10-Q 1 a2015093010q.htm 10-Q 10-Q
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 September 30, 2015
 
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 or organization)
 
(I.R.S. Employer Identification 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 October 30, 2015, 785,654,567 shares of Common Stock, par value $.01 per share, were outstanding.




CELGENE CORPORATION
 
FORM 10-Q TABLE OF CONTENTS
 
 
 
 
Page No.
 
 
 
 
 
 
 
 
 
Consolidated Statements of Operations - Three-Month and Nine-Month Periods Ended September 30, 2015 and 2014
 
 
 
 
Consolidated Statements of Comprehensive Income (Loss) - Three-Month and Nine-Month Periods Ended September 30, 2015 and 2014
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


PART I – FINANCIAL INFORMATION
 
Item 1. Financial Statements (unaudited)
 
CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In millions, except per share amounts)
 
 
Three-Month Periods Ended September 30,
 
Nine-Month Periods Ended September 30,
 
2015
 
2014
 
2015
 
2014
Revenue:
 
 
 
 
 
 
 
Net product sales
$
2,312.6

 
$
1,956.8

 
$
6,621.9

 
$
5,508.9

Other revenue
21.5

 
25.4

 
70.8

 
76.0

Total revenue
2,334.1

 
1,982.2

 
6,692.7

 
5,584.9

Expenses:
 

 
 

 
 

 
 

Cost of goods sold (excluding amortization of acquired intangible assets)
109.9

 
97.7

 
314.7

 
282.7

Research and development
1,304.5

 
675.1

 
2,920.5

 
1,845.7

Selling, general and administrative
550.3

 
497.6

 
1,696.3

 
1,483.5

Amortization of acquired intangible assets
63.6

 
63.7

 
190.9

 
194.7

Acquisition related charges and restructuring, net
226.2

 
1.5

 
215.9

 
11.0

Total costs and expenses
2,254.5

 
1,335.6

 
5,338.3

 
3,817.6

Operating income
79.6

 
646.6

 
1,354.4

 
1,767.3

Other income and (expense):
 

 
 

 
 

 
 

Interest and investment income, net
8.6

 
6.9

 
26.4

 
20.6

Interest (expense)
(88.5
)
 
(53.5
)
 
(186.0
)
 
(124.4
)
Other income (expense), net
(19.6
)
 
(22.5
)
 
83.2

 
(46.9
)
Income (loss) before income taxes
(19.9
)
 
577.5

 
1,278.0

 
1,616.6

Income tax provision
14.2

 
69.0

 
237.0

 
230.6

Net income (loss)
$
(34.1
)
 
$
508.5

 
$
1,041.0

 
$
1,386.0

Net income (loss) per common share:
 

 
 

 
 

 
 

Basic
$
(0.04
)
 
$
0.64

 
$
1.31

 
$
1.72

Diluted
$
(0.04
)
 
$
0.61

 
$
1.26

 
$
1.66

Weighted average shares:
 

 
 

 
 

 
 

Basic
791.1

 
799.6

 
794.3

 
803.5

Diluted
791.1

 
832.8

 
827.7

 
836.4

 
See accompanying Notes to Unaudited Consolidated Financial Statements

3


CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
(Dollars in millions)

 
Three-Month Periods Ended September 30,
 
Nine-Month Periods Ended September 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(34.1
)
 
$
508.5

 
$
1,041.0

 
$
1,386.0

 
 
 
 
 
 
 
 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
(4.2
)
 
(36.6
)
 
(11.9
)
 
(32.5
)
Pension liability adjustment

 

 
(7.6
)
 

 
 
 
 
 
 
 
 
Net unrealized gains (losses) related to cash flow hedges:
 
 
 
 
 
 
 
Unrealized holding gains (losses)
(67.1
)
 
382.8

 
277.0

 
342.5

Tax benefit
29.9

 

 
8.3

 
12.6

Unrealized holding gains (losses), net of tax
(37.2
)
 
382.8

 
285.3

 
355.1

 
 
 
 
 
 
 
 
Reclassification adjustment for (gains) losses included in net income
(91.4
)
 
(0.1
)
 
(249.6
)
 
4.8

Tax (benefit)
(0.5
)
 
(0.5
)
 
(1.5
)
 
(1.2
)
Reclassification adjustment for (gains) losses included in net income, net of tax
(91.9
)
 
(0.6
)
 
(251.1
)
 
3.6

 
 
 
 
 
 
 
 
Net unrealized gains (losses) on marketable securities available for sale:
 
 
 
 
 
 
 
Unrealized holding gains (losses)
(426.3
)
 
64.6

 
(434.6
)
 
196.9

Tax (expense) benefit
133.7

 
(22.2
)
 
136.8

 
(67.3
)
Unrealized holding gains (losses), net of tax
(292.6
)
 
42.4

 
(297.8
)
 
129.6

 
 
 
 
 
 
 
 
Reclassification adjustment for losses included in net income
10.9

 
1.2

 
11.6

 
4.2

Tax (benefit)
(3.9
)
 
(0.4
)
 
(4.1
)
 
(1.5
)
Reclassification adjustment for losses included in net income, net of tax
7.0

 
0.8

 
7.5

 
2.7

 
 
 
 
 
 
 
 
Total other comprehensive income (loss)
(418.9
)
 
388.8

 
(275.6
)
 
458.5

Comprehensive income (loss)
$
(453.0
)
 
$
897.3

 
$
765.4

 
$
1,844.5


See accompanying Notes to Unaudited Consolidated Financial Statements

4


CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except per share amounts)
 
 
September 30,
2015
 
December 31,
2014
Assets
 

 
 

Current assets:
 

 
 

Cash and cash equivalents
$
6,016.5

 
$
4,121.6

Marketable securities available for sale
1,489.1

 
3,425.1

Accounts receivable, net of allowances of $31.5 and $32.1 at September 30, 2015 and December 31, 2014, respectively
1,272.4

 
1,166.7

Inventory
420.9

 
393.1

Deferred income taxes
249.6

 
11.7

Other current assets
703.9

 
594.4

Total current assets
10,152.4

 
9,712.6

Property, plant and equipment, net
702.0

 
642.6

Intangible assets, net
10,715.8

 
4,067.6

Goodwill
4,742.0

 
2,191.2

Other assets
1,057.0

 
726.1

Total assets
$
27,369.2

 
$
17,340.1

Liabilities and Stockholders’ Equity
 

 
 

Current liabilities:
 

 
 

Short-term borrowings and current portion of long-term debt
$
1,199.7

 
$
605.9

Accounts payable
189.4

 
198.2

Accrued expenses
1,504.8

 
991.1

Income taxes payable
5.9

 
12.7

Current portion of deferred revenue
74.8

 
28.5

Other current liabilities
169.3

 
275.8

Total current liabilities
3,143.9

 
2,112.2

Deferred revenue, net of current portion
29.4

 
27.8

Income taxes payable
322.8

 
272.9

Deferred income taxes
2,632.4

 
555.6

Other non-current liabilities
1,567.3

 
1,581.1

Long-term debt, net of discount
14,297.9

 
6,265.7

Total liabilities
21,993.7

 
10,815.3

Commitments and Contingencies (Note 15)


 


Stockholders’ Equity:
 

 
 

Preferred stock, $.01 par value per share, 5.0 million shares authorized; none outstanding at September 30, 2015 and December 31, 2014, respectively

 

Common stock, $.01 par value per share, 1,150.0 million shares authorized; issued 936.8 million and 924.8 million shares at September 30, 2015 and December 31, 2014, respectively
9.4

 
9.2

Common stock in treasury, at cost; 149.6 million and 124.6 million shares at September 30, 2015 and December 31, 2014, respectively
(13,613.4
)
 
(10,698.8
)
Additional paid-in capital
10,826.9

 
9,827.2

Retained earnings
7,513.4

 
6,472.4

Accumulated other comprehensive income
639.2

 
914.8

Total stockholders’ equity
5,375.5

 
6,524.8

Total liabilities and stockholders’ equity
$
27,369.2

 
$
17,340.1

 
See accompanying Notes to Unaudited Consolidated Financial Statements

5


CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in millions)
 
Nine-Month Periods Ended September 30,
 
2015
 
2014
Cash flows from operating activities:
 

 
 

Net income
$
1,041.0

 
$
1,386.0

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

 
 

Depreciation
86.6

 
78.1

Amortization
198.5

 
203.3

Deferred income taxes
(413.1
)
 
(248.6
)
Impairment charges
26.6

 
133.2

Change in value of contingent consideration
(17.2
)
 
11.0

Net (gain) loss on sale of investments
(84.1
)
 
4.2

Share-based compensation expense
426.4

 
319.2

Share-based employee benefit plan expense
24.1

 
29.3

Reclassification adjustment for cash flow hedges included in net income
(249.6
)
 
4.8

Unrealized change in value of derivative instruments
209.8

 
(27.8
)
Other, net
17.9

 
(3.5
)
Change in current assets and liabilities, excluding the effect of acquisitions:
 

 
 

Accounts receivable
(145.8
)
 
(46.0
)
Inventory
(27.1
)
 
(33.6
)
Other operating assets
(17.6
)
 
55.7

Accounts payable and other operating liabilities
256.2

 
74.3

Income tax payable
43.9

 
27.7

Payment of contingent consideration

 
(5.0
)
Deferred revenue
49.3

 
11.4

Net cash provided by operating activities
1,425.8

 
1,973.7

Cash flows from investing activities:
 

 
 

Proceeds from sales of marketable securities available for sale
3,661.7

 
1,662.2

Purchases of marketable securities available for sale
(1,699.4
)
 
(2,137.0
)
Payments for acquisition of businesses, net of cash acquired
(7,579.3
)
 
(710.0
)
Capital expenditures
(145.5
)
 
(100.9
)
Purchases and sales of investment securities, net
(130.8
)
 
(58.4
)
Other investing activities
(4.5
)
 
(21.0
)
Net cash used in investing activities
(5,897.8
)
 
(1,365.1
)
Cash flows from financing activities:
 

 
 

Payment for treasury shares
(2,574.1
)
 
(2,433.8
)
Proceeds from short-term borrowing
2,230.9

 
2,436.9

Principal repayments on short-term borrowing
(1,630.8
)
 
(2,881.9
)
Proceeds from issuance of long-term debt
7,913.3

 
2,470.6

Proceeds from sale of common equity put options
10.2

 
5.8

Payment of contingent consideration

 
(15.0
)
Net proceeds from share-based compensation arrangements
204.2

 
205.1

Excess tax benefit from share-based compensation arrangements
243.7

 
146.4

Net cash provided by (used in) financing activities
6,397.4

 
(65.9
)
Effect of currency rate changes on cash and cash equivalents
(30.5
)
 
(34.6
)
Net increase (decrease) in cash and cash equivalents
1,894.9

 
508.1

Cash and cash equivalents at beginning of period
4,121.6

 
3,234.4

Cash and cash equivalents at end of period
$
6,016.5

 
$
3,742.5


 See accompanying Notes to Unaudited Consolidated Financial Statements

6


CELGENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Unaudited)
(Dollars in millions)
 
 
Nine-Month Periods Ended September 30,
 
2015
 
2014
Supplemental schedule of non-cash investing and financing activity:
 

 
 

Fair value of contingent consideration issued in business combinations
$

 
$
1,060.0

Change in net unrealized (gain) loss on marketable securities available for sale
$
434.6

 
$
(196.9
)
Investment in NantBioScience, Inc. preferred equity
$

 
$
90.0

Supplemental disclosure of cash flow information:
 

 
 

Interest paid
$
171.1

 
$
126.2

Income taxes paid
$
345.6

 
$
275.0

  
See accompanying Notes to Unaudited Consolidated Financial Statements

7


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 an integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of innovative therapies for the treatment of cancer and inflammatory diseases through gene and protein regulation. We are dedicated to innovative research and development designed to bring new therapies to market and we are involved in research in several scientific areas designed to deliver proprietary next-generation therapies, targeting areas including intracellular signaling pathways, protein homeostasis and epigenetics in cancer and immune cells, immunomodulation in cancer and autoimmune diseases and therapeutic application of cell therapies.

Our primary commercial stage products include REVLIMID®, ABRAXANE®, POMALYST®/IMNOVID®, VIDAZA®, azacitidine for injection (generic version of VIDAZA®), THALOMID® (sold as THALOMID® or Thalidomide CelgeneTM outside of the U.S.), OTEZLA® and ISTODAX®. OTEZLA® was approved by the U.S. Food and Drug Administration (FDA) in March 2014 for the treatment of adult patients with active psoriatic arthritis and in September 2014 for the treatment of patients with moderate to severe plaque psoriasis who are candidates for phototherapy or systemic therapy. In January 2015, OTEZLA® was approved by the European Commission (EC) for the treatment of both psoriasis and psoriatic arthritis in certain adult patients. We began recognizing revenue related to OTEZLA® during the second quarter of 2014. Additional sources of revenue include royalties from Novartis Pharma AG (Novartis) on their sales of FOCALIN XR® and the entire RITALIN® family of drugs, the sale of products and services through our Celgene Cellular Therapeutics (CCT) subsidiary and other licensing arrangements.
 
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. 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, among other things, product development, regulatory approval, market acceptance, scope of patent and proprietary rights, competition, outcome of legal 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 Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2014 (2014 Annual Report on Form 10-K).

New Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2014-09, “Revenue from Contracts with Customers” (ASU 2014-09). ASU 2014-09 supersedes nearly all existing revenue recognition guidance under U.S. GAAP and requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This accounting guidance is effective for us beginning in the first quarter of 2018 using one of two prescribed transition methods. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs" (ASU 2015-03). ASU 2015-03 will more closely align the presentation of debt issuance costs under U.S. GAAP with the presentation under comparable IFRS standards by requiring that debt issuance costs be presented on the balance sheet as a direct

8

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

deduction from the carrying amount of the related debt liability, similar to the presentation of debt discounts or premiums. This accounting guidance is effective for us beginning in the first quarter of 2016. We do not expect the adoption of this updated standard to have a material impact on our consolidated financial statements and related disclosures.

In April 2015, the FASB issued Accounting Standards Update No. 2015-05, "Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement" (ASU 2015-05). ASU 2015-05 provides guidance to help companies evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The new guidance clarifies that if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses. If the arrangement does not include a software license, the customer should account for the arrangement as a service contract. ASU 2015-05 is effective for us beginning in the first quarter of 2016. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

In July 2015, the FASB issued Accounting Standards Update No. 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory" (ASU 2015-11). ASU 2015-11 applies only to inventory for which cost is determined by methods other than last-in, first-out and the retail inventory method, which includes inventory that is measured using first-in, first-out or average cost. Inventory within the scope of this standard is required to be measured at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The new standard will be effective for us on January 1, 2017. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

In August 2015, the FASB issued Accounting Standards Update No. 2015-15, "Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements" (ASU 2015-15). ASU 2015-15 clarifies the presentation and subsequent measurement of debt issuance costs associated with lines of credit. These costs may be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding borrowings on the arrangement. The effective date will be the first quarter of fiscal year 2017 and will be applied retrospectively. We are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments" (ASU 2015-16). ASU 2015-16 replaces the requirement that an acquirer in a business combination account for measurement period adjustments retrospectively with a requirement that an acquirer recognize adjustments to the provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. ASU 2015-16 requires that the acquirer record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU 2015-16 will be effective is effective for us beginning in the first quarter of 2016. The guidance is to be applied prospectively to adjustments to provisional amounts that occur after the effective date of the guidance, with earlier application permitted for financial statements that have not been issued. We do not expect the adoption of this updated standard to have a material impact on our consolidated financial statements and related disclosures.

3. Acquisitions

Receptos, Inc. (Receptos): On August 27, 2015 (Acquisition Date), we acquired all of the outstanding common stock of Receptos, resulting in Receptos becoming our wholly-owned subsidiary. Receptos' lead drug candidate, ozanimod, is a small molecule that modulates sphingosine 1-phosphate 1 and 5 receptors and it is in development for immune-inflammatory indications, including inflammatory bowel disease and relapsing multiple sclerosis (RMS). In clinical trial results, ozanimod demonstrated several areas of potential advantage over existing oral therapies for the treatment of ulcerative colitis (UC) and RMS, including its cardiac, hepatotoxicity and lymphocyte recovery profile. The phase III TRUE NORTH trial in UC is currently underway with data expected in 2018. The phase III RADIANCE and SUNBEAM RMS trials are ongoing and data are expected in the first half of 2017. Receptos is also developing RPC4046, for the treatment of an allergic/immune-mediated disorder, Eosinophilic Esophagitis (EoE), which has been designated as an orphan disease. RPC4046 was licensed from AbbVie Bahamas Ltd. and AbbVie Inc. (collectively referred to as AbbVie) and is currently in phase II testing for EoE. The results of operations for Receptos are included in our consolidated financial statements from the Acquisition Date and the assets and liabilities of Receptos have been recorded at their respective fair values on the Acquisition Date and consolidated with our assets and liabilities.

We paid approximately $7.626 billion, consisting of $7.311 billion for common stock outstanding and $0.315 billion for the portion of equity compensation attributable to the pre-combination period. In addition, we will pay $0.197 billion for the portion of equity compensation attributable to the post-combination service period, which will be recorded as expense over the required service period ending in the fourth quarter of 2015.

9

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The acquisition has been accounted for using the acquisition method of accounting which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and requires the fair value of acquired in-process research and development (IPR&D) to be classified as indefinite-lived assets until the successful completion or abandonment of the associated research and development efforts. A preliminary purchase price allocation has been performed and the recorded amounts for intangible assets, goodwill and associated deferred tax assets and liabilities are subject to change pending finalization of valuation efforts.

The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date.

The total consideration for the acquisition of Receptos was $7,626.2 million, consisting of cash and is summarized as follows:
 
Total Consideration
Cash paid for outstanding common stock
$
7,311.3

Cash for equity compensation attributable to pre-combination service(1)
314.9

Total consideration
$
7,626.2

(1)  $28.6 million for equity compensation attributable to pre-combination service remained payable at September 30, 2015 and will be paid prior to December 31, 2015.

The preliminary purchase price allocation resulted in the following amounts being allocated to the assets acquired and liabilities assumed at the acquisition date based upon their respective preliminary fair values summarized below:

 
Amounts Recognized as of the Acquisition Date (Provisional)
Working capital (1)
$
479.2

Current deferred tax assets
238.2

Property, plant and equipment
5.0

In-process research and development product rights
6,842.0

Other non-current assets
7.9

Non-current deferred tax liabilities
(2,497.0
)
Total identifiable net assets
5,075.3

Goodwill
2,550.9

Total net assets acquired
$
7,626.2


(1)  Includes cash and cash equivalents, available for sale marketable securities, other current assets, accounts payable and other current liabilities.

The fair values of current assets, current liabilities and property, plant and equipment were determined to approximate their book values.

The fair value assigned to acquired IPR&D was based on the present value of expected after-tax cash flows attributable to ozanimod, which is in phase II and III testing. The present value of expected after-tax cash flows attributable to ozanimod and assigned to IPR&D was determined by estimating the after-tax costs to complete development of ozanimod into a commercially viable product, estimating future revenue and ongoing expenses to produce, support and sell ozanimod, on an after-tax basis, and discounting the resulting net cash flows to present value. The revenue and costs projections used were reduced based on the probability that compounds at similar stages of development will become commercially viable products. The rate utilized to discount the net cash flows to their present value reflects the risk associated with the intangible asset and is benchmarked to the cost of equity. Acquired IPR&D will be accounted for as an indefinite-lived intangible asset until regulatory approval in a major market or discontinuation of development.

10

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The excess of purchase price over the fair value amounts assigned to identifiable assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. The goodwill recorded as part of the acquisition is primarily attributable to the broadening of our product portfolio and research capabilities in the inflammation and immunology therapeutic area and the assembled workforce. We do not expect any portion of this goodwill to be deductible for tax purposes. The goodwill attributable to the acquisition has been recorded as a non-current asset in our Consolidated Balance Sheets and is not amortized, but is subject to review for impairment annually.

As a result of the exclusive development license from AbbVie for RPC4046 that Receptos held prior to our acquisition of Receptos, AbbVie holds an option to enter into a global collaboration for RPC4046 with us following the availability of results from the current phase II study. If AbbVie does not exercise its option, we will have an exclusive worldwide license for the development and commercialization of RPC4046 that will be unlimited as to indications. We do not consider this potential collaboration arrangement to be significant.

From the Acquisition Date through September 30, 2015, our Consolidated Statements of Operations included expenses of $235.3 million associated with the acquisition and operations of Receptos as follows(1):
Statements of Operations Location
 
Acquisition Date Through September 30, 2015
Research and development
 
$
21.9

Selling, general and administrative
 
1.1

Acquisition related (gains) charges and restructuring, net (2)
 
211.7

Other income (expense), net
 
0.6

Total
 
$
235.3


(1) In addition, Celgene incurred $19.9 million of acquisition related costs prior to the acquisition date.
(2) Consists of acquisition-related compensation expense and transaction costs.

Pro Forma Financial Information:
The following table provides unaudited pro forma financial information for the three- and nine-month periods ended September 30, 2015 and 2014 as if the acquisition of Receptos had occurred on January 1, 2014.
 
 
Three-Month Periods Ended September 30,
 
Nine-Month Periods Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Total revenue
 
$
2,334.1

 
$
1,985.7

 
$
6,692.7

 
$
5,590.8

Net income
 
$
107.3

 
$
445.4

 
$
1,029.8

 
$
952.2

 
 
 
 
 
 
 
 
 
Net income per common share: basic
 
$
0.14

 
$
0.56

 
$
1.30

 
$
1.19

Net income per common share: diluted
 
$
0.13

 
$
0.53

 
$
1.24

 
$
1.14


The unaudited pro forma financial information was prepared using the acquisition method of accounting and was based on the historical financial information of Celgene and Receptos. The pro-forma financial information assumes that the acquisition-related transaction fees and costs incurred were removed from the three-month period ended September 30, 2015 and were assumed to have been incurred during the first quarter of 2014. The unaudited pro forma results do not reflect any operating efficiencies or potential cost savings that may result from the combined operations of Celgene and Receptos. Accordingly, these unaudited pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the acquisition occurred at the beginning of the period presented, nor are they intended to represent or be indicative of future results of operations.


11

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Quanticel Pharmaceuticals, Inc. (Quanticel): On October 19, 2015, we completed our previously announced acquisition of Quanticel, a privately held biotechnology company focused on cancer drug discovery, for consideration consisting of $100.0 million in cash at closing plus contingent consideration consisting of future payments of up to $385.0 million for achieving specified discovery and development targets. We have had a research collaboration arrangement with Quanticel since 2011. Through this purchase, Quanticel has become our wholly-owned subsidiary, and we will benefit from full access to Quanticel’s proprietary platform for the single-cell genomic analysis of human cancer, as well as Quanticel’s programs that target specific epigenetic modifiers, which we expect will advance our pipeline of innovative cancer therapies.

The acquisition will be accounted for using the acquisition method of accounting for business combinations which requires the assets and liabilities of Quanticel to be recorded at their respective fair values on the acquisition date and consolidated into our Consolidated Balance Sheets. The results of operations for Quanticel will be included in our consolidated financial statements from the date of acquisition.

Due to the limitations on access to Quanticel information prior to the acquisition date and the limited time since the acquisition date, the initial accounting for the business combination is incomplete at this time. As a result, we are unable to provide contingent consideration disclosures and the amounts recognized as of the acquisition date for the major classes of assets acquired and liabilities assumed, including the information required for net working capital, pre-acquisition contingencies, intangible assets and goodwill. This information will be included in our 2015 Annual Report on Form 10-K.

Nogra Pharma Limited (Nogra): On April 23, 2014, we entered into a license agreement with Nogra, pursuant to which Nogra granted us an exclusive, royalty-bearing license in its intellectual property relating to GED-0301, an antisense oligonucleotide targeting Smad7, to develop and commercialize products containing GED-0301 for the treatment of Crohn’s disease and other indications. Based on our evaluation of the license agreement, our level of control and decision making authority over the development and application of the intellectual property, the associated transfer of manufacturing agreements and knowhow, and access to employees of Nogra, we concluded that the acquired assets met the definition of a business and we have accounted for the GED-0301 license as IPR&D acquired in a business combination. The assets acquired and liabilities assumed of Nogra were recorded on our balance sheet as of May 14, 2014 (Effective Date), at their respective fair values. Nogra's results of operations are included in our consolidated financial statements from the Effective Date.
We made an upfront payment of $710.0 million and may make additional contingent developmental, regulatory and sales milestone payments as well as payments based on percentages of annual sales of licensed products. The maximum aggregate amount payable for development and regulatory milestones is approximately $815.0 million, which covers such milestones relating to Crohn’s disease and other indications. Starting from global annual net sales of $500.0 million, aggregate tiered sales milestone payments could total a maximum of $1.050 billion if global annual net sales reach $4.000 billion.
Subsequent to the Effective Date, we have measured the contingent consideration at fair value each period with changes in fair value recognized in operating earnings. Changes in fair values reflect new information about the IPR&D assets and the passage of time. At September 30, 2015, the balance of the contingent consideration was $1.213 billion, of which $25.0 million is included in other current liabilities and $1.188 billion included in other non-current liabilities.


12

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

4. Earnings Per Share
 
 
Three-Month Periods Ended September 30,
 
Nine-Month Periods Ended September 30,
(Amounts in millions, except per share)
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(34.1
)
 
$
508.5

 
$
1,041.0

 
$
1,386.0

Weighted-average shares:
 
 
 
 
 
 
 
Basic
791.1

 
799.6

 
794.3

 
803.5

Effect of dilutive securities:
 
 
 
 
 
 
 
Options, restricted stock units and other incentives

 
33.2

 
33.4

 
32.9

Diluted
791.1

 
832.8

 
827.7

 
836.4

Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
(0.04
)
 
$
0.64

 
$
1.31

 
$
1.72

Diluted
$
(0.04
)
 
$
0.61

 
$
1.26

 
$
1.66

 
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 32.5 million and 13.7 million for the three-month periods ended September 30, 2015 and 2014, respectively. 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 11.6 million and 17.9 million shares for the nine-month periods ended September 30, 2015 and 2014, respectively. All of the potentially dilutive securities for the three-month period ended September 30, 2015 were determined to be anti-dilutive due to the net loss reported. 

Share Repurchase Program: In June 2015, our Board of Directors approved an increase of $4.000 billion to our authorized share repurchase program, bringing the total amount authorized since April 2009 to an aggregate of up to $17.500 billion of our common stock.

As part of the management of our share repurchase program, we may, from time to time, sell put options on our common stock with strike prices that we believe represent an attractive price to purchase our shares. If the trading price of our shares exceeds the strike price of the put option at the time the option expires, we will have economically reduced the cost of our share repurchase program by the amount of the premium we received from the sale of the put option. If the trading price of our stock is below the strike price of the put option at the time the option expires, we would purchase the shares covered by the option at the strike price of the put option. During the three-month and nine-month periods ended September 30, 2015 and 2014, we recorded losses and gains from put option activity on our Consolidated Statements of Operations in other income (expense), net as follows:
 
Three-Month Periods Ended September 30,
 
Nine-Month Periods Ended September 30,
 
2015
 
2014
 
2015
 
2014
Gain (loss) from sale of put options
$
(18.8
)
 
$
3.6

 
$
(9.9
)
 
$
9.9


At September 30, 2015, we had no outstanding put options.

We have purchased 7.1 million and 24.5 million shares of common stock under the share repurchase program from all sources at a total cost of $815.4 million and $2.849 billion during the three- and nine-month periods ended September 30, 2015, respectively. As of September 30, 2015, we had a remaining share repurchase authorization of $4.297 billion.


13

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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.

The accumulated balances related to each component of other comprehensive income (loss), net of tax, are summarized as follows:
 
Pension
Liability
 
Net Unrealized
Gains (Losses) From
Marketable Securities
 
Net Unrealized
Gains (Losses)
From Hedges
 
Foreign
Currency
Translation
Adjustment
 
Total
Accumulated
Other
Comprehensive
Income (Loss)
Balance December 31, 2014
$
(15.5
)
 
$
460.9

 
$
519.6

 
$
(50.2
)
 
$
914.8

Other comprehensive income (loss) before reclassifications
(7.6
)
 
(297.8
)
 
285.3

 
(11.9
)
 
(32.0
)
Amounts reclassified from accumulated other comprehensive income

 
7.5

 
(251.1
)
 

 
(243.6
)
Net current-period other comprehensive income (loss)
(7.6
)
 
(290.3
)

34.2


(11.9
)

(275.6
)
Balance September 30, 2015
$
(23.1
)
 
$
170.6


$
553.8


$
(62.1
)

$
639.2

 
 
 
 
 
 
 
 
 


Balance December 31, 2013
$
(6.9
)
 
$
137.3

 
$
(36.0
)
 
$
(0.4
)
 
$
94.0

Other comprehensive income (loss) before reclassifications

 
129.6

 
355.1

 
(32.5
)
 
452.2

Amounts reclassified from accumulated other comprehensive income

 
2.7

 
3.6

 

 
6.3

Net current-period other comprehensive income (loss)

 
132.3


358.7


(32.5
)
 
458.5

Balance September 30, 2014
$
(6.9
)
 
$
269.6


$
322.7


$
(32.9
)
 
$
552.5

 
 
 
 
 
Gains (Losses) Reclassified Out of Accumulated
Other Comprehensive Income
Accumulated Other Comprehensive Income Components
 
Affected Line Item in the Consolidated Statements of Operations
 
Three-Month Periods Ended September 30,
 
Nine-Month Periods Ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Gains (losses) from cash-flow hedges:
 
 
 
 
 
 
 
 
 
 
Foreign exchange contracts
 
Net product sales
 
$
92.9

 
$
1.3

 
$
253.6

 
$
(1.7
)
Treasury rate lock agreements
 
Interest (expense)
 
(1.1
)
 
(0.9
)
 
(2.9
)
 
(2.6
)
Interest rate swap agreements
 
Interest (expense)
 
(0.4
)
 
(0.3
)
 
(1.1
)
 
(0.5
)
 
 
Income tax benefit
 
0.5

 
0.5

 
1.5

 
1.2

 
 
 
 
 
 
 
 
 
 
 
Gains (losses) from available-for-sale marketable securities:
 
 
 
 
 
 
 
 
Realized income (loss) on sales of marketable securities
 
Interest and investment income, net
 
(10.9
)
 
(1.2
)
 
(11.6
)
 
(4.2
)
 
 
Income tax benefit
 
3.9

 
0.4

 
4.1

 
1.5

Total reclassification, net of tax
 
 
 
$
84.9

 
$
(0.2
)
 
$
243.6

 
$
(6.3
)



14

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 September 30, 2015 and the valuation techniques we utilized to determine such fair value.
Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Our Level 1 assets consist of marketable equity securities. Our Level 1 liability relates to our publicly traded Contingent Value Rights (CVRs). See Note 18 of Notes to Consolidated Financial Statements included in our 2014 Annual Report on Form 10-K for a description of the CVRs.
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 MBS, 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. Our Level 2 liabilities relate to written foreign currency options, foreign currency forward contracts and interest rate swap contracts.
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 3 liabilities consist of contingent consideration related to undeveloped product rights resulting from the acquisitions of Gloucester Pharmaceuticals, Inc. (Gloucester) and Nogra in addition to contingent consideration related to the undeveloped product rights and technology platform acquired as part of the acquisition of Avila Therapeutics, Inc. (now known as Celgene Avilomics Research, Inc.) (Avila). The maximum remaining potential payments related to the contingent consideration from the acquisitions of Gloucester and Avila are estimated to be $120.0 million and $555.0 million, respectively, and $1.865 billion plus amounts based on sales pursuant to the license agreement with Nogra.

15

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 
Balance at
September 30, 2015
 
Quoted Price in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 
 
 
 
 
 
 
Available-for-sale securities
$
1,489.1

 
$
1,111.3

 
$
377.8

 
$

Forward currency contracts
599.9

 

 
599.9

 

Purchased currency options
36.3

 

 
36.3

 

Interest rate swaps
89.8

 

 
89.8

 

Total assets
$
2,215.1

 
$
1,111.3

 
$
1,103.8

 
$

Liabilities:
 

 
 

 
 

 
 

Contingent value rights
$
(69.7
)
 
$
(69.7
)
 
$

 
$

Written currency options
(18.7
)
 

 
(18.7
)
 

Other acquisition related contingent consideration
(1,328.5
)
 

 

 
(1,328.5
)
Total liabilities
$
(1,416.9
)
 
$
(69.7
)
 
$
(18.7
)
 
$
(1,328.5
)
 
 
 
 
 
 
 
 
 
Balance at
December 31, 2014
 
Quoted Price in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Assets:
 

 
 

 
 

 
 

Available-for-sale securities
$
3,425.1

 
$
1,051.3

 
$
2,373.8

 
$

Forward currency contracts
550.7

 

 
550.7

 

Purchased currency options
9.8

 

 
9.8

 

Interest rate swaps
20.0

 

 
20.0

 

Total assets
$
4,005.6

 
$
1,051.3

 
$
2,954.3

 
$

Liabilities:
 

 
 

 
 

 
 

Contingent value rights
$
(136.3
)
 
$
(136.3
)
 
$

 
$

Written currency options
(4.6
)
 

 
(4.6
)
 

Other acquisition related contingent consideration
(1,279.0
)
 

 

 
(1,279.0
)
Total liabilities
$
(1,419.9
)
 
$
(136.3
)
 
$
(4.6
)
 
$
(1,279.0
)


16

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

There were no security transfers between Levels 1 and 2 during the nine-month periods ended September 30, 2015 and 2014. The following table represents a roll-forward of the fair value of Level 3 instruments: 
 
Nine-Month Periods Ended September 30,
 
2015
 
2014
Liabilities:
 

 
 

Balance at beginning of period
$
(1,279.0
)
 
$
(228.5
)
Amounts acquired or issued

 
(1,060.0
)
Net change in fair value
(49.5
)
 
17.6

Settlements

 
20.0

Transfers in and/or out of Level 3

 

Balance at end of period
$
(1,328.5
)
 
$
(1,250.9
)
 
Level 3 liabilities outstanding as of September 30, 2015 primarily consisted of contingent consideration related to the acquisitions of Avila and Nogra. The $49.5 million net increase in the fair value of Level 3 liabilities in 2015 was related to accretion of the fair value of our contingent consideration due to the passage of time, which was partly offset by reductions in the probability and delays in the assumed timing of certain contingent consideration milestones related to the acquisition of Avila. Changes to the fair value of contingent consideration are recorded on the Consolidated Statements of Operations as acquisition related charges and restructuring, net.

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 actively 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. In instances where these financial instruments are accounted for as cash flow hedges or fair value hedges we may from time to time terminate the hedging relationship. If a hedging relationship is terminated we generally either settle the instrument or enter into an offsetting instrument.

Foreign Currency Risk Management

We maintain a foreign exchange exposure management program to mitigate the impact of volatility in foreign exchange rates on future foreign currency cash flows, translation of foreign earnings and changes in the fair value of assets and liabilities denominated in foreign currencies.

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, manage exchange rate volatility in the translation of foreign earnings, and reduce exposures to foreign currency fluctuations of certain assets and liabilities denominated in foreign currencies.
 
We manage a portfolio of 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 September 30, 2015 and December 31, 2014 had settlement dates within 36 months. The spot rate components of these foreign currency forward contracts are designated as cash flow hedges and, to the extent effective, any unrealized gains or losses are reported in other comprehensive income (OCI) and reclassified to operations in the same periods during which the underlying hedged transactions affect earnings. If a hedging relationship is terminated with respect to a foreign currency forward contract, accumulated gains or losses associated with the contract remain in OCI until the hedged forecasted transaction occurs and are reclassified to operations in the same periods during which the underlying hedged transactions affect earnings. Any ineffectiveness on these foreign currency forward contracts is reported on the Consolidated Statements of Operations in other income (expense), net. The forward point components of these

17

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

foreign currency forward contracts are not designated as cash flow hedges and all fair value adjustments of forward point amounts are recorded to other income (expense), net. Foreign currency forward contracts entered into to hedge forecasted revenue and expenses were as follows at September 30, 2015 and December 31, 2014:

 
 
Notional Amount
Foreign Currency
 
September 30, 2015
 
December 31, 2014
Australian Dollar
 
$
38.6

 
$
18.8

British Pound
 
332.6

 
304.8

Canadian Dollar
 
84.4

 
43.7

Euro
 
3,290.3

 
3,375.7

Japanese Yen
 
555.2

 
541.1

Total
 
$
4,301.1

 
$
4,284.1

 
 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 September 30, 2015, credit risk did not materially change the fair value of our foreign currency forward contracts.
 
We also manage a portfolio of foreign currency contracts to reduce exposures to foreign currency fluctuations of certain recognized assets and liabilities denominated in foreign currencies and, from time to time, we enter into foreign currency contracts to manage exposure related to translation of foreign earnings. 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 Operations in other income (expense), net in the current period. The aggregate notional amount of the foreign currency forward non-designated hedging contracts outstanding at September 30, 2015 and December 31, 2014 were $831.8 million and $835.5 million, respectively.
Foreign Currency Option Contracts: From time to time, we may 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 that local currency. Specifically, we sell (or write) a local currency call option and purchase a local currency put option with the same expiration dates and local currency notional 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 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 sale of the call option is equal to the premium paid for the purchased put option, resulting in a net zero cost for each collar. Outstanding foreign currency option contracts entered into to hedge forecasted revenue were as follows at September 30, 2015 and December 31, 2014:
 
Notional Amount1
 
September 30, 2015
 
December 31, 2014
Foreign currency option contracts designated as hedging activity:
 
 
 
Purchased Put
$
524.1

 
$
152.6

Written Call
$
562.4

 
$
160.9

1 U.S. dollar notional amounts are calculated as the hedged local currency amount multiplied by 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 activities are equal to each other.
Interest Rate Risk Management
In anticipation of issuing fixed-rate debt, we may use forward starting interest rate swaps (forward starting swaps) or treasury rate lock agreements (treasury rate locks) that are designated as cash flow hedges to hedge against changes in interest rates that could impact expected future issuances of debt. To the extent these hedges of cash flows related to anticipated debt are effective, any realized or unrealized gains or losses on the treasury rate locks or forward starting swaps are reported in OCI and are recognized in income over the life of the anticipated fixed-rate notes.

Forward Starting Interest Rate Swaps and Treasury Rate Locks: In anticipation of issuing debt in 2015, we entered into forward starting swaps and treasury rate locks, that were designated as cash flow hedges, with aggregate notional value of $1.300 billion

18

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

and $1.600 billion, respectively. All forward starting swaps and treasury rate locks were settled upon the issuance of debt in August 2015, when the net fair value of the forward starting swaps and treasury rate locks in accumulated other comprehensive income was in a loss position of $21.6 million. The net loss will be recognized as interest expense over the life of the associated senior notes. During October 2015, we entered into forward starting swaps with effective dates in September 2017 and maturing in ten years.

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. If a hedging relationship is terminated for an interest rate swap contract, accumulated gains or losses associated with the contract are measured and recorded as a reduction or increase of current and future interest expense associated with the previously hedged debt obligations.

We have entered into swap contracts that were designated as hedges of certain of our fixed rate notes and also terminated the hedging relationship by settling certain of those swap contracts during 2014 and 2015. The settlement of swap contracts resulted in the receipt of net proceeds of $7.7 million and $15.3 million during the nine-month periods ended September 30, 2015 and 2014, respectively, which are 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.

The following table summarizes the notional amounts of our outstanding swap contracts at September 30, 2015 and December 31, 2014
 
 
 
Notional Amount
 
 
September 30, 2015
 
December 31, 2014
Interest rate swap contracts entered into as fair value hedges of the following fixed-rate senior notes:
 
 

 
 

2.450% senior notes due 2015
 
$
300.0

 
$
300.0

1.900% senior notes due 2017
 
300.0

 
300.0

2.300% senior notes due 2018
 
200.0

 
200.0

2.250% senior notes due 2019
 
500.0

 
500.0

3.950% senior notes due 2020
 
500.0

 
500.0

3.250% senior notes due 2022
 
1,000.0

 
750.0

4.000% senior notes due 2023
 
700.0

 
150.0

3.625% senior notes due 2024
 
100.0

 

Total
 
$
3,600.0

 
$
2,700.0

 


19

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables summarize the fair value and presentation in the Consolidated Balance Sheets for derivative instruments as of September 30, 2015 and December 31, 2014:
 
 
 
 
 
September 30, 2015
 
 
 
 
Fair Value
Instrument
 
Balance Sheet
Location
 
Asset
Derivatives
 
Liability Derivatives
Derivatives designated as hedging instruments:
 
Foreign exchange contracts1
 
Other current assets
 
$
329.5

 
$
28.1

 
 
Other current liabilities
 
0.5

 
1.8

 
 
Other non-current assets
 
321.3

 
33.3

Interest rate swap agreements
 
Other current assets
 
23.6

 

 
 
Other non-current assets
 
65.1

 

Derivatives not designated as hedging instruments:
 
Foreign exchange contracts1
 
Other current assets
 
39.4

 
9.1

 
 
Other current liabilities
 

 
0.9

Interest rate swap agreements
 
Other current assets
 
0.7

 
0.7

 
 
Other non-current assets
 
1.4

 
0.3

Total
 
 
 
$
781.5

 
$
74.2

   
 
 
 
 
December 31, 2014
 
 
 
 
Fair Value
Instrument
 
Balance Sheet
Location
 
Asset Derivatives
 
Liability Derivatives
Derivatives designated as hedging instruments:
 
Foreign exchange contracts(1)
 
Other current assets
 
$
264.9

 
$
44.9

 
 
Other current liabilities
 
0.1

 
1.7

 
 
Other non-current assets
 
322.3

 
17.5

Interest rate swap agreements
 
Other current assets
 
17.9

 

 
 
Other non-current assets
 
4.8

 
0.3

 
 
Other non-current liabilities
 

 
3.8

Derivatives not designated as hedging instruments:
 
Foreign exchange contracts(1)
 
Other current assets
 
39.7

 
6.0

 
 
Other current liabilities
 
0.1

 
1.1

Interest rate swap agreements
 
Other current assets
 
0.1

 

 
 
Other non-current assets
 
1.3

 

Total
 
 
 
$
651.2

 
$
75.3

 
(1) 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.















20

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 Operations for the three-month periods ended September 30, 2015 and 2014:
 
 
Three-Month Period Ended September 30, 2015
 
 
 
(Effective Portion)
 
(Ineffective Portion and Amount Excluded From Effectiveness Testing)
 
 
Instrument
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
 
 
Foreign exchange contracts
$
10.8

 
Net product sales
 
$
92.9

 
Other income, net
 
$
14.8

 
(2
)
Treasury rate lock agreements
$
(27.9
)
 
Interest expense
 
$
(1.1
)
 
Other income, net
 
$
(0.2
)
 
(3
)
Interest rate swap agreements
$
(50.0
)
 
Interest expense
 
$
(0.4
)
 
Other income, net
 
$
0.3

 
(3
)
 
(1) Net gains of $320.3 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 $14.7 million of gains related to amounts excluded from the assessment of hedge effectiveness (fair value adjustments of forward point amounts) and $0.1 million in gains related to the ineffective portion of the hedging relationships.
(3) The amount of net gain recognized in income relates to the ineffective portion of the hedging relationships.
 
Three-Month Period Ended September 30, 2014
 
 
 
(Effective Portion)
 
(Ineffective Portion and Amount Excluded From Effectiveness Testing)
 
 
Instrument
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
 
 
Foreign exchange contracts
$
382.8

 
Net product sales
 
$
1.3

 
Other income, net
 
$
(16.4
)
 
(1
)
Treasury rate lock agreements
$

 
Interest expense
 
$
(0.9
)
 
Other income, net
 
$

 
 
Interest rate swap agreements
$

 
Interest expense
 
$
(0.3
)
 
Other income, net
 
$

 
 
 
(1) The amount of net losses recognized in income represents $18.6 million of losses related to amounts excluded from the assessment of hedge effectiveness (fair value adjustments of forward point amounts) and $2.2 million in gains related to the ineffective portion of the hedging relationships.

The following tables summarize the effect of derivative instruments designated as cash-flow hedging instruments on the Consolidated Statements of Operations for the nine-month periods ended September 30, 2015 and 2014:
 
 
Nine-Month Period Ended September 30, 2015
 
 
 
(Effective Portion)
 
(Ineffective Portion and Amount Excluded From Effectiveness Testing)
 
 
Instrument
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
 
 
Foreign exchange contracts
$
298.7

 
Net product sales
 
$
253.6

 
Other income, net
 
$
32.2

 
(2
)
Treasury rate lock agreements
$
(27.9
)
 
Interest expense
 
$
(2.9
)
 
Other income, net
 
(0.2
)
 
(3
)
Interest rate swap agreements
$
6.2

 
Interest expense
 
$
(1.1
)
 
Other income, net
 
0.3

 
(3
)
 

21

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(1) Net gains of $320.3 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 $35.5 million of gains related to amounts excluded from the assessment of hedge effectiveness (fair value adjustments of forward point amounts) and $3.3 million in losses related to the ineffective portion of the hedging relationships.
(3) The amount of net gain recognized in income relates to the ineffective portion of the hedging relationships.

 
Nine-Month Period Ended September 30, 2014
 
 
 
(Effective Portion)
 
(Ineffective Portion and Amount Excluded From Effectiveness Testing)
 
 
Instrument
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
 
 
Foreign exchange contracts
$
374.9

 
Net product sales
 
$
(1.7
)
 
Other income, net
 
$
(19.2
)
 
(1
)
Treasury rate lock agreements
$

 
Interest expense
 
$
(2.6
)
 
Other income, net
 
$

 
 
Interest rate swap agreements
$
(32.4
)
 
Interest expense
 
$
(0.5
)
 
Other income, net
 
$
(3.6
)
 
(2
)
 
(1) The amount of net losses recognized in income represents $22.1 million of losses related to amounts excluded from the assessment of hedge effectiveness (fair value adjustments of forward point amounts) and $2.9 million in gains related to the ineffective portion of the hedging relationships.
(2) The amount of net loss recognized in income relates to the ineffective portion of the hedging relationships.

The following table summarizes the effect of derivative instruments designated as fair value hedging instruments on the Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2015 and 2014:
 
 
 
 
Amount of Gain (Loss) Recognized in
Income on Derivative
 
 
Location of Gain (Loss) Recognized in Income on Derivative
 
Three-Month Periods Ended September 30,
 
Nine-Month Periods Ended September 30,
Instrument
 
 
2015
 
2014
 
2015
 
2014
Interest rate swap agreements
 
Interest expense
 
$
16.2

 
$
10.3

 
$
45.5

 
$
31.2

 
The following table summarizes the effect of derivative instruments not designated as hedging instruments on the Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2015 and 2014:
 
 
 
 
 
Amount of Gain (Loss) Recognized in
Income on Derivative
 
 
Location of Gain (Loss) Recognized in Income on Derivative
 
Three-Month Periods Ended September 30,
 
Nine-Month Periods Ended September 30,
Instrument
 
 
2015
 
2014
 
2015
 
2014
Foreign exchange contracts
 
Other income (expense), net
 
$
14.4

 
$
55.4

 
$
69.3

 
$
44.3

Put options on our common stock
 
Other income (expense), net
 
$
(18.8
)
 
$
3.6

 
$
(9.9
)
 
$
9.9

 
The impact of gains and losses on foreign exchange contracts not designated as hedging instruments related to changes in the fair value of assets and liabilities denominated in foreign currencies are generally offset by net foreign exchange gains and losses, which are also included on the Consolidated Statements of Operations in other income (expense), net for all periods presented. When we enter into foreign exchange contracts not designated as hedging instruments to mitigate the impact of exchange rate volatility in the translation of foreign earnings, gains and losses will generally be offset by fluctuations in the U.S. Dollar translated amounts of each Income Statement account in current and/or future periods. 


22

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

8. Cash, Cash Equivalents and Marketable Securities Available-for-Sale
 
Money market funds of $2.101 billion and $2.251 billion at September 30, 2015 and December 31, 2014, 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 September 30, 2015 and December 31, 2014 were as follows:
September 30, 2015
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
U.S. Treasury securities
 
$
92.8

 
$

 
$

 
$
92.8

U.S. government-sponsored agency MBS
 
34.0

 

 
(0.2
)
 
33.8

Corporate debt - global
 
213.4

 
0.2

 
(1.0
)
 
212.6

Asset backed securities
 
38.6

 

 

 
38.6

Marketable equity securities
 
820.3

 
365.8

 
(74.8
)
 
1,111.3

Total available-for-sale marketable securities
 
$
1,199.1

 
$
366.0

 
$
(76.0
)

$
1,489.1

 
December 31, 2014
 
Amortized Cost
 
Gross Unrealized Gain
 
Gross Unrealized Loss
 
Estimated Fair Value
U.S. Treasury securities
 
$
1,044.7

 
$
0.3

 
$
(0.8
)
 
$
1,044.2

U.S. government-sponsored agency securities
 
145.1

 
0.1

 
(0.1
)
 
145.1

U.S. government-sponsored agency MBS
 
531.1

 
1.0

 
(2.7
)
 
529.4

Non-U.S. government, agency and Supranational securities
 
32.4

 

 
(0.1
)
 
32.3

Corporate debt - global
 
446.3

 
0.6

 
(1.2
)
 
445.7

Asset backed securities
 
177.3

 

 
(0.2
)
 
177.1

Marketable equity securities
 
335.2

 
716.3

 
(0.2
)
 
1,051.3

Total available-for-sale marketable securities
 
$
2,712.1

 
$
718.3


$
(5.3
)

$
3,425.1

 
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 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. Marketable equity securities consist of investments in publicly traded equity securities. The decrease in net unrealized gains in marketable equity securities during the nine-month period ended September 30, 2015 primarily reflects the decrease in market value for certain equity investments subsequent to December 31, 2014.

Duration periods of available-for-sale debt securities at September 30, 2015 were as follows:
 
 
 
Amortized
Cost
 
Fair
Value
Duration of one year or less
 
$
68.1

 
$
67.9

Duration of one through three years
 
292.6

 
291.9

Duration of three through five years
 
18.1

 
18.0

Total
 
$
378.8

 
$
377.8

 

 

23

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

9. Inventory

Inventories as of September 30, 2015 and December 31, 2014 are summarized by major category as follows:
 
September 30, 2015
 
December 31, 2014
Raw materials
$
109.8

 
$
200.0

Work in process
131.4

 
101.5

Finished goods
179.7

 
91.6

Total
$
420.9

 
$
393.1


The decrease in raw materials and increase in finished goods during the nine-month period ended September 30, 2015 was primarily related to the production of ABRAXANE® to support recently launched new indications. Raw materials for ABRAXANE® had been at elevated levels at December 31, 2014 and during the nine-month period ended September 30, 2015 many of those materials were converted into finished goods.
 
10. Intangible Assets and Goodwill
 
Intangible Assets: Our finite lived intangible assets primarily consist of developed product rights and technology obtained from the Pharmion Corp. (Pharmion), Gloucester, Abraxis BioScience, Inc. (Abraxis) and Avila acquisitions. Our indefinite lived intangible assets consist of acquired IPR&D product rights from the Receptos, Nogra and Gloucester acquisitions. The remaining weighted-average amortization period for finite-lived intangible assets not fully amortized is approximately 10.5 years.

Intangible assets outstanding as of September 30, 2015 and December 31, 2014 are summarized as follows:
September 30, 2015
 
Gross Carrying Value
 
Accumulated Amortization
 
Intangible Assets, Net
Amortizable intangible assets:
 
 

 
 

 
 

Acquired developed product rights
 
$
3,405.9

 
$
(1,387.1
)
 
$
2,018.8

Technology
 
333.7

 
(170.8
)
 
162.9

Licenses
 
66.7

 
(21.2
)
 
45.5

Other
 
44.0

 
(26.1
)
 
17.9

 
 
3,850.3

 
(1,605.2
)

2,245.1

Non-amortized intangible assets:
 


 


 
 

Acquired IPR&D product rights
 
8,470.7

 

 
8,470.7

Total intangible assets
 
$
12,321.0

 
$
(1,605.2
)

$
10,715.8

 
 
 
 
 
 
 
December 31, 2014
 
Gross Carrying Value
 
Accumulated Amortization
 
Intangible Assets, Net
Amortizable intangible assets:
 
 

 
 

 
 

Acquired developed product rights
 
$
3,405.9

 
$
(1,234.1
)
 
$
2,171.8

Technology
 
333.7

 
(135.1
)
 
198.6

Licenses
 
67.0

 
(18.1
)
 
48.9

Other
 
42.5

 
(22.9
)
 
19.6

 
 
3,849.1

 
(1,410.2
)
 
2,438.9

Non-amortized intangible assets:
 
 

 
 

 
 

Acquired IPR&D product rights
 
1,628.7

 

 
1,628.7

Total intangible assets
 
$
5,477.8

 
$
(1,410.2
)
 
$
4,067.6

 
The $6.843 billion increase in the gross carrying value of intangible assets during the nine-month period ended September 30, 2015 was primarily due to the addition of $6.842 billion of IPR&D from the Receptos acquisition.

Amortization expense related to intangible assets was $65.0 million and $65.0 million for the three-month periods ended September 30, 2015 and 2014, respectively, and $195.0 million and $198.8 million for the nine-month periods ended September 30,

24

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

2015 and 2014, respectively. Assuming no changes in the gross carrying amount of intangible assets, the amortization of intangible assets for years 2015 through 2019 is estimated to be in the range of approximately $163.7 million to $306.5 million annually. 
 
Goodwill: At September 30, 2015, our goodwill related to the 2015 acquisition of Receptos, 2014 acquisition of Nogra, the 2012 acquisition of Avila, the 2010 acquisitions of Abraxis and Gloucester, the 2008 acquisition of Pharmion and the 2004 acquisition of Penn T Limited.

The carrying value of goodwill increased by $2.551 billion to $4.742 billion as of September 30, 2015 compared to December 31, 2014 due to the Receptos acquisition.

11. Debt
 
Short-Term Borrowings and Current Portion of Long-Term Debt: The carrying value of short-term borrowings and current portion of long-term debt outstanding at September 30, 2015 and December 31, 2014 includes:
 
 
September 30, 2015
 
December 31, 2014
Commercial paper
 
$
699.4

 
$
99.6

2.450% senior notes due 2015
 
500.3

 
506.3

Total
 
$
1,199.7

 
$
605.9


Long-Term Debt: Summarized below are the carrying values of our senior notes at September 30, 2015 and December 31, 2014:
 
 
September 30, 2015
 
December 31, 2014
1.900% senior notes due 2017
$
503.0

 
$
501.0

2.125% senior notes due 2018
999.9

 

2.300% senior notes due 2018
403.8

 
401.2

2.250% senior notes due 2019
511.3

 
502.5

2.875% senior notes due 2020
1,497.4

 

3.950% senior notes due 2020
514.6

 
502.8

3.250% senior notes due 2022
1,032.3

 
1,010.2

3.550% senior notes due 2022
997.3

 

4.000% senior notes due 2023
722.2

 
708.5

3.625% senior notes due 2024
1,003.4

 
996.8

3.875% senior notes due 2025
2,476.1

 

5.700% senior notes due 2040
249.6

 
249.5

5.250% senior notes due 2043
396.7

 
396.7

4.625% senior notes due 2044
996.5

 
996.5

5.000% senior notes due 2045
1,993.8

 

Total long-term debt
$
14,297.9

 
$
6,265.7

 
At September 30, 2015, the fair value of our outstanding Senior Notes was $14.847 billion and represented a Level 2 measurement within the fair value measurement hierarchy.

In August 2015, we issued an additional $8.000 billion principal amount of senior notes consisting of $1.000 billion aggregate principal amount of 2.125% Senior Notes due 2018 (the 2018 notes), $1.500 billion aggregate principal amount of 2.875% Senior Notes due 2020 (the 2020 notes), $1.000 billion aggregate principal amount of 3.550% Senior Notes due 2022 (the 2022 notes), $2.500 billion aggregate principal amount of 3.875% Senior Notes due 2025 (the 2025 notes) and $2.000 billion aggregate principal amount of 5.000% Senior Notes due 2045 (the 2045 notes and together with the 2018 notes, the 2020 notes, the 2022 notes, and the 2025 notes, referred to herein as the “2015 issued notes”). The 2015 issued notes were issued at 99.994%, 99.819%, 99.729%, 99.034%, and 99.691% of par, respectively, and the discount is being amortized as additional interest expense over the period from

25

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

issuance through maturity. Offering costs of approximately $50.0 million have been recorded as debt issuance costs on our Consolidated Balance Sheets and are being amortized as additional interest expense using the effective interest rate method over the period from issuance through maturity. Interest on the 2015 issued notes is payable semi-annually in arrears on February 15 and August 15 each year beginning February 15, 2016 and the principal on each 2015 issued note is due in full at their respective maturity dates. The 2015 issued notes may be redeemed at our option, in whole or in part; the 2018 notes, the 2020 notes, and the 2022 notes may be redeemed at any time, the 2025 notes and 2045 notes may be redeemed at three months and six months prior to the maturity dates, respectively. Early redemption would be at a redemption price equaling accrued and unpaid interest plus the greater of 100% of the principal amount of the 2015 issued notes to be redeemed or the sum of the present values of the remaining scheduled payments of interest and principal discounted to the date of redemption on a semi-annual basis plus 20 basis points in the case of the 2018 notes, 20 basis points in the case of the 2020 notes, 25 basis points in the case of the 2022 notes, 30 basis points in the case of the 2025 notes, and 35 basis points in the case of the 2045 notes. If we experience a change of control accompanied by a downgrade of the debt to below investment grade, we will be required to offer to repurchase the 2015 issued notes at a purchase price equal to 101% of their principal amount plus accrued and unpaid interest. We are subject to covenants which limit our ability to pledge properties as security under borrowing arrangements and limit our ability to perform sale and leaseback transactions involving our property.
From time to time, we have used treasury rate locks and forward starting interest rate swap contracts to hedge against changes in interest rates in anticipation of issuing fixed-rate notes. As of September 30, 2015, a balance of $69.7 million in losses remained in accumulated OCI related to these derivative instruments and will be recognized as interest expense over the life of the notes.
 
At September 30, 2015, we were party to pay-floating, receive-fixed interest rate swap contracts designated as fair value hedges of fixed-rate notes as described in Note 7. Our swap contracts outstanding at September 30, 2015 effectively convert the hedged portion of our fixed-rate notes to floating rates. From time to time we terminate the hedging relationship on certain of our swap contracts by settling the contracts or by entering into offsetting contracts. Any net proceeds received or paid in these settlements are accounted for as a reduction or increase of current and future interest expense associated with the previously hedged notes. As of September 30, 2015, we had a balance of $34.8 million of unamortized gains recorded as a component of our debt as a result of past swap contract settlements, including $6.0 million related to the settlement of swap contracts during the nine months ended September 30, 2015. As of December 31, 2014, we had a balance of $38.6 million of unamortized gains recorded as a component of our debt as a result of past swap contract settlements.

Commercial Paper: The carrying value of Commercial Paper as of September 30, 2015 and December 31, 2014 was $699.4 million and $99.6 million, respectively, and approximated its fair value. The effective interest rate on our outstanding Commercial Paper at September 30, 2015 was 0.5%. In October 2015, our Board of Directors authorized an increase in the size of our Commercial Paper program from $1.750 billion to $2.750 billion.
 
Credit Facility and Revolving Credit: We maintain a senior unsecured revolving credit facility (Credit Facility) that provides revolving credit in the aggregate amount of $1.750 billion, which was increased from $1.500 billion in April 2015. Also in April 2015, the term of the Credit Facility was extended from April 18, 2018 to April 17, 2020. Subject to certain conditions, we have the right to increase the amount of the Credit Facility (but in no event more than one time per annum) up to a maximum aggregate amount of $2.000 billion. Amounts may be borrowed in U.S. dollars for general corporate purposes. In October 2015, we entered into a revolving credit agreement (Revolving Credit Agreement) with JPMorgan Chase Bank, N.A., under which we may borrow up to a maximum aggregate principal amount of $1.000 billion. The maturity date of any borrowings under the Revolving Credit Agreement and the expiration date of the agreement is December 31, 2015. The Credit Facility and Revolving Credit Agreement currently serve as backup liquidity for our Commercial Paper borrowings. At September 30, 2015, there was no outstanding borrowing against the Credit Facility or the Revolving Credit Agreement.

The Credit Facility and the Revolving Credit Agreement contain affirmative and negative covenants, including certain customary financial covenants. We were in compliance with all financial covenants as of September 30, 2015


26

CELGENE CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

12. Share-Based Compensation
 
We have a stockholder-approved stock incentive plan, the 2008 Stock Incentive Plan (Amended and Restated as of April 15, 2015) (Plan) that provides for the granting of options, restricted stock units (RSUs), performance stock units (PSUs) and other share-based awards to our employees and officers. The Management Compensation and Development Committee of the Board of Directors (Compensation Committee) may determine the type, amount and terms, including vesting, of any awards made under the Plan.

During 2015, we increased our usage of PSUs and began issuing PSUs to certain executive officers that are payable in shares of our common stock at the end of a three-year performance measurement period. The number of shares to be issued at the end of the measurement period will vary, based on performance, from 0% to 200% of the target number of PSUs granted, depending on the achievement of specified performance and market targets for revenue (37.5% weighting), earnings per share (37.5% weighting), and relative total shareholder return (25% weighting). All shares delivered upon PSU vesting are restricted from trading for one year and one day from the vesting date.

The grant date fair value for the portion of the PSUs related to revenue and earnings per share was estimated using the fair market value of our common stock on the grant date. The grant date fair value for the portion of the PSUs related to relative total shareholder return was estimated using the Monte Carlo valuation model. The weighted average grant date fair value per share of the PSUs granted to certain executive officers during the nine-month period ended September 30, 2015 was $122.90.

The following table summarizes the components of share-based compensation expense in the Consolidated Statements of Operations for the three- and nine-month periods ended September 30, 2015 and 2014:
 
 
Three-Month Periods Ended September 30,
 
Nine-Month Periods Ended September 30,
 
2015
 
2014
 
2015
 
2014
Cost of goods sold (excluding amortization of acquired intangible assets)
$
8.5

 
$
6.8

 
$
23.3

 
$
18.8

Research and development
65.2

 
48.4

 
185.0

 
141.2

Selling, general and administrative
76.2

 
56.2

 
218.1

 
159.2

Total share-based compensation expense
149.9

 
111.4

 
426.4

 
319.2

Tax benefit related to share-based compensation expense
42.8

 
31.4

 
124.0

 
92.4

Reduction in income
$
107.1

 
$