INCOME TAXES

6 Months Ended

Jun. 30, 2011

INCOME TAXES

INCOME TAXES

16.  INCOME TAXES

For the three months ended June 30, 2011, we recognized $83.1 million of income tax expense on income before income taxes of $198.3 million, resulting in an overall effective tax rate of 41.9 percent.  For the three months ended June 30, 2010, we recognized $63.3 million of income tax expense on income before income taxes of $155.6 million, resulting in an overall effective tax rate of 40.6 percent. For the three months ended June 30, 2011, the effective tax rate of 41.9 percent included the impact of a pre-tax charge of $22.1 million related to the change in fair value of a free-standing derivative instrument for which no tax benefit was recorded.

For the six months ended June 30, 2011, we recognized $185.8 million of income tax expense on income before income taxes of $512.6 million, resulting in an overall effective tax rate of 36.2 percent.  For the six months ended June 30, 2010, we recognized $111.6 million of income tax expense on income before income taxes of $304.3 million, resulting in an overall effective tax rate of 36.7 percent.  During the first and second quarter of 2011, respectively, we recognized $22.1 million and $4.1 million of deferred tax assets related to 2010 acquisitions of non-controlling interest.

The Internal Revenue Service (“IRS”) concluded their examination of Cephalon, Inc.’s 2006 and 2007 U.S. federal income tax returns during 2010.  IRS examinations of the 2008 and 2009 tax years began in July 2011. We remain open for examination by the IRS for 2010.  In other significant foreign jurisdictions, the tax years that remains open for potential examination range from 2001 to 2010.  We do not believe at this time that the results of these examinations will have a material impact on our financial statements.

In the regular course of business, various state and local tax authorities also conduct examinations of our state and local income tax returns.  Depending on the state, state income tax returns are generally subject to examination for a period of three to five years after filing.  The state impact of any federal changes that resulted from the 2006 and 2007 IRS examination remain subject to examination by various states for a period of up to one year after formal notification to the states. We currently have several state income tax returns in the process of examination.

In 2010, we received $16.0 million in federal tax refunds of previously paid federal taxes.  This refund was due to the carryback of unused federal tax credits from the tax year ending December 31, 2008.