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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 JUNE 30, 2001
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 July 31, 2001, there were 1,937,057,618 shares outstanding of the
Registrant's $.10 par value Common Stock.
BRISTOL-MYERS SQUIBB COMPANY
INDEX TO FORM 10-Q
JUNE 30, 2001
PART I - FINANCIAL INFORMATION: PAGE
ITEM 1.
Financial Statements (Unaudited):
Consolidated Balance Sheet - June 30, 2001 and December 31, 2000 2 - 3
Consolidated Statement of Earnings and Comprehensive Income for
the three and six months ended June 30, 2001 and 2000 4
Consolidated Statement of Cash Flows for the six months ended
June 30, 2001 and 2000 5
Notes to Condensed Consolidated Financial Statements 6 - 9
Report of Independent Accountants 10
ITEM 2.
Management's Discussion and Analysis of Financial Condition and
Results of Operations 11 - 16
PART II - OTHER INFORMATION
ITEM 1.
Legal Proceedings 17 - 18
ITEM 6.
Exhibits and Reports on Form 8-K 19
SIGNATURES 20
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEET - ASSETS
(Unaudited, dollars in millions)
June 30, December 31,
2001 2000
---------- ------------
Current Assets:
Cash and cash equivalents $ 2,944 $ 3,182
Time deposits and marketable securities 204 203
Receivables, net of allowances 3,551 3,662
Finished goods 1,084 890
Work in process 454 473
Raw and packaging materials 371 468
------- -------
Inventories 1,909 1,831
Prepaid expenses 911 946
------- -------
Total Current Assets 9,519 9,824
Property, Plant and Equipment 8,097 7,926
Less: Accumulated depreciation 3,416 3,378
------- -------
4,681 4,548
Insurance Recoverable 201 262
Excess of cost over net tangible assets arising
from business acquisitions 1,401 1,436
Other Assets 1,674 1,508
------- -------
Total Assets $17,476 $17,578
======= =======
The accompanying notes are an integral part of these financial statements.
2
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEET -
LIABILITIES AND STOCKHOLDERS' EQUITY
(Unaudited, dollars in millions)
June 30, December 31,
2001 2000
---------- ------------
Current Liabilities:
Short-term borrowings $ 162 $ 162
Accounts payable 1,629 1,702
Accrued expenses and other current liabilities 2,770 3,067
U.S. and foreign income taxes payable 700 701
------- -------
Total Current Liabilities 5,261 5,632
Other Liabilities 1,374 1,430
Long-Term Debt 1,302 1,336
------- -------
Total Liabilities 7,937 8,398
------- -------
Stockholders' Equity:
Preferred stock, $2 convertible series:
Authorized 10 million shares; issued and
outstanding 9,757 in 2001 and 9,864
in 2000, liquidation value of $50 per share -- --
Common stock, par value of $.10 per share:
Authorized 4.5 billion shares; issued
2,199,052,539 in 2001 and 2,197,900,835
in 2000 220 220
Capital in excess of par value of stock 2,201 2,002
Other comprehensive income (1,047) (1,103)
Retained earnings 19,246 17,781
------- -------
20,620 18,900
Less cost of treasury stock - 261,965,350
common shares in 2001 and 244,365,726
in 2000 11,081 9,720
------- -------
Total Stockholders' Equity 9,539 9,180
------- -------
Total Liabilities and Stockholders' Equity $17,476 $17,578
======= =======
The accompanying notes are an integral part of these financial statements.
3
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
AND COMPREHENSIVE INCOME
(Unaudited, in millions except per share amounts)
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
EARNINGS 2001 2000 2001 2000
-------- ------ ------ ------ ------
Net Sales $4,709 $4,418 $9,398 $8,869
------ ------ ------ ------
Expenses:
Cost of products sold 1,347 1,130 2,630 2,271
Marketing, selling, administrative and other 942 984 1,776 1,928
Advertising and product promotion 424 493 801 883
Research and development 495 450 1,003 896
------ ------ ------ ------
3,208 3,057 6,210 5,978
------ ------ ------ ------
Earnings from Continuing Operations Before Income Taxes 1,501 1,361 3,188 2,891
------ ------ ------ ------
Provision for income taxes 399 356 843 757
------ ------ ------ ------
Earnings from Continuing Operations 1,102 1,005 2,345 2,134
Discontinued Operations, net 99 86 192 178
------ ------ ------ ------
Net Earnings $1,201 $1,091 $2,537 $2,312
====== ====== ====== ======
EARNINGS PER COMMON SHARE
Basic
Earnings from Continuing Operations $ .57 $ .51 $ 1.21 $ 1.08
Discontinued Operations .05 .04 .10 .09
------ ------ ------ ------
Net Earnings $ .62 $ .55 $ 1.31 $ 1.17
====== ====== ====== ======
Diluted
Earnings from Continuing Operations $ .56 $ .50 $ 1.19 $ 1.06
Discontinued Operations .05 .04 .10 .09
------ ------ ------ ------
Net Earnings $ .61 $ .54 $ 1.29 $ 1.15
====== ====== ====== ======
Average Common Shares Outstanding
Basic 1,940 1,970 1,944 1,973
Diluted 1,964 2,002 1,971 2,005
Dividends per common share $ .275 $ .245 $ .55 $ .49
COMPREHENSIVE INCOME
Net Earnings $1,201 $1,091 $2,537 $2,312
Other Comprehensive Income
Foreign currency translation, net of taxes of $(13) and
$(5) for the three months ended June 30 2001 and 2000 and
$(32) and $(2) for the six months ended June 30 2001 and 2000 (52) (108) 30 (162)
Deferred gains on derivatives qualifying as hedges, net of
taxes of $6 and $19 for the three and six months ended June
30, 2001, respectively 9 -- 26 --
------ ------ ------ ------
(43) (108) 56 (162)
------ ------ ------ ------
Comprehensive Income $1,158 $ 983 $2,593 $2,150
====== ====== ====== ======
The accompanying notes are an integral part of these financial statements.
4
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, dollars in millions)
Six Months
Ended June 30,
--------------
2001 2000
---- ----
Cash Flows From Operating Activities:
Net earnings $ 2,537 $ 2,312
Depreciation and amortization 363 373
Provision for restructuring -- 140
Gain from product divestitures (77) (160)
Other operating items 6 --
Receivables 102 (397)
Inventories (116) 10
Accounts payable and accrued expenses (225) (124)
Income taxes 54 (50)
Product liability (119) (105)
Insurance recoverable 125 51
Pension contribution (215) (230)
Other assets and liabilities (52) (236)
------- -------
Net Cash Provided by Operating Activities 2,383 1,584
------- -------
Cash Flows From Investing Activities:
Proceeds from sales of time deposits and marketable securities 729 45
Purchases of time deposits and marketable securities (742) (10)
Additions to fixed assets (411) (192)
Proceeds from product divestitures 135 248
Purchases of trademarks and patents (60) (83)
Other, net (72) (3)
------- -------
Net Cash (Used in) Provided by Investing Activities (421) 5
------- -------
Cash Flows From Financing Activities:
Short-term borrowings 2 (156)
Long-term debt (1) (4)
Issuances of common stock under stock plans 132 123
Purchases of treasury stock (1,272) (1,047)
Dividends paid (1,072) (969)
------- -------
Net Cash Used in Financing Activities (2,211) (2,053)
------- -------
Effect of Exchange Rates on Cash 11 (34)
------- -------
Decrease in Cash and Cash Equivalents (238) (498)
Cash and Cash Equivalents at Beginning of Period 3,182 2,720
------- -------
Cash and Cash Equivalents at End of Period $ 2,944 $ 2,222
======= =======
The accompanying notes are an integral part of these financial statements.
5
BRISTOL-MYERS SQUIBB COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in millions except per share amounts)
NOTE 1: 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 June 30, 2001 and December 31, 2000, and the
results of operations for the three and six months ended June 30, 2001 and 2000,
and cash flows for the six months ended June 30, 2001 and 2000. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and the related notes included in the
Company's 2000 Annual Report on Form 10-K. PricewaterhouseCoopers LLP, the
Company's independent accountants, have performed a review of the unaudited
consolidated financial statements included herein, and their review report
thereon accompanies this filing.
NOTE 2: DISCONTINUED OPERATIONS
In September 2000, the Company announced the planned divestitures of its beauty
care business "Clairol" and orthopaedic business "Zimmer". Accordingly, the
operations of Clairol (which includes its Matrix affiliate) and Zimmer have been
reflected as discontinued operations in the accompanying condensed consolidated
financial statements.
On August 6, 2001, Zimmer was distributed to the Company's stockholders in a
tax-free spin-off. In May 2001, the Company reached an agreement to sell Clairol
to Procter & Gamble for $4.95 billion.
The net sales and earnings of discontinued operations are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
------------- -------------
2001 2000 2001 2000
---- ---- ---- ----
Net sales $784 $857 $1,530 $1,666
==== ==== ====== ======
Earnings before income taxes 159 139 309 287
Income taxes 60 53 117 109
---- ---- ------ ------
Net earnings from discontinued operations $ 99 $ 86 $ 192 $ 178
==== ==== ====== ======
6
BRISTOL-MYERS SQUIBB COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in millions except per share amounts)
The consolidated balance sheet and consolidated statement of cash flows include
the Clairol and Zimmer businesses. The net assets of discontinued operations
expected to be disposed at June 30, 2001 and December 31, 2000 were as follows:
June 30, December 31,
2001 2000
---- ----
Current assets $935 $866
Property, Plant and Equipment, net 347 340
Noncurrent Assets 291 276
Less:
Liabilities (principally current) 625 558
---- ----
Net assets of discontinued operations $948 $924
==== ====
Cash flows from operating and investing activities of discontinued operations
for the six months ended June 30, 2001 and 2000 were $119 million and $245
million, respectively.
NOTE 3: FINANCIAL INSTRUMENTS
Effective January 1, 2001, the Company adopted Statement of Financial Accounting
Standard (SFAS) 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, which requires that all derivative instruments be
recognized as either assets or liabilities on the balance sheet and measured at
fair value. The adoption of this accounting requirement did not have a material
effect on the Company's consolidated financial statements.
The Company is exposed to market risk due to changes in currency exchange rates
and interest rates. As a result, the Company utilizes foreign exchange option
and forward contracts to offset the effect of exchange rate fluctuations on
anticipated foreign currency transactions, primarily intercompany inventory
purchases expected to occur within the next year. For these derivatives, which
qualify as hedges of future cash flows, the effective portion of changes in fair
value is temporarily recorded in comprehensive income, then recognized in
earnings when the hedged item affects earnings. Any ineffective portion of
hedges is reported in earnings as it occurs. The fair value of derivative
instruments, which is recorded in prepaid expenses, at June 30, 2001 was $48
million.
To manage interest rate risk, the Company utilizes interest rate swap contracts.
The Company will enter into interest rate swaps to hedge against the effects of
adverse changes in interest rates on consolidated results of operations and
future cash outflows for interest. These interest rate swap contracts allow the
Company to establish a fixed interest rate on anticipated debt issuances. Gains
and losses from changes in fair value on interest rate swap contracts designated
as cash flow hedges are initially deferred and recorded in other comprehensive
income. Amounts are transferred from other comprehensive income and recognized
in earnings as Interest Expense in the same period that the hedged item is
recognized in earnings.
In the second quarter 2001, the Company entered into interest rate hedge
contracts, with a notional amount of $1 billion, to manage its exposure to
changes in interest rates for long-term fixed-rate debt expected to be issued in
a future period in connection with the acquisition of the DuPont Pharmaceuticals
Company (see note 5). The contracts were designated as hedges of the variability
of the cash flows due to changes in the long-term benchmark interest rates. At
June 30, 2001, the Company recorded the contract at
7
BRISTOL-MYERS SQUIBB COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in millions except per share amounts)
fair value, resulting in a $7 million deferred gain in accumulated other
comprehensive income.
The Company recorded a transition adjustment as of January 1, 2001 of $26
million, net of taxes, in other comprehensive income to record the hedging
instruments at their fair value. A reconciliation of current period changes, net
of taxes, included in other comprehensive income follows:
Transition adjustment as of January 1, 2001, net $ 26
Current period increases in fair value, net 28
Recognized in earnings, net (28)
----
Balance at June 30, 2001 $ 26
====
Substantially all of the $26 million, net of taxes, gain on cash flow hedging
deferred in other comprehensive income, is expected to be reclassified to
earnings over the next year. The change in time value of options, excluded from
the measure of effectiveness, reported in earnings for the second quarter and
six months, was not material.
NOTE 4: EARNINGS PER SHARE
Basic earnings per common share are computed using the weighted average number
of shares outstanding during the year. Diluted earnings per common share are
computed using the weighted average number of shares outstanding during the
year, plus the incremental shares outstanding assuming the exercise of dilutive
stock options.
The computations for basic earnings per common share and diluted earnings per
common share are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
Net Earnings from Continuing Operations $1,102 $1,005 $2,345 $2,134
Discontinued Operations, net 99 86 192 178
------ ------ ------ ------
Net Earnings $1,201 $1,091 $2,537 $2,312
====== ====== ====== ======
Basic:
Average Common Shares Outstanding 1,940 1,970 1,944 1,973
====== ====== ====== ======
Earnings from Continuing Operations $ .57 $ .51 $ 1.21 $ 1.08
Discontinued Operations, net .05 .04 .10 .09
------ ------ ------ ------
Net Earnings $ .62 $ .55 $ 1.31 $ 1.17
====== ====== ====== ======
Diluted:
Average Common Shares Outstanding 1,940 1,970 1,944 1,973
Incremental Shares Outstanding Assuming the
Exercise of Dilutive Stock Options 24 32 27 32
------ ------ ------ ------
1,964 2,002 1,971 2,005
====== ====== ====== ======
Earnings from Continuing Operations $ .56 $ .50 $ 1.19 $ 1.06
Discontinued Operations, net .05 .04 .10 .09
------ ------ ------ ------
Net Earnings $ .61 $ .54 $ 1.29 $ 1.15
====== ====== ====== ======
8
BRISTOL-MYERS SQUIBB COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited, dollars in millions except per share amounts)
NOTE 5: ACQUISITIONS, DIVESTITURES AND RESTRUCTURING
In June 2001, the Company announced a definitive agreement to purchase the
DuPont Pharmaceuticals Company, a wholly owned subsidiary of DuPont for $7.8
billion.
In May 2001, the Company announced a definitive agreement to sell Clairol to
Procter and Gamble for $4.95 billion.
In the second quarter 2001, the company recorded a pretax gain of $45 million on
the sale of its Estrace tablets. In the second quarter 2000, the Company
completed the sale of its Sea Breeze brand in Japan, resulting in a pre-tax gain
of $40 million. In 2000, the Company also recorded a pre-tax charge of $20
million for restructuring activities.
In the first six months of 2001, the company recorded a pretax gain of $77
million on the sale of its Estrace tablets and its Apothecon commodity business.
In the first six months of 2000, the company recorded a pretax gain of $160
million related to the sale of three pharmaceutical products - Estrace Cream,
Ovcon 35, and Ovcon 50 and its Sea Breeze brand in Japan. These gains were
recorded in marketing, selling, administrative and other. In 2000, the company
also recorded a charge of $140 million, of which $122 million is included in
marketing, selling, administrative and other in continuing operations and $18
million is included in discontinued operations.
The reserve balance, for all restructuring activities taken in the first three
quarters of 2000, was reduced to $131 million at June 30, 2001 from $247 million
at December 31, 2000. Restructuring activities include workforce reductions and
the downsizing and streamlining of operations. These restructuring activities
are expected to be substantially complete in the third quarter 2001.
NOTE 6: PENSION CONTRIBUTION
In January 2001, the Company made a contribution of $215 million to fund its
U.S. Retirement Income Plan.
9
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Bristol-Myers Squibb Company
We have reviewed the accompanying consolidated balance sheet of Bristol-Myers
Squibb Company and its subsidiaries as of June 30, 2001, and the related
consolidated statements of earnings and comprehensive income for the three-month
and six-month periods ended June 30, 2001 and 2000 and the consolidated
statement of cash flows for the six-month periods ended June 30, 2001 and 2000.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated interim financial statements for them
to be in conformity with accounting principles generally accepted in the United
States of America.
We previously audited in accordance with auditing standards generally accepted
in the United States of America, the consolidated balance sheet as of December
31, 2000, and the related consolidated statements of earnings, comprehensive
income and retained earnings and of cash flows for the year then ended (not
presented herein), and in our report dated January 24, 2001 we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 2000, is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
New York, New York
July 25, 2001
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SECOND QUARTER RESULTS OF OPERATIONS
Sales for the second quarter of 2001 increased 7% (9% excluding foreign
exchange) over the prior year to $4,709 million. The consolidated sales growth
resulted from a 7% increase due to volume, a 2% increase due to changes in
selling prices and a 2% decrease due to foreign exchange rate fluctuations. U.S.
sales increased 10% and international sales increased 1% (8% excluding foreign
exchange).
Worldwide pharmaceutical sales increased 8% (10% excluding foreign exchange).
U.S. pharmaceutical sales increased 12% and international pharmaceutical sales
increased 1% (8% excluding foreign exchange).
GLUCOPHAGE (metformin), is the leading branded oral medication for treatment of
non-insulin dependent (type 2) diabetes. The entire GLUCOPHAGE franchise
continued its strong growth rate, with sales increasing 57% to $763 million.
GLUCOPHAGE sales increased 7% to $517 million while sales of GLUCOVANCE,
launched in August 2000, and GLUCOPHAGE XR, launched in October 2000, were $135
million and $111 million, respectively.
Worldwide sales of PRAVACHOL*, a cholesterol-lowering agent, increased 10% to
$448 million including a 16% increase in international sales net of foreign
exchange.
Sales of TAXOL* (paclitaxel), the Company's leading anti-cancer agent, decreased
21% to $325 million. International sales increased 7% (15% excluding foreign
exchange) to $165 million, led by strong sales growth in Japan and France while
domestic sales decreased 38% to $160 million, due to generic competition.
Sales of PLAVIX, a platelet aggregation inhibitor for the reduction of stroke,
heart attack and vascular death in atherosclerotic patients with recent stroke,
recent heart attack or peripheral arterial disease, continued their strong
growth, increasing 43% to $317 million. Sales of AVAPRO, an angiotensin II
receptor blocker for the treatment of hypertension, increased 21% to $110
million. AVAPRO and PLAVIX are cardiovascular products that were launched from
the Bristol-Myers Squibb and Sanofi-Synthelabo joint venture.
Sales of the anti-cancer agent PARAPLATIN* increased 8% to $172 million as the
product continues to benefit from its use in combination with other chemotherapy
agents.
Sales of BUSPAR*, an anti-anxiety agent, declined to $89 million from $194
million in the same period of 2000, due to generic competition.
Sales of VIDEX*, an anti-retroviral agent, increased 39% to $68 million due to
increased sales of VIDEX EC* enteric-coated beadlets, launched in 2000.
* Indicates brand names of products which are trademarks owned by the Company.
11
Sales of TEQUIN*, a quinolone antibiotic, more than doubled to $58 million in
the quarter.
Sales of Oncology Therapeutics Network (OTN), a specialty distributor of
anti-cancer medicines and related products, increased 39% to $357 million.
ENFAMIL*, the Company's largest-selling infant formula, recorded sales of $172
million, an increase of 8% from the prior year.
Sales of ostomy products increased 5% (10% excluding foreign exchange) to $114
million while sales of modern wound care products increased 9% (16% excluding
foreign exchange) to $61 million.
OPERATING EXPENSES
Total expenses for the quarter ended June 30, 2001, as a percentage of sales,
improved to 68.1% from 69.2% in 2000 primarily due to containment of operating
expenses.
Cost of products sold, as a percentage of sales, increased to 28.6% from 25.6%
in 2000 due to increased sales of lower margin products from OTN and from a
change in product mix, primarily a decline in TAXOL* and BUSPAR* sales resulting
from generic competition. Marketing, selling, administrative and other expenses,
as a percentage of sales, declined to 20.0% in the quarter from 22.3% in 2000 as
a result of productivity, cost efficiencies and cost effectiveness. Expenditures
for advertising and promotion in support of new and existing products declined
14% to $424 million from $493 million in 2000 due to a reduction in support for
TAXOL* and BUSPAR*. Research and development expenditures increased 10% to $495
million from $450 million in 2000 as the Company increased its investment in
late stage compounds. Pharmaceutical research and development spending increased
11% over the prior year, and as a percentage of pharmaceutical sales, was 12.7%
in the second quarter of 2001 compared with 12.3% in the second quarter of 2000.
EARNINGS
Earnings before income taxes increased 10% to $1,501 million compared with
$1,361 million in 2000. Net earnings increased 10% to $1,102 million compared
with $1,005 million in 2000. Basic earnings per share increased 12% to $.57 from
$.51 in 2000 and diluted earnings per share increased 12% to $.56 from $.50 in
2000.
The effective income tax rate on earnings before income taxes was 26.6% compared
with 26.2% in 2000, as a result of lower production of TAXOL* and BUSPAR*.
DISCONTINUED OPERATIONS
Clairol sales increased 3% (5% excluding foreign exchange) to $489 million led
by an increase in sales of HERBAL ESSENCES*, a complete line of shampoos,
conditioners, styling aids, haircolor and body wash. Domestic sales increased 8%
while international sales decreased 4% (a 1% increase excluding foreign
exchange).
12
Zimmer sales increased 10% (14% excluding foreign exchange) to $294 million.
Domestic sales increased 18% while international sales remained at prior year
levels (a 10% increase excluding foreign exchange). Sales of knee joint
replacements increased 16% (20% excluding foreign exchange) to $121 million, hip
replacements increased 14% (19% excluding foreign exchange) to $95 million and
fracture management sales rose 6% to $38 million.
On August 6, 2001, Zimmer was distributed to the Company's stockholders in a
tax-free spin-off.
In the second and third quarters of 2000, the Company sold its Sea Breeze brand
in Japan and Matrix Essentials, Inc. subsidiary, respectively. Sales and
earnings before taxes from these divested businesses/products, included in the
second quarter of 2000, were $117 million and $14 million, respectively.
Net earnings from discontinued operations were $99 million compared with $86
million for the second quarter of 2000.
SIX MONTHS RESULTS OF OPERATIONS
Sales for the first six months of 2001 increased 6% (8% excluding foreign
exchange) over the prior year to $9,398 million. The consolidated sales growth
resulted from a 6% increase due to volume, a 2% increase due to changes in
selling prices and a 2% decrease due to foreign exchange rate fluctuations. U.S.
sales increased 10% and international sales decreased 1% (a 6% increase
excluding foreign exchange).
Worldwide pharmaceutical sales increased 8% (10% excluding foreign exchange).
U.S. pharmaceutical sales increased 12% and international pharmaceutical sales
decreased 1% (a 6% increase excluding foreign exchange).
The entire GLUCOPHAGE franchise continued its strong growth rate, with sales
increasing 45% to $1,320 million. GLUCOPHAGE sales increased 14% to $1,036
million while GLUCOVANCE, launched in August 2000, and GLUCOPHAGE XR, launched
in October 2000, had sales of $160 million and $124 million, respectively.
Worldwide sales of PRAVACHOL* increased 10% (13% excluding foreign exchange) to
$955 million. Sales of TAXOL* (paclitaxel) decreased 18% to $655 million.
International sales increased 9% (18% excluding foreign exchange) to $316
million while domestic sales decreased 33% to $339 million due to generic
competition. Sales of PLAVIX increased 45% to $615 million. Sales of AVAPRO
increased 25% to $222 million. Sales of PARAPLATIN* increased 15% to $365
million. Sales of VIDEX*, an anti-retroviral agent, increased 35% to $127
million due to increased sales of VIDEX EC* enteric-coated beadlets launched in
2000. Sales of TEQUIN* were $127 million compared with $37 million in the same
period of 2000.
Sales of Oncology Therapeutics Network (OTN) were $678 million, an increase of
35% over the prior year.
13
ENFAMIL*, the Company's largest-selling infant formula, recorded sales of $383
million, an increase of 5% from the prior year.
Sales of ostomy products increased 5% (11% excluding foreign exchange) to $218
million while sales of modern wound care products increased 7% (13% excluding
foreign exchange) to $121 million.
OPERATING EXPENSES
Total expenses for the six months ended June 30, 2001, as a percentage of sales,
improved to 66.1% from 67.4% in 2000 primarily due to containment of operating
expenses.
Cost of products sold, as a percentage of sales, increased to 28.0% from 25.6%
in 2000 due to increased sales of lower margin products from OTN and from a
change in product mix, primarily a decline in TAXOL* and BUSPAR* sales.
Marketing, selling, administrative and other expenses, as a percentage of sales,
declined to 18.9% in the first six months of 2001 from 21.7% in 2000 as a result
of productivity, cost efficiencies and cost effectiveness. Expenditures for
advertising and promotion declined 9% to $801 million from $883 million in 2000.
Research and development expenditures increased 12% to $1,003 million from $896
million in 2000 as the Company increased its investment in late stage compounds.
Pharmaceutical research and development spending increased 14% over the prior
year, and as a percentage of pharmaceutical sales, was 13.0% in the first six
months of 2001 and 12.3% in the first six months of 2000.
EARNINGS
Earnings before income taxes increased 10% to $3,188 million compared with
$2,891 million in 2000. Net earnings increased 10% to $2,345 million compared
with $2,134 million in 2000. Basic earnings per share increased 12% to $1.21
from $1.08 in 2000 and diluted earnings per share increased 12% to $1.19 from
$1.06 in 2000.
The effective income tax rate on earnings before income taxes was 26.4% compared
with 26.2% in 2000.
DISCONTINUED OPERATIONS
Clairol sales increased 3% (5% excluding foreign exchange) to $950 million.
Domestic sales increased 5% while international sales decreased 1% (a 4%
increase excluding foreign exchange).
Zimmer sales increased 10% (14% excluding foreign exchange) to $580 million.
Domestic sales increased 17% while international sales increased 1% (a 10%
increase excluding foreign exchange). Sales of knee joint replacements increased
15% (18% excluding foreign exchange) to $236 million, hip replacements increased
15% (19% excluding foreign exchange) to $187 million and fracture management
sales rose 6% to $78 million.
14
In the second and third quarters of 2000, the Company sold its Sea Breeze brand
in Japan and Matrix Essentials, Inc. subsidiary, respectively. Sales and
earnings before taxes from these divested businesses/products, included in the
first six months of 2000, were $220 million and $27 million, respectively.
In 2001, earnings before income taxes include $11 million in costs related to
the spin-off of Zimmer and in 2000 include an $18 million restructuring charge.
Net earnings from discontinued operations were $192 million compared with $178
million for the first six months of 2000.
FINANCIAL POSITION
The balance sheet at June 30, 2001 and the statement of cash flows for the six
months then ended reflect the Company's strong financial position. The Company
continues to maintain a high level of working capital, $4.3 billion at June 30,
2001, increasing from $4.2 billion at December 31, 2000. Net assets of
discontinued operations of $948 million are included in the balance sheet at
June 30, 2001.
Short-Term borrowings were $162 million at June 30, 2001 and December 31, 2000.
Long-Term Debt decreased to $1,302 million from $1,336 million at December 31,
2000.
In connection with the financing of the Dupont Pharmaceuticals acquisition, in
July 2001, the Company filed a registration statement with the Securities and
Exchange Commission under which the Company may issue up to $5 billion of
securities in the future in the form of debt securities, preferred stock, common
stock or warrants.
Internally generated funds continue to be the Company's primary source for
financing expenditures for new plant and equipment. Net Cash Provided by
Operating Activities increased to $2,383 million in 2001 from $1,584 million in
2000. As a result of the Company's investment in manufacturing and research
facilities, additions to fixed assets for the six months ended June 30, 2001
increased to $411 million from $192 million during the same period of 2000.
Cash flows from operating and investing activities of Discontinued Operations
for the six months ended June 30, 2001 were $119 million.
During the six months ended June 30, 2001, the Company purchased 22 million
shares of its common stock at a cost of $1.3 billion. In June 2001, the Company
announced a $2 billion increase in the amount authorized for the stock
repurchase program from $12 billion to $14 billion.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 141 "Business Combinations" and No.
142, "Goodwill and Other Intangible Assets" effective for fiscal years beginning
after December 15, 2001. SFAS No.
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141 requires that companies use the purchase method of accounting for all
business combinations initiated after June 30, 2001 and addresses the initial
recognition and measurement of goodwill and other intangible assets acquired in
a business combination. SFAS No. 142 addresses the initial recognition and
measurement of intangible assets acquired outside a business combination and the
recognition and measurement of goodwill and other intangible assets subsequent
to their acquisition. Under the new rules, goodwill and indefinite-lived
intangible assets will no longer be amortized but will be subject to annual
impairment tests in accordance with the statements. Other intangible assets will
continue to be amortized over their useful lives. The adoption of these
accounting requirements will not have a material effect on the Company's
consolidated financial statements.
FORWARD-LOOKING INFORMATION
This Form 10-Q Quarterly Report, and other written and oral statements that the
Company makes from time to time, contain 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 with respect to 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," "estimate," "expect," "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, governmental regulations and legislation,
patent positions and litigation. Certain factors that may affect the Company's
operations and prospects are discussed in Exhibit 99 to the Company's Annual
Report on Form 10-K for the year ended December 31, 2000. We undertake no
obligation to publicly update any forward-looking statement, whether as a result
of new information, future events or otherwise.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Various lawsuits, claims and proceedings of a nature considered ordinary and
routine 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, 2000. Current
developments are described below.
TAXOL* LITIGATION
In 1997 and 1998, the Company filed several lawsuits alleging that a number of
generic drug companies infringed its patents covering methods of administering
paclitaxel when they filed abbreviated new drug applications seeking regulatory
approval to sell paclitaxel. These actions were consolidated for discovery in
the United States District Court for the District of New Jersey. The Company did
not assert a monetary claim against any of the defendants, but sought to prevent
the defendants from marketing paclitaxel in a manner that violates the company's
patents.
The defendants asserted that they did not infringe the Company's patents and
that these patents are invalid and unenforceable. Some defendants also asserted
counterclaims seeking damages for alleged antitrust and unfair competition
violations. The Company believed its patents were valid when it filed the suits
and the counterclaims asserted are believed to be without merit. Since the
filing of the suits four private actions have been filed by parties alleging
antitrust, consumer protection and similar claims relating to the Company's
action to obtain and enforce patent rights. The Federal Trade Commission and the
Attorney General of the State of Florida have each initiated investigations
relating to paclitaxel. At this time, neither agency has brought any claims
against the Company relating to paclitaxel, nor have they indicated whether any
such claims will be brought. The Company is cooperating in these investigations.
In early 2000 the District Court invalidated most claims of the company's
patents. On April 20, 2001, the United States Court of Appeals for the Federal
Circuit affirmed the District Court's summary judgment of invalidity of all but
two claims of the patents at issue. Those two claims relate to the low dose,
three-hour administration of paclitaxel in which the patient is given a
specified regimen of premedicants before the administration of paclitaxel. The
appellate court remanded those two claims to the District Court for further
proceedings.
In September 2000, one of the defendants received final approval from the United
States Food and Drug Administration for its Abbreviated New Drug Application for
paclitaxel and is marketing the product. Additional final approvals have since
been announced by the United States Food and Drug Administration and sales of
additional generic products have begun.
The Company is considering its options with respect to the two remaining claims
of its patents. It is not possible at this time to make a reasonable assessment
as to the final outcome of these lawsuits and investigations. Nor is it possible
to reasonably estimate the impact those litigations and investigations might
have if the Company were not to prevail.
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BUSPAR*
On November 21, 2000, the Company obtained a patent, U.S. Patent No. 6,150,365
("'365 patent"), relating to a method of using BuSpar* or buspirone. The Company
timely submitted information relating to the '365 patent to the FDA for listing
in an FDA publication commonly known as the "Orange Book", and the FDA
thereafter listed the patent in the Orange Book.
Delisting Suits. Generic drug manufacturers sued the FDA and the Company to
compel the delisting of the '365 patent from the Orange Book. Although one
district court declined to order the delisting of the '365 patent, another
ordered the company to cause the delisting of the patent from the Orange Book.
The Company complied with the court's order but appealed the decision to the
United States Court of Appeals for the Federal Circuit, which has not yet
decided the appeal.
Patent Suits. The Company is seeking to enforce the '365 patent in actions
against two generic drug manufacturers.
Antitrust Suits. Following the delisting of the '365 patent from the Orange
Book, a number of purchasers of buspirone and several generic drug makers filed
lawsuits against the company alleging that it improperly triggered statutory
[Hatch-Waxman] marketing exclusivity. The central issue raised by these cases is
whether the Company improperly caused the listing of the '365 patent in the
Orange Book. Plaintiffs seek declaratory judgment, damages, disgorgement and
injunctive relief.
Multidistrict Litigation (MDL) proceedings. The Company filed motions with the
Judicial Panel on MDL to have all of the patent and antitrust cases consolidated
and/or coordinated in a single forum. The Panel heard oral argument on the
motions in July and has taken them under advisement.
Government Investigations. The Federal Trade Commission and a number of state
attorneys general have initiated investigations concerning the listing of the
'365 patent in the Orange Book. The Company is cooperating in these
investigations.
It is not possible at this time to make a reasonable assessment as to the final
outcome of these lawsuits and investigations. Nor is it possible to reasonably
estimate the impact these litigations and investigations might have if the
company were not to prevail.
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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
------------------------------ ----
15. Independent Accountants' Awareness Letter. E-15-1
99.1 DuPont Pharmaceuticals Purchase Agreement E-99-1
99.2 Stock and Asset Purchase Agreement for Clairol Incorporated E-99-2
b) Reports on Form 8-K.
A form 8-K, as of June 7, 2001, was filed by the Company, announcing that it had
entered into a definitive agreement to purchase DuPont Pharmaceuticals Company
for $7.8 billion in cash.
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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: August 14, 2001 BY: /s/ FREDERICK S. SCHIFF
---------------------------
Frederick S. Schiff
Senior Vice President and Chief
Financial Officer
Date: August 14, 2001 BY: /s/ HARRISON M. BAINS, JR.
------------------------------
Harrison M. Bains, Jr.
Vice President and Treasurer
20