INCOME TAXES

12 Months Ended

Dec. 31, 2011

Income Tax Disclosure [Abstract]

Income Taxes [Text Block]

Note 8. INCOME TAXES

The provision/(benefit) for income taxes attributable to continuing operations consisted of:

Dollars in Millions			Year Ended December 31,
Current:			2011		2010		2009
	U.S.		$	864	$	797	$	410
	Non-U.S.			442		339		646
		Total Current		1,306		1,136		1,056
Deferred:
	U.S.			406		438		222
	Non-U.S			9		(16)		(96)
		Total Deferred		415		422		126
Total Provision			$	1,721	$	1,558	$	1,182

Effective Tax Rate

The reconciliation of the effective tax rate to the U.S. statutory Federal income tax rate was:

		% of Earnings Before Income Taxes
Dollars in Millions		2011			2010			2009
Earnings from continuing operations before income taxes:
	U.S.	$	4,336		$	3,833		$	2,705
	Non-U.S.		2,645			2,238			2,897
	Total	$	6,981		$	6,071		$	5,602
U.S. statutory rate			2,443	35.0%		2,125	35.0%		1,961	35.0%
Non-tax deductible annual pharmaceutical company fee			80	1.2%		-	-		-	-
Tax effect of foreign subsidiaries' earnings previously
	considered indefinitely reinvested offshore		-	-		207	3.4%		-	-
Foreign tax effect of certain operations in Ireland, Puerto
	Rico and Switzerland		(593)	(8.5)%		(694)	(11.4)%		(598)	(10.7)%
State and local taxes (net of valuation allowance)			33	0.5%		43	0.7%		14	0.3%
U.S. Federal, state and foreign contingent tax matters			(161)	(2.3)%		(131)	(2.1)%		(64)	(1.1)%
U.S. Federal research and development tax credit			(69)	(1.0)%		(61)	(1.0)%		(81)	(1.4)%
Foreign and other			(12)	(0.2)%		69	1.1%		(50)	(1.0)%
		$	1,721	24.7%	$	1,558	25.7%	$	1,182	21.1%

The decrease in the 2011 effective tax rate from 2010 was due to:

• A $207 million charge recognized in the fourth quarter of 2010, which resulted primarily from additional U.S. taxable income from earnings of foreign subsidiaries previously considered to be indefinitely reinvested offshore;
• Changes in prior period estimates upon finalizing U.S. tax returns resulting in a $54 million benefit in 2011 and a $30 million charge in 2010; and
• Higher tax benefits from contingent tax matters primarily related to the effective settlements and remeasurements of uncertain tax positions ($161 million in 2011 and $131 million in 2010).

  Partially offset by:

• An unfavorable earnings mix between high and low tax jurisdictions compared to the prior year;
• The non-tax deductible annual pharmaceutical company fee effective January 1, 2011 (tax impact of $80 million); and
• 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 (not material to any prior periods).

The increase in the 2010 effective tax rate from 2009 was due to:

• A $207 million charge recognized in the fourth quarter of 2010 discussed above;
• Changes in prior period estimates upon finalizing the 2009 U.S. tax return resulting in a $30 million charge in 2010 and a $67 million benefit in 2009 upon finalizing the 2008 U.S. tax return; and
• An unfavorable earnings mix between high and low tax jurisdictions compared to the prior year.

Partially offset by:

• Higher tax benefits from contingent tax matters primarilyrelated to the effective settlements and remeasurements of uncertain tax positions ($131 million in 2010 and $64 million in 2009); and
• An out-of-period tax adjustment of $59 million in 2010 discussed above.

Deferred Taxes and Valuation Allowance

The components of current and non-current deferred income tax assets/(liabilities) were as follows:

	December 31,
Dollars in Millions	2011		2010
Deferred tax assets
Foreign net operating loss carryforwards	$	3,674	$	1,600
Milestone payments and license fees		574		557
Deferred income		573		554
U.S. Federal net operating loss carryforwards		251		351
Pension and postretirement benefits		755		348
State net operating loss and credit carryforwards		344		337
Intercompany profit and other inventory items		331		311
U.S. Federal research and development tax credit carryforwards		109		243
Other foreign deferred tax assets		112		167
Share-based compensation		111		131
Legal settlements		46		20
Other		233		299
Total deferred tax assets		7,113		4,918
Valuation allowance		(3,920)		(1,863)
Net deferred tax assets		3,193		3,055
Deferred tax liabilities
Depreciation		(118)		(52)
Repatriation of foreign earnings		(31)		(21)
Acquired intangible assets		(593)		(525)
Other		(676)		(630)
Total deferred tax liabilities		(1,418)		(1,228)
Deferred tax assets, net	$	1,775	$	1,827
Recognized as:
Deferred income taxes – current	$	1,200	$	1,036
Deferred income taxes – non-current		688		850
U.S. and foreign income taxes payable – current		(6)		(5)
Other liabilities – non-current		(107)		(54)
Total	$	1,775	$	1,827

The U.S. Federal net operating loss carryforwards were $717 million at December 31, 2011. Thesecarryforwards were acquired as a result of certain acquisitions and are subject to limitations under Section 382 of the Internal Revenue Code. The net operating loss carryforwards expire in varying amounts beginning in 2022. The research and development tax credit carryforwards expire in varying amounts beginning in 2018. The realization of the research and development tax credit carryforwards is dependent on generating sufficient domestic-sourced taxable income prior to their expiration. Although realization is not assured, management believes it is more likely than not that these deferred tax assets will be realized.

At December 31, 2011, a valuation allowance of $3,920 million was established for the following items: $3,574 million for foreign net operating loss and tax credit carryforwards, $332 million for state deferred tax assets including net operating loss and tax credit carryforwards, and $14 million for U.S. Federal net operating loss carryforwards. Foreign holding companies net operating losses and their corresponding valuation allowances included an increase of $2,027 millionas a result of statutory impairment charges that are not required inconsolidated net earnings. These foreign holding companies had a higher asset basis for statutory purposes than the basis used in the consolidated financial statementsdue to an internal reorganization of certain legal entities in prior periods. Changes in the valuation allowance were as follows:

	Year Ended December 31,
Dollars in Millions	2011		2010		2009
Balance at beginning of year	$	1,863	$	1,791	$	1,795
Provision		2,410		92		17
Utilization		(135)		(22)		(74)
Foreign currency translation		(222)		(6)		(8)
Other		4		8		61
Balance at end of year	$	3,920	$	1,863	$	1,791

Income tax payments were $597 million in 2011, $672 million in 2010 and $885 million in 2009. The current tax benefit realized as a result of stock related compensation credited to capital in excess of par value of stock was $47 million in 2011, $8 million in 2010 and $5 million in 2009.

At December 31, 2011, U.S. taxes have not been provided on approximately $18.5 billion of undistributed earnings of foreign subsidiaries as these undistributed earnings are indefinitely invested 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. Due to complexities in the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that would have to be provided. BMS has favorable tax rates in Ireland and Puerto Rico under grants not scheduled to expire prior to 2023.

During 2010, BMS completed an internal reorganization of certain legal entities resulting in a $207 million charge. It is possible that U.S. tax authorities could assert additional material tax liabilities arising from the reorganization. If any such assertion were to occur, BMS would vigorously challenge any such assertion and believes it would prevail; however, there can be no assurance of such a result.

Business is conducted in various countries throughout the world and is subject to tax in numerous jurisdictions. As a result, a significant number of tax returns are filed and subject to examination by various Federal, state and local tax authorities. Tax examinations are often complex, as tax authorities may disagree with the treatment of items reported and may require several years to resolve. Liabilities are established for possible assessments by tax authorities resulting from known tax exposures including, but not limited to, transfer pricing matters, tax credits and deductibility of certain expenses. Such liabilities represent a reasonable provision for taxes ultimately expected to be paid and may need to be adjusted over time as more information becomes known. The effect of changes in estimates related to contingent tax liabilities is included in the effective tax rate reconciliation above.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

	Year Ended December 31,
Dollars in Millions	2011		2010		2009
Balance at beginning of year	$	845	$	968	$	791
Gross additions to tax positions related to current year		44		57		335
Gross reductions to tax positions related to current year		-		-		(11)
Gross additions to tax positions related to prior years		106		177		97
Gross reductions to tax positions related to prior years		(325)		(196)		(180)
Settlements		(30)		(153)		(37)
Reductions to tax positions related to lapse of statute		(7)		(7)		(29)
Cumulative translation adjustment		(5)		(1)		2
Balance at end of year	$	628	$	845	$	968

Uncertain tax benefits reduce deferred tax assets to the extent the uncertainty directly related to that asset; otherwise, they are recognized as either current or non-current U.S. and foreign income taxes payable. The unrecognized tax benefits that, if recognized, would impact the effective tax rate were $570 million, $818 million and $964 million at December 31, 2011, 2010, and 2009, respectively.

Gross additions to tax positions for the year ended December 31, 2009 include $287 million in tax reserves related to both the transfer of various international units to Mead Johnson prior to its IPO and the split-off transaction which is recognized in discontinued operations. Gross reductions to tax positions for the year ended December 31, 2009 include $10 million in liabilities related to Mead Johnson.

Accrued interest and penalties payable for unrecognized tax benefits are included in either current or non-current U.S. and foreign income taxes payable. Accrued interest related to unrecognized tax benefits were $51 million, $51 million, and $39 million at December 31, 2011, 2010, and 2009, respectively. Accrued penalties related to unrecognized tax benefits were $25 million, $23 million, and $19 million at December 31, 2011, 2010, and 2009, respectively.

Interest and penalties related to unrecognized tax benefits are included in income tax expense. Interest on unrecognized tax benefits was an expense of $10 million in 2011 and $12 million in 2010 and a benefit of $25 million in 2009. Penalties on unrecognized tax benefits was an expense of $7 million in 2011and $4 million in 2010 and a benefit of $1 million in 2009.

BMS is currently under examination by a number of tax authorities, including all of the major tax jurisdictions listed in the table below, which have proposed adjustments to tax for 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 December 31, 2011 will decrease in the range of approximately $70 million to $100 million in the next twelve months as a result of the settlement of certain tax audits and other events. The expected change in unrecognized tax benefits, primarily settlement related, will involve the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. BMS also anticipates that it is reasonably possible that new issues will be raised by tax authorities which may require increases to the balance of unrecognized tax benefits; however, an estimate of such increases cannot reasonably be made at this time. BMS believes that it has adequately provided for all open tax years by tax jurisdiction.

The following is a summary of major tax jurisdictions for which tax authorities may assert additional taxes based upon tax years currently under audit and subsequent years that will likely be audited:

U.S.	2008 to 2011
Canada	2003 to 2011
France	2008 to 2011
Germany	2007 to 2011
Italy	2002 to 2011
Mexico	2003 to 2011