Amgen 2011 Annual Report Download - page 94

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In 2011, we recorded a $780 million legal settlement charge in connection with an agreement in principle to
settle allegations relating to our sales and marketing practices. In addition in 2011, as part of our continuing
efforts to improve cost efficiencies in our operations, we recorded certain charges, primarily severance related, of
$109 million. In 2010, we recorded a $118 million asset impairment charge for our manufacturing operations
located in Fremont, California, associated with our continuing efforts to optimize our network of manufacturing
facilities and improve cost efficiencies. In 2009, we recorded loss accruals for settlements of certain legal
proceedings aggregating $33 million.
See Note 18, Contingencies and commitments, to the Consolidated Financial Statements for further
discussion of our 2011 legal settlement.
Non-operating expenses/income and provision for income taxes
Non-operating expenses/income and provisions for income taxes were as follows (dollar amounts in
millions):
2011 2010 2009
Interest expense, net ....................................................... $610 $604 $578
Interest and other income, net ............................................... $448 $376 $276
Provisions for income taxes ................................................. $467 $690 $599
Effective tax rate ......................................................... 11.3% 13.0% 11.5%
Interest expense, net
Included in interest expense, net, for the years ended December 31, 2011, 2010 and 2009, is the impact of
non-cash interest expense of $143 million, $266 million and $250 million, respectively, resulting from the
change in the accounting for our convertible debt effective January 1, 2009. The reduction of non-cash interest
expense in 2011 was offset by increased interest expense associated with recent borrowings.
Interest and other income, net
The increase in interest and other income, net, for 2011 was due primarily to higher net realized gains on
sales of investments of $67 million.
The increase in interest and other income, net, for 2010 was due primarily to higher net realized gains on
sales of investments of $48 million and higher interest income of $51 million, due principally to higher average
cash, cash equivalents and marketable securities balances.
Income taxes
The decrease in our effective tax rate for 2011 was due primarily to the foreign tax credits associated with
the Puerto Rico excise tax described below offset partially by the effect of the non-deductible U.S. healthcare
reform federal excise fee in 2011, the non-deductible portion of the legal settlement reached in principle in 2011
and the favorable resolution in 2010 of certain prior years’ non-routine transfer pricing matters with tax
authorities.
Commencing January 1, 2011, Puerto Rico imposes a temporary excise tax on the acquisition of goods and
services from a related manufacturer in Puerto Rico. The excise tax is imposed over a six year period beginning
in 2011 with the excise tax rate declining in each year (4% in 2011, 3.75% in 2012, 2.75% in 2013, 2.5% in
2014, 2.25% in 2015, and 1% in 2016). We account for the excise tax as a manufacturing cost that is capitalized
in inventory and expensed in cost of sales when the related products are sold. For U.S. income tax purposes, the
excise tax results in foreign tax credits that are generally recognized in our provision for income taxes in the year
in which the excise tax is incurred. The effective tax rate for 2011 would have been approximately 18% without
the impact of the tax credits associated with the Puerto Rico excise tax.
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