Amgen 2012 Annual Report Download - page 120

F-21
Because the American Taxpayer Relief Act of 2012 was not enacted until 2013, certain provisions of the Act benefiting the
Company's 2012 federal taxes, including the retroactive extension of the R&D tax credit for 2012, cannot be recognized in the
Company's 2012 financial results and instead will be reflected in the Company's 2013 financial results for the first quarter. The
tax benefit of the retroactive extension of the 2012 R&D tax credit that will be recognized in the first quarter of 2013 is approximately
$65 million.
The effective tax rates for the years ended December 31, 2012, 2011 and 2010, are different from the federal statutory rates
primarily as a result of indefinitely invested earnings of our foreign operations. We do not provide for U.S. income taxes on
undistributed earnings of our foreign operations that are intended to be invested indefinitely outside the United States. Substantially
all of the benefit from foreign earnings on our effective tax rate results from foreign income associated with the Company’s
operation conducted in Puerto Rico that is subject to a tax incentive grant that expires in 2020. At December 31, 2012, the cumulative
amount of these earnings was approximately $22.2 billion. If these earnings were repatriated to the United States, we would be
required to accrue and pay approximately $7.9 billion of additional income taxes based on the current tax rates in effect.
Our total foreign income before income taxes was approximately $3.3 billion, $3.0 billion and $3.5 billion for the years
ended December 31, 2012, 2011 and 2010, respectively.
Commencing January 1, 2011, Puerto Rico imposes a temporary excise tax on the purchase of goods and services from a
related manufacturer in Puerto Rico. The excise tax is imposed on the gross intercompany purchase price of the goods and services
and is effective for 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). In February 2013, the Puerto Rico government proposed an
amendment to the excise tax legislation which, if approved, would increase the excise tax rate to 4% effective July 1, 2013 through
2017. 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 when the excise tax is incurred.
Income taxes paid during the years ended December 31, 2012, 2011 and 2010, totaled $502 million, $595 million and $1,344
million, respectively.
One or more of our legal entities file income tax returns in the U.S. federal jurisdiction, various U.S. state jurisdictions and
certain foreign jurisdictions. Our income tax returns are routinely audited by the tax authorities in those jurisdictions. Significant
disputes may arise with these tax authorities involving issues of the timing and amount of deductions, the use of tax credits and
allocations of income among various tax jurisdictions because of differing interpretations of tax laws and regulations. We are no
longer subject to U.S. federal income tax examinations for tax years ending on or before December 31, 2009, or to California state
income tax examinations for tax years ending on or before December 31, 2005.
Subsequent to December 31, 2012, we settled the examination of our U.S. tax returns with the IRS relating to years ended
December 31, 2007, 2008, and 2009. We will remeasure our UTBs and recognize the tax impact of this settlement in the first
quarter of 2013. We expect the settlement to result in a tax benefit of approximately $185 million.
5. Earnings per share
The computation of basic earnings per share (EPS) is based on the weighted-average number of our common shares
outstanding. The computation of diluted EPS is based on the weighted-average number of our common shares outstanding and
dilutive potential common shares, which include principally shares that may be issued under: our stock option, restricted stock
and performance unit awards, determined using the treasury stock method; our outstanding convertible notes, as discussed below;
and our outstanding warrants (collectively “dilutive securities”). The convertible note hedges purchased in connection with the
issuance of our convertible notes are excluded from the calculation of diluted EPS because their impact is always anti-dilutive.
For further information regarding our convertible notes and warrants, see Note 14, Financing arrangements.
Prior to the conversion/maturity of our 0.375% 2013 Convertible Notes in February 2013 (see Note 14, Financing
arrangements), the principal amount of the notes had to be settled in cash, and the excess of the conversion value, as defined, over
the principal amount could have been settled in cash and/or shares of our common stock upon conversion. Therefore, only the
shares of our common stock potentially issuable with respect to the excess of the notes’ conversion value over their principal
amount, if any, are considered as dilutive potential common shares for purposes of calculating diluted EPS. For the year ended
December 31, 2012, the conversion value of our convertible notes due in 2013 exceeded the related principal amount resulting in
the assumed issuance of an additional one million shares calculated on a weighted-average basis for purposes of computing diluted