Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________

FORM 10-Q

___________________________

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

☐ 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 001-01136

___________________________

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.)

430 E. 29th Street, 14FL, New York, NY 10016

(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)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.10 Par Value	BMY	New York Stock Exchange
1.000% Notes due 2025	BMY25	New York Stock Exchange
1.750% Notes due 2035	BMY35	New York Stock Exchange
Bristol-Myers Squibb Contingent Value Rights	BMY RT	New York Stock Exchange
Celgene Contingent Value Rights	CELG RT	New York Stock Exchange

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ 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 “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer ☒	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 ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

At March 31, 2020, there were 2,262,689,755 shares outstanding of the Registrant’s $0.10 par value common stock.

BRISTOL-MYERS SQUIBB COMPANY

INDEX TO FORM 10-Q

March 31, 2020




PART I—FINANCIAL INFORMATION

Item 1.
Financial Statements:
Consolidated Statements of Earnings and Comprehensive (Loss)/Income	3
Consolidated Balance Sheets	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6

Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

Item 3.
Quantitative and Qualitative Disclosure About Market Risk	44

Item 4.
Controls and Procedures	44

PART II—OTHER INFORMATION

Item 1.
Legal Proceedings	45

Item 1A.
Risk Factors	45

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds	46

Item 5.
Submission of Matters to a Vote of Security Holders	47

Item 6.
Exhibits	48

Summary of Abbreviated Terms	49
Signatures	50


*	Indicates brand names of products which are trademarks not owned by BMS. Specific trademark ownership information is included in the Exhibit Index at the end of this Quarterly Report on Form 10-Q.

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 March 31,
EARNINGS	2020			2019
Net product sales	$	10,541		$	5,713
Alliance and other revenues	240			207
Total Revenues	10,781			5,920

Cost of products sold^(a)	3,662			1,824
Marketing, selling and administrative	1,606			1,006
Research and development	2,372			1,348
Amortization of acquired intangible assets	2,282			24
Other expense/(income), net	1,163			(261		)
Total Expenses	11,085			3,941

(Loss)/Earnings Before Income Taxes	(304		)	1,979
Provision for Income Taxes	462			264
Net (Loss)/Earnings	(766		)	1,715
Noncontrolling Interest	9			5
Net (Loss)/Earnings Attributable to BMS	$	(775	)	$	1,710

(Loss)/Earnings per Common Share
Basic	$	(0.34	)	$	1.05
Diluted	(0.34		)	1.04


(a)	Excludes amortization of acquired intangible assets.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS)/INCOME

Dollars in Millions

(UNAUDITED)



	Three Months Ended March 31,
COMPREHENSIVE (LOSS)/INCOME	2020			2019
Net (Loss)/Earnings	$	(766	)	$	1,715
Other Comprehensive (Loss)/Income, net of taxes and reclassifications to earnings:
Derivatives qualifying as cash flow hedges	70			14
Pension and postretirement benefits	16			49
Available-for-sale debt securities	1			26
Foreign currency translation	(116		)	29
Other Comprehensive (Loss)/Income	(29		)	118

Comprehensive (Loss)/Income	(795		)	1,833
Comprehensive Income Attributable to Noncontrolling Interest	9			5
Comprehensive (Loss)/Income Attributable to BMS	$	(804	)	$	1,828

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

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED BALANCE SHEETS

Dollars in Millions

(UNAUDITED)



ASSETS	March 31, 2020			December 31, 2019
Current Assets:
Cash and cash equivalents	$	15,817		$	12,346
Marketable debt securities	2,505			3,047
Receivables	8,290			7,685
Inventories	2,836			4,293
Other current assets	2,405			1,983
Total Current Assets	31,853			29,354
Property, plant and equipment	6,112			6,252
Goodwill	22,452			22,488
Other intangible assets	61,666			63,969
Deferred income taxes	605			510
Marketable debt securities	651			767
Other non-current assets	5,946			6,604
Total Assets	$	129,285		$	129,944

LIABILITIES
Current Liabilities:
Short-term debt obligations	$	3,862		$	3,346
Accounts payable	3,069			2,445
Other current liabilities	12,301			12,513
Total Current Liabilities	19,232			18,304
Deferred income taxes	6,531			6,454
Long-term debt	42,844			43,387
Other non-current liabilities	10,701			10,101
Total Liabilities	79,308			78,246

Commitments and contingencies

EQUITY
Bristol-Myers Squibb Company Shareholders’ Equity:
Preferred stock	—			—
Common stock	292			292
Capital in excess of par value of stock	43,254			43,709
Accumulated other comprehensive loss	(1,549		)	(1,520		)
Retained earnings	32,671			34,474
Less cost of treasury stock	(24,757		)	(25,357		)
Total Bristol-Myers Squibb Company Shareholders’ Equity	49,911			51,598
Noncontrolling interest	66			100
Total Equity	49,977			51,698
Total Liabilities and Equity	$	129,285		$	129,944

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

BRISTOL-MYERS SQUIBB COMPANY

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in Millions

(UNAUDITED)



	Three Months Ended March 31,
	2020			2019
Cash Flows From Operating Activities:
Net (loss)/earnings	$	(766	)	$	1,715
Adjustments to reconcile net (loss)/earnings to net cash provided by operating activities:
Depreciation and amortization, net	2,477			170
Deferred income taxes	(53		)	78
Stock-based compensation	210			53
Impairment charges	53			45
Pension settlements and amortization	11			66
Divestiture gains and royalties	(173		)	(166		)
Equity investment losses/(gains)	339			(175		)
Contingent consideration fair value adjustments	556			—
Other adjustments	(42		)	(6		)
Changes in operating assets and liabilities:
Receivables	(743		)	236
Inventories	1,448			35
Accounts payable	703			136
Income taxes payable	229			120
Other	(355		)	(917		)
Net Cash Provided by Operating Activities	3,894			1,390
Cash Flows From Investing Activities:
Sale and maturities of marketable debt securities	1,394			1,211
Purchase of marketable debt securities	(735		)	(242		)
Capital expenditures	(186		)	(204		)
Divestiture and other proceeds	205			310
Acquisition and other payments, net of cash acquired	(25		)	(15		)
Net Cash Provided by Investing Activities	653			1,060
Cash Flows From Financing Activities:
Short-term debt obligations, net	26			(73		)
Repayment of long-term debt	—			(1,250		)
Repurchase of common stock	(81		)	—
Dividends	(1,017		)	(669		)
Other	18			(37		)
Net Cash Used in Financing Activities	(1,054		)	(2,029		)
Effect of Exchange Rates on Cash, Cash Equivalents and Restricted Cash	(67		)	3
Increase in Cash, Cash Equivalents and Restricted Cash	3,426			424
Cash, Cash Equivalents and Restricted Cash at Beginning of Period	12,820			6,911
Cash, Cash Equivalents and Restricted Cash at End of Period	$	16,246		$	7,335

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

Note 1. BASIS OF PRESENTATION AND RECENTLY ISSUED ACCOUNTING STANDARDS

Basis of Consolidation

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 March 31, 2020 and December 31, 2019 and the results of operations and cash flows for the three months ended March 31, 2020 and 2019. All intercompany balances and transactions have been eliminated. BMS's consolidated financial statements include the assets, liabilities, operating results and cash flows of Celgene from the date of acquisition on November 20, 2019. These financial statements and the related notes should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2019 included in the 2019 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.

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. Consistent with BMS's operational structure, the Chief Executive Officer (“CEO”), as the chief operating decision maker, manages and allocates resources at the global corporate level. Managing and allocating resources at the global corporate level enables the CEO to assess both the overall level of resources available and how to best deploy these resources across functions, therapeutic areas, regional commercial organizations and research and development projects in line with our overarching long-term corporate-wide strategic goals, rather than on a product or franchise basis. The determination of a single segment is consistent with the financial information regularly reviewed by the CEO for purposes of evaluating performance, allocating resources, setting incentive compensation targets, and planning and forecasting future periods. For further information on product and regional revenue, see “—Note 2. Revenue.”

Use of Estimates and Judgments

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 accounting for business combinations; impairments of intangible assets; sales rebate and return accruals; legal contingencies; and income taxes. Actual results may differ from estimates.

Reclassifications

Certain reclassifications were made to conform the prior period interim consolidated financial statements to the current period presentation.

Recently Adopted Accounting Standards

Financial Instruments - Measurement of Credit Losses

In June 2016, the FASB issued amended guidance for the measurement of credit losses on financial instruments. Entities will be required to use a forward-looking estimated loss model. Available-for-sale debt security credit losses will be recognized as allowances rather than a reduction in amortized cost. BMS adopted the amended guidance on a modified retrospective approach on January 1, 2020. The amended guidance did not impact BMS’s results of operations.

Note 2. REVENUE

The following table summarizes the disaggregation of revenue by nature:



	Three Months Ended March 31,
Dollars in Millions	2020		2019
Net product sales	$	10,541	$	5,713
Alliance revenues	105		129
Other revenues	135		78
Total Revenues	$	10,781	$	5,920

The following table summarizes GTN adjustments:



	Three Months Ended March 31,
Dollars in Millions	2020			2019
Gross product sales	$	14,686		$	7,994
GTN adjustments^(a)
Charge-backs and cash discounts	(1,340		)	(774		)
Medicaid and Medicare rebates	(1,498		)	(800		)
Other rebates, returns, discounts and adjustments	(1,307		)	(707		)
Total GTN adjustments	(4,145		)	(2,281		)
Net product sales	$	10,541		$	5,713


(a)	Includes adjustments for provisions for product sales made in prior periods resulting from changes in estimates of $72 million and $78 million for the three months ended March 31, 2020 and 2019, respectively.

The following table summarizes the disaggregation of revenue by product and region:



	Three Months Ended March 31,
Dollars in Millions	2020		2019
Prioritized Brands
Revlimid	$	2,915	$	—
Eliquis	2,641		1,925
Opdivo	1,766		1,801
Orencia	714		640
Pomalyst/Imnovid	713		—
Sprycel	521		459
Yervoy	396		384
Abraxane	300		—
Empliciti	97		83
Reblozyl	8		—
Inrebic	12		—

Established Brands
Baraclude	122		141
Vidaza	158		—
Other Brands^(a)	418		487
Total Revenues	$	10,781	$	5,920

United States	$	6,766	$	3,449
Europe	2,567		1,480
Rest of the World	1,335		874
Other^(b)	113		117
Total Revenues	$	10,781	$	5,920


(a)	Includes BMS and Celgene products in 2020.


(b)	Other revenues include royalties and alliance-related revenues for products not sold by BMS's regional commercial organizations.

Revenue recognized from performance obligations satisfied in prior periods was $130 million and $147 million for the three months ended March 31, 2020 and 2019, respectively, consisting primarily of royalties for out-licensing arrangements and revised estimates for GTN adjustments related to prior period sales. Contract assets were not material at March 31, 2020 and December 31, 2019.

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 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. BMS refers to these collaborations as alliances and its partners as alliance partners.

Selected financial information pertaining to 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 March 31,
Dollars in Millions	2020			2019
Revenues from alliances:
Net product sales	$	2,723		$	2,378
Alliance revenues	105			129
Total Revenues	$	2,828		$	2,507

Payments to/(from) alliance partners:
Cost of products sold	$	1,306		$	1,019
Marketing, selling and administrative	(40		)	(28		)
Research and development	46			14
Other expense/(income), net	(15		)	(14		)



Dollars in Millions	March 31, 2020		December 31, 2019
Selected Alliance Balance Sheet information:
Receivables – from alliance partners	$	309	$	347
Accounts payable – to alliance partners	1,284		1,026
Deferred income from alliances^(a)	432		431


(a)	Includes unamortized upfront and milestone payments.

The nature, purpose, significant rights and obligations of the parties and specific accounting policy elections for each of the Company's significant alliances are discussed in the 2019 Form 10-K. Significant developments and updates related to alliances during the three months ended March 31, 2020 are set forth below.

Otsuka

Otsuka is no longer co-promoting Sprycel in the U.S. and the EU in 2020 and as a result, this arrangement is no longer considered a collaboration under ASC 808. Revenues earned and fees paid to Otsuka in the Oncology Territory in 2020 are not included in the table above.

Note 4. ACQUISITIONS, DIVESTITURES, LICENSING AND OTHER ARRANGEMENTS

Acquisitions

Business Combination

Celgene

On November 20, 2019, BMS completed the Celgene acquisition. The acquisition is expected to further position BMS as a leading biopharmaceutical company for sustained innovation and long-term growth and to address the needs of patients with cancer, inflammatory, immunologic or cardiovascular diseases through high-value innovative medicines and leading scientific capabilities. The transaction was accounted for as a business combination, which requires that assets acquired and liabilities assumed be recognized at their fair value as of the acquisition date. The purchase price allocation is preliminary and subject to change, including the valuation of inventory, property, plant and equipment, intangible assets, income taxes and legal contingencies among other items. The amounts recognized will be finalized as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date. Measurement period adjustments increased goodwill by $22 million in the first quarter of 2020 due to purchase price allocation increases of $58 million to equity investments and $30 million to legal contingency liabilities, net of deferred income taxes.

Divestitures

The following table summarizes the financial impact of divestitures including royalties, which are included in Other expense/(income), net. Revenue and pretax earnings related to all divestitures and assets held-for-sale were not material in all periods presented (excluding divestiture gains or losses).



	Three Months Ended March 31,
	Net Proceeds^(a)				Divestiture Gains					Royalty Income
Dollars in Millions	2020		2019		2020			2019		2020			2019
Diabetes Business	$	153	$	164	$	—		$	—	$	(127	)	$	(165	)
Erbitux*	4		5		—			—		—			—
Manufacturing Operations	—		2		(1		)	—		—			—
Plavix* and Avapro/Avalide	7		—		(12		)	—		—			—
Mature Brands and Other	31		—		(3		)	—		(31		)	(1		)
Total	$	195	$	171	$	(16	)	$	—	$	(158	)	$	(166	)


(a)	Includes royalties received subsequent to the related sale of the asset or business.

Note 5. OTHER EXPENSE/(INCOME), NET



	Three Months Ended March 31,
Dollars in Millions	2020			2019
Interest expense	$	362		$	45
Pension and postretirement	(4		)	44
Royalties and licensing income	(410		)	(308		)
Divestiture gains	(16		)	—
Acquisition expenses	—			165
Contingent consideration	556			—
Investment income	(61		)	(56		)
Integration expenses	174			22
Provision for restructuring	160			12
Equity investment losses/(gains)	339			(175		)
Litigation and other settlements	32			1
Transition and other service fees	(61		)	(2		)
Reversion excise tax	76			—
Other	16			(9		)
Other expense/(income), net	$	1,163		$	(261	)

Note 6. RESTRUCTURING

A restructuring and integration plan is being implemented as an initiative to realize $2.5 billion of sustainable run-rate synergies resulting from cost savings and avoidance from the Celgene acquisition. The synergies are expected to be realized in Cost of products sold (10%), Marketing, selling and administrative expenses (55%) and Research and development expenses (35%). The majority of charges are expected to be incurred through 2022, and range between $2.8 billion to $3.0 billion. Cumulative charges of approximately $1.0 billion have been recognized including integration planning and execution expenses, employee termination benefit costs and accelerated stock-based compensation, contract termination costs and other shutdown costs associated with site exits. Cash outlays in connection with these actions are expected to be approximately $2.5 billion. Employee workforce reductions were approximately 600 for the three months ended March 31, 2020.

The following tables summarize the charges and activity related to the Celgene acquisition:



Dollars in Millions	Three Months Ended March 31, 2020
Employee termination costs	$	146
Other termination costs	4
Provision for restructuring	150
Integration expenses	174
Total charges^(a)	$	324


(a)	Included in Other expense/(income), net.



Dollars in Millions	Three Months Ended March 31, 2020
Liability at January 1	$	77
Charges	131
Change in estimates	1
Provision for restructuring^(a)	132
Foreign currency translation and other	6
Payments	(91		)
Liability at March 31	$	124


(a)	Excludes $18 million of accelerated stock-based compensation.

In October 2016, a restructuring plan was announced to evolve and streamline BMS's operating model. The majority of charges are expected to be incurred through 2020, range between $1.6 billion to $2.0 billion. Cumulative charges of approximately $1.5 billion have been recognized including employee termination benefit costs, contract termination costs, accelerated depreciation and impairment charges and other costs associated with manufacturing and R&D site exits. The remaining charges are expected to result from additional site exit costs. Cash outlays in connection with these actions are expected to be approximately 40% to 50% of the total charges.

The following tables summarize the charges and activity related to the Company transformation:



	Three Months Ended March 31,
Dollars in Millions	2020		2019
Employee termination costs	$	3	$	4
Other termination costs	7		8
Provision for restructuring	10		12
Accelerated depreciation	30		31
Asset impairments	42		1
Total charges	$	82	$	44



	Three Months Ended March 31,
Dollars in Millions	2020		2019
Cost of products sold	$	16	$	12
Marketing, selling and administrative	—		1
Research and development	56		19
Other expense/(income), net	10		12
Total charges	$	82	$	44



	Three Months Ended March 31,
Dollars in Millions	2020			2019
Liability at December 31	$	23		$	99
Cease-use liability reclassification	—			(3		)
Liability at January 1	23			96
Charges	7			15
Change in estimates	3			(3		)
Provision for restructuring	10			12
Payments	(16		)	(45		)
Liability at March 31	$	17		$	63

Note 7. INCOME TAXES



	Three Months Ended March 31,
Dollars in Millions	2020			2019
(Loss)/Earnings Before Income Taxes	$	(304	)	$	1,979
Provision for Income Taxes	462			264
Effective Tax Rate	(152.0		)%	13.3		%

The tax impact attributed to specified items was primarily due to non-deductible contingent value rights charges, valuation allowance on equity investment fair value adjustments and low jurisdictional tax rates attributed to inventory and intangible asset purchase price adjustments in the three months ended March 31, 2020. The tax impact of these discrete items are reflected immediately and are not considered in estimating the annual effective tax rate. Additional changes to the effective tax rate may occur in future periods due to various reasons including pretax earnings mix, tax reserves, cash repatriations and revised interpretations of the relevant tax code.

BMS is currently under examination by a number of tax authorities, which have proposed or are considering proposing material adjustments to tax positions for issues such as transfer pricing, certain tax credits and the deductibility of certain expenses. It is reasonably possible that new issues will be raised by tax authorities, which may require adjustments to the amount of unrecognized tax benefits; however, an estimate of such adjustments cannot reasonably be made at this time.

It is also reasonably possible that the total amount of unrecognized tax benefits at March 31, 2020 could decrease in the range of approximately $290 million to $330 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 reasonably possible that new issues will be raised by tax authorities that may increase unrecognized tax benefits; however, an estimate of such increases cannot reasonably be made at this time. BMS believes that it has adequately provided for all open tax years by tax jurisdiction.

Note 8. (LOSS)/EARNINGS PER SHARE



	Three Months Ended March 31,
Amounts in Millions, Except Per Share Data	2020			2019
Net (Loss)/Earnings Attributable to BMS Used for Basic and Diluted EPS Calculation	$	(775	)	$	1,710

Weighted-Average Common Shares Outstanding – Basic	2,258			1,634
Incremental Shares Attributable to Share-Based Compensation Plans	—			3
Weighted-Average Common Shares Outstanding – Diluted	2,258			1,637

(Loss)/Earnings per Common Share
Basic	$	(0.34	)	$	1.05
Diluted	(0.34		)	1.04

The total number of potential shares of common stock excluded from the diluted EPS computation because of the antidilutive impact was 138 million for the three months ended March 31, 2020.

Note 9. FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Financial assets and liabilities measured at fair value on a recurring basis are summarized below:



	March 31, 2020							December 31, 2019
Dollars in Millions	Level 1		Level 2			Level 3		Level 1		Level 2			Level 3
Cash and cash equivalents - money market and other securities	$	—	$	13,528		$	—	$	—	$	10,448		$	—
Marketable debt securities:
Certificates of deposit	—		1,062			—		—		1,227			—
Commercial paper	—		869			—		—		1,093			—
Corporate debt securities	—		1,225			—		—		1,494			—
Derivative assets			202					—		140			—
Equity investments	1,822		145			—		2,020		175			—
Derivative liabilities	—		(29		)	—		—		(40		)	—
Contingent consideration liability:
Contingent value rights	2,862		—			—		2,275		—			—
Other acquisition related contingent consideration	—		—			69		—		—			106

As further described in “Item 8. Financial Statements and Supplementary Data—Note 9. Financial Instruments and Fair Value Measurements” in the Company's 2019 Form 10-K, the Company's 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).

Contingent consideration obligations are recorded at their estimated fair values and these obligations are revalued each reporting period until the related contingencies are resolved. The contingent value rights are adjusted to fair value using the traded price of the securities at the end of each reporting period. The fair value measurements for other contingent consideration liabilities are estimated using probability-weighted discounted cash flow approaches that are based on significant unobservable inputs related to product candidates acquired in business combinations and are reviewed quarterly. These inputs include, as applicable, estimated probabilities and timing of achieving specified development and regulatory milestones, estimated annual sales and the discount rate used to calculate the present value of estimated future payments. Significant changes which increase or decrease the probabilities of achieving the related development and regulatory events, shorten or lengthen the time required to achieve such events, or increase or decrease estimated annual sales would result in corresponding increases or decreases in the fair values of these obligations. The fair value of our contingent consideration as of March 31, 2020 was calculated using the following significant unobservable inputs:



	Ranges (weighted average) utilized as of:
Inputs	March 31, 2020
Discount rate	2.2% to 2.7% (2.4%)
Probability of payment	0% to 80% (2.6%)
Projected year of payment for development and regulatory milestones	2020 to 2029 (2022)
Projected year of payment for sales-based milestones and other amounts calculated as a percentage of annual sales	N/A

There were no transfers between levels 1, 2 and 3 during the three months ended March 31, 2020. The following table represents a roll-forward of the fair value of level 3 instruments:



Dollars in Millions	Three Months Ended March 31, 2020
Fair value as of January 1	$	106
Changes in estimated fair value	(36		)
Foreign exchange	(1		)
Fair value as of March 31	$	69

Available-for-sale Debt Securities and Equity Investments

Changes in fair value of equity investments are included in Other expense/(income), net. The following table summarizes available-for-sale debt securities and equity investments:



	March 31, 2020									December 31, 2019
Dollars in Millions	Amortized Cost		Gross Unrealized							Amortized Cost		Gross Unrealized
Dollars in Millions	Amortized Cost		Gains		Losses			Fair Value		Amortized Cost		Gains		Losses			Fair Value
Certificates of deposit	$	1,062	$	—	$	—		$	1,062	$	1,227	$	—	$	—		$	1,227
Commercial paper	869		—		—			869		1,093		—		—			1,093
Corporate debt securities	1,216		11		(2		)	1,225		1,487		8		(1		)	1,494
	$	3,147	$	11	$	(2	)	3,156		$	3,807	$	8	$	(1	)	3,814

Equity investments								1,967									2,195
Total								$	5,123								$	6,009



Dollars in Millions	March 31, 2020		December 31, 2019
Marketable debt securities - current	$	2,505	$	3,047
Marketable debt securities - non-current^(a)	651		767
Other non-current assets	1,967		2,195
Total	$	5,123	$	6,009


(a)	All non-current marketable debt securities mature within five years as of March 31, 2020 and December 31, 2019.

Equity investments not measured at fair value and excluded from the above fair value table were limited partnerships and other equity method investments of $424 million at March 31, 2020 and $429 million at December 31, 2019 and other equity investments without readily determinable fair values of $754 million at March 31, 2020 and $781 million at December 31, 2019. These amounts are included in Other non-current assets. Upward adjustments to equity investments without readily determinable fair values for the three months ended March 31, 2020 were $75 million resulting from observable price changes for similar securities for the same issuer and were recorded in Other expense/(income), net. Downward adjustments to equity investments without readily determinable fair values for the three months ended March 31, 2020 were $188 million due to the significant adverse change in the global economy during the period primarily caused by the COVID-19 pandemic.

The following table summarizes the net (loss)/gain recorded for equity investments with readily determinable fair values held as of March 31, 2020 and 2019:



	Three Months Ended March 31,
Dollars in Millions	2020			2019
Net (loss)/gain recognized	$	(228	)	$	95
Less: Net gain recognized for equity investments sold	—			14
Net unrealized (loss)/gain on equity investments held	$	(228	)	$	81

Qualifying Hedges and Non-Qualifying Derivatives

Cash Flow Hedges — Foreign currency forward contracts are used to hedge certain forecasted intercompany inventory purchases and sales transactions and certain foreign currency transactions. The fair value for contracts designated as cash flow hedges are temporarily reported in Accumulated other comprehensive loss and included in earnings when the hedged item affects earnings. The net gain or loss on foreign currency forward contracts is expected to be reclassified to net earnings (primarily included in Cost of products sold and Other expense/(income), net) within the next 12 months. The notional amount of outstanding foreign currency forward contracts was primarily attributed to the euro of $1.7 billion and Japanese yen of $1.2 billion at March 31, 2020.

The earnings impact related to discontinued cash flow hedges and hedge ineffectiveness was not material during all periods presented. Cash flow hedge accounting is discontinued when the forecasted transaction is no longer probable of occurring within 60 days after the originally forecasted date 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. Foreign currency forward contracts not designated as hedging instruments are used to offset exposures in certain foreign currency denominated assets, liabilities and earnings. Changes in the fair value of these derivatives are recognized in earnings as they occur.

BMS may hedge a portion of its future foreign currency exposure by utilizing a strategy that involves both a purchased local currency put option and a written local currency call option that are accounted for as hedges of future sales denominated in that local currency. Specifically, BMS sells (or writes) a local currency call option and purchases a local currency put option with the same expiration dates and local currency notional amounts but with different strike prices. The premium collected from the sale of the call option is equal to the premium paid for the purchased put option, resulting in no net premium being paid. This combination of transactions is generally referred to as a “zero-cost collar.” The expiration dates and notional amounts correspond to the amount and timing of forecasted foreign currency sales. The foreign currency zero-cost collar contracts outstanding as of March 31, 2020 had settlement dates within 12 months. If the U.S. Dollar weakens relative to the currency of the hedged anticipated sales, the purchased put option value reduces to zero and we benefit from the increase in the U.S. Dollar equivalent value of our anticipated foreign currency cash flows; however, this benefit would be capped at the strike level of the written call, which forms the upper end of the collar.

Net Investment Hedges — Non-U.S. dollar borrowings of €950 million ($1.0 billion) at March 31, 2020 are designated as net investment hedges to hedge euro currency exposures of the net investment in certain foreign affiliates and are recognized in long-term debt. The effective portion of foreign exchange gain on the remeasurement of euro debt was included in the foreign currency translation component of Accumulated other comprehensive loss with the related offset in long-term debt. Contract fair value changes are recorded in the foreign currency translation component of Other Comprehensive (Loss)/Income with a related offset in Other non-current assets or Other non-current liabilities.

Cross-currency interest rate swap contracts of $400 million at March 31, 2020 are designated to hedge Japanese yen currency exposure of BMS's net investment in its Japan subsidiaries. Contract fair value changes are recorded in the foreign currency translation component of Other Comprehensive (Loss)/Income with a related offset in Other non-current assets or Other non-current liabilities.

Fair Value Hedges — Fixed to floating interest rate swap contracts are designated as fair value hedges and used as an interest rate risk management strategy to create an appropriate balance of fixed and floating rate debt. The contracts and underlying debt for the hedged benchmark risk are recorded at fair value. The effective interest rate for the contracts is one-month LIBOR (1.0% as of March 31, 2020) plus an interest rate spread of 4.6%. Gains or losses resulting from changes in fair value of the underlying debt attributable to the hedged benchmark interest rate risk are recorded in interest expense with an associated offset to the carrying value of debt. Since the specific terms and notional amount of the swap are intended to align with the debt being hedged, all changes in fair value of the swap are recorded in interest expense with an associated offset to the derivative asset or liability on the consolidated balance sheet. As a result, there was no net impact in earnings. When the underlying swap is terminated prior to maturity, the fair value adjustment to the underlying debt is amortized as a reduction to interest expense over the remaining term of the debt.

The following table summarizes the fair value of outstanding derivatives:



	March 31, 2020									December 31, 2019
	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	$	255	$	25	$	—	$	—		$	255	$	6	$	—	$	—
Cross-currency interest rate swap contracts	400		7		—		—			175		2		125		(1		)
Foreign currency forward contracts	2,383		75		301		(2		)	766		27		980		(20		)

Derivatives not designated as hedging instruments:
Foreign currency forward contracts	1,177		73		772		(19		)	2,342		91		1,173		(10		)
Foreign currency zero-cost collar contracts	1,522		22		1,597		(8		)	2,482		14		2,235		(9		)


(a)	Included in Other current assets and Other non-current assets.


(b)	Included in Other current liabilities and Other non-current liabilities.

The following table summarizes the financial statement classification and amount of (gain)/loss recognized on hedging instruments:



	Three Months Ended March 31, 2020
Dollars in Millions	Cost of products sold			Other expense/(income), net
Interest rate swap contracts	$	—		$	(7	)
Cross-currency interest rate swap contracts	—			(2		)
Foreign currency forward contracts	(23		)	(76		)
Foreign currency zero-cost collar contracts	—			(9		)



	Three Months Ended March 31, 2019
Dollars in Millions	Cost of products sold	Other expense/(income), net
Interest rate swap contracts