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Income Taxes | 12 Months Ended
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Dec. 31, 2015
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income Tax Expense Income before income tax provision and the income tax expense consist of the following:
| For the Years Ended December 31,
(In millions) | 2015 |  | 2014 |  | 2013
Income before income taxes (benefit): |  |  |  |  |
Domestic | $ | 3,386.7 |  |  | $ | 2,557.4 |  |  | $ | 1,953.0 |
Foreign | 1,380.6 |  |  | 1,389.2 |  |  | 527.6 |
Total | $ | 4,767.3 |  |  | $ | 3,946.6 |  |  | $ | 2,480.6 |
Income tax expense (benefit): |  |  |  |  |
Current: |  |  |  |  |
Federal | $ | 1,214.1 |  |  | $ | 1,159.5 |  |  | $ | 700.9 |
State | 38.6 |  |  | 65.2 |  |  | 98.4 |
Foreign | 54.5 |  |  | 73.4 |  |  | 46.8 |
Total | 1,307.2 |  |  | 1,298.1 |  |  | 846.1 |
Deferred: |  |  |  |  |
Federal | $ | (129.6 | ) |  | $ | (280.9 | ) |  | $ | (200.6 | )
State | (1.9 | ) |  | (21.0 | ) |  | (35.9 | )
Foreign | (14.1 | ) |  | (6.3 | ) |  | (8.6 | )
Total | (145.6 | ) |  | (308.2 | ) |  | (245.1 | )
Total income tax expense | $ | 1,161.6 |  |  | $ | 989.9 |  |  | $ | 601.0 |
Deferred Tax Assets and Liabilities Significant components of our deferred tax assets and liabilities are summarized as follows:
| As of December 31,
(In millions) | 2015 |  | 2014
Deferred tax assets: |  |  |
Tax credits | $ | 189.3 |  |  | $ | 69.0 |
Inventory, other reserves, and accruals | 243.9 |  |  | 217.3 |
Intangibles, net | 328.3 |  |  | 251.7 |
Net operating loss | 24.7 |  |  | 20.6 |
Share-based compensation | 63.8 |  |  | 86.0 |
Other | 35.8 |  |  | 60.0 |
Valuation allowance | (14.1 | ) |  | (11.5 | )
Total deferred tax assets | $ | 871.7 |  |  | $ | 693.1 |
Deferred tax liabilities: |  |  |
Purchased intangible assets | $ | (440.1 | ) |  | $ | (432.8 | )
Depreciation, amortization and other | (102.7 | ) |  | (107.0 | )
Total deferred tax liabilities | $ | (542.8 | ) |  | $ | (539.8 | )
In accordance with ASU No. 2015-17, at December 31, 2015 we reclassified $137.1 million of our deferred tax assets classified as current to noncurrent and $1.6 million of our deferred tax liabilities classified as current to noncurrent in our December 31, 2014 consolidated balance sheet, to conform our prior year presentation to our current year presentation. In addition to deferred tax assets and liabilities, we have recorded prepaid tax and deferred charges related to intercompany transactions. As of December 31, 2015 and 2014, the total deferred charges and prepaid taxes were $697.9 million and $238.9 million, respectively. During 2013, we recorded a deferred charge of $203.7 million in connection with an intercompany transfer of the intellectual property for ZINBRYTA. The net book value of this deferred charge as of December 31, 2015 and 2014 was $166.3 million and $179.9 million, respectively. The deferred charge will be amortized to income tax expense over the economic life of the ZINBRYTA program. Our regulatory submissions in Europe and the U.S. have been accepted for review by the relevant authorities. If the ZINBRYTA applications are not approved, we may have to accelerate the amortization of this deferred charge and record an expense equal to its remaining net book value. Tax Rate A reconciliation between the U.S. federal statutory tax rate and our effective tax rate is summarized as follows:
| For the Years Ended December 31,
| 2015 |  | 2014 |  | 2013
Statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State taxes | 0.5 |  |  | 1.2 |  |  | 3.1 |
Taxes on foreign earnings | (10.0 | ) |  | (9.5 | ) |  | (6.7 | )
Credits and net operating loss utilization | (1.3 | ) |  | (1.1 | ) |  | (2.6 | )
Purchased intangible assets | 1.0 |  |  | 1.2 |  |  | 1.5 |
Manufacturing deduction | (1.8 | ) |  | (1.8 | ) |  | (6.6 | )
Other permanent items | 0.7 |  |  | 0.5 |  |  | 0.8 |
Contingent consideration and other | 0.3 |  |  | (0.4 | ) |  | (0.3 | )
Effective tax rate | 24.4 | % |  | 25.1 | % |  | 24.2 | %
Our effective tax rate for 2015 compared to 2014 benefited from lower anticipated taxes on foreign earnings and reflects a $27.0 million benefit from the 2015 remeasurement of one of our uncertain tax positions, described below under "Accounting for Uncertainty in Income Taxes". Our effective tax rate for 2014 compared to 2013 increased primarily as a result of the absence of a benefit related to the 2013 change in our uncertain tax position related to our U.S. federal manufacturing deduction and our unconsolidated joint business described below under "Accounting for Uncertainty in Income Taxes", lower current year expenses eligible for the orphan drug credit and a lower relative manufacturing deduction due to unqualified products, partially offset by a higher percentage of our 2014 income being earned outside the U.S. As of December 31, 2015, we had net operating losses and general business credit carry forwards for federal income tax purposes of approximately $25.3 million and $127.6 million, respectively, which begin to expire in 2020. Additionally, for state income tax purposes, we had net operating loss carry forwards of approximately $91.7 million, which begin to expire in 2016. For state income tax purposes, we also had research and investment credit carry forwards of approximately $125.5 million, which begin to expire in 2016. For foreign income tax purposes, we had $53.4 million of net operating loss carryforwards, which begin to expire in 2021. In assessing the realizability of our deferred tax assets, we have considered whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. In making this determination, under the applicable financial reporting standards, we are allowed to consider the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies. Our estimates of future taxable income take into consideration, among other items, our estimates of future income tax deductions related to the exercise of stock options. Based upon the level of historical taxable income and income tax liability and projections for future taxable income over the periods in which the deferred tax assets are utilizable, we believe it is more likely than not that we will realize the benefits of the deferred tax assets of our wholly owned subsidiaries. In the event that actual results differ from our estimates or we adjust our estimates in future periods, we may need to establish a valuation allowance, which could materially impact our financial position and results of operations. As of December 31, 2015, undistributed foreign earnings of non-U.S. subsidiaries included in consolidated retained earnings and other basis differences aggregated approximately $6.0 billion. We intend to reinvest these earnings indefinitely in operations outside the U.S. The residual U.S. tax liability, if cumulative amounts were repatriated, would be between $1.5 billion to $2.0 billion as of December 31, 2015. Accounting for Uncertainty in Income Taxes A reconciliation of the beginning and ending amount of our unrecognized tax benefits is summarized as follows:
(In millions) | 2015 |  | 2014 |  | 2013
Balance at January 1, | $ | 131.5 |  |  | $ | 110.1 |  |  | $ | 125.9 |
Additions based on tax positions related to the current period | 10.5 |  |  | 20.8 |  |  | 11.9 |
Additions for tax positions of prior periods | 19.5 |  |  | 86.1 |  |  | 71.7 |
Reductions for tax positions of prior periods | (49.9 | ) |  | (23.4 | ) |  | (92.1 | )
Statute expirations | (1.2 | ) |  | (1.6 | ) |  | (1.9 | )
Settlements | (42.5 | ) |  | (60.5 | ) |  | (5.4 | )
Balance at December 31, | $ | 67.9 |  |  | $ | 131.5 |  |  | $ | 110.1 |
We and our subsidiaries are routinely examined by various taxing authorities. We file income tax returns in the U.S. federal jurisdiction, various U.S. states, and foreign jurisdictions. With few exceptions, including the proposed disallowance we discuss below, we are no longer subject to U.S. federal tax examination for years before 2013 or state, local, or non-U.S. income tax examinations for years before 2004. Included in the balance of unrecognized tax benefits as of December 31, 2015, 2014 and 2013 are $15.7 million, $53.6 million and $32.5 million (net of the federal benefit on state issues), respectively, of unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future periods. We recognize potential interest and penalties accrued related to unrecognized tax benefits in income tax expense. In 2015, we recognized a net interest expense of $3.1 million. During 2014, we recognized net interest expense of $4.1 million. In 2013, we recognized a net interest expense of approximately $4.5 million. We have accrued approximately $12.5 million and $17.6 million for the payment of interest as of December 31, 2015 and 2014, respectively. In March 2015, we received a final assessment from the Danish Tax Authority (SKAT) for fiscal 2009, regarding withholding taxes and the treatment of certain intercompany transactions involving our Danish affiliate and another of our affiliates. The audits of our tax filings for 2010 through 2013 are not completed but have been prepared in a manner consistent with prior filings, with similar transactions. In December 2015, we received draft assessments for these periods. The total amount assessed for all periods is $60.9 million, including interest. For all periods potentially under dispute, we believe that positions taken in our tax filings are valid and we are contesting the assessment vigorously. Federal Uncertain Tax Positions During 2013, we received updated technical guidance from the IRS concerning our current and prior year filings and calculation of our U.S. federal manufacturing deduction and overall tax classification of our unconsolidated joint business. Based on this guidance we reevaluated the level of our unrecognized benefits related to uncertain tax positions, and recorded a $49.8 million income tax benefit. This benefit is for a previously unrecognized position and relates to years 2005 through 2012. We recorded an offsetting expense of $11.3 million for non-income based state taxes, which is recorded in other income (expense) in our consolidated statements of income. In October 2011, in conjunction with our examination, the IRS proposed a disallowance of approximately $130 million in deductions for tax years 2007, 2008 and 2009 related to payments for services provided by our wholly owned Danish subsidiary located in Hillerød, Denmark. We believe that these items represent valid deductible business expenses and are vigorously defending our position. We have initiated a mutual agreement procedure between the IRS and SKAT for the years 2001 through 2009, in an attempt to reach agreement on the issue. In addition, we have applied for a bilateral advanced pricing agreement for the years 2010 through 2014 to resolve similar issues for the subsequent years. During the year ended December 31, 2015, the net effect of adjustments to our uncertain tax positions was a net benefit of approximately $25.0 million. It is reasonably possible that we will adjust the value of our uncertain tax positions related to our unconsolidated joint business and certain transfer pricing issues as we receive additional information from various taxing authorities, including reaching settlements with the authorities. In addition, the IRS and other national tax authorities routinely examine our intercompany transfer pricing with respect to intellectual property related transactions and it is possible that they may disagree with one or more positions we have taken with respect to such valuations.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 + Details
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