Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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| QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017 |
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| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO |
Commission file number: 1-1136
BRISTOL-MYERS SQUIBB COMPANY
(Exact name of registrant as specified in its charter)
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Delaware | | 22-0790350 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
345 Park Avenue, New York, N.Y. 10154
(Address of principal executive offices) (Zip Code)
(212) 546-4000
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨ Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
At September 30, 2017, there were 1,636,699,696 shares outstanding of the Registrant’s $0.10 par value common stock.
BRISTOL-MYERS SQUIBB COMPANY
INDEX TO FORM 10-Q
SEPTEMBER 30, 2017
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PART I—FINANCIAL INFORMATION | |
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Item 1. | |
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Item 2. | |
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Item 3. | |
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Item 4. | |
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PART II—OTHER INFORMATION | |
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Item 1. | |
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Item 1A. | |
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Item 2. | |
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Item 6. | |
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* Indicates brand names of products which are trademarks not owned by BMS. Specific trademark ownership information is included in the Exhibit Index.
PART I—FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
Dollars in Millions, Except Per Share Data
(UNAUDITED)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
EARNINGS | 2017 | | 2016 | | 2017 | | 2016 |
Net product sales | $ | 4,862 |
| | $ | 4,492 |
| | $ | 14,212 |
| | $ | 12,888 |
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Alliance and other revenues | 392 |
| | 430 |
| | 1,115 |
| | 1,296 |
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Total Revenues | 5,254 |
| | 4,922 |
| | 15,327 |
| | 14,184 |
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Cost of products sold | 1,572 |
| | 1,305 |
| | 4,393 |
| | 3,563 |
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Marketing, selling and administrative | 1,147 |
| | 1,144 |
| | 3,388 |
| | 3,450 |
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Research and development | 1,543 |
| | 1,138 |
| | 4,490 |
| | 3,540 |
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Other (income)/expense | (191 | ) | | (224 | ) | | (1,377 | ) | | (1,198 | ) |
Total Expenses | 4,071 |
| | 3,363 |
| | 10,894 |
| | 9,355 |
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Earnings Before Income Taxes | 1,183 |
| | 1,559 |
| | 4,433 |
| | 4,829 |
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Provision for Income Taxes | 327 |
| | 344 |
| | 1,129 |
| | 1,220 |
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Net Earnings | 856 |
| | 1,215 |
| | 3,304 |
| | 3,609 |
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Net Earnings/(Loss) Attributable to Noncontrolling Interest | 11 |
| | 13 |
| | (31 | ) | | 46 |
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Net Earnings Attributable to BMS | $ | 845 |
| | $ | 1,202 |
| | $ | 3,335 |
| | $ | 3,563 |
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Earnings per Common Share | | | | | | | |
Basic | $ | 0.52 |
| | $ | 0.72 |
| | $ | 2.02 |
| | $ | 2.13 |
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Diluted | $ | 0.51 |
| | $ | 0.72 |
| | $ | 2.02 |
| | $ | 2.12 |
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Cash dividends declared per common share | $ | 0.39 |
| | $ | 0.38 |
| | $ | 1.17 |
| | $ | 1.14 |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in Millions
(UNAUDITED)
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
COMPREHENSIVE INCOME | 2017 | | 2016 | | 2017 | | 2016 |
Net Earnings | $ | 856 |
| | $ | 1,215 |
| | $ | 3,304 |
| | $ | 3,609 |
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Other Comprehensive Income/(Loss), net of taxes and reclassifications to earnings: | | | | | | | |
Derivatives qualifying as cash flow hedges | (1 | ) | | 4 |
| | (61 | ) | | (126 | ) |
Pension and postretirement benefits | 18 |
| | 72 |
| | 74 |
| | (213 | ) |
Available-for-sale securities | 22 |
| | (8 | ) | | 41 |
| | 46 |
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Foreign currency translation | 7 |
| | 1 |
| | 28 |
| | 26 |
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Other Comprehensive Income/(Loss) | 46 |
| | 69 |
| | 82 |
| | (267 | ) |
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Comprehensive Income | 902 |
| | 1,284 |
| | 3,386 |
| | 3,342 |
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Comprehensive Income/(Loss) Attributable to Noncontrolling Interest | 11 |
| | 13 |
| | (31 | ) | | 46 |
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Comprehensive Income Attributable to BMS | $ | 891 |
| | $ | 1,271 |
| | $ | 3,417 |
| | $ | 3,296 |
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The accompanying notes are an integral part of these consolidated financial statements.
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEETS
Dollars in Millions, Except Share and Per Share Data
(UNAUDITED) |
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ASSETS | September 30, 2017 | | December 31, 2016 |
Current Assets: | | | |
Cash and cash equivalents | $ | 4,644 |
| | $ | 4,237 |
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Marketable securities | 2,478 |
| | 2,113 |
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Receivables | 5,922 |
| | 5,543 |
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Inventories | 1,250 |
| | 1,241 |
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Prepaid expenses and other | 754 |
| | 570 |
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Total Current Assets | 15,048 |
| | 13,704 |
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Property, plant and equipment | 5,014 |
| | 4,980 |
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Goodwill | 6,865 |
| | 6,875 |
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Other intangible assets | 1,213 |
| | 1,385 |
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Deferred income taxes | 2,346 |
| | 2,996 |
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Marketable securities | 2,526 |
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| 2,719 |
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Other assets | 965 |
| | 1,048 |
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Total Assets | $ | 33,977 |
| | $ | 33,707 |
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LIABILITIES | | | |
Current Liabilities: | | | |
Short-term debt obligations | $ | 1,461 |
| | $ | 992 |
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Accounts payable | 1,699 |
| | 1,664 |
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Accrued liabilities | 5,418 |
| | 5,271 |
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Deferred income | 647 |
| | 762 |
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Income taxes payable | 213 |
| | 152 |
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Total Current Liabilities | 9,438 |
| | 8,841 |
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Deferred income | 492 |
| | 547 |
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Income taxes payable | 996 |
| | 973 |
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Pension and other liabilities | 1,155 |
| | 1,283 |
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Long-term debt | 6,982 |
| | 5,716 |
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Total Liabilities | 19,063 |
| | 17,360 |
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Commitments and contingencies (Note 17) |
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EQUITY | | | |
Bristol-Myers Squibb Company Shareholders’ Equity: | | | |
Preferred stock | — |
| | — |
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Common stock | 221 |
| | 221 |
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Capital in excess of par value of stock | 1,845 |
| | 1,725 |
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Accumulated other comprehensive loss | (2,421 | ) | | (2,503 | ) |
Retained earnings | 34,141 |
| | 33,513 |
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Less cost of treasury stock | (19,003 | ) | | (16,779 | ) |
Total Bristol-Myers Squibb Company Shareholders’ Equity | 14,783 |
| | 16,177 |
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Noncontrolling interest | 131 |
| | 170 |
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Total Equity | 14,914 |
| | 16,347 |
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Total Liabilities and Equity | $ | 33,977 |
| | $ | 33,707 |
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The accompanying notes are an integral part of these consolidated financial statements.
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
(UNAUDITED)
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| Nine Months Ended September 30, |
| 2017 | | 2016 |
Cash Flows From Operating Activities: | | | |
Net earnings | $ | 3,304 |
| | $ | 3,609 |
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Adjustments to reconcile net earnings to net cash provided by operating activities: | | | |
Depreciation and amortization, net | 592 |
| | 260 |
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Deferred income taxes | 283 |
| | (500 | ) |
Stock-based compensation | 149 |
| | 149 |
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Impairment charges | 223 |
| | 75 |
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Pension settlements and amortization | 148 |
| | 122 |
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Divestiture gains and royalties | (546 | ) | | (1,082 | ) |
Asset acquisition charges | 510 |
| | 274 |
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Other adjustments | 108 |
| | (56 | ) |
Changes in operating assets and liabilities: | | | |
Receivables | (539 | ) | | (896 | ) |
Inventories | 7 |
| | (107 | ) |
Accounts payable | 63 |
| | (142 | ) |
Deferred income | (91 | ) | | 445 |
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Income taxes payable | 400 |
| | (183 | ) |
Other | (453 | ) | | (353 | ) |
Net Cash Provided by Operating Activities | 4,158 |
| | 1,615 |
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Cash Flows From Investing Activities: | | | |
Sale and maturities of marketable securities | 4,296 |
| | 3,674 |
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Purchase of marketable securities | (4,434 | ) | | (2,248 | ) |
Capital expenditures | (801 | ) | | (844 | ) |
Divestiture and other proceeds | 526 |
| | 1,193 |
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Acquisition and other payments | (672 | ) | | (311 | ) |
Net Cash Provided by/(Used in) Investing Activities | (1,085 | ) | | 1,464 |
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Cash Flows From Financing Activities: | | | |
Short-term debt obligations, net | 1,198 |
| | 102 |
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Issuance of long-term debt | 1,488 |
| | — |
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Repayment of long-term debt | (1,224 | ) | | — |
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Repurchase of common stock | (2,220 | ) | | (231 | ) |
Dividends | (1,938 | ) | | (1,912 | ) |
Other | (29 | ) | | (7 | ) |
Net Cash Used in Financing Activities | (2,725 | ) | | (2,048 | ) |
Effect of Exchange Rates on Cash and Cash Equivalents | 59 |
| | 16 |
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Increase in Cash and Cash Equivalents | 407 |
| | 1,047 |
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Cash and Cash Equivalents at Beginning of Period | 4,237 |
| | 2,385 |
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Cash and Cash Equivalents at End of Period | $ | 4,644 |
| | $ | 3,432 |
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The accompanying notes are an integral part of these consolidated financial statements.
Note 1. BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING STANDARDS
Bristol-Myers Squibb Company prepared these unaudited consolidated financial statements following the requirements of the SEC and U.S. GAAP for interim reporting. Under those rules, certain footnotes and other financial information that are normally required for annual financial statements can be condensed or omitted. The Company is responsible for the consolidated financial statements included in this Quarterly Report on Form 10-Q, which include all adjustments necessary for a fair presentation of the financial position at September 30, 2017 and December 31, 2016, the results of operations for the three and nine months ended September 30, 2017 and 2016, and cash flows for the nine months ended September 30, 2017 and 2016. All intercompany balances and transactions have been eliminated. These financial statements and the related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2016 included in the 2016 Form 10-K. Refer to the Summary of Abbreviated Terms at the end of this Quarterly Report on Form 10-Q for terms used throughout the document.
Revenues, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited consolidated financial statements may not be indicative of full year operating results. The preparation of financial statements requires the use of management estimates, judgments and assumptions. The most significant assumptions are estimates used in determining sales rebate and return accruals; legal contingencies; income taxes; determining if an acquisition or divestiture is a business or an asset; and pension and postretirement benefits. Actual results may differ from estimates.
Certain prior period amounts were reclassified to conform to the current period presentation. The consolidated statements of cash flows previously presented interest rate swap contract terminations and issuance of common stock as separate line items within cash flows from financing activities which are now presented as components of other financing activities. The reclassifications provide a more concise financial statement presentation and additional information is disclosed in the notes if material.
Recently Adopted Accounting Standards
Share-based Payment Transactions
Amended guidance for share-based payment transactions was adopted in the first quarter of 2017. Net excess tax benefits of $30 million for the nine months ended September 30, 2017 were recognized prospectively as a reduction of tax expense rather than capital in excess of par value of stock. Net excess tax benefits are also presented as an operating cash flow rather than a financing cash flow, and cash payments to tax authorities in connection with shares withheld for statutory tax withholding requirements are presented as a financing cash flow rather than an operating cash flow. The changes in cash flow presentation were applied retrospectively and increased operating cash flows and decreased financing cash flows by $113 million for the nine months ended September 30, 2017 and $193 million for the nine months ended September 30, 2016.
Income Tax Accounting for Intra-entity Transfers of Assets Other Than Inventory
Amended guidance on income tax accounting for intra-entity transfers of assets other than inventory was early adopted in the first quarter of 2017 on a modified retrospective approach. The amended guidance requires tax consequences of these transfers be recognized in the period the transfer takes place. Net reductions to prepaid and deferred tax assets pertaining to pre-2017 internal transfers of intellectual property of $787 million were adjusted through retained earnings as a cumulative effect of an accounting change which will reduce the annual tax expense by $86 million beginning in 2017. In addition, the tax consequences of additional internal transfers of intellectual property that may occur in the future will be included in income tax expense upon transfer and not amortized in subsequent periods.
Recently Issued Accounting Standards
Accounting for Hedging Activities
In August 2017, the FASB issued amended guidance on derivatives and hedging. The amended guidance revises and expands items eligible for hedge accounting, simplifies hedge effectiveness testing and changes the timing of recognition and presentation for certain hedged items. Certain disclosure requirements are also modified for hedging activities on a prospective basis. The guidance is effective in 2019 with early adoption permitted on a modified retrospective approach. The Company is assessing the potential impact of the new standard.
Presentation of Net Periodic Pension and Postretirement Benefits
In March 2017, the FASB issued amended guidance requiring all net periodic benefit components for defined benefit pension and other postretirement plans other than service costs to be recorded outside of income from operations (other income). The guidance is effective in 2018 on a retrospective basis. The Company expects that annual cost of products sold; marketing, selling and administrative; and research and development expenses will increase by approximately $130 million in the aggregate with a corresponding offset in other income.
Revenue from Contracts with Customers
Amended guidance for revenue recognition will be adopted in the first quarter of 2018 using the modified retrospective method with the cumulative effect of the change recognized in retained earnings. The new guidance referred to as ASC 606 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers and replaces most of the existing revenue recognition standards in U.S. GAAP. A five step model will be utilized to achieve the core principle; (1) identify the customer contract, (2) identify the contract’s performance obligations, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations and (5) recognize revenue when or as a performance obligation is satisfied.
The Company’s assessment of the new standard’s impact is substantially complete. The timing of recognizing revenue is not expected to change for typical net product sales to customers, most existing alliance arrangements as well as royalties and sale-based milestones from out-licensing arrangements. In addition, the timing of recognizing royalties, sales-based milestones and other forms of contingent consideration resulting from the divestiture of businesses is not expected to change.
However, transaction prices are no longer required to be fixed or determinable and certain variable consideration might be recognized prior to the occurrence or resolution of the contingent event to the extent it is probable that a significant reversal in the amount of estimated cumulative revenue will not occur. Certain estimated future royalties and termination fees for licensing rights previously reacquired by alliance partners are expected to be recognized as contract assets upon adoption of the new standard. Refer to the Sanofi and Erbitux* Japan arrangements in "Note 3. Alliances" of the 2016 Form 10-K. As a result of the new guidance and cumulative effect adjustment, revenue and other income is expected to be lower in 2018 by approximately $225 million and $125 million, respectively, compared to what would have been reported under the previous standard.
In addition to the items discussed above, the following recently issued accounting standards have not been adopted. Refer to the 2016 Form 10-K for additional information and their potential impacts. |
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Accounting Standard Update | Effective Date |
Recognition and Measurement of Financial Assets and Liabilities | January 1, 2018 |
Definition of a Business | January 1, 2018 |
Leases | January 1, 2019 |
Financial Instruments - Measurement of Credit Losses | January 1, 2020 |
Goodwill Impairment Testing | January 1, 2020 |
Note 2. BUSINESS SEGMENT INFORMATION
BMS operates in a single segment engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of innovative medicines that help patients prevail over serious diseases. A global research and development organization and supply chain organization are responsible for the discovery, development, manufacturing and supply of products. Regional commercial organizations market, distribute and sell the products. The business is also supported by global corporate staff functions. The determination of a single segment is consistent with the financial information regularly reviewed by the chief executive officer for purposes of evaluating performance, allocating resources, setting incentive compensation targets and planning and forecasting future periods.
Product revenues and the composition of total revenues were as follows:
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
Dollars in Millions | 2017 | | 2016 | | 2017 | | 2016 |
Prioritized Brands | | | | | | | |
Opdivo | $ | 1,265 |
| | $ | 920 |
| | $ | 3,587 |
| | $ | 2,464 |
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Eliquis | 1,232 |
| | 884 |
| | 3,509 |
| | 2,395 |
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Orencia | 632 |
| | 572 |
| | 1,817 |
| | 1,640 |
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Sprycel | 509 |
| | 472 |
| | 1,478 |
| | 1,330 |
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Yervoy | 323 |
| | 285 |
| | 975 |
| | 789 |
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Empliciti | 60 |
| | 41 |
| | 168 |
| | 103 |
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Established Brands | | | | | | | |
Hepatitis C Franchise | 73 |
| | 379 |
| | 347 |
| | 1,352 |
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Baraclude | 264 |
| | 306 |
| | 819 |
| | 896 |
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Sustiva Franchise | 183 |
| | 275 |
| | 555 |
| | 819 |
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Reyataz Franchise | 174 |
| | 238 |
| | 555 |
| | 706 |
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Other Brands | 539 |
| | 550 |
| | 1,517 |
| | 1,690 |
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Total Revenues | $ | 5,254 |
| | $ | 4,922 |
| | $ | 15,327 |
| | $ | 14,184 |
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Net product sales | $ | 4,862 |
| | $ | 4,492 |
| | $ | 14,212 |
| | $ | 12,888 |
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Alliance revenues | 334 |
| | 402 |
| | 957 |
| | 1,229 |
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Other revenues | 58 |
| | 28 |
| | 158 |
| | 67 |
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Total Revenues | $ | 5,254 |
| | $ | 4,922 |
| | $ | 15,327 |
| | $ | 14,184 |
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Note 3. ALLIANCES
BMS enters into collaboration arrangements with third parties for the development and commercialization of certain products. Although each of these arrangements is unique in nature, both parties are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. BMS may either in-license intellectual property owned by the other party or out-license its intellectual property to the other party. These arrangements also typically include research, development, manufacturing and/or commercial activities and can cover a single investigational compound or commercial product or multiple compounds and/or products in various life cycle stages. The rights and obligations of the parties can be global or limited to geographic regions. We refer to these collaborations as alliances and our partners as alliance partners. Products sold through alliance arrangements in certain markets include Opdivo, Eliquis, Orencia, Sprycel, Yervoy, Empliciti, Sustiva (Atripla*) and certain other brands.
Selected financial information pertaining to our alliances was as follows, including net product sales when BMS is the principal in the third-party customer sale for products subject to the alliance. Expenses summarized below do not include all amounts attributed to the activities for the products in the alliance, but only the payments between the alliance partners or the related amortization if the payments were deferred or capitalized.
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
Dollars in Millions | 2017 | | 2016 | | 2017 | | 2016 |
Revenues from alliances: | | | | | | | |
Net product sales | $ | 1,764 |
| | $ | 1,465 |
| | $ | 5,045 |
| | $ | 4,031 |
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Alliance revenues | 334 |
| | 402 |
| | 957 |
| | 1,229 |
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Total Revenues | $ | 2,098 |
| | $ | 1,867 |
| | $ | 6,002 |
| | $ | 5,260 |
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Payments to/(from) alliance partners: | | | | | | | |
Cost of products sold | $ | 678 |
| | $ | 572 |
| | $ | 1,969 |
| | $ | 1,543 |
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Marketing, selling and administrative | (16 | ) | | (3 | ) | | (39 | ) | | (10 | ) |
Research and development | (12 | ) | | (7 | ) | | (6 | ) | | 23 |
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Other (income)/expense | (151 | ) | | (160 | ) | | (545 | ) | | (864 | ) |
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Noncontrolling interest, pretax | 4 |
| | 3 |
| | 9 |
| | 13 |
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Selected Alliance Balance Sheet information: | | | |
Dollars in Millions | September 30, 2017 | | December 31, 2016 |
Receivables - from alliance partners | $ | 878 |
| | $ | 903 |
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Accounts payable - to alliance partners | 634 |
| | 555 |
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Deferred income from alliances(a) | 1,060 |
| | 1,194 |
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(a) | Includes unamortized upfront, milestone and other licensing proceeds, revenue deferrals attributed to Atripla* and undelivered elements of diabetes business divestiture proceeds. Amortization of deferred income (primarily related to alliances) was $59 million and $193 million for the nine months ended September 30, 2017 and 2016, respectively. |
Specific information pertaining to each of our significant alliances is discussed in our 2016 Form 10-K, including their nature and purpose, the significant rights and obligations of the parties and specific accounting policy elections. Significant developments and updates related to alliances during the nine months ended September 30, 2017 are set forth below.
AstraZeneca
BMS received $100 million from AstraZeneca as additional contingent consideration for the diabetes business divestiture upon achievement of a regulatory approval milestone in the first quarter of 2017 (included in other income).
F-Star Alpha
In the first quarter of 2017, BMS discontinued development of FS102 (an anti-HER2 antibody fragment) which was in Phase I development for the treatment of breast and gastric cancer. BMS will not exercise its option to purchase F-Star Alpha which was previously consolidated by BMS as a variable interest entity. As a result, an IPRD charge of $75 million was included in R&D expense and attributed to noncontrolling interest in the first quarter of 2017.
Note 4. ACQUISITIONS, DIVESTITURES AND LICENSING ARRANGEMENTS
Acquisitions
IFM
In the third quarter of 2017, BMS acquired all of the outstanding shares of IFM, a private biotechnology company focused on developing therapies that modulate novel targets in the innate immune system to treat cancer, autoimmunity and inflammatory diseases. The acquisition provides BMS with full rights to IFM's preclinical STING and NLRP3 agonist programs focused on enhancing the innate immune response for treating cancer. The consideration includes an upfront payment of $300 million and contingent development, regulatory and sales-based milestone payments of up to $1.0 billion for the first product from each of the two programs and additional contingent milestone payments of up to $555 million for any subsequent products from these programs. No significant IFM processes were acquired, therefore the transaction was accounted for as an asset acquisition because IFM was determined not to be a business as that term is defined in ASC 805 - Business Combinations. BMS also paid $25 million for certain negotiation rights to collaborate, license or acquire an NLRP3 antagonist program from a newly formed entity established by the former shareholders of IFM. The transactions resulted in $310 million of R&D expense and $15 million of deferred tax assets for net operating losses and tax credit carryforwards.
Flexus
In the second quarter of 2017, a $100 million milestone was achieved and paid to former stockholders of Flexus as additional contingent consideration following the commencement of a Phase II clinical study of an anti-cancer IDO inhibitor. The additional consideration was included in R&D expense as the Flexus acquisition in 2015 was accounted for as an asset acquisition.
Cardioxyl
In the second quarter of 2017, a $100 million milestone was achieved and paid to former stockholders of Cardioxyl as additional contingent consideration following the commencement of a Phase II clinical study of a cardiovascular Nitroxyl Donor. The additional consideration was included in R&D expense as the Cardioxyl acquisition in 2015 was accounted for as an asset acquisition.
Divestitures
SK Biotek
In the second quarter of 2017, BMS agreed to sell its small molecule active pharmaceutical ingredient manufacturing operations in Swords, Ireland to SK Biotek. The divestiture includes the transfer of the facility, the majority of employees at the site, inventories and certain third-party contract manufacturing obligations. The purchase price is expected to be approximately $140 million subject to inventory levels on the date of closing. The transaction is expected to close in the fourth quarter of 2017 subject to SK Biotek's receipt of certain environmental permits and other customary closing conditions and will be accounted for as a sale of a business. Net assets of approximately $140 million were accounted for as held-for-sale as of September 30, 2017, consisting primarily of inventories and property, plant and equipment, and were included in prepaid expenses and other. The assets were reduced to their estimated relative fair value after considering the purchase price resulting in an impairment charge of $128 million that was included in cost of products sold in the nine months ended September 30, 2017. SK Biotek will provide certain manufacturing services for BMS through 2022. Revenues and pretax earnings related to this operation were not material in 2017 and 2016 (excluding the impairment charge).
Licensing Arrangements
Halozyme
In the third quarter of 2017, BMS and Halozyme announced a global collaboration and license agreement to develop subcutaneously administered BMS IO medicines using Halozyme's ENHANZE* drug-delivery technology. This technology may allow for more rapid delivery of large volume injectable medications, such as medications that are currently delivered intravenously, through subcutaneous delivery. BMS agreed to pay $105 million to Halozyme for access to the technology which will be included in R&D expense in the fourth quarter of 2017. BMS has designated multiple IO targets, including PD-1, to develop using the ENHANZE* technology and has an option to select additional targets within five years from the effective date up to a maximum of 11 targets. BMS may pay up to $160 million upon achievement of contingent development, regulatory and sales-based milestone events for each of the nominated collaboration targets, additional milestone payments for combination products and future royalties on sales of products using the ENHANZE* technology. The agreement is subject to obtaining customary regulatory and antitrust approvals.
CytomX
In the second quarter of 2017, BMS expanded its strategic collaboration with CytomX to discover novel therapies using CytomX’s proprietary Probody platform. As part of the original May 2014 collaboration to discover, develop and commercialize Probody therapeutics, BMS selected four oncology targets, including CTLA-4. Pursuant to the expanded agreement, CytomX will grant BMS exclusive worldwide rights to develop and commercialize Probody therapeutics for up to eight additional targets. BMS paid CytomX $75 million for the rights to the initial four targets which was expensed as R&D prior to 2017. BMS paid $200 million to CytomX for access to the additional targets which was included in R&D expense in the second quarter of 2017. BMS will also reimburse CytomX for certain research costs over the collaboration period, pay up to $448 million upon achievement of contingent development, regulatory and sales milestone events for each collaboration target and future royalties if a product is approved and commercialized.
Biogen
In the second quarter of 2017, BMS out-licensed to Biogen exclusive rights to develop and commercialize BMS-986168, an anti-eTau compound in development for Progressive Supranuclear Palsy. Biogen paid $300 million to BMS which was included in other income in the second quarter of 2017 as BMS has no further performance obligations as part of the agreement. BMS is also entitled to contingent development, regulatory and sales based milestone payments of up to $410 million if achieved as well as future royalties if the product is ultimately approved and commercialized. BMS originally acquired the rights to this compound in 2014 through its acquisition of iPierian. Biogen assumed all of BMS’s remaining obligations to the former stockholders of iPierian.
Roche
In the second quarter of 2017, BMS out-licensed to Roche exclusive rights to develop and commercialize BMS-986089, an anti-myostatin adnectin in development for Duchenne Muscular Dystrophy. Roche paid $170 million to BMS which was included in other income in the second quarter of 2017 as BMS has no further performance obligations as part of the agreement. BMS will also be entitled to contingent development and regulatory milestone payments of up to $205 million if achieved and future royalties if the product is ultimately approved and commercialized.
Note 5. OTHER (INCOME)/EXPENSE
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
Dollars in Millions | 2017 | | 2016 | | 2017 | | 2016 |
Interest expense | $ | 48 |
| | $ | 42 |
| | $ | 145 |
| | $ | 127 |
|
Investment income | (37 | ) | | (32 | ) | | (104 | ) | | (81 | ) |
Provision for restructuring | 28 |
| | 19 |
| | 207 |
| | 41 |
|
Litigation and other settlements(a) | — |
| | (1 | ) | | (489 | ) | | 48 |
|
Equity in net income of affiliates | (21 | ) | | (19 | ) | | (59 | ) | | (65 | ) |
Divestiture (gains)/losses | 1 |
| | (21 | ) | | (126 | ) | | (574 | ) |
Royalties and licensing income(b) | (209 | ) | | (158 | ) | | (1,093 | ) | | (579 | ) |
Transition and other service fees | (12 | ) | | (57 | ) | | (32 | ) | | (184 | ) |
Pension charges | 22 |
| | 19 |
| | 91 |
| | 66 |
|
Intangible asset impairments | — |
| | — |
| | — |
| | 15 |
|
Equity investment impairment | — |
| | — |
| | — |
| | 45 |
|
Loss on debt redemption | — |
| | — |
| | 109 |
| | — |
|
Other | (11 | ) | | (16 | ) | | (26 | ) | | (57 | ) |
Other (income)/expense | $ | (191 | ) | | $ | (224 | ) | | $ | (1,377 | ) | | $ | (1,198 | ) |
| |
(a) | Includes BMS's share of a patent-infringement litigation settlement of $481 million related to Merck's PD-1 antibody Keytruda* in the nine months ended September 30, 2017. |
| |
(b) | Includes upfront licensing fees of $470 million from Biogen and Roche in the nine months ended September 30, 2017. |
Note 6. RESTRUCTURING
In October 2016, the Company announced a restructuring plan to evolve and streamline its operating model and expects to incur charges in connection with employee workforce reductions and early site exits. The majority of the charges are expected to be incurred through 2020, range between $1.5 billion to $2.0 billion and consist of employee termination benefit costs, contract termination costs, plant and equipment accelerated depreciation and impairment charges and other site shutdown costs. Cash outlays in connection with these actions are expected to be approximately 40% to 50% of the total charges. Charges of $631 million have been recognized for these actions since the announcement ($82 million and $534 million for the three and nine months ended September 30, 2017, respectively). These charges include an impairment charge for the manufacturing operations in Swords, Ireland discussed in "—Note 4. Acquisitions, Divestitures and Licensing Arrangements." Restructuring charges are recognized upon meeting certain criteria, including finalization of committed plans, reliable estimates and discussions with local works councils in certain markets.
Other restructuring charges recognized prior to the above actions were primarily related to specialty care transformation initiatives designed to create a more simplified organization across all functions and geographic markets. In addition, accelerated depreciation and other charges were incurred in connection with the expected early exits of a manufacturing site in Ireland and R&D site in the U.S.
Employee workforce reductions were approximately 1,200 and 500 for the nine months ended September 30, 2017 and 2016, respectively, across all geographic regions for manufacturing, marketing, selling, administrative and R&D personnel.
The following tables summarize the charges and activity related to the restructuring actions:
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
Dollars in Millions | 2017 | | 2016 | | 2017 | | 2016 |
Employee termination costs | $ | 18 |
| | $ | 17 |
| | $ | 190 |
| | $ | 32 |
|
Other termination costs | 10 |
| | 2 |
| | 17 |
| | 9 |
|
Provision for restructuring | 28 |
| | 19 |
| | 207 |
| | 41 |
|
Accelerated depreciation | 64 |
| | 15 |
| | 216 |
| | 42 |
|
Asset impairments | 1 |
| | — |
| | 144 |
| | — |
|
Other shutdown costs | — |
| | 6 |
| | 3 |
| | 13 |
|
Total charges | $ | 93 |
| | $ | 40 |
| | $ | 570 |
| | $ | 96 |
|
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
Dollars in Millions | 2017 | | 2016 | | 2017 | | 2016 |
Cost of products sold | $ | 1 |
| | $ | 7 |
| | $ | 131 |
| | $ | 15 |
|
Research and development | 64 |
| | 14 |
| | 232 |
| | 40 |
|
Other (income)/expense | 28 |
| | 19 |
| | 207 |
| | 41 |
|
Total charges | $ | 93 |
| | $ | 40 |
| | $ | 570 |
| | $ | 96 |
|
|
| | | | | | | |
| Nine Months Ended September 30, |
Dollars in Millions | 2017 | | 2016 |
Liability at January 1 | $ | 114 |
| | $ | 125 |
|
Charges | 233 |
| | 48 |
|
Change in estimates | (26 | ) | | (7 | ) |
Provision for restructuring | 207 |
| | 41 |
|
Foreign currency translation | 17 |
| | 2 |
|
Spending | (179 | ) | | (88 | ) |
Liability at September 30 | $ | 159 |
| | $ | 80 |
|
Note 7. INCOME TAXES
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
Dollars in Millions | 2017 | | 2016 | | 2017 | | 2016 |
Earnings Before Income Taxes | $ | 1,183 |
| | $ | 1,559 |
| | $ | 4,433 |
| | $ | 4,829 |
|
Provision for Income Taxes | 327 |
| | 344 |
| | 1,129 |
| | 1,220 |
|
Effective Tax Rate | 27.6 | % | | 22.1 | % | | 25.5 | % | | 25.3 | % |
The effective tax rate is lower than the U.S. statutory rate of 35% which is primarily attributable to undistributed earnings of certain foreign subsidiaries in low tax jurisdictions that have been considered or are expected to be indefinitely reinvested offshore. These undistributed earnings primarily relate to operations in Switzerland, Ireland and Puerto Rico. If these undistributed earnings are repatriated to the U.S. in the future, or if it were determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required. Due to complexities in the tax laws and assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that would have to be provided. Reforms to U.S. tax laws related to foreign earnings have been proposed and if adopted, may increase taxes, which could reduce the results of operations and cash flows. BMS operates under a favorable tax grant in Puerto Rico not scheduled to expire prior to 2023.
Jurisdictional tax rates and other tax impacts attributed to R&D charges, divestiture transactions and other discrete pretax items increased the effective tax rate by 3.7% and 3.1% in the nine months ended September 30, 2017 and 2016, respectively, including non-deductible R&D asset acquisition charges and goodwill allocated to business divestitures. The tax impact for discrete items are reflected immediately and are not considered in estimating the annual effective tax rate.
The adoption of the amended guidance for intra-entity transfers of assets other than inventory and share-based payment transactions reduced the effective tax rate by 2.1% in the nine months ended September 30, 2017. Refer to "—Note 1. Basis of Presentation and Recently Issued Accounting Standards" for additional information.
BMS is currently under examination by a number of tax authorities which have proposed or are considering proposing material adjustments to tax positions for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. It is reasonably possible that new issues will be raised by tax authorities which may require adjustments to the amount of unrecognized tax benefits; however, an estimate of such adjustments cannot reasonably be made at this time.
It is also reasonably possible that the total amount of unrecognized tax benefits at September 30, 2017 could decrease in the range of approximately $255 million to $315 million in the next twelve months as a result of the settlement of certain tax audits and other events. The expected change in unrecognized tax benefits may result in the payment of additional taxes, adjustment of certain deferred taxes and/or recognition of tax benefits.
Note 8. EARNINGS PER SHARE |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
Amounts in Millions, Except Per Share Data | 2017 | | 2016 | | 2017 | | 2016 |
Net Earnings Attributable to BMS used for Basic and Diluted EPS Calculation | $ | 845 |
| | $ | 1,202 |
| | $ | 3,335 |
| | $ | 3,563 |
|
| | | | | | | |
Weighted-average common shares outstanding – basic | 1,639 |
| | 1,671 |
| | 1,648 |
| | 1,670 |
|
Incremental shares attributable to share-based compensation plans | 6 |
| | 8 |
| | 7 |
| | 9 |
|
Weighted-average common shares outstanding – diluted | 1,645 |
| | 1,679 |
| | 1,655 |
| | 1,679 |
|
| | | | | | | |
Earnings per Common Share: | | | | | | | |
Basic | $ | 0.52 |
| | $ | 0.72 |
| | $ | 2.02 |
| | $ | 2.13 |
|
Diluted | $ | 0.51 |
| | $ | 0.72 |
| | $ | 2.02 |
| | $ | 2.12 |
|
Note 9. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS
Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
|
| | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Dollars in Millions | Level 1 | | Level 2 | | Level 1 | | Level 2 |
Cash and cash equivalents - Money market and other securities | $ | — |
| | $ | 3,915 |
| | $ | — |
| | $ | 3,532 |
|
Marketable securities: | | | | | | | |
Certificates of deposit | — |
| | 176 |
| | — |
| | 27 |
|
Commercial paper | — |
| | 977 |
| | — |
| | 750 |
|
Corporate debt securities | — |
| | 3,725 |
| | — |
| | 3,947 |
|
Equity funds | — |
| | 119 |
| | — |
| | 101 |
|
Fixed income funds | — |
| | 7 |
| | — |
| | 7 |
|
Derivative assets | — |
| | 31 |
| | — |
| | 75 |
|
Equity investments | 90 |
| | — |
| | 24 |
| | — |
|
Derivative liabilities | — |
| | (63 | ) | | — |
| | (30 | ) |
As further described in "Note 9. Financial Instruments and Fair Value Measurements" in our 2016 Form 10-K, our fair value estimates use inputs that are either (1) quoted prices for identical assets or liabilities in active markets (Level 1 inputs), (2) observable prices for similar assets or liabilities in active markets or for identical or similar assets or liabilities in markets that are not active (Level 2 inputs) or (3) unobservable inputs (Level 3 inputs). There were no Level 3 financial assets or liabilities as of September 30, 2017 and December 31, 2016.
Available-for-sale Securities
The following table summarizes available-for-sale securities:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
Dollars in Millions | Amortized Cost | | Gross Unrealized | | | | Amortized Cost | | Gross Unrealized | | |
| Gains | | Losses | | Fair Value | | | Gains | | Losses | | Fair Value |
Certificates of deposit | $ | 176 |
| | $ | — |
| | $ | — |
| | $ | 176 |
| | $ | 27 |
| | $ | — |
| | $ | — |
| | $ | 27 |
|
Commercial paper | 977 |
| | — |
| | — |
| | 977 |
| | 750 |
| | — |
| | — |
| | 750 |
|
Corporate debt securities | 3,713 |
| | 15 |
| | (3 | ) | | 3,725 |
| | 3,945 |
| | 10 |
| | (8 | ) | | 3,947 |
|
Equity investments | 57 |
| | 34 |
| | (1 | ) | | 90 |
| | 31 |
| | — |
| | (7 | ) | | 24 |
|
| $ | 4,923 |
| | $ | 49 |
| | $ | (4 | ) | | $ | 4,968 |
| | $ | 4,753 |
| | $ | 10 |
| | $ | (15 | ) | | $ | 4,748 |
|
| | | | | | | | | | | | | | | |
Financial assets measured using the fair value option | | | | | | | | | | | | |
Equity and fixed income funds(a) | | | | | | | 126 |
| | | | | | | | 108 |
|
Total | | | | | | | $ | 5,094 |
| | | | | | | | $ | 4,856 |
|
|
| | | | | | | |
Dollars in Millions | September 30, 2017 | | December 31, 2016 |
Current marketable securities | $ | 2,478 |
| | $ | 2,113 |
|
Non-current marketable securities(b) | 2,526 |
| | 2,719 |
|
Other assets(c) | 90 |
| | 24 |
|
Total | $ | 5,094 |
| | $ | 4,856 |
|
| |
(a) | The fair value option for financial assets was elected for investments in equity and fixed income funds and are included in current marketable securities. |
| |
(b) | All non-current marketable securities mature within five years as of September 30, 2017 and December 31, 2016. |
| |
(c) | Includes equity investments. |
Qualifying Hedges and Non-Qualifying Derivatives
The following table summarizes the fair value of outstanding derivatives:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2017 | | December 31, 2016 |
| Asset(a) | | Liability(b) | | Asset(a) | | Liability(b) |
Dollars in Millions | Notional | | Fair Value | | Notional | | Fair Value | | Notional | | Fair Value | | Notional | | Fair Value |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | | |
Interest rate swap contracts | $ | — |
| | $ | — |
| | $ | 755 |
| | $ | (3 | ) | | $ | 750 |
| | $ | 1 |
| | $ | 755 |
| | $ | (3 | ) |
Forward starting interest rate swap contracts | — |
| | — |
| | — |
| | — |
| | 500 |
| | 8 |
| | 250 |
| | (11 | ) |
Foreign currency forward contracts | 1,351 |
| | 25 |
| | 548 |
| | (28 | ) | | 967 |
| | 66 |
| | 198 |
| | (9 | ) |
| | | | | | | | | | | | | | | |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | | |
Foreign currency forward contracts | 322 |
| | 6 |
| | 1,183 |
| | (32 | ) | | 106 |
| | — |
| | 360 |
| | (7 | ) |
| |
(a) | Included in prepaid expenses and other and other assets. |
| |
(b) | Included in accrued liabilities and pension and other liabilities. |
Cash Flow Hedges — The notional amount of outstanding foreign currency forward contracts was primarily attributed to the euro ($2.2 billion) and Japanese yen ($586 million) at September 30, 2017. BMS terminated forward starting interest rate swap contracts in the first quarter of 2017 with an aggregate notional value of $750 million. The proceeds and related gain were not material.
Net Investment Hedges — Non-U.S. dollar borrowings of €950 million ($1.1 billion) are designated to hedge euro currency exposures of the net investment in certain foreign affiliates.
Fair Value Hedges — The notional amount of fixed-to-floating interest rate swap contracts terminated was $500 million in 2016 generating proceeds of $43 million (including accrued interest).
Debt Obligations
Short-term debt obligations include:
|
| | | | | | | |
Dollars in Millions | September 30, 2017 | | December 31, 2016 |
Commercial paper | $ | 799 |
| | $ | — |
|
Bank drafts and short-term borrowings | 662 |
| | 243 |
|
Current portion of long-term debt | — |
| | 749 |
|
Total | $ | 1,461 |
| | $ | 992 |
|
The average amount of commercial paper outstanding was $211 million at a weighted-average rate of 1.12% during 2017. The maximum amount of commercial paper outstanding was $1.0 billion with $799 million outstanding at September 30, 2017.
Long-term debt and the current portion of long-term debt include:
|
| | | | | | | |
Dollars in Millions | September 30, 2017 | | December 31, 2016 |
Principal Value | $ | 6,834 |
| | $ | 6,261 |
|
Adjustments to Principal Value: | | | |
Fair value of interest rate swap contracts | (3 | ) | | (2 | ) |
Unamortized basis adjustment from swap terminations | 234 |
| | 287 |
|
Unamortized bond discounts and issuance costs | (83 | ) | | (81 | ) |
Total | $ | 6,982 |
| | $ | 6,465 |
|
| | | |
Current portion of long-term debt | $ | — |
| | $ | 749 |
|
Long-term debt | 6,982 |
| | 5,716 |
|
The fair value of debt was $7.4 billion at September 30, 2017 and $6.9 billion at December 31, 2016 valued using Level 2 inputs. Interest payments were $172 million and $140 million for the nine months ended September 30, 2017 and 2016, respectively, net of amounts related to interest rate swap contracts.
On February 27, 2017, BMS issued senior unsecured notes in a registered public offering. The notes rank equally in right of payment with all of BMS's existing and future senior unsecured indebtedness. BMS may redeem the notes, in whole or in part, at any time prior to maturity at a predetermined redemption price. The following table summarizes the note issuances:
|
| | | |
Dollars in Millions | 2017 |
Principal Value: | |
1.600% Notes due 2019 | $ | 750 |
|
3.250% Notes due 2027 | 750 |
|
Total | $ | 1,500 |
|
| |
Proceeds net of discount and deferred loan issuance costs | $ | 1,488 |
|
During the third quarter of 2017, $750 million of 0.875% Notes matured and were repaid.
During the second quarter of 2017, the Company repurchased certain long-term debt obligations with interest rates ranging from 5.875% to 6.875%. The following summarizes the debt repurchase activity:
|
| | | |
Dollars in Millions | 2017 |
Principal amount | $ | 337 |
|
Carrying value | 366 |
|
Debt redemption price | 474 |
|
Loss on debt redemption(a) | 109 |
|
| |
(a) | Including acceleration of debt issuance costs, gain on previously terminated interest rate swap contracts and other related fees. |
Note 10. RECEIVABLES
|
| | | | | | | |
Dollars in Millions | September 30, 2017 | | December 31, 2016 |
Trade receivables | $ | 4,564 |
| | $ | 3,948 |
|
Less charge-backs and cash discounts | (184 | ) | | (126 | ) |
Less bad debt allowances | (48 | ) | | (48 | ) |
Net trade receivables | 4,332 |
| | 3,774 |
|
Alliance receivables | 878 |
| | 903 |
|
Prepaid and refundable income taxes | 334 |
| | 627 |
|
Other | 378 |
| | 239 |
|
Receivables | $ | 5,922 |
| | $ | 5,543 |
|
Non-U.S. receivables sold on a nonrecourse basis were $460 million and $470 million for the nine months ended September 30, 2017 and 2016, respectively. Receivables from our three largest pharmaceutical wholesalers in the U.S. represented 64% and 66% of total trade receivables at September 30, 2017 and December 31, 2016, respectively.
Note 11. INVENTORIES
|
| | | | | | | |
Dollars in Millions | September 30, 2017 | | December 31, 2016 |
Finished goods | $ | 380 |
| | $ | 310 |
|
Work in process | 956 |
| | 988 |
|
Raw and packaging materials | 224 |
| | 264 |
|
Total inventories | $ | 1,560 |
| | $ | 1,562 |
|
| | | |
Inventories | $ | 1,250 |
| | $ | 1,241 |
|
Other assets | 310 |
| | 321 |
|
Inventories of $120 million are included in assets held-for-sale as of September 30, 2017 due to the expected transfer of manufacturing operations in Swords, Ireland to SK Biotek. Refer to "—Note 4. Acquisitions, Divestitures and Licensing Arrangements" for additional information. Other assets include inventory expected to remain on hand beyond one year in both periods and inventory pending regulatory approval of $54 million at December 31, 2016.
Note 12. PROPERTY, PLANT AND EQUIPMENT
|
| | | | | | | |
Dollars in Millions | September 30, 2017 | | December 31, 2016 |
Land | $ | 105 |
| | $ | 107 |
|
Buildings | 5,188 |
| | 4,930 |
|
Machinery, equipment and fixtures | 3,034 |
| | 3,287 |
|
Construction in progress | 938 |
| | 849 |
|
Gross property, plant and equipment | 9,265 |
| | 9,173 |
|
Less accumulated depreciation | (4,251 | ) | | (4,193 | ) |
Property, plant and equipment | $ | 5,014 |
| | $ | 4,980 |
|
Depreciation expense was $509 million and $319 million for the nine months ended September 30, 2017 and 2016, respectively. Refer to "—Note 4. Acquisitions, Divestitures and Licensing Arrangements" for additional information relating to the expected transfer of manufacturing operations in Swords, Ireland to SK Biotek.
Note 13. OTHER INTANGIBLE ASSETS
|
| | | | | | | |
Dollars in Millions | September 30, 2017 | | December 31, 2016 |
Licenses | $ | 564 |
| | $ | 564 |
|
Developed technology rights | 2,357 |
| | 2,357 |
|
Capitalized software | 1,339 |
| | 1,441 |
|
IPRD | 32 |
| | 107 |
|
Gross other intangible assets | 4,292 |
| | 4,469 |
|
Less accumulated amortization | (3,079 | ) | | (3,084 | ) |
Other intangible assets | $ | 1,213 |
| | $ | 1,385 |
|
Amortization expense was $142 million and $134 million for the nine months ended September 30, 2017 and 2016, respectively.
Note 14. ACCRUED LIABILITIES
|
| | | | | | | | |
Dollars in Millions | | September 30, 2017 | | December 31, 2016 |
Rebates and returns | | $ | 1,901 |
| | $ | 1,680 |
|
Employee compensation and benefits | | 702 |
| | 818 |
|
Research and development | | 689 |
| | 718 |
|
Dividends | | 639 |
| | 660 |
|
Branded Prescription Drug Fee | | 251 |
| | 234 |
|
Royalties | | 249 |
| | 246 |
|
Restructuring | | 121 |
| | 90 |
|
Pension and postretirement benefits | | 41 |
| | 44 |
|
Litigation and other settlements | | 35 |
| | 43 |
|
Other | | 790 |
| | 738 |
|
Accrued liabilities | | $ | 5,418 |
| | $ | 5,271 |
|
Note 15. EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Capital in Excess of Par Value of Stock | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Treasury Stock | | Noncontrolling Interest |
Dollars and Shares in Millions | Shares | | Par Value | | Shares | | Cost | |
Balance at January 1, 2016 | 2,208 |
| | $ | 221 |
| | $ | 1,459 |
| | $ | (2,468 | ) | | $ | 31,613 |
| | 539 |
| | $ | (16,559 | ) | | $ | 158 |
|
Net earnings | — |
| | — |
| | — |
| | — |
| | 3,563 |
| | — |
| | — |
| | 46 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (267 | ) | | — |
| | — |
| | — |
| | — |
|
Cash dividends declared | — |
| | — |
| | — |
| | — |
| | (1,904 | ) | | — |
| | — |
| | — |
|
Stock repurchase program | — |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | (231 | ) | | — |
|
Stock compensation | — |
| | — |
| | 191 |
| | — |
| | — |
| | (6 | ) | | (5 | ) | | — |
|
Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (36 | ) |
Balance at September 30, 2016 | 2,208 |
| | $ | 221 |
| | $ | 1,650 |
| | $ | (2,735 | ) | | $ | 33,272 |
| | 537 |
| | $ | (16,795 | ) | | $ | 168 |
|
| | | | | | | | | | | | | | | |
Balance at December 31, 2016 | 2,208 |
| | $ | 221 |
| | $ | 1,725 |
| | $ | (2,503 | ) | | $ | 33,513 |
| | 536 |
| | $ | (16,779 | ) | | $ | 170 |
|
Accounting change - cumulative effect(a) | — |
| | — |
| | — |
| | — |
| | (787 | ) | | — |
| | — |
| | — |
|
Adjusted balance at January 1, 2017 | 2,208 |
| | $ | 221 |
| | $ | 1,725 |
| | $ | (2,503 | ) | | $ | 32,726 |
| | 536 |
| | $ | (16,779 | ) | | $ | 170 |
|
Net earnings | — |
| | — |
| | — |
| | — |
| | 3,335 |
| | — |
| | — |
| | 28 |
|
Other comprehensive income | — |
| | — |
| | — |
| | 82 |
| | — |
| | — |
| | — |
| | — |
|
Cash dividends declared | — |
| | — |
| | — |
| | — |
| | (1,920 | ) | | — |
| | — |
| | — |
|
Stock repurchase program | — |
| | — |
| | — |
| | — |
| | — |
| | 40 |
| | (2,226 | ) | | — |
|
Stock compensation | — |
| | — |
| | 120 |
| | — |
| | — |
| | (5 | ) | | 2 |
| | — |
|
Variable interest entity | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (59 | ) |
Distributions | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8 | ) |
Balance at September 30, 2017 | 2,208 |
| | $ | 221 |
| | $ | 1,845 |
| | $ | (2,421 | ) | | $ | 34,141 |
| | 571 |
| | $ | (19,003 | ) | | $ | 131 |
|
| |
(a) | Refer to "—Note 1. Basis of Presentation and Recently Issued Accounting Standards" for additional information. |
BMS has a stock repurchase program authorized by its Board of Directors allowing for repurchases in the open market or through private transactions, including plans established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. The stock repurchase program does not have an expiration date and may be suspended or discontinued at any time. Treasury stock is recognized at the cost to reacquire the shares. Shares issued from treasury are recognized utilizing the first-in first-out method. BMS repurchased approximately 3.8 million shares for $226 million during the three months ended September 30, 2017.
In February 2017, BMS executed accelerated share repurchase agreements to repurchase an aggregate $2 billion of common stock. The agreements were funded through a combination of debt and cash. In February 2017, an initial delivery of approximately 28.7 million shares of BMS common stock, representing approximately 80% of the notional amount of the agreements, was received by BMS and included in treasury stock. Upon settlement of the accelerated share repurchase agreements in May 2017, BMS received an additional 7.8 million shares determined using the volume-weighted average price of BMS common stock during the term of the transaction.
The components of other comprehensive income/(loss) were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| 2017 | | 2016 |
| Pretax | | Tax | | After tax | | Pretax | | Tax | | After tax |
Three Months Ended September 30, | | | | | | | | | | | |
Derivatives qualifying as cash flow hedges: | | | | | | | | | | | |
Unrealized losses | $ | (28 | ) | | $ | 12 |
| | $ | (16 | ) | | $ | (14 | ) | | $ | 4 |
| | $ | (10 | ) |
Reclassified to net earnings(a) | 21 |
| | (6 | ) | | 15 |
| | 21 |
| | (7 | ) | | 14 |
|
Derivatives qualifying as cash flow hedges | (7 | ) | | 6 |
| | (1 | ) | | 7 |
| | (3 | ) | | 4 |
|
Pension and postretirement benefits: | | | | | | | | | | | |
Actuarial gains/(losses) | (5 | ) | | 2 |
| | (3 | ) | | 72 |
| | (26 | ) | | 46 |
|
Amortization(b) | 19 |
| | (11 | ) | | 8 |
| | 20 |
| | (7 | ) | | 13 |
|
Curtailments and settlements(c) | 21 |
| | (8 | ) | | 13 |
| | 19 |
| | (6 | ) | | 13 |
|
Pension and postretirement benefits | 35 |
| | (17 | ) | | 18 |
| | 111 |
| | (39 | ) | | 72 |
|
Available-for-sale securities: | | | | | | | | | | | |
Unrealized gains/(losses) | 28 |
| | (5 | ) | | 23 |
| | (8 | ) | | 4 |
| | (4 | ) |
Realized gains(c) | (1 | ) | | — |
| | (1 | ) | | (4 | ) | | — |
| | (4 | ) |
Available-for-sale securities | 27 |
| | (5 | ) | | 22 |
| | (12 | ) | | 4 |
| | (8 | ) |
Foreign currency translation | (10 | ) | | 17 |
| | 7 |
| | (2 | ) | | 3 |
| | 1 |
|
| $ | 45 |
| | $ | 1 |
| | $ | 46 |
| | $ | 104 |
| | $ | (35 | ) | | $ | 69 |
|
| | | | | | | | | | | |
Nine Months Ended September 30, | | | | | | | | | | | |
Derivatives qualifying as cash flow hedges: | | | | | | | | | | | |
Unrealized losses | $ | (81 | ) | | $ | 31 |
| | $ | (50 | ) | | $ | (199 | ) | | $ | 66 |
| | $ | (133 | ) |
Reclassified to net earnings(a) | (11 | ) | | — |
| | (11 | ) | | 12 |
| | (5 | ) | | 7 |
|
Derivatives qualifying as cash flow hedges | (92 | ) | | 31 |
| | (61 | ) | | (187 | ) | | 61 |
| | (126 | ) |
Pension and postretirement benefits: | | | | | | | | | | | |
Actuarial losses | (40 | ) | | 17 |
| | (23 | ) | | (453 | ) | | 160 |
| | (293 | ) |
Amortization(b) | 57 |
| | (22 | ) | | 35 |
| | 56 |
| | (19 | ) | | 37 |
|
Curtailments and settlements(c) | 96 |
| | (34 | ) | | 62 |
| | 66 |
| | (23 | ) | | 43 |
|
Pension and postretirement benefits | 113 |
| | (39 | ) | | 74 |
| | (331 | ) | | 118 |
| | (213 | ) |
Available-for-sale securities: | | | | | | | | | | | |
Unrealized gains | 49 |
| | (7 | ) | | 42 |
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