Document and Entity Information
Document and Entity Information | |
3 Months Ended
Mar. 31, 2010 | |
Entity Registrant Name | BRISTOL MYERS SQUIBB CO |
Trading Symbol | BMY |
Entity Central Index Key | 0000014272 |
Current Fiscal Year End Date | --12-31 |
Entity Well-known Seasoned Issuer | Yes |
Entity Current Reporting Status | Yes |
Entity Voluntary Filers | No |
Entity Filer Category | Large Accelerated Filer |
Entity Common Stock, Shares Outstanding | 1,719,674,383 |
Document Type | 10-Q |
Amendment Flag | false |
Document Period End Date | 2010-03-31 |
Document Fiscal Year Focus | 2,010 |
Document Fiscal Period Focus | Q1 |
CONSOLIDATED STATEMENTS OF EARN
CONSOLIDATED STATEMENTS OF EARNINGS (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
EARNINGS | ||
Net Sales | $4,807 | $4,322 |
Cost of products sold | 1,306 | 1,165 |
Marketing, selling and administrative | 900 | 901 |
Advertising and product promotion | 212 | 248 |
Research and development | 910 | 908 |
Provision for restructuring | 11 | 19 |
Litigation expense | 104 | |
Equity in net income of affiliates | (97) | (146) |
Other (income)/expense | 113 | (72) |
Total Expenses | 3,355 | 3,127 |
Earnings from Continuing Operations Before Income Taxes | 1,452 | 1,195 |
Provision for income taxes | 351 | 275 |
Net Earnings from Continuing Operations | 1,101 | 920 |
Discontinued Operations: | ||
Earnings, net of taxes | 1 | |
Gain on disposal, net of taxes | ||
Net Earnings from Discontinued Operations | 1 | |
Net Earnings | 1,101 | 921 |
Net Earnings Attributable to Noncontrolling Interest | 358 | 283 |
Net Earnings Attributable to Bristol-Myers Squibb Company | 743 | 638 |
Amounts Attributable to Bristol-Myers Squibb Company: | ||
Net Earnings from Continuing Operations | 743 | 649 |
Net Loss from Discontinued Operations | (11) | |
Net Earnings Attributable to Bristol-Myers Squibb Company | $743 | $638 |
Earnings per Common Share from Continuing Operations Attributable to Bristol-Myers Squibb Company: | ||
Basic | 0.43 | 0.33 |
Diluted | 0.43 | 0.33 |
Earnings per Common Share Attributable to Bristol-Myers Squibb Company: | ||
Basic | 0.43 | 0.32 |
Diluted | 0.43 | 0.32 |
Dividends declared per common share | 0.32 | 0.31 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND RETAINED EARNINGS (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
COMPREHENSIVE INCOME | ||
Net Earnings | $1,101 | $921 |
Other Comprehensive Income/(Loss): | ||
Foreign currency translation | (34) | (75) |
Foreign currency translation on hedge of a net investment | 79 | 33 |
Derivatives qualifying as cash flow hedges, net of taxes of $(13) in 2010 and $(17) in 2009 | 29 | 34 |
Derivatives qualifying as cash flow hedges reclassified to net earnings, net of taxes of $(5) in 2010 and $7 in 2009 | 10 | (20) |
Pension and postretirement benefits, net of taxes of $(60) in 2009 | 110 | |
Pension and postretirement benefits reclassified to net earnings, net of taxes of $(12) in 2010 and $(17) in 2009 | 17 | 30 |
Available for sale securities, net of taxes of $(1) in 2010 and 2009 | 15 | 2 |
Total Other Comprehensive Income/(Loss) | 116 | 114 |
Comprehensive Income | 1,217 | 1,035 |
Comprehensive Income Attributable to Noncontrolling Interest | 358 | 286 |
Comprehensive Income Attributable to Bristol-Myers Squibb Company | 859 | 749 |
RETAINED EARNINGS | ||
Retained Earnings at January 1 | 30,760 | 22,549 |
Net Earnings Attributable to Bristol-Myers Squibb Company | 743 | 638 |
Cash dividends declared | (554) | (616) |
Retained Earnings at March 31 | $30,949 | $22,571 |
1_CONSOLIDATED STATEMENTS OF CO
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AND RETAINED EARNINGS (Parenthetical) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Derivatives qualifying as cash flow hedges, taxes | ($13) | ($17) |
Derivatives qualifying as cash flow hedges reclassified to net earnings, taxes | (5) | 7 |
Pension and postretirement benefits, taxes | (60) | |
Pension and postretirement benefits reclassified to net earnings, taxes | (12) | (17) |
Available for sale securities, taxes | ($1) | ($1) |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
Current Assets: | ||
Cash and cash equivalents | $5,135 | $7,683 |
Marketable securities | 1,641 | 831 |
Receivables | 3,459 | 3,164 |
Inventories | 1,284 | 1,413 |
Deferred income taxes | 745 | 611 |
Prepaid expenses | 268 | 256 |
Total Current Assets | 12,532 | 13,958 |
Property, plant and equipment | 4,822 | 5,055 |
Goodwill | 5,218 | 5,218 |
Other intangible assets, net | 2,813 | 2,865 |
Deferred income taxes | 1,395 | 1,636 |
Marketable securities | 2,997 | 1,369 |
Other assets | 976 | 907 |
Total Assets | 30,753 | 31,008 |
Current Liabilities: | ||
Short-term borrowings | 208 | 231 |
Accounts payable | 1,752 | 1,711 |
Accrued expenses | 2,477 | 2,785 |
Deferred income | 265 | 237 |
Accrued rebates and returns | 660 | 622 |
U.S. and foreign income taxes payable | 101 | 175 |
Dividends payable | 554 | 552 |
Total Current Liabilities | 6,017 | 6,313 |
Pension, postretirement and postemployment liabilities | 1,300 | 1,658 |
Deferred income | 961 | 949 |
U.S. and foreign income taxes payable | 745 | 751 |
Other liabilities | 416 | 422 |
Long-term debt | 6,081 | 6,130 |
Total Liabilities | 15,520 | 16,223 |
Commitments and contingencies (Note 17) | ||
Bristol-Myers Squibb Company Shareholders' Equity: | ||
Preferred stock, $2 convertible series, par value $1 per share: Authorized 10 million shares; issued and outstanding 5,402 in 2010 and 5,515 in 2009, liquidation value of $50 per share | ||
Common stock, par value of $0.10 per share: Authorized 4.5 billion shares; 2.2 billion issued in both 2010 and 2009 | 220 | 220 |
Capital in excess of par value of stock | 3,676 | 3,768 |
Accumulated other comprehensive loss | (2,425) | (2,541) |
Retained earnings | 30,949 | 30,760 |
Less cost of treasury stock - 485 million common shares in 2010 and 491 million in 2009 | (17,171) | (17,364) |
Total Bristol-Myers Squibb Company Shareholders' Equity | 15,249 | 14,843 |
Noncontrolling interest | (16) | (58) |
Total Equity | 15,233 | 14,785 |
Total Liabilities and Equity | $30,753 | $31,008 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | ||
Mar. 31, 2010
| Dec. 31, 2009
| |
Preferred stock, $2 convertible series, par value | $1 | $1 |
Preferred stock, $2 convertible series, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, $2 convertible series, shares issued | 5,402 | 5,515 |
Preferred stock, $2 convertible series, shares outstanding | 5,402 | 5,515 |
Preferred stock, $2 convertible series, liquidation value, per share | 50 | 50 |
Common stock, par value | 0.1 | 0.1 |
Common stock, shares authorized | 4,500,000,000 | 4,500,000,000 |
Common stock, shares issued | 2,200,000,000 | 2,200,000,000 |
Treasury stock, shares | 485,000,000 | 491,000,000 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash Flows From Operating Activities: | ||
Net Earnings | $1,101 | $921 |
Adjustments to reconcile net earnings to net cash provided by operating activities: | ||
Net earnings attributable to noncontrolling interest | (358) | (283) |
Depreciation | 122 | 110 |
Amortization | 65 | 57 |
Impairment charge | 200 | |
Deferred income taxes | 90 | 27 |
Stock-based compensation | 47 | 43 |
Other gains | (10) | (44) |
Changes in operating assets and liabilities: | ||
Receivables | (309) | 81 |
Inventories | 25 | (18) |
Deferred income | 35 | 26 |
Accounts payable | 119 | 206 |
U.S. and foreign income taxes payable | (106) | 71 |
Changes in other operating assets and liabilities | (557) | (745) |
Net Cash Provided by Operating Activities | 464 | 452 |
Cash Flows From Investing Activities: | ||
Proceeds from sale of marketable securities | 453 | 80 |
Purchases of marketable securities | (2,880) | (870) |
Additions to property, plant and equipment and capitalized software | (129) | (201) |
Proceeds from sale of businesses, property, plant and equipment and other investments | 37 | 65 |
Net Cash Used in Investing Activities | (2,519) | (926) |
Cash Flows From Financing Activities: | ||
Short-term debt (repayments)/borrowings | (17) | 2 |
Interest rate swap termination | 187 | |
Dividends paid | (551) | (616) |
Issuances of common stock and excess tax benefits from share-based arrangements | 82 | |
Proceeds from Mead Johnson initial public offering | 782 | |
Net Cash (Used in)/Provided by Financing Activities | (486) | 355 |
Effect of Exchange Rates on Cash and Cash Equivalents | (7) | (25) |
Decrease in Cash and Cash Equivalents | (2,548) | (144) |
Cash and Cash Equivalents at Beginning of Period | 7,683 | 7,976 |
Cash and Cash Equivalents at End of Period | $5,135 | $7,832 |
BASIS OF PRESENTATION AND NEW A
BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS | |
3 Months Ended
Mar. 31, 2010 | |
BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS | Note 1. BASIS OF PRESENTATION AND NEW ACCOUNTING STANDARDS Bristol-Myers Squibb Company (which may be referred to as Bristol-Myers Squibb, BMS or the Company) prepared these unaudited consolidated financial statements following the requirements of the Securities and Exchange Commission and United States (U.S.) generally accepted accounting principles (GAAP) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required 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 financial position at March 31, 2010 and December 31, 2009, and the results of operations and cash flows for the three months ended March 31, 2010 and 2009. All intercompany balances and transactions have been eliminated. Material subsequent events are evaluated and disclosed through the report issuance date. These unaudited consolidated financial statements and the related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2009 included in the Annual Report on Form 10-K. Certain prior period amounts have been reclassified to conform to the current period presentation. Mead Johnson Nutrition Company (Mead Johnson) financial results, previously reported in the Mead Johnson segment, have been reported as discontinued operations for the three months ended March 31, 2009. 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 indicative of full year operating results. The preparation of financial statements requires the use of management estimates and assumptions, based on complex judgments that are considered reasonable, that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and contingent liabilities at the date of the financial statements. The most significant assumptions are employed in estimates used in determining the fair value of intangible assets, restructuring charges and accruals, sales rebate and return accruals, legal contingencies, tax assets and tax liabilities, stock-based compensation expense, pension and postretirement benefits (including the actuarial assumptions), fair value of financial instruments with no direct or observable market quotes, inventory obsolescence, potential impairment of long-lived assets, allowances for bad debt, as well as in estimates used in applying the revenue recognition policy. Actual results may differ from estimated results. New accounting standards were adopted on January 1, 2010, none of which had an impact on the consolidated financial statements upon adoption. Among other items, these standards: Provide clarifying criteria in determining when a transferor has surrendered control over transferred financial assets and removed the concept of a qualify |
ALLIANCES AND COLLABORATIONS
ALLIANCES AND COLLABORATIONS | |
3 Months Ended
Mar. 31, 2010 | |
ALLIANCES AND COLLABORATIONS | Note 2. ALLIANCES AND COLLABORATIONS The Company maintains alliances and collaborations with various third parties for the development and commercialization of certain products. The following information summarizes the current operating trends of commercialized products. See the 2009 Annual Report on Form 10-K for a more complete description of the below agreements, including termination provisions, as well as disclosures of other alliances and collaborations. sanofi The Company has agreements with sanofi-aventis (sanofi) for the codevelopment and cocommercialization of AVAPRO*/AVALIDE* (irbesartan/irbesartan-hydrochlorothiazide), an angiotensin II receptor antagonist indicated for the treatment of hypertension and diabetic nephropathy, and PLAVIX* (clopidogrel bisulfate), a platelet aggregation inhibitor. The worldwide alliance operates under the framework of two geographic territories; one in the Americas (principally the U.S., Canada, Puerto Rico and Latin American countries) and Australia, and the other in Europe and Asia. 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 and owns a 50.1% majority controlling interest in the territory covering the Americas and Australia and consolidates all country partnership results for this territory with sanofis 49.9% share of the results reflected as a noncontrolling interest. The Company recognizes net sales in this territory and in comarketing countries outside this territory (e.g., Germany, Italy for irbesartan only, Spain and Greece). Discovery royalties owed to sanofi are included in cost of products sold. Sanofi acts as the operating partner and owns a 50.1% majority controlling interest in the territory covering Europe and Asia. The Companys 49.9% ownership interest in this territory is accounted for under the equity method with its share of operating results recognized in equity in net income of affiliates. Distributions of profits relating to the joint ventures among the Company and sanofi are included within operating activities in the consolidated statements of cash flows. The Company and sanofi have a separate partnership governing the copromotion of irbesartan in the U.S. The Company recognizes other income related to the amortization of deferred income associated with sanofis $350 million payment to the Company for their acquisition of an interest in the irbesartan license for the U.S. upon formation of the alliance. Income attributed to certain supply activities and development and opt-out royalties with sanofi are reflected on a net basis in other income. The following summarized financial information is reflected in the consolidated financial statements: ThreeMonthsEndedMarch31, Dollars in Millions 2010 2009 Territory covering the Americas and Australia: Net sales $ 1,878 $ 1,605 Discovery royalty e |
BUSINESS SEGMENT INFORMATION
BUSINESS SEGMENT INFORMATION | |
3 Months Ended
Mar. 31, 2010 | |
BUSINESS SEGMENT INFORMATION | Note 3. BUSINESS SEGMENT INFORMATION The BioPharmaceuticals segment is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of innovative medicines that help patients prevail over serious diseases. A global research and development organization and a global supply chain organization are utilized and responsible for the development and delivery of products to the market. Products are distributed and sold through four regional organizations that serve the United States; Europe; Middle East, Africa and Other Western Hemisphere countries; and Emerging Markets and Pacific. The business is also supported by global corporate staff functions. The segment information presented below is consistent with the financial information regularly reviewed by the chief operating decision maker for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting future periods. Net sales of key products were as follows: ThreeMonthsEndedMarch31, Dollars in Millions 2010 2009 PLAVIX* $ 1,666 $ 1,435 AVAPRO*/AVALIDE* 314 302 REYATAZ 373 322 SUSTIVA Franchise (total revenue) 335 292 BARACLUDE 216 152 ERBITUX* 166 164 SPRYCEL 131 88 IXEMPRA 29 24 ABILIFY* 617 589 ORENCIA 169 124 ONGLYZA 10 Other 781 830 Net sales $ 4,807 $ 4,322 Segment income excludes the impact of significant items not indicative of current operating performance or ongoing results, and earnings attributed to sanofi and other noncontrolling interest. The reconciliation to earnings from continuing operations before income taxes was as follows: ThreeMonthsEndedMarch31, Dollars in Millions 2010 2009 BioPharmaceuticals segment income $ 1,233 $ 1,070 Reconciling items: Downsizing and streamlining of worldwide operations (11 ) (15 ) Impairment of manufacturing operations (200 ) Accelerated depreciation, asset impairment and other shutdown costs (31 ) (30 ) Process standardization implementation costs (13 ) (20 ) Gain on sale of product lines, businesses and assets 44 Litigation charges (104 ) Upfront licensing and milestone payments (55 ) (145 ) Product liability (3 ) Noncontrolling interest 529 398 Earnings from continuing operations before income taxes $ 1,452 $ 1,195 |
RESTRUCTURING
RESTRUCTURING | |
3 Months Ended
Mar. 31, 2010 | |
RESTRUCTURING | Note 4. RESTRUCTURING The productivity transformation initiative (PTI) was designed to fundamentally change the way the business is run to meet the challenges of a changing business environment and to take advantage of the diverse opportunities in the marketplace as the transformation into a next-generation biopharmaceutical company continues. The Company is on target to create $2.5 billion in annual productivity cost savings and cost avoidance by 2012 of which approximately 90% is expected to be realized by the end of 2010. Subsequent to the PTI, a strategic process designed to achieve a culture of continuous improvement to enhance efficiency, effectiveness and competitiveness and to continue to improve the cost base has been implemented. The following PTI and other restructuring charges were recognized: ThreeMonthsEndedMarch31, Dollars in Millions 2010 2009 Provision for restructuring, net $ 11 $ 19 Impairment of manufacturing operations 200 Accelerated depreciation, asset impairment and other shutdown costs 31 26 Process standardization implementation costs 13 20 Total cost 255 65 Gain on sale of product lines, businesses and assets (44 ) Net charges $ 255 $ 21 Most of the accelerated depreciation, asset impairment and other shutdown costs were included in cost of products sold and primarily relate to the rationalization of the manufacturing network in the BioPharmaceuticals segment. These assets continue to be depreciated until the facility closures are completed. The remaining charges were primarily attributed to process standardization activities and are recognized as incurred. Restructuring charges included termination benefits for workforce reduction of manufacturing, selling, administrative, and research and development personnel across all geographic regions of approximately 223 and 215 for the three months ended March 31, 2010 and 2009, respectively. The following table presents the detail of expenses incurred in connection with restructuring activities and related restructuring liability activity: ThreeMonthsEndedMarch31,2010 ThreeMonthsEndedMarch31,2009 Dollars in Millions TerminationLiability OtherExitCostsLiability Total TerminationLiability OtherExitCostsLiability Total Liability at January1 $ 157 $ 16 $ 173 $ 188 $ 21 $ 209 Charges 19 1 20 15 6 21 Changes in estimates (9 ) (9 ) (2 ) (2 ) Provision for restructuring, net 10 1 11 13 6 19 Charges in discontinued operations |
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS | |
3 Months Ended
Mar. 31, 2010 | |
DISCONTINUED OPERATIONS | Note 5. DISCONTINUED OPERATIONS Mead Johnson Nutrition Company Split-off In February 2009, Mead Johnson Nutrition Company (Mead Johnson) completed an initial public offering (IPO) in which the Company received $782 million and retained an 83.1% interest in Mead Johnson. On December 23, 2009, the split-off of the remaining interest in Mead Johnson was completed in exchange for 269 million shares of the Companys common stock. The results of the Mead Johnson business are included in discontinued operations in the first quarter of 2009. Dollars in Millions ThreeMonthsEndedMarch31,2009 Net sales $ 693 Earnings before income taxes $ 189 Provision for income taxes (1) 188 Net earnings from discontinued operations 1 Less net earnings from discontinued operations attributable to noncontrolling interest 12 Net loss from discontinued operations attributable to Bristol-Myers Squibb Company $ (11 ) (1) Provision for income taxes include $130 million of taxes incurred from the transfer of various international business units to Mead Johnson prior to the IPO. Transitional Relationships with Discontinued Operations Subsequent to the split-off, cash flows and income associated with the Mead Johnson business continued to be generated relating to activities that are transitional in nature and generally result from agreements that are intended to facilitate the orderly transfer of business operations. The agreements include, among others, services for accounting, customer service, distribution and manufacturing and generally expire no later than 18 months from the date of the split-off. The income generated from these transitional activities is included in other (income)/expense and is not expected to be material to the future results of operations or cash flows. |
EARNINGS PER SHARE
EARNINGS PER SHARE | |
3 Months Ended
Mar. 31, 2010 | |
EARNINGS PER SHARE | Note 6. EARNINGS PER SHARE ThreeMonthsEndedMarch31, Amounts in Millions, Except Per Share Data 2010 2009 EPS Numerator Basic: Income from Continuing Operations Attributable to BMS $ 743 $ 649 Earnings attributable to unvested restricted shares (3 ) (4 ) Income from Continuing Operations Attributable to BMS common shareholders 740 645 Net Loss from Discontinued Operations Attributable to BMS (1) (11 ) EPS Numerator Basic $ 740 $ 634 EPS Denominator Basic: Average Common Shares Outstanding 1,715 1,978 EPS Basic: Continuing Operations $ 0.43 $ 0.33 Discontinued Operations (0.01 ) Net Earnings $ 0.43 $ 0.32 EPS Numerator Diluted: Income from Continuing Operations Attributable to BMS $ 743 $ 649 Earnings attributable to unvested restricted shares (3 ) (4 ) Income from Continuing Operations Attributable to BMS common shareholders 740 645 Net Loss from Discontinued Operations Attributable to BMS (1) (11 ) EPS Numerator Diluted $ 740 $ 634 EPS Denominator Diluted: Average Common Shares Outstanding 1,715 1,978 Contingently convertible debt common stock equivalents 1 1 Incremental shares attributable to share-based compensation plans 9 2 Average Common Shares Outstanding and Common Share Equivalents 1,725 1,981 EPS Diluted: Continuing Operations $ 0.43 $ 0.33 Discontinued Operations (0.01 ) Net Earnings $ 0.43 $ 0.32 (1) Net Loss of Discontinued Operations for EPS Calculation: Net Loss from Discontinued Operations Attributable to BMS $ $ (11 ) Earnings attributable to unvested restricted shares Net Loss from Discontinued Operations Attributable to BMS for EPS Calculation $ $ (11 ) Anti-dilutive weighted-average equivalent shares: Stock incentive plans 70 123 Total anti-dilutive shares 70 123 |
INCOME TAXES
INCOME TAXES | |
3 Months Ended
Mar. 31, 2010 | |
INCOME TAXES | Note 7. INCOME TAXES The effective income tax rate on earnings from continuing operations before income taxes was 24.2% for the three months ended March 31, 2010 compared to 23.0% for the three months ended March 31, 2009. The effective tax rate is lower than the U.S. statutory rate of 35% primarily due to the permanent reinvestment of offshore earnings from certain manufacturing operations. The increase in the effective income tax rate was due to: An unfavorable impact on the current year rate from a $21 million charge resulting from the reduction of deferred tax assets due to the enactment of healthcare reform.The deferred tax charge was required as a result of the elimination of the deductibility of retiree health care payments to the extent of tax-free Medicare Part D subsidies that are received.The change in deductibility is effective January1, 2013. A favorable impact on the prior year rate from the research and development tax credit and the controlled foreign corporation look-through credit, both of which expired on December31, 2009 and were not extended as of March31, 2010. Partially offset by: A favorable earnings mix due to reduced international PLAVIX* net sales in high tax jurisdictions. U.S. income taxes have not been provided on undistributed earnings of foreign subsidiaries as these undistributed earnings have been invested or are expected to be permanently reinvested 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. Reforms to the international tax laws have been proposed that if adopted may increase taxes and reduce the results of operations and cash flows. Future income tax rates are also expected to be negatively impacted by healthcare reform including the enactment of an annual non-tax deductible pharmaceutical fee beginning in 2011 payable to the government. The Company is currently under examination by a number of tax authorities which have proposed adjustments to tax for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. The Company estimates that it is reasonably possible that the total amount of unrecognized tax benefits at March 31, 2010 will decrease in the range of approximately $115 million to $145 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. The Company 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. The Company believes that it has adequately provided for all open tax years by tax jurisdiction. |
FAIR VALUE MEASUREMENT
FAIR VALUE MEASUREMENT | |
3 Months Ended
Mar. 31, 2010 | |
FAIR VALUE MEASUREMENT | Note 8. FAIR VALUE MEASUREMENT The fair value of financial assets and liabilities are classified in one of the following three categories: March31, 2010 December31, 2009 Dollars in Millions QuotedPrices inActiveMarketsforIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs (Level 3) Total QuotedPrices inActiveMarketsforIdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs (Level 3) Total Available for Sale: U.S. Treasury Bills $ 649 $ $ $ 649 $ $ $ $ U.S. Government Agency Securities 600 600 225 225 Equity Securities 6 6 11 11 Prime Money Market Funds 3,479 3,479 5,807 5,807 Corporate Debt Securities 1,591 1,591 837 837 Commercial Paper 958 958 518 518 FDIC Insured Debt Securities 355 355 252 252 U.S. Treasury Money Market Funds 4 4 218 218 U.S. Government Agency Money Market Funds 24 24 Floating Rate Securities (FRS) 91 91 91 91 Auction Rate Securities (ARS) 90 90 88 88 Total available for sale assets 1,255 6,387 181 7,823 236 7,656 179 8,071 Derivatives: Interest Rate Swap Derivatives 231 231 165 165 Foreign Currency Forward Derivatives 63 63 21 21 Total derivative assets 294 294 186 186 Total assets at fair value $ 1,255 $ 6,681 $ 181 $ 8,117 $ 236 $ 7,842 $ 179 $ 8,257 Derivatives: Foreign Currency Forward Derivatives $ $ 20 $ $ 20 $ $ 31 $ $ 31 Natural Gas Contracts 3 3 1 1 Interest Rate Swap Derivatives 5 |
CASH, CASH EQUIVALENTS AND MARK
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES | |
3 Months Ended
Mar. 31, 2010 | |
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES | Note 9. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES Cash and cash equivalents were $5,135 million at March 31, 2010 and $7,683 million at December 31, 2009 and consisted of prime money market funds, government agency securities and treasury securities. Cash equivalents primarily consist of highly liquid investments with original maturities of three months or less at the time of purchase and are recorded at cost, which approximates fair value. The following table summarizes current and non-current marketable securities, accounted for as available for sale debt securities and equity securities: March31, 2010 December31, 2009 Dollars in Millions Cost FairValue CarryingValue UnrealizedGain/(Loss)inAccumulatedOCI Cost FairValue CarryingValue UnrealizedGain/(Loss)inAccumulatedOCI Current marketable securities: Certificates of deposit $ 828 $ 828 $ 828 $ $ 501 $ 501 $ 501 $ Commercial Paper 433 433 433 205 205 205 U.S. Treasury Bills 250 250 250 Corporate debt securities 80 80 80 FDIC insured debt securities 50 50 50 U.S. government agency securities 125 125 125 Totalcurrent $ 1,641 $ 1,641 $ 1,641 $ $ 831 $ 831 $ 831 $ Non-current marketable securities: Corporate debt securities $ 1,508 $ 1,511 $ 1,511 $ 9 $ 836 $ 837 $ 837 $ 3 U.S. government agency securities 600 600 600 100 100 100 U.S. Treasury Bills 399 399 399 FDIC insured debt securities 304 305 305 1 252 252 252 Auction rate securities 114 90 90 10 114 88 88 8 Floating rate securities (1) 105 91 91 (15 ) 113 91 91 (22 ) Other 1 1 1 1 1 1 Totalnoncurrent $ 3,031 $ 2,997 $ 2,997 $ 5 $ 1,416 $ 1,369 $ 1,369 $ (11 ) Other assets: Equity securities |
RECEIVABLES
RECEIVABLES | |
3 Months Ended
Mar. 31, 2010 | |
RECEIVABLES | Note 10. RECEIVABLES Receivables include: Dollars in Millions March31,2010 December31,2009 Trade receivables $ 2,060 $ 2,000 Less allowances 99 103 Net trade receivables 1,961 1,897 Alliance partners receivables 1,052 870 Income tax refund claims 129 103 Miscellaneous receivables 317 294 Receivables $ 3,459 $ 3,164 Receivables are netted with deferred income related to alliance partners until recognition of income. As a result, alliance partner receivables and deferred income were reduced by $756 million and $730 million at March 31, 2010 and December 31, 2009, respectively. For additional information regarding alliance partners, see Note 2. Alliances and Collaborations. Non-U.S. receivables sold on a nonrecourse basis were $111 million and $46 million for the three months ended March 31, 2010 and 2009, respectively. In the aggregate, receivables due from three pharmaceutical wholesalers in the U.S. represented 47% of total trade receivables at March 31, 2010 and December 31, 2009. |
INVENTORIES
INVENTORIES | |
3 Months Ended
Mar. 31, 2010 | |
INVENTORIES | Note 11. INVENTORIES Inventories include: Dollars in Millions March31,2010 December31,2009 Finished goods $ 430 $ 580 Work in process 641 630 Raw and packaging materials 213 203 Inventories $ 1,284 $ 1,413 Inventories expected to remain on-hand beyond one year were $234 million and $249 million at March 31, 2010 and December 31, 2009, respectively, and were included in non-current other assets. In addition, $108 million of these inventories (plus $77 million of additional purchase obligations) currently cannot be sold in the U.S. until the U.S. Food and Drug Administration (FDA) approves a manufacturing process change. These amounts include capitalized costs related to production of products for programs in Phase III development subject to final U.S. Food and Drug Administration approval of $52 million and $49 million at March 31, 2010 and December 31, 2009, respectively. The status of the regulatory approval process and the probability of future sales were considered in assessing the recoverability of these costs. |
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT | |
3 Months Ended
Mar. 31, 2010 | |
PROPERTY, PLANT AND EQUIPMENT | Note 12. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment includes: Dollars in Millions March31,2010 December31,2009 Land $ 140 $ 142 Buildings 4,277 4,350 Machinery, equipment and fixtures 3,170 3,563 Construction in progress 787 840 Gross property, plant and equipment 8,374 8,895 Less accumulated depreciation 3,552 3,840 Property, plant and equipment $ 4,822 $ 5,055 |
EQUITY
EQUITY | |
3 Months Ended
Mar. 31, 2010 | |
EQUITY | Note 13. EQUITY Changes in common shares, treasury stock and capital in excess of par value of stock were as follows: Dollars and Shares in Millions CommonSharesIssued TreasuryStock Cost ofTreasuryStock CapitalinExcessof Par Value of Stock Balance at January1, 2009 2,205 226 $ (10,566 ) $ 2,757 Mead Johnson initial public offering 942 Employee stock compensation plans (2 ) 56 (38 ) Balance at March31, 2009 2,205 224 $ (10,510 ) $ 3,661 Balance at January1, 2010 2,205 491 $ (17,364 ) $ 3,768 Employee stock compensation plans (6 ) 193 (92 ) Balance at March31, 2010 2,205 485 $ (17,171 ) $ 3,676 The accumulated balances related to each component of other comprehensive income/(loss) (OCI), net of taxes, were as follows: Dollars in Millions ForeignCurrencyTranslation DerivativesQualifyingasEffectiveHedges Pension andOtherPostretirementBenefits Availablefor SaleSecurities AccumulatedOtherComprehensiveIncome/(Loss) Balance at January1, 2009 $ (424 ) $ 14 $ (2,258 ) $ (51 ) $ (2,719 ) Other comprehensive income/(loss) (42 ) 14 140 2 114 Balance at March31, 2009 $ (466 ) $ 28 $ (2,118 ) $ (49 ) $ (2,605 ) Balance at January1, 2010 $ (343 ) $ (30 ) $ (2,158 ) $ (10 ) $ (2,541 ) Other comprehensive income/(loss) 45 39 17 15 116 Balance at March31, 2010 $ (298 ) $ 9 $ (2,141 ) $ 5 $ (2,425 ) The reconciliation of noncontrolling interest was as follows: Dollars in Millions 2010 2009 Balance at January1 $ (58 ) $ (33 ) Mead Johnson initial public offering (160 ) Net earnings attributable to noncontrolling interest 528 408 Other comprehensive income attributable to noncontrolling interest 3 Distributions (486 ) (426 ) Balance at March31 $ (16 ) $ (208 ) Noncontrolling interest is primarily related to the partnerships with sanofi for the territory covering the Americas for net sales of PLAVIX*. Net earnings attributable to noncontrolling interest are presented net of taxes of $171 million and $127 million for three months ended March |
PENSION, POSTRETIREMENT AND POS
PENSION, POSTRETIREMENT AND POSTEMPLOYMENT LIABILITIES | |
3 Months Ended
Mar. 31, 2010 | |
PENSION, POSTRETIREMENT AND POSTEMPLOYMENT LIABILITIES | Note 14. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT LIABILITIES The net periodic benefit cost of defined benefit pension and postretirement benefit plans includes: Three Months EndedMarch31, Pension Benefits OtherBenefits Dollars in Millions 2010 2009 2010 2009 Service cost benefits earned during the period $ 11 $ 59 $ 2 $ 1 Interest cost on projected benefit obligation 87 104 7 9 Expected return on plan assets (113 ) (126 ) (6 ) (5 ) Amortization of prior service cost/(benefit) 3 (1 ) (1 ) Amortization of net actuarial loss 24 42 3 3 Net periodic benefit cost 9 82 5 7 Curtailments and special termination benefits 3 Total net periodic benefit cost $ 12 $ 82 $ 5 $ 7 Continuing operations $ 12 $ 79 $ 5 $ 6 Discontinued operations 3 1 Total net periodic benefit cost $ 12 $ 82 $ 5 $ 7 Contributions to the U.S. pension plans are expected to approximate $330 million during 2010, of which $305 million was contributed in the three months ended March 31, 2010. Contributions to the international plans are expected to range from $85 million to $100 million in 2010, of which $20 million was contributed in the three months ended March 31, 2010. In connection with the amendments of the U.S. Retirement Income Plan and several other plans, the crediting of future benefits relating to service was eliminated effective December 31, 2009. In addition, actuarial gains and losses are amortized over the expected weighted-average remaining lives of the participants (32 years). Net periodic benefit costs are reduced as a result of these changes. Pension settlement charges resulting in an acceleration of previously deferred actuarial losses might be required in future periods if lump sum payments for individual plans exceed the sum of the related plan's service cost and interest cost. Certain enhancements were made to the defined contribution plans in the U.S. and Puerto Rico allowing for increased matching and additional Company contributions effective January 1, 2010. The expense attributed to these plans was $51 million and $13 million for the three months ended March 31, 2010 and 2009, respectively. |
EMPLOYEE STOCK BENEFIT PLANS
EMPLOYEE STOCK BENEFIT PLANS | |
3 Months Ended
Mar. 31, 2010 | |
EMPLOYEE STOCK BENEFIT PLANS | Note 15. EMPLOYEE STOCK BENEFIT PLANS Stock-based compensation expense was as follows: ThreeMonthsEndedMarch31, Dollars in Millions 2010 2009 Stock options $ 13 $ 18 Restricted stock 23 16 Long-term performance awards 11 9 Total stock-based compensation expense $ 47 $ 43 Continuing operations $ 47 $ 40 Discontinued operations 3 Total stock-based compensation expense $ 47 $ 43 Deferred tax benefit related to stock-based compensation expense $ 15 $ 13 In the first quarter of 2010, 3.0 million restricted stock units, 1.3 million market share units and 1.7 million long-term performance share units were granted. The weighted-average grant date fair value for restricted stock units, market share units and long-term performance share units granted during the first quarter of 2010 was $24.62, $24.67 and $23.56, respectively. Restricted stock units vest ratably over a four year period. Market share units vest ratably over a four year period based on share price performance. The fair value of market share units was estimated on the date of grant using a model applying multiple input variables that determine the probability of satisfying market conditions. Long-term performance share units are determined based on the achievement of annual performance goals, but are not vested until the end of the three year period. Total compensation costs related to nonvested awards not yet recognized and the weighted-average period over which such awards are expected to be recognized at March 31, 2010 were as follows: Dollars in Millions StockOptions RestrictedStock Long-TermPerformanceAwards Unrecognized compensation cost $ 71 $ 235 $ 49 Expected weighted-average period of compensation cost to be recognized 2.2years 2.6years 1.6years |
FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS | |
3 Months Ended
Mar. 31, 2010 | |
FINANCIAL INSTRUMENTS | Note 16. FINANCIAL INSTRUMENTS Financial instruments include cash and cash equivalents, marketable securities, receivables, accounts payable, debt instruments and derivatives. Due to their short term maturity, the carrying amount of receivables and accounts payable approximate fair value. For further information about cash, cash equivalents and marketable securities, see Note 9. Cash, Cash Equivalents and Marketable Securities. There is exposure to market risk due to changes in currency exchange rates and interest rates. As a result, certain derivative financial instruments are used when available on a cost-effective basis to hedge the underlying economic exposure. These instruments qualify as cash flow, net investment and fair value hedges upon meeting certain criteria, including effectiveness of offsetting hedged exposures. Changes in fair value of derivatives that do not qualify for hedge accounting are recognized in earnings as they occur. All financial instruments, including derivatives, are subject to counterparty credit risk which is considered as part of the overall fair value measurement. Derivative financial instruments are not used for trading purposes. Foreign currency forward contracts are used to manage cash flow exposures. The primary net foreign currency exposures hedged are the euro, Japanese yen, Canadian dollar, British pound, Australian dollar and Mexican peso. Fixed-to-floating interest rate swaps are used as part of the interest rate risk management strategy. These swaps generally qualify for fair-value hedge accounting treatment. Certain net asset changes due to foreign exchange volatility are generally hedged through non-U.S. dollar borrowings which qualify as a net investment hedge. Qualifying Hedges Cash Flow Hedges Foreign Currency Forward Contracts Foreign currency forward contracts are utilized to hedge forecasted intercompany and other transactions for certain foreign currencies. These contracts are designated as foreign currency cash flow hedges when appropriate. The effective portion of changes in fair value for the designated foreign currency hedges is temporarily reported in accumulated OCI and recognized in earnings when the hedged item affects earnings. The net deferred gains on foreign currency forward contracts qualifying for cash flow hedge accounting are expected to be reclassified to earnings within the next two years. Effectiveness is assessed at the inception of the hedge and on a quarterly basis. These assessments determine whether derivatives designated as qualifying hedges continue to be highly effective in offsetting changes in the cash flows of hedged items. Any ineffective portion of change in fair value is included in current period earnings. The impact of hedge ineffectiveness on earnings was not significant during the three months ended March 31, 2010. Cash flow hedge accounting is discontinued when the forecasted transaction is no longer probable of occurring on the originally forecasted date, or 60 days thereafter, or when the hedge is no longer effective. Discontinued foreign currency forward hedges resulted in a pre-tax gain of $2 million du |
LEGAL PROCEEDINGS AND CONTINGEN
LEGAL PROCEEDINGS AND CONTINGENCIES | |
3 Months Ended
Mar. 31, 2010 | |
LEGAL PROCEEDINGS AND CONTINGENCIES | Note 17. LEGAL PROCEEDINGS AND CONTINGENCIES Various lawsuits, claims, government investigations and other legal proceedings are pending involving the Company and certain of its subsidiaries. The Company recognizes accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. These matters involve antitrust, securities, patent infringement, pricing, sales and marketing practices, environmental, commercial, health and safety matters, consumer fraud, employment matters, product liability and insurance coverage. The most significant of these matters are described below. Although the Company believes it has substantial defenses in these matters, there can be no assurance that there will not be an increase in the scope of pending matters or that any future lawsuits, claims, government investigations or other legal proceedings will not be material. INTELLECTUAL PROPERTY PLAVIX* Litigation PLAVIX* is currently the Companys largest product ranked by net sales. The PLAVIX* patents are subject to a number of challenges in the U.S., including the litigation with Apotex Inc. and Apotex Corp. (Apotex) described below, and in other less significant markets for the product. It is not reasonably possible to estimate the impact of these lawsuits on the Company. However, loss of market exclusivity of PLAVIX* and sustained generic competition in the U.S. would be material to the Companys net sales of PLAVIX*, results of operations and cash flows, and could be material to the Companys financial condition and liquidity. The Company and its product partner, sanofi, (the Companies) intend to vigorously pursue enforcement of their patent rights in PLAVIX*. PLAVIX* Litigation U.S. Patent Infringement Litigation against Apotex and Related Matters As previously disclosed, the Companys U.S. territory partnership under its alliance with sanofi is a plaintiff in a pending patent infringement lawsuit instituted in the United States District Court for the Southern District of New York (District Court) entitled Sanofi-Synthelabo, Sanofi-Synthelabo, Inc. and Bristol-Myers Squibb Sanofi Pharmaceuticals Holding Partnership v. Apotex. The suit is based on U.S. Patent No. 4,847,265 (the 265 Patent), a composition of matter patent, which discloses and claims, among other things, the hydrogen sulfate salt of clopidogrel, a medicine made available in the U.S. by the Companies as PLAVIX*. Also, as previously reported, the District Court upheld the validity and enforceability of the 265 Patent, maintaining the main patent protection for PLAVIX* in the U.S. until November 2011. The District Court also ruled that Apotexs generic clopidogrel bisulfate product infringed the 265 Patent and permanently enjoined Apotex from engaging in any activity that infringes the 265 Patent, including marketing its generic product in the U.S. until after the patent expires. Apotex appealed the District Courts decision and on December 12, 2008, the United States Court of Appeals for the Federal Circuit (Circuit Court) affirmed the District Courts ruling sustaining the valid |