UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

QUARTERLY REPORT(Mark One)

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SeptemberSEPTEMBER 30, 20042005

FOR THE TRANSITION PERIOD FROMTO

Commission File NumberCOMMISSION FILE NUMBER: 1-1136

BRISTOL-MYERS SQUIBB COMPANY

(Exact name of registrant as specified in its charter)EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

345 Park Avenue, New York, N.Y. 10154

(Address of principal executive offices)(Zip Code)

Telephone: (212) 546-4000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to suchthe filing requirements for at least the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes  x    No  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d)of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

¨  Yes    ¨  No

APPLICABLE ONLY TO CORPORATE ISSUERS:

At September 30, 2004,2005, there were 1,945,607,4941,956,520,637 shares outstanding of the Registrant’s $.10 par value Common Stock.

BRISTOL-MYERS SQUIBB COMPANY

INDEX TO FORM 10-Q

SeptemberSEPTEMBER 30, 20042005

PART I—FINANCIAL INFORMATION

BRISTOL-MYERS SQUIBB COMPANY

Item 1. FINANCIAL STATEMENTS

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENT OF EARNINGS

(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENT OF

COMPREHENSIVE INCOME AND RETAINED EARNINGS

(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENT OF CASH FLOWS

(UNAUDITED)

The accompanying notes are an integral part of these financial statements.

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation and New Accounting Standards

Bristol-Myers Squibb Company (the Company) prepared these unaudited consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) and U.S. generally accepted accounting principles (GAAP) for interim reporting. Under those rules, certain notesfootnotes and other financial information that are normally required by GAAP for annual financial statements can be condensed or omitted. The Company is responsible for the consolidated financial statements included in this Form 10-Q. These consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the Company’s financial position at September 30, 20042005 and December 31, 2003,2004, the results of its operations for the three and nine months ended September 30, 20042005 and 20032004 and cash flows for the nine months ended September 30, 20042005 and 2003.2004. These consolidated financial statements and the related notes should be read in conjunction with the consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K/A10-K for the year ended December 31, 2003 (20032004 (2004 Form 10-K/A)10-K). PricewaterhouseCoopers LLP (PwC), an independent registered public accounting firm, has performed a review of the unaudited consolidated financial statements included in this Form 10-Q, and their review report thereon accompanies this Form 10-Q.

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited consolidated financial statements may not be the same as those for the full year.

The Company recognizes revenue when substantially all the risks and rewards of ownership have transferred to the customer, primarily at the time of shipment of products. In the case of certain sales made by the Nutritionals and OtherRelated Healthcare segments and certain non-U.S. businesses within the Pharmaceuticals segment, revenue is recognized on the date of receipt by the purchaser. Revenues are reduced at the time of sale to reflect expected returns that are estimated based on historical experience. Additionally, provisions are made at the time of sale for all discounts, rebates and estimated sales allowances based on historical experience updated for changes in facts and circumstances, as appropriate. Such provisions are recorded as a reduction of revenue.

In the case of sales made to wholesalers (i) as a result of incentives, (ii) in excess of the wholesaler’s ordinary course of business inventory level, (iii) at a time when there was an understanding, agreement, course of dealing or consistent business practice thataddition, the Company would extend incentives based on levels of excess inventoryincludes alliance revenue in connection with future purchases and (iv) at a time when such incentives would cover substantially all, and vary directly with, the wholesaler’s cost of carrying inventory in excess of the wholesaler’s ordinary course of business inventory level, substantially all the risks and rewards of ownership do not transfer upon shipment and, accordingly, such sales are accounted for using the consignment model. The determination of when, if at all, sales to a wholesaler meet the foregoing criteria involves evaluation of a variety of factors and a number of complex judgments. Under the consignment model, the Company does not recognize revenue upon shipment of product. Rather, upon shipment of product the Company invoices the wholesaler, records deferred revenue at gross invoice sales price and classifies the inventory held by the wholesaler as consignment inventory at the Company’s cost of such inventory.net sales. The Company recognizeshas agreements to promote pharmaceuticals discovered by other companies. Alliance revenue when the consignment inventory is no longer subject to the incentive arrangements described above, but not later than when such inventory is sold through to the wholesalers’ customers, onbased upon a first-in first-out (FIFO) basis. Salespercentage of the Company’s oncology products through the Oncology Therapeutics Network (OTN) business are also accounted for on a consignment basis. OTN uses a third-party distributor to ship these products to its customers. Upon shipment of the products to the distributor, the Company records deferred revenue at gross invoice sales price and classifies the inventory held by the distributor as consignment inventory at the Company’s cost of such inventory. The Company recognizes the revenue (net of the gross tocopromotion partners’ net sales adjustments discussed in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies,” all of which involve significant estimates and judgements)is earned when the consignment inventory is soldcopromotion partners ship the related product and title passes to OTN’s customers.their customer.

The Company’s estimatesCompany accounts for certain costs to obtain internal use software for significant systems projects in accordance with Statement of inventory atPosition (SOP) 98-1. These costs, including external direct costs, interest costs and internal payroll and related costs for employees who are directly associated with such projects are capitalized and amortized over the wholesalers and deferred revenue on consigned inventoryestimated useful life of the software, which ranges from three to ten years. Costs to obtain software for projects that are based on the projected prescription demand-based sales for its products,not significant are expensed as well as the Company’s analysis of third-party information, including information obtained from certain wholesalers with respect to their inventory levels and sell-through to customers and third-party market research data, and the Company’s internal information. The Company’s estimates are subject to inherent limitations of estimates that rely on third-party data, as certain third-party information was itself in the form of estimates, and reflect other limitations.

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. Basis of Presentation and New Accounting Standards (Continued)incurred.

The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The most significant assumptions are employed in estimates used in determining values of intangible assets, restructuring charges and accruals, sales rebate and return accruals, legal contingencies and tax assets and liabilities, as well as in estimates used in applying the revenue recognition policy and accounting for retirement and postretirement benefits (including the actuarial assumptions). Actual results could differ from the estimated results.

Certain prior period amounts have been reclassified to conform to the current periodyear presentation.

In June 2004,May 2005, the Financial Accounting Standards Board (FASB) issued a final Staff Position (FSP) No. 106-2,Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Medicare Act). The Medicare Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. FSP No. 106-2 requires that the effects of the new law be accounted for under Statement of Financial Accounting Standards (SFAS) No. 106,154,Employers’ Accounting Changes and Error Corrections, which replaces Accounting Principles Board (APB) Opinion No. 20,Accounting Changes and SFAS No. 3,Reporting Accounting Changes in Interim Financial Statements. This pronouncement applies to all voluntary changes in accounting principle, and revises the requirements for Postretirement Benefits Other Than Pensions.accounting for and reporting a change in accounting principle. SFAS No. 154 requires retrospective application to prior periods’ financial statements of a voluntary change in accounting principle, unless it is impracticable to do so. This pronouncement also requires that a change in the method of depreciation, amortization, or depletion for long-lived, non-financial assets be accounted for as a change in accounting estimate that is effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Statement does not change the transition provisions of any existing accounting pronouncements, including those that are in a transition phase as of the effective date of SFAS No. 154. The Company adopted FSP No. 106-2 inis evaluating the third quarterimpact this statement will have on its financial position and results of 2004, retroactive to January 1, 2004. There is an expected reduction in net periodic benefit cost for other benefits of $8 million for the full year of 2004, based on the remeasurement of the accumulated postretirement benefit obligation as of January 1, 2004. The effect of the adoption of FSP No. 106-2 is not material to the Company’s consolidated financial statements, and in accordance with FSP No. 106-2, the Company recorded the year-to-date portion of $6 million as a reduction of third quarter expense. (see “Item 1. Financial Statements—Note 14. Pension and Other Postretirement Benefit Plans”).operations.

In March 2004,2005, the Emerging Issues Task Force (EITF) reachedFASB issued FASB Interpretation No. 47,Accounting for Conditional Asset Retirement Obligations (FIN 47). FIN 47 clarifies that an entity must record a consensus on Issue No. 03-06,Participating Securities andliability for a conditional asset retirement obligation if the Two-Class Method Under FAS 128, which requires the usefair value of the two-classobligation can be reasonably estimated. Asset retirement obligations covered by FIN 47 are those for which an entity has a legal obligation to perform an asset retirement activity, even if the timing and method of computing earnings per share for those enterprises with participating securitiessettling the obligation are conditional on a future event that may or multiple classesmay not be within the control of common stock. The consensusthe entity. FIN 47 also clarifies when an entity would have sufficient information to reasonably estimate the fair value of an asset retirement obligation. FIN 47 is effective for fiscal periods beginning afterno later than the dateend of Board ratification on March 31, 2004. The adoption of EITF No. 03-06 did not affect the Company’s consolidated financial statements.

In December 2003, the SEC issued Staff Accounting Bulletin No. 104 (SAB 104),Revenue Recognition, which supersedes SAB 101,Revenue Recognition in Financial Statements. SAB 104’s primary purpose is to rescind accounting guidance contained in SAB 101 related to multiple element revenue arrangements, superseded as a result of the issuance of EITF 00-21,Accounting for Revenue Arrangements with Multiple Deliverables. Additionally, SAB 104 rescinds the SEC’sRevenue Recognition in Financial Statements Frequently Asked Questions and Answers (the FAQ) issued with SAB 101 that had been codified in SEC Topic 13,Revenue Recognition. While the wording of SAB 104 has changed to reflect the issuance of EITF 00-21, the revenue recognition principles of SAB 101 remain largely unchanged by the issuance of SAB 104. The initial adoption of this accounting pronouncement did not have a material effect on the Company’s consolidated financial statements.

In December 2003, the FASB amended SFAS No. 132,Employer’s Disclosures about Pensions and Other Post Retirement Benefits. The amended Statement revises employer’s disclosures about pension plans and other post-retirement benefit plans. It does not change the measurement or recognition of those plans required by FASB Statements No. 87,Employers’ Accounting for Pensions, No. 88,Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and No. 106,Employers’ Accounting for Postretirement Benefits Other Than Pensions. Revisions included in the amended Statement are effective for financial statements for the fiscal years endedending after December 15, 2003.2005. The Company has providedis evaluating the required disclosures (see “Item 1. Financial Statements—Note 14. Pensionimpact this statement will have on its financial position and Other Postretirement Benefit Plans” and “—Note 15. Legal Proceedings and Contingencies”).

In December 2003, the FASB revised Interpretation No. 46,Consolidationresult of Variable Interest Entities (FIN 46). FIN 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. FIN 46 also requires disclosures about variable interest entities that a company is not required to consolidate but in which it has a significant variable interest. The consolidation requirements of FIN 46 (as revised) apply immediately to variable interest entities created after January 31, 2003 and to existing entities in the first fiscal year or interim period ending after March 15, 2004. Certain of the disclosure requirements apply to all financial statements issued after January 31, 2003, regardless of when the variable interest entity was established. The initial adoption of this accounting pronouncement did not have a material effect on the consolidated financial statements.operations.

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note1.Note 1. Basis of Presentation and New Accounting Standards (Continued)

InvestmentsIn December 2004, the FASB issued FASB Staff Position (FSP) No. 109-1—Application of SFAS No. 109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004 (FSP No. 109-1). The FSP provides that theDeduction on Qualified Production Activities will be treated as a “special deduction” as described in securities, comprisedSFAS No. 109,Accounting for Income Taxes. Accordingly, the tax effect of marketable equity securities and securities and investments for which market values are not readily available, are included in other assets. Marketable equity securities are classified as available-for-sale andthis deduction will be reported at fair value. Fair value is based on quoted market prices as of the end of the reporting period. Securities and investments for which market values are not readily available are carried at cost. Unrealized gains and losses are reported, net of their related tax effects, as a component of accumulated other comprehensivethe Company’s tax provision and will not have an effect on deferred tax assets and liabilities. The Department of the Treasury recently issued Proposed Tax Regulations with respect to theDeduction on Qualified Production Activities. The Company is evaluating the impact of the Proposed Tax Regulations and the FSP on its income (loss) in stockholders’ equity until sold. At the timetax provision and results of sale, any gains or losses are calculated by the specific identification method and recognized in other income or expense, respectively. Losses are also recognized in other expense when a decline in market value is deemed to be other than temporary.operations.

In December 2004, the FASB issued SFAS No. 153,Exchanges of Nonmonetary Assets. The provisions of this Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The provisions of this Statement should be applied prospectively, and eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29,Accounting for Nonmonetary Transactions, and replaces it with an exception for exchanges that do not have commercial substance. The adoption of this accounting pronouncement is not expected to have a material effect on the Company’s financial position and results of operations.

In November 2004, the FASB issued SFAS No. 151,Inventory Costs – an Amendment of ARB No. 43, Chapter 4. The standard requires abnormal amounts of idle facility and related expenses to be recognized as current period charges and also requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company is evaluating the impact this statement will have on its financial position and results of operations.

In December 2004, the FASB issued revised SFAS No. 123R (SFAS No. 123R),Share-Based Payment. This standard eliminates the ability to account for share-based compensation transactions using the intrinsic value-based method under APB Opinion No. 25,Accounting for Stock Issued to Employees, and requires instead that such transactions be accounted for using a fair-value-based method. In April 2005, the SEC delayed the effective date of SFAS No. 123R to financial statements issued for the first annual period beginning after June 15, 2005. The Company plans to adopt and comply with the requirements of SFAS No. 123R when it becomes effective January 1, 2006, and is evaluating the potential impact of this statement, which could have a material impact on the Company’s results of operations. Currently, the Company discloses the pro forma net income and related pro forma income per share information in accordance with SFAS No. 123,Accounting for Stock-Based Compensation, and SFAS No. 148,Accounting for Stock-Based Compensation-TransitionCompensation Costs—Transition and Disclosure the. The following table summarizes the Company’s results on a pro forma basis as if it had recorded compensation expense based upon the fair value at the grant date for awards under these plans consistent with the methodology prescribed under SFAS No. 123,Accounting for Stock-Based Compensation,, for the three and nine months ended September 30, 20042005 and 2003:2004:

With respect to the accounting treatment of retirement eligibility provisions of employee stock-based compensation awards, the Company has historically followed the nominal vesting period approach. Upon the adoption of SFAS No. 123R, the Company will follow the non-substantive vesting period approach and recognize compensation cost immediately for awards granted to retirement eligible employees, or over the period from the grant date to the date retirement eligibility is achieved. The impact of applying the non-substantive vesting period approach will not be material.

Note 2. Alliances and Investments

Sanofi-Aventis

The Company has agreements with Sanofi-Aventis (Sanofi) for the codevelopment and cocommercialization of AVAPRO*/AVALIDE*AVALIDE * (irbesartan), an angiotensin II receptor antagonist indicated for the treatment of hypertension, and PLAVIX* (clopidogrel), a platelet aggregation inhibitor. The worldwide alliance operates under the framework of two geographic territories; one in the Americas (principally the United States, Canada, Puerto Rico and Latin American countries) and Australia and the other in Europe and Asia. Accordingly, two territory partnerships were formed to manage central expenses, such as marketing, research and development and royalties, and to supply finished productsproduct to the individual countries. In general, at the country level, agreements either to copromote (whereby a partnership was formed between the parties to sell each brand) or to comarket (whereby the parties operate and sell their brands independently of each other) are in place. The agreements expire on the later of (i) with respect to PLAVIX*, 2013 and, with respect to AVAPRO*/AVALIDE*, 2012 in the Americas and Australia and 2013 in Europe and Asia and (ii) the expiration of all patents and other exclusivity rights in the applicable territory.

The Company acts as the operating partner for the territory covering the Americas and Australia and owns a 50.1% majority controlling interest in the partnership within this territory. Sanofi’s ownership interest in the partnership within this territory is 49.9%. As such, the Company consolidates all country partnership results for this territory and records Sanofi’s share of the results as a minority interest, net of taxes, which was $149$152 million and $108$149 million for the three months ended September 30, 20042005 and 2003,2004, respectively, and $371$425 million and $230$371 million for the nine months ended September 30, 2005 and 2004, and 2003, respectively. For the three months ended September 30, 2004 and 2003, theThe Company recorded sales in this territory and in comarketing countries outside this territory (Germany, Italy, Spain and Greece) of $1,144$1,231 million

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 2. Alliances and Investments (Continued)

$1,143 million for the three months ended September 30, 2005 and $876 million,2004, respectively, and $3,040$3,467 million and $2,186$3,039 million for the nine months ended September 30, 20042005 and 2003,2004, respectively.

Sanofi acts as the operating partner of the territory covering Europe and Asia and owns a 50.1% majority financial controlling interest in the partnerships within this territory. The Company’s ownership interest in the partnerships within this territory is 49.9%. The Company accounts for the investment in partnership entities in this territory under the equity method and records its share of the results in equity in net income of affiliates in the consolidated statement of earnings. The Company’s share of net income from these partnership entities before taxes was $67$85 million and $61$67 million for the three months ended September 30, 20042005 and 2003,2004, respectively, and $201was $251 million and $157$201 million for the nine months ended September 30, 20042005 and 2003,2004, respectively.

In 2001, the Company and Sanofi formed an alliance for the copromotion of irbesartan, as part of which the Company contributed the irbesartan distribution rights in the United States and Sanofi paid the Company $150a total of $350 million in 2002 and $200 million in 2001.the two years ended December 31, 2002. The Company accounted for this transaction as a sale of an interest in a license and deferred and amortized the $350 million intoto other income over the expected useful life of the license, which is approximately eleven years. The Company recognized in other income of $8 million in each of the three-monththree month periods ended September 30, 20042005 and 20032004 and $24 million in each of the nine-monthnine month periods ended September 30, 20042005 and 2003.2004. The unamortized portion of the deferred income is recorded in the liabilities section of the consolidated balance sheet and was $224 million as of September 30, 2005 and $248 million as of December 31, 2004.

Otsuka

The Company has a worldwide commercialization agreement with Otsuka Pharmaceutical Co., Ltd. (Otsuka), to codevelop and copromote ABILIFY* (aripiprazole) for the treatment of schizophrenia and related psychoticpsychiatric disorders, except in Japan, China, Taiwan, North Korea, South Korea, the Philippines, Thailand, Indonesia, Pakistan, and Egypt. The Company began copromoting the product with Otsuka in the U.S. and Puerto Rico in November 2002. In the U.S. and Puerto Rico, the Company purchases products from Otsuka and performs finish manufacturing for supply to Otsuka’s U.S. affiliates. In June 2004, the Company received marketing approval from the European Commission. The product is currently copromoted with Otsuka in the United Kingdom, Germany and Germany,Spain, and will also copromote itbe copromoted in France. ABILIFY* is currently distributed exclusively by the Company in France and Spain.on a temporary basis until copromotion with Otsuka commences. The Company records alliance revenue for its 65% contractual share of theOtsuka’s net sales in these copromotion countries, excluding the United Kingdom, and records all expenses related to the product. Alliance revenue is recorded by the Company as net sales based upon 65% of Otsuka’s net sales in the copromotion countries. The Company recognizes this alliance revenue when ABILIFY* is shipped and all risks and rewards of ownership have transferred to Otsuka’s customers. In the UK, and in France until copromotion with Otsuka commences, the Company records 100% of the net sales and related cost of products sold.

The Company also has an exclusive right to sell ABILIFY* in a number of other countries in Europe, the Americas and Asia. In these countries as sales commence, the Company will recordrecords 100% of the net sales and related cost of products sold. Under the terms of the agreement, the Company purchases the product from Otsuka and performs finish manufacturing for sale by the Company to its customers. The agreement expires in November 2012 in the U.S. and Puerto Rico. For the countries in the European Union where the Company has thean exclusive right to sell ABILIFY*, the agreement expires on the tenth anniversary of the first commercial sale.in June 2014. In each other country where the Company has the exclusive right to sell ABILIFY*, the agreement expires on the later of the tenth anniversary of the first commercial sale in such country or expiration of the applicable patent in such country.

Note 2. Alliances and Investments (Continued)

The Company recorded revenue for ABILIFY* of $165$260 million and $101$165 million for the three months ended September 30, 20042005 and 2003,2004, respectively, and $402$688 million and $203$402 million for the nine months ended September 30, 20042005 and 2003,2004, respectively. Total milestone payments made to Otsuka from 1999under the agreement through September 20042005 were $217 million, of which $157 million was expensed as acquired in-process research and development in 1999.development. The remaining $60 million ofwas capitalized payments arein other intangible assets and is amortized intoin cost of products sold over the remaining life of the agreement in the U.S., which is approximatelyranging from eight to eleven years. IncludedThe Company amortized in cost of products sold $2 million and $1 million in the $60three months ended September 30, 2005 and 2004, respectively, and $5 million and $3 million in the nine months ended September 30, 2005 and 2004, respectively. The unamortized capitalized payment balance was $42 million as of capitalized payments is a $10September 30, 2005 and $47 million payment made in July 2004 for attainmentas of marketing approval by the European Union.December 31, 2004.

ImClone

The Company has a commercialization agreement expiring in September 2018 with ImClone Systems, Inc.Inc (ImClone), a biopharmaceutical company focused on developing targeted cancer treatments, for the codevelopment and copromotion of ERBITUX* in the United States. In February 2004, the U.S. Food and Drug Administration (FDA) approved the Biologics License Application (BLA) for ERBITUX* for use in combination with irinotecan in the treatment of patients with Epidermal Growth Factor Receptor (EGFR)-expressing, metastatic colorectal cancer who are refractory to irinotecan-based chemotherapy and for use as a single agent in the treatment of patients with EGFR-expressing, metastatic colorectal cancer who are intolerant to irinotecan-based chemotherapy. In June 2004, the FDA approved ImClone’s Chemistry, Manufacturing and Controls supplemental BLA for licensure of its BB36 manufacturing facility. In accordance with the terms of the agreement, theThe Company paid ImClone $200 million, of

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 2. Alliances and Investments (Continued)

which $140 million was paid in March 2002 and $60 million was paid in March 2003. The Company paid $250 million in March 2004 as a milestone payment for the initial approval of ERBITUX*. An additional $250 million is payable upon FDA approval for use in treating an additional tumor type. In June 2004, the FDA approved ImClone’s Chemistry, Manufacturing and Controls supplemental BLA for licensure of its BB36 manufacturing facility. In August 2005, ImClone submitted a supplemental Biologics License Application (sBLA) to the FDA for approval of ERBITUX* in treatment of Squamous Cell Carcinoma of the Head and Neck (SCCHN). The FDA decision is expected by February 2006, and if approved, the Company will pay ImClone the additional $250 million. Under the agreement, ImClone receives a distribution fee based on a flat rate of 39% of product revenues in North America. In addition, theThe Company also has codevelopment and copromotion rights with ImClone in CanadaCanada. In September 2005, Health Canada’s Biologics and Genetic Therapies Directorate approved ERBITUX* as a treatment for metastatic colorectal cancer. In addition, the Company has a 50% share of the codevelopment and copromotion rights ImClone has with Merck KGaA in Japan to the extent the product is commercialized in such countries.that country.

With respect to the $200 million of milestone payments the Company paid ImClone in 2002 and 2003, $160 million was expensed in the first quarter of 2002 as acquired in-process research and development, and $40 million was recorded as an additional equity investment to eliminate the income statement effect of the portion of the milestone payment for which the Company has an economic claim through its ownership interest in ImClone. The Company accounts for the $250 million approval milestone paid in March 2004 as a license acquisition and amortizes the payment into cost of products sold over the expected useful life of the license, which is approximately fourteen years. The Company amortized into cost of products sold $4 million for each of the three months ended September 30, 2005 and 2004, and $13 million and $10 million for the nine months ended September 30, 2005 and 2004, respectively. The unamortized portion of the approval payment is recorded in other intangibles, net and was $223 million as of September 30, 2005 and $236 million as of December 31, 2004.

The Company accounts for its investment in ImClone under the equity method and records its share of the results in equity in net income of affiliates in the consolidated statement of earnings. The Company’s recorded investment in ImClone common stock as of September 30, 2005 and December 31, 2004 was $66 million and $72 million, respectively, representing approximately 17% of the ImClone shares outstanding, respectively. On a per share basis, the carrying value of the ImClone investment and the closing market price of the ImClone shares as of September 30, 2005 were $4.56 and $31.45, respectively, compared to $5.03 and $46.08, respectively, as of December 31, 2004.

The Company determines its equity share in ImClone’s net income or loss by eliminating from ImClone’s results the milestone revenue ImClone recognizes for the pre-approval milestone payments that were recorded by the Company as additional equity investment. For the three and nine month periods ended September 30, 2004,its share of ImClone’s results of operations, the Company recorded net income of zero and $4 million and $2 million, respectively, for its share of ImClone’s net income. For the three and nine month periodsmonths ended September 30, 2003 the Company recorded2005 and 2004, respectively, and a net loss of $7$6 million and $33 million, respectively, for its share of ImClone’s net losses. The Company records its share of the results in equity in net income of affiliates in$1 million for the consolidated statement of earnings.nine months ended September 30, 2005 and 2004, respectively. The Company recorded net sales for ERBITUX* of $107 million and $84 million infor the three months ended September 30, 2005 and 2004, respectively and $292 million and $173 million since its approval byfor the FDA in February 2004.

The Company’s recorded investment in ImClone common stock as ofnine months ended September 30, 2004 was $65 million. On a per share basis, the carrying value of the ImClone investment2005 and the closing market price of the ImClone shares as of September 30, 2004, were $4.51 and $52.85, respectively.

Merck

In April 2004, the Company entered into a collaboration agreement with Merck & Co., Inc. (Merck) for worldwide codevelopment and copromotion for muraglitazar,PARGLUVA™ (muraglitazar), the Company’s dual PPAR (peroxisome proliferator activated receptor) agonist, currently in Phase III clinical development for use in treating Typetype 2 diabetes. Under the terms of the agreement, the Company received a $100 million upfront payment in May 2004 and a $55 million milestone payment in January 2005 for submission of the

Note 2. Alliances and Investments (Continued)

New Drug Application (NDA) and is entitled to receive $275$220 million in additional payments upon achievement of certain regulatory milestones. Themilestones, including $100 million for FDA approval of muraglitazar. Under the terms of agreement, the Company and Merck willagreed to jointly develop the clinical and marketing strategy for muraglitazar, share equally in future development and commercialization costs and copromote the product to physicians on a global basis, with Merck to receive payments based on net sales levels. A New Drug Application (NDA) for muraglitazar is expected to be

In December 2004 the Company submitted an NDA to the FDA for regulatory approval of muraglitazar. In September 2005, the Company and Merck announced the FDA’s Endocrinologic and Metabolic Drugs Advisory Committee voted to recommend approval of muraglitazar for the treatment of type 2 diabetes, for use as a monotherapy and in combination with metformin. On October 18, 2005, the FDA issued an approvable letter for muraglitazar requesting additional information from ongoing clinical trials to more fully address the cardiovascular safety profile of muraglitazar. The Company determined that to receive regulatory approval and to achieve commercial success, additional studies may be required because ongoing muraglitazar trials are not designed to answer the questions raised by the endFDA. The additional studies may take approximately five years to complete. The Company will continue discussions with the FDA. Merck advised the Company of 2004 for United States regulatory approval.their intent to terminate the agreement and the Company has agreed to begin discussions to terminate the agreement. The Company is in the process of evaluating a range of options including conducting additional studies or terminating further development of muraglitazar.

The upfront paymentand milestone payments of $100$155 million, received waswhich are non-refundable, were deferred and isare being amortized intoto other income over the expected remaining useful life of the agreement which is approximately sixteen years. In the three and nine months ended September 30, 2004, theThe Company recognized $2 million of these payments in other income for each of the three month periods ended September 30, 2005 and September 30, 2004, respectively, and $7 million and $3 million in other income, respectively. In addition, the Company records Merck’s share of codevelopment costs as a reduction to research and development expense and Merck’s share of copromotion costs as a reduction to advertising and product promotion expense. For the three months ended September 30, 2004, the Company recorded $23 million and $1 million as a reduction to its research and development and advertising and product promotion expenses, respectively. Forfor the nine months ended September 30, 2005 and 2004, respectively. The unamortized portion of the Companymilestone payment is recorded $56 millionin other liabilities and $3was $144 million as a reduction to its researchof September 30, 2005 and development and advertising and product promotion expenses, respectively.

BRISTOL-MYERS SQUIBB COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)$151 million as of December 31, 2004.

Note 3. Restructuring and Other Items

In the third quarter of 2004,2005, the Company recorded pre-tax charges of $2 million related to employee termination benefits for approximately 13 selling and administrative personnel and asset impairment charges, which were offset by a $7 million adjustment reflecting a change in estimate for restructuring actions taken in prior periods.

The following table presents a detail of the charges by segment and type for the three months ended September 30, 2005. The Company expects to substantially complete these activities by late 2005.