EXHIBIT 99.1
[LOGO OF BRISTOL-MYERS SQUIBB COMPANY]
CONTACT: Bonnie Jacobs John Elicker
Corporate Affairs Investor Relations
(609) 252-4089 (212) 546-3775
bonnie.jacobs@bms.com john.elicker@bms.com
Tracy Furey
Corporate Affairs
(609) 252-3208
tracy.furey@bms.com
BRISTOL-MYERS SQUIBB ANNOUNCES RESTATEMENT, REPORTS 2002 FULL-
YEAR RESULTS AND REITERATES EARNINGS GUIDANCE FOR 2003
O RESTATEMENT:
O PRIMARILY TO CORRECT ACCOUNTING FOR U.S. PHARMACEUTICALS SALES TO
TWO WHOLESALERS BY REALLOCATING APPROXIMATELY $2 BILLION OF NET
SALES AND $1.5 BILLION IN PRE-TAX EARNINGS FROM 1999 THROUGH 2001 TO
2002 AND 2003
O ADDITIONAL RESTATEMENT ADJUSTMENTS MADE TO BOTH NET SALES AND NET
EARNINGS
O TOTAL NET SALES AND NET EARNINGS FROM CONTINUING OPERATIONS FOR 1999
THROUGH 2001 RESTATED DOWNWARD BY APPROXIMATELY $2.5 BILLION AND
$900 MILLION, RESPECTIVELY; TOTAL NET SALES AND NET EARNINGS FOR
FIRST SIX MONTHS OF 2002 RESTATED UPWARD BY APPROXIMATELY $653
MILLION AND $200 MILLION, RESPECTIVELY
O NET SALES FOR 2002 TOTAL $18.1 BILLION; REPORTED DILUTED EARNINGS PER
SHARE FROM CONTINUING OPERATIONS TOTAL $.96
O COMPANY REITERATES 2003 EARNINGS GUIDANCE OF BETWEEN $1.60 - $1.65 PER
SHARE
NEW YORK, N.Y. (March 10, 2003) -- Bristol-Myers Squibb Company (NYSE: BMY)
today announced the restatement of its previously issued financial statements
for the years 1999 through 2001 and the first two quarters of 2002. In the
aggregate, the restatement reduced net sales by $1,436 million, $678 million
and $376 million for the years ended December 31, 2001, 2000 and 1999,
respectively, and increased net sales for the six months ended June 30, 2002
by $653 million. The restatement also reduced net earnings from continuing
operations by $376 million, $206 million and $331 million in the years ended
December 31, 2001, 2000 and 1999, while net earnings from continuing
operations were increased by $201 million in the six months ended June 30,
2002. The Company also announced its sales and earnings for the full-year 2002
and reiterated its 2003 earnings guidance.
The restatement primarily reflects a correction of an error in the timing of
revenue recognition for certain sales to two of the largest wholesalers for
the U.S. pharmaceuticals business. As a result of the restatement for this
matter, net sales were reduced by $1,096 million, $475 million and $409
million for the years ended December 31, 2001, 2000 and 1999, respectively.
The corresponding reduction in pre-tax earnings was $798 million, $395 million
and $315 million, respectively. Net sales and pre-tax earnings for the six
months ended June 30, 2002 were increased by $533 million and $401 million,
respectively. In addition, net sales and pre-tax earnings were increased by
approximately $860 million and $620 million, respectively, in the six months
ended December 31, 2002, and are projected to increase by approximately $425
million and $290 million, respectively, in 2003.
The restatement also reflects the correction of certain of the Company's
accounting policies to conform to U.S. generally accepted accounting
principles (GAAP) and certain other adjustments to correct errors made in the
application of GAAP, including certain revisions of inappropriate accounting.
These other restatement adjustments increased net sales by $33 million in the
year ended December 31, 1999, reduced net sales in the years ended December
31, 2000 and 2001 by $46 million and $188 million, respectively (excluding the
impact of the reclassification for the Company's adoption of EITF 01-9
reflected in 2000 and 2001 to conform to the 2002 presentation), reduced
pre-tax earnings by $133 million and $132 million in the years ended December
31, 2001 and 1999, respectively, and increased pre-tax earnings by $12 million
in the year ended December 31, 2000, while pre-tax earnings for the six months
ended June 30, 2002 were increased by $91 million.
For the full year ended December 31, 2002, net sales and net earnings from
continuing operations increased by $1.6 billion and $510 million,
respectively, as a result of the restatement of the prior years. Previously
reported net sales of $325 million and net earnings of $215 million are
projected to be recognized in future periods.
The Company also reported that full-year 2002 net sales increased to $18.1
billion from $18.0 billion in 2001. Reported diluted earnings per share from
continuing operations for 2002 were $.96.
In addition, the Company reiterated 2003 earnings guidance of between $1.60 -
$1.65 per share, which had included the projected impact of the restatement on
future earnings.
The Company expects to file its amended 2001 10-K, which includes the restated
consolidated financial statements for the years 1999 through 2001, and its
third quarter 2002 10-Q as soon as possible.
As a result of the restatement, the Company delayed filing its third quarter
2002 10-Q. As previously disclosed, this delay resulted in a breach by the
Company of delivery of SEC filing obligations under its 1993 Indenture and
certain other credit agreements, and gave certain rights to the trustee under
the Indenture and the respective lenders under such credit agreements to
accelerate maturity of the Company's indebtedness. The trustee and the
respective holders have had a right, 15 days after the due date of the third
quarter 2002 10-Q, to declare the principal amount and all accrued interest to
be due and payable unless the Company cures its nonperformance within 90 days
after the trustee or the debt holders give to the Company a notice of such
nonperformance. To date, neither the trustee nor the respective lenders have
exercised their right to accelerate. The Company expects to cure this
situation when it files its third quarter 2002 10-Q. However, because this
situation has not yet been cured, long-term outstanding
2
indebtedness under these instruments, amounting to approximately $6.1 billion,
is reflected as short-term indebtedness in the financial information presented
in this press release as of June 30, 2002 and December 31, 2002 (including
Appendix 1). The Company expects that when its third quarter 2002 10-Q is
filed and the breach is cured, such amount will be reclassified as long-term
outstanding indebtedness and financial information presented in the third
quarter 2002 10-Q will reflect such reclassification.
RESTATEMENT RESULTS
Summary
- -------
The Company experienced a substantial buildup of wholesaler inventories in its
U.S. pharmaceuticals business over several years, primarily in 2000 and 2001.
This buildup was primarily due to sales incentives offered by the Company to
its wholesalers. These incentives were generally offered towards the end of a
quarter in order to incentivize wholesalers to purchase products in an amount
sufficient to meet the Company's quarterly sales projections established by
the Company's senior management. In April 2002, the Company disclosed this
substantial buildup, and developed and subsequently undertook a plan to work
down in an orderly fashion these wholesaler inventory levels.
In late October 2002, based on further review and consideration of the
previously disclosed buildup of wholesaler inventories in the Company's U.S.
pharmaceuticals business and the incentives offered to certain wholesalers,
and on advice from the Company's independent auditors, PricewaterhouseCoopers
LLP, the Company determined that it was required to restate its sales and
earnings to correct errors in timing of revenue recognition for certain sales
to certain U.S. pharmaceuticals wholesalers. Since that time, the Company has
undertaken an analysis of its transactions and incentive practices with U.S.
pharmaceuticals wholesalers. The Company has now determined that certain
incentivized transactions with certain wholesalers should be accounted for
under the consignment model rather than recognizing revenue for such
transactions upon shipment. This determination involved evaluation of a
variety of criteria and a number of complex accounting judgments. As a result
of its analysis, the Company determined that certain of its sales to two of
the largest wholesalers for the U.S. pharmaceuticals business should be
accounted for under the consignment model, based in part on the relationship
between the amount of incentives offered to these wholesalers and the amount
of inventory held by these wholesalers.
Following its determination to restate its sales and earnings for the matters
described above, the Company also determined that it would correct certain of
the Company's historical accounting policies to conform the accounting to GAAP
and to correct certain known errors made in the application of GAAP that were
previously not recorded because in each such case the Company believed the
amount of any such error was not material to the Company's consolidated
financial statements. In addition, as part of the restatement process, the
Company investigated its accounting practices in certain areas that involve
significant judgments and determined to restate additional items with respect
to which the Company concluded errors were made in the application of GAAP,
including certain revisions of inappropriate accounting.
As a result of the foregoing, the Company has restated its financial
statements for the three years ended December 31, 2001, including the
corresponding 2001 and 2000 interim periods, and the quarterly periods ended
March 31, 2002 and June 30, 2002. The restatement affects periods
3
prior to 1999. The impact of the restatement on such prior periods is
reflected as an adjustment to opening retained earnings as of January 1, 1999.
The errors and inappropriate accounting which are corrected by the restatement
arose, at least in part, from a period of unrealistic expectations for, and
consequent over-estimation of, certain of the Company's products and programs.
In connection with their audits of the restatement of previously issued
financial statements and the Company's 2002 financial statements, which audits
are not yet complete, the Company's independent auditors,
PricewaterhouseCoopers LLP, have identified and communicated to the Company
and the Audit Committee two "material weaknesses" (as defined under standards
established by the American Institute of Certified Public Accountants)
relating to the Company's accounting and public financial reporting of
significant matters and to its initial recording and management review and
oversight of certain accounting matters.
In the last year, the Company searched for and hired a new chief financial
officer from outside the Company, restaffed the controller position, created a
position of chief compliance officer and changed leadership at the
Pharmaceuticals group.
In response to the wholesaler inventory buildup and the other matters
identified as restatement adjustments, under the direction of the Audit
Committee, in the last year, senior management has directed that the Company
dedicate resources and take steps to strengthen control processes and
procedures in order to identify and rectify past accounting errors and prevent
a recurrence of the circumstances that resulted in the need to restate prior
period financial statements. The Company also revised its budgeting process to
emphasize a bottom-up approach in contrast to a top-down approach. The Company
has implemented a review and certification process of its annual and quarterly
reports under the Securities Exchange Act of 1934, as amended, as well as
processes designed to enhance the monitoring of wholesaler inventories. In
addition, the Company is in the process of expanding its business risks and
disclosure group, which includes senior management, including the chief
executive officer and the chief financial officer, and is taking a number of
additional steps designed to create a more open environment for communications
and flow of information throughout the Company. The Company continues to
identify and implement actions to improve the effectiveness of its disclosure
controls and procedures and internal controls, including plans to enhance its
resources and training with respect to the Company's financial reporting and
disclosure responsibilities, and to review such actions with its Audit
Committee and independent auditors.
As a result of the foregoing, the Company has restated its financial
statements for the three years ended December 31, 2001, including the
corresponding 2001 and 2000 interim periods, and the quarterly periods ended
March 31, 2002 and June 30, 2002. The restatement affects periods prior to
1999. The impact of the restatement on such prior periods is reflected as an
adjustment to opening retained earnings as of January 1, 1999.
4
The following table presents the impact of the restatement on net earnings:
(dollars in millions) Consignment Other Tax Net
Sales Adjustments* Impact Earnings
----------- ------------ ------ --------
Impact on retained earnings at January 1, 1999 $ 0 $ (342) $ 126 $(216)
Year ended December 31, 1999 (315) (185) 169 (331)
Year ended December 31, 2000 (395) 44 145 (206)
Year ended December 31, 2001 (798) 67 355 (376)
Year ended December 31, 2002 1,021 (84) (426) 511
Earnings projected to be recognized in future
periods 288 58 (131) 215
*includes tax restatement items that do not impact pre-tax earnings
The effect of the restatement on the Company's previously reported diluted
earnings per share from continuing operations was a decrease of approximately
$.20, $.10 and $.16 for 2001, 2000 and 1999, respectively, and an increase of
$.10 in earnings per share for the six months ended June 30, 2002 and $.26 in
earnings per share for the full year 2002.
Consignment Sales
- -----------------
Historically, the Company recognized revenue for sales upon shipment of
product to its customers. Under GAAP, revenue is recognized when substantially
all the risks and rewards of ownership have transferred. In the case of sales
made to wholesalers (1) as a result of incentives, (2) in excess of the
wholesaler's ordinary course of business inventory level, (3) at a time when
there was an understanding, agreement, course of dealing or consistent
business practice that the Company would extend incentives based on levels of
excess inventory in connection with future purchases and (4) at a time when
such incentives would cover substantially all, and vary directly with, the
wholesaler's cost of carrying inventory in excess of the wholesaler's ordinary
course of business inventory level, substantially all the risks and rewards of
ownership do not transfer upon shipment and, accordingly, such sales should be
accounted for using the consignment model. The determination of when, if at
all, sales to a wholesaler meet the foregoing criteria involves evaluation of
a variety of factors and a number of complex judgments.
Under the consignment model, the Company does not recognize revenue upon
shipment of product. Rather, upon shipment of product the Company invoices the
wholesaler, records deferred revenue at gross invoice sales price and
classifies the inventory held by the wholesalers as consignment inventory at
the Company's cost of such inventory. The Company recognizes revenue (net of
cash discounts, rebates, estimated sales allowances and accruals for returns)
when the consignment inventory is no longer subject to incentive arrangements
but not later than when such inventory is sold through to the wholesalers'
customers, on a first-in first-out (FIFO) basis.
The Company has restated its previously issued financial statements to correct
the timing of revenue recognition for certain previously recognized U.S.
pharmaceuticals sales to Cardinal and McKesson, two of the largest wholesalers
for the Company's U.S. pharmaceuticals business, that, based on the
application of the criteria described above, were recorded in error at the
time of shipment and should have been accounted for using the consignment
model. The Company has determined that shipments of product to Cardinal and
shipments of product to McKesson met the consignment model criteria set forth
above as of July 1, 1999 and July 1, 2000, respectively, and, in each case,
continuing through the end of 2001 and for some period thereafter.
Accordingly, the consignment model was required to be applied to such
shipments. Prior to those respective periods, the Company recognized sales to
Cardinal and McKesson upon shipment of product. Although the Company generally
views approximately one month of supply as a desirable level of wholesaler
inventory on a going-forward basis and as a level of wholesaler inventory
representative of an industry average, in applying the consignment model
5
with respect to sales to Cardinal and McKesson, the Company defined inventory
in excess of the wholesaler's ordinary course of business inventory level as
inventory above two weeks and three weeks of supply, respectively, based on
the levels of inventory that Cardinal and McKesson required to be used as the
basis for negotiation of incentives granted.
As a result of this restatement adjustment, net sales were reduced by $1,015
million, $475 million and $409 million in 2001, 2000 and 1999, respectively.
The corresponding reduction in earnings from continuing operations before
income taxes was $721 million, $395 million and $315 million, respectively.
Separately from the above discussion, in March 2001, the Company entered into
a distribution agreement with McKesson for provision of warehousing and order
fulfillment services for the Company's Oncology Therapeutics Network (OTN), a
specialty distributor of anti-cancer medicines and related products. The
Company has restated its previously issued financial statements to account for
these sales using the consignment model and to defer recognition of revenue
until the products are sold by McKesson. The resulting reduction in net sales
and earnings from continuing operations before minority interest and income
taxes for the year ended December 31, 2001 was $81 million and $77 million,
respectively.
The Company has determined that, although sales incentives were offered to
other wholesalers and there was a buildup of inventories at such wholesalers,
the consignment model criteria discussed above were not met. Accordingly, the
Company recognized revenue when the products were shipped to these
wholesalers. The Company estimates that the inventory of pharmaceutical
products held by these other U.S. pharmaceuticals wholesalers in excess of
approximately one month of supply in the case of the Company's exclusive
products, approximately one and a half months of supply in the case of
PLAVIX(R) and AVAPRO(R), which are marketed under the Company's alliance with
Sanofi-Synthelabo, and approximately two months of supply in the case of the
Company's non-exclusive products, was in the range of approximately $550
million to $750 million at December 31, 2001. The Company's estimate is based
on the projected demand-based sales for such products, as well as the
Company's analysis of third-party prescription information, including
information obtained from certain wholesalers with respect to their inventory
levels and sell-through to customers and third-party market research data, and
the Company's internal information. The Company's estimate is subject to
inherent limitations of estimates that rely on third-party data, as certain
third-party information was itself in the form of estimates, and reflects
other limitations.
As discussed above, in April 2002, the Company disclosed the substantial
buildup of wholesaler inventories in its U.S. pharmaceuticals business, and
developed and subsequently undertook a plan to work down in an orderly fashion
these wholesaler inventory levels. To facilitate an orderly workdown, the
Company's plan included continuing to offer sales incentives, at reduced
levels, to certain wholesalers. With respect to McKesson and Cardinal, the
Company entered into agreements for an orderly workdown that provide for these
wholesalers to make specified levels of purchases and for the Company to offer
specified levels of incentives through the workdown period.
The Company expects that the orderly workdown of inventories of its
pharmaceutical products held by all U.S. pharmaceuticals wholesalers will be
substantially completed at or before the end of 2003. The Company also expects
that the consignment model criteria will no longer be met with respect to the
Company's U.S. pharmaceuticals sales to Cardinal and McKesson (other than the
above-mentioned sales related to OTN) at or before the end of 2003. At
December 31, 2002,
6
the Company's aggregate cost of pharmaceutical products held by Cardinal and
McKesson that were accounted for using the consignment model (and,
accordingly, were reflected as consignment inventory on the Company's
consolidated balance sheet) was approximately $58 million. At December 31,
2002, the deferred revenue, recorded at gross invoice sales price, related to
such inventory was approximately $470 million, including approximately $39
million related to OTN. The Company estimates, based on the data noted above,
that the inventory of pharmaceutical products held by the other U.S.
pharmaceuticals wholesalers in excess of approximately one month of supply in
the case of the Company's exclusive products, approximately one and a half
months of supply in the case of PLAVIX(R) and AVAPRO(R), which are marketed
under the Company's alliance with Sanofi-Synthelabo, and approximately two
months of supply in the case of the Company's non-exclusive products was in
the range of approximately $100 million below this level of supply to $100
million in excess of this level of supply at December 31, 2002. This estimate
is subject to inherent limitations noted above. The Company expects to account
for certain pharmaceutical sales relating to OTN using the consignment model
until the abovementioned agreement with McKesson expires in 2006.
The Company's financial results and prior period and quarterly comparisons are
affected by the buildup and orderly workdown of wholesaler inventories, as
well as the application of the consignment model to certain sales to certain
wholesalers. For information on U.S. pharmaceuticals prescriber demand, please
see Appendix 2, which sets forth tables comparing changes in net sales on a
restated basis and the estimated total (both retail and mail order customers)
prescription growth for certain of the Company's primary care pharmaceutical
products.
Other Restatement Adjustments
- -----------------------------
The restatement also corrects certain of the Company's accounting policies to
conform to GAAP and certain other adjustments to correct errors made in the
application of GAAP, including certain revisions of inappropriate accounting.
A description of these revisions and adjustments appears in the notes to
Appendix 1.
Impact of Restatement on 1999 - 2001
- ------------------------------------
The following table presents the effects of the revenue recognition and other
restatement adjustments on net sales and net earnings from continuing
operations for 1999 through 2001:
(dollars in millions) Year Ended December 31,
2001 2000 1999
-------- -------- --------
Net sales
As previously reported $19,423 $18,216 $16,878
- Consignment sales (1,096) (475) (409)
- Other adjustments (340) (203) 33
------- ------- -------
As restated $17,987 $17,538 $16,502
======= ======= =======
Net earnings from Continuing Operations
As previously reported $ 2,527 $ 4,096 $ 3,789
- Consignment sales (798) (395) (315)
- Other adjustments* 67 44 (185)
- Tax impact of above adjustments 355 145 169
------- ------- -------
As restated $ 2,151 $ 3,890 $ 3,458
======= ======= =======
*includes tax restatement items that do not impact pre-tax earnings
7
The effect of the aforementioned revenue recognition and other restatement
adjustments on the Company's previously reported diluted earnings per share
from continuing operations was a decrease of approximately $.20, $.10 and $.16
for 2001, 2000 and 1999, respectively, and an increase of $.10 in earnings per
share for the six months ended June 30, 2002, and $.26 in earnings per share
for the full year 2002.
In addition, certain of the restatement adjustments affected periods prior to
1999, and as a result, opening retained earnings for 1999 were reduced by
approximately $578 million. Of that amount, approximately $429 million is due
to a correction in the Company's accounting policy for dividends to conform to
the GAAP requirement that the liability for declared dividends be recorded as
of the declaration date rather than the record date, and has no impact on
reported earnings per share.
Further information regarding the restatement adjustments is provided in
Appendix 1.
Impact of Restatement on First Six Months of 2002
- -------------------------------------------------
For the first six months of 2002, net sales were increased $653 million and
net earnings from continuing operations were increased $201 million as a
result of the aforementioned revenue recognition and other restatement
adjustments. The effect of the restatement on the Company's previously
reported diluted earnings per share from continuing operations was an increase
of approximately $.10 for the first six months of 2002.
The following table presents the effects of the revenue recognition and other
restatement adjustments on net sales and net earnings from continuing
operations for the six months ended June 30, 2002:
(dollars in millions) Six Months Ended
June 30, 2002
----------------
Net sales
As previously reported $8,135
- Consignment sales 533
- Other adjustments 120
------
As restated $8,788
======
Net earnings from Continuing Operations
As previously reported $1,025
- Consignment sales 401
- Other adjustments* 28
- Tax impact of above adjustments (228)
------
As restated $1,226
======
*includes tax restatement items that do not impact pre-tax earnings
8
Further information regarding the restatement adjustments is provided in
Appendix 1. Information on U.S. pharmaceuticals prescriber demand is provided
in Appendix 2.
In the opinion of management, all material adjustments necessary to correct
the previously issued financial statements have been recorded, and the Company
does not expect any further restatement. As previously disclosed, however, the
Securities and Exchange Commission and the U.S. Attorney's Office for the
District of New Jersey are investigating certain financial reporting practices
of the Company. The Company cannot reasonably assess the final outcome of
these investigations at this time. The Company is continuing to cooperate with
both of these investigations. The Company's own investigation is also
continuing.
THIRD QUARTER 2002 RESULTS
As a result of the restatement, the Company delayed issuing its financial
statements for the third quarter. In its October 24, 2002 press release
announcing the restatement, the Company included unaudited non-GAAP third
quarter results prior to giving effect to the restatement. The reported third
quarter results set forth herein differ from the previously announced non-GAAP
pre-restatement results due to the effects of the prior period restatement
adjustments.
The Company's third quarter results also differ from the previously announced
non-GAAP pre-restatement results due to changes in certain accounting
estimates relating to recorded assets and liabilities and certain subsequent
events. Most of this impact relates to subsequent events, which the Company
announced on January 7, 2003, concerning proposed settlement of substantially
all antitrust litigation surrounding BUSPAR(R) and TAXOL. In connection with
these proposed settlement developments, in the third quarter the Company
accrued $410 million on a pre-tax basis for the BUSPAR(R) settlements and $135
million on a pre-tax basis for the TAXOL settlements. Income tax expense for
the quarter was favorably impacted by $235 million in connection with the
settlement of a tax audit and settlement of tax litigation.
The previously announced non-GAAP pre-restatement results and the reported
results for the third quarter are presented in the following table:
Three Months Ended
September 30, 2002
(dollars in millions) --------------------------------
As Previously As
Announced Reported
-------------- --------------
Net sales $4,171 $4,537
Net earnings from Continuing Operations 245 291
Diluted Earnings per Share from
Continuing Operations $.13 $.15
The following paragraphs discuss the Company's third quarter results after the
restatement.
Net sales for the third quarter were level at $4,537 million compared to
$4,500 million in 2001. These level sales resulted from a 1% increase in
volume, a 2% increase due to foreign exchange
9
rate fluctuations and a 2% decrease due to changes in selling prices. Net
sales for the quarter include approximately $394 million of net sales related
to the DuPont Pharmaceuticals acquisition, which was completed in the fourth
quarter of 2001. Approximately $313 million of net sales that prior to the
restatement had been recognized in prior periods was recognized in the three
months ended September 30, 2002.
For the quarter, as reported, earnings from continuing operations before
minority interest and income taxes decreased to $115 million from $1,603
million in 2001, net earnings from continuing operations decreased to $291
million compared to $1,205 million in 2001, basic earnings per share from
continuing operations decreased to $.15 from $.62 in 2001 and diluted earnings
per share from continuing operations decreased to $.15 from $.61 in 2001.
During the third quarter of 2002, the Company recognized certain items that
affected continuing operations, including a pre-tax litigation charge of $569
million, primarily related to BUSPAR(R) and TAXOL proposed settlements; an
increase to earnings of $235 million due to the settlement of certain prior
year tax matters and the determination by us as to the expected settlement of
ongoing tax litigation; a pre-tax asset impairment charge of $379 million for
the write-down of its investment in ImClone; a pre-tax restructuring charge of
$79 million related to workforce reductions and facility closures in the
Company's Pharmaceutical Research Institute, partially offset by an adjustment
to prior restructuring reserves of $90 million due to lower than anticipated
separation and other exit payments and the cancellation of facility closures,
primarily in the manufacturing network. In addition, the Company recorded, in
discontinued operations, an adjustment of $41 million to the net gain on the
sale of Clairol primarily as a result of lower than expected tax
indemnification and separation payments related to the disposal of Clairol and
a $10 million legal settlement charge.
The effective income tax rate on earnings from continuing operations before
minority interest and income taxes was a tax benefit of (177.4%) compared with
a tax provision of 22.0% in 2001. The negative effective income tax rate in
2002 from continuing operations is due to lower pre-tax income in the U.S.
primarily as a result of the litigation and asset impairment charges recorded
in the third quarter of 2002, and an income tax benefit of $235 million due to
the settlement of certain prior year tax matters and the determination by us
as to the expected settlement of ongoing tax litigation.
Third Quarter Sales
- -------------------
The Company's financial results and prior period and quarterly comparisons are
affected by the buildup and orderly workdown of wholesaler inventories, as
well as the application of the consignment model to certain sales to certain
wholesalers. For information on U.S. pharmaceuticals prescriber demand, please
see Appendix 2, which sets forth tables comparing changes in net sales on a
restated basis and the estimated total (both retail and mail order customers)
prescription growth for certain of the Company's primary care pharmaceutical
products.
- - U.S. pharmaceutical sales decreased 11% to $2.3 billion in 2002 from $2.6
billion in 2001 due to wholesaler inventory workdown and generic
competition in the U.S. for GLUCOPHAGE(R)IR, TAXOL and BUSPAR(R).
- - Total estimated U.S. prescription demand increased substantially for key
brands, including PLAVIX(R) 34%, AVAPRO(R) 15%,VIDEX(R) 7%, SUSTIVA(R)
13%, GLUCOPHAGE(R) XR 46% and GLUCOVANCE(R) 35%.
10
- - International pharmaceutical sales increased 15% to $1.4 billion from
$1.2 billion in 2001. Sales in Europe increased 22% (foreign exchange had
an 11% favorable impact) primarily due to strong sales of PRAVACHOL(R)
across the region and strong performance of new products from the DuPont
acquisition. Japan realized sales growth of 19% led by growth in TAXOL
sales. Sales in Canada increased 34% as a result of strong performance of
new products from the DuPont acquisition and PLAVIX(R).
- - Worldwide sales of PRAVACHOL(R), a cholesterol-lowering agent, increased
19% to $677 million.
- - Sales of PLAVIX(R), a platelet aggregation inhibitor, increased 18% to
$442 million. Sales of AVAPRO(R) increased 3% to $123 million. AVAPRO(R)
and PLAVIX(R) are cardiovascular products that were launched from the
alliance between Bristol-Myers Squibb and Sanofi-Synthelabo.
- - In aggregate, worldwide pharmaceuticals sales decreased 2% (foreign
exchange had a 2% negative impact), primarily due to wholesaler inventory
workdown and exclusivity losses in the U.S.
- - Nutritional sales of $445 million remained at prior year levels, as U.S.
sales decreased 6% and international sales increased 8% (foreign exchange
had a 1% negative impact). Mead Johnson continues to be the leader in the
U.S. infant formula market. ENFAMIL(R), the Company's largest-selling
infant formula, recorded sales of $196 million, an increase of 5% from
the prior year largely due to the introduction of ENFAMIL(R) LIPIL in the
first quarter of 2002.
- - ConvaTec sales increased 7% to $187 million (foreign exchange had a 5%
favorable impact). Sales of ostomy products increased 3% (foreign
exchange had a 5% favorable impact) to $114 million, while sales of
modern wound care products increased 13% (foreign exchange had a 5%
favorable impact) to $70 million.
FULL-YEAR 2002 RESULTS
The Company reported that full-year 2002 net sales increased to $18.1 billion
from $18.0 billion in 2001. Domestic sales decreased 3%, while international
sales increased 8%. The international sales increase was driven by strong
performance of PRAVACHOL(R) in Europe and TAXOL in Japan. The decline in
domestic sales is primarily attributable to generic competition in the U.S.
for GLUCOPHAGE(R) IR, TAXOL and BUSPAR(R). Net sales for these three products
were $369 million in 2002 as compared to $2,544 million in 2001. Net sales
from the DuPont Pharmaceuticals acquisition, which was completed in October
2001, contributed approximately $1,540 million in 2002 as compared to $331
million in 2001. As a result of the restatement for consignment sales,
approximately $2.0 billion of net sales was reversed from the period 1999 to
2001 and $1.4 billion was recognized in 2002.
The Company's financial results and prior period and quarterly comparisons are
affected by the buildup and orderly workdown of wholesaler inventories, as
well as the application of the consignment model to certain sales to certain
wholesalers.
Earnings from continuing operations declined to $1,862 million or $.96 per
diluted share from $2,151 million or $1.09 per diluted share, in 2001.
11
In 2002 and 2001, the Company recorded several items that affect comparability
of the results. In 2002, the Company recorded a pre-tax litigation charge of
$659 million, primarily related to BUSPAR(R) and TAXOL proposed settlements; a
pre-tax asset impairment charge of $403 million, primarily for the write-down
of its investment in ImClone; an increase to earnings of $235 million due to
the settlement of certain prior year tax matters and the determination by us
as to the expected settlement of ongoing tax litigation; and a pre-tax
in-process research and development charge of $160 million related to the
revised agreement with ImClone. In 2001, the Company recorded $2,772 million
of acquired in-process research and development, $583 million of restructuring
and other items and a gain on sale of business/product lines of $475 million.
For the full-year on a continuing operations basis, net sales increased 1%
(foreign exchange had no impact) to $18.1 billion. For the full-year, earnings
from continuing operations before minority interest and income taxes increased
19% to $2,647 million from $2,218 million in 2001. Net earnings from
continuing operations decreased 13% to $1,862 million compared to $2,151
million in 2001. The effective tax rate increased to 23.1% in 2002 from a tax
rate benefit of 1.6% in 2001. Basic earnings per share from continuing
operations decreased 13% to $.97 from $1.11 in the prior year and diluted
earnings per share decreased 12% to $.96 from $1.09. Basic and diluted average
shares outstanding for the year were 1,936 million and 1,942 million,
respectively, compared to 1,940 million and 1,965 million, respectively, in
2001.
Net earnings of $1,895 million in 2002 compares to $4,942 million in 2001 and
diluted earnings per share of $.98 for the full-year 2002 compares to $2.51 in
2001. The results for 2001 include a net gain of $2,565 million related to the
sale of Clairol and $226 million of net earnings related to discontinued
operations of Zimmer and Clairol.
Annual Sales Results
- --------------------
WORLDWIDE PHARMACEUTICAL SALES DECREASED 2% FOR THE YEAR TO $14.7 BILLION
- - U.S. pharmaceutical sales decreased 7% to $9.2 billion and international
pharmaceutical sales increased 9% (foreign exchange had a 1% favorable
impact) to $5.5 billion, resulting in a worldwide pharmaceuticals sales
decrease of 2% (with foreign exchange having no impact) to $14.7 billion.
- - Worldwide sales of PRAVACHOL(R), a cholesterol-lowering agent and the
Company's largest selling product, increased 8% to $2,266 million. In
January 2002, the FDA approved an 80 milligram version of PRAVACHOL(R).
In October 2002, an additional six-month period of exclusivity was
granted to PRAVACHOL(R) following the submission of reports on completed
pediatric studies. In addition, the Food and Drug Administration (FDA)
approved a new indication for use in treating pediatric patients with
heterozygous familial hypercholesterolemia based on these studies.
- - The entire GLUCOPHAGE(R) franchise sales decreased 67% to $778 million.
GLUCOPHAGE(R) IR sales decreased 88% to $220 million, while
GLUCOVANCE(R), and GLUCOPHAGE(R) XR Extended Release tablets had sales of
$246 million and $297 million, respectively.
- - Sales of PLAVIX(R), a platelet aggregation inhibitor, had excellent
growth, increasing 61% to $1,890 million. Sales of AVAPRO(R), an
angiotensin II receptor blocker for the treatment of
12
hypertension, increased 20% to $586 million. AVAPRO(R) and PLAVIX(R) are
cardiovascular products that were launched from the alliance between
Bristol-Myers Squibb and Sanofi-Synthelabo.
- - Sales of TAXOL the Company's leading anti-cancer agent, decreased 23% to
$857 million. International sales increased 11% (foreign exchange had a
1% favorable impact) to $719 million, led by strong sales growth in
Japan, while domestic sales decreased 70% to $138 million, due to generic
competition.
- - Sales of SERZONE(R), a novel anti-depressant, decreased 34% to $221
million.
- - Sales of BUSPAR(R), an anti-anxiety agent, decreased 82% to $53 million,
due to generic competition.
- - Sales of TEQUIN(R), a quinolone antibiotic, decreased from $250 million
in 2001 to $184 million in 2002.
- - Sales of VIDEX(R), an anti-retroviral agent, increased 9% to $262
million.
- - Sales of Oncology Therapeutics Network, a specialty distributor of
anti-cancer medicines and related products, reached $1,900 million, an
increase of 33% over the prior year.
- - Nutritional sales of $1,828 million remained at prior year levels
(foreign exchange had a 1% favorable impact), as international sales
increased 9% (foreign exchange had a 2% negative impact) and U.S. sales
decreased 7%. Mead Johnson continues to be the leader in the U.S. infant
formula market. ENFAMIL(R), the Company's largest-selling infant formula,
recorded sales of $750 million, flat with prior years levels. Sales of
BOOST(R) increased 4% to $121 million.
- - ConvaTec sales increased 5% (foreign exchange had a 1% favorable impact)
to $744 million. Sales of ostomy products increased 3% (foreign exchange
had a 1% favorable impact) to $459 million, while sales of modern wound
care products increased 11% (foreign exchange had a 1% favorable impact)
to $276 million.
RECENT REGULATORY DEVELOPMENTS
In February 2003 We submitted a Supplemental New Drug Application to the
FDA for the long-term treatment of schizophrenia for
ABILIFY(TM).
In December 2002 We announced the results of a federally-funded study
published in the Journal of the American Medical
Association that showed that the addition of Cardiolite, a
noninvasive heart imaging test, to conventional evaluation
techniques can help doctors in the emergency room
distinguish between those patients that are having a heart
attack and those who are not.
We submitted a New Drug Application (NDA) to the FDA for
Atazanavir (currently in Phase III), an investigational
protease inhibitor under development for the treatment of
HIV/AIDS in combination with other antiretroviral agents.
In November 2002 We announced that the FDA approved ABILIFY(TM)
(aripiprazole), a new antipsychotic medication indicated
for the treatment of schizophrenia. BMS and Otsuka America
Pharmaceutical Inc. will jointly market Abilify in the
U.S.
13
We announced the results of the CREDO (Clopidogrel for
Reduction of Events During Observation) study demonstrated
that patients who undergo a percutaneous coronary
intervention (PCI), such as angioplasty can significantly
reduce the risk of death, heart attack and stroke by
continuing treatment long-term (one-year) with
PLAVIX(R)/Iscover and aspirin.
In October 2002 We announced that the FDA approved a new indication for
PRAVACHOL(R)(pravastatin sodium) for use in treating
pediatric patients with heterozygous familial
hypercholesterolemia (HeFH). Additionally, we were granted
a six-month exclusivity extension for PRAVACHOL(R)through
April 2006, for conducting clinical studies for this
indication.
We announced that the FDA approved METAGLIP(TM) (glipizide
and metformin HCI Tablets) for use, along with diet and
exercise, as initial drug therapy for people with type 2
diabetes whose hyperglycemia cannot be satisfactorily
managed with diet and exercise alone and for use as
second-line therapy in type 2 diabetes when diet,
exercise, and initial treatment with sulfonylurea or
metformin do not result in adequate glycemic control.
We received an action letter from the FDA pertaining to a
New Drug Application (NDA) for VANLEV(R) (omapatrilat).
The FDA letter specifies additional actions, including at
least one additional clinical trial, that must be taken by
us before the FDA can consider approval of the compound.
We are evaluating our options with VANLEV(R) in light of
this approvable letter.
We announced that the FDA approved a new indication for
GLUCOVANCE(R) (Glyburide and Metformin HCI Tablets) a
widely-prescribed oral antidiabetic agent. The new
indication provides physicians with yet another
GLUCOVANCE(R) therapy option by offering the flexibility
of adding a thiazolidinedione (TZD) when patients require
additional blood sugar control.
In September 2002 We and Sanofi-Synthelabo announced that the FDA approved
AVAPRO(R) (irbesartan) for a new indication: the treatment
of diabetic nephropathy (kidney disease) in people who
have hypertension and type 2 diabetes.
We and Otsuka Pharmaceutical Company, Ltd. received an
approvable letter from the FDA for ABILIFY(R)
(aripiprazole), an investigational treatment for
schizophrenia. Final approval of ABILIFY(R)is contingent
upon the successful completion of ongoing discussions with
the FDA.
The European Commission granted approval of PLAVIX(R)
(clopidogrel) in combination with aspirin for the new
indication of prevention of atherothrombotic events in
patients suffering from non-ST segment elevation acute
coronary syndrome (ACS) - unstable angina or mild heart
attack (non-Q-wave myocardial infarction).
In October 2002, we announced setting new priorities to ensure that we can
fully realize the value of our research and development pipeline. The new
priorities include rebalancing drug discovery and development to increase
support for our full late-stage development pipeline. They also include
devoting greater resources to ensuring successful near-term product launches
and increasing our efforts on in-licensing opportunities. As part of this
effort, we took a pre-tax charge of $79 million in the three months ended
September 30, 2002, to streamline our drug discovery processes, including
consolidation of several research facilities.
14
Bristol-Myers Squibb is a global pharmaceutical and related health care
products company whose mission is to extend and enhance human life.
This press release includes certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 regarding,
among other things, statements relating to goals, plans and projections
regarding the Company's financial position, results of operations market
position, product development and business strategy. These statements may be
identified by the fact that they use words such as "anticipate", "estimates",
"should", "expect", "guidance", "project", "intend", "plan", "believe" and
other words and terms of similar meaning in connection with any discussion of
future operating or financial performance. Such forward-looking statements are
based on current expectations and involve inherent risks and uncertainties,
including factors that could delay, divert or change any of them, and could
cause actual outcomes and results to differ materially from current
expectations. These factors include, among other things, market factors,
competitive product development, changes to wholesaler inventory levels,
governmental regulations and legislation, patent positions, litigation, the
audit of restated financial statements and the impact and result of any
litigation or governmental investigations related to the financial statement
restatement process. There can be no guarantees with respect to pipeline
products that future clinical studies will support the data described in this
release, that the products will receive regulatory approvals, or that they
will prove to be commercially successful. For further details and a discussion
of these and other risks and uncertainties, see the Company's Securities and
Exchange Commission filings. The Company undertakes no obligation to publicly
update any forward-looking statement, whether as a result of new information,
future events or otherwise.
A conference call will be held today at 8 a.m. (EDT). Financial information
will be reviewed and company executives will address inquiries from investors
and analysts. Investors and the general public are invited to listen to a live
webcast of the call at http://www.bms.com/ir or by dialing 913-981-5510. A
replay of the call will be available on March 10 beginning at 11:30 a.m.
through 8 p.m. on March 31. You may access the replay at http://www.bms.com/ir
or by dialing 402-280-9013.
GLUCOPHAGE(R) and GLUCOVANCE(R) are registered trademarks of Merck Sante
S.A.S., an associate of Merck KGaA of Drumstadt, Germany licensed to
Bristol-Myers Squibb Company.
AVAPRO(R) and PLAVIX(R) are trademarks of Sanofi-Synthelabo.
15
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
RESTATEMENT ADJUSTMENTS
The following table presents the effects of the revenue recognition and other
restatement adjustments on net sales:
Increase (decrease) to net sales: Six Months
(dollars in millions) Ended
June 30, Year Ended December 31,
---------------- --------------------------------------
2002 2001 2000 1999
---- ---- ---- ----
Net sales, as previously reported $8,135 $19,423 $18,216 $16,878
------ ------- ------- -------
Revenue recognition:
Consignment sales (1) 533 (1,096) (475) (409)
Sales returns (2) 0 (28) (47) (5)
Sales rebate accruals (3 and 4) 206 (86) 1 38
EITF 01-9 reclassification (5) (86) (152) (157) 0
Restructuring and other items (10) 0 (74) 0 0
------ ------- ------- -------
Increase (decrease) in net sales 653 (1,436) (678) (376)
------ ------- ------- ------
Net sales, as restated $8,788 $17,987 $17,538 $16,502
====== ======= ======= =======
16
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
The following table presents the effects of the restatement adjustments on net
earnings from continuing operations before income taxes and on net earnings
and gain on disposal of discontinued operations.
Six Months
Ended
June 30, Year Ended December 31,
-------------- --------------------------------------
2002 2001 2000 1999
---- ---- ---- ----
Net Earnings from Continuing Operations, as previously reported $1,025 $2,527 $4,096 $3,789
Consignment sales (1) 401 (798) (395) (315)
Other Revenue recognition items and other adjustments:
Sales returns (2) 0 (28) (47) (5)
Sales rebate accruals (3 and 4) 203 (85) 2 37
Capitalized research and development payments (6) 18 25 24 (138)
Irbesartan transaction (7) (62) (31) 0 0
Acquisition liabilities (8) 0 (7) 0 (36)
Divestiture liabilities (9) (42) (56) (4) 10
Restructuring and other items (10) (5) 81 25 0
Litigation accrual adjustment (11) 35 (35) 0 0
Income taxes (12) (63) 200 32 (53)
Other restatement items (13) (56) 3 12 0
------ ------ ------ ------
Sub-total * 28 67 44 (185)
Tax impact of above adjustments (228) 355 145 169
Increase (decrease) 201 (376) (206) (331)
Net Earnings from continuing operations, as restated $1,226 $2,151 $3,890 $3,458
====== ====== ====== ======
Net earnings and gain on disposal from discontinued operations,
as previously reported $0 $2,718 $615 $378
Divestiture liabilities 15 73 26 0
------ ------ ------ ------
Net earnings and gain on disposal from discontinued operations,
as restated $15 $2,791 $641 $378
====== ====== ====== ======
* includes tax restatement items that do not impact pretax earnings
17
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
The following table presents the impact of the restatement adjustments on
Stockholders' Equity as of January 1, 1999:
Increase (decrease) in Stockholders' Equity (in millions):
Stockholders' Equity--January 1, 1999, as previously reported $7,576
Sales returns (2) (68)
Sales rebate accruals (3 and 4) (59)
Capitalized research and development payments (6) (46)
Acquisition liabilities (8) 31
Divestiture liabilities (9) 28
Other restatement items (13) (24)
Income taxes (12) (11)
Dividend accrual (14) (429)
------
Decrease in Stockholders' Equity (578)
------
Stockholders' Equity--January 1, 1999, as restated $6,998
======
Set forth below is an explanation of the restatement adjustments included in
the restatement of the previously issued financial statements, each of which
is an "error" within the meaning of Accounting Principles Board Opinion No.
20, Accounting Changes.
(1) Historically, the Company recognized revenue upon shipment of product.
The Company restated its previously issued financial statements to
correct the timing of revenue recognition for certain previously
recognized U.S. pharmaceuticals sales to Cardinal and McKesson that,
based on the application of the consignment model criteria described
above, were recorded in error at the time of shipment and should have
been accounted for using the consignment model. In total, approximately
$2.0 billion of shipments recognized in error in the period 1999 through
2001 has been reversed in the restatement of previously issued financial
statements. Of this amount, approximately $1.4 billion was recognized in
2002 and approximately $425 million is projected to be recognized in
2003.
In March 2001, the Company entered into a distribution agreement with
McKesson for provision of warehousing and order fulfillment services for
the Company's Oncology Therapeutics Network (OTN), a specialty
distributor of anti-cancer medicines and related products. Under the
terms of the agreement, McKesson purchases oncology products to service
OTN's fulfillment needs from a number of vendors, including the Company.
Subsequent to shipment of product to McKesson, the Company has a
significant continuing involvement in the transaction, including
marketing the product to the end-user, invoicing the customer and
collecting receivables from the customer on behalf of McKesson. In
addition, OTN keeps all the credit risk and is responsible for shipping
costs to the customer. Prior to the restatement, the Company recorded in
error sales under this agreement upon shipment of product to McKesson.
The Company has restated its previously issued financial statements to
account for these sales using the consignment model and to defer
recognition of revenue until the products are sold by McKesson.
(2) Historically, the Company recorded returns based on actual product
returns during the period. Although such accounting policy was not in
accordance with GAAP and, accordingly, was an error, the Company believed
that the amount of such error was not material as over time the level of
returns has been consistently low on an absolute dollar basis and the
Company's practice has historically approximated the accrual method of
accounting in all material respects. As part of the restatement, the
Company adopted the accrual method of accounting for returns to conform
to GAAP.
(3) The Company restated its Medicaid and prime vendor rebate liabilities for
its U.S. pharmaceuticals business to correct an error in the
determination of the accrual. An important component of determining the
required accrual is an estimate of the amount of inventory at the
wholesalers which has not sold through and upon which the Company expects
to pay a rebate. As the Company experienced a substantial buildup of
wholesaler inventories in its U.S. pharmaceuticals business over several
years, primarily in 2000 and 2001, the accrual did not fully reflect the
growth of such inventory levels. In the first quarter of 2002, the
Company determined that the estimated Medicaid and prime vendor sales
rebate accrual balance for its U.S. pharmaceuticals business was
understated and recorded a one-time adjustment to its accrual that
resulted in a decrease in sales and earnings of approximately $290
million and $262 million, respectively. As part of the restatement, the
Company correctly
18
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
considered inventory at the wholesalers and reversed the previously
recorded first quarter 2002 one-time adjustment. The restatement is also
attributable in part to the impact of the consignment sales adjustment,
as the deferral of certain previously recognized sales resulted in a
deferral of recording of the related rebates.
(4) The Company recorded a restatement adjustment to correct an error in its
methodology for establishing managed healthcare sales rebate accruals to
accrue an estimate for rebates at the time of sale, rather than accruing
ratably over the period during which the managed health care entities
perform their obligations under the agreements providing for rebates. As
with Medicaid and prime vendor rebates discussed above, the estimated
amount of inventory at the wholesalers which has not sold through and
upon which the Company expects to pay a rebate is an important component
of determining the required accrual. Previously, the impact of the excess
inventory held by wholesalers erroneously was not considered in the
determination of the accrual.
(5) The Company adopted EITF 01-9, which it originally began to apply in the
third quarter of 2002, as of January 1, 2002. This restatement adjustment
resulted in a reclassification of costs previously included in
advertising and promotion expense to reduce sales. The effect of EITF
01-9 was not material to the first and second quarters of 2002.
(6) Prior to the Company's investment in ImClone in the fourth quarter of
2001, the Company's accounting policy for payments related to the
acquisition or license of patent rights was to capitalize such payments
regardless of whether the underlying asset had received marketing
approval from the FDA or other regulatory agencies. The Company's prior
accounting policy was based on the principle that payments made to
acquire or license products should be capitalized and amortized over the
period that the Company expected it would benefit from the revenue stream
associated with the underlying product or over the research and
development term, depending on the arrangement. These capitalized
payments were subsequently amortized to earnings using a straight-line
method over the term of the agreement or expected life of the underlying
product. This policy was not in accordance with GAAP and, accordingly,
was an error. GAAP requires that incurred costs related to the
acquisition or licensing of products that have not yet received
regulatory approval to be marketed, and that have no alternative future
use, be charged to earnings. As part of the restatement, the Company
corrected its accounting policy for payments related to the acquisition
or license of patent rights to conform to GAAP.
(7) In the fourth quarter of 2001, the Company and Sanofi-Synthelabo (Sanofi)
modified their existing codevelopment arrangement for Irbesartan
(AVAPRO(R)) to form an alliance to which the Company contributed the
Irbesartan intellectual property and in which the Company owns a 50.1%
interest and Sanofi owns a 49.9% interest, with profits being shared in
proportion to their ownership interest. Sanofi agreed to pay the Company
$200 million and $150 million in the fourth quarters of 2001 and 2002,
respectively. The Company accounts for this transaction as a sale of an
interest in a license and defers and amortizes the $350 million payment
into income over the expected useful life of the license. The Company's
previous accounting was based on a determination that the useful life of
the license was through 2003 due to the anticipated FDA approval of a
competing product. The Company has reviewed the accounting for this
transaction and has determined that the previous amortization based on
the anticipated approval of a competing product was not in accordance
with GAAP and, accordingly, was an error because the approval of the
competing product had not been received. As part of the restatement, the
Company corrected this error and is now amortizing the $350 million
payment over the remaining patent life, which is approximately eleven
years.
(8) The Company recorded certain liabilities for contingencies identified at
the date of acquisition in connection with acquisitions during the period
1997 through 2001. In subsequent periods, substantial portions of these
liabilities were determined to be in excess and reversed into other
income, except for amounts related to the DuPont acquisition which were
reversed to goodwill. Based on its investigation of accounting practices
in certain areas that involve significant judgments, the Company has
determined that certain portions of these liabilities were established
inappropriately, as there does not appear to have been any related
quantifiable or specific category of liability supporting the
establishment of such portions of these liabilities and that such amounts
were ultimately inappropriately reversed. In the restatement, the Company
adjusted goodwill and the liabilities at the dates of acquisition and
reversed the amounts inappropriately recognized in other income in
subsequent periods.
In addition, the Company recorded in error $67 million of acquisition
costs in paid-in capital in connection with its 1998 acquisition of
Redmond Products, Inc. that was accounted for using the
pooling-of-interests accounting method. The Company has determined that
classification of these costs in paid-in capital was in error. Of this
amount, $42 million was charged to other expense in 1998, resulting in a
decrease to opening retained earnings as of January 1, 1999. Based on its
investigation of accounting practices in certain areas that involve
significant judgments, the Company has determined that the remaining $25
million was established inappropriately, as there does not appear to have
been any related quantifiable
19
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
or specific category of liability supporting the establishment of such
amount, and the $25 million was restated as described above.
(9) In connection with divestiture transactions consummated during the period
1997 through 2001, the Company recorded certain liabilities for
contingencies identified at the date of divestiture. In subsequent
periods, substantial portions of these liabilities were determined to be
in excess and reversed into other income. Based on its investigation of
its accounting practices in certain areas that involve significant
judgments, the Company has now determined that certain portions of these
liabilities were established inappropriately, as there does not appear to
have been any related quantifiable or specific category of liability
supporting the establishment of such portions of these liabilities and
that such amounts were ultimately inappropriately reversed. Accordingly,
the Company eliminated the amounts inappropriately recognized in other
income in subsequent periods and increased the gain on sale in the
periods of the related divestiture by an equal amount. In addition, the
Company has determined that certain liabilities were inappropriately
established as a reduction of equity in connection with the spin-off of
Zimmer. Accordingly, the Company has reversed the establishment of these
liabilities.
(10) During the period 1997 through 2001, the Company recorded restructuring
and asset write-down charges in connection with the decision to exit
certain activities and to streamline operations. Based on its
investigation of its accounting practices in certain areas that involve
significant judgments, the Company has now determined that certain
charges were established in error, including some that were
inappropriately established or classified as "provision for restructuring
and other items" in the statement of earnings.
In 2001, $22 million of liabilities were established as restructuring
expense in error, and $65 million of liabilities were inappropriately
established in error for asset write-downs and restructuring expenses,
primarily for manufacturing facility closures to which management had not
yet committed. In addition, two operating items for a total of $39
million were inappropriately classified in error as restructuring
expenses, of which $6 million related to discontinued operations. In
2000, $26 million of costs were inappropriately established in error as
restructuring expense. With respect to certain of the operating items
established as restructuring expenses, the error had not been previously
corrected because the amount of such error was not material to the
Company's consolidated financial statements.
The Company also determined that $23 million of restructuring charges in
2001 related to the closure of a research facility were classified in
error as research and development expense. In addition, the Company
reclassified certain write-offs of inventory made in connection with the
restructuring actions in 2001 and 2000 of $58 million and $40 million,
respectively, from restructuring expense to cost of products sold.
During 2001, the Company recorded in error the write-off of certain
receivables of exited product lines of approximately $74 million to
restructuring and other non-recurring charges. The Company recorded a
restatement adjustment to properly record the write-off of these
receivables as a reduction to net sales.
(11) On Sunday, March 31, 2002, the Company entered into a binding letter
agreement with Watson Pharmaceuticals, Inc. to settle a lawsuit relating
to BUSPAR(R). Under GAAP, the $35 million charge incurred under the
letter agreement should have been accrued in the fourth quarter of 2001,
as the letter agreement was entered into prior to the issuance of the
2001 consolidated financial statements, which were filed on April 1,
2002. The Company erroneously accrued the $35 million charge in the first
quarter of 2002. As part of the restatement, the Company corrected this
error by recognizing this charge in the fourth quarter of 2001.
(12) Under SFAS No. 109, no impact should be recorded on intercompany sales of
inventory until the related product is ultimately sold to an unrelated
third party. For intercompany sales between consolidated subsidiaries
located in different tax jurisdictions, current tax expense is recognized
in the country of sale, and a corresponding offsetting deferred tax
expense is recognized to offset this tax until the product is sold to an
unrelated third party. As part of the restatement, the Company recorded
an adjustment to correct an erroneous calculation of a deferred tax asset
related to intercompany profit in inventory and intercompany royalties.
The computation of the deferred tax asset for intercompany profit in
inventory was also impacted by the consignment sales restatement
discussed previously.
20
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
In the fourth quarter of 2001, the Company erroneously reduced the
deferred tax benefit related to acquired in-process research and
development due to an inappropriate conclusion regarding the realization
of the related deferred tax assets. The Company erroneously determined
that the deferred tax asset associated with the purchase price premium
paid on its tender offer for ImClone stock should not be recorded due to
the uncertainty of realization. The Company has restated the deferred tax
asset in the fourth quarter of 2001 by recognizing a deferred tax benefit
of $66 million. Additionally, during 2001, the Company recognized excess
liabilities related to income tax contingencies due to an error in
determining interest relating to recorded tax liabilities resulting from
the use of an incorrect interest rate. As part of the restatement, the
Company has therefore restated income taxes payable at December 31, 2001,
by recognizing a current benefit of $33 million.
To reflect the tax impact of the pre-tax restatement adjustments, the
Company adjusted the income tax expense for each restated annual period.
(13) In the first quarter of 1998, the Company entered into a like-kind
exchange agreement with respect to certain of its aircraft and
erroneously recognized a gain of $39 million at that time, recognizing
the excess of the proceeds received upon trade-in over the recorded net
book value as a gain rather than as a reduction of the basis of the new
aircraft. As part of the restatement, the Company corrected this error,
which resulted in a decrease of $24 million to opening retained earnings
as of January 1, 1999 to give effect to amounts affecting prior periods
and to reflect a reduction in the book value of the aircraft acquired by
$39 million.
Under the revised agreement with ImClone, the Company agreed to pay
ImClone a $200 million milestone payment, of which $140 million was paid
upon signing of the revised agreement in March 2002 and $60 million was
payable on the one year anniversary of signing. With respect to the $140
million paid in March 2002, the Company expensed $112 million (or 80%) as
acquired in-process research and development and recorded $28 million (or
19.9%) as an additional equity investment to eliminate the income
statement effect of the portion of the milestone payment for which it has
an economic claim through its 19.9% ownership interest in ImClone. The
Company has now determined that the $60 million portion of the milestone
payment that was payable on the one year anniversary of signing the
revised agreement should have been accrued for in March 2002.
Accordingly, the Company has corrected this error by restating its first
quarter of 2002 acquired in-process research and development charge to
expense $48 million (or 80%) of such portion of the milestone payment and
recorded $12 million or (19.9%) of such portion of the milestone payment
as an additional equity investment. This additional equity investment was
written-off as part of the Company's ImClone impairment charge recorded
in the third quarter of 2002.
In addition, the Company determined that a portion of its accrued
liability for employee medical benefits was inappropriately reversed.
Accordingly, the Company corrected this error.
(14) Historically, the Company recognized a liability for declared dividends
as of the record date, which typically was approximately two weeks after
the declaration date. This accounting policy was not in accordance with
GAAP and, accordingly, was an error because declaration of a lawful
dividend creates, under the laws of the State of the Company's
incorporation, an obligation on the part of the corporation as of the
declaration date and requires recognition of a dividend accrual as of
such date. As part of the restatement, the Company corrected its
accounting policy to record a liability for dividends as of the
declaration date.
21
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
The following tables present the impact of the restatement adjustments on the
Company's previously reported 2002, 2001, 2000 and 1999 results:
Six Months Ended Year Ended December 31,
------------------- ------------------------ ----------------------------------------------
June 30,
2002 2001 2000 1999
------------------- ------------------------ ---------------------- -----------------------
(dollars in millions, except per As As As As
share data) Previously As Previously As Previously As Previously As
Statement of operations: Reported Restated Reported Restated(**) Reported Restated(**) Reported Restated(**)
-------- -------- ---------- ------------- -------- ------------ -------- ------------
Net sales $8,135 $8,788 $19,423 $17,987 $18,216 $17,538 $16,878 $16,502
Cost of products sold 2,787 2,968 5,575 5,453 4,759 4,730 4,542 4,458
Marketing, selling, and administrative 1,837 1,849 3,903 3,894 3,860 3,852 3,789 3,789
Advertising and product promotion 678 604 1,433 1,299 1,672 1,526 1,549 1,549
Research and development 1,048 1,029 2,259 2,183 1,939 1,878 1,759 1,705
Acquired in-process research and
development 112 160 2,744 2,772 0 38 0 193
Provision for restructuring and other
items 125 91 781 583 508 443 0 0
Gain on sale of businesses/product lines (30) (30) (392) (475) (160) (216) 0 (50)
Other (Income)/Expense 159 165 (97) 60 2 40 (7) 68
--- --- ---- -- - -- --- --
6,716 6,836 16,206 15,769 12,580 12,291 11,632 11,712
Earnings from Continuing Operations
Before Minority Interest and Income
Taxes 1,419 1,952 3,217 2,218 5,636 5,247 5,246 4,790
Provision for income taxes 331 637 546 (35) 1,440 1,260 1,402 1,283
Minority Interest net of taxes (*) 63 89 144 102 100 97 55 49
Earnings from Continuing Operations 1,025 1,226 2,527 2,151 4,096 3,890 3,789 3,458
Discontinued Operations:
Net earnings 0 0 226 226 375 375 378 378
Net gain on disposal 0 15 2,492 2,565 240 266 - -
Net earnings 1,025 1,241 5,245 4,942 4,711 4,531 4,167 3,836
Basic earnings per share from
Continuing Operations .53 .63 1.30 1.11 2.08 1.98 1.91 1.74
Diluted earnings per share from
Continuing operations .53 .63 1.29 1.09 2.05 1.95 1.87 1.71
Basic net earnings per share .53 .64 2.70 2.55 2.40 2.31 2.10 1.93
Diluted net earnings per share .53 .64 2.67 2.51 2.36 2.27 2.06 1.90
Selected Balance Sheet Accounts:
Receivables, net 3,470 3,599 3,949 3,992 3,662 3,682 3,272 3,279
Inventory on consignment 0 152 0 208 0 99 0 53
Total Current Assets 9,948 10,752 12,349 13,452 9,824 10,337 9,267 9,558
Intangible asset, net 2,126 1,982 2,247 2,084 384 196 468 254
Total Assets 24,783 25,462 27,057 28,015 17,578 17,851 17,114 17,136
Deferred revenue on consigned
inventory 0 1,476 0 2,026 0 908 0 417
Total Current Liabilities 6,760 12,724 8,826 11,109 5,632 7,102 5,537 6,525
Total Liabilities 14,069 15,992 16,321 18,737 8,398 9,868 8,469 9,457
Stockholders' Equity 10,714 9,470 10,736 9,278 9,180 7,983 8,645 7,679
Total Liabilities and Stockholders'
Equity 24,783 25,462 27,057 28,015 17,578 17,851 17,114 17,136
(*) Includes minority interest expense and income from unconsolidated
affiliates.
(**) Includes the impact of EITF 01-9 in 2001, 2000 and 1999 to conform to the
2002 presentation.
24
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
The following table presents full year results for 2002, 2001, 2000, and 1999,
as restated:
Restated(**) Restated(**) Restated(**)
2002 2001 2000 1999
-------- ------------ ------------ ------------
(dollars in millions, except per share data)
Statement of operations:
Net sales $18,119 $17,987 $17,538 $16,502
Cost of products sold 6,388 5,453 4,730 4,458
Marketing, selling, and administrative 3,923 3,894 3,852 3,789
Advertising and product promotion 1,295 1,299 1,526 1,549
Research and development 2,218 2,183 1,878 1,705
Acquired in-process research and development 169 2,772 38 193
Provision for restructuring and other items 649 583 443 0
Gain on sale of businesses/product lines (30) (475) (216) (50)
Asset impairment charge 403 0 0 0
Other (Income)/Expense 457 60 40 68
------ ------ ------ ------
15,472 15,769 12,291 11,712
Earnings from Continuing Operations Before Minority
Interest and Income Taxes 2,647 2,218 5,247 4,790
Provision for income taxes 607 (35) 1,260 1,283
Minority Interest net of taxes (*) 178 102 97 49
Earnings from Continuing Operations 1,862 2,151 3,890 3,458
Discontinued Operations:
Net earnings (5) 226 375 378
Net gain on disposal 38 2,565 266 0
Net earnings 1,895 4,942 4,531 3,836
Basic earnings per share from Continuing Operations .96 1.11 1.98 1.74
Diluted earnings per share from Continuing Operations .96 1.09 1.95 1.71
Basic net earnings per share .98 2.55 2.31 1.93
Diluted net earnings per share .98 2.51 2.27 1.90
Selected Balance Sheet Accounts:
Receivables, net 2,968 3,992 3,682 3,279
Inventory on consignment 58 208 99 53
Total Current Assets 10,015 13,452 10,337 9,558
Intangible asset, net 1,904 2,084 196 254
Total Assets 24,905 28,015 17,851 17,136
Deferred revenue on consigned inventory 470 2,060 919 417
Total Current Liabilities 14,320 11,109 7,102 6,525
Total Liabilities 15,907 18,737 9,868 9,457
Stockholders' Equity 8,998 9,278 7,983 7,679
Total Liabilities and Stockholders' Equity 24,905 28,015 17,851 17,136
(*) Includes minority interest expense and income from unconsolidated
affiliates.
(**) Includes the impact of EITF 01-9 in 2001, 2000 and 1999 to conform to the
2002 presentation.
23
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
The following table presents worldwide full year sales for selected products
for 2002, 2001, 2000, and 1999, as restated:
(dollars in millions)
Restated Restated Restated
2002 % Change 2001 % Change 2000 % Change 1999
---- ------ ---- ------ ---- ------ ----
PRAVACHOL(R) $2,266 8% $2,101 19% 1,766 8% $1,637
PLAVIX(R) 1,890 61% 1,171 32% 889 69% 525
Enfamil 750 - 753 5% 719 (2%) 736
AVAPRO(R)/Avalide 586 20% 487 35% 361 45% 249
Ostomy 459 3% 444 4% 425 (5%) 449
Sustiva 455 569% 68 - - - -
Zerit 443 (14%) 515 (11%) 578 - 580
Wound Care 276 11% 248 9% 228 (4%) 238
GLUCOPHAGE(R)XR 297 29% 230 597% 33 - -
Videx 262 9% 240 16% 207 12% 185
GLUCOVANCE(R) 246 (9%) 269 - - - -
Tequin 184 (26%) 250 91% 131 - -
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 2
PRESCRIBER DEMAND
The following tables set forth a comparison of reported net sales changes on a
restated basis and the estimated total (both retail and mail order customers)
prescription growth for certain of the Company's U.S. primary care
pharmaceutical products. These estimates of prescription growth are based on
third-party data. A significant portion of the Company's domestic
pharmaceutical sales are made to wholesalers. Where the change in reported net
sales exceeds prescription growth, this change in net sales may not reflect
underlying prescriber demand.
Restated
Six Months Ended Restated Restated Restated
June 30, 2002 2001 2000 1999
-------------------------- -------------------------- -------------------------- -------------------------
% Change % Change % Change % Change % Change % Change % Change % Change
in in Total in in Total in in Total in in Total
Net Sales Prescriptions Net Sales Prescriptions Net Sales Prescriptions Net Sales Prescriptions
--------- ------------- --------- ------------- ---------- ------------- ---------- -------------
PRAVACHOL(R) 5 10 19 9 8 4 (5) 3
GLUCOPHAGE(R) (64) (68) 34 (8) 43 20 41 32
PLAVIX(R) 82 37 30 35 71 48 246 **
AVAPRO(R) 32 12 35 20 45 45 105 137
MONOPRIL(R) - (6) 2 (1) (4) 3 11 13
SERZONE(R) (19) (26) 5 (2) (2) 8 29 14
CEFZIL(R) (21) (15) (8) (11) (13) (16) 5 1
BUSPAR(R) (84) (84) (56) (53) 17 13 10 5
Three Months Ended Three Months Ended
September 30, 2002 September 30, 2001
-------------------------- -------------------------
% Change % Change % Change % Change
in in Total in in Total
Net Sales Prescriptions Net Sales Prescriptions
---------- ------------- --------- -------------
PRAVACHOL(R) 19% 2% 38% 11%
GLUCOPHAGE(R) (92%) (88%) 21% (15%)
PLAVIX(R) 18% 34% 71% 37%
AVAPRO(R) 3% 15% 54% 16%
MONOPRIL(R) 10% (8%) 13% (2%)
SERZONE(R) (48%) (40%) 19% (3%)
CEFZIL(R) (29%) (13%) 20% (16%)
BUSPAR(R) (72%) (67%) (76%) (75%)