Amgen 2013 Annual Report Download - page 59

in 2013 would have had an impact of approximately $180 million, or approximately 1% of our 2013 product sales and a corresponding impact on our
financial condition and liquidity.
Wholesaler chargebacks relate to our contractual agreements to sell products to healthcare providers in the United States at fixed prices that are lower
than the prices we charge wholesalers. When healthcare providers purchase our products through wholesalers at these reduced prices, wholesalers charge us
for the difference between their purchase price and the contractual price between Amgen and the healthcare providers. The provision for chargebacks is based
on the expected sales by our wholesaler customers to healthcare providers. Accruals for wholesaler chargebacks are less difficult to estimate than rebates and
closely approximate actual results since chargeback amounts are fixed at the date of purchase by the healthcare providers, and we generally settle the liability
for these deductions within a few weeks.
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. In each of the last three years,
sales return provisions have amounted to less than 1% 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.
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