Amgen 2009 Annual Report Download - page 140

AMGEN INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The reconciliation of the total gross amounts of UTBs (excluding interest and the federal tax benefit of state
taxes related to UTBs) for the years ended December 31, 2009, 2008 and 2007 is as follows (in millions):
2009 2008 2007
Balance at beginning of year .............................................. $1,113 $ 922 $ 945
Additions based on tax positions related to the current year ...................... 302 382 458
Reductions for tax positions of prior years ................................... (215) — (284)
Settlements ............................................................ (60) (191) (197)
Balance at end of year ................................................... $1,140 $1,113 $ 922
Substantially all of the UTBs as of December 31, 2009, 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 the
examination primarily related to transfer pricing tax positions and remeasured our UTBs accordingly. Our clos-
ing agreement with the IRS also covered certain transfer pricing issues for the years ended December 31, 2005
and 2006.
During 2008, we reached an agreement with the IRS as to the amount of certain transfer pricing issues for
the years ended December 31, 2005 and 2006 which were covered by the closing agreement entered into in 2007.
During 2009, we settled the examination of our U.S. income tax returns with the IRS for certain matters, pri-
marily related to transfer pricing tax positions, for the years ended December 31, 2005 and 2006 and have
remeasured our UTBs accordingly. Also during 2009, we settled the examination of our California state income
tax returns for certain matters for the years ended December 31, 2004 and 2005 and have remeasured our UTBs
accordingly.
The Company does not expect any significant changes to the above UTBs during the next twelve months.
Interest and penalties related to UTBs are included in our provision for income taxes. During 2009, 2008
and 2007, we recognized approximately $57 million, $71 million and $41 million, respectively, of interest and
penalty expense through the income tax provision in the Consolidated Statements of Income. At December 31,
2009 and 2008, we had accrued approximately $125 million and $119 million, respectively, of interest and penal-
ties associated with UTBs.
The reconciliation between the federal statutory rate and our effective tax rate is as follows:
Years ended December 31,
2009 2008 2007
Federal statutory rate applied to income before income taxes ................. 35.0 % 35.0 % 35.0 %
Foreign earnings, including earnings invested indefinitely ................... (19.6)% (16.7)% (16.9)%
State taxes ......................................................... 1.1% 1.4% 1.2%
Acquired IPR&D ................................................... 0.0% 0.0% 5.5%
Audit settlements ................................................... (4.2)% 0.0 % (3.7)%
Utilization of tax credits, primarily research and experimentation ............. (0.8)% (1.1)% (1.7)%
Other, net ......................................................... 0.0% 0.6% (0.5)%
Effective tax rate .................................................... 11.5 % 19.2 % 18.9 %
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, 2009, these earnings amounted
to approximately $14.3 billion. If these earnings were repatriated to the United States, we would be required to
accrue and pay approximately $5.1 billion of additional income taxes based on the current tax rates in effect. For
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