INCOME TAXES

6 Months Ended

Jun. 30, 2011

Income Tax Disclosure [Abstract]

Income Taxes [Text Block]

Note 6. INCOME TAXES

The effective income tax rate on earnings was 27.0% for the three months endedJune 30, 2011 compared to 20.4% for the three months ended June 30, 2010 and 24.8% for the six months ended June 30, 2011 compared to 22.2% for the six months ended June 30, 2010. The effective tax rate is lower than the U.S. statutory rate of 35% primarily attributable to undistributed earnings of certain foreign subsidiaries that have been considered or are expected to be indefinitely reinvested offshore.If, in the future, these earnings are repatriated to the U.S., or if such earnings are determined to be remitted in the foreseeable future, additional tax provisions would be required. Reforms to U.S. tax laws related to foreign earnings have been proposed that if adopted may increase taxes and reduce the results of operations and cash flows.

The higher effective income tax rate in the three months ended June 30, 2011 was due to:

• A favorable impact on the prior year rate attributable to a $66 million tax benefit for the re-measurement of a U.S. contingent tax matter related to 2004;
• A favorable impact on the prior year rate attributable to an out-of-period tax adjustment of $59 million related to previously unrecognized net deferred tax assets primarily attributed to deferred profits related to certain alliances as of December 31, 2009, which was partially offset by a reversal of a $17 million understatement of tax expense in the first quarter of 2010;
• An unfavorable earnings mix between high and low tax jurisdictions compared to the prior year; and
• The non-tax deductible annual pharmaceutical company fee effective January 1, 2011.

  Partially offset by:

• The favorable impact on the current year rate from the research and development tax credit and the controlled foreign corporation look through benefit, which were not extended as of June 30, 2010 and
• A favorable impact on the current year rate attributable to a $15 million tax benefit from the effective settlement of certain foreign tax matters.

The higher effective income tax rate in the six months ended June 30, 2011 was due to the factors discussed above partially offset by favorable discrete tax adjustments of $100 million as a result of the effective settlement of uncertain tax positions related to the 2005 tax audit in the first quarter of 2011.

The Company is currently under examination by a number of tax authorities which have proposed adjustments to tax for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. It is reasonably possible that the total amount of unrecognized tax benefits at June 30, 2011could decrease in the range of approximately $210 million to $240 million in the next twelve months from the settlement of certain tax audits and other events resulting in the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also reasonably possible that new issues will be raised by tax authorities which may require adjustments to the amount of unrecognized tax benefits; however, an estimate of such adjustments cannot reasonably be made at this time. The Company believes that it has adequately provided for all open tax years by tax jurisdiction.