10-Q 1 bmy-20170630x10q.htm FORM 10-Q Document


 
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 JUNE 30, 2017
 
 
¨
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  ¨   Emerging growth company  ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
At June 30, 2017, there were 1,639,926,446 shares outstanding of the Registrant’s $0.10 par value common stock.
 




BRISTOL-MYERS SQUIBB COMPANY
INDEX TO FORM 10-Q
JUNE 30, 2017
 

*    Indicates brand names of products which are trademarks not owned by BMS. Specific trademark ownership information is included in the Exhibit Index.





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

 
Three Months Ended June 30,
 
Six Months Ended June 30,
EARNINGS
2017
 
2016
 
2017
 
2016
Net product sales
$
4,770

 
$
4,432

 
$
9,350

 
$
8,396

Alliance and other revenues
374

 
439

 
723

 
866

Total Revenues
5,144

 
4,871

 
10,073

 
9,262

 
 
 
 
 
 
 
 
Cost of products sold
1,562

 
1,206

 
2,821

 
2,258

Marketing, selling and administrative
1,167

 
1,238

 
2,241

 
2,306

Research and development
1,659

 
1,266

 
2,947

 
2,402

Other (income)/expense
(539
)
 
(454
)
 
(1,186
)
 
(974
)
Total Expenses
3,849

 
3,256

 
6,823

 
5,992

 
 
 
 
 
 
 
 
Earnings Before Income Taxes
1,295

 
1,615

 
3,250

 
3,270

Provision for Income Taxes
373

 
427

 
802

 
876

Net Earnings
922

 
1,188

 
2,448

 
2,394

Net Earnings/(Loss) Attributable to Noncontrolling Interest
6

 
22

 
(42
)
 
33

Net Earnings Attributable to BMS
$
916

 
$
1,166

 
$
2,490

 
$
2,361

 
 
 
 
 
 
 
 
Earnings per Common Share
 
 
 
 
 
 
 
Basic
$
0.56

 
$
0.70

 
$
1.51

 
$
1.41

Diluted
$
0.56

 
$
0.69

 
$
1.50

 
$
1.41

 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
0.39

 
$
0.38

 
$
0.78

 
$
0.76



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in Millions
(UNAUDITED)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
COMPREHENSIVE INCOME
2017
 
2016
 
2017
 
2016
Net Earnings
$
922

 
$
1,188

 
$
2,448

 
$
2,394

Other Comprehensive Income/(Loss), net of taxes and reclassifications to earnings:
 
 
 
 
 
 
 
Derivatives qualifying as cash flow hedges
(31
)
 
(44
)
 
(60
)
 
(130
)
Pension and postretirement benefits
(27
)
 
(124
)
 
56

 
(285
)
Available-for-sale securities
13

 
41

 
19

 
54

Foreign currency translation
(8
)
 
16

 
21

 
25

Other Comprehensive Income/(Loss)
(53
)
 
(111
)
 
36

 
(336
)
 
 
 
 
 
 
 
 
Comprehensive Income
869

 
1,077

 
2,484

 
2,058

Comprehensive Income/(Loss) Attributable to Noncontrolling Interest
6

 
22

 
(42
)
 
33

Comprehensive Income Attributable to BMS
$
863

 
$
1,055

 
$
2,526

 
$
2,025

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


3




BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEETS
Dollars in Millions, Except Share and Per Share Data(UNAUDITED) 
ASSETS
June 30,
2017
 
December 31,
2016
Current Assets:
 
 
 
Cash and cash equivalents
$
3,470

 
$
4,237

Marketable securities
3,035

 
2,113

Receivables
5,782

 
5,543

Inventories
1,217

 
1,241

Prepaid expenses and other
820

 
570

Total Current Assets
14,324

 
13,704

Property, plant and equipment
4,944

 
4,980

Goodwill
6,861

 
6,875

Other intangible assets
1,245

 
1,385

Deferred income taxes
2,572

 
2,996

Marketable securities
2,580


2,719

Other assets
883

 
1,048

Total Assets
$
33,409

 
$
33,707

 
 
 
 
LIABILITIES
 
 
 
Current Liabilities:
 
 
 
Short-term debt obligations
$
1,306

 
$
992

Accounts payable
1,551

 
1,664

Accrued liabilities
5,132

 
5,271

Deferred income
737

 
762

Income taxes payable
291

 
152

Total Current Liabilities
9,017

 
8,841

Deferred income
512

 
547

Income taxes payable
967

 
973

Pension and other liabilities
1,181

 
1,283

Long-term debt
6,911

 
5,716

Total Liabilities
18,588

 
17,360

 
 
 
 
Commitments and contingencies (Note 17)

 

 
 
 
 
EQUITY
 
 
 
Bristol-Myers Squibb Company Shareholders’ Equity:
 
 
 
Preferred stock

 

Common stock
221

 
221

Capital in excess of par value of stock
1,794

 
1,725

Accumulated other comprehensive loss
(2,467
)
 
(2,503
)
Retained earnings
33,934

 
33,513

Less cost of treasury stock
(18,783
)
 
(16,779
)
Total Bristol-Myers Squibb Company Shareholders’ Equity
14,699

 
16,177

Noncontrolling interest
122

 
170

Total Equity
14,821

 
16,347

Total Liabilities and Equity
$
33,409

 
$
33,707

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

4




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

 
Six Months Ended June 30,
 
2017
 
2016
Cash Flows From Operating Activities:
 
 
 
Net earnings
$
2,448

 
$
2,394

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
Depreciation and amortization, net
404

 
155

Deferred income taxes
21

 
(317
)
Stock-based compensation
99

 
101

Impairment charges
219

 
68

Pension settlements and amortization
107

 
83

Divestiture gains and royalties
(411
)
 
(927
)
Asset acquisition charges
200

 
239

Other adjustments
99

 
(24
)
Changes in operating assets and liabilities:
 
 
 
Receivables
(454
)
 
(852
)
Inventories
(58
)
 
(111
)
Accounts payable
(85
)
 
(36
)
Deferred income
(2
)
 
263

Income taxes payable
465

 
(442
)
Other
(607
)
 
(383
)
Net Cash Provided by Operating Activities
2,445

 
211

Cash Flows From Investing Activities:
 
 
 
Sale and maturities of marketable securities
2,283

 
2,794

Purchase of marketable securities
(3,041
)
 
(1,195
)
Capital expenditures
(539
)
 
(503
)
Divestiture and other proceeds
389

 
1,003

Acquisition and other payments
(319
)
 
(267
)
Net Cash Provided by/(Used in) Investing Activities
(1,227
)
 
1,832

Cash Flows From Financing Activities:
 
 
 
Short-term debt obligations, net
300

 
17

Issuance of long-term debt
1,488

 

Repayment of long-term debt
(474
)
 

Repurchase of common stock
(2,000
)
 
(231
)
Dividends
(1,298
)
 
(1,276
)
Other
(35
)
 
(12
)
Net Cash Used in Financing Activities
(2,019
)
 
(1,502
)
Effect of Exchange Rates on Cash and Cash Equivalents
34

 
8

Increase/(Decrease) in Cash and Cash Equivalents
(767
)
 
549

Cash and Cash Equivalents at Beginning of Period
4,237

 
2,385

Cash and Cash Equivalents at End of Period
$
3,470

 
$
2,934

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

5





Note 1. BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING STANDARDS

Bristol-Myers Squibb Company prepared these unaudited consolidated financial statements following the requirements of the SEC and U.S. GAAP for interim reporting. Under those rules, certain footnotes and other financial information that are normally required for annual financial statements can be condensed or omitted. The Company is responsible for the consolidated financial statements included in this Quarterly Report on Form 10-Q, which include all adjustments necessary for a fair presentation of the financial position at June 30, 2017 and December 31, 2016, the results of operations for the three and six months ended June 30, 2017, and cash flows for the six months ended June 30, 2017 and 2016. All intercompany balances and transactions have been eliminated. These financial statements and the related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2016 included in the 2016 Form 10-K. Refer to the Summary of Abbreviated Terms at the end of this Quarterly Report on Form 10-Q for terms used throughout the document.

Revenues, expenses, assets and liabilities can vary during each quarter of the year. Accordingly, the results and trends in these unaudited consolidated financial statements may not be indicative of full year operating results. The preparation of financial statements requires the use of management estimates, judgments and assumptions. The most significant assumptions are estimates used in determining sales rebate and return accruals; legal contingencies; income taxes; determining if an acquisition or divestiture is a business or an asset; and pension and postretirement benefits. Actual results may differ from estimates.

Certain prior period amounts were reclassified to conform to the current period presentation. The consolidated statements of cash flows previously presented interest rate swap contract terminations and issuance of common stock as separate line items within cash flows from financing activities which are now presented as components of other financing activities. The reclassifications provide a more concise financial statement presentation and additional information is disclosed in the notes if material.

Recently Adopted Accounting Standards
Share-based Payment Transactions
Amended guidance for share-based payment transactions was adopted in the first quarter of 2017. Net excess tax benefits of $23 million for the six months ended June 30, 2017 were recognized prospectively as a reduction of tax expense rather than capital in excess of par value of stock. Net excess tax benefits are also presented as an operating cash flow rather than a financing cash flow, and cash payments to tax authorities in connection with shares withheld for statutory tax withholding requirements are presented as a financing cash flow rather than an operating cash flow. The changes in cash flow presentation were applied retrospectively and increased operating cash flows and decreased financing cash flows by $105 million for the six months ended June 30, 2017 and $186 million for the six months ended June 30, 2016.

Income Tax Accounting for Intra-entity Transfers of Assets Other Than Inventory
Amended guidance on income tax accounting for intra-entity transfers of assets other than inventory was early adopted in the first quarter of 2017 on a modified retrospective approach. The amended guidance requires tax consequences of these transfers be recognized in the period the transfer takes place. Net reductions to prepaid and deferred tax assets pertaining to pre-2017 internal transfers of intellectual property of $787 million were adjusted through retained earnings as a cumulative effect of an accounting change which will reduce the annual tax expense by $86 million beginning in 2017. In addition, the tax consequences of additional internal transfers of intellectual property that may occur in the future will be included in income tax expense upon transfer and not amortized in subsequent periods.

Recently Issued Accounting Standards
Presentation of Net Periodic Pension and Postretirement Benefits
In March 2017, the FASB issued amended guidance requiring all net periodic benefit components for defined benefit pension and other postretirement plans other than service costs to be recorded outside of income from operations (other income). The guidance is effective in 2018 on a retrospective basis. The Company expects that annual cost of products sold; marketing, selling and administrative; and research and development expenses will increase by approximately $150 million in the aggregate with a corresponding offset in other income.


6




In addition, the following recently issued accounting standards have not been adopted. Refer to the 2016 Form 10-K for additional information and their potential impacts.
Accounting Standard Update
Effective Date
Revenue from Contracts with Customers
January 1, 2018
Recognition and Measurement of Financial Assets and Liabilities
January 1, 2018
Definition of a Business
January 1, 2018
Leases
January 1, 2019
Financial Instruments - Measurement of Credit Losses
January 1, 2020
Goodwill Impairment Testing
January 1, 2020

Note 2. BUSINESS SEGMENT INFORMATION

BMS operates in a single segment engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of innovative medicines that help patients prevail over serious diseases. A global research and development organization and supply chain organization are responsible for the discovery, development, manufacturing and supply of products. Regional commercial organizations market, distribute and sell the products. The business is also supported by global corporate staff functions. The determination of a single segment is consistent with the financial information regularly reviewed by the chief executive officer for purposes of evaluating performance, allocating resources, setting incentive compensation targets and planning and forecasting future periods.

Product revenues and the composition of total revenues were as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2017
 
2016
 
2017
 
2016
Prioritized Brands
 
 
 
 
 
 
 
Opdivo
$
1,195

 
$
840

 
$
2,322

 
$
1,544

Eliquis
1,176

 
777

 
2,277

 
1,511

Orencia
650

 
593

 
1,185

 
1,068

Sprycel
506

 
451

 
969

 
858

Yervoy
322

 
241

 
652

 
504

Empliciti
55

 
34

 
108

 
62

Established Brands
 
 
 
 
 
 
 
Hepatitis C Franchise
112

 
546

 
274

 
973

Baraclude
273

 
299

 
555

 
590

Sustiva Franchise
188

 
271

 
372

 
544

Reyataz Franchise
188

 
247

 
381

 
468

Other Brands
479

 
572

 
978

 
1,140

Total Revenues
$
5,144

 
$
4,871

 
$
10,073

 
$
9,262

 
 
 
 
 
 
 
 
Net product sales
$
4,770

 
$
4,432

 
$
9,350

 
$
8,396

Alliance revenues
326

 
418

 
623

 
827

Other revenues
48

 
21

 
100

 
39

Total Revenues
$
5,144

 
$
4,871

 
$
10,073

 
$
9,262



7




Note 3. ALLIANCES

BMS enters into collaboration arrangements with third parties for the development and commercialization of certain products. Although each of these arrangements is unique in nature, both parties are active participants in the operating activities of the collaboration and are exposed to significant risks and rewards depending on the commercial success of the activities. BMS may either in-license intellectual property owned by the other party or out-license its intellectual property to the other party. These arrangements also typically include research, development, manufacturing and/or commercial activities and can cover a single investigational compound or commercial product or multiple compounds and/or products in various life cycle stages. The rights and obligations of the parties can be global or limited to geographic regions. We refer to these collaborations as alliances and our partners as alliance partners. Products sold through alliance arrangements in certain markets include Opdivo, Eliquis, Orencia, Sprycel, Yervoy, Empliciti, Sustiva (Atripla*) and certain other brands.

Selected financial information pertaining to our alliances was as follows, including net product sales when BMS is the principal in the third-party customer sale for products subject to the alliance. Expenses summarized below do not include all amounts attributed to the activities for the products in the alliance, but only the payments between the alliance partners or the related amortization if the payments were deferred or capitalized.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2017
 
2016
 
2017
 
2016
Revenues from alliances:
 
 
 
 
 
 
 
Net product sales
$
1,705

 
$
1,335

 
$
3,281

 
$
2,566

Alliance revenues
326

 
418

 
623

 
827

Total Revenues
$
2,031

 
$
1,753

 
$
3,904

 
$
3,393

 
 
 
 
 
 
 
 
Payments to/(from) alliance partners:
 
 
 
 
 
 
 
Cost of products sold
$
667

 
$
495

 
$
1,291

 
$
971

Marketing, selling and administrative
(14
)
 
(8
)
 
(23
)
 
(7
)
Research and development
6

 
(3
)
 
6

 
30

Other (income)/expense
(148
)
 
(451
)
 
(394
)
 
(704
)
 
 
 
 
 
 
 
 
Noncontrolling interest, pretax
3

 
8

 
5

 
10

 
Selected Alliance Balance Sheet information:
 
 
 
Dollars in Millions
June 30,
2017
 
December 31,
2016
Receivables - from alliance partners
$
876

 
$
903

Accounts payable - to alliance partners
622

 
555

Deferred income from alliances(a)
1,159

 
1,194

(a)
Includes unamortized upfront, milestone and other licensing proceeds, revenue deferrals attributed to Atripla* and undelivered elements of diabetes business divestiture proceeds. Amortization of deferred income (primarily related to alliances) was $39 million and $143 million for the six months ended June 30, 2017 and 2016, respectively.
    
Specific information pertaining to each of our significant alliances is discussed in our 2016 Form 10-K, including their nature and purpose, the significant rights and obligations of the parties and specific accounting policy elections. Significant developments and updates related to alliances during the six months ended June 30, 2017 are set forth below.

AstraZeneca
BMS received $100 million from AstraZeneca as additional contingent consideration for the diabetes business divestiture upon achievement of a regulatory approval milestone in the first quarter of 2017 (included in other income).

F-Star Alpha
In the first quarter of 2017, BMS discontinued development of FS102 (an anti-HER2 antibody fragment) which was in Phase I development for the treatment of breast and gastric cancer. BMS will not exercise its option to purchase F-Star Alpha which was previously consolidated by BMS as a variable interest entity. As a result, an IPRD charge of $75 million was included in R&D expense and attributed to noncontrolling interest in the first quarter of 2017.

8




Note 4. ACQUISITIONS, DIVESTITURES AND LICENSING ARRANGEMENTS

Acquisitions
Flexus
In the second quarter of 2017, a $100 million milestone was achieved and paid to former stockholders of Flexus as additional contingent consideration following the commencement of a Phase II clinical study of an anti-cancer compound, IDO inhibitor. The additional consideration was included in R&D expense as the Flexus acquisition in 2015 was accounted for as an asset acquisition.
Cardioxyl
In the second quarter of 2017, a $100 million milestone was achieved and paid to former stockholders of Cardioxyl as additional contingent consideration following the commencement of a Phase II clinical study of a cardiovascular compound, Nitroxyl Donor. The additional consideration was included in R&D expense as the Cardioxyl acquisition in 2015 was accounted for as an asset acquisition.

Divestitures
SK Biotek
In the second quarter of 2017, BMS agreed to sell its small molecule active pharmaceutical ingredient manufacturing operations in Swords, Ireland to SK Biotek. The divestiture includes the transfer of the facility, the majority of employees at the site, inventories and certain third-party contract manufacturing obligations. The purchase price is expected to be approximately $150 million subject to inventory levels on the date of closing. The transaction is expected to close in the fourth quarter of 2017 subject to SK Biotek's receipt of certain environmental permits and other customary closing conditions and will be accounted for as a sale of a business. Net assets of approximately $150 million were accounted for as held-for-sale as of June 30, 2017, consisting primarily of inventories and property, plant and equipment, and were included in prepaid expenses and other. The assets were reduced to their estimated relative fair value after considering the purchase price resulting in an impairment charge of $127 million that was included in cost of products sold in the second quarter of 2017. SK Biotek will provide certain manufacturing services for BMS through 2022. Revenues and pretax earnings related to this operation were not material in 2017 and 2016 (excluding the impairment charge).

Licensing Arrangements
CytomX
BMS expanded its strategic collaboration with CytomX to discover novel therapies using CytomX’s proprietary Probody platform in the second quarter of 2017. As part of the original May 2014 collaboration to discover, develop and commercialize Probody therapeutics, BMS selected four oncology targets, including CTLA-4. Pursuant to the expanded agreement, CytomX will grant BMS exclusive worldwide rights to develop and commercialize Probody therapeutics for up to eight additional targets. BMS paid CytomX $75 million for the rights to the initial four targets which was expensed as R&D prior to 2017. BMS paid $200 million to CytomX for access to the additional targets which was included in R&D expense in the second quarter of 2017. BMS will also reimburse CytomX for certain research costs over the collaboration period, pay up to $448 million upon achievement of contingent development, regulatory and sales milestone events for each collaboration target and future royalties if a product is approved and commercialized.
Biogen
BMS out-licensed to Biogen exclusive rights to develop and commercialize BMS-986168, an anti-eTau compound in development for Progressive Supranuclear Palsy, in the second quarter of 2017. Biogen paid $300 million to BMS which was included in other income in the second quarter of 2017 as BMS has no further performance obligations as part of the agreement. BMS is also entitled to contingent development, regulatory and sales based milestone payments of up to $410 million if achieved as well as future royalties if the product is ultimately approved and commercialized. BMS originally acquired the rights to this compound in 2014 through its acquisition of iPierian. Biogen will assume all of BMS’s remaining obligations to the former stockholders of iPierian.
Roche
BMS out-licensed to Roche exclusive rights to develop and commercialize BMS-986089, an anti-myostatin adnectin in development for Duchenne Muscular Dystrophy, in the second quarter of 2017. Roche paid $170 million to BMS which was included in other income in the second quarter of 2017 as BMS has no further performance obligations as part of the agreement. BMS will also be entitled to contingent development and regulatory milestone payments of up to $205 million if achieved and future royalties if the product is ultimately approved and commercialized.

9




Note 5. OTHER (INCOME)/EXPENSE
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2017
 
2016
 
2017
 
2016
Interest expense
$
52

 
$
42

 
$
97

 
$
85

Investment income
(34
)
 
(25
)
 
(67
)
 
(49
)
Provision for restructuring
15

 
18

 
179

 
22

Litigation and other settlements(a)
(5
)
 
6

 
(489
)
 
49

Equity in net income of affiliates
(20
)
 
(20
)
 
(38
)
 
(46
)
Divestiture gains

 
(283
)
 
(127
)
 
(553
)
Royalties and licensing income(b)
(685
)
 
(167
)
 
(884
)
 
(421
)
Transition and other service fees
(13
)
 
(74
)
 
(20
)
 
(127
)
Pension charges
36

 
25

 
69

 
47

Intangible asset impairments

 

 

 
15

Equity investment impairment

 
45

 

 
45

Loss on debt redemption
109

 

 
109

 

Other
6

 
(21
)
 
(15
)
 
(41
)
Other (income)/expense
$
(539
)
 
$
(454
)
 
$
(1,186
)
 
$
(974
)
(a)
Includes BMS's share of a patent-infringement litigation settlement of $481 million related to Merck's PD-1 antibody Keytruda* in the six months ended June 30, 2017.
(b)
Includes upfront licensing fees of $470 million from Biogen and Roche in the three and six months ended June 30, 2017.

Note 6. RESTRUCTURING

In October 2016, the Company announced a restructuring plan to evolve and streamline its operating model and expects to incur charges in connection with employee workforce reductions and early site exits. The charges are expected to be incurred through 2020, range between $1.5 billion to $2.0 billion and consist of employee termination benefit costs, contract termination costs, plant and equipment accelerated depreciation and impairment charges and other site shutdown costs. Cash outlays in connection with these actions are expected to be approximately 40% to 50% of the total charges. Charges of $536 million have been recognized for these actions since the announcement ($225 million and $447 million for the three and six months ended June 30, 2017, respectively). These charges include an impairment charge for the manufacturing operations in Swords, Ireland discussed in "—Note 4. Acquisitions, Divestitures and Licensing Arrangements." Restructuring charges are recognized upon meeting certain criteria, including finalization of committed plans, reliable estimates and discussions with local works councils in certain markets.

Other restructuring charges recognized prior to the above actions were primarily related to specialty care transformation initiatives designed to create a more simplified organization across all functions and geographic markets. In addition, accelerated depreciation and other charges were incurred in connection with the expected early exits of a manufacturing site in Ireland and R&D site in the U.S.

Employee workforce reductions were approximately 1,000 and 200 for the six months ended June 30, 2017 and 2016, respectively, across all geographic regions for manufacturing, marketing, selling, administrative and R&D personnel.

The following tables summarize the charges and activity related to the restructuring actions:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2017
 
2016
 
2017
 
2016
Employee termination costs
$
11

 
$
11

 
$
172

 
$
15

Other termination costs
4

 
7

 
7

 
7

Provision for restructuring
15

 
18

 
179

 
22

Accelerated depreciation
82

 
13

 
152

 
27

Asset impairments
141

 

 
143

 

Other shutdown costs
3

 
4

 
3

 
7

Total charges
$
241

 
$
35

 
$
477

 
$
56


10




         
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2017
 
2016
 
2017
 
2016
Cost of products sold
$
130

 
$
4

 
$
130

 
$
8

Research and development
96

 
13

 
168

 
26

Other (income)/expense
15

 
18

 
179

 
22

Total charges
$
241

 
$
35

 
$
477

 
$
56

 
Six Months Ended June 30,
Dollars in Millions
2017
 
2016
Liability at January 1
$
114

 
$
125

Charges
198

 
28

Change in estimates
(19
)
 
(6
)
Provision for restructuring
179

 
22

Foreign currency translation
10

 
2

Spending
(105
)
 
(64
)
Liability at June 30
$
198

 
$
85


Note 7. INCOME TAXES
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Dollars in Millions
2017
 
2016
 
2017
 
2016
Earnings Before Income Taxes
$
1,295

 
$
1,615

 
$
3,250

 
$
3,270

Provision for Income Taxes
373

 
427

 
802

 
876

Effective Tax Rate
28.8
%
 
26.4
%
 
24.7
%
 
26.8
%

The effective tax rate is lower than the U.S. statutory rate of 35% which is primarily attributable to undistributed earnings of certain foreign subsidiaries in low tax jurisdictions that have been considered or are expected to be indefinitely reinvested offshore. These undistributed earnings primarily relate to operations in Switzerland, Ireland and Puerto Rico. If these undistributed earnings are repatriated to the U.S. in the future, or if it were determined that such earnings are to be remitted in the foreseeable future, additional tax provisions would be required. Due to complexities in the tax laws and assumptions that would have to be made, it is not practicable to estimate the amounts of income taxes that would have to be provided. Reforms to U.S. tax laws related to foreign earnings have been proposed and if adopted, may increase taxes, which could reduce the results of operations and cash flows. BMS operates under a favorable tax grant in Puerto Rico not scheduled to expire prior to 2023.

Jurisdictional tax rates and other tax impacts attributed to R&D charges, divestiture transactions and other discrete pretax items increased the effective tax rate by 3.5% and 4.0% in the six months ended June 30, 2017 and 2016, respectively, including non-deductible R&D asset acquisition charges and goodwill allocated to business divestitures. The tax impact for discrete items are reflected immediately and are not considered in estimating the annual effective tax rate.

The adoption of the amended guidance for intra-entity transfers of assets other than inventory and share-based payment transactions reduced the effective tax rate by 2.0% in the six months ended June 30, 2017. Refer to "—Note 1. Basis of Presentation and Recently Issued Accounting Standards" for additional information.

BMS is currently under examination by a number of tax authorities which have proposed or are considering proposing material adjustments to tax positions for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. It is reasonably possible that the total amount of unrecognized tax benefits at June 30, 2017 could decrease in the range of approximately $255 million to $315 million in the next twelve months as a result of the settlement of certain tax audits and other events. The expected change in unrecognized tax benefits may result in the payment of additional taxes, adjustment of certain deferred taxes and/or recognition of tax benefits. 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.


11




Note 8. EARNINGS PER SHARE
 
Three Months Ended June 30,
 
Six Months Ended June 30,
Amounts in Millions, Except Per Share Data
2017
 
2016
 
2017
 
2016
Net Earnings Attributable to BMS used for Basic and Diluted EPS Calculation
$
916

 
$
1,166

 
$
2,490

 
$
2,361

 
 
 
 
 
 
 
 
Weighted-average common shares outstanding – basic
1,644

 
1,670

 
1,653

 
1,670

Incremental shares attributable to share-based compensation plans
6

 
9

 
7

 
9

Weighted-average common shares outstanding – diluted
1,650

 
1,679

 
1,660

 
1,679

 
 
 
 
 
 
 
 
Earnings per Common Share:
 
 
 
 
 
 
 
Basic
$
0.56

 
$
0.70

 
$
1.51

 
$
1.41

Diluted
$
0.56

 
$
0.69

 
$
1.50

 
$
1.41


Note 9. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:
 
June 30, 2017
 
December 31, 2016
Dollars in Millions
Level 1
 
Level 2
 
Level 1
 
Level 2
Cash and cash equivalents - Money market and other securities
$

 
$
2,825

 
$

 
$
3,532

Marketable securities:
 
 
 
 
 
 
 
Certificates of deposit

 
557

 

 
27

Commercial paper

 
1,056

 

 
750

Corporate debt securities

 
3,881

 

 
3,947

Equity funds

 
114

 

 
101

Fixed income funds

 
7

 

 
7

Derivative assets

 
16

 

 
75

Equity investments
63

 

 
24

 

Derivative liabilities

 
(47
)
 

 
(30
)

As further described in "Note 9. Financial Instruments and Fair Value Measurements" in our 2016 Form 10-K, our fair value estimates use inputs that are either (1) quoted prices for identical assets or liabilities in active markets (Level 1 inputs), (2) observable prices for similar assets or liabilities in active markets or for identical or similar assets or liabilities in markets that are not active (Level 2 inputs) or (3) unobservable inputs (Level 3 inputs). There were no Level 3 financial assets or liabilities as of June 30, 2017 and December 31, 2016.

Available-for-sale Securities

The following table summarizes available-for-sale securities:
 
June 30, 2017
 
December 31, 2016
Dollars in Millions
Amortized Cost
 
Gross Unrealized
 
 
 
Amortized Cost
 
Gross Unrealized
 
 
 
Gains
 
Losses
 
Fair Value
 
 
Gains
 
Losses
 
Fair Value
Certificates of deposit
$
557

 
$

 
$

 
$
557

 
$
27

 
$

 
$

 
$
27

Commercial paper
1,056

 

 

 
1,056

 
750

 

 

 
750

Corporate debt securities
3,870

 
15

 
(4
)
 
3,881

 
3,945

 
10

 
(8
)
 
3,947

Equity investments
58

 
10

 
(5
)
 
63

 
31

 

 
(7
)
 
24

 
$
5,541

 
$
25

 
$
(9
)
 
$
5,557

 
$
4,753

 
$
10

 
$
(15
)
 
$
4,748

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial assets measured using the fair value option
 
 
 
 
 
 
 
 
 
 
 
 
Equity and fixed income funds(a)
 
 
 
 
 
 
121

 
 
 
 
 
 
 
108

Total
 
 
 
 
 
 
$
5,678

 
 
 
 
 
 
 
$
4,856


12




Dollars in Millions
June 30,
2017
 
December 31,
2016
Current marketable securities
$
3,035

 
$
2,113

Non-current marketable securities(b)
2,580

 
2,719

Other assets(c)
63

 
24

Total
$
5,678

 
$
4,856

(a)
The fair value option for financial assets was elected for investments in equity and fixed income funds and are included in current marketable securities.
(b)
All non-current marketable securities mature within five years as of June 30, 2017 and December 31, 2016.
(c)
Includes equity investments.

Qualifying Hedges and Non-Qualifying Derivatives
The following table summarizes the fair value of outstanding derivatives:
 
June 30, 2017
 
December 31, 2016
 
Asset(a)
 
Liability(b)
 
Asset(a)
 
Liability(b)
Dollars in Millions
Notional
 
Fair Value
 
Notional
 
Fair Value
 
Notional
 
Fair Value
 
Notional
 
Fair Value
Derivatives designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest rate swap contracts
$

 
$

 
$
1,505

 
$
(3
)
 
$
750

 
$
1

 
$
755

 
$
(3
)
Forward starting interest rate swap contracts

 

 

 

 
500

 
8

 
250

 
(11
)
Foreign currency forward contracts
288

 
16

 
894

 
(43
)
 
967

 
66

 
198

 
(9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Foreign currency forward contracts
37

 

 
131

 
(1
)
 
106

 

 
360

 
(7
)
(a)
Included in prepaid expenses and other and other assets.
(b)
Included in accrued liabilities and pension and other liabilities.

Cash Flow Hedges — The notional amount of outstanding foreign currency forward contracts was primarily attributed to the euro ($705 million) and Japanese yen ($239 million) at June 30, 2017. BMS terminated forward starting interest rate swap contracts in the first quarter of 2017 with an aggregate notional value of $750 million. The proceeds and related gain were not material.

Net Investment Hedges — Non-U.S. dollar borrowings of €950 million ($1,063 million) are designated to hedge euro currency exposures of the net investment in certain foreign affiliates.

Fair Value Hedges — The notional amount of fixed-to-floating interest rate swap contracts terminated was $500 million in 2016 generating proceeds of $43 million (including accrued interest).

Debt Obligations
Short-term debt obligations include:
Dollars in Millions
June 30,
2017
 
December 31,
2016
Bank drafts and short-term borrowings
$
556

 
$
243

Current portion of long-term debt
750

 
749

Total
$
1,306

 
$
992


The average amount of commercial paper outstanding was $39 million at a weighted-average rate of 0.85% during 2017. The maximum amount of commercial paper outstanding was $500 million with no outstanding borrowings at June 30, 2017.

13




Long-term debt and the current portion of long-term debt include:
Dollars in Millions
June 30,
2017
 
December 31,
2016
Principal Value
$
7,508

 
$
6,261

Adjustments to Principal Value:
 
 
 
Fair value of interest rate swap contracts
(3
)
 
(2
)
Unamortized basis adjustment from swap terminations
240

 
287

Unamortized bond discounts and issuance costs
(84
)
 
(81
)
Total
$
7,661

 
$
6,465

 
 
 
 
Current portion of long-term debt
$
750

 
$
749

Long-term debt
6,911

 
5,716


The fair value of debt was $8.1 billion at June 30, 2017 and $6.9 billion at December 31, 2016 valued using Level 2 inputs. Interest payments were $114 million and $102 million for the six months ended June 30, 2017 and 2016, respectively, net of amounts related to interest rate swap contracts.

On February 27, 2017, BMS issued senior unsecured notes in a registered public offering. The notes rank equally in right of payment with all of BMS's existing and future senior unsecured indebtedness. BMS may redeem the notes, in whole or in part, at any time prior to maturity at a predetermined redemption price. The following table summarizes the note issuances:
Dollars in Millions
2017
Principal Value:
 
1.600% Notes due 2019
$
750

3.250% Notes due 2027
750

Total
$
1,500

 
 
Proceeds net of discount and deferred loan issuance costs
$
1,488


During the second quarter of 2017, the Company repurchased certain long-term debt obligations with interest rates ranging from 5.875% to 6.875%. The following summarizes the debt repurchase activity:
Dollars in Millions
2017
Principal amount
$
337

Carrying value
366

Debt redemption price
474

Loss on debt redemption(a)
109

(a)
Including acceleration of debt issuance costs, gain on previously terminated interest rate swap contracts and other related fees.

Note 10. RECEIVABLES
Dollars in Millions
June 30,
2017
 
December 31,
2016
Trade receivables
$
4,403

 
$
3,948

Less charge-backs and cash discounts
(139
)
 
(126
)
Less bad debt allowances
(45
)
 
(48
)
Net trade receivables
4,219

 
3,774

Alliance receivables
876

 
903

Prepaid and refundable income taxes
318

 
627

Other
369

 
239

Receivables
$
5,782

 
$
5,543


Non-U.S. receivables sold on a nonrecourse basis were $287 million and $341 million for the six months ended June 30, 2017 and 2016, respectively. Receivables from our three largest pharmaceutical wholesalers in the U.S. represented 66% of total trade receivables at June 30, 2017 and December 31, 2016.

14




Note 11. INVENTORIES
Dollars in Millions
June 30,
2017
 
December 31,
2016
Finished goods
$
412

 
$
310

Work in process
927

 
988

Raw and packaging materials
201

 
264

Total inventories
$
1,540

 
$
1,562

 
 
 
 
Inventories
$
1,217

 
$
1,241

Other assets
323

 
321


Inventories of $131 million were reclassified to assets held-for-sale during the second quarter of 2017 as a result of the expected transfer of manufacturing operations in Swords, Ireland to SK Biotek. Refer to "—Note 4. Acquisitions, Divestitures and Licensing Arrangements" for additional information. Other assets include inventory pending regulatory approval of $81 million at June 30, 2017 and $54 million at December 31, 2016 and other amounts expected to remain on-hand beyond one year.

Note 12. PROPERTY, PLANT AND EQUIPMENT
Dollars in Millions
June 30,
2017
 
December 31,
2016
Land
$
105

 
$
107

Buildings
4,971

 
4,930

Machinery, equipment and fixtures
3,044

 
3,287

Construction in progress
996

 
849

Gross property, plant and equipment
9,116

 
9,173

Less accumulated depreciation
(4,172
)
 
(4,193
)
Property, plant and equipment
$
4,944

 
$
4,980


Gross property, plant and equipment of $417 million ($131 million net of accumulated depreciation) was reclassified to assets held-for-sale during the second quarter of 2017 as a result of the expected transfer of manufacturing operations in Swords, Ireland to SK Biotek. Refer to "—Note 4. Acquisitions, Divestitures and Licensing Arrangements" for additional information. Depreciation expense was $349 million and $210 million for the six months ended June 30, 2017 and 2016, respectively.

Note 13. OTHER INTANGIBLE ASSETS
Dollars in Millions
June 30,
2017
 
December 31,
2016
Licenses
$
564

 
$
564

Developed technology rights
2,357

 
2,357

Capitalized software
1,324

 
1,441

IPRD
32

 
107

Gross other intangible assets
4,277

 
4,469

Less accumulated amortization
(3,032
)
 
(3,084
)
Other intangible assets
$
1,245

 
$
1,385


Amortization expense was $94 million and $88 million for the six months ended June 30, 2017 and 2016, respectively.

15




Note 14. ACCRUED LIABILITIES
Dollars in Millions
 
June 30,
2017
 
December 31,
2016
Rebates and returns
 
$
1,822

 
$
1,680

Research and development
 
671

 
718

Dividends
 
641

 
660

Employee compensation and benefits
 
500

 
818

Branded Prescription Drug Fee
 
309

 
234

Royalties
 
218

 
246

Restructuring
 
153

 
90

Pension and postretirement benefits
 
41

 
44

Litigation and other settlements
 
35

 
43

Other
 
742

 
738

Accrued liabilities
 
$
5,132

 
$
5,271


Note 15. EQUITY
 
Common Stock
 
Capital in  Excess
of Par Value
of Stock
 
Accumulated Other Comprehensive Loss
 
Retained
Earnings
 
Treasury Stock
 
Noncontrolling
Interest
Dollars and Shares in Millions
Shares
 
Par Value
 
Shares
 
Cost
 
Balance at January 1, 2016
2,208

 
$
221

 
$
1,459

 
$
(2,468
)
 
$
31,613

 
539

 
$
(16,559
)
 
$
158

Net earnings

 

 

 

 
2,361

 

 

 
33

Other comprehensive loss

 

 

 
(336
)
 

 

 

 

Cash dividends

 

 

 

 
(1,268
)
 

 

 

Stock repurchase program

 

 

 

 

 
4

 
(231
)
 

Stock compensation

 

 
135

 

 

 
(6
)
 
(9
)
 

Distributions

 

 

 

 

 

 

 
(31
)
Balance at June 30, 2016
2,208

 
$
221

 
$
1,594

 
$
(2,804
)
 
$
32,706

 
537

 
$
(16,799
)
 
$
160

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2016
2,208

 
$
221

 
$
1,725

 
$
(2,503
)
 
$
33,513

 
536

 
$
(16,779
)
 
$
170

Accounting change - cumulative effect(a)

 

 

 

 
(787
)
 

 

 

Adjusted balance at January 1, 2017
2,208

 
$
221

 
$
1,725

 
$
(2,503
)
 
$
32,726

 
536

 
$
(16,779
)
 
$
170

Net earnings

 

 

 

 
2,490

 

 

 
17

Other comprehensive income

 

 

 
36

 


 

 

 

Cash dividends

 

 

 

 
(1,282
)
 

 

 

Stock repurchase program

 

 

 

 

 
36

 
(2,000
)
 

Stock compensation

 

 
69

 

 

 
(4
)
 
(4
)
 

Variable interest entity

 

 

 

 

 

 

 
(59
)
Distributions

 

 

 

 

 

 

 
(6
)
Balance at June 30, 2017
2,208

 
$
221

 
$
1,794

 
$
(2,467
)
 
$
33,934

 
568

 
$
(18,783
)
 
$
122

(a)
Refer to "—Note 1. Basis of Presentation and Recently Issued Accounting Standards" for additional information.
    
BMS has a stock repurchase program authorized by its Board of Directors allowing for repurchases in the open market or through private transactions, including plans established in accordance with Rule 10b5-1 under the Securities Exchange Act of 1934. The stock repurchase program does not have an expiration date and may be suspended or discontinued at any time. Treasury stock is recognized at the cost to reacquire the shares. Shares issued from treasury are recognized utilizing the first-in first-out method.

In February 2017, BMS executed accelerated share repurchase agreements to repurchase an aggregate $2 billion of common stock. The agreements were funded through a combination of debt and cash. In February 2017, an initial delivery of approximately 28.7 million shares of BMS common stock, representing approximately 80% of the notional amount of the agreements, was received by BMS and included in treasury stock. Upon settlement of the accelerated share repurchase agreements in May 2017, BMS received an additional 7.8 million shares determined using the volume-weighted average price of BMS common stock during the term of the transaction.

16




The components of other comprehensive income/(loss) were as follows:
 
2017
 
2016
 
Pretax
 
Tax
 
After tax
 
Pretax
 
Tax
 
After tax
Three Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
Derivatives qualifying as cash flow hedges:(a)
 
 
 
 
 
 
 
 
 
 
 
Unrealized losses
$
(35
)
 
$
12

 
$
(23
)
 
$
(59
)
 
$
20

 
$
(39
)
Reclassified to net earnings
(10
)
 
2

 
(8
)
 
(5
)
 

 
(5
)
Derivatives qualifying as cash flow hedges
(45
)
 
14

 
(31
)
 
(64
)
 
20

 
(44
)
Pension and postretirement benefits:
 
 
 
 
 
 
 
 
 
 
 
Actuarial losses
(93
)
 
33

 
(60
)
 
(233
)
 
83

 
(150
)
Amortization(b)
19

 
(14
)
 
5

 
19

 
(9
)
 
10

Curtailments and settlements(c)
42

 
(14
)
 
28

 
25

 
(9
)
 
16

Pension and postretirement benefits
(32
)
 
5

 
(27
)
 
(189
)
 
65

 
(124
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains
12

 
1

 
13

 
10

 
(3
)
 
7

Realized losses

 

 

 
34

 

 
34

Available-for-sale securities
12

 
1

 
13

 
44

 
(3
)
 
41

Foreign currency translation
(19
)
 
11

 
(8
)
 
20

 
(4
)
 
16

 
$
(84
)
 
$
31

 
$
(53
)
 
$
(189
)
 
$
78

 
$
(111
)
 
 
 
 
 
 
 
 
 
 
 
 
Six Months Ended June 30,
 
 
 
 
 
 
 
 
 
 
 
Derivatives qualifying as cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Unrealized losses
$
(53
)
 
$
19

 
$
(34
)
 
$
(185
)
 
$
62

 
$
(123
)
Reclassified to net earnings(a)
(32
)
 
6

 
(26
)
 
(9
)
 
2

 
(7
)
Derivatives qualifying as cash flow hedges
(85
)
 
25

 
(60
)
 
(194
)
 
64

 
(130
)
Pension and postretirement benefits:
 
 
 
 
 
 
 
 
 
 
 
Actuarial losses
(35
)
 
15

 
(20
)
 
(525
)
 
186

 
(339
)
Amortization(b)
38

 
(11
)
 
27

 
36

 
(12
)
 
24

Curtailments and settlements(c)
75

 
(26
)
 
49

 
47

 
(17
)
 
30

Pension and postretirement benefits
78

 
(22
)
 
56

 
(442
)
 
157

 
(285
)
Available-for-sale securities:
 
 
 
 
 
 
 
 
 
 
 
Unrealized gains
21

 
(2
)
 
19

 
37

 
(17
)
 
20

Realized losses

 

 

 
34

 

 
34

Available-for-sale securities
21

 
(2
)
 
19

 
71