Amgen 2007 Annual Report Download - page 148

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
FIN 48 also provides guidance on the balance sheet classification of liabilities for unrecognized tax benefits
(“UTBs”) as either current or non-current depending on the expected timing of payments. Upon adoption of FIN
48, we reclassified approximately $240 million of UTBs and related accrued interest from current income taxes
payable to other non-current liabilities.
The reconciliation of the total gross amounts of UTBs for the year ended December 31, 2007 is as follows
(in millions):
Balance at January 1, 2007 ..................................................... $945
Additions based on tax positions related to the current year ............................ 458
Reductions for tax positions of prior years ......................................... (284)
Settlements .................................................................. (197)
Balance at December 31, 2007 .................................................. $922
The majority of the UTBs, if recognized, would affect our effective tax rate.
During 2007, we settled our examination with the Internal Revenue Service (“IRS”) for the years ended De-
cember 31, 2002, 2003, and 2004. We agreed to certain adjustments proposed by the IRS arising out of this
examination primarily related to transfer pricing tax positions. Our closing agreement with the IRS also covers
certain transfer pricing issues for the years ended December 31, 2005 and 2006; however, these years have not
been effectively settled.
As of December 31, 2007, we believe that it was reasonably possible that our liabilities for UTBs may de-
crease by $200 million to $300 million within the succeeding twelve months due to potential tax settlements as
well as resolution of other issues identified during the examination process.
Interest and penalties related to UTBs are classified as a component of our provision for income taxes. Dur-
ing 2007, we recognized approximately $41 million of interest expense through the income tax provision in the
Consolidated Statement of Income. At December 31, 2007, there was approximately $46 million of accrued
interest associated with UTBs.
The reconciliation between our effective tax rate and the federal statutory rate is as follows:
Years ended December 31,
2007 2006 2005
Federal statutory rate applied to income before income taxes ...... 35.0% 35.0% 35.0%
Foreign earnings, including earnings invested indefinitely ........ (16.1)% (18.3)% (10.3)%
State taxes .............................................. 1.1% 1.6% 1.5%
Acquired IPR&D ........................................ 5.2% 10.7% —
Audit settlements ........................................ (3.6)% (2.2)% —
Utilization of tax credits, primarily research and experimentation . . (1.6)% (1.0)% (0.7)%
Other, net .............................................. 0.1% 0.8% (1.0)%
Effective tax rate ......................................... 20.1% 26.6% 24.5%
We do not provide for U.S. income taxes on undistributed earnings of our foreign operations that are in-
tended to be invested indefinitely outside of the United States. At December 31, 2007, these earnings amounted
to approximately $8.4 billion. If these earnings were repatriated to the United States, we would be required to ac-
crue and pay approximately $2.9 billion of additional taxes based on the current tax rates in effect. For the years
ended December 31, 2007, 2006 and 2005, our total foreign profits before income taxes were approximately $2.4
billion, $2.3 billion and $1.8 billion, respectively. These earnings include income from manufacturing operations
in Puerto Rico under tax incentive grants that expire in 2020.
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