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Note 1. BASIS OF PRESENTATION
Bristol-Myers Squibb Company (which may be referred to as Bristol-Myers Squibb, BMS or the Company) prepared these unaudited consolidated financial statements following the requirements of the Securities and Exchange Commission (SEC) and United States (U.S.) generally accepted accounting principles (GAAP) for interim reporting. Under those rules, certain footnotes and other financial information that are normally required for annual financial statements can be condensed or omitted. The Company is responsible for the consolidated financial statements included in this Form 10-Q. These consolidated financial statements include all normal and recurring adjustments necessary for a fair presentation of the financial position at March 31, 2012 and December 31, 2011, and the results of operations and cash flows for the three months ended March 31, 2012 and 2011. All intercompany balances and transactions have been eliminated. Material subsequent events are evaluated and disclosed through the report issuance date. These unaudited consolidated financial statements and the related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2011 included in the Annual Report on Form 10-K.
Revenues, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited consolidated financial statements may not be indicative of full year operating results.
The preparation of financial statements requires the use of management estimates and assumptions, based on complex judgments that are considered reasonable, that affect the reported amounts of assets, liabilities, revenues and expenses and disclosure of contingent assets and contingent liabilities at the date of the financial statements. The most significant assumptions are employed in estimates used in determining the fair value of intangible assets, restructuring charges and accruals, sales rebate and return accruals including the annual pharmaceutical company fee, legal contingencies, tax assets and tax liabilities, stock-based compensation expense, pension and postretirement benefits, fair value of financial instruments with no direct or observable market quotes, inventory obsolescence, potential impairment of long-lived assets, allowances for bad debt, as well as in estimates used in applying the revenue recognition policy. Actual results may differ from estimated results.
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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 a global supply chain organization are utilized and responsible for the development and delivery of products to the market. Products are distributed and sold through regional organizations that serve the United States; Europe; Latin America, Middle East and Africa; Japan, Asia Pacific and Canada; and Emerging Markets defined as Brazil, Russia, India, China and Turkey. The business is also supported by global corporate staff functions. The segment information presented below is consistent with the financial information regularly reviewed by the chief operating decision maker, the chief executive officer, for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting future periods.
Net sales of key products were as follows:
Three Months Ended March 31, | ||||||
Dollars in Millions | 2012 | 2011 | ||||
PLAVIX* (clopidogrel bisulfate) | $ | 1,693 | $ | 1,762 | ||
AVAPRO*/AVALIDE* (irbesartan/irbesartan-hydrchlorothiazide) | 207 | 290 | ||||
ABILIFY* (aripiprazole) | 621 | 624 | ||||
REYATAZ (atazanavir sulfate) | 358 | 366 | ||||
SUSTIVA (efavirenz) Franchise | 386 | 343 | ||||
BARACLUDE (entecavir) | 325 | 275 | ||||
ERBITUX* (cetuximab) | 179 | 165 | ||||
SPRYCEL (dasatinib) | 231 | 172 | ||||
YERVOY (ipilimumab) | 154 | - | ||||
ORENCIA (abatacept) | 254 | 199 | ||||
NULOJIX (belatacept) | 1 | - | ||||
ONGLYZA/KOMBIGLYZE (saxagliptin/saxagliptin and metformin) | 161 | 81 | ||||
Mature Products and All Other | 681 | 734 | ||||
Net Sales | $ | 5,251 | $ | 5,011 |
Segment income excludes the impact of significant items not indicative of current operating performance or ongoing results, and earnings attributed to Sanofi and other noncontrolling interest. The reconciliation to earnings before income taxes was as follows:
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
BioPharmaceuticals segment income | $ | 1,402 | $ | 1,288 | |
Reconciling items: | |||||
Provision for restructuring | (22) | (44) | |||
Accelerated depreciation, asset impairment and other shutdown costs | - | (23) | |||
Process standardization implementation costs | (8) | (4) | |||
Litigation expense/(recoveries) | 172 | 102 | |||
Upfront, milestone and other licensing payments | - | (88) | |||
Intangible asset impairment | (96) | (15) | |||
Other | (31) | (26) | |||
Noncontrolling interest | 610 | 577 | |||
Earnings before income taxes | $ | 2,027 | $ | 1,767 |
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Note 3. ALLIANCES AND COLLABORATIONS
BMS maintains alliances and collaborations with various third parties for the development and commercialization of certain products. Unless otherwise noted, operating results associated with the alliances and collaborations are generally treated as follows: product revenues from BMS sales are included in revenue; royalties, collaboration fees, profit sharing and distribution fees are included in cost of goods sold; post-approval milestone payments to partners are deferred and amortized over the useful life within cost of goods sold; cost sharing reimbursements offset the intended operating expense; payments to BMS attributed to upfront, milestone and other licensing payments are deferred and amortized over the estimated useful life within other income/expense; income and expenses attributed to a collaboration's non-core activities, such as supply and manufacturing arrangements and compensation for opting-out of commercialization in certain countries, are included in other income/expense; partnerships and joint ventures are either consolidated or accounted for under the equity method of accounting and related cash receipts and distributions are treated as operating cash flow.
See the 2011 Annual Report on Form 10-K for a more complete description of the below agreements, including termination provisions, as well as disclosures of other alliances and collaborations.
Sanofi
BMS has agreements with Sanofi for the codevelopment and cocommercialization of AVAPRO*/AVALIDE*, an angiotensin II receptor antagonist indicated for the treatment of hypertension and diabetic nephropathy, and PLAVIX*, a platelet aggregation inhibitor. The worldwide alliance operates under the framework of two geographic territories; one in the Americas (principally the U.S., Canada, Puerto Rico and Latin American countries) and Australia and the other in Europe and Asia. Accordingly, two territory partnerships were formed to manage central expenses, such as marketing, research and development and royalties, and to supply finished product to the individual countries. In general, at the country level, agreements either to copromote (whereby a partnership was formed between the parties to sell each brand) or to comarket (whereby the parties operate and sell their brands independently of each other) are in place. The agreements with Sanofi expire on the later of (i) with respect to PLAVIX*, 2013 and, with respect to AVAPRO*/AVALIDE*, 2012 in the Americas and Australia and 2013 in Europe and Asia, and (ii) the expiration of all patents and other exclusivity rights relating to the products in the applicable territory.
BMS acts as the operating partner and owns a 50.1% majority controlling interest in the territory covering the Americas and Australia and consolidates all country partnership results for this territory with Sanofi's 49.9% share of the results reflected as a noncontrolling interest. BMS recognizes net sales in this territory and in comarketing countries outside this territory (e.g. Germany, Italy for irbesartan only, Spain and Greece). Sanofi acts as the operating partner and owns a 50.1% majority controlling interest in the territory covering Europe and Asia and BMS has a 49.9% ownership interest in this territory.
BMS and Sanofi have a separate partnership governing the copromotion of irbesartan in the U.S. Sanofi paid BMS $350 million for their acquisition of an interest in the irbesartan license for the U.S. upon formation of the alliance.
Summarized financial information related to this alliance is as follows:
Three Months Ended March 31, | ||||||
Dollars in Millions | 2012 | 2011 | ||||
Territory covering the Americas and Australia: | ||||||
Net sales | $ | 1,817 | $ | 1,978 | ||
Royalty expense | 367 | 402 | ||||
Noncontrolling interest – pre-tax | 605 | 573 | ||||
Profit distributions to Sanofi | (609) | (599) | ||||
Territory covering Europe and Asia: | ||||||
Equity in net income of affiliates | (60) | (86) | ||||
Profit distributions to BMS | 67 | 60 | ||||
Other: | ||||||
Net sales in Europe comarketing countries and other | 83 | 74 | ||||
Amortization (income)/expense – irbesartan license fee | (8) | (8) | ||||
Supply activities and development and opt-out royalty (income)/expense | (6) | 14 | ||||
March 31, | December 31, | |||||
Dollars in Millions | 2012 | 2011 | ||||
Investment in affiliates – territory covering Europe and Asia | $ | 30 | $ | 37 | ||
Deferred income – irbesartan license fee | 21 | 29 |
The following is summarized financial information for interests in the partnerships with Sanofi for the territory covering Europe and Asia, which are not consolidated but are accounted for using the equity method:
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Net sales | $ | 319 | $ | 379 | |
Gross profit | 138 | 168 | |||
Net income | 122 | 140 |
Otsuka
BMS has a worldwide commercialization agreement with Otsuka Pharmaceutical Co., Ltd. (Otsuka), to codevelop and copromote ABILIFY*, for the treatment of schizophrenia, bipolar mania disorder and major depressive disorder, excluding certain Asia Pacific countries. The U.S. portion of the amended commercialization and manufacturing agreement expires upon the expected loss of product exclusivity in April 2015. Beginning on January 1, 2012, the contractual share of revenue recognized by BMS in the U.S. was reduced from 53.5% in 2011 to 51.5% and will be further reduced in 2013.
In the UK, Germany, France and Spain, BMS receives 65% of third-party net sales. In these countries and the U.S., third-party customers are invoiced by BMS on behalf of Otsuka and alliance revenue is recognized when ABILIFY* is shipped and all risks and rewards of ownership have been transferred to third-party customers. In certain countries where BMS is presently the exclusive distributor for the product or has an exclusive right to sell ABILIFY*, BMS recognizes all of the net sales.
BMS purchases the product from Otsuka and performs finish manufacturing for sale to third-party customers by BMS or Otsuka. Under the terms of the amended agreement, BMS paid Otsuka $400 million, which is amortized as a reduction of net sales through the expected loss of U.S. exclusivity in April 2015. The unamortized balance is included in other assets. Otsuka receives a royalty based on 1.5% of total U.S. net sales. Otsuka is responsible for 30% of the U.S. expenses related to the commercialization of ABILIFY* from 2010 through 2012.
BMS and Otsuka also have an oncology collaboration for SPRYCEL and IXEMPRA (ixabepilone) (the “Oncology Products”) in the U.S., Japan and the EU (the “Oncology Territory”). The Company pays a collaboration fee to Otsuka equal to 30% of the first $400 million annual net sales of the Oncology Products in the Oncology Territory, 5% of annual net sales between $400 million and $600 million, and 3% of annual net sales between $600 million and $800 million with additional trailing percentages of annual net sales over $800 million. Otsuka will contribute 20% of the first $175 million of certain commercial operational expenses relating to the Oncology Products in the Oncology Territory and 1% of such costs in excess of $175 million.
Summarized financial information related to this alliance is as follows:
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
ABILIFY* net sales, including amortization of extension payment | $ | 621 | $ | 624 | |
Oncology Products collaboration fee expense | 32 | 33 | |||
Royalty expense | 17 | 16 | |||
Reimbursement of operating expenses to/(from) Otsuka | (24) | (22) | |||
Amortization (income)/expense – extension payment | 16 | 16 | |||
Amortization (income)/expense – upfront, milestone and other licensing payments | 2 | 2 | |||
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Other assets - extension payment | $ | 203 | $ | 219 | |
Other intangible assets - upfront, milestone and other licensing payments | 3 | 5 |
Lilly
BMS has an Epidermal Growth Factor Receptor (EGFR) commercialization agreement with Eli Lilly and Company (Lilly) through Lilly's November 2008 acquisition of ImClone Systems Incorporated (ImClone) for the codevelopment and promotion of ERBITUX* and necitumumab (IMC-11F8) in the U.S. which expires as to ERBITUX* in September 2018. BMS also has codevelopment and copromotion rights to both products in Canada and Japan. ERBITUX* is indicated for use in the treatment of patients with metastatic colorectal cancer and for use in the treatment of squamous cell carcinoma of the head and neck. Under the EGFR agreement, with respect to ERBITUX* sales in North America, Lilly receives a distribution fee based on a flat rate of 39% of net sales in North America plus reimbursement of certain royalties paid by Lilly.
In Japan, BMS shares rights to ERBITUX* under an agreement with Lilly and Merck KGaA and receives 50% of the pre-tax profit from Merck KGaA's net sales of ERBITUX* in Japan which is further shared equally with Lilly.
With respect to necitumumab, the companies will share in the cost of developing and potentially commercializing necitumumab in the U.S., Canada and Japan. Lilly maintains exclusive rights to necitumumab in all other markets. BMS will fund 55% of development costs for studies that will be used only in the U.S., 50% for Japan studies and 27.5% for global studies.
BMS is amortizing $500 million of license acquisition costs associated with the EGFR commercialization agreement through 2018.
Summarized financial information related to this alliance is as follows:
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Net sales | $ | 179 | $ | 165 | |
Distribution fees and royalty expense | 74 | 69 | |||
Research and development expense reimbursement to Lilly – necitumumab | 1 | 2 | |||
Amortization (income)/expense – upfront, milestone and other licensing payments | 10 | 10 | |||
Japan commercialization fee (income)/expense | (6) | (9) | |||
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Other intangible assets – upfront, milestone and other licensing payments | $ | 239 | $ | 249 |
Gilead
BMS and Gilead Sciences, Inc. (Gilead) have a joint venture to develop and commercialize ATRIPLA* (efavirenz 600 mg/ emtricitabine 200 mg/ tenofovir disoproxil fumarate 300 mg), a once-daily single tablet three-drug regimen for the treatment of human immunodeficiency virus (HIV) infection, combining SUSTIVA, a product of BMS, and TRUVADA* (emtricitabine and tenofovir disoproxil fumarate), a product of Gilead, in the U.S., Canada and Europe.
Net sales of the bulk efavirenz component of ATRIPLA* are deferred until the combined product is sold to third-party customers. Net sales for the efavirenz component are based on the relative ratio of the average respective net selling prices of TRUVADA* and SUSTIVA.
Summarized financial information related to this alliance is as follows:
Three Months Ended March 31, | ||||||
Dollars in Millions | 2012 | 2011 | ||||
Net sales | $ | 322 | $ | 271 | ||
Equity in net loss of affiliates | 4 | 5 |
AstraZeneca
BMS maintains two worldwide codevelopment and cocommercialization agreements with AstraZeneca PLC (AstraZeneca) for ONGLYZA, KOMBIGLYZE (excluding Japan), KOMBOGLYZE and dapagliflozin. ONGLYZA, KOMBIGLYZE (saxagliptin and metformin hydrochloride extended-release) and KOMBOGLYZE (saxagliptin and metformin immediate-release marketed in the EU) are indicated for use in the treatment of diabetes. In this document unless specifically noted, we refer to both KOMBIGLYZE and KOMBOGLYZE as KOMBIGLYZE. Dapagliflozin is currently being studied for the treatment of diabetes. ONGLYZA and dapagliflozin were discovered by BMS. KOMBIGLYZE was codeveloped with AstraZeneca. Both companies jointly develop the clinical and marketing strategy and share commercialization expenses and profits and losses equally on a global basis and also share in development costs. BMS manufactures both products. BMS has opted to decline involvement in cocommercialization in certain countries not in the BMS global commercialization network and instead receive compensation based on net sales recorded by AstraZeneca in these countries. Opt-out compensation recorded by BMS was not material in the three months ended March 31, 2012.
BMS received $300 million in upfront, milestone and other licensing payments related to saxagliptin as of March 31, 2012 and $170 million in upfront, milestone and other licensing payments related to dapagliflozin as of March 31, 2012.
Summarized financial information related to this alliance is as follows:
Three Months Ended March 31, | ||||||
Dollars in Millions | 2012 | 2011 | ||||
Net sales | $ | 161 | $ | 81 | ||
Profit sharing expense | 73 | 38 | ||||
Commercialization expense reimbursements to/(from) AstraZeneca | (12) | (9) | ||||
Research and development expense reimbursements to/(from) AstraZeneca | 4 | 14 | ||||
Amortization (income)/expense – upfront, milestone and other licensing payments | (10) | (8) | ||||
March 31, | December 31, | |||||
Dollars in Millions | 2012 | 2011 | ||||
Deferred income – upfront, milestone and other licensing payments | ||||||
Saxagliptin | $ | 224 | $ | 230 | ||
Dapagliflozin | 138 | 142 |
Pfizer
BMS and Pfizer Inc. (Pfizer) maintain a worldwide codevelopment and cocommercialization agreement for ELIQUIS, an anticoagulant discovered by BMS for the prevention and treatment of atrial fibrillation and other arterial thrombotic conditions. Pfizer funds 60% of all development costs under the initial development plan effective January 1, 2007. The companies jointly develop the clinical and marketing strategy and share commercialization expenses and profits equally on a global basis. In certain countries not in the BMS global commercialization network, Pfizer will commercialize ELIQUIS alone and will pay a royalty to BMS. BMS manufactures the product.
BMS received $559 million in upfront, milestone and other licensing payments for ELIQUIS as of March 31, 2012.
Summarized financial information related to this alliance is as follows:
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Commercialization expense reimbursement to/(from) Pfizer | $ | (5) | $ | (1) | |
Research and development reimbursements to/(from) Pfizer | 2 | (29) | |||
Amortization (income)/expense – upfront, milestone and other licensing payments | (10) | (8) | |||
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Deferred income – upfront, milestone and other licensing payments | $ | 424 | $ | 434 |
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Note 4. INHIBITEX, INC. ACQUISITION
On February 13, 2012, BMS completed its acquisition of the outstanding shares of Inhibitex, Inc. (Inhibitex), a clinical-stage biopharmaceutical company focused on developing products to prevent and treat serious infectious diseases. Acquisition costs of $12 million were included in other expense. BMS obtained Inhibitex's lead asset, INX-189, an oral nucleotide polymerase (NS5B) inhibitor in Phase II development for the treatment of chronic hepatitis C infections. Goodwill generated from this acquisition was primarily attributed to the potential to offer a full portfolio of therapy choices for hepatitis infections as well as to provide additional levels of sustainability to BMS' virology pipeline.
The preliminary purchase price allocation was as follows (pending final valuation of deferred tax assets):
Purchase price: | Dollars in Millions | |
Cash | $ | 2,539 |
Identifiable net assets: | ||
Cash | 46 | |
Marketable securities | 17 | |
In-process research and development (IPRD) | 1,875 | |
Accounts payable | (23) | |
Accrued expenses | (10) | |
Deferred income taxes | (579) | |
Total identifiable net assets | 1,326 | |
Goodwill | $ | 1,213 |
The fair value of the IPRD was estimated utilizing the income method which risk adjusted the expected future net cash flows estimated to be generated from the compounds based upon estimated probabilities of technical and regulatory success (PTRS). The unit of account for IPRD was a global view that considered all potential jurisdictions and indications. The cash flows were adjusted to present value utilizing a 12.0% discount rate reflecting the risk factors associated with the cash flow streams.
IPRD includes $1.8 billion attributed to INX-189. INX-189 is expected to be most effective when used in combination therapy and it is assumed all market participants would inherently maintain franchise synergies attributed to maximizing the cash flows of their existing virology pipeline assets. The cash flows utilized to value INX-189 include such synergies and also assume initial positive cash flows to commence in 2017, shortly after the expected receipt of regulatory approvals, subject to trial results. The weighted-average PTRS utilized in the INX-189 valuation was 38%. Actual cash flows attributed to IPRD are likely to be different than those assumed.
The results of Inhibitex's operations are included in the consolidated financial statements from February 13, 2012. Pro forma supplemental financial information is not provided as the impact of the acquisition is not material to operating results. Goodwill, IPRD and all intangible assets valued in this acquisition are non-deductible for tax purposes.
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Note 5. RESTRUCTURING
The following is the provision for restructuring:
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Employee termination benefits | $ | 19 | $ | 43 | |
Other exit costs | 3 | 1 | |||
Provision for restructuring | $ | 22 | $ | 44 |
Restructuring charges included termination benefits for workforce reductions of manufacturing, selling, administrative, and research and development personnel across all geographic regions of approximately 120 and 435 for the three months ended March 31, 2012 and 2011, respectively.
The following table represents the activity of employee termination and other exit cost liabilities:
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Liability at January 1 | $ | 77 | $ | 126 | |
Charges | 22 | 43 | |||
Changes in estimates | - | 1 | |||
Provision for restructuring | 22 | 44 | |||
Spending | (21) | (35) | |||
Liability at March 31 | $ | 78 | $ | 135 |
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Note 6. INCOME TAXES
The effective income tax rate on earnings was 26.9% for the three months ended March 31, 2012 compared to 22.6% for the three months ended March 31, 2011. The effective tax rate is lower than the U.S. statutory rate of 35% primarily attributable to undistributed earnings of certain foreign subsidiaries that have been considered or are expected to be indefinitely reinvested offshore. If these earnings are repatriated to the U.S. in the future, or if it was determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required. 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.
The increase in the effective income tax rate was due to:
BMS is currently under examination by a number of tax authorities which have proposed adjustments to tax for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. BMS estimates that it is reasonably possible that the total amount of unrecognized tax benefits at March 31, 2012 could decrease in the range of approximately $65 million to $95 million in the next twelve months as a result of the settlement of certain tax audits and other events resulting in the payment of additional taxes, the adjustment of certain deferred taxes and/or the recognition of tax benefits. It is also 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. BMS believes that it has adequately provided for all open tax years by tax jurisdiction.
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Note 7. EARNINGS PER SHARE
Three Months Ended March 31, | |||||||
Amounts in Millions, Except Per Share Data | 2012 | 2011 | |||||
Net Earnings Attributable to BMS | $ | 1,101 | $ | 986 | |||
Earnings attributable to unvested restricted shares | (1) | (2) | |||||
Net Earnings Attributable to BMS common shareholders | $ | 1,100 | $ | 984 | |||
Earnings per share - basic | $ | 0.65 | $ | 0.58 | |||
Weighted-average common shares outstanding - basic | 1,687 | 1,702 | |||||
Contingently convertible debt common stock equivalents | 1 | 1 | |||||
Incremental shares attributable to share-based compensation plans | 18 | 11 | |||||
Weighted-average common shares outstanding - diluted | 1,706 | 1,714 | |||||
Earnings per share - diluted | $ | 0.64 | $ | 0.57 | |||
Anti-dilutive weighted-average equivalent shares - stock incentive plans | 7 | 43 |
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Note 8. FINANCIAL INSTRUMENTS
Financial instruments include cash and cash equivalents, marketable securities, accounts receivable and payable, debt instruments and derivatives. Due to their short-term maturity, the carrying amount of receivables and accounts payable approximate fair value. Cash equivalents primarily consist of highly liquid investments with original maturities of three months or less at the time of purchase and are recorded at cost, which approximates fair value.
BMS has exposure to market risk due to changes in currency exchange rates and interest rates. As a result, certain derivative financial instruments are used when available on a cost-effective basis to hedge the underlying economic exposure. These instruments qualify as cash flow, net investment and fair value hedges upon meeting certain criteria, including initial and periodic assessments of the effectiveness in offsetting hedged exposures. Changes in fair value of derivatives that do not qualify for hedge accounting are recognized in earnings as they occur. Derivative financial instruments are not used for trading purposes.
All financial instruments, including derivatives, are subject to counterparty credit risk which is considered as part of the overall fair value measurement. Counterparty credit risk is monitored on an ongoing basis and is mitigated by limiting amounts outstanding with any individual counterparty, utilizing conventional derivative financial instruments and only entering into agreements with counterparties that meet high credit quality standards. The consolidated financial statements would not be materially impacted if any counterparty failed to perform according to the terms of its agreement. Under the terms of the agreements, posting of collateral is not required by any party whether derivatives are in an asset or liability position.
Fair Value Measurements − The fair values of financial instruments are classified into one of the following categories:
Level 1 inputs utilize quoted prices (unadjusted) in active markets that are accessible at the measurement date for identical assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. These instruments include U.S. treasury securities.
Level 2 inputs include observable prices for similar instruments, quoted prices for identical or similar instruments in markets that are not active, and other observable inputs that can be corroborated by market data for substantially the full term of the assets or liabilities. These instruments include corporate debt securities, commercial paper, Federal Deposit Insurance Corporation (FDIC) insured debt securities, certificates of deposit, money market funds, foreign currency forward contracts, interest rate swap contracts, equity funds and fixed income funds. Additionally, certain corporate debt securities utilize a third-party matrix-pricing model that uses significant inputs corroborated by market data for substantially the full term of the assets. Equity and fixed income funds are primarily invested in publicly traded securities and are valued at the respective net asset value of the underlying investments. There were no significant unfunded commitments or restrictions on redemptions related to equity and fixed income funds as of March 31, 2012. Level 2 derivative instruments are valued using London Interbank Offered Rate (LIBOR) and Euro Interbank Offered Rate (EURIBOR) yield curves, less credit valuation adjustments, and observable forward foreign exchange rates at the reporting date. Valuations of derivative contracts may fluctuate considerably from period-to-period due to volatility in underlying foreign currencies and underlying interest rates, which are driven by market conditions and the duration of the contract. Credit adjustment volatility may have a significant impact on the valuation of interest rate swaps due to changes in counterparty credit ratings and credit default swap spreads.
Level 3 unobservable inputs are used when little or no market data is available. Valuation models for the Auction Rate Security (ARS) and Floating Rate Securities (FRS) portfolio are based on expected cash flow streams and collateral values including assessments of counterparty credit quality, default risk underlying the security, discount rates and overall capital market liquidity. The fair value of ARS was determined using an internally developed valuation which was based in part on indicative bids received on the underlying assets of the security and other evidence of fair value. The ARS is a private placement security rated 'BBB' by Standard and Poor's and represents interests in insurance securitizations. Due to the current lack of an active market for FRS and the general lack of transparency into their underlying assets, other qualitative analysis is relied upon to value FRS including discussions with brokers and fund managers, default risk underlying the security and overall capital market liquidity.
Available-For-Sale Securities and Cash Equivalents
The following table summarizes available-for-sale securities at March 31, 2012 and December 31, 2011:
Gross | Gross | ||||||||||||||||||||||||
Unrealized | Unrealized | ||||||||||||||||||||||||
Gain in | Loss in | Gain/(Loss) | |||||||||||||||||||||||
Amortized | Accumulated | Accumulated | in | Fair | Fair Value | ||||||||||||||||||||
Dollars in Millions | Cost | OCI | OCI | Income | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||
March 31, 2012 | |||||||||||||||||||||||||
Marketable Securities | |||||||||||||||||||||||||
Certificates of Deposit | $ | 650 | $ | - | $ | - | $ | - | $ | 650 | $ | - | $ | 650 | $ | - | |||||||||
Corporate Debt Securities | 4,067 | 60 | (5) | - | 4,122 | - | 4,122 | - | |||||||||||||||||
Commercial Paper | 952 | - | - | - | 952 | - | 952 | - | |||||||||||||||||
U.S. Treasury Securities | 150 | 2 | - | - | 152 | 152 | - | - | |||||||||||||||||
FDIC Insured Debt Securities | 301 | 1 | - | - | 302 | - | 302 | - | |||||||||||||||||
Equity Funds | 50 | - | - | 5 | 55 | - | 55 | - | |||||||||||||||||
Fixed Income Funds | 45 | - | - | - | 45 | - | 45 | - | |||||||||||||||||
ARS | 9 | 1 | - | - | 10 | - | - | 10 | |||||||||||||||||
FRS | 21 | - | (2) | - | 19 | - | - | 19 | |||||||||||||||||
Total Marketable Securities | $ | 6,245 | $ | 64 | $ | (7) | $ | 5 | $ | 6,307 | $ | 152 | $ | 6,126 | $ | 29 | |||||||||
December 31, 2011 | |||||||||||||||||||||||||
Marketable Securities | |||||||||||||||||||||||||
Certificates of Deposit | $ | 1,051 | $ | - | $ | - | $ | - | $ | 1,051 | $ | - | $ | 1,051 | $ | - | |||||||||
Corporate Debt Securities | 2,908 | 60 | (3) | - | 2,965 | - | 2,965 | - | |||||||||||||||||
Commercial Paper | 1,035 | - | - | - | 1,035 | - | 1,035 | - | |||||||||||||||||
U.S. Treasury Securities | 400 | 2 | - | - | 402 | 402 | - | - | |||||||||||||||||
FDIC Insured Debt Securities | 302 | 1 | - | - | 303 | - | 303 | - | |||||||||||||||||
ARS | 80 | 12 | - | - | 92 | - | - | 92 | |||||||||||||||||
FRS | 21 | - | (3) | - | 18 | - | - | 18 | |||||||||||||||||
Total Marketable Securities | $ | 5,797 | $ | 75 | $ | (6) | $ | - | $ | 5,866 | $ | 402 | $ | 5,354 | $ | 110 |
The following table summarizes the classification of available for sale securities in the consolidated balance sheet:
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Current Marketable Securities | $ | 2,722 | $ | 2,957 | |
Non-current Marketable Securities | 3,585 | 2,909 | |||
Total Marketable Securities | $ | 6,307 | $ | 5,866 |
Money market funds and other securities aggregating $1,974 million and $5,469 million at March 31, 2012 and December 31, 2011, respectively, were included in cash and cash equivalents and valued using Level 2 inputs. At March 31, 2012, $3,571 million of non-current available for sale corporate debt securities and FRS mature within five years.
The change in fair value for the investments in equity and fixed income funds are recognized in the results of operations and are designed to offset the change in fair value of certain employee retirement benefits.
The following table summarizes the activity for financial assets utilizing Level 3 fair value measurements:
2012 | 2011 | |||||
Fair value at January 1 | $ | 110 | $ | 110 | ||
Sales | (81) | 0 | ||||
Fair value at March 31 | $ | 29 | $ | 110 |
Qualifying Hedges
The following table summarizes the fair value of outstanding derivatives:
March 31, 2012 | December 31, 2011 | |||||||||||||
Fair Value | Fair Value | |||||||||||||
Dollars in Millions | Balance Sheet Location | Notional | (Level 2) | Notional | (Level 2) | |||||||||
Derivatives designated as hedging instruments: | ||||||||||||||
Interest rate swap contracts | Other assets | $ | 573 | $ | 115 | $ | 579 | $ | 135 | |||||
Foreign currency forward contracts | Other assets | 1,392 | 69 | 1,347 | 88 | |||||||||
Foreign currency forward contracts | Accrued expenses | 187 | (3) | 480 | (29) |
Cash Flow Hedges − Foreign currency forward contracts are primarily utilized to hedge forecasted intercompany inventory purchase transactions in certain foreign currencies. These forward contracts are designated as cash flow hedges with the effective portion of changes in fair value being temporarily reported in accumulated other comprehensive income (OCI) and recognized in earnings when the hedged item affects earnings. As of March 31, 2012, significant outstanding foreign currency forward contracts were primarily attributed to Euro and Japanese yen foreign currency forward contracts in the notional amount of $793 million and $490 million, respectively.
The net gain on foreign currency forward contracts qualifying for cash flow hedge accounting is expected to be reclassified to cost of products sold within the next two years, including $49 million of pre-tax gains to be reclassified within the next 12 months. Cash flow hedge accounting is discontinued when the forecasted transaction is no longer probable of occurring on the originally forecasted date, or 60 days thereafter, or when the hedge is no longer effective. Assessments to determine whether derivatives designated as qualifying hedges are highly effective in offsetting changes in the cash flows of hedged items are performed at inception and on a quarterly basis. Any ineffective portion of the change in fair value is included in current period earnings. The earnings impact related to discontinued cash flow hedges and hedge ineffectiveness was not significant during the three months ended March 31, 2012 and 2011.
Net Investment Hedges − Non-U.S. dollar borrowings of €541 million ($718 million) are designated to hedge the foreign currency exposures of the net investment in certain foreign affiliates. These borrowings are designated as net investment hedges and recognized in long-term debt. The effective portion of foreign exchange gains or losses on the remeasurement of the debt is recognized in the foreign currency translation component of accumulated OCI with the related offset in long-term debt.
Fair Value Hedges – Fixed-to-floating interest rate swap contracts are designated as fair value hedges and are used as part of an interest rate risk management strategy to create an appropriate balance of fixed and floating rate debt. The swaps and underlying debt for the benchmark risk being hedged are recorded at fair value. When the underlying swap is terminated prior to maturity, the fair value basis adjustment to the underlying debt instrument is amortized into earnings as an adjustment to interest expense over the remaining term of the debt.
The adjustment to long-term debt from interest rate swaps that qualify as fair value hedges and other items was as follows:
March 31, | December 31, | |||||
Dollars in Millions | 2012 | 2011 | ||||
Principal Value | $ | 4,611 | $ | 4,669 | ||
Adjustments to Principal Value: | ||||||
Fair value of interest rate swaps | 115 | 135 | ||||
Unamortized basis adjustment from swap terminations | 566 | 594 | ||||
Unamortized bond discounts | (22) | (22) | ||||
Total | $ | 5,270 | $ | 5,376 |
Interest payments were $33 million and $31 million for the three months ended March 31, 2012 and 2011, respectively, net of amounts related to interest rate swap contracts.
Debt repurchase activity was as follows:
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Principal amount | $ | 80 | $ | 50 | |
Repurchase price | 109 | 54 | |||
Notional amount of interest rate swaps terminated | 6 | 24 | |||
Swap termination proceeds | 2 | 4 | |||
Total (gain)/loss | 19 | (8) |
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Note 9. RECEIVABLES
Receivables include:
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Trade receivables | $ | 2,403 | $ | 2,397 | |
Less allowances | (152) | (147) | |||
Net trade receivables | 2,251 | 2,250 | |||
Alliance partners receivables | 939 | 1,081 | |||
Prepaid and refundable income taxes | 244 | 256 | |||
Miscellaneous receivables | 179 | 156 | |||
Receivables | $ | 3,613 | $ | 3,743 |
Receivables are netted with deferred income related to alliance partners until recognition of income. As a result, alliance partner receivables and deferred income were reduced by $1,073 million and $901 million at March 31, 2012 and December 31, 2011, respectively. For additional information regarding alliance partners, see “—Note 3. Alliances and Collaborations.” Non-U.S. receivables sold on a nonrecourse basis were $213 million and $246 million for the three months ended March 31, 2012 and 2011, respectively. In the aggregate, receivables due from three pharmaceutical wholesalers in the U.S. represented 54% and 55% of total trade receivables at March 31, 2012 and December 31, 2011, respectively.
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Note 10. INVENTORIES
Inventories include:
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Finished goods | $ | 501 | $ | 478 | |
Work in process | 721 | 646 | |||
Raw and packaging materials | 241 | 260 | |||
Inventories | $ | 1,463 | $ | 1,384 |
Inventories expected to remain on-hand beyond one year are included in non-current assets and were $330 million (including $126 million subject to regulatory approval prior to being sold) at March 31, 2012 and $260 million at December 31, 2011. The status of the regulatory approval process and the probability of future sales were considered in assessing the recoverability of these costs.
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Note 11. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes:
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Land | $ | 111 | $ | 137 | |
Buildings | 4,592 | 4,545 | |||
Machinery, equipment and fixtures | 3,459 | 3,437 | |||
Construction in progress | 283 | 262 | |||
Gross property, plant and equipment | 8,445 | 8,381 | |||
Less accumulated depreciation | (3,933) | (3,860) | |||
Property, plant and equipment | $ | 4,512 | $ | 4,521 |
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Note 12. GOODWILL
Changes in the carrying amount of goodwill during the three months ended March 31, 2012 were as follows:
Dollars in Millions | |||
Balance at January 1, 2012 | $ | 5,586 | |
Inhibitex acquisition (Note 4) | 1,213 | ||
Balance at March 31, 2012 | $ | 6,799 |
Qualitative factors were assessed in the first quarter in determining whether it was more likely than not that the fair value of our aggregated geographic reporting units exceeded its carrying value. Examples of qualitative factors assessed included our share price, our financial performance compared to budgets, long-term financial plans, macroeconomic, industry and market conditions as well as the substantial excess of fair value over the carrying value of net assets from the annual impairment test performed in the prior year. Positive and negative influences of each relevant factor were assessed both individually and in the aggregate and as a result it was concluded that no additional quantitative testing was required.
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Note 13. EQUITY
Capital in Excess | ||||||||||||||||||
Common Stock | of Par Value | Retained | Treasury Stock | Noncontrolling | ||||||||||||||
Dollars and Shares in Millions | Shares | Par Value | of Stock | Earnings | Shares | Cost | Interest | |||||||||||
Balance at January 1, 2011 | 2,205 | $ | 220 | $ | 3,682 | $ | 31,636 | 501 | $ | (17,454) | $ | (75) | ||||||
Net earnings attributable to BMS | - | - | - | 986 | - | - | - | |||||||||||
Cash dividends declared | - | - | - | (567) | - | - | - | |||||||||||
Stock repurchase program | - | - | - | - | 5 | (138) | - | |||||||||||
Employee stock compensation plans | - | - | (246) | - | (7) | 293 | - | |||||||||||
Net earnings attributable to noncontrolling | ||||||||||||||||||
interest | - | - | - | - | - | - | 577 | |||||||||||
Distributions | - | - | - | - | - | - | (599) | |||||||||||
Balance at March 31, 2011 | 2,205 | $ | 220 | $ | 3,436 | $ | 32,055 | 499 | $ | (17,299) | $ | (97) | ||||||
Balance at January 1, 2012 | 2,205 | $ | 220 | $ | 3,114 | $ | 33,069 | 515 | $ | (17,402) | $ | (89) | ||||||
Net earnings attributable to BMS | - | - | - | 1,101 | - | - | - | |||||||||||
Cash dividends declared | - | - | - | (575) | - | - | - | |||||||||||
Stock repurchase program | - | - | - | - | 10 | (323) | - | |||||||||||
Employee stock compensation plans | 1 | 1 | (289) | - | (8) | 439 | - | |||||||||||
Net earnings attributable to noncontrolling | ||||||||||||||||||
interest | - | - | - | - | - | - | 607 | |||||||||||
Distributions | - | - | - | - | - | - | (609) | |||||||||||
Balance at March 31, 2012 | 2,206 | $ | 221 | $ | 2,825 | $ | 33,595 | 517 | $ | (17,286) | $ | (91) |
Treasury stock is recognized at the cost to reacquire the shares. Shares issued from treasury are recognized utilizing the first-in first-out method.
In May 2010, the Board of Directors authorized the repurchase of up to $3.0 billion of common stock. Repurchases may be made either in the open market or through private transactions, including under repurchase 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.
Noncontrolling interest is primarily related to the partnerships with Sanofi for the territory covering the Americas for net sales of PLAVIX*. Net earnings attributable to noncontrolling interest are presented net of taxes of $229 million and $196 million for the three months ended March 31, 2012 and 2011, respectively, in the consolidated statements of earnings with a corresponding increase to the provision for income taxes. Distribution of the partnership profits to Sanofi and Sanofi's funding of ongoing partnership operations occur on a routine basis. The above activity includes the pre-tax income and distributions related to these partnerships.
The accumulated balances related to each component of other comprehensive income/(loss) (OCI), net of taxes, were as follows:
Foreign | Derivatives | Pension and Other | Available | Accumulated Other | ||||||||||
Currency | Qualifying as | Postretirement | for | Comprehensive | ||||||||||
Dollars in Millions | Translation | Effective Hedges | Benefits | Sale Securities | Income/(Loss) | |||||||||
Balance at January 1, 2011 | $ | (222) | $ | (20) | $ | (2,163) | $ | 34 | $ | (2,371) | ||||
Other comprehensive income/(loss) | (40) | (25) | 19 | 3 | (43) | |||||||||
Balance at March 31, 2011 | $ | (262) | $ | (45) | $ | (2,144) | $ | 37 | $ | (2,414) | ||||
Balance at January 1, 2012 | $ | (238) | $ | 36 | $ | (2,905) | $ | 62 | $ | (3,045) | ||||
Other comprehensive income/(loss) | 3 | (1) | 38 | (13) | 27 | |||||||||
Balance at March 31, 2012 | $ | (235) | $ | 35 | $ | (2,867) | $ | 49 | $ | (3,018) |
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Note 14. PENSION AND POSTRETIREMENT BENEFIT PLANS
The net periodic benefit cost of defined benefit pension and postretirement benefit plans includes:
Three Months Ended March 31, | |||||||||||
Pension Benefits | Other Benefits | ||||||||||
Dollars in Millions | 2012 | 2011 | 2012 | 2011 | |||||||
Service cost — benefits earned during the year | $ | 10 | $ | 10 | $ | 2 | $ | 2 | |||
Interest cost on projected benefit obligation | 79 | 84 | 6 | 7 | |||||||
Expected return on plan assets | (126) | (115) | (6) | (7) | |||||||
Amortization of prior service cost/(benefit) | - | - | (1) | (1) | |||||||
Amortization of net actuarial loss | 33 | 28 | 3 | 2 | |||||||
Curtailments | - | (1) | - | - | |||||||
Settlements | - | (2) | - | - | |||||||
Net periodic benefit cost | $ | (4) | $ | 4 | $ | 4 | $ | 3 |
Contributions to the U.S. pension plans are expected to approximate $340 million during 2012, of which $307 million was contributed in the three months ended March 31, 2012. Contributions to the international plans are expected to range from $75 million to $90 million in 2012, of which $32 million was contributed in the three months ended March 31, 2012.
The expense attributed to defined contribution plans in the U.S. was $48 million and $39 million for the three months ended March 31, 2012 and 2011, respectively.
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Note 15. EMPLOYEE STOCK BENEFIT PLANS
Stock-based compensation expense was as follows:
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Stock options | $ | 3 | $ | 6 | |
Restricted stock | 19 | 18 | |||
Market share units | 6 | 6 | |||
Long-term performance awards | 14 | 8 | |||
Total stock-based compensation expense | $ | 42 | $ | 38 | |
Deferred tax benefit related to stock-based compensation expense | $ | 14 | $ | 13 |
In the first quarter of 2012, 2.8 million restricted stock units, 1.1 million market share units and 1.7 million long-term performance share units were granted. The weighted-average grant date fair value for restricted stock units, market share units and long-term performance share units granted during the first quarter of 2012 was $32.60, $31.85 and $32.33, respectively.
Substantially all restricted stock units vest ratably over a four year period based on share price performance. Market share units vest ratably over a four year period based on share price performance. The fair value of market share units was estimated on the date of grant using a model applying multiple input variables that determine the probability of satisfying market conditions. Long-term performance share units are determined based on the achievement of annual performance goals, but are not vested until the end of the three year plan period.
Total compensation costs related to nonvested awards not yet recognized and the weighted-average period over which such awards are expected to be recognized at March 31, 2012 were as follows:
Long-Term | |||||||||||
Stock | Restricted | Market | Performance | ||||||||
Dollars in Millions | Options | Stock | Share Units | Awards | |||||||
Unrecognized compensation cost | $ | 9 | $ | 202 | $ | 54 | $ | 68 | |||
Expected weighted-average period in years of compensation cost to be recognized | 0.9 | 3.1 | 3.4 | 1.6 |
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Note 16. LEGAL PROCEEDINGS AND CONTINGENCIES
The Company and certain of its subsidiaries are involved in various lawsuits, claims, government investigations and other legal proceedings that arise in the ordinary course of business. The Company recognizes accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. These matters involve patent infringement, antitrust, securities, pricing, sales and marketing practices, environmental, commercial, health and safety matters, consumer fraud, employment matters, product liability and insurance coverage. Legal proceedings that are material or that the Company believes could become material are described below.
Although the Company believes it has substantial defenses in these matters, there can be no assurance that there will not be an increase in the scope of pending matters or that any future lawsuits, claims, government investigations or other legal proceedings will not be material. Unless otherwise noted, the Company is unable to assess the outcome of the respective litigation nor is it able to provide an estimated range of potential loss. Furthermore, failure to enforce our patent rights would likely result in substantial decreases in the respective product sales from generic competition.
INTELLECTUAL PROPERTY
PLAVIX* – Australia
As previously disclosed, Sanofi was notified that, in August 2007, GenRx Proprietary Limited (GenRx) obtained regulatory approval of an application for clopidogrel bisulfate 75mg tablets in Australia. GenRx, formerly a subsidiary of Apotex Inc. (Apotex), has since changed its name to Apotex. In August 2007, Apotex filed an application in the Federal Court of Australia (the Federal Court) seeking revocation of Sanofi's Australian Patent No. 597784 (Case No. NSD 1639 of 2007). Sanofi filed counterclaims of infringement and sought an injunction. On September 21, 2007, the Federal Court granted Sanofi's injunction. A subsidiary of the Company was subsequently added as a party to the proceedings. In February 2008, a second company, Spirit Pharmaceuticals Pty. Ltd., also filed a revocation suit against the same patent. This case was consolidated with the Apotex case and a trial occurred in April 2008. On August 12, 2008, the Federal Court of Australia held that claims of Patent No. 597784 covering clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate salts were valid. The Federal Court also held that the process claims, pharmaceutical composition claims, and claim directed to clopidogrel and its pharmaceutically acceptable salts were invalid. The Company and Sanofi filed notices of appeal in the Full Court of the Federal Court of Australia (Full Court) appealing the holding of invalidity of the claim covering clopidogrel and its pharmaceutically acceptable salts, process claims, and pharmaceutical composition claims which have stayed the Federal Court's ruling. Apotex filed a notice of appeal appealing the holding of validity of the clopidogrel bisulfate, hydrochloride, hydrobromide, and taurocholate claims. A hearing on the appeals occurred in February 2009. On September 29, 2009, the Full Court held all of the claims of Patent No. 597784 invalid. In November 2009, the Company and Sanofi applied to the High Court of Australia (High Court) for special leave to appeal the judgment of the Full Court. In March 2010, the High Court denied the Company and Sanofi's request to hear the appeal of the Full Court decision. The case has been remanded to the Federal Court for further proceedings related to damages. It is expected the amount of damages will not be material to the Company.
PLAVIX* – EU
As previously disclosed, in 2007, YES Pharmaceutical Development Services GmbH (YES Pharmaceutical) filed an application for marketing authorization in Germany for an alternate salt form of clopidogrel. This application relied on data from studies that were originally conducted by Sanofi and BMS for PLAVIX* and were still the subject of data protection in the EU. Sanofi and BMS have filed an action against YES Pharmaceutical and its partners in the administrative court in Cologne objecting to the marketing authorization. This matter is currently pending, although these specific marketing authorizations now have been withdrawn from the market.
PLAVIX* – Canada (Apotex, Inc.)
On April 22, 2009, Apotex filed an impeachment action against Sanofi in the Federal Court of Canada alleging that Sanofi's Canadian Patent No. 1,336,777 (the '777 Patent) is invalid. On June 8, 2009, Sanofi filed its defense to the impeachment action and filed a suit against Apotex for infringement of the '777 Patent. The trial was completed in June 2011 and in December 2011, the Federal Court of Canada issued a decision that the '777 Patent is invalid. Sanofi is appealing this decision though generic companies have since entered the market.
OTHER INTELLECTUAL PROPERTY LITIGATION
ABILIFY*
As previously disclosed, Otsuka has filed patent infringement actions against Teva, Barr Pharmaceuticals, Inc. (Barr), Sandoz Inc. (Sandoz), Synthon Laboratories, Inc (Synthon), Sun Pharmaceuticals (Sun), Zydus Pharmaceuticals USA, Inc. (Zydus), and Apotex relating to U.S. Patent No. 5,006,528, ('528 Patent) which covers aripiprazole and expires in April 2015 (including the additional six-month pediatric exclusivity period). Aripiprazole is comarketed by the Company and Otsuka in the U.S. as ABILIFY*. A non-jury trial in the U.S. District Court for the District of New Jersey (NJ District Court) against Teva/Barr and Apotex was completed in August 2010. In November 2010, the NJ District Court upheld the validity and enforceability of the '528 Patent, maintaining the main patent protection for ABILIFY* in the U.S. until April 2015. The NJ District Court also ruled that the defendants' generic aripiprazole product infringed the '528 Patent and permanently enjoined them from engaging in any activity that infringes the '528 Patent, including marketing their generic product in the U.S. until after the patent (including the six-month pediatric extension) expires. Sandoz, Synthon, Sun and Zydus are also bound by the NJ District Court's decision. In December 2010, Teva/Barr and Apotex appealed this decision to the U.S. Court of Appeals for the Federal Circuit. Oral argument was held in February 2012.
It is not possible at this time to determine the outcome of any appeal of the NJ District Court's decision. If Otsuka were not to prevail in an appeal, generic competition would likely result in substantial decreases in the sales of ABILIFY* in the U.S., which would have a material adverse effect on the results of operations and cash flows and could be material to financial condition.
ATRIPLA*
In April 2009, Teva filed an abbreviated New Drug Application (aNDA) to manufacture and market a generic version of ATRIPLA*. ATRIPLA* is a single tablet three-drug regimen combining the Company's SUSTIVA and Gilead's TRUVADA*. As of this time, the Company's U.S. patent rights covering SUSTIVA's composition of matter and method of use have not been challenged. Teva sent Gilead a Paragraph IV certification letter challenging two of the fifteen Orange Book listed patents for ATRIPLA*. ATRIPLA* is the product of a joint venture between the Company and Gilead. In May 2009, Gilead filed a patent infringement action against Teva in the U.S. District Court for the Southern District of New York (SDNY). In January 2010, the Company received a notice that Teva has amended its aNDA and is challenging eight additional Orange Book listed patents for ATRIPLA*. In March 2010, the Company and Merck, Sharp & Dohme Corp. (Merck) filed a patent infringement action against Teva also in the SDNY relating to two U.S. Patents which claim crystalline or polymorph forms of efavirenz. In March 2010, Gilead filed two patent infringement actions against Teva in the SDNY relating to six Orange Book listed patents for ATRIPLA*. Discovery in these matters is ongoing. It is not possible at this time to reasonably assess the outcome of these lawsuits or their impact on the Company.
BARACLUDE
In August 2010, Teva filed an aNDA to manufacture and market generic versions of BARACLUDE. The Company received a Paragraph IV certification letter from Teva challenging the one Orange Book listed patent for BARACLUDE, U.S. Patent No. 5,206,244. In September 2010, the Company filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware against Teva for infringement of the listed patent covering BARACLUDE, which triggered an automatic 30-month stay of approval of Teva's aNDA. Discovery in this matter is ongoing. It is not possible at this time to reasonably assess the outcome of this lawsuit or its impact on the Company. A trial is currently scheduled for October 2012.
SPRYCEL
In September 2010, Apotex filed an aNDA to manufacture and market generic versions of SPRYCEL. The Company received a Paragraph IV certification letter from Apotex challenging the four Orange Book listed patents for SPRYCEL, including the composition of matter patent. In November 2010, the Company filed a patent infringement lawsuit in the NJ District Court against Apotex for infringement of the four Orange Book listed patents covering SPRYCEL, which triggered an automatic 30-month stay of approval of Apotex's aNDA. In October 2011, the Company received a Paragraph IV notice letter from Apotex informing the Company that it is seeking approval of generic versions of the 80 mg and 140 mg dosage strengths of SPRYCEL and challenging the same four Orange Book listed patents. In November 2011, BMS filed a patent infringement suit against Apotex on the 80 mg and 140 mg dosage strengths in the NJ District Court. This case has been consolidated with the suit filed in November 2010. Discovery in this matter is ongoing. It is not possible at this time to reasonably assess the outcome of this lawsuit or its impact on the Company.
SUSTIVA – EU
In January 2012, Teva obtained a European marketing authorization for Efavirenz Teva 600 mg tablets. In February 2012, the Company and Merck filed lawsuits and requests for injunctions against Teva in the Netherlands, Germany and the U.K. for infringement of Merck's European Patent No. 0582455 and Supplementary Protection Certificates expiring in November 2013. As of April 2012, requests for injunctions have been granted in the U.K. and denied in the Netherlands and Germany. It is not possible at this time to reasonably assess the outcome of these lawsuits or their impact on the Company.
GENERAL COMMERCIAL LITIGATION
Clayworth Litigation
As previously disclosed, the Company, together with a number of other pharmaceutical manufacturers, was named as a defendant in an action filed in California Superior Court in Oakland, James Clayworth et al. v. Bristol-Myers Squibb Company, et al., alleging that the defendants conspired to fix the prices of pharmaceuticals by agreeing to charge more for their drugs in the U.S. than they charge outside the U.S., particularly Canada, and asserting claims under California's Cartwright Act and unfair competition law. The plaintiffs sought trebled monetary damages, injunctive relief and other relief. In December 2006, the Court granted the Company and the other manufacturers' motion for summary judgment based on the pass-on defense, and judgment was then entered in favor of defendants. In July 2008, judgment in favor of defendants was affirmed by the California Court of Appeals. In July 2010, the California Supreme Court reversed the California Court of Appeal's judgment and the matter was remanded to the California Superior Court for further proceedings. In March 2011, the defendants' motion for summary judgment was granted and judgment was entered in favor of the defendants. Plaintiffs have appealed this decision.
Remaining Apotex Matters Related to PLAVIX*
As previously disclosed, in November 2008, Apotex filed a lawsuit in New Jersey Superior Court entitled, Apotex Inc., et al. v. sanofi-aventis, et al., seeking payment of $60 million, plus interest, related to the break-up of a March 2006 proposed settlement agreement relating to the-then pending Plavix patent litigation against Apotex. In April 2011, the New Jersey Superior Court granted the Company's cross-motion for summary judgment motion and denied Apotex's motion for summary judgment. Apotex has appealed these decisions. It is not possible at this time to determine the outcome of any appeal from the New Jersey Superior Court's decisions.
In January 2011, Apotex filed a lawsuit in Florida State Court, Broward County, alleging breach of contract relating to the May 2006 proposed settlement agreement with Apotex relating to the then pending Plavix patent litigation. Discovery is ongoing.
PRICING, SALES AND PROMOTIONAL PRACTICES LITIGATION AND INVESTIGATIONS
ABILIFY* Federal Subpoena
In January 2012, the Company received a subpoena from the United States Attorney's Office for the Southern District of New York requesting information related to, among other things, the sales and marketing of ABILIFY*. It is not possible at this time to assess the outcome of this matter or its potential impact on the Company.
ABILIFY* State Attorneys General Investigation
In March 2009, the Company received a letter from the Delaware Attorney General's Office advising of a multi-state coalition investigating whether certain ABILIFY* marketing practices violated those respective states' consumer protection statutes. It is not possible at this time to reasonably assess the outcome of this investigation or its potential impact on the Company.
ABILIFY* Co-Pay Assistance Litigation
In March 2012, the Company and its partner Otsuka were named as co-defendants in a private class action lawsuit filed by union health and welfare funds in the SDNY. Plaintiffs are challenging the legality of the ABILIFY* co-pay assistance program under the Federal Antitrust and the Racketeer Influenced and Corrupt Organizations laws, and seeking damages. It is not possible at this time to reasonably assess the outcome of this litigation or its potential impact on the Company.
AWP Litigation
As previously disclosed, the Company, together with a number of other pharmaceutical manufacturers, has been a defendant in a number of private class actions as well as suits brought by the attorneys general of various states. In these actions, plaintiffs allege that defendants caused the Average Wholesale Prices (AWPs) of their products to be inflated, thereby injuring government programs, entities and persons who reimbursed prescription drugs based on AWPs. The Company is a defendant in four state attorneys general suits pending in state courts around the country. Beginning in August 2010, the Company was the defendant in a trial in the Commonwealth Court of Pennsylvania (Commonwealth Court), brought by the Commonwealth of Pennsylvania. In September 2010, the jury issued a verdict for the Company, finding that the Company was not liable for fraudulent or negligent misrepresentation; however, the Commonwealth Court judge issued a decision on a Pennsylvania consumer protection claim that did not go to the jury, finding the Company liable for $28 million and enjoining the Company from contributing to the provision of inflated AWPs. The Company has moved to vacate the decision and the Commonwealth has moved for a judgment notwithstanding the verdict, which the Commonwealth Court denied. The Company and the Commonwealth have appealed the decision to the Pennsylvania Supreme Court. The Company is currently scheduled to proceed to trial in Mississippi in mid-2013.
Qui Tam Litigation
In March 2011, the Company was served with an unsealed qui tam complaint filed by three former sales representatives in California Superior Court, County of Los Angeles. The California Department of Insurance has elected to intervene in the lawsuit. The complaint alleges the Company paid kickbacks to California providers and pharmacies in violation of California Insurance Frauds Prevention Act, Cal. Ins. Code § 1871.7. It is not possible at this time to reasonably assess the outcome of this lawsuit or its impact on the Company.
PRODUCT LIABILITY LITIGATION
The Company is a party to various product liability lawsuits. As previously disclosed, in addition to lawsuits, the Company also faces unfiled claims involving its products.
PLAVIX*
As previously disclosed, the Company and certain affiliates of Sanofi are defendants in a number of individual lawsuits in various federal and state courts claiming personal injury damage allegedly sustained after using PLAVIX*. Currently, more than 1,000 claims are filed in state and Federal courts in various states including California, Illinois, New Jersey, New York, Ohio and Pennsylvania. The Company has also executed a tolling agreement with respect to unfiled claims by potential additional plaintiffs. It is not possible at this time to reasonably assess the outcome of these lawsuits or the potential impact on the Company.
REGLAN*
The Company is one of a number of defendants in numerous lawsuits, on behalf of approximately 2,500 plaintiffs, claiming personal injury allegedly sustained after using REGLAN* or another brand of the generic drug metoclopramide, a product indicated for gastroesophageal reflux and certain other gastrointestinal disorders. The Company, through its generic subsidiary, Apothecon, Inc., distributed metoclopramide tablets manufactured by another party between 1996 and 2000. It is not possible at this time to reasonably assess the outcome of these lawsuits or the potential impact on the Company.
Hormone Replacement Therapy
The Company is one of a number of defendants in a mass-tort litigation in which plaintiffs allege, among other things, that various hormone therapy products, including hormone therapy products formerly manufactured by the Company (ESTRACE*, Estradiol, DELESTROGEN* and OVCON*) cause breast cancer, stroke, blood clots, cardiac and other injuries in women, that the defendants were aware of these risks and failed to warn consumers. The Company has agreed to resolve the claims of approximately 400 plaintiffs. As of March 31, 2012, the Company remains a defendant in approximately 39 actively pending lawsuits in federal and state courts throughout the U.S. All of the Company's hormone therapy products were sold to other companies between January 2000 and August 2001.
ENVIRONMENTAL PROCEEDINGS
As previously reported, the Company is a party to several environmental proceedings and other matters, and is responsible under various state, federal and foreign laws, including the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), for certain costs of investigating and/or remediating contamination resulting from past industrial activity at the Company's current or former sites or at waste disposal or reprocessing facilities operated by third-parties.
CERCLA Matters
With respect to CERCLA matters for which the Company is responsible under various state, federal and foreign laws, the Company typically estimates potential costs based on information obtained from the U.S. Environmental Protection Agency, or counterpart state or foreign agency and/or studies prepared by independent consultants, including the total estimated costs for the site and the expected cost-sharing, if any, with other “potentially responsible parties,” and the Company accrues liabilities when they are probable and reasonably estimable. The Company estimated its share of future costs for these sites to be $72 million at March 31, 2012, which represents the sum of best estimates or, where no best estimate can reasonably be made, estimates of the minimal probable amount among a range of such costs (without taking into account any potential recoveries from other parties).
New Brunswick Facility – Environmental & Personal Injury Lawsuits
Since May 2008, over 250 lawsuits have been filed against the Company in New Jersey Superior Court by or on behalf of current and former residents of New Brunswick, New Jersey who live or have lived adjacent to the Company's New Brunswick facility. The complaints either allege various personal injuries damages resulting from alleged soil and groundwater contamination on their property stemming from historical operations at the New Brunswick facility, or are claims for medical monitoring. A portion of these complaints also assert claims for alleged property damage. In October 2008, the New Jersey Supreme Court granted Mass Tort status to these cases and transferred them to the New Jersey Superior Court in Atlantic County for centralized case management purposes. The Company intends to defend itself vigorously in this litigation. Discovery is ongoing. In October 2011, 50 additional cases were filed in New Jersey Superior Court and were successfully removed by the Company to United States District Court, District of New Jersey. It is not possible at this time to reasonably assess the outcome of these lawsuits or the potential impact on the Company.
North Brunswick Township Board of Education
As previously disclosed, in October 2003, the Company was contacted by counsel representing the North Brunswick, NJ Board of Education (BOE) regarding a site where waste materials from E.R. Squibb and Sons may have been disposed from the 1940's through the 1960's. Fill material containing industrial waste and heavy metals in excess of residential standards was discovered during an expansion project at the North Brunswick Township High School, as well as at a number of neighboring residential properties and adjacent public park areas. In January 2004, the New Jersey Department of Environmental Protection (NJDEP) sent the Company and others an information request letter about possible waste disposal at the site, to which the Company responded in March 2004. The BOE and the Township, as the current owners of the school property and the park, are conducting and jointly financing soil remediation work and ground water investigation work under a work plan approved by NJDEP, and have asked the Company to contribute to the cost. The Company is actively monitoring the clean-up project, including its costs. To date, neither the school board nor the Township has asserted any claim against the Company. Instead, the Company and the local entities have negotiated an agreement to attempt to resolve the matter by informal means, and avoid litigation. A central component of the agreement is the provision by the Company of interim funding to help defray cleanup costs and assure the work is not interrupted. The Company transmitted interim funding payments in December 2007 and November 2009. The parties commenced mediation in late 2008; however, those efforts were not successful and the parties moved to a binding allocation process. The parties are expected to conduct fact and expert discovery, followed by formal evidentiary hearings and written argument. Hearings likely will be scheduled for late 2012 or early 2013. In addition, in September 2009, the Township and BOE filed suits against several other parties alleged to have contributed waste materials to the site. The Company does not currently believe that it is responsible for any additional amounts beyond the two interim payments totaling $4 million already transmitted. Any additional possible loss is not expected to be material.
OTHER PROCEEDINGS
Italy Investigation
In July 2011, the Public Prosecutor in Florence, Italy (“Italian Prosecutor”) initiated a criminal investigation against the Company's subsidiary in Italy (“BMS Italy”). The allegations against the Company relate to alleged activities of a former employee who left the Company in the 1990s. The Italian Prosecutor has requested as an interim measure that a judicial administrator be appointed to temporarily run the operations of BMS Italy. This request is pending before the Florence Court. It is not possible at this time to assess the outcome of this investigation or its potential impact on the Company.
SEC Germany Investigation
As previously disclosed, in October 2006, the SEC informed the Company that it had begun a formal inquiry into the activities of certain of the Company's German pharmaceutical subsidiaries and its employees and/or agents. The SEC's inquiry encompasses matters formerly under investigation by the German prosecutor in Munich, Germany, which have since been resolved. The Company understands the inquiry concerns potential violations of the Foreign Corrupt Practices Act (FCPA). The Company is cooperating with the SEC.
FCPA Investigation
In March, 2012, the Company received a subpoena from the SEC. The subpoena, issued in connection with an investigation under the FCPA, primarily relates to sales and marketing practices in various countries. The Company is cooperating with the government in its investigation of these matters.
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Three Months Ended March 31, | ||||||
Dollars in Millions | 2012 | 2011 | ||||
PLAVIX* (clopidogrel bisulfate) | $ | 1,693 | $ | 1,762 | ||
AVAPRO*/AVALIDE* (irbesartan/irbesartan-hydrchlorothiazide) | 207 | 290 | ||||
ABILIFY* (aripiprazole) | 621 | 624 | ||||
REYATAZ (atazanavir sulfate) | 358 | 366 | ||||
SUSTIVA (efavirenz) Franchise | 386 | 343 | ||||
BARACLUDE (entecavir) | 325 | 275 | ||||
ERBITUX* (cetuximab) | 179 | 165 | ||||
SPRYCEL (dasatinib) | 231 | 172 | ||||
YERVOY (ipilimumab) | 154 | - | ||||
ORENCIA (abatacept) | 254 | 199 | ||||
NULOJIX (belatacept) | 1 | - | ||||
ONGLYZA/KOMBIGLYZE (saxagliptin/saxagliptin and metformin) | 161 | 81 | ||||
Mature Products and All Other | 681 | 734 | ||||
Net Sales | $ | 5,251 | $ | 5,011 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
BioPharmaceuticals segment income | $ | 1,402 | $ | 1,288 | |
Reconciling items: | |||||
Provision for restructuring | (22) | (44) | |||
Accelerated depreciation, asset impairment and other shutdown costs | - | (23) | |||
Process standardization implementation costs | (8) | (4) | |||
Litigation expense/(recoveries) | 172 | 102 | |||
Upfront, milestone and other licensing payments | - | (88) | |||
Intangible asset impairment | (96) | (15) | |||
Other | (31) | (26) | |||
Noncontrolling interest | 610 | 577 | |||
Earnings before income taxes | $ | 2,027 | $ | 1,767 |
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Three Months Ended March 31, | ||||||
Dollars in Millions | 2012 | 2011 | ||||
Territory covering the Americas and Australia: | ||||||
Net sales | $ | 1,817 | $ | 1,978 | ||
Royalty expense | 367 | 402 | ||||
Noncontrolling interest – pre-tax | 605 | 573 | ||||
Profit distributions to Sanofi | (609) | (599) | ||||
Territory covering Europe and Asia: | ||||||
Equity in net income of affiliates | (60) | (86) | ||||
Profit distributions to BMS | 67 | 60 | ||||
Other: | ||||||
Net sales in Europe comarketing countries and other | 83 | 74 | ||||
Amortization (income)/expense – irbesartan license fee | (8) | (8) | ||||
Supply activities and development and opt-out royalty (income)/expense | (6) | 14 | ||||
March 31, | December 31, | |||||
Dollars in Millions | 2012 | 2011 | ||||
Investment in affiliates – territory covering Europe and Asia | $ | 30 | $ | 37 | ||
Deferred income – irbesartan license fee | 21 | 29 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Net sales | $ | 319 | $ | 379 | |
Gross profit | 138 | 168 | |||
Net income | 122 | 140 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
ABILIFY* net sales, including amortization of extension payment | $ | 621 | $ | 624 | |
Oncology Products collaboration fee expense | 32 | 33 | |||
Royalty expense | 17 | 16 | |||
Reimbursement of operating expenses to/(from) Otsuka | (24) | (22) | |||
Amortization (income)/expense – extension payment | 16 | 16 | |||
Amortization (income)/expense – upfront, milestone and other licensing payments | 2 | 2 | |||
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Other assets - extension payment | $ | 203 | $ | 219 | |
Other intangible assets - upfront, milestone and other licensing payments | 3 | 5 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Net sales | $ | 179 | $ | 165 | |
Distribution fees and royalty expense | 74 | 69 | |||
Research and development expense reimbursement to Lilly – necitumumab | 1 | 2 | |||
Amortization (income)/expense – upfront, milestone and other licensing payments | 10 | 10 | |||
Japan commercialization fee (income)/expense | (6) | (9) | |||
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Other intangible assets – upfront, milestone and other licensing payments | $ | 239 | $ | 249 |
Three Months Ended March 31, | ||||||
Dollars in Millions | 2012 | 2011 | ||||
Net sales | $ | 322 | $ | 271 | ||
Equity in net loss of affiliates | 4 | 5 |
Three Months Ended March 31, | ||||||
Dollars in Millions | 2012 | 2011 | ||||
Net sales | $ | 161 | $ | 81 | ||
Profit sharing expense | 73 | 38 | ||||
Commercialization expense reimbursements to/(from) AstraZeneca | (12) | (9) | ||||
Research and development expense reimbursements to/(from) AstraZeneca | 4 | 14 | ||||
Amortization (income)/expense – upfront, milestone and other licensing payments | (10) | (8) | ||||
March 31, | December 31, | |||||
Dollars in Millions | 2012 | 2011 | ||||
Deferred income – upfront, milestone and other licensing payments | ||||||
Saxagliptin | $ | 224 | $ | 230 | ||
Dapagliflozin | 138 | 142 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Commercialization expense reimbursement to/(from) Pfizer | $ | (5) | $ | (1) | |
Research and development reimbursements to/(from) Pfizer | 2 | (29) | |||
Amortization (income)/expense – upfront, milestone and other licensing payments | (10) | (8) | |||
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Deferred income – upfront, milestone and other licensing payments | $ | 424 | $ | 434 |
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Purchase price: | Dollars in Millions | |
Cash | $ | 2,539 |
Identifiable net assets: | ||
Cash | 46 | |
Marketable securities | 17 | |
In-process research and development (IPRD) | 1,875 | |
Accounts payable | (23) | |
Accrued expenses | (10) | |
Deferred income taxes | (579) | |
Total identifiable net assets | 1,326 | |
Goodwill | $ | 1,213 |
|
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Employee termination benefits | $ | 19 | $ | 43 | |
Other exit costs | 3 | 1 | |||
Provision for restructuring | $ | 22 | $ | 44 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Liability at January 1 | $ | 77 | $ | 126 | |
Charges | 22 | 43 | |||
Changes in estimates | - | 1 | |||
Provision for restructuring | 22 | 44 | |||
Spending | (21) | (35) | |||
Liability at March 31 | $ | 78 | $ | 135 |
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Three Months Ended March 31, | |||||||
Amounts in Millions, Except Per Share Data | 2012 | 2011 | |||||
Net Earnings Attributable to BMS | $ | 1,101 | $ | 986 | |||
Earnings attributable to unvested restricted shares | (1) | (2) | |||||
Net Earnings Attributable to BMS common shareholders | $ | 1,100 | $ | 984 | |||
Earnings per share - basic | $ | 0.65 | $ | 0.58 | |||
Weighted-average common shares outstanding - basic | 1,687 | 1,702 | |||||
Contingently convertible debt common stock equivalents | 1 | 1 | |||||
Incremental shares attributable to share-based compensation plans | 18 | 11 | |||||
Weighted-average common shares outstanding - diluted | 1,706 | 1,714 | |||||
Earnings per share - diluted | $ | 0.64 | $ | 0.57 | |||
Anti-dilutive weighted-average equivalent shares - stock incentive plans | 7 | 43 |
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Gross | Gross | ||||||||||||||||||||||||
Unrealized | Unrealized | ||||||||||||||||||||||||
Gain in | Loss in | Gain/(Loss) | |||||||||||||||||||||||
Amortized | Accumulated | Accumulated | in | Fair | Fair Value | ||||||||||||||||||||
Dollars in Millions | Cost | OCI | OCI | Income | Value | Level 1 | Level 2 | Level 3 | |||||||||||||||||
March 31, 2012 | |||||||||||||||||||||||||
Marketable Securities | |||||||||||||||||||||||||
Certificates of Deposit | $ | 650 | $ | - | $ | - | $ | - | $ | 650 | $ | - | $ | 650 | $ | - | |||||||||
Corporate Debt Securities | 4,067 | 60 | (5) | - | 4,122 | - | 4,122 | - | |||||||||||||||||
Commercial Paper | 952 | - | - | - | 952 | - | 952 | - | |||||||||||||||||
U.S. Treasury Securities | 150 | 2 | - | - | 152 | 152 | - | - | |||||||||||||||||
FDIC Insured Debt Securities | 301 | 1 | - | - | 302 | - | 302 | - | |||||||||||||||||
Equity Funds | 50 | - | - | 5 | 55 | - | 55 | - | |||||||||||||||||
Fixed Income Funds | 45 | - | - | - | 45 | - | 45 | - | |||||||||||||||||
ARS | 9 | 1 | - | - | 10 | - | - | 10 | |||||||||||||||||
FRS | 21 | - | (2) | - | 19 | - | - | 19 | |||||||||||||||||
Total Marketable Securities | $ | 6,245 | $ | 64 | $ | (7) | $ | 5 | $ | 6,307 | $ | 152 | $ | 6,126 | $ | 29 | |||||||||
December 31, 2011 | |||||||||||||||||||||||||
Marketable Securities | |||||||||||||||||||||||||
Certificates of Deposit | $ | 1,051 | $ | - | $ | - | $ | - | $ | 1,051 | $ | - | $ | 1,051 | $ | - | |||||||||
Corporate Debt Securities | 2,908 | 60 | (3) | - | 2,965 | - | 2,965 | - | |||||||||||||||||
Commercial Paper | 1,035 | - | - | - | 1,035 | - | 1,035 | - | |||||||||||||||||
U.S. Treasury Securities | 400 | 2 | - | - | 402 | 402 | - | - | |||||||||||||||||
FDIC Insured Debt Securities | 302 | 1 | - | - | 303 | - | 303 | - | |||||||||||||||||
ARS | 80 | 12 | - | - | 92 | - | - | 92 | |||||||||||||||||
FRS | 21 | - | (3) | - | 18 | - | - | 18 | |||||||||||||||||
Total Marketable Securities | $ | 5,797 | $ | 75 | $ | (6) | $ | - | $ | 5,866 | $ | 402 | $ | 5,354 | $ | 110 |
March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Current Marketable Securities | $ | 2,722 | $ | 2,957 | |
Non-current Marketable Securities | 3,585 | 2,909 | |||
Total Marketable Securities | $ | 6,307 | $ | 5,866 |
2012 | 2011 | |||||
Fair value at January 1 | $ | 110 | $ | 110 | ||
Sales | (81) | 0 | ||||
Fair value at March 31 | $ | 29 | $ | 110 |
March 31, 2012 | December 31, 2011 | |||||||||||||
Fair Value | Fair Value | |||||||||||||
Dollars in Millions | Balance Sheet Location | Notional | (Level 2) | Notional | (Level 2) | |||||||||
Derivatives designated as hedging instruments: | ||||||||||||||
Interest rate swap contracts | Other assets | $ | 573 | $ | 115 | $ | 579 | $ | 135 | |||||
Foreign currency forward contracts | Other assets | 1,392 | 69 | 1,347 | 88 | |||||||||
Foreign currency forward contracts | Accrued expenses | 187 | (3) | 480 | (29) |
March 31, | December 31, | |||||
Dollars in Millions | 2012 | 2011 | ||||
Principal Value | $ | 4,611 | $ | 4,669 | ||
Adjustments to Principal Value: | ||||||
Fair value of interest rate swaps | 115 | 135 | ||||
Unamortized basis adjustment from swap terminations | 566 | 594 | ||||
Unamortized bond discounts | (22) | (22) | ||||
Total | $ | 5,270 | $ | 5,376 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Principal amount | $ | 80 | $ | 50 | |
Repurchase price | 109 | 54 | |||
Notional amount of interest rate swaps terminated | 6 | 24 | |||
Swap termination proceeds | 2 | 4 | |||
Total (gain)/loss | 19 | (8) |
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March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Trade receivables | $ | 2,403 | $ | 2,397 | |
Less allowances | (152) | (147) | |||
Net trade receivables | 2,251 | 2,250 | |||
Alliance partners receivables | 939 | 1,081 | |||
Prepaid and refundable income taxes | 244 | 256 | |||
Miscellaneous receivables | 179 | 156 | |||
Receivables | $ | 3,613 | $ | 3,743 |
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March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Finished goods | $ | 501 | $ | 478 | |
Work in process | 721 | 646 | |||
Raw and packaging materials | 241 | 260 | |||
Inventories | $ | 1,463 | $ | 1,384 |
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March 31, | December 31, | ||||
Dollars in Millions | 2012 | 2011 | |||
Land | $ | 111 | $ | 137 | |
Buildings | 4,592 | 4,545 | |||
Machinery, equipment and fixtures | 3,459 | 3,437 | |||
Construction in progress | 283 | 262 | |||
Gross property, plant and equipment | 8,445 | 8,381 | |||
Less accumulated depreciation | (3,933) | (3,860) | |||
Property, plant and equipment | $ | 4,512 | $ | 4,521 |
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Dollars in Millions | |||
Balance at January 1, 2012 | $ | 5,586 | |
Inhibitex acquisition (Note 4) | 1,213 | ||
Balance at March 31, 2012 | $ | 6,799 |
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Capital in Excess | ||||||||||||||||||
Common Stock | of Par Value | Retained | Treasury Stock | Noncontrolling | ||||||||||||||
Dollars and Shares in Millions | Shares | Par Value | of Stock | Earnings | Shares | Cost | Interest | |||||||||||
Balance at January 1, 2011 | 2,205 | $ | 220 | $ | 3,682 | $ | 31,636 | 501 | $ | (17,454) | $ | (75) | ||||||
Net earnings attributable to BMS | - | - | - | 986 | - | - | - | |||||||||||
Cash dividends declared | - | - | - | (567) | - | - | - | |||||||||||
Stock repurchase program | - | - | - | - | 5 | (138) | - | |||||||||||
Employee stock compensation plans | - | - | (246) | - | (7) | 293 | - | |||||||||||
Net earnings attributable to noncontrolling | ||||||||||||||||||
interest | - | - | - | - | - | - | 577 | |||||||||||
Distributions | - | - | - | - | - | - | (599) | |||||||||||
Balance at March 31, 2011 | 2,205 | $ | 220 | $ | 3,436 | $ | 32,055 | 499 | $ | (17,299) | $ | (97) | ||||||
Balance at January 1, 2012 | 2,205 | $ | 220 | $ | 3,114 | $ | 33,069 | 515 | $ | (17,402) | $ | (89) | ||||||
Net earnings attributable to BMS | - | - | - | 1,101 | - | - | - | |||||||||||
Cash dividends declared | - | - | - | (575) | - | - | - | |||||||||||
Stock repurchase program | - | - | - | - | 10 | (323) | - | |||||||||||
Employee stock compensation plans | 1 | 1 | (289) | - | (8) | 439 | - | |||||||||||
Net earnings attributable to noncontrolling | ||||||||||||||||||
interest | - | - | - | - | - | - | 607 | |||||||||||
Distributions | - | - | - | - | - | - | (609) | |||||||||||
Balance at March 31, 2012 | 2,206 | $ | 221 | $ | 2,825 | $ | 33,595 | 517 | $ | (17,286) | $ | (91) |
Foreign | Derivatives | Pension and Other | Available | Accumulated Other | ||||||||||
Currency | Qualifying as | Postretirement | for | Comprehensive | ||||||||||
Dollars in Millions | Translation | Effective Hedges | Benefits | Sale Securities | Income/(Loss) | |||||||||
Balance at January 1, 2011 | $ | (222) | $ | (20) | $ | (2,163) | $ | 34 | $ | (2,371) | ||||
Other comprehensive income/(loss) | (40) | (25) | 19 | 3 | (43) | |||||||||
Balance at March 31, 2011 | $ | (262) | $ | (45) | $ | (2,144) | $ | 37 | $ | (2,414) | ||||
Balance at January 1, 2012 | $ | (238) | $ | 36 | $ | (2,905) | $ | 62 | $ | (3,045) | ||||
Other comprehensive income/(loss) | 3 | (1) | 38 | (13) | 27 | |||||||||
Balance at March 31, 2012 | $ | (235) | $ | 35 | $ | (2,867) | $ | 49 | $ | (3,018) |
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Three Months Ended March 31, | |||||||||||
Pension Benefits | Other Benefits | ||||||||||
Dollars in Millions | 2012 | 2011 | 2012 | 2011 | |||||||
Service cost — benefits earned during the year | $ | 10 | $ | 10 | $ | 2 | $ | 2 | |||
Interest cost on projected benefit obligation | 79 | 84 | 6 | 7 | |||||||
Expected return on plan assets | (126) | (115) | (6) | (7) | |||||||
Amortization of prior service cost/(benefit) | - | - | (1) | (1) | |||||||
Amortization of net actuarial loss | 33 | 28 | 3 | 2 | |||||||
Curtailments | - | (1) | - | - | |||||||
Settlements | - | (2) | - | - | |||||||
Net periodic benefit cost | $ | (4) | $ | 4 | $ | 4 | $ | 3 |
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Three Months Ended March 31, | |||||
Dollars in Millions | 2012 | 2011 | |||
Stock options | $ | 3 | $ | 6 | |
Restricted stock | 19 | 18 | |||
Market share units | 6 | 6 | |||
Long-term performance awards | 14 | 8 | |||
Total stock-based compensation expense | $ | 42 | $ | 38 | |
Deferred tax benefit related to stock-based compensation expense | $ | 14 | $ | 13 |
Long-Term | |||||||||||
Stock | Restricted | Market | Performance | ||||||||
Dollars in Millions | Options | Stock | Share Units | Awards | |||||||
Unrecognized compensation cost | $ | 9 | $ | 202 | $ | 54 | $ | 68 | |||
Expected weighted-average period in years of compensation cost to be recognized | 0.9 | 3.1 | 3.4 | 1.6 |
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