10-Q 1 bmy-20140930x10q.htm FORM 10-Q BMY-2014.09.30-10Q


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
 
 
x

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2014
 
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM             TO             
Commission file number:              1-1136
 
 BRISTOL-MYERS SQUIBB COMPANY
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
22-0790350
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
345 Park Avenue, New York, N.Y. 10154
(Address of principal executive offices) (Zip Code)
 
(212) 546-4000
(Registrant’s telephone number, including area code)
 
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.    Yes  x   No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  x    Accelerated filer  ¨    Non-accelerated filer  ¨    Smaller reporting company  ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
At September 30, 2014, there were 1,658,776,491 shares outstanding of the Registrant’s $0.10 par value common stock.

 




BRISTOL-MYERS SQUIBB COMPANY
INDEX TO FORM 10-Q
SEPTEMBER 30, 2014
 





PART I—FINANCIAL INFORMATION
Item  1. FINANCIAL STATEMENTS
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENTS OF EARNINGS
Dollars and Shares in Millions, Except Per Share Data
(UNAUDITED)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
EARNINGS
2014
 
2013
 
2014
 
2013
Net product sales
$
2,843

 
$
3,025

 
$
8,420

 
$
9,006

Alliance and other revenues
1,078

 
1,040

 
3,201

 
2,938

Total Revenues
$
3,921

 
$
4,065

 
$
11,621

 
$
11,944

 
 
 
 
 
 
 
 
Cost of products sold
1,007

 
1,175

 
2,966

 
3,346

Marketing, selling and administrative
1,029

 
980

 
2,937

 
3,016

Advertising and product promotion
171

 
194

 
521

 
601

Research and development
983

 
893

 
3,345

 
2,774

Other (income)/expense
(277
)
 
5

 
(589
)
 
185

Total Expenses
2,913

 
3,247

 
9,180

 
9,922

 
 
 
 
 
 
 
 
Earnings Before Income Taxes
1,008

 
818

 
2,441

 
2,022

Provision for Income Taxes
276

 
126

 
439

 
177

Net Earnings
732

 
692

 
2,002

 
1,845

Net Earnings Attributable to Noncontrolling Interest
11

 

 
11

 
8

Net Earnings Attributable to BMS
$
721

 
$
692

 
$
1,991

 
$
1,837

 
 
 
 
 
 
 
 
Earnings per Common Share
 
 
 
 
 
 
 
Basic
$
0.43

 
$
0.42

 
$
1.20

 
$
1.12

Diluted
$
0.43

 
$
0.42

 
$
1.19

 
$
1.11

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.36

 
$
0.35

 
$
1.08

 
$
1.05

The accompanying notes are an integral part of these consolidated financial statements.

3




BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in Millions
(UNAUDITED)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
COMPREHENSIVE INCOME
2014
 
2013
 
2014
 
2013
Net Earnings
$
732

 
$
692

 
$
2,002

 
$
1,845

Other Comprehensive Income/(Loss), net of taxes and reclassifications to earnings:
 
 
 
 
 
 
 
Derivatives qualifying as cash flow hedges
57

 
(31
)
 
49

 
7

Pension and postretirement benefits
(407
)
 
232

 
(508
)
 
956

Available for sale securities
(22
)
 
14

 
(7
)
 
(32
)
Foreign currency translation
(8
)
 
(7
)
 
2

 
(41
)
Other Comprehensive Income/(Loss)
(380
)
 
208

 
(464
)
 
890

 
 
 
 
 
 
 
 
Comprehensive Income
352

 
900

 
1,538

 
2,735

Comprehensive Income Attributable to Noncontrolling Interest
11

 

 
11

 
8

Comprehensive Income Attributable to BMS
$
341

 
$
900

 
$
1,527

 
$
2,727

The accompanying notes are an integral part of these consolidated financial statements.

4




BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEETS
Dollars in Millions, Except Share and Per Share Data(UNAUDITED) 
ASSETS
September 30,
2014
 
December 31,
2013
Current Assets:
 
 
 
Cash and cash equivalents
$
4,851

 
$
3,586

Marketable securities
2,370

 
939

Receivables
3,321

 
3,360

Inventories
1,565

 
1,498

Deferred income taxes
1,510

 
1,701

Prepaid expenses and other
482

 
412

Assets held-for-sale
78

 
7,420

Total Current Assets
14,177

 
18,916

Property, plant and equipment
4,387

 
4,579

Goodwill
7,046

 
7,096

Other intangible assets
1,718

 
2,318

Deferred income taxes
1,015

 
508

Marketable securities
4,328


3,747

Other assets
779

 
1,428

Total Assets
$
33,450

 
$
38,592

 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
Current Liabilities:
 
 
 
Short-term borrowings and current portion of long-term debt
$
401

 
$
359

Accounts payable
2,568

 
2,559

Accrued expenses
2,290

 
2,152

Deferred income
995

 
756

Accrued rebates and returns
914

 
889

Income taxes payable
312

 
160

Dividends payable
623

 
634

Liabilities related to assets held-for-sale

 
4,931

Total Current Liabilities
8,103

 
12,440

Pension, postretirement and postemployment liabilities
806

 
718

Deferred income
810

 
769

Income taxes payable
552

 
750

Deferred income taxes
93

 
73

Other liabilities
618

 
625

Long-term debt
7,267

 
7,981

Total Liabilities
18,249

 
23,356

 
 
 
 
Commitments and contingencies (Note 19)

 

 
 
 
 
EQUITY
 
 
 
 
 
 
 
Bristol-Myers Squibb Company Shareholders’ Equity:
 
 
 
Preferred stock, $2 convertible series, par value $1 per share: Authorized 10 million shares; issued
 
 
 
and outstanding 4,227 in 2014 and 4,369 in 2013, liquidation value of $50 per share

 

Common stock, par value of $0.10 per share: Authorized 4.5 billion shares; 2.2 billion issued in both 2014
 
 
 
and 2013
221

 
221

Capital in excess of par value of stock
1,499

 
1,922

Accumulated other comprehensive loss
(2,605
)
 
(2,141
)
Retained earnings
33,147

 
32,952

Less cost of treasury stock – 549 million common shares in 2014 and 559 million in 2013
(17,119
)
 
(17,800
)
Total Bristol-Myers Squibb Company Shareholders’ Equity
15,143

 
15,154

Noncontrolling interest
58

 
82

Total Equity
15,201

 
15,236

Total Liabilities and Equity
$
33,450

 
$
38,592

The accompanying notes are an integral part of these consolidated financial statements.

5




BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in Millions
(UNAUDITED)

 
Nine Months Ended September 30,
 
2014
 
2013
Cash Flows From Operating Activities:
 
 
 
Net earnings
$
2,002

 
$
1,845

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Net earnings attributable to noncontrolling interest
(11
)
 
(8
)
Depreciation and amortization, net
364

 
582

Deferred income taxes
(57
)
 
(409
)
Stock-based compensation
147

 
140

Impairment charges
386

 
6

Gain on sale of businesses and other
(560
)
 
(11
)
Changes in operating assets and liabilities:
 
 
 
Receivables
(66
)
 
(563
)
Inventories
(162
)
 
(8
)
Accounts payable
63

 
301

Deferred income
404

 
702

Income taxes payable
82

 
128

Other
(16
)
 
(570
)
Net Cash Provided by Operating Activities
2,576

 
2,135

Cash Flows From Investing Activities:
 
 
 
Proceeds from sale and maturities of marketable securities
2,771

 
1,520

Purchases of marketable securities
(4,811
)
 
(1,448
)
Additions to property, plant and equipment and capitalized software
(335
)
 
(337
)
Proceeds from sale of businesses
3,277

 
8

Other investing activities
(37
)
 

Net Cash Provided by/(Used in) Investing Activities
865

 
(257
)
Cash Flows From Financing Activities:
 
 
 
Short-term debt borrowings, net
45

 
488

Proceeds from issuance of long-term debt

 
12

Repayments of long-term debt
(676
)
 
(597
)
Interest rate swap contract terminations
(4
)
 

Issuances of common stock
229

 
483

Repurchases of common stock

 
(433
)
Dividends
(1,800
)
 
(1,732
)
Net Cash Used in Financing Activities
(2,206
)
 
(1,779
)
Effect of Exchange Rates on Cash and Cash Equivalents
30

 
16

Increase in Cash and Cash Equivalents
1,265

 
115

Cash and Cash Equivalents at Beginning of Period
3,586

 
1,656

Cash and Cash Equivalents at End of Period
$
4,851

 
$
1,771

The accompanying notes are an integral part of these consolidated financial statements.

6





Note 1. BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING STANDARDS

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 September 30, 2014 and December 31, 2013, and the results of operations for the three and nine months ended September 30, 2014 and 2013, and cash flows for the nine months ended September 30, 2014 and 2013. All intercompany balances and transactions have been eliminated. 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, 2013 included in the Annual Report on Form 10-K (2013 Form 10-K).

Certain prior period amounts were reclassified to conform to the current period presentation. Net product sales and alliance and other revenues previously presented in the aggregate as net sales in the consolidated statements of earnings are now presented separately.

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; estimated selling prices used in multiple element arrangements; and pension and postretirement benefits. Actual results may differ from estimated results.

In April 2014, the Financial Accounting Standards Board (FASB) issued amended guidance on the use and presentation of discontinued operations in an entity's consolidated financial statements. The new guidance restricts the presentation of discontinued operations to business circumstances when the disposal of business operations represents a strategic shift that has or will have a major effect on an entity's operations and financial results. The guidance becomes effective on January 1, 2015. Adoption is on a prospective basis.

In May 2014, the FASB issued a new standard related to revenue recognition, which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The new standard will replace most of the existing revenue recognition standards in U.S. GAAP when it becomes effective on January 1, 2017. Early adoption is not permitted. The new standard can be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the change recognized at the date of the initial application in retained earnings. The Company is assessing the potential impact of the new standard on financial reporting and has not yet selected a transition method.

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 distribute and sell the products. 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.

Product revenues were as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Virology
 
 
 
 
 
 
 
Baraclude (entecavir)(a)
$
325

 
$
378

 
$
1,100

 
$
1,115

Hepatitis C Franchise(b)
49

 

 
49

 

Reyataz (atazanavir sulfate)
338

 
375

 
1,044

 
1,167

Sustiva (efavirenz) Franchise(c)
357

 
389

 
1,037

 
1,187

Oncology
 
 
 
 
 
 
 
Erbitux* (cetuximab)
187

 
183

 
542

 
516

Opdivo (nivolumab)(d)
1

 

 
1

 

Sprycel (dasatinib)
385

 
316

 
1,095

 
915

Yervoy (ipilimumab)
350

 
238

 
942

 
700

Neuroscience
 
 
 
 
 
 
 
Abilify* (aripiprazole)(e)
449

 
569

 
1,544

 
1,654

Immunoscience
 
 
 
 
 
 
 
Orencia (abatacept)
444

 
375

 
1,209

 
1,047

Cardiovascular
 
 
 
 
 
 
 
Eliquis (apixaban)
216

 
41

 
493

 
75

Diabetes Alliance(f)
42

 
432

 
248

 
1,228

Mature Products and All Other(g)
778

 
769

 
2,317

 
2,340

Total Revenues
$
3,921

 
$
4,065

 
$
11,621

 
$
11,944

*
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.
(a)
Includes generic sales of entecavir from a U.S. supply and distribution agreement with Par Pharmaceutical Companies, Inc.
(b)
Includes Daklinza (daclatasvir) revenues of $38 million for the three and nine months ended September 30, 2014, and includes Sunvepra (asunaprevir) revenues of $11 million for the three and nine months ended September 30, 2014.
(c)
Includes alliance and other revenue of $309 million and $328 million for the three months ended September 30, 2014 and 2013, respectively, and $894 million and $998 million for the nine months ended September 30, 2014 and 2013, respectively.
(d)
Includes alliance and other revenue from our alliance with Ono Pharmaceutical Company Ltd. in Japan.
(e)
Includes alliance and other revenue of $410 million and $464 million for the three months ended September 30, 2014 and 2013, respectively, and $1,350 million and $1,313 million for the nine months ended September 30, 2014 and 2013, respectively.

(f)
Includes Bydureon* (exenatide extended-release for injectable suspension), Byetta* (exenatide), Farxiga*/Xigduo* (dapagliflozin/dapagliflozin and metformin hydrochloride), Onglyza*/Kombiglyze* (saxagliptin/saxagliptin and metformin), Myalept* (metreleptin) and Symlin* (pramlintide acetate). BMS sold its diabetes business to AstraZeneca on February 1, 2014.
(g)
Includes Plavix* (clopidogrel bisulfate) revenues of $44 million and $42 million for the three months ended September 30, 2014 and 2013, respectively, and $137 million and $177 million for the nine months ended September 30, 2014 and 2013, respectively. Additionally, includes Avapro*/Avalide* (irbesartan/irbesartan-hydrochlorothiazide) revenues of $56 million and $71 million for the three months ended September 30, 2014 and 2013, respectively, and $171 million and $173 million for the nine months ended September 30, 2014 and 2013, respectively.

Note 3. ALLIANCES

BMS enters into collaboration arrangements with third parties for the development and commercialization of certain products. Although each of these arrangements is unique in nature, both parties are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. BMS may either in-license intellectual property owned by the other party or out-license its intellectual property to the other party. These arrangements also typically include research, development, manufacturing, and/or commercial activities and can cover a single investigational compound or commercial product or multiple compounds and/or products in various life cycle stages. We refer to these collaborations as alliances and our partners as alliance partners. Several key products such as Abilify*, Sprycel, Sustiva (Atripla*), Erbitux* and Eliquis, as well as products comprising the diabetes alliance discussed below and certain mature and other brands are included in alliance arrangements.


7




Selected financial information pertaining to our alliances was as follows, including net product sales when BMS is the principal in the third-party customer sale for products subject to the alliance. Expenses summarized below do not include all amounts attributed to the activities for the products in the alliance, but only the payments between the alliance partners or the related amortization if the payments were deferred or capitalized.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Revenues from alliances:
 
 
 
 
 
 
 
Net product sales
$
816

 
$
1,100

 
$
2,493

 
$
3,177

Alliance and other revenues
958

 
969

 
2,909

 
2,736

Total Revenues
$
1,774

 
$
2,069

 
$
5,402

 
$
5,913

 
 
 
 
 
 
 
 
Payments to/(from) alliance partners:
 
 
 
 
 
 
 
Cost of products sold
$
338

 
$
337

 
$
1,016

 
$
964

Marketing, selling and administrative
31

 
(28
)
 
34

 
(97
)
Advertising and product promotion
6

 
(34
)
 
73

 
(56
)
Research and development
(20
)
 
(38
)
 
(55
)
 
(93
)
Other (income)/expense
(411
)
 
(66
)
 
(964
)
 
(238
)
 
 
 
 
 
 
 
 
Noncontrolling interest, pre-tax
7

 
(4
)
 
18

 
19


Selected Alliance Balance Sheet information:
 
 
 
Dollars in Millions
September 30,
2014
 
December 31,
2013
Receivables - from alliance partners
$
1,061

 
$
1,122

Accounts payable - to alliance partners
1,766

 
1,396

Deferred income from alliances(a)
1,515

 
5,089


(a)
Included deferred income classified as liabilities related to assets held-for-sale of $3,671 million at December 31, 2013.

Specific information pertaining to each of our significant alliances is discussed in our 2013 Form 10-K, including their nature and purpose, the significant rights and obligations of the parties, and specific accounting policy elections. Significant developments and updates related to alliances during the nine months ended September 30, 2014 are set forth below.

AstraZeneca

In February 2014, BMS and AstraZeneca terminated their alliance agreements and BMS sold to AstraZeneca substantially all of the diabetes business comprising the alliance. Previously, BMS had an alliance with AstraZeneca consisting of three worldwide codevelopment and commercialization agreements covering (1) Onglyza* and related combination products sold under various names, (2) Farxiga* and related combination products and, (3) beginning in August 2012 after BMS's acquisition of Amylin Pharmaceuticals, Inc. (Amylin), Amylin's portfolio of products including Bydureon*, Byetta*, Symlin* and Myalept*, as well as certain assets owned by Amylin, including a manufacturing facility located in West Chester, Ohio.

The divestiture included the shares of Amylin and the resulting transfer of its Ohio manufacturing facility; the intellectual property related to Onglyza* and Farxiga* (including BMS's interest in the out-licensing agreement for Onglyza* in Japan); and the future purchase of BMS’s manufacturing facility located in Mount Vernon, Indiana in 2015. Substantially all employees dedicated to the diabetes business were transferred to AstraZeneca. The sale of the business has been completed in all jurisdictions. For accounting purposes AstraZeneca is the principal for the end-customer product sales in all markets.

In connection with the sale, BMS and AstraZeneca entered into several agreements, including a transitional services agreement, a supply agreement and a development agreement. Under those agreements, BMS is obligated to provide transitional services such as accounting, financial services, customer service, distribution, regulatory, development, information technology and certain other administrative services for various periods in order to facilitate the orderly transfer of the business operations; to supply certain products, including the active product ingredients for Onglyza* and Farxiga* through 2020; and to perform ongoing development activities for certain clinical trial programs through 2016, among other things. The annual costs attributed to the development agreement are not expected to exceed approximately $227 million in 2014, $127 million in 2015 and $84 million in 2016.


8




Consideration for the transaction includes a $2.7 billion payment at closing; contingent regulatory and sales-based milestone payments of up to $1.4 billion (including $800 million related to approval milestones and $600 million related to sales-based milestones, payable in 2020); royalty payments based on net sales through 2025 and payments up to $225 million if and when certain assets are transferred to AstraZeneca. AstraZeneca will also pay BMS for any required product supply at a price approximating the product cost as well as negotiated transitional service fees.

Royalty rates on net sales are as follows:
 
2014
2015
2016
2017 - 2025
Onglyza* and Farxiga* Worldwide Net Sales up to $500 million
44
%
35
%
27
%
12-25%
Onglyza* and Farxiga* Worldwide Net Sales over $500 million
3
%
7
%
9
%
12-25%
Amylin products U.S. Net Sales

2
%
2
%
5-12%

The stock and asset purchase agreement contains multiple elements to be delivered subsequent to the closing of the transaction, including the China diabetes business (transferred during the third quarter of 2014), the Mount Vernon manufacturing facility, and the activities under the development and supply agreements. Each of these elements was determined to have a standalone value. As a result, a portion of the consideration received at closing was allocated to the undelivered elements using the relative selling price method after determining the best estimated selling price for each element. The remaining amount of consideration was included in the calculation for the gain on sale of the diabetes business. Contingent milestone and royalty payments are similarly allocated among the underlying elements if and when the amounts are determined to be payable to BMS. Amounts allocated to the sale of the business are immediately recognized in the results of operations.  Amounts allocated to the other elements are recognized in the results of operations only to the extent each element has been delivered.

Consideration of $3.8 billion was accounted for in 2014, substantially all in the first quarter (including royalties and $700 million of contingent regulatory milestone payments related to the approval of Farxiga* in both the U.S. and Japan). Approximately $3.3 billion of the consideration was allocated to the sale of the business and the remaining $491 million was allocated to the undelivered elements described above. The gain on sale of the diabetes business was $539 million, including $292 million during the third quarter of 2014 resulting primarily from the transfer of the China diabetes business to AstraZeneca. The gain was based on the difference between the consideration allocated to the sale of the business (net of transaction fees) and the carrying value of the diabetes business net assets (including a $600 million allocation of goodwill and the reversal of $821 million of net deferred tax liabilities attributed to Amylin). The consideration includes $226 million of earned royalties, of which $184 million was allocated to the sale of the business and included in other income and $42 million was allocated to the undelivered elements.

Consideration allocated to the Mount Vernon manufacturing facility will continue to be deferred until transferred to AstraZeneca. Consideration allocated to the development and supply agreements will continue to be amortized over the applicable service periods. Amortization of deferred income attributed to the development agreement was included in other income as the sale of these services are not considered part of BMS’s ongoing major or central operations. Revenues attributed to the supply agreement were included in alliance and other revenues.

Consideration for the transaction is presented for cash flow purposes based on the allocation process described above, either as an investing activity if attributed to the sale of the business or related assets or as an operating activity if attributed to the transitional services, supply arrangement or development agreement.

9




Summarized financial information related to the AstraZeneca alliances was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Revenues from AstraZeneca alliances:
 
 
 
 
 
 
 
Net product sales
$
2

 
$
429

 
$
163

 
$
1,216

Alliance and other revenues
40

 
3

 
85

 
12

Total Revenues
$
42

 
$
432

 
$
248

 
$
1,228

 
 
 
 
 
 
 
 
Payments to/(from) AstraZeneca:
 
 
 
 
 
 
 
Cost of products sold:
 
 
 
 
 
 
 
Profit sharing
$
1

 
$
169

 
$
78

 
$
493

Amortization of deferred income

 
(78
)
 

 
(227
)
 
 
 
 
 
 
 
 
Cost reimbursements to/(from) AstraZeneca recognized in:
 
 
 
 
 
 
 
Cost products sold

 
(10
)
 
(9
)
 
(19
)
Marketing, selling and administrative

 
(30
)
 
(7
)
 
(101
)
Advertising and product promotion

 
(10
)
 
(4
)
 
(28
)
Research and development
(1
)
 
(21
)
 
(10
)
 
(64
)
 
 
 
 
 
 
 
 
Other (income)/expense:
 
 
 
 
 
 
 
Amortization of deferred income
(23
)
 
(8
)
 
(57
)
 
(23
)
Provision for restructuring

 
4

 
(2
)
 
(21
)
Royalties
(46
)
 

 
(184
)
 

Transitional services
(18
)
 

 
(83
)
 

Gain on sale of business
(292
)
 

 
(539
)
 

 
 
 
 
 
 
 
 
Selected Alliance Cash Flow information:
 
 
 
 
 
 
 
Deferred income
19

 

 
308

 
80

Proceeds from sale of business
94

 

 
3,248

 

Other investing activities
114

 

 
167

 

Selected Alliance Balance Sheet information:
 
 
 
Dollars in Millions
September 30,
2014
 
December 31,
2013
Deferred income attributed to:
 
 
 
Non-refundable upfront, milestone and other licensing receipts(a)
$

 
$
3,671

Assets not yet transferred to AstraZeneca
176

 

Services not yet performed for AstraZeneca
250

 


(a)
Included in liabilities related to assets held-for-sale at December 31, 2013.
Otsuka
BMS's commercialization rights to Abilify* in European Union (EU) countries expired in June 2014.
As described in the 2013 Form 10-K, BMS recognizes revenue for Abilify* in the U.S. based on the expected annual contractual share using a forecast of net sales for the year. The percentage is estimated each quarter and determined to be 33% and 34% for the nine months ended September 30, 2014 and 2013, respectively.
Gilead
As described in the 2013 Form 10-K, effective January 1, 2014, following the European loss of exclusivity for Sustiva, the percentage of Atripla* net sales in Europe recognized by BMS is equal to the difference between the average net selling prices of Atripla* and Truvada* (emtricitabine and tenofovir disoproxil fumarate). This alliance will continue in Europe until either party terminates the arrangement or the last patent expiration occurs for Atripla*, Truvada* or Sustiva.

10




Pfizer
As described in the 2013 Form 10-K, BMS has an alliance with Pfizer relating to Eliquis. In 2014, BMS received $60 million of milestone payments from Pfizer related to the acceptance of the filing in the U.S. for the treatment of venous thromboembolism indication and the launch for the prevention of deep vein thrombosis in patients who have undergone hip or knee replacement surgery in the U.S.

The Medicines Company

As described in the 2013 Form 10-K, BMS has an alliance with The Medicines Company for Recothrom on a global basis. In August 2014, The Medicines Company notified BMS that it will exercise its option to acquire the trademarks, intellectual property and inventory exclusively related to the product at a price (expected to be approximately $120 million) determined based on a multiple of sales plus the cost of inventory. The closing is expected to occur in February 2015.

Valeant

As described in the 2013 Form 10-K, BMS has an alliance with Valeant for certain mature brands in Europe. In March 2014, Valeant notified BMS that it will exercise its option to acquire the trademarks and intellectual property exclusively related to the products at a price (expected to be approximately $60 million) determined based on a multiple of sales. The closing is expected to occur in January 2015. A $16 million charge was included in other expense to increase the fair value of the option to $34 million in the first quarter of 2014.

Reckitt Benckiser Group plc

As described in the 2013 Form 10-K, BMS has an alliance with Reckitt Benckiser Group plc (Reckitt) covering certain BMS over-the-counter products sold primarily in Mexico and Brazil. Reckitt also has an option to acquire all remaining rights in such products for those markets and related inventories at the end of the alliance period (May 2016). In April 2014, the alliance was modified to provide an option to Reckitt to purchase the BMS manufacturing facility located in Mexico primarily dedicated to the products included in the alliance. The options can only be exercised together. Substantially all employees at the facility are expected to be transferred to Reckitt if the option is exercised. A $15 million charge was included in other expense to increase the fair value of the option to $129 million in the second quarter of 2014.

Note 4. ACQUISITIONS

In April 2014, BMS acquired all of the outstanding shares of iPierian, Inc. (iPierian), a biotechnology company focused on new treatments for tauopathies, a class of neurodegenerative diseases. The acquisition provides BMS with full rights to IPN007, a preclinical monoclonal antibody to treat progressive supranuclear palsy and other tauopathies. The consideration includes an upfront payment of $175 million, contingent development and regulatory milestone payments up to $550 million and future royalties on net sales if any of the acquired preclinical assets are approved and commercialized. No significant iPierian processes were acquired, therefore the transaction was accounted for as an asset acquisition because iPierian was determined not to be a "business" as that term is defined in ASC 805 - Business Combinations. The upfront payment allocated to IPN007 was $148 million and included in research and development expenses. The remaining $27 million was allocated to deferred tax assets for net operating losses and tax credit carryforwards.

11




Note 5. ASSETS HELD-FOR-SALE

As discussed in "Note 3. Alliances", BMS sold its diabetes business to AstraZeneca in February 2014 which previously comprised the global alliance with them. The diabetes business was treated as a single disposal group held-for-sale as of December 31, 2013. No write-down was required as the fair value of the business less costs to sell exceeded the related carrying value.

The following assets and liabilities of the diabetes business held-for-sale were presented separately from BMS’s other accounts:
Dollars in Millions
 
December 31, 2013
Assets
 
 
Receivables
 
$
83

Inventories
 
163

Deferred income taxes - current
 
125

Prepaid expenses and other
 
20

Property, plant and equipment
 
678

Goodwill
 
550

Other intangible assets
 
5,682

Other assets
 
119

Total assets held-for-sale
 
7,420

 
 
 
Liabilities
 
 
Short-term borrowings and current portion of long-term debt
 
27

Accounts payable
 
30

Accrued expenses
 
148

Deferred income - current
 
352

Accrued rebates and returns
 
81

Deferred income - noncurrent
 
3,319

Deferred income taxes - noncurrent
 
946

Other liabilities
 
28

Total liabilities related to assets held-for-sale
 
$
4,931


Assets held-for-sale were $78 million at September 30, 2014, comprising of intangible assets and inventory to be transferred to The Medicines Company. See "—Note 3. Alliances" for further information.

Note 6. OTHER (INCOME)/EXPENSE
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Interest expense
$
50

 
$
46

 
$
150

 
$
146

Investment income
(20
)
 
(23
)
 
(71
)
 
(76
)
Provision for restructuring
35

 
6

 
72

 
212

Litigation charges/(recoveries)
10

 
17

 
19

 
(5
)
Equity in net income of affiliates
(12
)
 
(42
)
 
(81
)
 
(128
)
Out-licensed intangible asset impairment
18

 

 
18

 

Gain on sale of product lines, businesses and assets
(315
)
 

 
(567
)
 
(1
)
Other alliance and licensing income
(102
)
 
(31
)
 
(354
)
 
(120
)
Pension curtailments, settlements and special termination benefits
28

 
37

 
137

 
138

Other
31

 
(5
)
 
88

 
19

Other (income)/expense
$
(277
)
 
$
5

 
$
(589
)
 
$
185


12




Note 7. RESTRUCTURING

The following is the provision for restructuring:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Employee termination benefits
$
34

 
$
4

 
$
68

 
$
205

Other exit costs
1

 
2

 
4

 
7

Provision for restructuring
$
35

 
$
6

 
$
72

 
$
212


Restructuring charges included termination benefits for workforce reductions of manufacturing, selling, administrative, and research and development personnel across all geographic regions of approximately 360 and 150 for the three months ended September 30, 2014 and 2013, respectively, and approximately 760 and 1,285 for the nine months ended September 30, 2014 and 2013, respectively. Employee termination benefits in the prior period were primarily attributable to sales force reductions following the restructuring of the Sanofi and Otsuka agreements. Employee termination costs in the aggregate range of $230 million to $280 million are expected to be incurred in 2014 and 2015 primarily related to specialty care transformation initiatives designed to create a more simplified organization across all functions and geographic markets. Subject to local regulations, costs will not be recognized until completion of discussions with works councils.

The following table represents the activity of employee termination and other exit cost liabilities:
Dollars in Millions
2014
 
2013
Liability at January 1
$
102

 
$
167

Charges
79

 
223

Changes in estimates
(7
)
 
(11
)
Provision for restructuring
72

 
212

Foreign currency translation
(1
)
 
2

Spending
(73
)
 
(191
)
Liability at September 30
$
100

 
$
190


Note 8. INCOME TAXES

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Dollars in Millions
2014
 
2013
 
2014
 
2013
Earnings Before Income Taxes
$
1,008

 
$
818

 
$
2,441

 
$
2,022

Provision for Income Taxes
276

 
126

 
439

 
177

Effective tax rate
27.4
%
 
15.4
%
 
18.0
%
 
8.8
%

Changes in the effective tax rates between the current and prior period primarily resulted from the following items: 

Unfavorable earnings mix between high and low tax jurisdictions in 2014;
The first quarter of 2013 includes the retroactive reinstatement of the research and development tax credit and look through exception for the full year 2012 ($43 million). The applicable tax legislation for these items was not extended as of September 30, 2014, therefore the research and development tax credit was not considered in the 2014 effective tax rate;
All periods were impacted by other discrete tax benefits attributable to various charges as well as the quarterly tax impacts resulting from the sale of the diabetes business and the acquisition of iPierian in 2014. Minimal tax benefits were attributed to the sale of the diabetes business during the nine months ended September 30, 2014 resulting primarily from the capital loss deduction on the sale of the Amylin shares. No tax benefits were attributable to the research and development charge resulting from the acquisition of iPierian.


13




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. These undistributed earnings primarily relate to operations in Ireland and Puerto Rico, which operate under favorable tax grants not scheduled to expire prior to 2023. If these undistributed earnings are repatriated to the U.S. in the future, or if it were determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required. 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 being 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 September 30, 2014 could decrease in the range of approximately $320 million to $380 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.

Effective January 2014, the Company adopted an update from the FASB that clarified existing guidance on the presentation of unrecognized tax benefits when various qualifying tax benefit carryforwards exist, including when the unrecognized tax benefit should be presented as a reduction to deferred tax assets or as a liability. As a result, non-current deferred tax assets and income tax liabilities were reduced by $236 million.

Note 9. EARNINGS PER SHARE
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Amounts in Millions, Except Per Share Data
2014
 
2013
 
2014
 
2013
Net Earnings Attributable to BMS used for Basic and Diluted EPS Calculation
$
721

 
$
692

 
$
1,991

 
$
1,837

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding – basic
1,658

 
1,646

 
1,656

 
1,643

Contingently convertible debt common stock equivalents
1

 
1

 
1

 
1

Incremental shares attributable to share-based compensation plans
11

 
15

 
11

 
15

Weighted-average common shares outstanding – diluted
1,670

 
1,662

 
1,668

 
1,659

 
 
 
 
 
 
 
 
Earnings per Common Share
 
 
 
 
 
 
 
Basic
$
0.43

 
$
0.42

 
$
1.20

 
$
1.12

Diluted
$
0.43

 
$
0.42

 
$
1.19

 
$
1.11

 
 
 
 
 
 
 
 
Anti-dilutive weighted-average equivalent shares – stock incentive plans

 

 

 


14




Note 10. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
 
September 30, 2014
 
December 31, 2013
Dollars in Millions
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
Cash and cash equivalents - Money market and other securities
$

 
$
4,356

 
$

 
$
4,356

 
$

 
$
3,201

 
$

 
$
3,201

Marketable securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Certificates of deposit

 
1,163

 

 
1,163

 

 
122

 

 
122

Commercial paper

 
250

 

 
250

 

 

 

 

Corporate debt securities

 
5,172

 

 
5,172

 

 
4,432

 

 
4,432

Equity funds

 
91

 

 
91

 

 
74

 

 
74

Fixed income funds

 
10

 

 
10

 

 
46

 

 
46

Auction Rate Securities (ARS)

 

 
12

 
12

 

 

 
12

 
12

Derivative assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap contracts

 
111

 

 
111

 

 
64

 

 
64

Foreign currency forward contracts

 
87

 

 
87

 

 
50

 

 
50

Investments in equity of other companies
18

 

 

 
18

 

 

 

 

Derivative liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap contracts

 
(10
)
 

 
(10
)
 

 
(27
)
 

 
(27
)
Foreign currency forward contracts

 
(2
)
 

 
(2
)
 

 
(35
)
 

 
(35
)
Written option liabilities(a)

 

 
(198
)
 
(198
)
 

 

 
(162
)
 
(162
)
Contingent consideration liability(b)

 

 
(8
)
 
(8
)
 

 

 
(8
)
 
(8
)

(a)
Includes $69 million and $18 million in accrued expenses and $129 million and $144 million in other liabilities as of September 30, 2014 and December 31, 2013, respectively.
(b)
The contingent consideration liability is included in other liabilities.

As further described in "Note 10. Financial Instrument and Fair Value Measurement" in our 2013 Form 10-K, our fair value estimates use inputs that are either (1) quoted prices for identical assets or liabilities in active markets (Level 1 inputs), (2) observable prices for similar assets or liabilities in active markets or for identical or similar assets or liabilities in markets that are not active (Level 2 inputs) or (3) unobservable inputs (Level 3 inputs).
The following table summarizes the activity for financial assets and liabilities utilizing Level 3 fair value measurements:
 
2014
 
2013
Dollars in Millions
ARS
 
Contingent consideration liability
 
Written option liabilities
 
ARS and FRS(a)
 
Contingent consideration liability
 
Written option liabilities
Fair value at January 1
$
12

 
$
(8
)
 
$
(162
)
 
$
31

 
$
(8
)
 
$
(18
)
Additions from new alliances

 

 

 

 

 
(144
)
Sales

 

 

 
(20
)
 

 

Changes in fair value

 

 
(36
)
 

 

 

Fair value at September 30
$
12

 
$
(8
)
 
$
(198
)
 
$
11

 
$
(8
)
 
$
(162
)

(a)
FRS: Floating Rate Securities


15




Available-for-sale Securities

The following table summarizes available-for-sale securities:
 
Dollars in Millions
Amortized
Cost
 
Gross
Unrealized
Gain in
Accumulated
OCI
 
Gross
Unrealized
Loss in
Accumulated
OCI
 
Fair Value
 
 
September 30, 2014
 
 
 
 
 
 
 
 
Certificates of deposit
$
1,163

 
$

 
$

 
$
1,163

 
Commercial paper
250

 

 

 
250

 
Corporate debt securities
5,148

 
33

 
(9
)
 
5,172

 
ARS
9

 
3

 

 
12

 
Investments in equity of other companies
14

 
4

 

 
18

 
Total
$
6,584

 
$
40

 
$
(9
)
 
$
6,615

 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
Certificates of deposit
$
122

 
$

 
$

 
$
122

 
Corporate debt securities
4,401

 
44

 
(13
)
 
4,432

 
ARS
9

 
3

 

 
12

 
Total
$
4,532

 
$
47

 
$
(13
)
 
$
4,566


Available-for-sale securities included in current marketable securities were $2,269 million as of September 30, 2014 and $819 million as of December 31, 2013. Non-current available-for-sale corporate debt securities maturing within five years were $4,316 million as of September 30, 2014. ARS maturing beyond 10 years were $12 million as of September 30, 2014. Investments in equity of other companies of $18 million are included in other assets as of September 30, 2014.

Fair Value Option for Financial Assets

The Company invests in equity and fixed income funds that are designed to offset the changes in fair value of certain employee retirement benefits. Investments in equity and fixed income funds are included in current marketable securities and were $91 million and $10 million, respectively, as of September 30, 2014 and $74 million and $46 million, respectively, as of December 31, 2013. Investment income resulting from the change in fair value for the investments in equity and fixed income funds was not significant.

Qualifying Hedges
The following table summarizes the fair value of outstanding derivatives:
 
 
 
September 30, 2014
 
December 31, 2013
Dollars in Millions
Balance Sheet Location
 
Notional
 
Fair Value
 
Notional
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
Other assets
 
$
1,073

 
$
111

 
$
673

 
$
64

Interest rate swap contracts
Other liabilities
 
1,250

 
(10
)
 
1,950

 
(27
)
Foreign currency forward contracts
Prepaid expenses and other
 
1,012

 
70

 
301

 
44

Foreign currency forward contracts
Other assets
 
191

 
17

 
100

 
6

Foreign currency forward contracts
Accrued expenses
 
45

 
(2
)
 
704

 
(31
)
Foreign currency forward contracts
Other liabilities
 

 

 
263

 
(4
)

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. The notional amount of outstanding foreign currency forward contracts was primarily attributed to the Euro ($490 million) and the Japanese yen ($504 million) at September 30, 2014. The fair value of a foreign currency forward contract attributed to the Japanese yen (notional amount of $130 million) not designated as a cash flow hedge was $8 million and was included in prepaid expenses and other at September 30, 2014.


16




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 nine months ended September 30, 2014 and 2013.

Net Investment Hedges — Non-U.S. dollar borrowings of €541 million ($690 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.

Fixed-to-floating interest rate swap contracts were executed in 2014 to convert $200 million notional amount from fixed rate to variable rate debt.

Long-term debt and the current portion of long-term debt includes:
Dollars in Millions
September 30,
2014
 
December 31,
2013
Principal Value
$
6,870

 
$
7,593

Adjustments to Principal Value:
 
 
 
Fair value of interest rate swap contracts
101

 
37

Unamortized basis adjustment from interest rate swap contract terminations
356

 
442

Unamortized bond discounts
(60
)
 
(64
)
Total
$
7,267

 
$
8,008

 
 
 
 
Current portion of long-term debt(a)
$

 
$
27

Long-term debt
7,267

 
7,981


(a)
Included in liabilities related to assets held-for-sale at December 31, 2013.

The fair value of debt was $7,924 million at September 30, 2014 and $8,487 million at December 31, 2013 and was valued using Level 2 inputs. Interest payments were $131 million and $158 million for the nine months ended September 30, 2014 and 2013, respectively, net of amounts related to interest rate swap contracts.

No commercial paper borrowings were outstanding as of September 30, 2014 and December 31, 2013.

The following information pertains to the outstanding 5.45% Notes due 2018 that were redeemed in February 2014:
 
Nine Months Ended
Dollars in Millions
September 30, 2014
Principal amount
$
582

Carrying value
633

Debt redemption price
676

Notional amount of interest rate swap contracts terminated
500

Interest rate swap contract termination payments
(4
)
Total loss
45


17




Note 11. RECEIVABLES

Dollars in Millions
September 30,
2014
 
December 31,
2013
Trade receivables
$
1,911

 
$
1,779

Less allowances
(88
)
 
(89
)
Net trade receivables
1,823

 
1,690

Alliance partners receivables
1,061

 
1,122

Prepaid and refundable income taxes
144

 
262

Other
293

 
286

Receivables
$
3,321

 
$
3,360


Non-U.S. receivables sold on a nonrecourse basis were $684 million and $728 million for the nine months ended September 30, 2014 and 2013, respectively. In the aggregate, receivables due from our three largest pharmaceutical wholesalers in the U.S. represented 38% and 40% of total trade receivables at September 30, 2014 and December 31, 2013, respectively.

Note 12. INVENTORIES

Dollars in Millions
September 30,
2014
 
December 31,
2013
Finished goods
$
449

 
$
491

Work in process
787

 
757

Raw and packaging materials
329

 
250

Inventories
$
1,565

 
$
1,498


Inventories expected to remain on-hand beyond one year are included in other assets and were $271 million at September 30, 2014 and $351 million at December 31, 2013.

Note 13. PROPERTY, PLANT AND EQUIPMENT

Dollars in Millions
September 30,
2014
 
December 31,
2013
Land
$
109

 
$
109

Buildings
4,784

 
4,748

Machinery, equipment and fixtures
3,747

 
3,699

Construction in progress
322

 
287

Gross property, plant and equipment
8,962

 
8,843

Less accumulated depreciation
(4,575
)
 
(4,264
)
Property, plant and equipment
$
4,387

 
$
4,579


The Mount Vernon, Indiana manufacturing facility's carrying value was approximately $256 million as of September 30, 2014. The facility is expected to be sold in 2015. It was not included in assets held-for-sale for both periods because the assets were not available for immediate sale in their present condition. See "Note 3. Alliances” for further discussion on the sale of the diabetes business.

Depreciation expense was $412 million and $333 million for the nine months ended September 30, 2014 and 2013, respectively.

Note 14. OTHER INTANGIBLE ASSETS

Dollars in Millions
September 30,
2014
 
December 31,
2013
Licenses
$
1,126

 
$
1,162

Developed technology rights
2,358

 
2,486

Capitalized software
1,265

 
1,240

In-process research and development (IPRD)
205

 
548

Gross other intangible assets
4,954

 
5,436

Less accumulated amortization
(3,236
)
 
(3,118
)
Total other intangible assets
$
1,718

 
$
2,318


18





A $310 million IPRD impairment charge was recognized in the second quarter of 2014 for peginterferon lambda which was in Phase III development for treatment of hepatitis C virus. The full write-off was required after assessing the potential commercial viability of the asset and estimating its fair value. The assessment considered the lower likelihood of filing for registration in certain markets after completing revised projections of revenues and expenses. A significant decline from prior projected revenues resulted from the global introduction of oral non-interferon products being used to treat patients with hepatitis C virus and no other alternative uses for the product.

Amortization expense was $222 million and $647 million for the nine months ended September 30, 2014 and 2013, respectively.

Note 15. DEFERRED INCOME
Dollars in Millions
September 30,
2014
 
December 31,
2013
Alliances (Note 3)
$
1,515

 
$
1,418

Gain on sale-leaseback transactions
50

 
71

Other
240

 
36

Total deferred income
$
1,805

 
$
1,525

 
 
 
 
Current portion
$
995

 
$
756

Non-current portion
810

 
769


Alliances include unamortized amounts for upfront, milestone and other licensing receipts, revenue deferrals attributed to the Gilead alliance and deferred income for the undelivered elements of the diabetes business divestiture. Other deferrals include approximately $200 million invoiced for a product under an early access program in the EU that is subject to final price negotiations with the local government.
Amortization of deferred income was $270 million and $398 million for the nine months ended September 30, 2014 and 2013, respectively.

Note 16. EQUITY

 
Common Stock
 
Capital in  Excess
of Par Value
of Stock
 
Retained
Earnings
 
Treasury Stock
 
Noncontrolling
Interest
Dollars and Shares in Millions
Shares
 
Par Value
 
Shares
 
Cost
 
Balance at January 1, 2013
2,208

 
$
221

 
$
2,694

 
$
32,733

 
570

 
$
(18,823
)
 
$
15

Net earnings

 

 

 
1,837

 

 

 
19

Cash dividends declared

 

 

 
(1,744
)
 

 

 

Stock repurchase program

 

 

 

 
11

 
(413
)
 

Employee stock compensation plans

 

 
(728
)
 

 
(20
)
 
1,261

 

Distributions

 

 

 

 

 

 
(46
)
Balance at September 30, 2013
2,208

 
$
221

 
$
1,966

 
$
32,826

 
561

 
$
(17,975
)
 
$
(12
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
2,208

 
$
221

 
$
1,922

 
$
32,952

 
559

 
$
(17,800
)
 
$
82

Net earnings

 

 

 
1,991

 

 

 
11

Cash dividends declared

 

 

 
(1,796
)
 

 

 

Employee stock compensation plans

 

 
(407
)
 

 
(9
)
 
646

 

Debt conversion

 

 
(16
)
 

 
(1
)
 
35

 

Distributions

 

 

 

 

 

 
(35
)
Balance at September 30, 2014
2,208

 
$
221

 
$
1,499

 
$
33,147

 
549

 
$
(17,119
)
 
$
58



19




The components of other comprehensive income/(loss) were as follows:
 
2014
 
2013
 
Pretax
 
Tax
 
After tax
 
Pretax
 
Tax
 
After tax
Three Months Ended September 30,
 
 
 
 
 
 
 
 
 
 
 
Derivatives qualifying as cash flow hedges:(a)
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains/(losses)
$
96

 
$
(31
)
 
$
65

 
$
(39
)
 
$
10

 
$
(29
)
Reclassified to net earnings
(13
)
 
5

 
(8
)
 
(3
)
 
1

 
(2
)
Derivatives qualifying as cash flow hedges
83

 
(26
)
 
57

 
(42
)
 
11

 
(31
)
Pension and postretirement benefits: