Amgen 2009 Annual Report Download - page 99

resolution of an examination. We believe that our estimates for uncertain tax positions are appropriate and suffi-
cient to pay assessments that may result from examinations of our tax returns. We recognize both accrued interest
and penalties, where appropriate, related to UTBs in income tax expense.
Certain items are included in the Company’s tax return at different times than they are reflected in the finan-
cial statements. Such timing differences create deferred tax assets and liabilities. Deferred tax assets are generally
items that can be used as a tax deduction or credit in the tax return in future years but for which the Company has
already recorded the tax benefit in the financial statements. The Company establishes valuation allowances
against its deferred tax assets when the amount of expected future taxable income is not likely to support the use
of the deduction or credit. Deferred tax liabilities are either: (i) a tax expense recognized in the financial state-
ments for which payment has been deferred; or (ii) an expense for which the Company has already taken a
deduction on the tax return, but has not yet recognized the expense in the financial statements.
Our effective tax rate reflects the impact of undistributed foreign earnings for which no U.S. taxes have been
provided because such earnings are intended to be invested indefinitely outside the United States based on our
projected cash flow, working capital and long-term investment requirements of our U.S. and foreign operations.
If future events, including material changes in estimates of cash, working capital and long-term investment re-
quirements necessitate that certain assets associated with these earnings be repatriated to the United States, an
additional tax provision and related liability would be required at the applicable U.S. and state marginal income
tax rates which could materially impact our future effective tax rate.
Our operations are subject to the tax laws, regulations and administrative practices of the United States, U.S.
state jurisdictions and other countries in which we do business. Significant changes in these rules could have a
material adverse effect on the results of operations. For example, substantial reform of U.S. tax law regarding tax
on certain foreign profits could result in an increase in our effective tax rate, which could have a material adverse
effect on our financial results.
Contingencies
In the ordinary course of business, we are involved in various legal proceedings such as intellectual property
disputes, contractual disputes, governmental investigations and class action suits. Certain of these proceedings
are discussed in Note 20, “Contingencies and commitments” to the Consolidated Financial Statements. We record
accruals for such contingencies to the extent we conclude their occurrence is both probable and estimable. We
consider all relevant factors when making assessments regarding these contingencies.
While it is not possible to accurately predict or determine the eventual outcome of these items, one or more
of these items currently pending could have a material adverse effect on our consolidated results of operations,
financial position or cash flows.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a global biotechnology company with operations in various countries. We are exposed to market
risks that may result from changes in interest rates, foreign currency exchange rates and prices of equity instru-
ments as well as changes in the general economic conditions in the countries where we conduct business. To
reduce certain of these risks, we monitor the financial condition of our larger customers and limit our credit ex-
posure by setting credit limits, requiring letters of credit and obtaining credit insurance, as we deem appropriate.
In addition, we have an investment policy that limits investments to certain types of debt and money market in-
struments issued by institutions primarily with investment grade credit ratings and places restriction on maturities
and concentrations by type and issuer. We also enter into various types of foreign exchange and interest rate de-
rivative hedging transactions as part of our risk management program. We do not use derivatives for speculative
trading purposes and are not a party to leveraged derivatives.
The capital and credit markets have experienced extreme volatility and disruption which has led to un-
certainty and liquidity issues for both borrowers and investors. Short-term interest rates on U.S. treasury
instruments have declined considerably while other short-term rates have fluctuated in excess of historical norms.
As a result, in the discussion that follows, we have assumed a hypothetical change in interest rates of 100 basis
points from those at December 31, 2009 and 2008. Similarly, over this same period there has been extraordinary
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