Press release march 10 final1a.pdf

Bristol-Myers Squibb Announces Restatement, Reports 2002 Full-Year Results and
Reiterates Earnings Guidance for 2003
• Restatement:
§ Primarily to correct accounting for U.S. pharmaceuticals sales to two
wholesalers by reallocating approximately $2 billion of net sales and $1.5 billion
in pre-tax earnings from 1999 through 2001 to 2002 and 2003
§ Additional restatement adjustments made to both net sales and net earnings
§ Total net sales and net earnings from continuing operations for 1999 through
2001 restated downward by approximately $2.5 billion and $900 million,
respectively; total net sales and net earnings for first six months of 2002 restated
upward by approximately $653 million and $200 million, respectively
• Net sales for 2002 total $18.1 billion; reported diluted earnings per share from
continuing operations total $.96
• Company reiterates 2003 earnings guidance of between $1.60 - $1.65 per share
NEW YORK, N.Y. (March 10, 2003) -- Bristol-Myers Squibb Company (NYSE: BMY) todayannounced the restatement of its previously issued financial statements for the years 1999through 2001 and the first two quarters of 2002. In the aggregate, the restatement reduced netsales by $1,436 million, $678 million and $376 million for the years ended December 31, 2001,2000 and 1999, respectively, and increased net sales for the six months ended June 30, 2002 by$653 million. The restatement also reduced net earnings from continuing operations by $376million, $206 million and $331 million in the years ended December 31, 2001, 2000 and 1999,while net earnings from continuing operations were increased by $201 million in the six monthsended June 30, 2002. The Company also announced its sales and earnings for the full-year 2002and reiterated its 2003 earnings guidance.
The restatement primarily reflects a correction of an error in the timing of revenue recognitionfor certain sales to two of the largest wholesalers for the U.S. pharmaceuticals business. As aresult of the restatement for this matter, net sales were reduced by $1,096 million, $475 millionand $409 million for the years ended December 31, 2001, 2000 and 1999, respectively. Thecorresponding reduction in pre-tax earnings was $798 million, $395 million and $315 million,respectively. Net sales and pre-tax earnings for the six months ended June 30, 2002 wereincreased by $533 million and $401 million, respectively. In addition, net sales and pre-taxearnings were increased by approximately $860 million and $620 million, respectively, in the six months ended December 31, 2002, and are projected to increase by approximately $425 millionand $290 million, respectively, in 2003.
The restatement also reflects the correction of certain of the Company's accounting policies toconform to U.S. generally accepted accounting principles (GAAP) and certain other adjustmentsto correct errors made in the application of GAAP, including certain revisions of inappropriateaccounting. These other restatement adjustments increased net sales by $33 million in the yearended December 31, 1999, reduced net sales in the years ended December 31, 2000 and 2001 by$46 million and $188 million, respectively (excluding the impact of the reclassification for theCompany’s adoption of EITF 01-9 reflected in 2000 and 2001 to conform to the 2002presentation), reduced pre-tax earnings by $133 million and $132 million in the years endedDecember 31, 2001 and 1999, respectively, and increased pre-tax earnings by $12 million in theyear ended December 31, 2000, while pre-tax earnings for the six months ended June 30, 2002were increased by $91 million.
For the full year ended December 31, 2002, net sales and net earnings from continuingoperations increased by $1.6 billion and $510 million, respectively, as a result of the restatementof the prior years. Previously reported net sales of $325 million and net earnings of $215 millionare projected to be recognized in future periods.
The Company also reported that full-year 2002 net sales increased to $18.1 billion from$18.0 billion in 2001. Reported diluted earnings per share from continuing operations for 2002were $.96.
In addition, the Company reiterated 2003 earnings guidance of between $1.60 - $1.65 per share,which had included the projected impact of the restatement on future earnings.
The Company expects to file its amended 2001 10-K, which includes the restated consolidatedfinancial statements for the years 1999 through 2001, and its third quarter 2002 10-Q as soon aspossible.
As a result of the restatement, the Company delayed filing its third quarter 2002 10-Q. Aspreviously disclosed, this delay resulted in a breach by the Company of delivery of SEC filingobligations under its 1993 Indenture and certain other credit agreements, and gave certain rightsto the trustee under the Indenture and the respective lenders under such credit agreements toaccelerate maturity of the Company’s indebtedness. The trustee and the respective holders havehad a right, 15 days after the due date of the third quarter 2002 10-Q, to declare the principalamount and all accrued interest to be due and payable unless the Company cures itsnonperformance within 90 days after the trustee or the debt holders give to the Company a noticeof such nonperformance. To date, neither the trustee nor the respective lenders have exercisedtheir right to accelerate. The Company expects to cure this situation when it files its third quarter2002 10-Q. However, because this situation has not yet been cured, long-term outstandingindebtedness under these instruments, amounting to approximately $6.1 billion, is reflected asshort-term indebtedness in the financial information presented in this press release as of June 30,2002 and December 31, 2002 (including Appendix 1). The Company expects that when its thirdquarter 2002 10-Q is filed and the breach is cured, such amount will be reclassified as long-termoutstanding indebtedness and financial information presented in the third quarter 2002 10-Q willreflect such reclassification.
RESTATEMENT RESULTS
The Company experienced a substantial buildup of wholesaler inventories in its U.S.
pharmaceuticals business over several years, primarily in 2000 and 2001. This buildup wasprimarily due to sales incentives offered by the Company to its wholesalers. These incentiveswere generally offered towards the end of a quarter in order to incentivize wholesalers topurchase products in an amount sufficient to meet the Company’s quarterly sales projectionsestablished by the Company’s senior management. In April 2002, the Company disclosed thissubstantial buildup, and developed and subsequently undertook a plan to work down in anorderly fashion these wholesaler inventory levels.
In late October 2002, based on further review and consideration of the previously disclosedbuildup of wholesaler inventories in the Company’s U.S. pharmaceuticals business and theincentives offered to certain wholesalers, and on advice from the Company’s independentauditors, PricewaterhouseCoopers LLP, the Company determined that it was required to restateits sales and earnings to correct errors in timing of revenue recognition for certain sales to certainU.S. pharmaceuticals wholesalers. Since that time, the Company has undertaken an analysis ofits transactions and incentive practices with U.S. pharmaceuticals wholesalers. The Companyhas now determined that certain incentivized transactions with certain wholesalers should beaccounted for under the consignment model rather than recognizing revenue for suchtransactions upon shipment. This determination involved evaluation of a variety of criteria and anumber of complex accounting judgments. As a result of its analysis, the Company determinedthat certain of its sales to two of the largest wholesalers for the U.S. pharmaceuticals businessshould be accounted for under the consignment model, based in part on the relationship betweenthe amount of incentives offered to these wholesalers and the amount of inventory held by thesewholesalers.
Following its determination to restate its sales and earnings for the matters described above, theCompany also determined that it would correct certain of the Company’s historical accountingpolicies to conform the accounting to GAAP and to correct certain known errors made in theapplication of GAAP that were previously not recorded because in each such case the Companybelieved the amount of any such error was not material to the Company’s consolidated financialstatements. In addition, as part of the restatement process, the Company investigated itsaccounting practices in certain areas that involve significant judgments and determined to restateadditional items with respect to which the Company concluded errors were made in theapplication of GAAP, including certain revisions of inappropriate accounting.
As a result of the foregoing, the Company has restated its financial statements for the three yearsended December 31, 2001, including the corresponding 2001 and 2000 interim periods, and thequarterly periods ended March 31, 2002 and June 30, 2002. The restatement affects periodsprior to 1999. The impact of the restatement on such prior periods is reflected as an adjustmentto opening retained earnings as of January 1, 1999.
The errors and inappropriate accounting which are corrected by the restatement arose, at least inpart, from a period of unrealistic expectations for, and consequent over-estimation of, certain ofthe Company’s products and programs.
In connection with their audits of the restatement of previously issued financial statements andthe Company’s 2002 financial statements, which audits are not yet complete, the Company’sindependent auditors, PricewaterhouseCoopers LLP, have identified and communicated to the Company and the Audit Committee two “material weaknesses” (as defined under standardsestablished by the American Institute of Certified Public Accountants) relating to the Company’saccounting and public financial reporting of significant matters and to its initial recording andmanagement review and oversight of certain accounting matters.
In the last year, the Company searched for and hired a new chief financial officer from outsidethe Company, restaffed the controller position, created a position of chief compliance officer andchanged leadership at the Pharmaceuticals group.
In response to the wholesaler inventory buildup and the other matters identified as restatementadjustments, under the direction of the Audit Committee, in the last year, senior management hasdirected that the Company dedicate resources and take steps to strengthen control processes andprocedures in order to identify and rectify past accounting errors and prevent a recurrence of thecircumstances that resulted in the need to restate prior period financial statements. TheCompany also revised its budgeting process to emphasize a bottom-up approach in contrast to atop-down approach. The Company has implemented a review and certification process of itsannual and quarterly reports under the Securities Exchange Act of 1934, as amended, as well asprocesses designed to enhance the monitoring of wholesaler inventories. In addition, theCompany is in the process of expanding its business risks and disclosure group, which includessenior management, including the chief executive officer and the chief financial officer, and istaking a number of additional steps designed to create a more open environment forcommunications and flow of information throughout the Company. The Company continues toidentify and implement actions to improve the effectiveness of its disclosure controls andprocedures and internal controls, including plans to enhance its resources and training withrespect to the Company’s financial reporting and disclosure responsibilities, and to review suchactions with its Audit Committee and independent auditors.
As a result of the foregoing, the Company has restated its financial statements for the three yearsended December 31, 2001, including the corresponding 2001 and 2000 interim periods, and thequarterly periods ended March 31, 2002 and June 30, 2002. The restatement affects periodsprior to 1999. The impact of the restatement on such prior periods is reflected as an adjustmentto opening retained earnings as of January 1, 1999.
The following table presents the impact of the restatement on net earnings: Impact on retained earnings at January 1, 1999 Earnings projected to be recognized in future *includes tax restatement items that do not impact pre-tax earnings The effect of the restatement on the Company's previously reported diluted earnings per sharefrom continuing operations was a decrease of approximately $.20, $.10 and $.16 for 2001, 2000 and 1999, respectively, and an increase of $.10 in earnings per share for the six months endedJune 30, 2002 and $.26 in earnings per share for the full year 2002.
Historically, the Company recognized revenue for sales upon shipment of product to itscustomers. Under GAAP, revenue is recognized when substantially all the risks and rewards ofownership have transferred. In the case of sales made to wholesalers (1) as a result of incentives,(2) in excess of the wholesaler’s ordinary course of business inventory level, (3) at a time whenthere was an understanding, agreement, course of dealing or consistent business practice that theCompany would extend incentives based on levels of excess inventory in connection with futurepurchases and (4) at a time when such incentives would cover substantially all, and vary directlywith, the wholesaler’s cost of carrying inventory in excess of the wholesaler’s ordinary course ofbusiness inventory level, substantially all the risks and rewards of ownership do not transferupon shipment and, accordingly, such sales should be accounted for using the consignmentmodel. The determination of when, if at all, sales to a wholesaler meet the foregoing criteriainvolves evaluation of a variety of factors and a number of complex judgments.
Under the consignment model, the Company does not recognize revenue upon shipment ofproduct. Rather, upon shipment of product the Company invoices the wholesaler, recordsdeferred revenue at gross invoice sales price and classifies the inventory held by the wholesalersas consignment inventory at the Company’s cost of such inventory. The Company recognizesrevenue (net of cash discounts, rebates, estimated sales allowances and accruals for returns)when the consignment inventory is no longer subject to incentive arrangements but not later thanwhen such inventory is sold through to the wholesalers’ customers, on a first-in first-out (FIFO)basis.
The Company has restated its previously issued financial statements to correct the timing ofrevenue recognition for certain previously recognized U.S. pharmaceuticals sales to Cardinal andMcKesson, two of the largest wholesalers for the Company’s U.S. pharmaceuticals business,that, based on the application of the criteria described above, were recorded in error at the timeof shipment and should have been accounted for using the consignment model. The Companyhas determined that shipments of product to Cardinal and shipments of product to McKesson metthe consignment model criteria set forth above as of July 1, 1999 and July 1, 2000, respectively,and, in each case, continuing through the end of 2001 and for some period thereafter.
Accordingly, the consignment model was required to be applied to such shipments. Prior tothose respective periods, the Company recognized sales to Cardinal and McKesson uponshipment of product. Although the Company generally views approximately one month ofsupply as a desirable level of wholesaler inventory on a going-forward basis and as a level ofwholesaler inventory representative of an industry average, in applying the consignment modelwith respect to sales to Cardinal and McKesson, the Company defined inventory in excess of thewholesaler’s ordinary course of business inventory level as inventory above two weeks and threeweeks of supply, respectively, based on the levels of inventory that Cardinal and McKessonrequired to be used as the basis for negotiation of incentives granted.
As a result of this restatement adjustment, net sales were reduced by $1,015 million, $475million and $409 million in 2001, 2000 and 1999, respectively. The corresponding reduction inearnings from continuing operations before income taxes was $721 million, $395 million and$315 million, respectively.
Separately from the above discussion, in March 2001, the Company entered into a distributionagreement with McKesson for provision of warehousing and order fulfillment services for theCompany’s Oncology Therapeutics Network (OTN), a specialty distributor of anti-cancermedicines and related products. The Company has restated its previously issued financialstatements to account for these sales using the consignment model and to defer recognition ofrevenue until the products are sold by McKesson. The resulting reduction in net sales andearnings from continuing operations before minority interest and income taxes for the year endedDecember 31, 2001 was $81 million and $77 million, respectively.
The Company has determined that, although sales incentives were offered to other wholesalersand there was a buildup of inventories at such wholesalers, the consignment model criteriadiscussed above were not met. Accordingly, the Company recognized revenue when theproducts were shipped to these wholesalers. The Company estimates that the inventory ofpharmaceutical products held by these other U.S. pharmaceuticals wholesalers in excess ofapproximately one month of supply in the case of the Company’s exclusive products,approximately one and a half months of supply in the case of PLAVIX® and AVAPRO®, whichare marketed under the Company’s alliance with Sanofi-Synthelabo, and approximately twomonths of supply in the case of the Company’s non-exclusive products, was in the range ofapproximately $550 million to $750 million at December 31, 2001. The Company’s estimate isbased on the projected demand-based sales for such products, as well as the Company’s analysisof third-party prescription information, including information obtained from certain wholesalerswith respect to their inventory levels and sell-through to customers and third-party marketresearch data, and the Company’s internal information. The Company’s estimate is subject toinherent limitations of estimates that rely on third-party data, as certain third-party informationwas itself in the form of estimates, and reflects other limitations.
As discussed above, in April 2002, the Company disclosed the substantial buildup of wholesalerinventories in its U.S. pharmaceuticals business, and developed and subsequently undertook aplan to work down in an orderly fashion these wholesaler inventory levels. To facilitate anorderly workdown, the Company’s plan included continuing to offer sales incentives, at reducedlevels, to certain wholesalers. With respect to McKesson and Cardinal, the Company enteredinto agreements for an orderly workdown that provide for these wholesalers to make specifiedlevels of purchases and for the Company to offer specified levels of incentives through theworkdown period.
The Company expects that the orderly workdown of inventories of its pharmaceutical productsheld by all U.S. pharmaceuticals wholesalers will be substantially completed at or before the endof 2003. The Company also expects that the consignment model criteria will no longer be metwith respect to the Company’s U.S. pharmaceuticals sales to Cardinal and McKesson (other thanthe above-mentioned sales related to OTN) at or before the end of 2003. At December 31, 2002,the Company’s aggregate cost of pharmaceutical products held by Cardinal and McKesson thatwere accounted for using the consignment model (and, accordingly, were reflected asconsignment inventory on the Company’s consolidated balance sheet) was approximately $58million. At December 31, 2002, the deferred revenue, recorded at gross invoice sales price,related to such inventory was approximately $470 million, including approximately $39 millionrelated to OTN. The Company estimates, based on the data noted above, that the inventory ofpharmaceutical products held by the other U.S. pharmaceuticals wholesalers in excess ofapproximately one month of supply in the case of the Company’s exclusive products,approximately one and a half months of supply in the case of PLAVIX® and AVAPRO®, whichare marketed under the Company’s alliance with Sanofi-Synthelabo, and approximately twomonths of supply in the case of the Company’s non-exclusive products was in the range of approximately $100 million below this level of supply to $100 million in excess of this level ofsupply at December 31, 2002. This estimate is subject to inherent limitations noted above. TheCompany expects to account for certain pharmaceutical sales relating to OTN using theconsignment model until the above mentioned agreement with McKesson expires in 2006.
The Company’s financial results and prior period and quarterly comparisons are affected by thebuildup and orderly workdown of wholesaler inventories, as well as the application of theconsignment model to certain sales to certain wholesalers. For information on U.S.
pharmaceuticals prescriber demand, please see Appendix 2, which sets forth tables comparingchanges in net sales on a restated basis and the estimated total (both retail and mail ordercustomers) prescription growth for certain of the Company’s primary care pharmaceuticalproducts.
The restatement also corrects certain of the Company’s accounting policies to conform to GAAPand certain other adjustments to correct errors made in the application of GAAP, includingcertain revisions of inappropriate accounting. A description of these revisions and adjustmentsappears in the notes to Appendix 1.
The following table presents the effects of the revenue recognition and other restatementadjustments on net sales and net earnings from continuing operations for 1999 through 2001: Net earnings from Continuing OperationsAs previously reported *includes tax restatement items that do not impact pre-tax earnings The effect of the aforementioned revenue recognition and other restatement adjustments on theCompany’s previously reported diluted earnings per share from continuing operations was adecrease of approximately $.20, $.10 and $.16 for 2001, 2000 and 1999, respectively, and anincrease of $.10 in earnings per share for the six months ended June 30, 2002, and $.26 inearnings per share for the full year 2002.
In addition, certain of the restatement adjustments affected periods prior to 1999, and as a result,opening retained earnings for 1999 were reduced by approximately $578 million. Of thatamount, approximately $429 million is due to a correction in the Company's accounting policyfor dividends to conform to the GAAP requirement that the liability for declared dividends berecorded as of the declaration date rather than the record date, and has no impact on reportedearnings per share.
Further information regarding the restatement adjustments is provided in Appendix 1.
Impact of Restatement on First Six Months of 2002 For the first six months of 2002, net sales were increased $653 million and net earnings fromcontinuing operations were increased $201 million as a result of the aforementioned revenuerecognition and other restatement adjustments. The effect of the restatement on the Company'spreviously reported diluted earnings per share from continuing operations was an increase ofapproximately $.10 for the first six months of 2002.
The following table presents the effects of the revenue recognition and other restatementadjustments on net sales and net earnings from continuing operations for the six months endedJune 30, 2002: *includes tax restatement items that do not impact pre-tax earnings Further information regarding the restatement adjustments is provided in Appendix 1.
Information on U.S. pharmaceuticals prescriber demand is provided in Appendix 2.
In the opinion of management, all material adjustments necessary to correct the previously issuedfinancial statements have been recorded, and the Company does not expect any furtherrestatement. As previously disclosed, however, the Securities and Exchange Commission andthe U.S. Attorney’s Office for the District of New Jersey are investigating certain financialreporting practices of the Company. The Company cannot reasonably assess the final outcomeof these investigations at this time. The Company is continuing to cooperate with both of theseinvestigations. The Company’s own investigation is also continuing.
THIRD QUARTER 2002 RESULTS
As a result of the restatement, the Company delayed issuing its financial statements for the thirdquarter. In its October 24, 2002 press release announcing the restatement, the Company includedunaudited non-GAAP third quarter results prior to giving effect to the restatement. The reportedthird quarter results set forth herein differ from the previously announced non-GAAP pre-restatement results due to the effects of the prior period restatement adjustments.
The Company’s third quarter results also differ from the previously announced non-GAAP pre-restatement results due to changes in certain accounting estimates relating to recorded assets andliabilities and certain subsequent events. Most of this impact relates to subsequent events, whichthe Company announced on January 7, 2003, concerning proposed settlement of substantially allantitrust litigation surrounding BUSPAR® and TAXOL. In connection with these proposedsettlement developments, in the third quarter the Company accrued $410 million on a pre-taxbasis for the BUSPAR® settlements and $135 million on a pre-tax basis for the TAXOLsettlements. Income tax expense for the quarter was favorably impacted by $235 million inconnection with the settlement of a tax audit and settlement of tax litigation.
The previously announced non-GAAP pre-restatement results and the reported results for thethird quarter are presented in the following table: Diluted Earnings per Share from Continuing The following paragraphs discuss the Company’s third quarter results after the restatement.
Net sales for the third quarter were level at $4,537 million compared to $4,500 million in 2001.
These level sales resulted from a 1% increase in volume, a 2% increase due to foreign exchangerate fluctuations and a 2% decrease due to changes in selling prices. Net sales for the quarterinclude approximately $394 million of net sales related to the DuPont Pharmaceuticalsacquisition, which was completed in the fourth quarter of 2001. Approximately $313 million ofnet sales that prior to the restatement had been recognized in prior periods was recognized in thethree months ended September 30, 2002.
For the quarter, as reported, earnings from continuing operations before minority interest andincome taxes decreased to $115 million from $1,603 million in 2001, net earnings fromcontinuing operations decreased to $291 million compared to $1,205 million in 2001, basicearnings per share from continuing operations decreased to $.15 from $.62 in 2001 and dilutedearnings per share from continuing operations decreased to $.15 from $.61 in 2001.
During the third quarter of 2002, the Company recognized certain items that affected continuingoperations, including a pre-tax litigation charge of $569 million, primarily related to BUSPAR®and TAXOL proposed settlements; an increase to earnings of $235 million due to the settlementof certain prior year tax matters and the determination by us as to the expected settlement ofongoing tax litigation; a pre-tax asset impairment charge of $379 million for the write-down ofits investment in ImClone; a pre-tax restructuring charge of $79 million related to workforcereductions and facility closures in the Company’s Pharmaceutical Research Institute, partiallyoffset by an adjustment to prior restructuring reserves of $90 million due to lower thananticipated separation and other exit payments and the cancellation of facility closures, primarilyin the manufacturing network. In addition, the Company recorded, in discontinued operations,an adjustment of $41 million to the net gain on the sale of Clairol primarily as a result of lowerthan expected tax indemnification and separation payments related to the disposal of Clairol anda $10 million legal settlement charge.
The effective income tax rate on earnings from continuing operations before minority interestand income taxes was a tax benefit of (177.4%) compared with a tax provision of 22.0% in 2001.
The negative effective income tax rate in 2002 from continuing operations is due to lower pre-tax income in the U.S. primarily as a result of the litigation and asset impairment chargesrecorded in the third quarter of 2002, and an income tax benefit of $235 million due to thesettlement of certain prior year tax matters and the determination by us as to the expectedsettlement of ongoing tax litigation.
The Company’s financial results and prior period and quarterly comparisons are affected by thebuildup and orderly workdown of wholesaler inventories, as well as the application of theconsignment model to certain sales to certain wholesalers. For information on U.S.
pharmaceuticals prescriber demand, please see Appendix 2, which sets forth tables comparingchanges in net sales on a restated basis and the estimated total (both retail and mail ordercustomers) prescription growth for certain of the Company’s primary care pharmaceuticalproducts.
U.S. pharmaceutical sales decreased 11% to $2.3 billion in 2002 from $2.6 billion in2001 due to wholesaler inventory workdown and generic competition in the U.S. forGLUCOPHAGE® IR, TAXOL and BUSPAR®.
Total estimated U.S. prescription demand increased substantially for key brands,including PLAVIX® 34%, AVAPRO® 15%,VIDEX® 7%, SUSTIVA® 13%,GLUCOPHAGE® XR 46% and GLUCOVANCE® 35%.
International pharmaceutical sales increased 15% to $1.4 billion from $1.2 billion in2001. Sales in Europe increased 22% (foreign exchange had an 11% favorable impact)primarily due to strong sales of PRAVACHOL® across the region and strongperformance of new products from the DuPont acquisition. Japan realized sales growth of19% led by growth in TAXOL sales. Sales in Canada increased 34% as a result of strongperformance of new products from the DuPont acquisition and PLAVIX®.
Worldwide sales of PRAVACHOL®, a cholesterol-lowering agent, increased 19% to$677 million.
Sales of PLAVIX®, a platelet aggregation inhibitor, increased 18% to $442 million.
Sales of AVAPRO® increased 3% to $123 million. AVAPRO® and PLAVIX® are cardiovascular products that were launched from the alliance between Bristol-MyersSquibb and Sanofi-Synthelabo.
In aggregate, worldwide pharmaceuticals sales decreased 2% (foreign exchange had a 2%negative impact), primarily due to wholesaler inventory workdown and exclusivity lossesin the U.S.
Nutritional sales of $445 million remained at prior year levels, as U.S. sales decreased6% and international sales increased 8% (foreign exchange had a 1% negative impact).
Mead Johnson continues to be the leader in the U.S. infant formula market. ENFAMIL®,the Company’s largest-selling infant formula, recorded sales of $196 million, an increaseof 5% from the prior year largely due to the introduction of ENFAMIL® LIPIL in thefirst quarter of 2002.
ConvaTec sales increased 7% to $187 million (foreign exchange had a 5% favorableimpact). Sales of ostomy products increased 3% (foreign exchange had a 5% favorableimpact) to $114 million, while sales of modern wound care products increased 13%(foreign exchange had a 5% favorable impact) to $70 million.
FULL-YEAR 2002 RESULTS
The Company reported that full-year 2002 net sales increased to $18.1 billion from $18.0 billionin 2001. Domestic sales decreased 3%, while international sales increased 8%. Theinternational sales increase was driven by strong performance of PRAVACHOL® in Europe andTAXOL in Japan. The decline in domestic sales is primarily attributable to generic competitionin the U.S. for GLUCOPHAGE® IR, TAXOL and BUSPAR®. Net sales for these threeproducts were $369 million in 2002 as compared to $2,544 million in 2001. Net sales from theDuPont Pharmaceuticals acquisition, which was completed in October 2001, contributedapproximately $1,540 million in 2002 as compared to $331 million in 2001. As a result of therestatement for consignment sales, approximately $2.0 billion of net sales was reversed from theperiod 1999 to 2001 and $1.4 billion was recognized in 2002.
The Company’s financial results and prior period and quarterly comparisons are affected by thebuildup and orderly workdown of wholesaler inventories, as well as the application of theconsignment model to certain sales to certain wholesalers.
Earnings from continuing operations declined to $1,862 million or $.96 per diluted share from$2,151 million or $1.09 per diluted share, in 2001.
In 2002 and 2001, the Company recorded several items that affect comparability of the results.
In 2002, the Company recorded a pre-tax litigation charge of $659 million, primarily related toBUSPAR® and TAXOL proposed settlements; a pre-tax asset impairment charge of $403million, primarily for the write-down of its investment in ImClone; an increase to earnings of$235 million due to the settlement of certain prior year tax matters and the determination by usas to the expected settlement of ongoing tax litigation; and a pre-tax in-process research anddevelopment charge of $160 million related to the revised agreement with ImClone. In 2001, theCompany recorded $2,772 million of acquired in-process research and development,$583 million of restructuring and other items and a gain on sale of business/product lines of$475 million.
For the full-year on a continuing operations basis, net sales increased 1% (foreign exchange hadno impact) to $18.1 billion. For the full-year, earnings from continuing operations before minority interest and income taxes increased 19% to $2,647 million from $2,218 million in 2001.
Net earnings from continuing operations decreased 13% to $1,862 million compared to $2,151million in 2001. The effective tax rate increased to 23.1% in 2002 from a tax rate benefit of 1.6%in 2001. Basic earnings per share from continuing operations decreased 13% to $.97 from $1.11in the prior year and diluted earnings per share decreased 12% to $.96 from $1.09. Basic anddiluted average shares outstanding for the year were 1,936 million and 1,942 million,respectively, compared to 1,940 million and 1,965 million, respectively, in 2001.
Net earnings of $1,895 million in 2002 compares to $4,942 million in 2001 and diluted earningsper share of $.98 for the full-year 2002 compares to $2.51 in 2001. The results for 2001 include anet gain of $2,565 million related to the sale of Clairol and $226 million of net earnings relatedto discontinued operations of Zimmer and Clairol.
WORLDWIDE PHARMACEUTICAL SALES DECREASED 2% FOR THE YEAR TO $14.7BILLION - U.S. pharmaceutical sales decreased 7% to $9.2 billion and international pharmaceutical sales increased 9% (foreign exchange had a 1% favorable impact) to $5.5 billion, resulting in aworldwide pharmaceuticals sales decrease of 2% (with foreign exchange having no impact) to$14.7 billion.
- Worldwide sales of PRAVACHOL®, a cholesterol-lowering agent and the Company's largest selling product, increased 8% to $2,266 million. In January 2002, the FDA approved an 80milligram version of PRAVACHOL®. In October 2002, an additional six-month period ofexclusivity was granted to PRAVACHOL® following the submission of reports on completedpediatric studies. In addition, the Food and Drug Administration (FDA) approved a newindication for use in treating pediatric patients with heterozygous familialhypercholesterolemia based on these studies.
- The entire GLUCOPHAGE® franchise sales decreased 67% to $778 million.
GLUCOPHAGE® IR sales decreased 88% to $220 million, while GLUCOVANCE®, andGLUCOPHAGE® XR Extended Release tablets had sales of $246 million and $297 million,respectively.
- Sales of PLAVIX®, a platelet aggregation inhibitor, had excellent growth, increasing 61% to $1,890 million. Sales of AVAPRO®, an angiotensin II receptor blocker for the treatment ofhypertension, increased 20% to $586 million. AVAPRO® and PLAVIX® are cardiovascularproducts that were launched from the alliance between Bristol-Myers Squibb and Sanofi-Synthelabo.
- Sales of TAXOL the Company’s leading anti-cancer agent, decreased 23% to $857 million.
International sales increased 11% (foreign exchange had a 1% favorable impact) to$719 million, led by strong sales growth in Japan, while domestic sales decreased 70% to$138 million, due to generic competition.
- Sales of SERZONE®, a novel anti-depressant, decreased 34% to $221 million.
- Sales of BUSPAR®, an anti-anxiety agent, decreased 82% to $53 million, due to generic - Sales of TEQUIN®, a quinolone antibiotic, decreased from $250 million in 2001 to $184 - Sales of VIDEX®, an anti-retroviral agent, increased 9% to $262 million.
- Sales of Oncology Therapeutics Network, a specialty distributor of anti-cancer medicines and related products, reached $1,900 million, an increase of 33% over the prior year.
- Nutritional sales of $1,828 million remained at prior year levels (foreign exchange had a 1% favorable impact), as international sales increased 9% (foreign exchange had a 2% negativeimpact) and U.S. sales decreased 7%. Mead Johnson continues to be the leader in the U.S.
infant formula market. ENFAMIL®, the Company’s largest-selling infant formula, recordedsales of $750 million, flat with prior years levels. Sales of BOOST® increased 4% to$121 million.
- ConvaTec sales increased 5% (foreign exchange had a 1% favorable impact) to $744 million.
Sales of ostomy products increased 3% (foreign exchange had a 1% favorable impact) to $459million, while sales of modern wound care products increased 11% (foreign exchange had a1% favorable impact) to $276 million.
RECENT REGULATORY DEVELOPMENTS
We submitted a Supplemental New Drug Application to the FDA forthe long-term treatment of schizophrenia for ABILIFY™.
We announced the results of a federally-funded study published in theJournal of the American Medical Association that showed that theaddition of Cardiolite, a noninvasive heart imaging test, to conventionalevaluation techniques can help doctors in the emergency roomdistinguish between those patients that are having a heart attack andthose who are not.
We submitted a New Drug Application (NDA) to the FDA foratazanavir (currently in Phase III), an investigational protease inhibitorunder development for the treatment of HIV/AIDS in combination withother antiretroviral agents.
We announced that the FDA approved ABILIFY™ (aripiprazole), anew antipsychotic medication indicated for the treatment ofschizophrenia. BMS and Otsuka America Pharmaceutical Inc. willjointly market ABILIFY™ in the U.S.
We announced the results of the CREDO (Clopidogrel for Reduction ofEvents During Observation) study demonstrated that patients whoundergo a percutaneous coronary intervention (PCI), such asangioplasty can significantly reduce the risk of death, heart attack andstroke by continuing treatment long-term (one-year) withPLAVIX®/Iscover and aspirin.
We announced that the FDA approved a new indication forPRAVACHOL® (pravastatin sodium) for use in treating pediatric patients with heterozygous familial hypercholesterolemia (HeFH).
Additionally, we were granted a six-month exclusivity extension forPRAVACHOL® through April 2006, for conducting clinical studiesfor this indication.
We announced that the FDA approved METAGLIP™ (glipizide andmetformin HCI Tablets) for use, along with diet and exercise, as initialdrug therapy for people with type 2 diabetes whose hyperglycemiacannot be satisfactorily managed with diet and exercise alone and foruse as second-line therapy in type 2 diabetes when diet, exercise, andinitial treatment with sulfonylurea or metformin do not result inadequate glycemic control.
We received an action letter from the FDA pertaining to a New DrugApplication (NDA) for VANLEV® (omapatrilat). The FDA letterspecifies additional actions, including at least one additional clinicaltrial, that must be taken by us before the FDA can consider approval ofthe compound. We are evaluating our options with VANLEV® in lightof this approvable letter.
We announced that the FDA approved a new indication forGLUCOVANCE® (glyburide and metformin HCI Tablets) a widely-prescribed oral antidiabetic agent. The new indication providesphysicians with yet another GLUCOVANCE® therapy option byoffering the flexibility of adding a thiazolidinedione (TZD) whenpatients require additional blood sugar control.
We and Sanofi-Synthelabo announced that the FDA approvedAVAPRO® (irbesartan) for a new indication: the treatment of diabeticnephropathy (kidney disease) in people who have hypertension andtype 2 diabetes.
We and Otsuka Pharmaceutical Company, Ltd. received an approvableletter from the FDA for ABILIFY™ (aripiprazole), an investigationaltreatment for schizophrenia. Final approval of ABILIFY™ iscontingent upon the successful completion of ongoing discussions withthe FDA.
The European Commission granted approval of PLAVIX®(clopidogrel) in combination with aspirin for the new indication ofprevention of atherothrombotic events in patients suffering from non-ST segment elevation acute coronary syndrome (ACS) – unstableangina or mild heart attack (non-Q-wave myocardial infarction).
In October 2002, we announced setting new priorities to ensure that we can fully realize thevalue of our research and development pipeline. The new priorities include rebalancing drugdiscovery and development to increase support for our full late-stage development pipeline.
They also include devoting greater resources to ensuring successful near-term product launchesand increasing our efforts on in-licensing opportunities. As part of this effort, we took a pre-tax charge of $79 million in the three months ended September 30, 2002, to streamline our drugdiscovery processes, including consolidation of several research facilities.
Bristol-Myers Squibb is a global pharmaceutical and related health care products companywhose mission is to extend and enhance human life.
This press release includes certain forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995 regarding, among other things, statements relating togoals, plans and projections regarding the Company’s financial position, results of operationsmarket position, product development and business strategy. These statements may be identifiedby the fact that they use words such as “anticipate”, “estimates”, "should", "expect",“guidance”, “project”, “intend”, “plan”, “believe” and other words and terms of similarmeaning in connection with any discussion of future operating or financial performance. Suchforward-looking statements are based on current expectations and involve inherent risks anduncertainties, including factors that could delay, divert or change any of them, and could causeactual outcomes and results to differ materially from current expectations. These factors include,among other things, market factors, competitive product development, changes to wholesalerinventory levels, governmental regulations and legislation, patent positions, litigation, the auditof restated financial statements and the impact and result of any litigation or governmentalinvestigations related to the financial statement restatement process. There can be noguarantees with respect to pipeline products that future clinical studies will support the datadescribed in this release, that the products will receive regulatory approvals, or that they willprove to be commercially successful. For further details and a discussion of these and otherrisks and uncertainties, see the Company's Securities and Exchange Commission filings. TheCompany undertakes no obligation to publicly update any forward-looking statement, whether asa result of new information, future events or otherwise. A conference call will be held today at 8 a.m. (EDT). Financial information will be reviewedand company executives will address inquiries from investors and analysts. Investors and thegeneral public are invited to listen to a live webcast of the call at http://www.bms.com/ir or bydialing 913-981-5510. A replay of the call will be available on March 10 beginning at11:30 a.m. through 8 p.m. on March 31. You may access the replay at http://www.bms.com/ir orby dialing 402-280-9013.
GLUCOPHAGE® and GLUCOVANCE® are registered trademarks of Merck Sante S.A.S., anassociate of Merck KGaA of Drumstadt, Germany licensed to Bristol-Myers Squibb Company.
AVAPRO® and PLAVIX® are trademarks of Sanofi-Synthelabo.
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
RESTATEMENT ADJUSTMENTS
The following table presents the effects of the revenue recognition and other restatement adjustments on net sales: BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
The following table presents the effects of the restatement adjustments on net earnings from continuingoperations before income taxes and on net earnings and gain on disposal of discontinued operations.
Net Earnings from Continuing Operations, as previously reported Other Revenue recognition items and other adjustments: Capitalized research and development payments (6) Net Earnings from continuing operations, as restated Net earnings and gain on disposal from discontinued operations, Net earnings and gain on disposal from discontinued operations, * includes tax restatement items that do not impact pretax earnings BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
The following table presents the impact of the restatement adjustments on Stockholders' Equity as of January 1,1999: Increase (decrease) in Stockholders' Equity (in millions): Stockholders’ Equity— January 1, 1999, as previously reported Capitalized research and development payments (6) Stockholders’ Equity— January 1, 1999, as restated Set forth below is an explanation of the restatement adjustments included in the restatement of the previouslyissued financial statements, each of which is an “error” within the meaning of Accounting Principles BoardOpinion No. 20, Accounting Changes.
Historically, the Company recognized revenue upon shipment of product. The Company restated itspreviously issued financial statements to correct the timing of revenue recognition for certain previouslyrecognized U.S. pharmaceuticals sales to Cardinal and McKesson that, based on the application of theconsignment model criteria described above, were recorded in error at the time of shipment and shouldhave been accounted for using the consignment model. In total, approximately $2.0 billion of shipmentsrecognized in error in the period 1999 through 2001 has been reversed in the restatement of previouslyissued financial statements. Of this amount, approximately $1.4 billion was recognized in 2002 andapproximately $425 million is projected to be recognized in 2003.
In March 2001, the Company entered into a distribution agreement with McKesson for provision ofwarehousing and order fulfillment services for the Company’s Oncology Therapeutics Network (OTN), aspecialty distributor of anti-cancer medicines and related products. Under the terms of the agreement,McKesson purchases oncology products to service OTN’s fulfillment needs from a number of vendors,including the Company. Subsequent to shipment of product to McKesson, the Company has a significantcontinuing involvement in the transaction, including marketing the product to the end-user, invoicing thecustomer and collecting receivables from the customer on behalf of McKesson. In addition, OTN keepsall the credit risk and is responsible for shipping costs to the customer. Prior to the restatement, theCompany recorded in error sales under this agreement upon shipment of product to McKesson. TheCompany has restated its previously issued financial statements to account for these sales using theconsignment model and to defer recognition of revenue until the products are sold by McKesson.
Historically, the Company recorded returns based on actual product returns during the period. Althoughsuch accounting policy was not in accordance with GAAP and, accordingly, was an error, the Companybelieved that the amount of such error was not material as over time the level of returns has beenconsistently low on an absolute dollar basis and the Company’s practice has historically approximated BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
the accrual method of accounting in all material respects. As part of the restatement, the Companyadopted the accrual method of accounting for returns to conform to GAAP.
The Company restated its Medicaid and prime vendor rebate liabilities for its U.S. pharmaceuticalsbusiness to correct an error in the determination of the accrual. An important component of determiningthe required accrual is an estimate of the amount of inventory at the wholesalers which has not soldthrough and upon which the Company expects to pay a rebate. As the Company experienced asubstantial buildup of wholesaler inventories in its U.S. pharmaceuticals business over several years,primarily in 2000 and 2001, the accrual did not fully reflect the growth of such inventory levels. In thefirst quarter of 2002, the Company determined that the estimated Medicaid and prime vendor sales rebateaccrual balance for its U.S. pharmaceuticals business was understated and recorded a one-timeadjustment to its accrual that resulted in a decrease in sales and earnings of approximately $290 millionand $262 million, respectively. As part of the restatement, the Company correctly considered inventoryat the wholesalers and reversed the previously recorded first quarter 2002 one-time adjustment. Therestatement is also attributable in part to the impact of the consignment sales adjustment, as the deferralof certain previously recognized sales resulted in a deferral of recording of the related rebates.
The Company recorded a restatement adjustment to correct an error in its methodology for establishingmanaged healthcare sales rebate accruals to accrue an estimate for rebates at the time of sale, rather thanaccruing ratably over the period during which the managed health care entities perform their obligationsunder the agreements providing for rebates. As with Medicaid and prime vendor rebates discussedabove, the estimated amount of inventory at the wholesalers which has not sold through and upon whichthe Company expects to pay a rebate is an important component of determining the required accrual.
Previously, the impact of the excess inventory held by wholesalers erroneously was not considered in thedetermination of the accrual.
The Company adopted EITF 01-9, which it originally began to apply in the third quarter of 2002, as ofJanuary 1, 2002. This restatement adjustment resulted in a reclassification of costs previously included inadvertising and promotion expense to reduce sales. The effect of EITF 01-9 was not material to the firstand second quarters of 2002.
Prior to the Company’s investment in ImClone in the fourth quarter of 2001, the Company’s accountingpolicy for payments related to the acquisition or license of patent rights was to capitalize such paymentsregardless of whether the underlying asset had received marketing approval from the FDA or otherregulatory agencies. The Company’s prior accounting policy was based on the principle that paymentsmade to acquire or license products should be capitalized and amortized over the period that theCompany expected it would benefit from the revenue stream associated with the underlying product orover the research and development term, depending on the arrangement. These capitalized paymentswere subsequently amortized to earnings using a straight-line method over the term of the agreement orexpected life of the underlying product. This policy was not in accordance with GAAP and, accordingly,was an error. GAAP requires that incurred costs related to the acquisition or licensing of products thathave not yet received regulatory approval to be marketed, and that have no alternative future use, becharged to earnings. As part of the restatement, the Company corrected its accounting policy forpayments related to the acquisition or license of patent rights to conform to GAAP.
In the fourth quarter of 2001, the Company and Sanofi-Synthelabo (Sanofi) modified their existingcodevelopment arrangement for irbesartan (AVAPRO®) to form an alliance to which the Companycontributed the irbesartan intellectual property and in which the Company owns a 50.1% interest andSanofi owns a 49.9% interest, with profits being shared in proportion to their ownership interest. Sanofi BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
agreed to pay the Company $200 million and $150 million in the fourth quarters of 2001 and 2002,respectively. The Company accounts for this transaction as a sale of an interest in a license and defersand amortizes the $350 million payment into income over the expected useful life of the license. TheCompany’s previous accounting was based on a determination that the useful life of the license wasthrough 2003 due to the anticipated FDA approval of a competing product. The Company has reviewedthe accounting for this transaction and has determined that the previous amortization based on theanticipated approval of a competing product was not in accordance with GAAP and, accordingly, was anerror because the approval of the competing product had not been received. As part of the restatement,the Company corrected this error and is now amortizing the $350 million payment over the remainingpatent life, which is approximately eleven years.
The Company recorded certain liabilities for contingencies identified at the date of acquisition inconnection with acquisitions during the period 1997 through 2001. In subsequent periods, substantialportions of these liabilities were determined to be in excess and reversed into other income, except foramounts related to the DuPont acquisition which were reversed to goodwill. Based on its investigation ofaccounting practices in certain areas that involve significant judgments, the Company has determined thatcertain portions of these liabilities were established inappropriately, as there does not appear to have beenany related quantifiable or specific category of liability supporting the establishment of such portions ofthese liabilities and that such amounts were ultimately inappropriately reversed. In the restatement, theCompany adjusted goodwill and the liabilities at the dates of acquisition and reversed the amountsinappropriately recognized in other income in subsequent periods.
In addition, the Company recorded in error $67 million of acquisition costs in paid-in capital inconnection with its 1998 acquisition of Redmond Products, Inc. that was accounted for using thepooling-of-interests accounting method. The Company has determined that classification of these costsin paid-in capital was in error. Of this amount, $42 million was charged to other expense in 1998,resulting in a decrease to opening retained earnings as of January 1, 1999. Based on its investigation ofaccounting practices in certain areas that involve significant judgments, the Company has determinedthat the remaining $25 million was established inappropriately, as there does not appear to have beenany related quantifiable or specific category of liability supporting the establishment of such amount,and the $25 million was restated as described above.
In connection with divestiture transactions consummated during the period 1997 through 2001, theCompany recorded certain liabilities for contingencies identified at the date of divestiture. In subsequentperiods, substantial portions of these liabilities were determined to be in excess and reversed into otherincome. Based on its investigation of its accounting practices in certain areas that involve significantjudgments, the Company has now determined that certain portions of these liabilities were establishedinappropriately, as there does not appear to have been any related quantifiable or specific category ofliability supporting the establishment of such portions of these liabilities and that such amounts wereultimately inappropriately reversed. Accordingly, the Company eliminated the amounts inappropriatelyrecognized in other income in subsequent periods and increased the gain on sale in the periods of therelated divestiture by an equal amount. In addition, the Company has determined that certain liabilitieswere inappropriately established as a reduction of equity in connection with the spin-off of Zimmer.
Accordingly, the Company has reversed the establishment of these liabilities.
(10) During the period 1997 through 2001, the Company recorded restructuring and asset write-down charges in connection with the decision to exit certain activities and to streamline operations. Based on itsinvestigation of its accounting practices in certain areas that involve significant judgments, the Companyhas now determined that certain charges were established in error, including some that were BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
inappropriately established or classified as “provision for restructuring and other items” in the statementof earnings.
In 2001, $22 million of liabilities were established as restructuring expense in error, and $65 million ofliabilities were inappropriately established in error for asset write-downs and restructuring expenses,primarily for manufacturing facility closures to which management had not yet committed. In addition,two operating items for a total of $39 million were inappropriately classified in error as restructuringexpenses, of which $6 million related to discontinued operations. In 2000, $26 million of costs wereinappropriately established in error as restructuring expense. With respect to certain of the operatingitems established as restructuring expenses, the error had not been previously corrected because theamount of such error was not material to the Company’s consolidated financial statements.
The Company also determined that $23 million of restructuring charges in 2001 related to the closure of aresearch facility were classified in error as research and development expense. In addition, the Companyreclassified certain write-offs of inventory made in connection with the restructuring actions in 2001 and2000 of $58 million and $40 million, respectively, from restructuring expense to cost of products sold.
During 2001, the Company recorded in error the write-off of certain receivables of exited product lines ofapproximately $74 million to restructuring and other non-recurring charges. The Company recorded arestatement adjustment to properly record the write-off of these receivables as a reduction to net sales.
(11) On Sunday, March 31, 2002, the Company entered into a binding letter agreement with Watson Pharmaceuticals, Inc. to settle a lawsuit relating to BUSPAR®. Under GAAP, the $35 million chargeincurred under the letter agreement should have been accrued in the fourth quarter of 2001, as the letteragreement was entered into prior to the issuance of the 2001 consolidated financial statements, whichwere filed on April 1, 2002. The Company erroneously accrued the $35 million charge in the firstquarter of 2002. As part of the restatement, the Company corrected this error by recognizing this chargein the fourth quarter of 2001.
(12) Under SFAS No. 109, no impact should be recorded on intercompany sales of inventory until the related product is ultimately sold to an unrelated third party. For intercompany sales between consolidatedsubsidiaries located in different tax jurisdictions, current tax expense is recognized in the country of sale,and a corresponding offsetting deferred tax expense is recognized to offset this tax until the product issold to an unrelated third party. As part of the restatement, the Company recorded an adjustment tocorrect an erroneous calculation of a deferred tax asset related to intercompany profit in inventory andintercompany royalties. The computation of the deferred tax asset for intercompany profit in inventorywas also impacted by the consignment sales restatement discussed previously.
In the fourth quarter of 2001, the Company erroneously reduced the deferred tax benefit related toacquired in-process research and development due to an inappropriate conclusion regarding therealization of the related deferred tax assets. The Company erroneously determined that the deferred taxasset associated with the purchase price premium paid on its tender offer for ImClone stock should not berecorded due to the uncertainty of realization. The Company has restated the deferred tax asset in thefourth quarter of 2001 by recognizing a deferred tax benefit of $66 million. Additionally, during 2001,the Company recognized excess liabilities related to income tax contingencies due to an error indetermining interest relating to recorded tax liabilities resulting from the use of an incorrect interest rate.
As part of the restatement, the Company has therefore restated income taxes payable at December 31,2001, by recognizing a current benefit of $33 million.
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
To reflect the tax impact of the pre-tax restatement adjustments, the Company adjusted the income taxexpense for each restated annual period.
(13) In the first quarter of 1998, the Company entered into a like-kind exchange agreement with respect to certain of its aircraft and erroneously recognized a gain of $39 million at that time, recognizing the excessof the proceeds received upon trade-in over the recorded net book value as a gain rather than as areduction of the basis of the new aircraft. As part of the restatement, the Company corrected this error,which resulted in a decrease of $24 million to opening retained earnings as of January 1, 1999 to giveeffect to amounts affecting prior periods and to reflect a reduction in the book value of the aircraftacquired by $39 million.
Under the revised agreement with ImClone, the Company agreed to pay ImClone a $200 millionmilestone payment, of which $140 million was paid upon signing of the revised agreement inMarch 2002 and $60 million was payable on the one year anniversary of signing. With respect to the$140 million paid in March 2002, the Company expensed $112 million (or 80%) as acquired in-processresearch and development and recorded $28 million (or 19.9%) as an additional equity investment toeliminate the income statement effect of the portion of the milestone payment for which it has aneconomic claim through its 19.9% ownership interest in ImClone. The Company has now determinedthat the $60 million portion of the milestone payment that was payable on the one year anniversary ofsigning the revised agreement should have been accrued for in March 2002. Accordingly, the Companyhas corrected this error by restating its first quarter of 2002 acquired in-process research and developmentcharge to expense $48 million (or 80%) of such portion of the milestone payment and recorded $12million or (19.9%) of such portion of the milestone payment as an additional equity investment. Thisadditional equity investment was written-off as part of the Company’s ImClone impairment chargerecorded in the third quarter of 2002.
In addition, the Company determined that a portion of its accrued liability for employee medical benefitswas inappropriately reversed. Accordingly, the Company corrected this error.
Historically, the Company recognized a liability for declared dividends as of the record date, whichtypically was approximately two weeks after the declaration date. This accounting policy was not inaccordance with GAAP and, accordingly, was an error because declaration of a lawful dividend creates,under the laws of the State of the Company’s incorporation, an obligation on the part of the corporationas of the declaration date and requires recognition of a dividend accrual as of such date. As part of therestatement, the Company corrected its accounting policy to record a liability for dividends as of thedeclaration date.
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
The following tables present the impact of the restatement adjustments on the Company’s previously reported 2002, 2001, 2000 and1999 results: (dollars in millions, except per share data) Acquired in-process research and development Provision for restructuring and other items Before Minority Interest and Income Taxes Diluted earnings per share from Continuing Total Liabilities and Stockholders’ Equity (*) Includes minority interest expense and income from unconsolidated affiliates.
(**) Includes the impact of EITF 01-9 in 2001, 2000 and 1999 to conform to the 2002 presentation.
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
The following table presents full year results for 2002, 2001, 2000, and 1999, as restated: (dollars in millions, except per share data) Acquired in-process research and development Provision for restructuring and other items Earnings from Continuing Operations Before MinorityInterest and Income Taxes Basic earnings per share from Continuing Operations Diluted earnings per share from Continuing Operations Total Liabilities and Stockholders’ Equity (*) Includes minority interest expense and income from unconsolidated affiliates.
(**) Includes the impact of EITF 01-9 in 2001, 2000 and 1999 to conform to the 2002 presentation.
BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 1
The following table presents worldwide full year sales for selected products for 2002, 2001, 2000, and 1999, asrestated: BRISTOL-MYERS SQUIBB COMPANY
APPENDIX 2
PRESCRIBER DEMAND
The following tables set forth a comparison of reported net sales changes on a restated basis and theestimated total (both retail and mail order customers) prescription growth for certain of the Company’s U.S.
primary care pharmaceutical products. These estimates of prescription growth are based on third-party data.
A significant portion of the Company’s domestic pharmaceutical sales are made to wholesalers. Where thechange in reported net sales exceeds prescription growth, this change in net sales may not reflect underlyingprescriber demand.
Restated
Six Months Ended
Restated
Restated
Restated
June 30, 2002
Net Sales
Prescriptions
Net Sales
Prescriptions
Net Sales
Prescriptions
Net Sales
Prescriptions
Three Months Ended September 30,
Three Months Ended September 30,
% Change in
% Change in
% Change in
% Change in
Net Sales
Prescriptions
Net Sales
Prescriptions

Source: http://www.be.wvu.edu/divacctg/degeorge/acct311/restatement31003.pdf