Amgen 2010 Annual Report Download - page 101

Certain items are included in the Company’s tax return at different times than they are reflected in the financial
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 statements 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
requirements necessitate that certain assets associated with these earnings be repatriated to the United States,
under current tax laws an additional tax provision and related liability would be required at the applicable U.S. and
state marginal income tax rates which could have a material adverse effect on both our future effective tax rate and
our financial results.
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 19, 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 exposed to market risks that may result from changes in interest rates, foreign currency exchange rates
and prices of equity instruments 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 exposure 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 instruments 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 derivative hedging transactions with counterparties with investment grade credit ratings
as part of our risk management program. We do not use derivatives for speculative trading purposes.
In the capital and credit markets, strong demand for fixed income led to historically low interest rates on
corporate debt issuances during 2010. Short-term interest rates on U.S. Treasury instruments continued to decline as
a result of the Federal Reserve’s monetary policy, which included a program to buy back U.S. Treasury instruments.
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, 2010 and 2009. Continued uncertainty surrounding European sovereign debt
resulted in ongoing volatility in the foreign exchange markets, and we have consequentially assumed a hypothetical
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