SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
Commission File Number 1-1136
BRISTOL-MYERS SQUIBB COMPANY
(Exact name of registrant as specified in its charter)
Delaware 22-079-0350
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
345 Park Avenue, New York, N.Y. 10154
(Address of principal executive offices)
Telephone: (212) 546-4000
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
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
At September 30, 1998, there were 993,571,678 shares outstanding of the
Registrant's $.10 par value Common Stock.
BRISTOL-MYERS SQUIBB COMPANY
INDEX TO FORM 10-Q
September 30, 1998
Page No.
-----------
Part I - Financial Information:
Financial Statements (Unaudited):
Consolidated Balance Sheet - September 30, 1998
and December 31, 1997 2 - 3
Consolidated Statement of Earnings and Comprehensive Income for
the three and nine months ended September 30, 1998 and 1997 4
Consolidated Statement of Cash Flows for the nine
months ended September 30, 1998 and 1997 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 14
Part II - Other Information 15 - 20
Signatures 21
-1-
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEET - ASSETS
(Unaudited, in millions except share amounts)
September 30 December 31,
1998 1997
------------ ------------
Current Assets:
Cash and cash equivalents $ 1,531 $ 1,456
Time deposits and marketable
securities 308 338
Receivables, net of allowances 3,129 2,973
Finished goods 1,101 1,153
Work in process 241 197
Raw and packaging materials 433 449
---------- ----------
Inventories 1,775 1,799
Prepaid expenses 977 1,170
---------- ----------
Total Current Assets 7,720 7,736
---------- ----------
Property, Plant and Equipment 7,221 7,001
Less: Accumulated depreciation 2,973 2,845
---------- ----------
4,248 4,156
---------- ----------
Insurance Recoverable 529 619
Excess of cost over net tangible assets
received in business acquisitions 1,580 1,625
Other Assets 848 841
---------- ----------
Total Assets $14,925 $14,977
========== ==========
-2-
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEET -
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited, in millions except share amounts)
September 30, December 31,
1998 1997
----------- ------------
Current Liabilities:
Short-term borrowings $ 504 $ 543
Accounts payable 1,067 1,017
Accrued expenses 2,117 1,939
Product liability 343 865
U.S. and foreign income taxes payable 614 668
---------- ----------
Total Current Liabilities 4,645 5,032
Other Liabilities 1,419 1,447
Long-Term Debt 1,314 1,279
---------- ----------
Total Liabilities 7,378 7,758
---------- ----------
Stockholders' Equity:
Preferred stock, $2 convertible series:
Authorized 10 million shares; issued and
outstanding 12,112 in 1998 and 12,936 in
1997, liquidation value of $50 per share - -
Common stock, par value of $.10 per share:
Authorized 2.25 billion shares; issued
1,093,589,093 in 1998 and 1,083,253,703
in 1997 109 108
Capital in excess of par value of stock 1,102 544
Cumulative translation adjustments (677) (533)
Retained earnings 12,514 10,950
---------- ----------
13,048 11,069
Less cost of treasury stock - 100,017,415
common shares in 1998 and 90,069,383 in 1997 5,501 3,850
---------- ----------
Total Stockholders' Equity 7,547 7,219
---------- ----------
Total Liabilities and Stockholders' Equity $14,925 $14,977
========== ==========
-3-
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited, in millions of dollars except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1998 1997 1998 1997
EARNINGS -------- -------- -------- --------
- ---------------
Net Sales $4,523 $4,151 $13,399 $12,260
-------- -------- -------- --------
Cost of products sold 1,191 1,110 3,549 3,285
Marketing, selling, administrative
and other 1,034 949 3,116 3,017
Advertising and product promotion 554 550 1,767 1,604
Research and development 398 346 1,165 993
Provision for restructuring - - 201 -
Gain on sale of businesses - - (201) -
-------- -------- -------- --------
3,177 2,955 9,597 8,899
-------- -------- -------- --------
Earnings Before Income Taxes 1,346 1,196 3,802 3,361
Provision for income taxes 380 341 1,074 958
-------- -------- -------- --------
Net Earnings $ 966 $ 855 $2,728 $2,403
======== ======== ======== ========
Earnings Per Common Share
Basic $.97 $.86 $2.74 $2.41
Diluted $.95 $.84 $2.68 $2.36
Average Common Shares Outstanding (in millions)
Basic 995 995 994 997
Diluted 1,015 1,021 1,016 1,018
Dividends Per Common Share $.39 $.38 $1.17 $1.14
COMPREHENSIVE INCOME
- --------------------
Net Earnings $966 $855 $2,728 $2,403
Other Comprehensive Income:
Foreign currency translation (68) (87) (155) (201)
Tax effect 6 17 11 38
-------- -------- -------- --------
Total Other Comprehensive Income (62) (70) (144) (163)
-------- -------- -------- --------
Comprehensive Income $904 $785 $2,584 $2,240
======== ======== ======== ========
-4-
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in millions of dollars)
Nine Months Ended
September 30,
---------------------------
1998 1997
--------- ---------
Cash Flows From Operating Activities:
Net earnings $ 2,728 $ 2,403
Depreciation and amortization 457 409
Provision for restructuring 201 0
Gain on sale of businesses (201) 0
Other operating items 27 (10)
Receivables (262) (290)
Inventories (81) (265)
Accounts payable 89 (41)
Accrued expenses (242) (79)
Product liability (493) (421)
Insurance recoverable 89 223
Income taxes 468 50
Other assets and liabilities (103) (96)
-------- --------
Net Cash Provided by Operating Activities 2,677 1,883
-------- --------
Cash Flows From Investing Activities:
Proceeds from sales of time deposits and
marketable securities 225 465
Purchases of time deposits and marketable
securities (195) (266)
Additions to fixed assets (537) (438)
Proceeds from sale of business 413 0
Acquisition of businesses (67) (170)
Other, net 10 26
-------- --------
Net Cash Used in Investing Activities (151) (383)
-------- --------
Cash Flows From Financing Activities:
Short-term borrowings (30) 80
Long-term debt 69 305
Issuances of common stock under stock plans 129 226
Purchases of treasury stock (1,448) (971)
Dividends paid (1,163) (1,138)
-------- --------
Net Cash Used in Financing Activities (2,443) (1,498)
-------- --------
Effect of Exchange Rates on Cash (8) (19)
-------- --------
Increase / (Decrease) in Cash and Cash Equivalents 75 (17)
Cash and Cash Equivalents at Beginning of Period 1,456 1,681
-------- --------
Cash and Cash Equivalents at End of Period $1,531 $1,664
======== ========
-5-
BRISTOL-MYERS SQUIBB COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(in millions, except per share amounts)
Basis of Presentation
- ---------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments (consisting only of normal
adjustments) necessary for a fair presentation of the financial position
of Bristol-Myers Squibb Company (the "Company") at September 30, 1998 and
December 31, 1997, the results of operations for the three and nine months
ended September 30, 1998 and 1997, and cash flows for the nine months ended
September 30, 1998 and 1997. These consolidated financial statements should
be read in conjunction with the consolidated financial statements and the
related notes included in the Company's 1997 Annual Report on Form 10-K.
Third Quarter Results of Operations
- -----------------------------------
Sales
- ------
Worldwide sales for the third quarter of 1998 increased 9% (12% excluding
the effect of foreign exchange) over the prior year to $4,523. The
consolidated sales growth resulted from a 10% increase due to volume, a 3%
decrease due to the effect of foreign exchange and a 2% increase due to
changes in selling prices. Domestic sales increased 16% and international
sales decreased 2% (an increase of 5% excluding the effect of foreign
exchange). Worldwide sales for the third quarter of 1997 increased 11%
compared to the third quarter of 1996.
Industry Segments
- ----------------- Three Months Ended September 30,
------------------------------------------------
Net Sales % Change
----------------------- --------------------
1998 1997 1998 1997
------- ------- ------ -------
Pharmaceutical Products $2,812 $2,424 16 % 13 %
Consumer Medicines 288 321 (10)% 18 %
Medical Devices 385 444 (13)% (3)%
Nutritional Products 441 452 (2)% 6 %
Beauty Care Products 597 510 17 % 13 %
------- -------
Total Company $4,523 $4,151 9 % 11 %
======= =======
Sales in the pharmaceutical products segment, which is the largest segment
at 62% of total company sales, increased 16% (18% excluding foreign exchange)
over the third quarter of 1997 to $2,812. Sales growth resulted from a 16%
increase in volume, a 2% decrease due to the effect of foreign exchange and
a 2% increase in selling prices. Domestic pharmaceutical sales increased 26%
and international sales increased 6% excluding foreign exchange.
Sales of cardiovascular drugs, the largest product group in the segment,
increased 11% to $775 (13% excluding foreign exchange). Sales of PRAVACHOL*,
the Company's largest selling product, increased 11% to $390. Domestic sales
of PRAVACHOL* increased 14% to $244 and international sales increased 7% to
$146 (11% excluding foreign exchange). In July 1998, additional findings of
the Cholesterol and Recurrent Events (CARE) Trial were published in the
Journal of the American College of Cardiology. The results of the analysis
showed extensive proof of cardiovascular protection in women, the subgroup
that was studied, as well as for a broad range of patients. PRAVACHOL* is
the only drug of its type indicated to reduce the risk of a heart attack in
patients with and without established coronary heart disease. Sales of the
anti-hypertensive MONOPRIL*, a second generation angiotensin converting
enzyme (ACE) inhibitor with once-a-day dosing, increased 13% to $86. AVAPRO
and PLAVIX, recently launched products from the Bristol-Myers Squibb and
Sanofi S.A. joint venture, contributed $86 to sales in the third quarter.
AVAPRO is an angiotensin II receptor blocker for the treatment of hypertension
and PLAVIX is a platelet aggregation inhibitor for the reduction of stroke,
heart attack and vascular death in atherosclerotic patients. Sales growth for
these cardiovascular products was partially offset by a 21% decline in
CAPOTEN* sales due to the loss of patent exclusivity in Europe.
Sales of anti-cancer drugs increased 21% to $774. Sales of TAXOL(r)*
(paclitaxel), the Company's leading anti-cancer agent, increased 25% to $304.
In September 1998, the FDA approved another company's product, Herceptin(r)**,
as a first-line therapy in combination with TAXOL* for treatment of patients
with metastatic breast cancer. Also in September, the European Community
approved a TAXOL* indication for non-small cell lung cancer. Sales of
PARAPLATIN*, an anti-cancer agent used in combination with other chemotherapy
agents, increased 25% to $148. Sales in the Oncology Therapeutics Network
increased 36% to $171.
Anti-infective drug sales of $589 increased 14% over the prior year. ZERIT*
and VIDEX*, the Company's two antiretroviral agents, increased 22% to $133
and 17% to $43, respectively. ZERIT* is now the most commonly prescribed
thymidine nucleoside reverse transcriptase inhibitor in HIV therapy. Sales
of CEFZIL*, used in the treatment of respiratory infections and the treatment
of sinusitis, increased 89% to $98, in anticipation of the upcoming flu
season. Sales of MAXIPIME*, a fourth generation injectable cephalosporin,
were $30, an increase of 29% over the prior year.
* Indicates brand names of products which are registered trademarks owned
by the Company.
** Herceptin is a registered trademark of Genentech Inc.
Central nervous system drug sales of $255 increased 14% over the prior
year, primarily as a result of BUSPAR*, an anti-anxiety agent, and SERZONE*,
an anti-depressant, which recorded growth of 23% to $138, and 53% to $61,
respectively.
GLUCOPHAGE, the leading branded oral medication for the treatment of non-
insulin dependent (type 2) diabetes, continued its strong growth rate with
sales increasing 33% to $222. In September 1998, results of the United
Kingdom Prospective Diabetes Study demonstrated the excellent therapeutic
efficacy profile of GLUCOPHAGE in the treatment of type 2 diabetes.
For the third quarter of 1997, sales of the pharmaceutical products segment
increased 13% over the third quarter of 1996 to $2,424 as a result of
increases in sales of PRAVACHOL*, GLUCOPHAGE, ZERIT*, TAXOL*, BUSPAR*, and
PARAPLATIN*, which were partially offset by a decrease in CAPOTEN* sales.
Sales in the consumer medicines segment decreased 1% to $288, excluding the
March 1998 divestiture of the Company's BAN* brand of antiperspirants and
deodorants. Including the divested business, sales decreased 10% reflecting
a 9% decrease in volume, a 3% decrease due to the effect of foreign exchange
and a 2% increase due to changes in selling prices. Sales of EXCEDRIN*
increased 7% to $58 following clearance by the FDA in January 1998 to market
EXCEDRIN* MIGRAINE, the first and only non-prescription medication approved
for relief of migraine pain. International consumer medicines sales
decreased 2% (an increase of 3% excluding foreign exchange). BUFFERIN* sales
of $26 increased 1%, and sales of EFFERALGAN*, an analgesic product from the
Company's UPSA group, decreased 2% to $31, both excluding foreign exchange.
For the third quarter of 1997, consumer medicines segment sales increased 18%
to $321, compared to the third quarter of 1996 due to increased sales of
EXCEDRIN* and EFFERALGAN*.
Medical Device sales increased 1% to $385 (5% excluding the effect of
foreign exchange) excluding the December 1997 divestiture of Zimmer's
arthroscopy and surgical powered instrument business. Including sales of the
divested products, sales were 13% below prior year levels, reflecting
decreases of 10% due to volume and 3% due to the effect of foreign exchange.
Changes in selling prices had no effect on sales for the quarter. ConvaTec's
sales increased 3% to $176, excluding the effect of foreign exchange, as
sales of wound care and ostomy products increased 6% to $59 and 1% to $112,
respectively, excluding foreign exchange. Zimmer sales decreased 22% from
prior year levels to $209. Excluding the December 1997 divestiture, Zimmer
sales increased 2% (7% excluding the effect of foreign exchange rate
fluctuations). The 1998 increase is due primarily to the inclusion of revenue
under a distribution agreement with the acquirer of the divested business.
Knee prosthetic joint replacement sales decreased 1% to $78 and hip
replacement sales decreased 2% to $59, both excluding foreign exchange. For
the third quarter of 1997, medical devices segment sales of $444 were 3%
below 1996 levels as decreases due to the effect of foreign exchange and
changes in selling prices offset increased sales in prosthetic implants,
wound care and ostomy products.
Sales in the nutritional products segment decreased 2% from the third quarter
of 1997 to $441 (an increase of 3% excluding the effect of foreign exchange),
reflecting a 1% increase due to volume, a 5% decrease due to the effect of
foreign exchange and a 2% increase in selling prices. The Company's Mead
Johnson subsidiary maintains its worldwide leadership position in the infant
formula market. Total infant formula sales were $304 for the third quarter
of 1998, an increase of 2% from prior year levels. ENFAMIL* increased 3% to
$166 (6% excluding foreign exchange) and total special infant formulas
increased 8% to $110. BOOST* an adult nutritional supplement also
contributed to sales growth, increasing 23% to $24. For the third quarter
of 1997, nutritional products segment sales increased 6% to $452 compared to
the third quarter of 1996 due to increased sales of NUTRAMIGEN* and LACTOFREE*.
Sales in the beauty care products segment increased 17% over the third quarter
of 1997 to $597, reflecting a 19% increase due to volume, a 2% increase due to
changes in selling prices and a 4% decrease due to the effect of foreign
exchange. Clairol continues to be the number one hair products company in the
U.S., increasing its market share to its highest level to date, following the
January 1998 acquisition of Redmond Products, Inc. The Redmond AUSSIE brand
has added $30 to Beauty Care sales in the quarter. HERBAL ESSENCES*, the
number two brand in total hair care and the number two shampoo in the U.S.,
after only three years in the market, continued its strong growth, increasing
44% to $154. NICE 'N EASY* sales increased 4% to $45 following its recent
re-stage. Sales of DAILY DEFENSE*, launched in September 1997, contributed
$26 to third quarter sales, and REVITALIQUE*, a new permanent haircolor
launched in June 1998, reached sales of $18. For the third quarter of 1997,
sales of the beauty care products segment were $510, an increase of 13%
over the third quarter of 1996 due to increased sales of HERBAL ESSENCES*,
HYDRIENCE* and INFUSIUM 23*.
Cost of Products Sold and Operating Expenses
- --------------------------------------------
Total costs and expenses for the quarter ended September 30, 1998, as a
percentage of sales, decreased to 70.2% from 71.2%. Cost of products
sold decreased to 26.3% of sales from 26.7% in 1997 due to the lower margins
of the divested businesses. Expenditures for advertising and promotion in
support of new and existing products increased 1% to $554 from $550 in 1997.
Marketing, selling, administrative and other expenses increased 9% to $1,034.
Research and development expenditures increased 15% to $398 from $346 in 1997.
Pharmaceutical research and development spending increased 17% over the prior
year, and as a percentage of pharmaceutical sales, was 12.6% in 1998 and
12.3% in 1997.
Earnings
- --------
Earnings before income taxes for the third quarter increased 13% to $1,346
from $1,196 in 1997. The effective tax rate on earnings before income taxes
decreased to 28.2% in 1998 from 28.5% in 1997. Net earnings increased 13%
to $966 from $855. Basic earnings per share increased 13% to $.97 from $.86
in 1997 and diluted earnings per share increased 13% to $.95 from $.84 in 1997.
Year-To-Date Results of Operations
- ----------------------------------
Sales
- ------
Worldwide sales for the first nine months of 1998 increased 9% (13% excluding
the effect of foreign exchange) over the prior year to $13,399. The
consolidated sales growth resulted from an 11% increase due to volume, a 4%
decrease due to the effect of foreign exchange and a 2% increase due to
changes in selling prices. Domestic sales increased 15% and international
sales increased 2% (10% excluding the effect of foreign exchange). Worldwide
sales for the first nine months of 1997 increased 10% compared to the first
nine months of 1996.
Industry Segments
- ----------------- Nine Months Ended September 30,
-----------------------------------------------
Net Sales % Change
-------------------- --------------------
1998 1997 1998 1997
-------- -------- ------- -------
Pharmaceutical Products $ 8,216 $ 7,148 15 % 13 %
Consumer Medicines 927 999 (7)% 15 %
Medical Devices 1,210 1,334 (9)% (2)%
Nutritional Products 1,313 1,337 (2)% 6 %
Beauty Care Products 1,733 1,442 20 % 13 %
-------- --------
Total Company $13,399 $12,260 9 % 10 %
======== ========
Pharmaceutical products segment sales were $8,216, an increase of 15% over
the prior year, reflecting a 16% increase due to volume, a 3% decrease due
to the effect of foreign exchange and a 2% increase due to changes in selling
prices.
Domestic and international sales increased 23% and 3%, respectively.
Excluding the unfavorable effect of foreign exchange, international sales
increased 10% for the nine months. Cardiovascular drug sales of $2,309
increased 9% from the prior year (excluding the effect of foreign exchange,
sales increased 13%). PRAVACHOL* and MONOPRIL* sales grew 16% to $1,196 and
24% to $288, respectively. Initial sales of AVAPRO and PLAVIX reached $71 and
$74, respectively. Sales growth for these products was partially offset by
a 21% decline in CAPOTEN* sales, due to the loss of its patent exclusivity in
certain countries in Europe during 1997. Sales of anti-cancer drugs
increased 19% to $2,138 due to strong sales of TAXOL* and PARAPLATIN*, up 25%
to $859 and 24% to $401, respectively, as well as OTN sales which increased
35% to $466. Anti-infective drug sales increased 12% to $1,780. Gains were
recorded for ZERIT* and VIDEX*, increasing 41% to $390 and 11% to $117,
respectively, as well as CEFZIL* and MAXIPIME*, up 36% to $296 and 28% to $88,
respectively. Sales of central nervous system drugs continued to experience
growth, increasing 15% to $748. Sales of SERZONE* and BUSPAR* increased 60%
to $196 and 17% to $368, respectively. GLUCOPHAGE continued its strong growth,
increasing 46% to $641. For the first nine months of 1997, sales of the
pharmaceutical products segment increased 13% over the prior year primarily as
a result of increases in sales of PRAVACHOL*, MONOPRIL*, GLUCOPHAGE,
anti-cancer, anti-infective and central nervous system drugs, partially offset
by the decline in CAPOTEN* sales.
In the consumer medicines segment, excluding the divestiture of BAN*, consumer
medicines sales decreased 2% (an increase of 3% excluding foreign exchange).
Including the divested business, sales decreased 7% to $927, reflecting a 4%
decrease due to volume, a 4% decrease due to the effect of foreign exchange
and a 1% increase due to changes in selling prices. International sales
decreased 2% to (an increase of 5% excluding the effect of foreign exchange).
Sales of EXCEDRIN* increased 17% to $174. For the first nine months of 1997,
consumer medicines segment sales increased 15% over the prior year, primarily
due to the strong performance of analgesics from the UPSA Group.
Sales in the medical devices segment decreased 9% from prior year levels to
$1,210, reflecting a 6% decrease due to volume, a 3% decrease due to the
effect of foreign exchange, and no effect from changes in selling prices.
Excluding the December 1997 divestiture of Zimmer's arthroscopy and surgical
powered instrument business, domestic sales increased 9% and international
sales increased 5% (12% excluding the effect of foreign exchange). Sales of
ostomy and wound care products from the Company's ConvaTec subsidiary
increased 4% to $332 and 9% to $172 respectively, excluding foreign exchange.
Zimmer sales decreased 17% from prior year levels (14% excluding the effect
of foreign exchange rate fluctuations) due to the 1997 divestiture. Knee
prosthetic joint replacement sales increased 1% to $250 and hip replacement
sales remained at prior year levels at $191, excluding foreign exchange. For
the first nine months of 1997, medical devices segment sales decreased 2% from
the prior year levels as decreases due to the effect of foreign exchange
offset increased sales in prosthetic implants, wound care and ostomy products.
In the nutritional products segment, sales decreased 2% to $1,313, reflecting
a 1% increase due to volume, a 6% decrease due to the effect of foreign
exchange and a 3% increase due to changes in selling prices. Domestic sales
increased 2% and international sales decreased 7% (an increase of 7%
excluding the effect of foreign exchange). Total infant formula sales
decreased 2% to $899 (sales increased 2% excluding foreign exchange).
ENFAMIL*, the Company's largest selling infant formula had sales of $486,
a decrease of 4% (2% excluding foreign exchange). Gains were recorded for
LACTOFREE*, NUTRAMIGEN* and BOOST*, up 9% to $86, 8% to $89 and 24% to $65,
respectively. For the first nine months of 1997, nutritional products
segment sales increased 6% over the prior year, primarily due to increased
sales of LACTOFREE*, ENFAPRO* and BOOST*.
Sales in the beauty care products segment increased 20% over the prior year,
to $1,733 reflecting a 22% increase due to volume, a 2% increase in selling
prices, and a 4% decrease due to the effect of foreign exchange. Domestic
sales increased 22% and international sales increased 17%. Sales of hair
care products increased 49% to $877 due to strong growth of the HERBAL
ESSENCES* complete line of shampoos and conditioners, which increased 70%
to $419, initial sales of the Redmond AUSSIE* brand of $81, and introductory
sales of DAILY DEFENSE* of $58. Sales of HYDRIENCE* haircolor grew 20% to
$73 and introductory sales of REVITALIQUE*, a new permanent haircolor, were
$34. For the first nine months of 1997, sales in the beauty care products
segment increased 13% over the prior year primarily due to increased sales
of HERBAL ESSENCES*, HYDRIENCE* and INFUSIUM 23*.
Cost of Products Sold and Operating Expenses
- --------------------------------------------
Total costs and expenses for the nine months ended September 30, 1998, as
a percentage of sales, decreased to 71.6% from 72.6%. Cost of products
sold decreased to 26.5% of sales from 26.8% in 1997 primarily due to the
lower margin of divested businesses. Expenditures for advertising and
promotion in support of new and existing products increased 10% to $1,767
from $1,604 in 1997. This increase is primarily due to increased spending
on the Company's promoted pharmaceutical and beauty care products. Marketing,
selling, administrative and other expenses increased 3% to $3,116. Research
and development expenditures increased 17% to $1,165 from $993 in 1997.
Pharmaceutical research and development spending increased 19% over the prior
year, and as a percentage of pharmaceutical sales, was 12.6% compared to
11.9% in the same period of 1997.
Earnings
- --------
Earnings before income taxes for the nine months increased 13% to $3,802 from
$3,361 in 1997. The effective tax rate on earnings before income taxes
decreased to 28.3% in 1998 from 28.5% in 1997. Net earnings increased 14% to
$2,728 from $2,403. Basic earnings per share increased 14% to $2.74 from
$2.41 in 1997 and diluted earnings per share increased 14% to $2.68 from $2.36
in 1997.
Financial Position
- ------------------
The balance sheet at September 30, 1998 and the statement of cash flows for
the nine months then ended reflect the Company's strong financial position.
The Company continues to maintain a high level of working capital increasing
to $3.1 billion at September 30, 1998, from $2.7 billion at December 31, 1997.
Long-Term Debt increased to $1,314 from $1,279 at December 1997 due to the
issuance, in February 1998, of $100 million principal 2.14% and 1.73% Yen
denominated notes due in 2003 and 2005.
Internally generated funds continue to be the Company's primary source for
financing expenditures for new plant and equipment. Additions to fixed assets
for the nine months ended September 30, 1998 were $537 compared to $438 during
the same period of 1997.
During the nine months ended September 30, 1998, the Company purchased 14.2
million shares of its common stock at a total cost of $1,448. In 1998, 2.4
million shares were issued in connection with an acquisition.
YEAR 2000
- ---------
As described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, the Company has reviewed its information systems for
YEAR 2000 compliance. The YEAR 2000 problem arises because many computer
systems use only two digits to represent the year. These programs may not
process dates beyond 1999, which may cause miscalculations or system failures.
The Company has a comprehensive compliance program to assess the YEAR 2000
problem in the processing of data in the Company's information technology
("IT"), and non-IT systems, including manufacturing, and research and
development systems. With regard to information technology systems, this
program has been implemented, and the assessment as well as the required
corrective actions is substantially complete. With regard to the critical
manufacturing, and research and development systems, the assessment has been
completed, with corrective actions to be substantially completed by mid-year
1999.
In connection with this compliance program, the Company has also asked
critically important vendors, customers, suppliers, governmental regulatory
authorities, and financial institutions whose incomplete or untimely
resolution of the YEAR 2000 problem could potentially have a significant
impact on the Company's operations to assess their YEAR 2000 readiness. This
assessment will be substantially completed by the end of 1998.
Contingency plans are being prepared, where necessary, to minimize any
significant exposures from the failures of these third parties to be YEAR 2000
compliant. These plans will be substantially completed by mid-year 1999, and
include development of backup procedures, identification of alternate
suppliers, and possible increases in inventory levels.
The Company does not expect the YEAR 2000 problem, as well as the cost of the
compliance program, to have a material impact on the results of operations,
financial condition or cash flows. However, there can be no absolute assurance
that third parties will convert their systems in a timely manner and in a way
that is compatible with the Company's systems.
Euro Conversion
- ---------------
On January 1, 1999, certain members of the European Union are scheduled to
establish fixed conversion rates between their existing currencies and the
European Union's common currency, known as the Euro. The transition period
for the introduction of the Euro will be between January 1, 1999 and January
1, 2002. It is planned that by July 1, 2002, the participating countries will
withdraw all currencies and exclusively use the Euro.
The Company has committed resources to conduct assessments and to take
corrective actions to ensure the Company is prepared for the introduction of
the Euro. The Company is currently evaluating methods to address the many
areas involved with the introduction of the Euro, including information
management, finance, legal, and tax. This review includes the conversion
of information technology business and financial systems, evaluating currency
risk and the effect on the company's financial instruments, as well as the
impact concerning the pricing and the distribution of our products.
The Company believes the effect of the introduction of the Euro, as well as
any related cost of conversion, will not have a material impact on the
results of operations, financial condition and cash flows.
Recently Issued Accounting Standard
- -----------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
which requires that companies recognize all derivatives as either assets or
liabilities in the balance sheet and measure these instruments at fair
value. The Company is required to adopt this Statement by the first quarter
of 2000 and is currently assessing the effect of the new standard.
Reference is made to Part II, Item 1 - Legal Proceedings in which
developments are described for various lawsuits, claims and proceedings
in which the Company is involved.
BRISTOL-MYERS SQUIBB COMPANY
PART II - OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings
- --------------------------
Various lawsuits, claims and proceedings of a nature considered normal to its
business are pending against the Company and certain of its subsidiaries.
The most significant of these are reported in the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997, and material
developments in such matters are described in the Company's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1998 and June 30, 1998, and below.
Breast Implant Product Liability Litigation and Prescription Drug Litigation -
Additional Litigation Reserves
- -------------------------------
As previously reported in the Company's Form 10-K for the fiscal year
referred to above, the Company, together with its subsidiary Medical
Engineering Corporation (MEC) and certain other companies, has been named as
a defendant in a number of claims and lawsuits alleging damages for personal
injuries of various types resulting from polyurethane-covered silicone breast
implants and smooth-walled silicone breast implants formerly manufactured by
MEC or a related company.
Also, as previously reported in the Company's Form 10-K and 10-Q Reports
referred to above, the Company is a defendant in a number of actions against
the Company, other pharmaceutical manufacturers, drug wholesalers and pharmacy
benefit managers, in various federal and state courts, brought by certain
chain drugstores, supermarket chains, independent drugstores and consumers,
suing either individually or as representatives of classes of retail
pharmacies or consumers. These cases all seek treble damages and injunctive
relief on account of alleged antitrust violations in the pricing and
marketing of brand name prescription drugs.
For breast implants, the litigation has now reached a point where substantial
information is known about its size and scope. In the fourth quarter of 1998
a number of events are expected to have conjoined to permit the Company to
make a reasoned projection of the overall financial impact on the Company of
breast implant product liability litigation. The Revised Settlement Program
pending before Federal Judge Sam C. Pointer, Jr. (see below) has progressed
to a point where substantial information is now known about the nature of the
claims of persons participating in the Program. In recent months, more
knowledge has been acquired about the nature of the claims of persons opting
out of the Revised Settlement Program and into the court system (see below).
Accordingly, the Company now believes it can estimate within reasonable range
the financial impact of this litigation on the Company, and it expects to
take in the fourth quarter of 1998 an additional special charge to earnings
in the range of $700 to $800 million before taxes and to increase insurance
receivables in the approximate amount of $100 million leaving a net charge
to earnings in the range of $375 to $435 million after taxes in respect of
breast implant product liability. The Company does not expect any additional
special charge in the future in respect of this loss contingency.
As to the prescription drug litigation, as previously reported, the Company,
along with most other defendant pharmaceutical companies, entered into a
settlement of the national retailer class action pending before Federal Judge
Charles P. Kocoras (see below), which is now on trial as to remaining
pharmaceutical company defendants and others. In addition, the Company has
also entered into settlements with certain retailer class members who opted
out of the national class action, and is vigorously defending its position
in court as to other opt-out retailers. The Company is also defending state
cases asserting so-called consumer antitrust claims based on the same or
similar theories of antitrust liability. In light of the foregoing, the
Company expects to take in the fourth quarter of 1998, a special charge to
earnings, in respect of prescription drug litigation in the approximate
amount of $100 million, or approximately $60 million after taxes.
More details with respect to these matters are as follows:
Breast Implant Litigation
- -------------------------
Of the more than 90,000 claims or potential claims against the Company in
direct lawsuits or through registration in the national class action Revised
Settlement Program, most have been dealt with through the Revised Settlement,
other settlements, or trial. It is expected that as of January 1, 1999, the
Company's contingent liability in respect of breast implant claims will be
limited to residual unpaid Revised Settlement Program obligations and to
roughly 6,000 remaining opt-outs who have pursued or may pursue their claims
in court. As of October 9, 1998, approximately 15,750 U.S. and 1,300 foreign
breast implant recipients were still at least technically plaintiffs in
lawsuits pending in federal and state courts in the U.S. and in certain courts
in Canada and Australia. In these lawsuits, about 10,400 U.S. and 380 foreign
plaintiffs have opted out of the Revised Settlement. The lawsuits of the
5,350 U.S. plaintiffs who have not opted out are expected to be dismissed
since these plaintiffs are among the estimated 74,000 women with MEC implants
who have chosen to participate in the nationwide settlement. Of the remaining
opt-out plaintiffs, some have claims based upon products which were not
manufactured and sold by MEC; many others have claims that are in the process
of being settled. Under the terms of the Revised Settlement Program,
additional opt-outs are expected to be minimal since the deadline for U.S.
class members to opt out has passed. In addition, the Company's remaining
obligations under the Revised Settlement Program are limited because most
payments to "Current Claimants" (see below) have already been made, no
additional "Current Claims" may be filed without court approval, and because
payments of claims to so-called "Other Registrants" and "Late Registrants"
are limited by the terms of the Revised Settlement Program. The Company
believes it will be able to address remaining opt-out claims as well as
expected remaining obligations under the Revised Settlement Program within
its existing reserves as augmented by the expected fourth quarter 1998
special charge to earnings referred to above.
Breast implants were manufactured by several companies, including MEC,
which the Company acquired in 1982. Until 1991, MEC manufactured two types
of breast implants, polyurethane-covered silicone breast implants and
smooth-walled silicone breast implants. In these lawsuits, plaintiffs
typically contend that silicone in breast implants causes systemic disease
and/or local complications. Some plaintiffs with polyurethane-covered
silicone breast implants contend that the polyurethane component causes
injury, including cancer. Most of the disease claims involve non-specific
complaints such as chronic fatigue, aches and pains and other symptoms that
commonly affect the population at large. Many women claim local complications
such as rupture, hardening or contracture, and disfigurement or scarring.
The plaintiffs typically seek compensatory damages for alleged medical
conditions and emotional distress as well as punitive damages. The
defendants have based their defense in part on the lack of credible scientific
evidence that breast implants cause disease. Many large scale epidemiological
studies have found no connection between breast implants and alleged diseases.
Defendants also contend that warnings set forth in the product literature
adequately advised physicians and surgeons of the risks of local complications.
The Company is a participant in the national class action Revised Settlement
Program approved on December 22, 1995, by the Honorable Sam C. Pointer, Jr.,
Chief Judge of the United States District Court for the Northern District of
Alabama (Lindsey, et al., v. Dow Corning, et al., CV-94-P-11558-S), before
whom all federal breast implant cases were consolidated for pretrial purposes.
The Revised Settlement arises out of the class action settlement originally
approved by the Court on September 1, 1994. All appeals from the Order
approving the Revised Settlement have been dismissed. On January 16, 1996,
the Company, Baxter Healthcare Corporation and Baxter International
(collectively, Baxter), and Minnesota, Mining and Manufacturing Company (3M)
(hereinafter, the Settling Defendants) each paid $125 million into a
court-established fund as an initial reserve to pay claims under the Revised
Settlement. The Company has made and will make additional contributions to
the court-established fund. The fifteen-year Revised Settlement Program
provides benefits to those U.S. breast implant recipients who have had at
least one breast implant manufactured by one of the Settling Defendants
(or their related companies). Several kinds of benefits are available for
eligible participants with breast implants made by companies affiliated with
Bristol-Myers Squibb, Baxter and 3M: (1) for Current Claimants, compensation
generally ranging from $10,000 to $50,000 based on disease and disability
definitions of the original settlement, plus supplemental benefits of an
additional $15,000 to $50,000 for claimants with ruptured implants; (2) for
Current Claimants seeking higher benefits and for Other and Late Registrants,
compensation ranging from $75,000 to $250,000 based on more stringent disease
and disability definitions (Long-Term Benefits); and (3) although the Settling
Defendants are not recommending removal of implants absent some specific
medical reason, a $3,000 payment for those class members (other than Late
Registrants) who seek removal of implants. Current Claimants are eligible for
an advance payment of $5,000, and Other Registrants are eligible for an
advance payment of $1,000. Other Registrants who receive their $1,000
advance payment by June 15, 1999, will be eligible for an additional $2,500
payment if they relinquish their rights to further benefits under the Revised
Settlement and provide a full release of their breast implant claims. For
Current Claimants, benefits are payable regardless of the number of claimants
seeking compensation, and regardless of the total dollar value of approved
claims. For Other and Late Registrants, benefits are subject to an aggregate
$755 million limit for all participating companies over the fifteen-year life
of the Program. The Company's aggregate limit for such benefits is $400
million. In the event the dollar value of the claims subject to the limit
were to exceed this amount, claimants may be afforded additional opt-out
rights but without the right to assert punitive or other statutory multiple
damage claims. The Company's obligations to make payments under the Revised
Settlement are not affected by the number of class members electing to opt
out of the settlement or the number of class members making claims under it
except to the extent of the above-mentioned dollar limits.
In addition to individual suits and the Lindsey class action, the Company
continues as a defendant, together with other defendants, in two other class
action proceedings. On April 11, 1996, a class action on behalf of all women
in the Canadian province of British Columbia was certified in the provincial
court of British Columbia on the single issue of whether silicone gel breast
implants are reasonably fit for their intended purpose (Harrington v. Dow
Corning Corporation, et al., Supreme Court, British Columbia, C954330).
Also, there is an action pending on behalf of children allegedly exposed to
silicone in utero and through breast milk (Feuer, et al., v. McGhan, et al.,
U.S.D.C., E. Dist. NY, 93-0146), which has not been certified as a class
action, and which names all breast implant manufacturers as defendants and
seeks to establish a medical monitoring fund.
The Company entered into several other settlements of breast implant related
claims. In July of 1995, the Company entered into a $20.5 million (U.S.
funds) class action settlement with plaintiff representatives in the provinces
of Ontario and Quebec. The class includes persons who have or had MEC breast
implants and who reside in Ontario and Quebec or who received their MEC
implants there. The settlement, which had minimal opt-outs, has been approved
by the provincial courts of Ontario and Quebec. In May of 1996, the Company,
together with other Settling Defendants in the Revised Settlement Program,
entered into a $50 million settlement of claims asserted by certain health
insurers based upon payments made or benefits provided by insurers and
represented health plans to participating registrants that allegedly involve
or relate to silicone gel breast implants. The Company has contributed $22.5
million to this settlement, which extinguishes the potential claims of the
majority of the U.S. commercial and non-governmental health care insurer
market against both the defendants and settlement class members. In November
1996, the benefits of the Revised Settlement were extended, with certain
modifications, to foreign breast implant recipients. Pursuant to this
settlement, the Settling Defendants paid (on an equal basis) an aggregate of
$25 million into a court-approved settlement fund as an initial reserve for
payment of foreign claims.
The Company's insurers were notified of the breast implant claims and the
Revised Settlement, and a number reserved their rights or declined coverage.
The Company reached settlement with many of these insurers in connection with
coverage litigation filed by it in state court in Texas. Certain proceedings
remain involving some insurers. In 1993, the Company offset its breast
implant product liability special charges by $1.0 billion of expected
insurance proceeds (recorded as Insurance Recoverable). The Company now
believes that it will obtain additional amounts of insurance proceeds above
that amount and expects to record an additional Insurance Recoverable in the
fourth quarter of 1998 of approximately $100 million.
While there have been a few large judgments, defendants have won more trials
than they have lost, and since 1992 the Company's trial experience has been
favorable. The Company has maintained throughout this litigation that breast
implants do not cause disease and medical and scientific data support the
Company's position. The Company's view has found support in the trial courts.
So far, courts in seven states have ruled to exclude the testimony of
plaintiffs' experts concerning a causal link between silicone gel breast
implants and systemic illness on the ground that it fails to satisfy
standards for reliability under current U.S. Supreme Court guidelines. A
science panel appointed by Judge Pointer is in the process of reviewing the
scientific literature regarding any relationship between breast implants and
disease, and is expected to report its findings in 1998. The Company intends
to dispose of the claims of remaining opt-outs by continuing to implement its
plan to settle cases at values it deems acceptable, and to wage a vigorous
defense, including taking cases to trial, of those cases that do not settle
at such values.
In the fourth quarter of 1993, the Company recorded a charge of $500 million
before taxes ($310 million after taxes) in respect of breast implant cases.
The charge consisted of $1.5 billion for potential liabilities and expenses,
offset by $1.0 billion of expected insurance proceeds. In the fourth
quarters of 1994 and 1995, the Company recorded additional special charges
of $750 million before taxes ($488 million after taxes) and $950 million
before taxes ($590 million after taxes), respectively, related to breast
implant product liability claims. Those reserves are now expected to be
augmented by the fourth quarter 1998 charge to earnings described above.
Prescription Drug Litigation
- ----------------------------
The Company, without admitting any wrongdoing, previously reached an amended
agreement to settle the national class action brought against the Company,
other pharmaceutical manufacturers, drug wholesalers and pharmacy benefit
managers by certain chain drugstores, supermarket chains and independent
drugstores and consolidated in the United States District Court for the
Northern District of Illinois, before Federal Judge Charles P. Kocoras. That
settlement has become final. Settlements have also been reached with some of
the opt-out retailers who brought federal antitrust claims and settlement
negotiations have been conducted with others. Cases brought by retail
pharmacies in state court under state law alleging similar grounds are
proceeding in Alabama, California and Mississippi, while settlements have been
reached by the Company of such cases brought in Minnesota and Wisconsin. The
Company and almost all of the other pharmaceutical manufacturers named as
defendants in cases brought as class actions on behalf of consumers in Arizona,
the District of Columbia, Florida, Kansas, Maine, Michigan, Minnesota, New
York, North Carolina, Tennessee and Wisconsin, have entered into settlements
of those actions, which have received final approvals in Arizona, Michigan,
New York and Wisconsin, and are subject to court approval in each remaining
state. On July 30, 1998, a class action on behalf of consumers was brought
in Tennessee against the Company and other pharmaceutical manufacturers which
sought state recoveries in Tennessee, as well as in Alabama, Arizona, Florida,
Kansas, Maine, Michigan, Minnesota, New Mexico, North Carolina, North Dakota,
South Dakota, West Virginia and Wisconsin. Based on recent activity, the
Company expects to take the charge against earnings referred to above in
respect of prescription drug litigation. The Company will continue to defend
vigorously its position in this ongoing litigation, considering settlement of
some or all of the remaining cases only where the cost of litigation and any
associated litigation risk make this a practical and sensible course.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits (listed by number corresponding to the Exhibit Table of Item 601
in Regulation S-K).
Exhibit Number and Description Page
- ------------------------------ -------
3b. Bylaws of Bristol-Myers Squibb Company, as amended,
effective November 3, 1998. E- 3-1
27. Bristol-Myers Squibb Company Financial Data Schedule. E-27-1
99. Additional Exhibit. E-99-1
(b) Reports on Form 8-K.
The Registrant did not file any reports on Form 8-K during the quarter ended
September 30, 1998.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRISTOL-MYERS SQUIBB COMPANY
---------------------------------
(Registrant)
Date: November 16, 1998 /s/ Harrison M. Bains, Jr.
---------------------------------
Harrison M. Bains, Jr.
Vice President and Treasurer
Date: November 16, 1998 /s/ Frederick S. Schiff
---------------------------------
Frederick S. Schiff
Vice President Financial Operations
and Controller