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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, 2013 and December 31, 2012, and the results of operations and cash flows for the three months ended March 31, 2013 and 2012. 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, 2012 included in the Annual Report on Form 10-K.
Certain prior period amounts have been reclassified to conform to the current period presentation. The presentation of depreciation and amortization in the consolidated statements of cash flows includes the depreciation of property, plant and equipment, the amortization of intangible assets and deferred income. The provision for restructuring, equity in net income of affiliates, and litigation expense, net, previously presented separately on the consolidated statements of earnings, are currently presented as components of other (income)/expense.
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. The most significant assumptions are employed in estimates used in determining the fair value and potential impairment of intangible assets; sales rebate and return accruals; legal contingencies; income taxes; and pension and postretirement benefits. 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 supply chain organization are utilized and responsible for the development and delivery of products to the market. Regional commercial organizations are used to distribute and sell the product. The business is also supported by global corporate staff functions. Segment information 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.
Net sales of key products were as follows:
Three Months Ended March 31, | ||||||
Dollars in Millions | 2013 | 2012 | ||||
Virology | ||||||
Baraclude (entecavir) | $ | 366 | $ | 325 | ||
Reyataz (atazanavir sulfate) | 361 | 358 | ||||
Sustiva (efavirenz) Franchise | 387 | 386 | ||||
Oncology | ||||||
Erbitux* (cetuximab) | 162 | 179 | ||||
Sprycel (dasatinib) | 287 | 231 | ||||
Yervoy (ipilimumab) | 229 | 154 | ||||
Neuroscience | ||||||
Abilify* (aripiprazole) | 522 | 621 | ||||
Metabolics | ||||||
Bydureon* (exenatide extended-release for injectable suspension) | 52 | N/A | ||||
Byetta* (exenatide) | 85 | N/A | ||||
Forxiga (dapagliflozin) | 3 | N/A | ||||
Onglyza/Kombiglyze (saxagliptin/saxagliptin and metformin) | 202 | 161 | ||||
Immunoscience | ||||||
Nulojix (belatacept) | 5 | 1 | ||||
Orencia (abatacept) | 320 | 254 | ||||
Cardiovascular | ||||||
Avapro*/Avalide* (irbesartan/irbesartan-hydrochlorothiazide) | 46 | 207 | ||||
Eliquis (apixaban) | 22 | - | ||||
Plavix* (clopidogrel bisulfate) | 91 | 1,693 | ||||
Mature Products and All Other | 691 | 681 | ||||
Net Sales | $ | 3,831 | $ | 5,251 |
* Indicates brand names of products which are trademarks not owned or wholly owned by BMS. Specific trademark ownership information can be found at the end of this quarterly report on Form 10-Q.
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Note 3. ALLIANCES AND COLLABORATIONS
BMS enters into alliance and collaboration arrangements with third parties for the development and commercialization of certain products. Both parties are active participants in the alliance operating activities and 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 marketed product or multiple compounds and/or products in various life cycle stages.
When BMS is the principal in the customer sale, 100% of product sales are recognized. Otherwise, only BMS's contractual share of alliance revenue is reported in net sales.
Payments between collaboration partners are presented in operating results based on the nature of the arrangement, including its contractual terms, the nature of the payments and the applicable accounting guidance. Upfront and contingent milestone payments made prior to product approval are immediately expensed and those payments made after product approval are amortized over the shorter of the contractual term or estimated life of the product. Upfront and contingent milestones received are amortized over the shorter of the contractual term or estimated life of the product. Other activities between BMS and its collaboration partners are presented in operating results as follows:
All payments between BMS and its collaboration partners are presented in cash flows from operating activities, including profit distributions when the activities are conducted through a separate and distinct legal entity or partnership.
See the 2012 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.
Otsuka
BMS has a worldwide commercialization agreement, excluding certain Asian countries, with Otsuka Pharmaceutical Co., Ltd. (Otsuka), to codevelop and copromote Abilify*, for the treatment of schizophrenia, bipolar mania disorder and major depressive disorder. The U.S. portion of the commercialization and manufacturing agreement was amended in 2009 and further amended in 2012, and it expires upon the expected loss of product exclusivity in April 2015. The agreement expires in all EU countries in June 2014 and in each other non-U.S. country where we have the exclusive right to sell Abilify*, the agreement expires on the later of April 20, 2015 or loss of exclusivity in any such country.
Otsuka is the principal in most third-party net sales. Therefore, net sales recognized for Abilify* include only BMS's contractual share of total net sales to third party customers. In the U.S., BMS's contractual share was 51.5% in 2012. Beginning January 1, 2013, BMS's contractual share changed to the percentages of total U.S. net sales set forth in the table below. BMS recognizes revenue based on the weighted-average forecast of expected annual sales (currently estimated at 35%).
Share as a % of U.S. Net | |
Sales | |
$0 to $2.7 billion | 50% |
$2.7 billion to $3.2 billion | 20% |
$3.2 billion to $3.7 billion | 7% |
$3.7 billion to $4.0 billion | 2% |
$4.0 billion to $4.2 billion | 1% |
In excess of $4.2 billion | 20% |
In the United Kingdom, Germany, France, Spain, and beginning on March 1, 2013 in Italy, BMS's contractual share of third-party net sales is 65%. 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. BMS recognizes all of the net sales in certain countries where it is the exclusive distributor for the product or has an exclusive right to sell Abilify*.
BMS purchases the active pharmaceutical ingredient from Otsuka and completes the manufacture of the product for sale to third-party customers by BMS or Otsuka. Under the terms of the 2009 U.S. amendment, BMS paid Otsuka $400 million in 2009, 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, which is included in cost of products sold. Otsuka was responsible for 30% of the U.S. expenses related to the commercialization of Abilify* from 2010 through 2012. Under the 2012 U.S. amendment, Otsuka assumed responsibility for providing and funding all sales force efforts effective January 2013. In consideration, BMS paid Otsuka $27 million in January 2013, and will be responsible for funding certain operating expenses up to $82 million in 2013, $56 million in 2014 and $8 million in 2015. In the EU, Otsuka reimbursed BMS for the sales force effort it provided through March 31, 2013. Otsuka assumed responsibility for providing and funding sales force efforts in the EU effective April 2013.
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). A collaboration fee, included in cost of products sold, is paid to Otsuka based on the following percentages of annual net sales of Sprycel and Ixempra
% of Net Sales | |||
2010 - 2012 | 2013 - 2020 | ||
$0 to $400 million | 30% | 65% | |
$400 million to $600 million | 5% | 12% | |
$600 million to $800 million | 3% | 3% | |
$800 million to $1.0 billion | 2% | 2% | |
In excess of $1.0 billion | 1% | 1% |
During these periods, Otsuka contributes 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 | 2013 | 2012 | ||||
Abilify* | net sales, net of amortization of extension payment | $ | 522 | $ | 621 | |
Oncology Products collaboration fee expense | 70 | 32 | ||||
Royalty expense | 17 | 17 | ||||
Reimbursement of operating expenses to/(from) Otsuka | (6) | (24) | ||||
Amortization (income)/expense – extension payment | 16 | 16 | ||||
Amortization (income)/expense – upfront, milestone and other licensing payments | - | 2 | ||||
March 31, | December 31, | |||||
Dollars in Millions | 2013 | 2012 | ||||
Other assets - extension payment | $ | 137 | $ | 153 |
AstraZeneca
BMS and AstraZeneca have a diabetes alliance consisting of three worldwide codevelopment and commercialization agreements. One collaboration covers Onglyza, Kombiglyze XR (saxagliptin and metformin hydrochloride extended-release), and Komboglyze (saxagliptin and metformin immediate-release marketed in the EU); a second collaboration covers Forxiga; and a third collaboration, entered into during August 2012, covers Amylin's portfolio of products (Bydureon*, Byetta*, Symlin* (pramlintide acetate) and metreleptin, which is currently in development). The agreements for saxagliptin exclude Japan. In this document unless specifically noted, we refer to both Kombiglyze and Komboglyze as Kombiglyze. Onglyza and Forxiga were discovered by BMS. Kombiglyze was codeveloped with AstraZeneca. Bydureon*, Byetta*, Symlin* and metreleptin were discovered by Amylin, LLC (Amylin), a wholly-owned subsidiary of BMS since August 2012.
BMS is the principal in third party customer net sales. 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, with the exception of Forxiga development costs in Japan, which are borne by AstraZeneca.
In 2012, BMS received preliminary proceeds of $3.6 billion from AstraZeneca as consideration for entering into the Amylin-related collaboration including $73 million included in accrued expenses that is expected to be reimbursed back to AstraZeneca in the second quarter of 2013. The remaining $3.5 billion is accounted for as deferred income and amortized as a reduction to cost of products sold on a pro-rata basis over the estimated useful lives of the related long-lived assets assigned in the purchase price allocation (primarily intangible assets with a weighted-average estimated useful life of 12 years and property, plant and equipment with a weighted-average estimated useful life of 15 years). The net proceeds that BMS received from AstraZeneca as consideration for entering into the collaboration are subject to certain adjustments including the right to receive an additional $135 million when AstraZeneca exercises its option for equal governance rights over certain key strategic and financial decisions regarding the collaboration, which it has indicated it intends to do pending required anti-trust approvals in certain international markets. BMS is entitled to reimbursements for 50% of capital expenditures related to Amylin. BMS and AstraZeneca agreed to share in certain tax attributes related to the Amylin collaboration. The preliminary proceeds of $3.6 billion that BMS received from AstraZeneca included $207 million related to sharing of certain tax attributes.
With respect to the other collaborations, BMS has received $300 million in upfront, milestone and other licensing payments related to saxagliptin to date and could receive up to an additional $300 million for sales-based milestones. BMS has also received $250 million in upfront, milestone and other licensing payments related to dapagliflozin to date, and could potentially receive up to an additional $150 million for development and regulatory milestones and up to an additional $390 million for sales-based milestones.
Summarized financial information related to these alliances is as follows:
Three Months Ended March 31, | ||||||
Dollars in Millions | 2013 | 2012 | ||||
Net sales | $ | 358 | $ | 161 | ||
Profit sharing expense | 146 | 73 | ||||
Commercialization expense reimbursements to/(from) AstraZeneca | (57) | (12) | ||||
Research and development expense reimbursements to/(from) AstraZeneca | (17) | 4 | ||||
Amortization (income)/expense – upfront, milestone and other licensing receipts recognized in: | ||||||
Cost of products sold | (75) | - | ||||
Other (income)/expense | (7) | (10) | ||||
Upfront, milestone and other licensing receipts: | ||||||
Dapagliflozin | 80 | - | ||||
March 31, | December 31, | |||||
Dollars in Millions | 2013 | 2012 | ||||
Deferred income – upfront, milestone and other licensing receipts | ||||||
Amylin-related products | $ | 3,352 | $ | 3,423 | ||
Saxagliptin | 204 | 208 | ||||
Dapagliflozin | 203 | 206 |
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 recognized for Atripla* include only the bulk efavirenz component of Atripla*. They are deferred until the combined product is sold to third-party customers and 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 | 2013 | 2012 | ||||
Net sales | $ | 324 | $ | 322 | ||
Equity in net loss of affiliates | 4 | 4 |
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* 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. BMS is the principal in third party customer sales. 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.
In March 2013, the Company and Lilly terminated the global codevelopment and cocommercialization arrangement for necitumumab (IMC-11F8), with all rights returning to Lilly. Discovered by ImClone, necitumumab is a fully human monoclonal antibody being investigated as an anticancer treatment and was part of the alliance between the Company and Lilly.
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 | 2013 | 2012 | |||
Net sales | $ | 162 | $ | 179 | |
Distribution fees and royalty expense | 67 | 74 | |||
Research and development expense reimbursement to Lilly – necitumumab | - | 1 | |||
Amortization (income)/expense – upfront, milestone and other licensing payments | 9 | 10 | |||
Japan commercialization fee (income)/expense | (4) | (6) | |||
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Other intangible assets – upfront, milestone and other licensing payments | $ | 202 | $ | 211 |
Prior to BMS's acquisition of Amylin on August 8, 2012, Amylin had entered into a settlement and termination agreement with Lilly regarding their collaboration for the global development and commercialization of Byetta* and Bydureon* (exenatide products) under which the parties agreed to transition full responsibility of these products to Amylin. The transition of the U.S. operations was completed by the time of the acquisition. The transition of non-U.S. operations of the exenatide products in a majority of markets was completed on April 1, 2013 terminating Lilly's exclusive right to non-U.S. commercialization of the exenatide products. BMS is responsible for any non-U.S. losses incurred by Lilly during 2012 and 2013 up to a maximum of $60 million.
Sanofi
In September 2012, BMS and Sanofi restructured the terms of the codevelopment and cocommercialization agreements for Plavix*, a platelet aggregation inhibitor, and Avapro*/Avalide*, an angiotension II receptor antagonist indicated for the treatment of hypertension and diabetic nephropathy. Effective January 1, 2013, Sanofi assumed essentially all of the worldwide operations of the alliance with the exception of Plavix* in the U.S. and Puerto Rico. The alliance for Plavix* in these two markets will continue unchanged through December 2019 under the same terms as in the original alliance arrangements described below. In exchange for the rights being assumed by Sanofi, BMS will receive quarterly royalties from January 1, 2013 until December 31, 2018 and a terminal payment from Sanofi of $200 million at the end of 2018.
Beginning in 2013, all royalties received from Sanofi in the territory covering the Americas and Australia, opt-out markets, and former comarketing countries discussed below are presented in net sales, including $51 million in the three months ended March 31, 2013. Development and opt-out royalties were recognized in other (income)/expense in 2012. Royalties attributed to the territory covering Europe and Asia continue to be earned by the territory partnership and are included in equity in net income of affiliates. Additionally, equity in net income of affiliates for the three months ended March 31, 2013 includes $22 million of profit that was deferred prior to the restructuring of the agreement. Net sales attributed to the supply of irbesartan active pharmaceutical ingredient to Sanofi were $18 million and $38 million for the three months ended March 31, 2013 and 2012, respectively. The supply arrangement expires in 2015.
Prior to the restructuring, BMS's worldwide alliance with Sanofi for the codevelopment and cocommercialization of Avapro*/Avalide* and Plavix* operated 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. These two territory partnerships managed central expenses, such as marketing, research and development and royalties, and supply of finished product to individual countries. BMS acted as the operating partner and owned 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 also recognized net sales in comarketing countries outside this territory (e.g., Germany, Italy for irbesartan only, Spain and Greece). Sanofi acted as the operating partner and owned a 50.1% majority controlling interest in the territory covering Europe and Asia and BMS has a 49.9% ownership interest in this territory.
Summarized financial information related to this alliance is as follows:
Three Months Ended March 31, | ||||||
Dollars in Millions | 2013 | 2012 | ||||
Net sales | $ | 137 | $ | 1,900 | ||
Royalty expense | 2 | 367 | ||||
Equity in net income of affiliates | (40) | (60) | ||||
Other (income)/expense | (10) | (14) | ||||
Noncontrolling interest – pre-tax | 24 | 605 | ||||
Distributions to Sanofi | - | 609 | ||||
Distributions to BMS | 31 | 67 | ||||
March 31, | December 31, | |||||
Dollars in Millions | 2013 | 2012 | ||||
Investment in affiliates – territory covering Europe and Asia | $ | 18 | $ | 9 | ||
Noncontrolling interest | (6) | (30) |
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 | 2013 | 2012 | |||
Net sales | $ | 49 | $ | 319 | |
Gross profit | 37 | 138 | |||
Net income | 36 | 122 |
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. Eliquis was approved in the European Union in November 2012 and in the U.S. and Japan in December 2012 to reduce the risk of stroke and systemic embolism in patients with nonvalvular atrial fibrillation (NVAF). 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 BMS compensation based on a percentage of net sales. BMS manufactures the product and is the principal in third party customer sales.
BMS received $684 million in upfront, milestone and other licensing payments for Eliquis to date, and could receive up to an additional $200 million for development and regulatory milestones.
Summarized financial information related to this alliance is as follows:
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Net sales | $ | 22 | $ | - | |
Profit sharing expense | 10 | - | |||
Commercialization expense reimbursement to/(from) Pfizer | (12) | (5) | |||
Research and development reimbursements to/(from) Pfizer | 7 | 2 | |||
Amortization (income)/expense – upfront, milestone and other licensing receipts | (10) | (10) | |||
Upfront, milestone and other licensing receipts | 125 | - | |||
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Deferred income – upfront, milestone and other licensing receipts | $ | 512 | $ | 397 |
The Medicines Company
In February 2013, BMS and The Medicines Company entered into a two year collaboration for Recothrom, a recombinant thrombin for use as a topical hemostat to control non-arterial bleeding during surgical procedures (previously acquired by BMS in connection with its acquisition of ZymoGenetics in 2010). Net sales of Recothrom were $67 million in 2012. In connection with the collaboration, The Medicines Company received the right to sell, distribute and market Recothrom on a global basis for two years, and will have certain responsibilities related to regulatory matters. During the collaboration term, BMS will exclusively supply Recothrom to The Medicines Company pursuant to a supply agreement at cost plus a markup and will also receive royalties equal to a tiered percentage of net sales of Recothrom. Certain employees directly attributed to the business and certain assets were transferred to The Medicines Company at the start of the collaboration period, including the Recothrom Biologics License Application and related regulatory assets. BMS retained all other assets related to Recothrom including the patents, trademarks and inventory.
As part of the agreement, BMS granted The Medicines Company an option to acquire the patents, trademarks, inventory and certain other assets exclusively related to Recothrom at a price determined based on a multiple of sales plus the cost of any remaining inventory held by BMS at that time. If the option is not exercised, all assets previously transferred to The Medicines Company during the collaboration period revert back to BMS. The option may be exercised by The Medicines Company between February and August 2014, with closing to occur in February 2015.
As consideration for entering into the collaboration, BMS received $115 million at the start of the collaboration which was allocated to the license and other rights transferred to The Medicines Company ($80 million) and the fair value of the option to purchase the remaining assets at the end of the collaboration ($35 million). The allocation was based on the estimated fair value of the option after considering various market factors, including an analysis of any estimated excess of the fair value of the business over the potential purchase price if the option is exercised. The fair value of the option was determined using Level 3 inputs and recorded as a liability. Changes in the estimated fair value of the option liability are recognized in other (income)/expense and were not material in the three months ended March 31, 2013. The remaining $80 million will be recognized as alliance revenue throughout the term of the collaboration, of which $7 million was recognized during the three months ended March 31, 2013.
BMS will also recognize alliance revenue during the collaboration period for tiered royalties and supply of product. BMS will provide certain information technology, regulatory, order processing, distribution and other transitional services in exchange for a fee during a period up to six months commencing at the start of the collaboration. Alliance revenue related to tiered royalties, product supply and other services were not material in the three months ended March 31, 2013.
Valeant
In October 2012, BMS and PharmaSwiss SA, a wholly-owned subsidiary of Valeant Pharmaceuticals International Inc. (Valeant) entered into a collaboration for certain mature brand products in Europe. In connection with the collaboration, Valeant received the right to sell, distribute, and market the products in Europe through December 31, 2014 and will have certain responsibilities related to regulatory matters in the covered territory. During the collaboration term, BMS will exclusively supply the products to Valeant pursuant to a supply agreement at cost plus a markup.
As part of the agreement, BMS granted Valeant an option to acquire the trademarks and intellectual property exclusively related to the products at a price determined based on a multiple of sales. If the right is not exercised, all rights transferred to Valeant during the collaboration period revert back to BMS. The option may be exercised by Valeant between January and June 2014, with closing to occur in December 2014.
As consideration for entering into the collaboration, BMS received $79 million at the start of the collaboration period which was allocated to the license and other rights transferred to Valeant ($61 million) and the fair value of the option to purchase the remaining assets at the end of the collaboration ($18 million). The allocation was based on the estimated fair value of the option after considering various market factors, including an analysis of any estimated excess of the fair value of the mature brands business over the potential purchase price if the option to purchase is exercised at December 31, 2014. The fair value of the option was determined using Level 3 inputs and recorded as a liability. Changes in the estimated fair value of the option liability are recognized in other (income)/expense and were not material for the three months ended March 31, 2013. The remaining $61 million will be recognized as alliance revenue throughout the term of the collaboration of which $7 million was recognized during the three months ended March 31, 2013.
BMS will also recognize revenue during the collaboration period for the supply of the product, and provide certain information technology, regulatory, order processing, distribution and other transitional services in exchange for a fee during the first six months of the collaboration. Alliance revenue related to product supply and other services were not material in the three months ended March 31, 2013.
Reckitt Benckiser Group plc
In February 2013, BMS and Reckitt Benckiser Group plc (RBL) agreed to enter into a three year collaboration regarding several over-the-counter-products sold primarily in Mexico and Brazil. The transaction is expected to close during the second quarter of 2013, subject to customary closing conditions and regulatory approvals. Net sales of these products were approximately $100 million in 2012.
In connection with the collaboration, RBL will be responsible for all sales, distribution, marketing and certain regulatory matters and BMS will be responsible for the exclusive supply of the products. Certain limited assets are expected to be transferred to RBL at the start of the collaboration period, primarily the market authorizations, as well as certain employees directly attributed to the business. BMS will retain all other assets related to the business including the patents, trademarks and inventory during the collaboration period.
As part of the proposed agreement, BMS will grant RBL an option to acquire the patents, trademarks, inventory and certain other assets exclusively related to the products at the end of the collaboration at a price determined based on a multiple of sales (plus the cost of any remaining inventory held by BMS at the time). If the option is not exercised, all assets previously transferred to RBL during the collaboration period revert back to BMS.
BMS is expected to receive proceeds of $482 million at the start of the collaboration period which will be allocated to the license and other rights transferred to RBL and the fair value of the option to purchase the remaining assets at the end of the collaboration.
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Note 4. OTHER (INCOME)/EXPENSE
Other (income)/expense includes:
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Interest expense | $ | 50 | $ | 42 | |
Investment income | (25) | (36) | |||
Provision for restructuring | 33 | 22 | |||
Litigation charges/(recoveries) | - | (172) | |||
Equity in net income of affiliates | (36) | (57) | |||
Out-licensed intangible asset impairment | - | 38 | |||
Gain on sale of product lines, businesses and assets | (1) | - | |||
Other income received from alliance partners, net | (57) | (46) | |||
Other | 17 | 25 | |||
Other (income)/expense | $ | (19) | $ | (184) |
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Note 5. RESTRUCTURING
The following is the provision for restructuring:
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Employee termination benefits | $ | 29 | $ | 19 | |
Other exit costs | 4 | 3 | |||
Provision for restructuring | $ | 33 | $ | 22 |
Restructuring charges included termination benefits for workforce reductions of manufacturing, selling, administrative, and research and development personnel across all geographic regions of approximately 245 and 120 for the three months ended March 31, 2013 and 2012, respectively.
The following table represents the activity of employee termination and other exit cost liabilities:
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Liability at January 1 | $ | 167 | $ | 77 | |
Charges | 34 | 22 | |||
Changes in estimates | (1) | - | |||
Provision for restructuring | 33 | 22 | |||
Spending | (58) | (21) | |||
Liability at March 31 | $ | 142 | $ | 78 |
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Note 6. INCOME TAXES
The effective income tax rate on earnings was 7.6% for the three months ended March 31, 2013 and 26.9% for the three months ended March 31, 2012. The decrease in the effective tax rate resulted primarily from favorable earnings mix between high and low tax jurisdictions attributable to lower Plavix* sales and to a lesser extent, an internal transfer of intellectual property in the fourth quarter of 2012. In addition, the retroactive reinstatement of the R&D tax credit and look thru exception for the full year 2012 was recognized in the first quarter of 2013 ($43 million).
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.
BMS is currently audited by a number of tax authorities and significant disputes may arise related to 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, 2013 could decrease in the range of approximately $375 million to $405 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.
|
Note 7. EARNINGS PER SHARE
Three Months Ended March 31, | |||||||
Amounts in Millions, Except Per Share Data | 2013 | 2012 | |||||
Net Earnings Attributable to BMS | $ | 609 | $ | 1,101 | |||
Earnings attributable to unvested restricted shares | - | (1) | |||||
Net Earnings Attributable to BMS common shareholders | $ | 609 | $ | 1,100 | |||
Earnings per share - basic | $ | 0.37 | $ | 0.65 | |||
Weighted-average common shares outstanding - basic | 1,638 | 1,687 | |||||
Contingently convertible debt common stock equivalents | 1 | 1 | |||||
Incremental shares attributable to share-based compensation plans | 16 | 18 | |||||
Weighted-average common shares outstanding - diluted | 1,655 | 1,706 | |||||
Earnings per share - diluted | $ | 0.37 | $ | 0.64 | |||
Anti-dilutive weighted-average equivalent shares - stock incentive plans | 1 | 7 |
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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. The carrying amount of receivables and accounts payable approximates fair value due to their short-term maturity.
Changes in exchange rates and interest rates create exposure to market risk. 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 effectiveness of 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.
Financial instruments 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. Collateral is not required by any party whether derivatives are in an asset or liability position under the terms of the agreements.
Fair Value Measurements − The fair values of financial instruments are classified into one of the following categories:
Level 1 inputs utilize non-binding 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 utilize observable prices for similar instruments, non-binding 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, certificates of deposit, money market funds, foreign currency forward contracts, interest rate swap contracts, forward starting interest rate swap contracts, equity funds, fixed income funds and long-term debt. 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, 2013. Level 2 derivative instruments are valued using London Interbank Offered Rate and Euro Interbank Offered Rate 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 Security (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 the 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 as of March 31, 2013 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 markets liquidity. The fair value of written options to sell the assets of certain businesses in connection with collaboration agreements (see “—Note 3. Alliances and Collaborations” for further discussion) is based on an option pricing methodology that considers revenue and profitability projections, volatility, discount rates, and potential exercise price assumptions.
Available-For-Sale Securities and Cash Equivalents
The following table summarizes available-for-sale securities at March 31, 2013 and December 31, 2012:
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, 2013 | |||||||||||||||||||||||||
Certificates of Deposit | $ | 173 | $ | - | $ | - | $ | - | $ | 173 | $ | - | $ | 173 | $ | - | |||||||||
Corporate Debt Securities | 4,032 | 75 | - | - | 4,107 | - | 4,107 | - | |||||||||||||||||
Equity Funds | 52 | - | - | 10 | 62 | - | 62 | - | |||||||||||||||||
Fixed Income Funds | 47 | - | - | - | 47 | - | 47 | - | |||||||||||||||||
ARS | 8 | 3 | - | - | 11 | - | - | 11 | |||||||||||||||||
FRS | 21 | - | (1) | - | 20 | - | - | 20 | |||||||||||||||||
Total Marketable Securities | $ | 4,333 | $ | 78 | $ | (1) | $ | 10 | $ | 4,420 | $ | - | $ | 4,389 | $ | 31 | |||||||||
December 31, 2012 | |||||||||||||||||||||||||
Certificates of Deposit | $ | 34 | $ | - | $ | - | $ | - | $ | 34 | $ | - | $ | 34 | $ | - | |||||||||
Corporate Debt Securities | 4,305 | 72 | - | - | 4,377 | - | 4,377 | - | |||||||||||||||||
U.S. Treasury Securities | 150 | - | - | - | 150 | 150 | - | - | |||||||||||||||||
Equity Funds | 52 | - | - | 5 | 57 | - | 57 | - | |||||||||||||||||
Fixed Income Funds | 47 | - | - | - | 47 | - | 47 | - | |||||||||||||||||
ARS | 8 | 3 | - | - | 11 | - | - | 11 | |||||||||||||||||
FRS | 21 | - | (1) | - | 20 | - | - | 20 | |||||||||||||||||
Total Marketable Securities | $ | 4,617 | $ | 75 | $ | (1) | $ | 5 | $ | 4,696 | $ | 150 | $ | 4,515 | $ | 31 |
The following table summarizes the classification of available for sale securities in the consolidated balance sheet:
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Current Marketable Securities | $ | 1,178 | $ | 1,173 | |
Non-current Marketable Securities | 3,242 | 3,523 | |||
Total Marketable Securities | $ | 4,420 | $ | 4,696 |
Money market funds and other securities aggregating $935 million and $1,288 million at March 31, 2013 and December 31, 2012, respectively, were included in cash and cash equivalents and valued using Level 2 inputs.
At March 31, 2013, $3,231 million of non-current available for sale corporate debt securities mature within five years. All auction rate securities mature beyond 10 years.
The change in fair value for the investments in equity and fixed income funds are recognized in other (income)/expense and are designed to offset the changes in fair value of certain employee retirement benefits.
The following table summarizes the activity for financial assets utilizing Level 3 fair value measurements:
2013 | 2012 | |||||
Fair value at January 1 | $ | 31 | $ | 110 | ||
Sales | - | (81) | ||||
Fair value at March 31 | $ | 31 | $ | 29 |
Qualifying Hedges
The following table summarizes the fair value of outstanding derivatives:
March 31, 2013 | December 31, 2012 | |||||||||||||
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 | $ | 1,273 | $ | 134 | $ | 573 | $ | 146 | |||||
Foreign currency forward contracts | Other assets | 1,231 | 87 | 735 | 59 | |||||||||
Foreign currency forward contracts | Accrued expenses | 286 | (7) | 916 | (30) | |||||||||
Forward starting interest rate swap contracts | Accrued expenses | 80 | - | - | - |
Cash Flow Hedges − Foreign currency forward contracts are primarily utilized to hedge forecasted intercompany inventory purchase transactions in certain foreign currencies. These contracts are designated as cash flow hedges with the effective portion of changes in fair value being temporarily reported in accumulated other comprehensive loss and recognized in earnings when the hedged item affects earnings. The net gains on foreign currency forward contracts are expected to be reclassified to cost of products sold within the next two years, including $67 million of pre-tax gains to be reclassified within the next 12 months. The notional amount of outstanding foreign currency forward contracts was primarily attributed to the Euro ($839 million) and Japanese yen ($365 million) at March 31, 2013.
During 2013, BMS entered into an aggregate $80 million notional amount of forward starting interest rate swap contracts maturing in December 2013 with several financial institutions to hedge the variability of probable forecasted interest expense. The Company designated these contracts as cash flow hedges, with effective changes in fair value recorded net of tax in accumulated other comprehensive loss.
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, 2013 and 2012.
Net Investment Hedges − Non-U.S. dollar borrowings of €541 million ($696 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 other comprehensive loss 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.
During 2013, fixed-to-floating interest rate swap contracts were executed to convert $500 million notional amount of 0.875% Notes Due 2017 and $200 million notional amount of 5.45% Notes Due 2018 from fixed rate debt to variable rate debt.
Long-term debt and the current portion of long-term debt includes:
March 31, | December 31, | |||||
Dollars in Millions | 2013 | 2012 | ||||
Principal Value | $ | 6,609 | $ | 6,631 | ||
Adjustments to Principal Value: | ||||||
Fair value of interest rate swap contracts | 134 | 146 | ||||
Unamortized basis adjustment from interest rate swap contract terminations | 490 | 509 | ||||
Unamortized bond discounts | (53) | (54) | ||||
Total | $ | 7,180 | $ | 7,232 | ||
Current portion of long-term debt | $ | 658 | $ | 664 | ||
Long-term debt | 6,522 | 6,568 |
The fair value of debt was $8,112 million at March 31, 2013 and $8,285 million at December 31, 2012 and was valued using Level 2 inputs. Interest payments were $49 million and $33 million for the three months ended March 31, 2013 and 2012, respectively, net of amounts related to interest rate swap contracts.
The average amount of commercial paper outstanding was $211 million at a weighted-average interest rate of 0.14% during the three months ended March 31, 2013. The maximum month end amount of commercial paper outstanding was $600 million, which was outstanding at March 31, 2013. No commercial paper borrowings were outstanding at December 31, 2012.
Debt repurchase activity was as follows:
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Principal amount | $ | - | $ | 80 | |
Carrying value | - | 90 | |||
Repurchase price | - | 109 | |||
Notional amount of interest rate swaps terminated | - | 6 | |||
Swap termination proceeds | - | 2 | |||
Total loss | - | 19 |
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Note 9. RECEIVABLES
Receivables include:
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Trade receivables | $ | 1,897 | $ | 1,812 | |
Less allowances | (99) | (104) | |||
Net trade receivables | 1,798 | 1,708 | |||
Alliance receivables | 969 | 857 | |||
Prepaid and refundable income taxes | 336 | 319 | |||
Other | 205 | 199 | |||
Receivables | $ | 3,308 | $ | 3,083 |
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 $1,047 million and $1,056 million at March 31, 2013 and December 31, 2012, respectively. For additional information regarding alliance partners, see “—Note 3. Alliances and Collaborations.” Non-U.S. receivables sold on a nonrecourse basis were $224 million and $213 million for the three months ended March 31, 2013 and 2012, respectively. In the aggregate, receivables due from three pharmaceutical wholesalers in the U.S. represented 40% and 37% of total trade receivables at March 31, 2013 and December 31, 2012, respectively.
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Note 10. INVENTORIES
Inventories include:
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Finished goods | $ | 569 | $ | 572 | |
Work in process | 884 | 814 | |||
Raw and packaging materials | 338 | 271 | |||
Inventories | $ | 1,791 | $ | 1,657 |
Inventories expected to remain on-hand beyond one year are included in other assets and were $376 million at March 31, 2013 and $424 million at December 31, 2012.
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Note 11. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment includes:
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Land | $ | 113 | $ | 114 | |
Buildings | 5,028 | 4,963 | |||
Machinery, equipment and fixtures | 3,806 | 3,695 | |||
Construction in progress | 426 | 611 | |||
Gross property, plant and equipment | 9,373 | 9,383 | |||
Less accumulated depreciation | (4,114) | (4,050) | |||
Property, plant and equipment | $ | 5,259 | $ | 5,333 |
Depreciation expense was $108 million and $85 million for the three months ended March 31, 2013 and 2012, respectively.
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Note 12. OTHER INTANGIBLE ASSETS
At March 31, 2013 and December 31, 2012, other intangible assets consisted of the following
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Licenses | $ | 1,159 | $ | 1,160 | |
Developed technology rights | 8,827 | 8,827 | |||
Capitalized software | 1,204 | 1,200 | |||
In-process research and development | 668 | 668 | |||
Gross other intangible assets | 11,858 | 11,855 | |||
Less accumulated amortization | (3,288) | (3,077) | |||
Total other intangible assets | $ | 8,570 | $ | 8,778 |
Amortization expense of other intangible assets was $216 million and $101 million for the three months ended March 31, 2013 and 2012, respectively.
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Note 13. DEFERRED INCOME
Deferred income includes:
March 31, | December 31, | |||||
Dollars in Millions | 2013 | 2012 | ||||
Upfront, milestone and other licensing payments | $ | 4,484 | $ | 4,346 | ||
Atripla* | deferred revenue | 271 | 339 | |||
Gain on sale-leaseback transactions | 91 | 99 | ||||
Other | 27 | 65 | ||||
Total deferred income | $ | 4,873 | $ | 4,849 | ||
Current portion | $ | 772 | $ | 825 | ||
Non-current portion | 4,101 | 4,024 |
For further information pertaining to upfront, milestone and other licensing payments, see “—Note 3. Alliances and Collaborations.”
Amortization of deferred income was $111 million and $47 million for the three months ended March 31, 2013 and 2012, respectively.
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Note 14. 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, 2012 | 2,205 | $ | 220 | $ | 3,114 | $ | 33,069 | 515 | $ | (17,402) | $ | (89) | ||||||
Net earnings | - | - | - | 1,101 | - | - | 607 | |||||||||||
Cash dividends declared | - | - | - | (575) | - | - | - | |||||||||||
Stock repurchase program | - | - | - | - | 10 | (323) | - | |||||||||||
Employee stock compensation plans | 1 | 1 | (289) | - | (8) | 439 | - | |||||||||||
Distributions | - | - | - | - | - | - | (609) | |||||||||||
Balance at March 31, 2012 | 2,206 | $ | 221 | $ | 2,825 | $ | 33,595 | 517 | $ | (17,286) | $ | (91) | ||||||
Balance at January 1, 2013 | 2,208 | $ | 221 | $ | 2,694 | $ | 32,733 | 570 | $ | (18,823) | $ | 15 | ||||||
Net earnings | - | - | - | 609 | - | - | 26 | |||||||||||
Cash dividends declared | - | - | - | (581) | - | - | - | |||||||||||
Stock repurchase program | - | - | - | - | 8 | (298) | - | |||||||||||
Employee stock compensation plans | - | - | (568) | - | (13) | 803 | - | |||||||||||
Distributions | - | - | - | - | - | - | (1) | |||||||||||
Balance at March 31, 2013 | 2,208 | $ | 221 | $ | 2,126 | $ | 32,761 | 565 | $ | (18,318) | $ | 40 |
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 and in June 2012 increased its authorization for the repurchase of common stock by an additional $3.0 billion. 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 $12 million and $229 million for the three months ended March 31, 2013 and 2012, 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 components of other comprehensive income/(loss) were as follows:
Pretax | Tax | After tax | |||||||||
Three months ended March 31, 2012 | |||||||||||
Derivatives qualifying as cash flow hedges:(a) | |||||||||||
Unrealized gains | $ | 14 | $ | (9) | $ | 5 | |||||
Reclassified to net earnings | (8) | 2 | (6) | ||||||||
Derivatives qualifying as cash flow hedges | 6 | (7) | (1) | ||||||||
Pension and postretirement benefits:(b) | |||||||||||
Actuarial gains | 19 | (5) | 14 | ||||||||
Amortization | 36 | (12) | 24 | ||||||||
Pension and postretirement benefits | 55 | (17) | 38 | ||||||||
Available for sale securities: | |||||||||||
Unrealized losses | (2) | (1) | (3) | ||||||||
Realized gains | (10) | - | (10) | ||||||||
Available for sale securities(c) | (12) | (1) | (13) | ||||||||
Foreign currency translation | 3 | - | 3 | ||||||||
$ | 52 | $ | (25) | $ | 27 | ||||||
Three months ended March 31, 2013 | |||||||||||
Derivatives qualifying as cash flow hedges:(a) | |||||||||||
Unrealized gains | $ | 69 | $ | (23) | $ | 46 | |||||
Reclassified to net earnings | (10) | 5 | (5) | ||||||||
Derivatives qualifying as cash flow hedges | 59 | (18) | 41 | ||||||||
Pension and postretirement benefits - Amortization(b) | 38 | (11) | 27 | ||||||||
Available for sale securities - Unrealized gains(c) | 3 | 1 | 4 | ||||||||
Foreign currency translation | (1) | - | (1) | ||||||||
$ | 99 | $ | (28) | $ | 71 |
The accumulated balances related to each component of other comprehensive loss, net of taxes, were as follows:
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Derivatives qualifying as cash flow hedges | $ | 50 | $ | 9 | |
Pension and other postretirement benefits | (2,996) | (3,023) | |||
Available for sale securities | 69 | 65 | |||
Foreign currency translation | (254) | (253) | |||
Accumulated other comprehensive loss | $ | (3,131) | $ | (3,202) |
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Note 15. 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 | 2013 | 2012 | 2013 | 2012 | |||||||
Service cost — benefits earned during the year | $ | 10 | $ | 10 | $ | 1 | $ | 2 | |||
Interest cost on projected benefit obligation | 74 | 79 | 3 | 6 | |||||||
Expected return on plan assets | (132) | (126) | (6) | (6) | |||||||
Amortization of prior service cost/(benefit) | (1) | - | - | (1) | |||||||
Amortization of net actuarial loss | 38 | 33 | - | 3 | |||||||
Net periodic (benefit)/cost | $ | (11) | $ | (4) | $ | (2) | $ | 4 |
Contributions to the U.S. pension plans are expected to approximate $185 million during 2013, of which $155 million was contributed in the three months ended March 31, 2013. Contributions to the international plans are expected to range from $60 million to $70 million in 2013, of which $38 million was contributed in the three months ended March 31, 2013.
The expense attributed to defined contribution plans in the U.S. was $47 million and $48 million for the three months ended March 31, 2013 and 2012, respectively.
|
Note 16. EMPLOYEE STOCK BENEFIT PLANS
Stock-based compensation expense was as follows:
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Stock options | $ | - | $ | 3 | |
Restricted stock | 18 | 19 | |||
Market share units | 8 | 6 | |||
Long-term performance awards | 23 | 14 | |||
Total stock-based compensation expense | $ | 49 | $ | 42 | |
Deferred tax benefit related to stock-based compensation expense | $ | 16 | $ | 14 |
In the first quarter of 2013, 2.3 million restricted stock units, 1.0 million market share units and 2.5 million long-term performance share units were granted. The weighted-average grant date fair value was $37.37 for restricted stock units and $37.40 for market share units and long-term performance share units.
Substantially all restricted stock units vest ratably over a four year period. Market share units vest ratably over a four year period and the number of shares ultimately issued is based on share price performance. The fair value of market share units considers the probability of satisfying market conditions. The number of shares issued when long-term performance share units vest is determined based on the achievement of annual performance goals. Long-term performance share units do not vest until the end of the three year plan period.
Unrecognized compensation cost related to nonvested awards of $367 million is expected to be recognized over a weighted-average period of 2.6 years.
|
Note 17. 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
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*. 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. A trial in that lawsuit is currently scheduled for June 2013. In March 2010, Gilead filed two patent infringement actions against Teva in the SDNY relating to six Orange Book-listed patents for Atripla* and in February 2013, Gilead and Teva reached an agreement in principle to settle the lawsuit on the patents covering tenofovir disoproxil fumarate. 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 (the '244 Patent). In September 2010, the Company filed a patent infringement lawsuit in the U.S. District Court for the District of Delaware (Delaware District Court) against Teva for infringement. In February 2013, the Delaware District Court ruled against the Company and invalidated the '244 Patent. The Company has appealed the Delaware District Court's decision. Upon final FDA approval of its aNDA, Teva could launch its generic product. There could be a rapid and significant negative impact on U.S. sales of Baraclude beginning in 2013. U.S. net sales of Baraclude were $241 million in 2012.
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* – 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 has appealed this decision though generic companies have since entered the market and a decision is expected later this year.
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. Trial is currently scheduled for September 2013. 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 December 2012, requests for injunctions have been granted in the U.K. and denied in the Netherlands and Germany. The Company and Merck are appealing the denial of the request for injunction in the Netherlands. 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. The plaintiffs appealed that decision and the California Court of Appeals affirmed summary judgment for the defendants. In October 2012, the plaintiffs filed a petition seeking review by the California Supreme Court which was denied in November 2012. Plaintiffs have filed a petition seeking a Writ of Certiorari with the U.S. Supreme Court.
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 calculated at the rate of 1% per month from the date of the filing of the lawsuit, until paid, 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 appealed these decisions and the New Jersey Appellate Division reversed the grant of summary judgments. The case has been remanded back to the Superior Court for additional proceedings. It is not possible at this time to reasonably assess the outcome of this lawsuit or its impact on the Company.
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. Apotex is seeking damages for the amount of profits it alleges it would have received from selling its generic clopidogrel bisulfate for somewhere between 8 and 11.5 months had the May 2006 agreement been approved by regulators. The Company moved for summary judgment which was denied in November 2012. A trial was held in March 2013 and a jury verdict was delivered in favor of the Company. It is possible that Apotex may appeal this decision.
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 putative 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. The Company and Otsuka have filed a motion to dismiss the complaint. 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 remains a defendant in two state attorneys general suits pending in state courts in Pennsylvania and Wisconsin. 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 appealed the decision to the Pennsylvania Supreme Court and oral argument is scheduled to take place in May 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. Discovery is ongoing. 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 state and federal courts claiming personal injury damage allegedly sustained after using Plavix*. Currently, over 3,000 claims are filed in state and federal courts in various states including California, Illinois, New Jersey, and New York. In February 2013, the Judicial Panel on Multidistrict Litigation granted the Company and Sanofi's motion to establish a multidistrict litigation to coordinate federal pretrial proceedings in Plavix* product liability and related cases in New Jersey Federal Court. 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 2,700 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. The resolution of these pending lawsuits, however, is not expected to have a material 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 April 2013, the Company remains a defendant in approximately 35 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. The resolution of these remaining lawsuits is not expected to have a material impact on the Company.
Byetta* and Bydureon*
Amylin, now a wholly-owned subsidiary of the Company (see “—Note 4. Acquisitions”), and Lilly are co-defendants in product liability litigation related to Byetta* and Bydureon*. As of April 2013, there were over 100 separate lawsuits pending on behalf of over 575 plaintiffs in various courts in the U.S. The vast majority of these cases have been brought by individuals who allege personal injury sustained after using Byetta*, primarily pancreatitis, and, in some cases, claiming alleged wrongful death. The Company has agreed in principle to resolve the claims of over 300 plaintiffs. The majority of cases are pending in California state court, where the Judicial Council has granted Amylin's petition for a “coordinated proceeding” for all California state court cases alleging harm from the alleged use of Byetta*. Amylin and Lilly are currently scheduled for trial in the fourth quarter of 2013. A number of recently filed cases pending in federal court allege that Byetta* caused pancreatic cancer. We cannot reasonably predict the outcome of any lawsuit, claim or proceeding. However, given that Amylin has product liability insurance coverage for existing claims and future related claims involving Byetta*, it is currently expected the amount of damages, if any, will not be material to the Company.
BMS-986094
In August 2012, the Company announced that it had discontinued development of BMS-986094, an investigational compound which was being tested in clinical trials to treat the hepatitis C virus infection due to the emergence of a serious safety issue. To date, five lawsuits have been filed against the Company in Texas State Court by plaintiffs, which were removed to Federal Court, alleging that they participated in the Phase II study of BMS-986094 and suffered injuries as a result thereof. The Company has resolved four of the five filed claims and the vast majority of claims that have surfaced to date in this matter. In total, slightly fewer than 300 patients were administered the compound at various doses and durations as part of the clinical trials. The resolution of the remaining lawsuit and any other potential future lawsuits is not expected to have a material impact on the Company.
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 $68 million at March 31, 2013, 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 allege various personal injuries resulting from environmental contamination at the New Brunswick facility and historical operations at that site, 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. Since October 2011, over 150 additional cases have been filed in New Jersey Superior Court and removed by the Company to United States District Court, District of New Jersey. Accordingly, there are in excess of 400 cases between the state and federal court actions. Discovery is ongoing. The Company intends to defend itself vigorously in this litigation. 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 the 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 mid-to-late 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. It is not possible at this time to assess the outcome of the underlying investigation or its potential impact on the Company.
SEC Germany Investigation
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.
|
Three Months Ended March 31, | ||||||
Dollars in Millions | 2013 | 2012 | ||||
Virology | ||||||
Baraclude (entecavir) | $ | 366 | $ | 325 | ||
Reyataz (atazanavir sulfate) | 361 | 358 | ||||
Sustiva (efavirenz) Franchise | 387 | 386 | ||||
Oncology | ||||||
Erbitux* (cetuximab) | 162 | 179 | ||||
Sprycel (dasatinib) | 287 | 231 | ||||
Yervoy (ipilimumab) | 229 | 154 | ||||
Neuroscience | ||||||
Abilify* (aripiprazole) | 522 | 621 | ||||
Metabolics | ||||||
Bydureon* (exenatide extended-release for injectable suspension) | 52 | N/A | ||||
Byetta* (exenatide) | 85 | N/A | ||||
Forxiga (dapagliflozin) | 3 | N/A | ||||
Onglyza/Kombiglyze (saxagliptin/saxagliptin and metformin) | 202 | 161 | ||||
Immunoscience | ||||||
Nulojix (belatacept) | 5 | 1 | ||||
Orencia (abatacept) | 320 | 254 | ||||
Cardiovascular | ||||||
Avapro*/Avalide* (irbesartan/irbesartan-hydrochlorothiazide) | 46 | 207 | ||||
Eliquis (apixaban) | 22 | - | ||||
Plavix* (clopidogrel bisulfate) | 91 | 1,693 | ||||
Mature Products and All Other | 691 | 681 | ||||
Net Sales | $ | 3,831 | $ | 5,251 |
|
Share as a % of U.S. Net | |
Sales | |
$0 to $2.7 billion | 50% |
$2.7 billion to $3.2 billion | 20% |
$3.2 billion to $3.7 billion | 7% |
$3.7 billion to $4.0 billion | 2% |
$4.0 billion to $4.2 billion | 1% |
In excess of $4.2 billion | 20% |
% of Net Sales | |||
2010 - 2012 | 2013 - 2020 | ||
$0 to $400 million | 30% | 65% | |
$400 million to $600 million | 5% | 12% | |
$600 million to $800 million | 3% | 3% | |
$800 million to $1.0 billion | 2% | 2% | |
In excess of $1.0 billion | 1% | 1% |
Three Months Ended March 31, | ||||||
Dollars in Millions | 2013 | 2012 | ||||
Abilify* | net sales, net of amortization of extension payment | $ | 522 | $ | 621 | |
Oncology Products collaboration fee expense | 70 | 32 | ||||
Royalty expense | 17 | 17 | ||||
Reimbursement of operating expenses to/(from) Otsuka | (6) | (24) | ||||
Amortization (income)/expense – extension payment | 16 | 16 | ||||
Amortization (income)/expense – upfront, milestone and other licensing payments | - | 2 | ||||
March 31, | December 31, | |||||
Dollars in Millions | 2013 | 2012 | ||||
Other assets - extension payment | $ | 137 | $ | 153 |
Three Months Ended March 31, | ||||||
Dollars in Millions | 2013 | 2012 | ||||
Net sales | $ | 358 | $ | 161 | ||
Profit sharing expense | 146 | 73 | ||||
Commercialization expense reimbursements to/(from) AstraZeneca | (57) | (12) | ||||
Research and development expense reimbursements to/(from) AstraZeneca | (17) | 4 | ||||
Amortization (income)/expense – upfront, milestone and other licensing receipts recognized in: | ||||||
Cost of products sold | (75) | - | ||||
Other (income)/expense | (7) | (10) | ||||
Upfront, milestone and other licensing receipts: | ||||||
Dapagliflozin | 80 | - | ||||
March 31, | December 31, | |||||
Dollars in Millions | 2013 | 2012 | ||||
Deferred income – upfront, milestone and other licensing receipts | ||||||
Amylin-related products | $ | 3,352 | $ | 3,423 | ||
Saxagliptin | 204 | 208 | ||||
Dapagliflozin | 203 | 206 |
Three Months Ended March 31, | ||||||
Dollars in Millions | 2013 | 2012 | ||||
Net sales | $ | 324 | $ | 322 | ||
Equity in net loss of affiliates | 4 | 4 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Net sales | $ | 162 | $ | 179 | |
Distribution fees and royalty expense | 67 | 74 | |||
Research and development expense reimbursement to Lilly – necitumumab | - | 1 | |||
Amortization (income)/expense – upfront, milestone and other licensing payments | 9 | 10 | |||
Japan commercialization fee (income)/expense | (4) | (6) | |||
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Other intangible assets – upfront, milestone and other licensing payments | $ | 202 | $ | 211 |
Three Months Ended March 31, | ||||||
Dollars in Millions | 2013 | 2012 | ||||
Net sales | $ | 137 | $ | 1,900 | ||
Royalty expense | 2 | 367 | ||||
Equity in net income of affiliates | (40) | (60) | ||||
Other (income)/expense | (10) | (14) | ||||
Noncontrolling interest – pre-tax | 24 | 605 | ||||
Distributions to Sanofi | - | 609 | ||||
Distributions to BMS | 31 | 67 | ||||
March 31, | December 31, | |||||
Dollars in Millions | 2013 | 2012 | ||||
Investment in affiliates – territory covering Europe and Asia | $ | 18 | $ | 9 | ||
Noncontrolling interest | (6) | (30) |
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Net sales | $ | 49 | $ | 319 | |
Gross profit | 37 | 138 | |||
Net income | 36 | 122 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Net sales | $ | 22 | $ | - | |
Profit sharing expense | 10 | - | |||
Commercialization expense reimbursement to/(from) Pfizer | (12) | (5) | |||
Research and development reimbursements to/(from) Pfizer | 7 | 2 | |||
Amortization (income)/expense – upfront, milestone and other licensing receipts | (10) | (10) | |||
Upfront, milestone and other licensing receipts | 125 | - | |||
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Deferred income – upfront, milestone and other licensing receipts | $ | 512 | $ | 397 |
|
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Interest expense | $ | 50 | $ | 42 | |
Investment income | (25) | (36) | |||
Provision for restructuring | 33 | 22 | |||
Litigation charges/(recoveries) | - | (172) | |||
Equity in net income of affiliates | (36) | (57) | |||
Out-licensed intangible asset impairment | - | 38 | |||
Gain on sale of product lines, businesses and assets | (1) | - | |||
Other income received from alliance partners, net | (57) | (46) | |||
Other | 17 | 25 | |||
Other (income)/expense | $ | (19) | $ | (184) |
|
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Employee termination benefits | $ | 29 | $ | 19 | |
Other exit costs | 4 | 3 | |||
Provision for restructuring | $ | 33 | $ | 22 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Liability at January 1 | $ | 167 | $ | 77 | |
Charges | 34 | 22 | |||
Changes in estimates | (1) | - | |||
Provision for restructuring | 33 | 22 | |||
Spending | (58) | (21) | |||
Liability at March 31 | $ | 142 | $ | 78 |
|
Three Months Ended March 31, | |||||||
Amounts in Millions, Except Per Share Data | 2013 | 2012 | |||||
Net Earnings Attributable to BMS | $ | 609 | $ | 1,101 | |||
Earnings attributable to unvested restricted shares | - | (1) | |||||
Net Earnings Attributable to BMS common shareholders | $ | 609 | $ | 1,100 | |||
Earnings per share - basic | $ | 0.37 | $ | 0.65 | |||
Weighted-average common shares outstanding - basic | 1,638 | 1,687 | |||||
Contingently convertible debt common stock equivalents | 1 | 1 | |||||
Incremental shares attributable to share-based compensation plans | 16 | 18 | |||||
Weighted-average common shares outstanding - diluted | 1,655 | 1,706 | |||||
Earnings per share - diluted | $ | 0.37 | $ | 0.64 | |||
Anti-dilutive weighted-average equivalent shares - stock incentive plans | 1 | 7 |
|
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, 2013 | |||||||||||||||||||||||||
Certificates of Deposit | $ | 173 | $ | - | $ | - | $ | - | $ | 173 | $ | - | $ | 173 | $ | - | |||||||||
Corporate Debt Securities | 4,032 | 75 | - | - | 4,107 | - | 4,107 | - | |||||||||||||||||
Equity Funds | 52 | - | - | 10 | 62 | - | 62 | - | |||||||||||||||||
Fixed Income Funds | 47 | - | - | - | 47 | - | 47 | - | |||||||||||||||||
ARS | 8 | 3 | - | - | 11 | - | - | 11 | |||||||||||||||||
FRS | 21 | - | (1) | - | 20 | - | - | 20 | |||||||||||||||||
Total Marketable Securities | $ | 4,333 | $ | 78 | $ | (1) | $ | 10 | $ | 4,420 | $ | - | $ | 4,389 | $ | 31 | |||||||||
December 31, 2012 | |||||||||||||||||||||||||
Certificates of Deposit | $ | 34 | $ | - | $ | - | $ | - | $ | 34 | $ | - | $ | 34 | $ | - | |||||||||
Corporate Debt Securities | 4,305 | 72 | - | - | 4,377 | - | 4,377 | - | |||||||||||||||||
U.S. Treasury Securities | 150 | - | - | - | 150 | 150 | - | - | |||||||||||||||||
Equity Funds | 52 | - | - | 5 | 57 | - | 57 | - | |||||||||||||||||
Fixed Income Funds | 47 | - | - | - | 47 | - | 47 | - | |||||||||||||||||
ARS | 8 | 3 | - | - | 11 | - | - | 11 | |||||||||||||||||
FRS | 21 | - | (1) | - | 20 | - | - | 20 | |||||||||||||||||
Total Marketable Securities | $ | 4,617 | $ | 75 | $ | (1) | $ | 5 | $ | 4,696 | $ | 150 | $ | 4,515 | $ | 31 |
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Current Marketable Securities | $ | 1,178 | $ | 1,173 | |
Non-current Marketable Securities | 3,242 | 3,523 | |||
Total Marketable Securities | $ | 4,420 | $ | 4,696 |
2013 | 2012 | |||||
Fair value at January 1 | $ | 31 | $ | 110 | ||
Sales | - | (81) | ||||
Fair value at March 31 | $ | 31 | $ | 29 |
March 31, 2013 | December 31, 2012 | |||||||||||||
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 | $ | 1,273 | $ | 134 | $ | 573 | $ | 146 | |||||
Foreign currency forward contracts | Other assets | 1,231 | 87 | 735 | 59 | |||||||||
Foreign currency forward contracts | Accrued expenses | 286 | (7) | 916 | (30) | |||||||||
Forward starting interest rate swap contracts | Accrued expenses | 80 | - | - | - |
March 31, | December 31, | |||||
Dollars in Millions | 2013 | 2012 | ||||
Principal Value | $ | 6,609 | $ | 6,631 | ||
Adjustments to Principal Value: | ||||||
Fair value of interest rate swap contracts | 134 | 146 | ||||
Unamortized basis adjustment from interest rate swap contract terminations | 490 | 509 | ||||
Unamortized bond discounts | (53) | (54) | ||||
Total | $ | 7,180 | $ | 7,232 | ||
Current portion of long-term debt | $ | 658 | $ | 664 | ||
Long-term debt | 6,522 | 6,568 |
Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Principal amount | $ | - | $ | 80 | |
Carrying value | - | 90 | |||
Repurchase price | - | 109 | |||
Notional amount of interest rate swaps terminated | - | 6 | |||
Swap termination proceeds | - | 2 | |||
Total loss | - | 19 |
|
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Trade receivables | $ | 1,897 | $ | 1,812 | |
Less allowances | (99) | (104) | |||
Net trade receivables | 1,798 | 1,708 | |||
Alliance receivables | 969 | 857 | |||
Prepaid and refundable income taxes | 336 | 319 | |||
Other | 205 | 199 | |||
Receivables | $ | 3,308 | $ | 3,083 |
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March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Finished goods | $ | 569 | $ | 572 | |
Work in process | 884 | 814 | |||
Raw and packaging materials | 338 | 271 | |||
Inventories | $ | 1,791 | $ | 1,657 |
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March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Land | $ | 113 | $ | 114 | |
Buildings | 5,028 | 4,963 | |||
Machinery, equipment and fixtures | 3,806 | 3,695 | |||
Construction in progress | 426 | 611 | |||
Gross property, plant and equipment | 9,373 | 9,383 | |||
Less accumulated depreciation | (4,114) | (4,050) | |||
Property, plant and equipment | $ | 5,259 | $ | 5,333 |
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March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Licenses | $ | 1,159 | $ | 1,160 | |
Developed technology rights | 8,827 | 8,827 | |||
Capitalized software | 1,204 | 1,200 | |||
In-process research and development | 668 | 668 | |||
Gross other intangible assets | 11,858 | 11,855 | |||
Less accumulated amortization | (3,288) | (3,077) | |||
Total other intangible assets | $ | 8,570 | $ | 8,778 |
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March 31, | December 31, | |||||
Dollars in Millions | 2013 | 2012 | ||||
Upfront, milestone and other licensing payments | $ | 4,484 | $ | 4,346 | ||
Atripla* | deferred revenue | 271 | 339 | |||
Gain on sale-leaseback transactions | 91 | 99 | ||||
Other | 27 | 65 | ||||
Total deferred income | $ | 4,873 | $ | 4,849 | ||
Current portion | $ | 772 | $ | 825 | ||
Non-current portion | 4,101 | 4,024 |
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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, 2012 | 2,205 | $ | 220 | $ | 3,114 | $ | 33,069 | 515 | $ | (17,402) | $ | (89) | ||||||
Net earnings | - | - | - | 1,101 | - | - | 607 | |||||||||||
Cash dividends declared | - | - | - | (575) | - | - | - | |||||||||||
Stock repurchase program | - | - | - | - | 10 | (323) | - | |||||||||||
Employee stock compensation plans | 1 | 1 | (289) | - | (8) | 439 | - | |||||||||||
Distributions | - | - | - | - | - | - | (609) | |||||||||||
Balance at March 31, 2012 | 2,206 | $ | 221 | $ | 2,825 | $ | 33,595 | 517 | $ | (17,286) | $ | (91) | ||||||
Balance at January 1, 2013 | 2,208 | $ | 221 | $ | 2,694 | $ | 32,733 | 570 | $ | (18,823) | $ | 15 | ||||||
Net earnings | - | - | - | 609 | - | - | 26 | |||||||||||
Cash dividends declared | - | - | - | (581) | - | - | - | |||||||||||
Stock repurchase program | - | - | - | - | 8 | (298) | - | |||||||||||
Employee stock compensation plans | - | - | (568) | - | (13) | 803 | - | |||||||||||
Distributions | - | - | - | - | - | - | (1) | |||||||||||
Balance at March 31, 2013 | 2,208 | $ | 221 | $ | 2,126 | $ | 32,761 | 565 | $ | (18,318) | $ | 40 |
Pretax | Tax | After tax | |||||||||
Three months ended March 31, 2012 | |||||||||||
Derivatives qualifying as cash flow hedges:(a) | |||||||||||
Unrealized gains | $ | 14 | $ | (9) | $ | 5 | |||||
Reclassified to net earnings | (8) | 2 | (6) | ||||||||
Derivatives qualifying as cash flow hedges | 6 | (7) | (1) | ||||||||
Pension and postretirement benefits:(b) | |||||||||||
Actuarial gains | 19 | (5) | 14 | ||||||||
Amortization | 36 | (12) | 24 | ||||||||
Pension and postretirement benefits | 55 | (17) | 38 | ||||||||
Available for sale securities: | |||||||||||
Unrealized losses | (2) | (1) | (3) | ||||||||
Realized gains | (10) | - | (10) | ||||||||
Available for sale securities(c) | (12) | (1) | (13) | ||||||||
Foreign currency translation | 3 | - | 3 | ||||||||
$ | 52 | $ | (25) | $ | 27 | ||||||
Three months ended March 31, 2013 | |||||||||||
Derivatives qualifying as cash flow hedges:(a) | |||||||||||
Unrealized gains | $ | 69 | $ | (23) | $ | 46 | |||||
Reclassified to net earnings | (10) | 5 | (5) | ||||||||
Derivatives qualifying as cash flow hedges | 59 | (18) | 41 | ||||||||
Pension and postretirement benefits - Amortization(b) | 38 | (11) | 27 | ||||||||
Available for sale securities - Unrealized gains(c) | 3 | 1 | 4 | ||||||||
Foreign currency translation | (1) | - | (1) | ||||||||
$ | 99 | $ | (28) | $ | 71 |
March 31, | December 31, | ||||
Dollars in Millions | 2013 | 2012 | |||
Derivatives qualifying as cash flow hedges | $ | 50 | $ | 9 | |
Pension and other postretirement benefits | (2,996) | (3,023) | |||
Available for sale securities | 69 | 65 | |||
Foreign currency translation | (254) | (253) | |||
Accumulated other comprehensive loss | $ | (3,131) | $ | (3,202) |
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Three Months Ended March 31, | |||||||||||
Pension Benefits | Other Benefits | ||||||||||
Dollars in Millions | 2013 | 2012 | 2013 | 2012 | |||||||
Service cost — benefits earned during the year | $ | 10 | $ | 10 | $ | 1 | $ | 2 | |||
Interest cost on projected benefit obligation | 74 | 79 | 3 | 6 | |||||||
Expected return on plan assets | (132) | (126) | (6) | (6) | |||||||
Amortization of prior service cost/(benefit) | (1) | - | - | (1) | |||||||
Amortization of net actuarial loss | 38 | 33 | - | 3 | |||||||
Net periodic (benefit)/cost | $ | (11) | $ | (4) | $ | (2) | $ | 4 |
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Three Months Ended March 31, | |||||
Dollars in Millions | 2013 | 2012 | |||
Stock options | $ | - | $ | 3 | |
Restricted stock | 18 | 19 | |||
Market share units | 8 | 6 | |||
Long-term performance awards | 23 | 14 | |||
Total stock-based compensation expense | $ | 49 | $ | 42 | |
Deferred tax benefit related to stock-based compensation expense | $ | 16 | $ | 14 |
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