Amgen 2012 Annual Report Download - page 81

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Product returns
Returns are estimated through comparison of historical return data to their related sales on a production lot basis. Historical
rates of return are determined for each product and are adjusted for known or expected changes in the marketplace specific to each
product, when appropriate. Historically, sales return provisions have amounted to less than 1.5% of gross product sales. Changes
in estimates for prior year sales return provisions have historically been insignificant.
Income taxes
The Company provides for income taxes based on pretax income, applicable tax rates and tax planning opportunities available
in the various jurisdictions in which it operates.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in
the financial statements on a particular tax position are measured based on the largest benefit that is more likely than not to be
realized. The amount of UTBs is adjusted as appropriate for changes in facts and circumstances, such as significant amendments
to existing tax law, new regulations or interpretations by the taxing authorities, new information obtained during a tax examination,
or resolution of an examination. We believe our estimates for uncertain tax positions are appropriate and sufficient for any
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 financial statements
and cause temporary differences between the tax basis of assets and liabilities and their reported amount. Such temporary 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) tax expenses recognized in the financial statements
for which payment has been deferred; (ii) expenses for which the Company has already taken a deduction on the tax return, but
has not yet recognized the expense in the financial statements; or (iii) liabilities for the difference between the book basis and tax
basis of the intangible assets acquired in many business combinations, as future expenses associated with these assets most often
will not be tax deductible.
The Company is a vertically integrated enterprise with operations in the U.S. and various foreign jurisdictions. The Company
is subject to income tax in the foreign jurisdictions where it conducts activities based on the tax laws and principles of such
jurisdictions and the functions, risks and activities performed therein. The Company’s pretax income is therefore attributed to
domestic or foreign sources based on the operations performed in each location and the tax laws and principles of the respective
taxing jurisdictions. For example, the Company conducts significant operations outside the United States in Puerto Rico pertaining
to manufacturing, distribution and other related functions to meet its worldwide product demand. Income from the Company’s
operations in Puerto Rico is subject to a tax incentive grant that expires in 2020.
Our effective tax rate reflects the impact of undistributed foreign earnings for which no U.S. income taxes or foreign
withholding taxes have been provided because such earnings are intended to be invested indefinitely outside the United States.
Substantially all of this benefit is attributable to the Company’ s foreign income associated with the Company’s operations conducted
in Puerto Rico.
If future events, including material changes in 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 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
Company's results of operations. See Item 1A. Risk Factors — The adoption of new tax legislation or exposure to additional tax
liabilities could affect our profitability.
Contingencies
In the ordinary course of business, we are involved in various legal proceedings and other matters such as intellectual property
disputes, contractual disputes, governmental investigations and class action suits which are complex in nature and have outcomes
that are difficult to predict. Certain of these proceedings are discussed in Note 18, Contingencies and commitments, to the
Consolidated Financial Statements. We record accruals for loss contingencies to the extent that we conclude that it is probable