INCOME TAXES

9 Months Ended

Sep. 30, 2011

Income Tax Disclosure [Abstract]

Income Taxes [Text Block]

Note 7. INCOME TAXES

The effective income tax rate on earnings was 26.0% for the three months endedSeptember 30, 2011 compared to 19.3% for the three months ended September 30, 2010 and 25.2% for the nine months ended September 30, 2011 compared to 21.2% for the nine months ended September 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 and if adopted may increase taxes, which could reduce the results of operations and cash flows.

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

• An unfavorable earnings mix between high and low tax jurisdictions compared to the prior year;
• Lower tax benefits related to the effective settlements and remeasurements of uncertain tax positions ($5 million in 2011 and $85 million in 2010); and
• The non-tax deductible annual pharmaceutical company fee effective January 1, 2011.

  Partially offset by:

• Changes in estimates upon finalizing prior period U.S. tax returns resulting in a $54 million benefit in 2011 and a $30 million charge in 2010; and
• A favorable impact on the current year rate from the research and development tax credit which was not enacted as of September 30, 2010.

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

• An unfavorable earnings mix between high and low tax jurisdictions compared to the prior year;
• An out-of-period tax adjustment of $59 million in 2010 for previously unrecognized net deferred tax assets primarily attributed to deferred profits related to certain alliances as of December 31, 2009;
• Lower tax benefits related to the effective settlements and remeasurements of uncertain tax positions ($121 million in 2011 and $151 million in 2010); and
• The non-tax deductible annual pharmaceutical company fee effective January 1, 2011.

  Partially offset by:

• Changes in estimates upon finalizing prior period U.S. tax returns resulting in a $54 million benefit in 2011 and a $30 million charge in 2010; and
• A favorable impact on the current year rate from the research and development tax credit which was not enacted as of September 30, 2010.

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 September 30, 2011could decrease in the range of approximately $190 million to $220 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.