INCOME TAXES



	Three months ended June 30,					Six months ended June 30,
Dollars in Millions	2013		2012			2013			2012
Earnings Before Income Taxes	$	530	$	1,059		$	1,204		$	3,086
Provision for income taxes	—		251			51			796
Effective tax rate	—		23.7		%	4.2		%	25.8		%

Changes in the effective tax rates resulted primarily from discrete tax benefits attributable to restructuring, impairment, pension settlement and other charges; favorable earnings mix between high and low tax jurisdictions attributable to lower Plavix* sales, and to a lesser extent, an internal transfer of intellectual property in the fourth quarter of 2012. The retroactive reinstatement of the R&D tax credit and look thru exception for the full year 2012 of $43 million was recognized in the first quarter of 2013.

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 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 June 30, 2013 could decrease in the range of approximately $355 million to $385 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.