March 31, 2013 and 2012, respectively

 

 

(1.9

)

 

 

2.5

 

Reclassification adjustment for (gains) losses included in net income, net of tax (expense) benefit of $0 for the three-months ended March 31, 2013 and 2012, respectively

 

 

0.8

 

 

 

(0.4

)

Total other comprehensive income (loss)

 

 

71.7

 

 

 

40.5

 

 

 

 

 

 

 

 

 

 

Comprehensive income

 

 

$

456.6

 

 

 

$

442.0

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

3



Table of Contents

 

CELGENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except per share amounts)

 

 

 

 

March 31,

 

 

 

December 31,

 

 

 

 

2013

 

 

 

2012

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

$

1,495.6

 

 

 

$

2,090.4

 

Marketable securities available for sale

 

 

2,024.9

 

 

 

1,809.9

 

Accounts receivable, net of allowances of $36.6 and $33.0 at March 31, 2013 and December 31, 2012, respectively

 

 

1,028.7

 

 

 

960.5

 

Inventory

 

 

275.4

 

 

 

259.5

 

Deferred income taxes

 

 

92.3

 

 

 

93.2

 

Other current assets

 

 

385.0

 

 

 

320.2

 

Total current assets

 

 

5,301.9

 

 

 

5,533.7

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

578.2

 

 

 

578.4

 

Intangible assets, net

 

 

3,034.1

 

 

 

3,100.4

 

Goodwill

 

 

2,042.3

 

 

 

2,042.8

 

Other assets

 

 

496.1

 

 

 

479.0

 

Total assets

 

 

$

11,452.6

 

 

 

$

11,734.3

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Short-term borrowings

 

 

$

362.0

 

 

 

$

308.5

 

Accounts payable

 

 

116.8

 

 

 

145.6

 

Accrued expenses

 

 

675.2

 

 

 

775.7

 

Income taxes payable

 

 

12.1

 

 

 

11.8

 

Current portion of deferred revenue

 

 

16.5

 

 

 

17.3

 

Other current liabilities

 

 

391.6

 

 

 

431.3

 

Total current liabilities

 

 

1,574.2

 

 

 

1,690.2

 

 

 

 

 

 

 

 

 

 

Deferred revenue, net of current portion

 

 

17.0

 

 

 

16.2

 

Income taxes payable

 

 

194.7

 

 

 

188.2

 

Deferred income taxes

 

 

968.8

 

 

 

1,018.4

 

Other non-current liabilities

 

 

379.4

 

 

 

355.5

 

Long-term debt, net of discount

 

 

2,764.1

 

 

 

2,771.3

 

Total liabilities

 

 

5,898.2

 

 

 

6,039.8

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 15)

 

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value per share, 5.0 million shares authorized; none outstanding at March 31, 2013 and December 31, 2012, respectively

 

 

-

 

 

 

-

 

Common stock, $.01 par value per share, 575.0 million shares authorized; issued 504.0 million and 498.4 million shares at March 31, 2013 and December 31, 2012, respectively

 

 

5.0

 

 

 

5.0

 

Common stock in treasury, at cost; 85.9 million and 78.7 million shares at March 31, 2013 and December 31, 2012, respectively

 

 

(5,528.7

)

 

 

(4,823.2

)

Additional paid-in capital

 

 

7,648.6

 

 

 

7,539.8

 

Retained earnings

 

 

3,407.5

 

 

 

3,022.6

 

Accumulated other comprehensive income (loss)

 

 

22.0

 

 

 

(49.7

)

Total stockholders’ equity

 

 

5,554.4

 

 

 

5,694.5

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

 

$

11,452.6

 

 

 

$

11,734.3

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

4



Table of Contents

 

CELGENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in millions)

 

 

 

 

Three-Month Periods Ended

 

 

 

 

March 31,

 

 

 

 

2013

 

 

 

2012

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

 

$

384.9

 

 

 

$

401.5

 

 

 

 

 

 

 

 

 

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

23.2

 

 

 

18.6

 

Amortization

 

 

67.7

 

 

 

42.0

 

Provision for accounts receivable allowances

 

 

1.9

 

 

 

2.7

 

Deferred income taxes

 

 

(53.1

)

 

 

(166.5

)

Impairment charges

 

 

9.3

 

 

 

22.1

 

Change in value of contingent consideration

 

 

33.2

 

 

 

(12.4

)

Share-based compensation expense

 

 

65.6

 

 

 

57.2

 

Share-based employee benefit plan expense

 

 

7.6

 

 

 

3.8

 

Reclassification adjustment for cash flow hedges included in net income

 

 

7.2

 

 

 

(19.1

)

Unrealized change in value of derivative instruments

 

 

(33.8

)

 

 

9.2

 

Realized (gains) losses on marketable securities available for sale

 

 

0.9

 

 

 

(0.4

)

Other, net

 

 

3.0

 

 

 

(4.5

)

 

 

 

 

 

 

 

 

 

Change in current assets and liabilities, excluding the effect of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(87.0

)

 

 

(79.3

)

Inventory

 

 

(25.8

)

 

 

(25.5

)

Other operating assets

 

 

35.7

 

 

 

101.0

 

Assets held for sale, net

 

 

-

 

 

 

(0.1

)

Accounts payable and other operating liabilities

 

 

(82.3

)

 

 

(40.7

)

Income tax payable

 

 

7.7

 

 

 

30.5

 

Deferred revenue

 

 

1.4

 

 

 

4.3

 

Net cash provided by operating activities

 

 

367.3

 

 

 

344.4

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales of marketable securities available for sale

 

 

896.0

 

 

 

485.5

 

Purchases of marketable securities available for sale

 

 

(1,115.5

)

 

 

(105.8

)

Payments for acquisition of business, net of cash acquired

 

 

-

 

 

 

(352.2

)

Purchases of intellectual property and other assets

 

 

(0.7

)

 

 

-

 

Capital expenditures

 

 

(25.4

)

 

 

(28.1

)

(Purchases) refunds of investment securities

 

 

(5.5

)

 

 

(5.0

)

Other investing activities

 

 

(0.4

)

 

 

(0.8

)

Net cash (used in) provided by investing activities

 

 

(251.5

)

 

 

(6.4

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Payment for treasury shares

 

 

(1,043.7

)

 

 

(202.7

)

Proceeds from short-term borrowing

 

 

1,422.9

 

 

 

1,045.9

 

Principal repayments on short-term borrowing

 

 

(1,369.6

)

 

 

(1,421.3

)

Net proceeds from exercise of common stock options and warrants

 

 

266.4

 

 

 

215.5

 

Excess tax benefit from share-based compensation arrangements

 

 

36.6

 

 

 

18.6

 

Net cash (used in) provided by financing activities

 

 

(687.4

)

 

 

(344.0

)

 

 

 

 

 

 

 

 

 

Effect of currency rate changes on cash and cash equivalents

 

 

(23.2

)

 

 

7.6

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

(594.8

)

 

 

1.6

 

Cash and cash equivalents at beginning of period

 

 

2,090.4

 

 

 

1,859.5

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

 

$

1,495.6

 

 

 

$

1,861.1

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

5



Table of Contents

 

CELGENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)

(Unaudited)

(Dollars in millions)

 

 

 

 

 

Three-Month Periods Ended

 

 

 

 

March 31,

 

 

 

 

2013

 

 

 

2012

 

 

 

 

 

 

 

 

 

 

Supplemental schedule of non-cash investing and financing activity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in net unrealized (gain) loss on marketable securities available for sale

 

 

$

2.0

 

 

 

$

(2.4

)

 

 

 

 

 

 

 

 

 

Matured shares tendered in connection with stock option exercises

 

 

$

(0.1

)

 

 

$

(0.2

)

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

 

$

22.3

 

 

 

$

1.0

 

 

 

 

 

 

 

 

 

 

Income taxes paid

 

 

$

76.6

 

 

 

$

85.4

 

 

 

 

See accompanying Notes to Unaudited Consolidated Financial Statements

 

6



Table of Contents

 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(In all accompanying tables, amounts of dollars expressed in millions,

except per share amounts, unless otherwise indicated)

 

1.  Nature of Business and Basis of Presentation

 

Celgene Corporation, together with its subsidiaries (collectively “we,” “our,”  “us,” “Celgene” or the “Company”) is a global biopharmaceutical company primarily engaged in the discovery, development and commercialization of innovative therapies designed to treat cancer and immune-inflammatory related diseases.  We are dedicated to innovative research and development which is designed to bring new therapies to market and are involved in research in several scientific areas that may deliver proprietary next-generation therapies, targeting areas such as intracellular signaling pathways in cancer and immune cells, immunomodulation in cancer and autoimmune diseases, and therapeutic application of cell therapies.

 

Our primary commercial stage products include REVLIMID ® , VIDAZA ® , ABRAXANE ® , THALOMID ®  (inclusive of Thalidomide Celgene ® ), ISTODAX ®  and  POMALYST ® .   POMALYST ®  was approved by the U.S. Food and Drug Administration (FDA) in February 2013 for patients with multiple myeloma who have received at least two prior therapies, including lenalidomide and bortezomib, and have demonstrated disease progression on or within 60 days of completion of the last therapy.  Additional sources of revenue include royalties from Novartis on their sales of FOCALIN XR ®  and the entire RITALIN ®  family of drugs, other licensing royalties, and the sale of services through our Celgene Cellular Therapeutics subsidiary.

 

The consolidated financial statements include the accounts of Celgene Corporation and its subsidiaries. Investments in limited partnerships and interests where we have an equity interest of 50% or less and do not otherwise have a controlling financial interest are accounted for by either the equity or cost method.  We record net income (loss) attributable to non-controlling interest, if any, in our Consolidated Statements of Income equal to the percentage of ownership interest retained in the respective operations by the non-controlling parties.  Certain prior year amounts have been reclassified to conform to the current year’s presentation.

 

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect reported amounts and disclosures.  Actual results could differ from those estimates.  We are subject to certain risks and uncertainties related to product development, regulatory approval, market acceptance, scope of patent and proprietary rights, competition, outcome of civil and governmental proceedings, European credit risk, technological change and product liability.

 

Interim results may not be indicative of the results that may be expected for the full year.  In the opinion of management, these unaudited consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of these interim unaudited consolidated financial statements.

 

2.   Summary of Significant Accounting Policies

 

Our significant accounting policies are described in Note 1 of the Notes to the Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2012 (2012 Annual Report on Form 10-K).

 

New Accounting Pronouncements:   In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update “Comprehensive Income (Topic 220):  Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (ASU 2013-02).  ASU 2013-02 requires an entity to report the effect of significant reclassifications out of accumulated other comprehensive income on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income.  The amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  An entity shall provide this information together, in one location, either on the face of the statement where net income is presented or as a separate disclosure

 

7



Table of Contents

 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

in the notes to the financial statements.  The amendments are effective prospectively for reporting periods beginning after December 15, 2012.  The adoption of ASU 2013-02 did not have a material impact on our financial position or results of operations.

 

3.    Acquisitions and Divestitures

 

Avila Acquisition

 

On March 7, 2012 (Acquisition Date) we acquired all of the outstanding common stock of Avila Therapeutics, Inc., subsequently renamed Celgene Avilomics Research, herein referred to as Avila.  The acquisition resulted in Avila becoming our wholly-owned subsidiary.  The results of operations for Avila are included in our consolidated financial statements from the Acquisition Date and the assets and liabilities of Avila have been recorded at their respective fair values on the Acquisition Date and consolidated with our other assets and liabilities.

 

We paid $352.2 million in cash, net of cash acquired, and we may make additional payments based on achievement of developmental and regulatory milestones.  Our potential contingent milestone payments are classified as liabilities, which were measured at fair value as of the Acquisition Date.  The range of potential milestone payments is from no payment if none of the milestones are achieved to an estimated maximum of $595.0 million if all milestones are achieved.  The potential milestones consist of the initiation of phase II and phase III studies, investigational new drug (IND) filings, and other regulatory events.

 

4.    Earnings Per Share

 

 

 

Three-Month Periods Ended

 

 

 

March 31,

 

(Amounts in millions, except per share)

 

2013

 

2012

 

 

 

 

 

 

 

Net income

 

  $

384.9

 

  $

401.5

 

 

 

 

 

 

 

Weighted-average shares:

 

 

 

 

 

Basic

 

417.9

 

438.3

 

Effect of dilutive securities:

 

 

 

 

 

Options, restricted stock units, warrants and other incentives

 

14.3

 

10.3

 

Diluted

 

432.2

 

448.6

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

Basic

 

  $

0.92

 

  $

0.92

 

Diluted

 

  $

0.89

 

  $

0.90

 

 

The total number of potential shares of common stock excluded from the diluted earnings per share computation because their inclusion would have been anti-dilutive was 2.0 million and 5.2 million shares for the three-month periods ended March 31, 2013 and 2012, respectively.

 

Since April 2009, our Board of Directors has approved repurchases of up to an aggregate of $6.500 billion of our common stock.  As part of the existing Board authorized share repurchase program, in February 2013 we entered into an Accelerated Share Repurchase (ASR) agreement with an investment bank to repurchase an aggregate of $600.0 million of our common stock.  As part of the ASR agreement we received an initial delivery of 3.0 million shares, which is included in Common stock in treasury in the accompanying Consolidated Balance Sheet as of March 31, 2013, with a fair market value of $300.0 million.  The initial delivery of 3.0 million shares reduced our outstanding shares used to determine our weighted average shares outstanding for purposes of calculating basic and diluted earnings per share.  The remaining $300.0 million

 

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CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

was included in Additional paid-in capital as of March 31, 2013.  The total number of shares that will ultimately be repurchased under the ASR agreement will be determined upon final settlement in May 2013 and will be based on a discount to the volume-weighted average price of our common stock during the ASR period.  We have evaluated the ASR agreement for its potential dilution of earnings per share and determined that the additional shares to be received upon final settlement would have had an anti-dilutive effect and as a result, these shares were not included in our weighted average diluted earnings per share calculation.

 

As of March 31, 2013, an aggregate of 81.6 million shares of common stock have been repurchased under the program, including 7.2 million shares of common stock repurchased from all sources, including the ASR, during the three-month period ended March 31, 2013.  As of March 31, 2013, we had a remaining open-ended repurchase authorization of $834.2 million after deducting the full $600.0 million paid under the ASR.

 

5.    Accumulated Other Comprehensive Income (Loss)

 

The components of other comprehensive income (loss) consist of changes in pension liability, changes in net unrealized gains (losses) on marketable securities classified as available-for-sale, net unrealized gains (losses) related to cash flow hedges and changes in foreign currency translation adjustments, which includes changes in a subsidiary’s functional currency and net asset transfers of common control subsidiaries.

 

The accumulated balances related to each component of other comprehensive income (loss), net of tax, are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

Foreign

 

Accumulated

 

 

 

 

Net Unrealized

 

Net Unrealized

 

Currency

 

Other

 

 

Pension

 

Gains (Losses) From

 

Gains (Losses)

 

Translation

 

Comprehensive

 

 

Liability

 

Marketable Securities

 

From Hedges

 

Adjustment

 

Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2012

 

  $

(10.1)

 

  $

4.2

 

  $

(16.1)

 

  $

(27.7)

 

  $

(49.7)

Other comprehensive income before reclassifications

 

-

 

(1.9)

 

74.9

 

(5.9)

 

67.1

Amounts reclassified from accumulated other comprehensive income

 

-

 

0.8

 

3.8

 

-

 

4.6

Net current-period other comprehensive income

 

-

 

(1.1)

 

78.7

 

(5.9)

 

71.7

Balance March 31, 2013

 

  $

(10.1)

 

  $

3.1

 

  $

62.6

 

  $

(33.6)

 

  $

 22.0

 

 

 

 

 

 

 

 

 

 

 

Balance December 31, 2011

 

  $

(5.4)

 

  $

1.8

 

  $

8.7

 

  $

(67.4)

 

  $

 (62.3)

Other comprehensive income before reclassifications

 

-

 

2.5

 

23.3

 

31.5

 

57.3

Amounts reclassified from accumulated other comprehensive income

 

-

 

(0.4)

 

(16.4)

 

-

 

(16.8)

Net current-period other comprehensive income

 

-

 

2.1

 

6.9

 

31.5

 

40.5

Balance March 31, 2012

 

  $

(5.4)

 

  $

3.9

 

  $

15.6

 

  $

(35.9)

 

  $

 (21.8)

 

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CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

 

 

 

 

Gains (Losses) Reclassified Out of Accumulated

 

 

 

 

 

 

Other Comprehensive Income

 

Accumulated Other Comprehensive

 

Affected Line Item in the

 

 

Three-Month Periods Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

 

Income Components

 

Consolidated Statements of Income

 

 

2013

 

 

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) from cash-flow hedges:

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Net product sales

 

 

$

 (6.4

)

 

 

$

 19.0

 

Treasury rate lock agreements

 

Interest (expense)

 

 

 

 (0.8

)

 

 

-

 

 

 

Income tax expense

 

 

3.4

 

 

 

(2.6

)

 

 

 

 

 

 

 

 

 

 

 

Gains (losses) from available-for-sale marketable securities:

 

 

 

 

 

 

 

 

Realized gain (loss) on sales of marketable securities

 

Interest and investment income, net

 

 

(0.8

)

 

 

0.4

 

 

 

Income tax expense

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total reclassification, net of tax

 

 

 

 

$

 (4.6

)

 

 

$

 16.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6.    Financial Instruments and Fair Value Measurement

 

The table below presents information about assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2013 and the valuation techniques we utilized to determine such fair value.  Fair values determined based on Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities.  Our Level 1 assets consist of marketable equity securities.  Fair values determined based on Level 2 inputs utilize observable quoted prices for similar assets and liabilities in active markets and observable quoted prices for identical or similar assets in markets that are not very active.  Our Level 2 assets consist primarily of U.S. Treasury securities, U.S. government-sponsored agency securities, U.S. government-sponsored agency mortgage-backed securities, non-U.S. government, agency and Supranational securities, global corporate debt securities, asset backed securities, foreign currency forward contracts, purchased foreign currency options and interest rate swap contracts.  Fair values determined based on Level 3 inputs utilize unobservable inputs and include valuations of assets or liabilities for which there is little, if any, market activity.  We do not have any Level 3 assets.  Our Level 1 liability relates to our publicly traded Contingent Value Rights (CVRs). See Note 2 of the Notes to the Consolidated Financial Statements included in our 2012 Annual Report on Form 10-K for a description of the CVRs.  Our Level 2 liability relates to written foreign currency options.  Our Level 3 liabilities consist of contingent consideration related to undeveloped product rights resulting from the acquisition of Gloucester Pharmaceuticals, Inc. (Gloucester) and contingent consideration related to the undeveloped product rights and the technology platform acquired from the Avila acquisition.  The maximum potential payments related to the contingent consideration from the acquisitions of Gloucester and Avila are estimated to be $120.0 million and $595.0 million, respectively.

 

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CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

 

 

 

Quoted Price in

 

Significant

 

Significant

 

 

 

 

Active Markets for

 

Other Observable

 

Unobservable

 

 

Balance at

 

Identical Assets

 

Inputs

 

Inputs

 

 

March 31, 2013

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Available-for-sale securities

 

  $

2,024.9

 

  $

0.2

 

  $

2,024.7

 

  $

-

Forward currency contracts

 

117.9

 

-

 

117.9

 

-

Purchased currency options

 

3.3

 

-

 

3.3

 

-

Total assets

 

  $

2,146.1

 

  $

0.2

 

  $

2,145.9

 

  $

-

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Contingent value rights

 

  $

(307.2)

 

  $

(307.2)

 

  $

-

 

  $

-

Written currency options

 

(1.2)

 

-

 

(1.2)

 

-

Interest rate swaps

 

(1.9)

 

-

 

(1.9)

 

-

Other acquisition related contingent consideration

 

(201.5)

 

-

 

-

 

(201.5)

Total liabilities

 

  $

(511.8)

 

  $

(307.2)

 

  $

(3.1)

 

  $

(201.5)

 

 

 

 

 

 

 

 

 

 

 

 

 

Quoted Price in

 

Significant

 

Significant

 

 

 

 

Active Markets for

 

Other Observable

 

Unobservable

 

 

Balance at

 

Identical Assets

 

Inputs

 

Inputs

 

 

December 31, 2012

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Available-for-sale securities

 

  $

1,809.9

 

  $

0.3

 

  $

1,809.6

 

  $

-

Cash equivalents

 

27.0

 

-

 

27.0

 

-

Interest rate swaps

 

1.7

 

-

 

1.7

 

-

Forward currency contracts

 

17.8

 

-

 

17.8

 

-

Purchased currency options

 

2.7

 

-

 

2.7

 

-

Total assets

 

  $

1,859.1

 

  $

0.3

 

  $

1,858.8

 

  $

-

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Contingent value rights

 

  $

(277.4)

 

  $

(277.4)

 

  $

-

 

  $

-

Written currency options

 

(5.1)

 

-

 

(5.1)

 

-

Other acquisition related contingent consideration

 

(198.1)

 

-

 

-

 

(198.1)

Total liabilities

 

  $

(480.6)

 

  $

(277.4)

 

  $

(5.1)

 

  $

(198.1)

 

 

There were no security transfers between Levels 1 and 2 during the three-month periods ended March 31, 2013 and 2012.  The following table represents a roll-forward of the fair value of Level 3 instruments (significant unobservable inputs):

 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

 

Three-Month Periods Ended March 31,

 

 

2013

 

2012

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

Balance at beginning of period

 

  $

(198.1)

 

  $

(76.9)

Amounts acquired or issued

 

-

 

(179.1)

Net change in fair value

 

(3.4)

 

36.2

Settlements

 

-

 

-

Transfers in and/or out of Level 3

 

-

 

-

Balance at end of period

 

  $

(201.5)

 

  $

(219.8)

 

Level 3 liabilities issued during the three-month period ended March 31, 2012 consisted of contingent consideration related to the acquisition of Avila.

 

7.    Derivative Instruments and Hedging Activities

 

Our revenue and earnings, cash flows and fair values of assets and liabilities can be impacted by fluctuations in foreign exchange rates and interest rates.  We manage the impact of foreign exchange rate and interest rate movements through operational means and through the use of various financial instruments, including derivative instruments such as foreign currency option contracts, foreign currency forward contracts, treasury rate lock agreements and interest rate swap contracts.

 

Foreign Currency Risk Management

 

We have established revenue hedging and balance sheet risk management programs to mitigate volatility in future foreign currency cash flows and changes in fair value caused by volatility in foreign exchange rates.

 

Through our revenue hedging program, we endeavor to reduce the impact of possible unfavorable changes in foreign exchange rates on our future U.S. dollar cash flows that are derived from foreign currency denominated sales. To achieve this objective, we hedge a portion of our forecasted foreign currency denominated sales that are expected to occur in the foreseeable future, typically within the next three years.  We manage our anticipated transaction exposure principally with foreign currency forward contracts and occasionally foreign currency put and call options.

 

Foreign Currency Forward Contracts:   We use foreign currency forward contracts to hedge specific forecasted transactions denominated in foreign currencies and to reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.

 

We enter into foreign currency forward contracts to protect against changes in anticipated foreign currency cash flows resulting from changes in foreign currency exchange rates, primarily associated with non-functional currency denominated revenues and expenses of foreign subsidiaries.  The foreign currency forward hedging contracts outstanding at March 31, 2013 and December 31, 2012 had settlement dates within 36 months.  These foreign currency forward contracts are designated as cash flow hedges and, to the extent effective, any unrealized gains or losses on them are reported in other comprehensive income (loss) (OCI) and reclassified to operations in the same periods during which the underlying hedged transactions affect operations.  Any ineffectiveness on these foreign currency forward contracts is reported in other income (expense), net.  Foreign currency forward contracts entered into to hedge forecasted revenue and expenses were as follows at March 31, 2013 and December 31, 2012:

 

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CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

 

Notional Amount

Foreign Currency

 

March 31, 2013

 

December 31, 2012

 

 

 

 

 

Australian Dollar

 

  $

6.2

 

  $

5.1

British Pound

 

87.7

 

77.9

Canadian Dollar

 

105.2

 

134.4

Euro

 

1,322.4

 

969.3

Japanese Yen

 

393.5

 

236.2

Total

 

  $

1,915.0

 

  $

1,422.9

 

 

We consider the impact of our own and the counterparties’ credit risk on the fair value of the contracts as well as the ability of each party to execute its obligations under the contract on an ongoing basis.  As of March 31, 2013, credit risk did not materially change the fair value of our foreign currency forward contracts.

 

We also enter into foreign currency forward contracts to reduce exposures to foreign currency fluctuations of certain recognized assets and liabilities denominated in foreign currencies.  These foreign currency forward contracts have not been designated as hedges and, accordingly, any changes in their fair value are recognized on the Consolidated Statements of Income in other income (expense), net in the current period.  The aggregate notional amount of the foreign currency forward non-designated hedging contracts outstanding at March 31, 2013 and December 31, 2012 were $971.2 million and $795.4 million, respectively.

 

Foreign Currency Option Contracts: We hedge a portion of our future foreign currency exposure by utilizing a strategy that involves both a purchased local currency put option and a written local currency call option that are accounted for as hedges of future sales denominated in Euros.  Specifically, we sell (or write) a local currency call option and purchase a local currency put option with the same expiration dates and amounts but with different strike prices; this combination of transactions is generally referred to as a “collar”.  The expiration dates and notional amounts correspond to the amount and timing of forecasted future foreign currency sales.  If the U.S. dollar weakens relative to the currency of the hedged anticipated sales, the purchased put option value reduces to zero and we benefit from the increase in the U.S. dollar equivalent value of our anticipated foreign currency cash flows, however this benefit would be capped at the strike level of the written call, which forms the upper end of the collar.  The premium collected from the call option partially offsets the premium paid for the purchased put option, resulting in a net cost for the collars.

 

In order to fully offset the net cost of the collars, we also sold local currency put options with a lower strike price and the same expiration dates and amounts as the option contracts that were used to hedge sales.  These written put options introduced risk of loss if the U.S. dollar were to strengthen beyond the strike price of the written put options.  We entered into purchased put options that are not designated as hedges in order to partially offset the risk of loss that would be incurred on the written put options if the US dollar were to strengthen beyond the strike price of the written put.  Gains and losses associated with the non-hedge put options have been recorded on the income statement as other income (expense), net.

 

Foreign currency option contracts entered into to hedge forecasted revenue and expenses were as follows at March 31, 2013 and December 31, 2012:

 

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CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

 

Notional Amount*

Foreign Currency Option

 

March 31, 2013

 

December 31, 2012

 

 

 

 

 

Designated as hedging activity:

 

 

 

 

Purchased Put

 

  $

139.0

 

  $

228.8

Written Call

 

  $

144.6

 

  $

235.9

 

 

 

 

 

Not designated as hedging activity:

 

 

 

 

Purchased Put

 

  $

131.0

 

  $

160.5

Written Put

 

  $

(131.0)

 

  $

(216.0)

 

* U.S. Dollar notional amounts are calculated as the hedged local currency amount multiplied times the strike value of the foreign currency option.  The local currency notional amounts of our purchased put, and written call that are designated as hedging activity are equal to each other.

 

Interest Rate Risk Management

 

Treasury Rate Lock Agreements:   In anticipation of issuing fixed-rate debt, we may use treasury rate lock agreements (treasury rate locks) that we designate as cash-flow hedges.  To the extent treasury rate locks are effective cash-flow hedges, any realized or unrealized gains or losses on the treasury rate locks are reported in OCI and are recognized in income over the life of the anticipated fixed-rate notes.

 

During 2012, we entered into treasury rate locks in anticipation of issuing fixed-rate notes that were issued in August 2012.  The treasury rate locks were settled during 2012, resulting in losses of $35.3 million that were recorded to OCI.  No material amounts were recorded in income during the three-month periods ended March 31, 2013 or 2012 as a result of hedge ineffectiveness or hedge components excluded from the assessment of effectiveness. We have not entered into any treasury rate locks during the three months ended March 31, 2013 and at March 31, 2013 we had no outstanding treasury rate locks.

 

Interest Rate Swap Contracts:   From time to time we hedge the fair value of certain debt obligations through the use of interest rate swap contracts.  The interest rate swap contracts are designated hedges of the fair value changes in the notes attributable to changes in interest rates.  Since the specific terms and notional amount of the swap are intended to match those of the debt being hedged, it is assumed to be a highly effective hedge and all changes in fair value of the swap are recorded on the Consolidated Balance Sheets with no net impact recorded in income.  Any net interest payments made or received on interest rate swap contracts are recognized as interest expense.  We may terminate the hedging relationship of certain swap contracts by settling the contracts or by entering into offsetting contracts.  At the time a hedging relationship is terminated, accumulated gains or losses associated with the swap contract are measured and recorded as a reduction of current and future interest expense associated with the previously hedged notes.

 

During the three-month period ended March 31, 2013, we entered into $400.0 million notional amount of swap contracts that were designated as hedges of our 3.95% fixed rate notes due in 2020 and also during the three-month period ended March 31, 2013 terminated the hedging relationship by settling the contracts.  This resulted in net proceeds received of $2.8 million which is accounted for as a reduction of current and future interest expense associated with these notes.  See Note 11 for additional details related to reductions of current and future interest expense.

 

At March 31, 2013, we were a party to pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes in which the notional amounts match the amount of the hedged fixed-rate notes.  The following table summarizes the notional amounts of our outstanding swap contracts at March 31, 2013:

 

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

 

Notional Amount

 

 

March 31,

2013

 

December 31,

2012

 

 

 

 

 

Interest rate swap contracts entered into as fair value hedges of the following fixed-rate senior notes:

 

 

 

 

2.450% senior notes due in 2015

 

  $

400.0

 

  $

-

1.900% senior notes due in 2017 (1)

 

500.0

 

100.0

3.250% senior notes due in 2022 (2)

 

1,000.0

 

200.0

Total

 

  $

1,900.0

 

  $

300.0

 

 

 

 

 

 

 

 

(1)              $400.0 million was settled in April 2013 resulting in net proceeds received of $1.7 million, which is accounted for as a reduction of past and future interest expense associated with these notes.

(2)              $400.0 million was settled in April 2013 resulting in net proceeds received of $4.5 million, which is accounted for as a reduction of past and future interest expense associated with these notes.

 

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CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

The following table summarizes the fair value and presentation in the Consolidated Balance Sheets for derivative instruments as of March 31, 2013 and December 31, 2012:

 

 

 

March 31, 2013

 

 

Asset Derivatives

 

Liability Derivatives

 

 

Balance Sheet

 

 

 

Balance Sheet

 

 

Instrument

 

Location

 

Fair Value

 

Location

 

Fair Value

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign exchange contracts*

 

Other current assets

  $

 

 107.3

 

Other current assets

  $

 

51.7

 

Other current liabilities

 

-

 

Other current liabilities

 

0.4

 

Other non-current assets

 

56.9

 

Other non-current assets

 

16.8

 

Other non-current liabilities

 

4.2

 

Other non-current liabilities

 

6.9

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

Other current assets

 

4.4

 

Other current assets

 

-

 

Other non-current assets

 

0.5

 

Other non-current assets

 

2.2

 

Other non-current liabilities

 

-

 

Other non-current liabilities

 

6.9

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

Foreign exchange contracts*

 

Other current assets

 

70.9

 

Other current assets

 

36.4

 

Other current liabilities

 

4.7

 

Other current liabilities

 

12.1

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

 

 

 

 

 

 

 

 

Other non-current assets

 

2.3

 

Other non-current assets

 

-

Total

 

 

  $

 

 251.2

 

 

  $

 

133.4

 

 

 

 

 

 

 

 

 

 

 

December 31, 2012

 

 

Asset Derivatives

 

Liability Derivatives

 

 

Balance Sheet

 

 

 

Balance Sheet

 

 

Instrument

 

Location

 

Fair Value

 

Location

 

Fair Value

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

Foreign exchange contracts*

 

Other current assets

 

  $

 35.2

 

Other current assets

 

  $

 12.7

 

Other current liabilities

 

9.1

 

Other current liabilities

 

31.4

 

Other non-current assets

 

30.5

 

Other non-current assets

 

13.8

 

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

Other current assets

 

0.1

 

Other current assets

 

-

 

Other non-current assets

 

0.1

 

Other non-current assets

 

0.2

 

Other non-current liabilities

 

-

 

Other non-current liabilities

 

0.6

 

 

 

 

 

 

 

 

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

Foreign exchange contracts*

 

Other current assets

 

45.8

 

Other current assets

 

36.3

 

Other current liabilities

 

10.4

 

Other current liabilities

 

21.4

 

 

 

 

 

 

 

 

 

Interest rate swap agreements

 

Other current assets

 

0.6

 

Other current assets

 

-

 

Other non-current assets

 

1.7

 

Other non-current assets

 

-

Total

 

 

 

$

 133.5

 

 

 

  $

 116.4

 

*         Derivative instruments in this category are subject to master netting arrangements and are presented on a net basis in the Consolidated Balance Sheets in accordance with ASC 210-20.

 

16



Table of Contents

 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

The following tables summarize the effect of derivative instruments designated as cash-flow hedging instruments on the Consolidated Statements of Income for the three-month periods ended March 31, 2013 and 2012:

 

 

 

Three-Month Period Ended March 31, 2013

 

 

 

Amount of
Gain/(Loss)
Recognized in OCI
on Derivative (1)

 

Location of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income

 

Amount of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income

 

Location of
Gain/(Loss)
Recognized in
Income on
Derivative

 

Amount of
Gain/(Loss)
Recognized in
Income on
Derivative

 

 

 

 

 

 

 

 

 

 

 

 

 

Instrument

 

(Effective Portion)

 

(Effective Portion)

 

(Effective Portion)

 

(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)

 

(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

$

75.0

 

Net product sales

$

(6.4)

 

Other income, net

$

3.5

(2)

Treasury rate lock agreements

$

-  

 

Interest Expense

$

(0.8)

 

 

 

 

 

 

(1)           Net gains of $16.0 million are expected to be reclassified from Accumulated OCI into income in the next 12 months.

(2)           The amount of net gains recognized in income represents $2.0 million in gains related to the ineffective portion of the hedging relationships and $1.5 million of gains related to amounts excluded from the assessment of hedge effectiveness.

 

 

 

 

Three-Month Period Ended March 31, 2012

 

 

 

Amount of
Gain/(Loss)
Recognized in OCI
on Derivative

 

Location of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income

 

Amount of
Gain/(Loss)
Reclassified from
Accumulated OCI
into Income

 

Location of
Gain/(Loss)
Recognized in
Income on
Derivative

 

Amount of
Gain/(Loss)
Recognized in
Income on
Derivative

 

 

 

 

 

 

 

 

 

 

 

 

 

Instrument

 

(Effective Portion)

 

(Effective Portion)

 

(Effective Portion)

 

(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)

 

(Ineffective Portion
and Amount Excluded
From Effectiveness
Testing)

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

$

23.5

 

Net product sales

$

19.1

 

Other income, net

$

(1.9)

(1)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)           The amount of net losses recognized in income represents $4.4 million in losses related to the ineffective portion of the hedging relationships and $2.5 million of gains related to amounts excluded from the assessment of hedge effectiveness.

 

17



Table of Contents

 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

The following table summarizes the effect of derivative instruments designated as fair value hedging instruments on the Consolidated Statements of Income for the three-month periods ended March 31, 2013 and 2012:

 

 

 

 

 

 

Amount of Gain (Loss) Recognized in

 

 

Location of Gain (Loss)

 

Income on Derivative

 

 

Recognized in Income

 

Three-Month Periods Ended March 31,

Instrument

 

on Derivative

 

2013

 

2012

 

 

 

 

 

 

 

Interest Rate Swaps

 

Interest expense

$  

6.9

$  

1.8

 

The following table summarizes the effect of derivative instruments not designated as hedging instruments on the Consolidated Statements of Income for the three-month periods ended March 31, 2013 and 2012:

 

 

 

 

 

Amount of Gain (Loss) Recognized in

 

 

Location of Gain (Loss)

 

Income on Derivative

 

 

Recognized in Income

 

Three-Month Periods Ended March 31,

Instrument

 

on Derivative

 

2013

 

2012

 

 

 

 

 

 

 

Foreign exchange contracts

 

Other income, net

 

 $

  38.7

 

 $

  (7.9)

 

The impact of gains and losses on foreign exchange contracts not designated as hedging instruments are generally offset by net foreign exchange gains and losses, which are also included in other income (expense), net for all periods presented.

 

8.    Cash, Cash Equivalents and Marketable Securities Available-for-Sale

 

Money market funds of $643.1 million and $1.160 billion at March 31, 2013 and December 31, 2012, respectively, were recorded at cost, which approximates fair value and are included in cash and cash equivalents.

 

The amortized cost, gross unrealized holding gains, gross unrealized holding losses and estimated fair value of available-for-sale securities by major security type and class of security at March 31, 2013 and December 31, 2012 were as follows:

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

March 31, 2013

 

Cost

 

Gain

 

Loss

 

Value

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

  $

848.6

 

  $

0.6

 

  $

 -

 

  $

849.2

U.S. government-sponsored agency securities

 

232.9

 

0.3

 

-

 

233.2

U.S. government-sponsored agency MBS

 

558.2

 

1.7

 

(2.9)

 

557.0

Non-U.S. government, agency and Supranational securities

 

10.4

 

-

 

-

 

10.4

Corporate debt - global

 

336.3

 

1.0

 

(0.5)

 

336.8

Asset backed securities

 

38.1

 

-

 

-

 

38.1

Marketable equity securities

 

0.4

 

-

 

(0.2)

 

0.2

Total available-for-sale marketable securities

 

  $

2,024.9

 

  $

3.6

 

  $

(3.6)

 

  $

2,024.9

 

18



Table of Contents

 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

 

 

 

Gross

 

Gross

 

Estimated

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

December 31, 2012

 

Cost

 

Gain

 

Loss

 

Value

 

 

 

 

 

 

 

 

 

U.S. Treasury securities

 

  $

902.0

 

  $

0.5

 

  $

-

 

  $

902.5

U.S. government-sponsored agency securities

 

303.5

 

0.3

 

-

 

303.8

U.S. government-sponsored agency MBS

 

387.2

 

1.6

 

(1.8)

 

387.0

Non-U.S. government, agency and Supranational securities

 

7.1

 

-

 

-

 

7.1

Corporate debt - global

 

208.5

 

0.9

 

(0.2)

 

209.2

Marketable equity securities

 

0.4

 

-

 

(0.1)

 

0.3

Total available-for-sale marketable securities

 

  $

1,808.7

 

  $

3.3

 

  $

(2.1)

 

  $

1,809.9

 

U.S. government-sponsored agency securities include general unsecured obligations either issued directly by or guaranteed by U.S. Government Sponsored Enterprises.  U.S. government-sponsored agency mortgage-backed securities (MBS) include mortgage-backed securities issued by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association.  Non-U.S. government, agency and Supranational securities consist of direct obligations of highly rated governments of nations other than the United States and obligations of sponsored agencies and other entities that are guaranteed or supported by highly rated governments of nations other than the United States.  Corporate debt—global includes obligations issued by investment-grade corporations, including some issues that have been guaranteed by governments and government agencies.  Asset backed securities consist of triple-A rated securities with cash flows collateralized by credit card receivables and auto loans.  Net unrealized gains in the marketable debt securities primarily reflect the impact of decreased interest rates at March 31, 2013.

 

Duration periods of available-for-sale debt securities at March 31, 2013 were as follows:

 

 

 

Amortized

 

Fair

 

 

Cost

 

Value

 

 

 

 

 

Duration of one year or less

 

  $

 278.2

 

  $

 277.6

Duration of one through three years

 

1,458.0

 

1,458.6

Duration of three through five years

 

264.5

 

264.9

Duration of over five years

 

23.8

 

23.6

Total

 

  $

 2,024.5

 

  $

 2,024.7

 

 

9.    Inventory

 

A summary of inventories by major category at March 31, 2013 and December 31, 2012 follows:

 

 

 

March 31,

 

December 31,

 

 

2013

 

2012

 

 

 

 

 

Raw materials

 

  $

 95.0

 

  $

 79.2

Work in process

 

86.1

 

86.5

Finished goods

 

94.3

 

93.8

Total

 

  $

 275.4

 

  $

 259.5

 

19



Table of Contents

 

CELGENE CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

10.    Intangible Assets and Goodwill

 

Intangible Assets:   Our intangible assets consist of developed product rights obtained primarily from the Pharmion, Gloucester and Abraxis acquisitions, in-process research and development (IPR&D) product rights from the Gloucester and Avila acquisitions and technology obtained primarily from the Avila acquisition. Also included are contract-based licenses and other miscellaneous intangibles.  The amortization periods related to our finite-lived intangible assets range from one to 17 years.  The following summary of intangible assets by category includes intangibles currently being amortized and intangibles not yet subject to amortization:

 

 

 

Gross

 

 

 

Intangible

 

Weighted

 

 

Carrying

 

Accumulated

 

Assets,

 

Average

March 31, 2013

 

Value

 

Amortization

 

Net

 

Life (Years)

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

Acquired developed product rights

 

  $

 3,400.4

 

  $

 (867.3)

 

  $

 2,533.1

 

13.0

Technology

 

333.6

 

(51.7)

 

281.9

 

7.0

Licenses

 

64.3

 

(10.9)

 

53.4

 

16.8

Other

 

43.7

 

(15.9)

 

27.8

 

8.4

 

 

3,842.0

 

(945.8)

 

2,896.2

 

12.5

 

 

 

 

 

 

 

 

 

Non-amortized intangible assets:

 

 

 

 

 

 

 

 

Acquired IPR&D product rights

 

137.9

 

-

 

137.9

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

  $

 3,979.9

 

  $

 (945.8)

 

  $

 3,034.1

 

 

 

 

 

 

 

 

 

 

  </