INCOME TAXES



	Three Months Ended September 30,						Nine Months Ended September 30,
Dollars in Millions	2014			2013			2014			2013
Earnings Before Income Taxes	$	1,008		$	818		$	2,441		$	2,022
Provision for Income Taxes	276			126			439			177
Effective tax rate	27.4		%	15.4		%	18.0		%	8.8		%

Changes in the effective tax rates between the current and prior period primarily resulted from the following items:


•	Unfavorable earnings mix between high and low tax jurisdictions in 2014;


•	The first quarter of 2013 includes the retroactive reinstatement of the research and development tax credit and look through exception for the full year 2012 ($43 million). The applicable tax legislation for these items was not extended as of September 30, 2014, therefore the research and development tax credit was not considered in the 2014 effective tax rate;

•

All periods were impacted by other discrete tax benefits attributable to various charges as well as the quarterly tax impacts resulting from the sale of the diabetes business and the acquisition of iPierian in 2014. Minimal tax benefits were attributed to the sale of the diabetes business during the nine months ended September 30, 2014 resulting primarily from the capital loss deduction on the sale of the Amylin shares. No tax benefits were attributable to the research and development charge resulting from the acquisition of iPierian.

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. These undistributed earnings primarily relate to operations in Ireland and Puerto Rico, which operate under favorable tax grants not scheduled to expire prior to 2023. If these undistributed earnings are repatriated to the U.S. in the future, or if it were determined that such earnings are 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.

BMS is currently being audited by a number of tax authorities and significant disputes may arise related to issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. BMS estimates that it is reasonably possible that the total amount of unrecognized tax benefits at September 30, 2014 could decrease in the range of approximately $320 million to $380 million in the next twelve months as a result of 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. BMS believes that it has adequately provided for all open tax years by tax jurisdiction.

Effective January 2014, the Company adopted an update from the FASB that clarified existing guidance on the presentation of unrecognized tax benefits when various qualifying tax benefit carryforwards exist, including when the unrecognized tax benefit should be presented as a reduction to deferred tax assets or as a liability. As a result, non-current deferred tax assets and income tax liabilities were reduced by $236 million.