item 14 exhibits financial statement schedules reports form 8k page number 1 financial statements 2529 notes consolidated financial statements 3049 report independent accountants 50 2 financial statement schedules schedule page number amounts receivable related parties underwriters promoters employees related parties ii s1 property plant equipment v s2 accumulated depreciation amortization property plant equipment vi s3 valuation qualifying accounts viii s4 shortterm borrowings ix s5 schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 unless otherwise indicated exhibits part commission file number 11136 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 3b bylaws bristolmyers squibb company amended may 4 1993 filed herewith 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b rights agreement dated december 4 1987 bristolmyers squibb company manufacturers hanover trust company amended incorporated herein reference exhibit 1 form 8a dated december 10 1987 exhibit 1 form 8 dated july 27 1989 52 4c indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4d form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 10a bristolmyers squibb company 1983 stock option plan amended restated january 1 1993 amended adopted incorporating amendments october 1 1993 filed herewith 10b squibb corporation 1982 option restricted stock performance unit plan amended filed herewith 10c squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 filed herewith 10d bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 filed herewith 10e benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 filed herewith 10f benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 10g squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 filed herewith 10h bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference 53 exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 filed herewith 10i bristolmyers squibb company retirement income plan nonemployee directors amended october 3 1989 incorporated herein reference exhibit 10u form 10k fiscal year ended december 31 1989 10j bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1991 10k bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 10l squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10m amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 11 computation per share earnings filed herewith 21 subsidiaries registrant filed herewith 23 consent price waterhouse filed herewith b reports form 8k registrant file reports form 8k quarter ended december 31 1993 54 signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant richard l gelb richard l gelb chairman board march 28 1994 date pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date chairman board richard l gelb director march 28 1994 richard l gelb president chief executive officer director principal executive charles heimbold jr officer march 28 1994 charles heimbold jr chief financial officer senior vice president corporate staff principal financial michael f mee officer march 28 1994 michael f mee controller vice president corporate staff principal accounting frederick schiff officer march 28 1994 frederick schiff 55 signature title date robert e allen director march 28 1994 robert e allen michael e autera executive vice president director march 28 1994 michael e autera ellen v futter director march 28 1994 ellen v futter louis v gerstner jr director march 28 1994 louis v gerstner jr john macomber director march 28 1994 john macomber alexander rich md director march 28 1994 alexander rich md james robinson iii director march 28 1994 james robinson iii andrew c sigler director march 28 1994 andrew c sigler louis w sullivan md director march 28 1994 louis w sullivan md 56 exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 exhibit number description page 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 3b bylaws bristolmyers squibb company amended e11 may 4 1993 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b rights agreement dated december 4 1987 bristolmyers squibb company manufacturers hanover trust company amended incorporated herein reference exhibit 1 form 8a dated december 10 1987 exhibit 1 form 8 dated july 27 1989 4c indenture dated june 1 1993 bristol myers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4d form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 10a bristolmyers squibb company 1983 stock option plan e21 amended restated january 1 1993 amended adopted incorporating amendments october 1 1993 53 exhibit number description page 10b squibb corporation 1982 option restricted stock e31 performance unit plan amended 10c squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amendment effective july 1 1993 squibb corporation e41 1986 option restricted stock performance unit plan 10d bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amendment effective january 1 1994 bristolmyers e51 squibb company performance incentive plan 10e benefit equalization plan bristolmyers squibb company e61 subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 10f benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 10g squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amendment september 14 1993 squibb corporation e71 supplementary pension plan 58 exhibit number description page 10h bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amendment effective july 1 1993 bristolmyers squibb e81 company restricted stock award plan 10i bristolmyers squibb company retirement income plan nonemployee directors amended october 3 1989 incorporated herein reference exhibit 10u form 10k fiscal year ended december 31 1989 10j bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1991 10k bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 10l squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10m amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 11 computation per share earnings e91 21 subsidiaries registrant e101 23 consent price waterhouse e111 59 schedule ii bristolmyers squibb company amounts receivable related parties underwriters promoters employees related parties millions dollars balance end deductions period balance beginning amounts name amounts written non debtor period additions collected current year ended december 31 1991 james treace president linvatec 04 indebtedness due demand secured bristolmyers squibb common stock interest rates ranged 551 668 year ended december 31 1991 s1 primarily reflects translation account balance 1992 also reflects sale drackett company range annual rates used computing provisions depreciation 2 20 buildings 5 33 equipment s2 primarily reflects translation account balance 1993 1992 reflects amounts recorded connection charge restructuring 1992 also reflects sale drackett company s3 schedule viii bristolmyers squibb company valuation qualifying accounts millions dollars additions balance charged deductions balance beginning costs bad debts end description period expenses written period allowances discounts doubtful accounts year ended december 31 1993 106 19 45 80 year ended december 31 1992 90 41 25 106 year ended december 31 1991 68 42 20 90 s4 excludes current portion longterm debt 14 million 61 million 102 million 1993 1992 1991 respectively december 31 1993 1992 1991 amounts payable banks primarily incurred foreign subsidiaries payable foreign currencies b represents arithmetic mean monthend balances period outstanding c weighted average interest rate year determined dividing annual interest expense shortterm borrowings average shortterm borrowings s5 exhibit 3b bristolmyers squibb company bylaws adopted november 1 1965 amended may 4 1993 e11 n e x bylaw subject page 1 principal officee15 2 officese15 3 seale15 4 meetings shareholders date timee15 5 meetings shareholders placee15 6 meetings shareholders action written consent calle15 7 meetings shareholders noticee15 8 meetings shareholders quorume16 9 meetings shareholders presiding officer secretarye16 10 meetings shareholders votinge16 11 meetings shareholders voting liste17 12 annual meeting shareholders statement business condition companye17 13 meetings shareholders inspectors electione17 14 board directors powerse17 15 board directors number election term resignation retirement removal filling vacanciese17 16 board directors location meetings bookse19 17 board directors scheduling regular meetingse19 18 board directors scheduling special meetingse19 19 board directors waiver meeting notice action consente19 20 board directors quorum meetinge19 21 board directors meeting proceduree19 e12 bylaw subject page 22 board directors feese110 23 board directors indemnificatione110 24 committees board executive audit otherse111 25 committees board minutes reportse112 26 officerse112 27 officers election terme113 28 appointment officers committees agentse113 29 officers removale113 30 officers resignatione113 31 officers unable perform dutiese113 32 officers vacancye113 33 chairman board powers dutiese114 34 vice chairman board powers dutiese114 35 duties presidente114 36 vice presidents powers dutiese114 37 treasurer powers dutiese114 38 secretary powers dutiese114 39 controller powers dutiese115 40 assistant treasurers assistant secretaries powers dutiese115 41 officers compensatione115 42 contracts instruments authority enter executee115 43 loans negotiable papere115 44 checks drafts etce116 45 banks deposit fundse116 46 stock certificates form issuancee116 47 stock transfere116 e13 bylaw subject page 48 stock certificates loss replacemente116 49 record datese117 50 registered shareholderse117 51 fiscal yeare117 52 noticese117 53 notices waivere118 54 amendments bylawse118 e14 bylaws bristolmyers squibb company offices 1 registered office company shall city wilmington county new castle state delaware name resident agent charge thereof corporation trust company 2 company may also offices place places board directors may time appoint business company may require seal 3 corporate seal shall inscribed thereon name company year organization words corporate seal delaware said seal may used causing facsimile thereof impressed affixed reproduced otherwise meetings shareholders 4 annual meeting shareholders election directors transaction proper business notice given notice meeting shall held time board directors may determine annual meeting election directors held date designated therefor directors shall cause meeting held soon thereafter convenient 5 meetings shareholders may held places either within without state delaware board directors may determine 6 action required permitted taken stockholders company must effected duly called annual special meeting stockholders may effected consent writing stockholders except otherwise required law subject rights article fourth certificate incorporation company holders class series stock preference common stock dividends upon liquidation special meetings stockholders company may called chairman board directors pursuant resolution approved majority entire board directors 7 except hereinafter provided may otherwise required law notice place date hour holding annual special meeting shareholders shall writing shall delivered personally mailed postage prepaid envelope less ten days meeting person appears books company shareholder entitled vote meeting shareholders reason action proposed meeting would entitled shares appraised e15 action taken notice every special meeting besides stating time place meeting shall state briefly purpose purposes thereof business specified notice germane thereto shall transacted meeting except unanimous consent writing holders record shares company entitled vote meeting notice meeting shareholders shall required given shareholder entitled participate action proposed taken meeting shall attend meeting person proxy meeting shall waive notice thereof writing telegram cable wireless notice adjourned meeting need given 8 meetings shareholders company except otherwise provided law holders majority number outstanding shares company present person proxy entitled vote thereat shall constitute quorum transaction business absence quorum holders majority number shares stock present represented entitled vote may adjourn meeting time quorum present adjourned meeting quorum present business may transacted might transacted meeting originally called 9 chairman board shall preside chairman every meeting shareholders chairman board may designate another officer company shareholder preside chairman meeting shareholders place chairman board absence chairman board officer shareholder designated chairman board preside chairman meeting board directors may designate officer shareholder preside chairman meeting event chairman board directors fail designate chairman meeting shareholders may designate officer shareholder chairman secretary shall act secretary meeting absence secretary presiding officer shall appoint secretary meeting 10 meeting shareholders every shareholder record entitled vote thereat shall entitled one vote share company standing shareholders name books company provided share stock shall voted election directors shall transferred books company later record date announced board directors fixed operation bylaws vote shares may given shareholder entitled thereto person proxy duly appointed instrument writing subscribed shareholder shareholders duly authorized attorney delivered secretary meeting provided however proxy shall valid expiration three years date execution unless shareholder executing shall specified therein length time continue force shall limited period meetings shareholders quorum present matters except otherwise provided law certificate incorporation company bylaws shall decided holders majority number shares stock company present person proxy entitled vote share vote may ballot shall state e16 name shareholder voting number shares owned shareholder shall signed shareholder shareholders proxy except otherwise required law bylaws voting may viva voce 11 secretary officer charge stock ledger company shall prepare make least ten days every meeting shareholders complete list shareholders entitled vote meeting arranged alphabetical order showing address shareholder number shares registered name shareholder list shall open examination shareholder purpose germane meeting ordinary business hours period least ten days prior meeting either place within city meeting held place shall specified notice meeting specified place meeting held list shall also produced kept time place meeting whole time thereof may inspected shareholder present stock ledger shall evidence shareholders entitled examine stock ledger list required bylaw books company vote person proxy meeting shareholders 12 board directors shall present annual meeting called vote shareholders special meeting shareholders full clear statement business condition company 13 elections directors otherwise required law chairman meeting shall appoint two inspectors election inspectors shall responsible receiving tabulating reporting result votes taken director candidate office director shall appointed inspector chairman meeting shall open close polls directors 14 property business affairs company shall managed direction board directors may exercise powers company lawful acts things statute certificate incorporation bylaws directed required exercised done shareholders 15 board directors shall consist eleven directors need shareholders number directors may determined majority vote entire board directors b except otherwise provided certificate incorporation bylaws law meeting shareholders election directors quorum shall present persons receiving plurality votes cast shall directors election shall ballot c directors may elected holders class series stock preferenceover common stock dividends upon liquidation shall classified respect time severally hold office three classes e17 nearly equal number possible determined board directors one class originally elected term expiring annual meeting stockholders held 1985 another class originally elected term expiring annual meeting stockholders held 1986 another class beoriginally elected term expiring annual meeting stockholders held 1987 directors class hold office successors elected qualified annual meeting stockholders successors class directors whose term expires meeting shall elected hold office term expiring annual meeting stockholders held third year following year election decrease number directors constituting board directors change restrictions qualifications directors shall shorten term incumbent director except otherwise provided certificate incorporation bylaws director shall continue office expiration term office successor shall elected shall qualified director shall resigned case director employee company director shall resigned employment company directors employment shall terminated company addition director employee company chief executive officer company retired chief executive officer company shall retire position director annual meeting following attainment age 70 employee director company chief executive officer retired chief executive officer shall retire position director effective date directors retirement employee company director company may resign time giving written notice chairman board secretary company resignation shall take effect time specified therein unless otherwise specified therein acceptance resignation shall necessary make effective exceptions requirements retirement director may made board directors e subject rights article fourth certificate incorporation class series stock preference common stock dividends upon liquidation elect directors specified circumstances director entire class directors entire board directors may removed office without cause affirmative vote holders least 75 outstanding shares stock company entitled vote generally election directors voting together single class f subject rights article fourth certificate incorporation company holders class series stock preference common stock dividends upon liquidation elect directors specified circumstances newly created directorships resulting increase number directors vacancies board directors resulting death resignation retirement disqualification removal cause shall filled affirmative vote majority remaining directors office even though less quorum board directors director elected accordance e18 preceding sentence shall hold office remainder full term class directors new directorship created vacancy occurred directors successor shall elected qualified 16 directors may hold meetings keep books company place places may time determine 17 regular meetings board directors may held time may fixed time resolution board directors unless required said resolution notice meeting need given 18 special meetings board directors shall held whenever called direction chairman board three directors time office notice special meeting shall mailed postage prepaid director addressed director directors residence usual place business least two days day meeting held shall sent director place telegraph cable wireless delivered personally telephone later day meeting held every notice shall state time place except provided bylaws resolution board directors need state purposes meetings 19 anything bylaws resolution adopted board directors contrary notwithstanding notice meeting board directors need given director meeting notice thereof shall waived director writing telegraph cable wireless meeting board directors shall legal meeting without notice given regardless giving notice adoption resolution reference thereto directors shall present thereat shall waived notice thereof action required permitted taken meeting board directors may taken without meeting prior action written consent thereto signed members board written consent filed minutes proceedings board directors 20 five directors office time regular special meeting board directors shall constitute quorum transaction business meeting except may otherwise specifically provided statute certificate incorporation bylaws act majority directors present meeting quorum present shall act board directors absence quorum majority directors present may adjourn meeting time quorum present notice adjourned meeting need given directors shall act board individual directors shall power 21 meeting board directors chairman board shall preside chairman board may designate another member board directors preside chairman meeting place chairman board absence chairman e19 board member board directors designated chairman board preside chairman meeting majority directors present may designate member board directors chairman preside meeting secretary company absence secretary person appointed chairman meeting shall act secretary board directors board directors may adopt rules regulations conduct meetings management affairs company shall deem proper inconsistent law bylaws meetings board directors business shall transacted order board directors may determine 22 director shall paid fee meeting board attended andor annual fee shall determined time resolution board directors provided nothing herein contained shall construed prevent director serving company capacity receiving compensation therefor 23 adefinitions used herein term director shall include present former director company term officer shall include present former officer company terms director officer shall also include employee company companys request serving may served director officer another corporation company owns directly indirectly shares capital stock creditor term officer also includes assistant divisional officer term expenses shall include limited reasonable amounts attorneys fees costs disbursements expenses amount amounts judgments fines penalties liabilities bindemnification granted director officer shall hereby indemnified company full extent permitted law iexpenses incurred paid director officer connection claim made director officer actual threatened action suit proceeding civil criminal administrative investigative including appeals whether relating date prior adoption bylaw director officer may involved party otherwise reason director officer company serving served request company director officer employee agent another corporation partnership joint venture trust enterprise reason action taken director officer capacity ii amount amounts paid thedirector officer settlement claim action suit proceeding judgment order entered therein however notwithstanding anything contrary herein director officer seeks indemnification connection proceeding voluntarily initiated director officer right indemnification granted hereunder shall limited proceedings director officer wholly successful merits e110 cmiscellaneous iexpenses incurred amounts paid settlement respect claim action suit proceeding character described paragraph bi may advanced company prior final disposition thereof upon receipt undertaking behalf recipient repay amounts shall ultimately determined payable recipient bylaw iithe rights indemnification herein provided shall severable shall exclusive rights director officer hereafter may entitled shall continue person ceased indemnified person shall inure benefit heirs executors administrators legal representatives person iiithe provisions bylaw shall deemed contract company director officer serves capacity time bylaw effect ivthe board directors shall power behalf company grant indemnification person director officer extent board discretion may time determine committees board 24 athe board directors may resolution resolutions passed majority whole board directors designate executive committee may discontinue time consist three directors company members shall appointed board directors shall hold office pleasure board directors provided however absence disqualification member executive committee member members thereof present meeting disqualified voting whether member members constitute quorum may unanimously appoint another member board directors act meeting place absent disqualified member executive committee shall may exercise intervals meetings board directors powers board directors management business affairs company shall power authorize seal company affixed papers may require except executive committee shall power elect directors fill vacancies appoint officers ii fix compensation officer compensation director serving board directors committee iii declare dividend make distribution shareholders company iv submit shareholders action needs shareholder authorization v amend repeal bylaws adopt new bylaw vi amend repeal resolution board directors terms shall amendable repealable vii take final action respect acquisition disposition business price excess 20000000 bthe board directors shall resolution resolutions passed e111 majority whole board directors designate audit committee consist three nonemployee directors company free relationship opinion board directors would interfere exercise independent judgment committee member director former employee company may serve audit committee members audit committee shall appointed hold office pleasure board directors majority members audit committee constitute quorum transaction business shall duty audit committee recommend board directors firm independent accountants perform examination annual financial statements company ii review independent accountants controller proposed scope annual audit past audit experience companys internal audit program recently completed internal audits matters bearing upon scope audit iii review independent accountants controller significant matters revealed course audit annual financial statements company iv review annual basis companys statement business conduct corporate policies relating thereto communicated company key employees company subsidiaries throughout world direction key employees certify read understand aware violation statement business conduct v review controller suggestions recommendations independent accountants concerning internal control standards accounting procedures company vi meet regular basis representative representatives internal audit department company review internal audit departments reports operations vii report activities actions board directors least fiscal year c board directors may resolution resolutions passed majority whole board directors designate committees may deemed advisable may discontinue time consist two directors company members shall appointed shall hold office pleasure board directors board directors shall prescribe name names committees number members duties powers action required permitted taken meeting committee may taken without meeting prior action written consent thereto signed members committee written consent filed minutes proceedings committee 25 committees shall keep written minutes proceedings report board directors required officers 26 officers company shall chairman board vice chairman board president two vice presidents shall include senior vice president executive vice president vice president titles treasurer secretary controller officers may appointed accordance e112 bylaws secretary treasurer may person vice president may hold time office secretary treasurer controller 27 officers company shall chosen board directors officer shall hold office successor shall duly chosen shall qualified death retirement officer shall resign shall removed manner hereinafter provided chairman board vice chairman board shall chosen among directors 28 board directors may appoint officers committees agents business company may require including one assistant treasurers one assistant secretaries shall hold office period authority perform duties provided bylaws board directors may time determine board directors may delegate officer committee power appoint remove subordinate officer agent 29 subject provisions written agreement officer may removed either without cause vote majority whole board directors regular meeting special meeting called purpose officer except officer elected board directors may also removed without cause committee superior officer upon power removal may conferred board directors 30 subject provisions written agreement officer may resign time giving written notice board directors chairman board secretary company resignation shall take effect time specified therein unless otherwise specified therein acceptance resignation shall necessary make effective 31 except otherwise provided bylaws event officer shall unable perform duties office held whether reason absence disability otherwise chairman board may designate another officer company assume duties officer unable carry duties office event chairman board shall absent unable perform duties office chairman board chairman board shall designate another officer assume duties chairman board another officer designated chairman board assume duties chairman board directors shall designate another officer assume duties chairman board event chairman board shall disabled unable perform duties office chairman board directors shall designate another officer assume duties chairman board officer designated assume duties another officer shall powers subject restrictions imposed upon officer whose duties assumed 32 vacancy office death resignation removal disqualification cause shall filled unexpired e113 portion term manner prescribed bylaws regular appointment election office 33 chairman board shall chief executive officer company shall general supervision business operations company subject however control board directors chairman board shall preside meetings shareholders board directors chairman board shall perform duties usually incumbent upon chief executive officer corporation incident office chairman board chairman board shall also powers perform duties assigned bylaws shall powers perform duties inconsistent bylaws may time assigned board directors 34 vice chairman shall powers perform duties assigned bylaws shall powers perform duties inconsistent bylaws time may assigned board directors chairman board 35 president shall powers perform duties assigned bylaws shall powers perform duties inconsistent bylaws time may assigned board directors chairman board 36 vice president shall powers perform duties assigned bylaws shall powers perform duties inconsistent bylaws time may assigned board directors chairman board 37 treasurer shall charge custody responsible funds company treasurer shall regularly enter cause entered books kept treasurer treasurers direction purpose full adequate account moneys received paid treasurer account company treasurer shall exhibit books account records directors company time upon request office company books records shall kept shall render detailed statement accounts records board directors often shall require treasurer shall also powers perform duties assigned treasurer bylaws shall powers perform duties inconsistent bylaws time may assigned board directors 38 shall duty secretary act secretary meetings board directors shareholders company keep minutes meetings proper book books provided purpose secretary shall see notices required given company board directors committee duly given served secretary shall custodian seal company shall affix seal cause affixed documents execution e114 behalf company seal shall duly authorized accordance provisions bylaws secretary shall charge share records also books records papers company relating organization management corporation shall see reports statements documents required law properly kept filed shall general perform duties usually incident office secretary shall also powers perform duties assigned bylaws shall powers perform duties inconsistent bylaws time may assigned board directors 39 controller shall perform usual duties pertaining office controller shall charge supervision accounting system company including preparation filing reports required law made public authorities officials shall also powers perform duties inconsistent bylaws time may assigned board directors 40 assistant treasurers assistant secretaries shall powers perform duties assigned bylaws shall powers perform duties inconsistent bylaws time may assigned treasurer secretary respectively board directors 41 compensation chairman board vice chairman board president vice president treasurer secretary controller shall fixed board directors compensation officers may appointed accordance provisions bylaws may fixed chairman board officer shall prevented receiving compensation reason also director company contracts checks drafts bank accounts etc 42 board directors except bylaws otherwise provided may authorize officer officers agent agents name behalf company enter contract execute deliver instrument authority may general confined specific instances unless authorized board directors expressly authorized bylaws officer agent employee shall power authority bind company contract engagement pledge credit render pecuniarily liable purpose amount 43 loans shall contracted behalf company negotiable paper shall issued name unless authorized resolution board directors authorized board directors officer agent company thereunto authorized may effect loans advances time company bank trust company institution firm corporation individual loans advances may make execute deliver promissory notes bonds certificates evidences indebtedness company authorized e115 may pledge hypothecate transfer securities property company security loans advances authority may general confined specified instances 44 checks drafts orders payment moneys funds company notes evidences indebtedness company shall signed behalf company manner shall time determined resolution board directors 45 funds company otherwise employed shall deposited time credit company banks trust companies depositories board directors may select may selected officer officers agent agents company power may time delegated board directors purpose deposit chairman board vice chairman board president vice president treasurer controller secretary officer agent employee company power may delegated board directors may endorse assign deliver checks drafts orders payment moneys payable order company certificates transfers shares 46 certificates shares company shall form shall approved board directors certificates shall numbered registered order issued shall signed chairman board vice chairman board president vice president secretary assistant secretary treasurer assistant treasurer certificate countersigned transfer agent company employee registrar company employee signature certificate may facsimile engraved stamped printed event officer whose facsimile signature appears certificate ceases reason hold office indicated company transfer agent hand supply share certificates bearing officers facsimile signature certificates may continue issued registered supply exhausted 47 transfers shares company shall made books company holder thereof holders attorney thereunto duly authorized surrender certificate certificates shares properly endorsed every certificate surrendered company shall marked cancelled date cancellation new certificate shall issued exchange therefor old certificate surrendered cancelled except hereinafter provided 48 holder shares company shall immediately notify company loss destruction mutilation certificate therefor company may issue new certificate place certificate theretofore issued alleged lost destroyed mutilated board directors may discretion conditions issue new certificate require owner lost destroyed certificate owners e116 legal representatives make proof satisfactory board directors loss destruction thereof give company bond form sum surety sureties board directors may direct indemnify company claim may made account certificate alleged lost destroyed determination record date 49 order company may determine shareholders entitled notice vote meeting shareholders adjournment thereof entitled receive payment dividend distribution allotment rights entitled exercise rights respect change conversion exchange stock purpose lawful action board directors may fix advance record date shall 60 less 10 days date meeting 60 days prior action record date fixed record date determining shareholders entitled notice vote meeting shareholders shall close business day next preceding day notice given notice waived close business day next preceding day meeting held ii record date determining shareholders purpose shall close business day board directors adopts resolution relating thereto determination shareholders record entitled notice vote meeting shareholders shall apply adjournment meeting provided however board directors may fix new record date adjourned meeting registered shareholders 50 company shall entitled treat holder record share shares stock holder fact thereof accordingly shall bound recognize equitable claim interest share part person whether shall express notice thereof save expressly provided laws delaware fiscal year 51 fiscal year shall begin first day january end thirtyfirst day december year notices 52 whenever provision bylaws notice required given director shareholder shall construed mean personal notice may given writing mail e117 depositing post office letter box postpaid sealed wrapper addressed director shareholder address appears books company default address director shareholder general post office city wilmington delaware notice shall deemed given time shall thus mailed 53 notice required given bylaws may waived writing signed person persons entitled said notice whether time stated therein amendments 54 except otherwise provided certificate incorporation company consistent therewith bylaws may altered amended repealed new bylaws may made affirmative vote holders record amajority shares company entitled vote annual special meeting provided proposed action shall stated notice meeting vote majority whole board directors regular meeting without notice special meeting provided notice proposed action shall stated notice special meeting e118 bristolmyers squibb company exhibit 10a 1983 stock option plan amended restated effective january 1 1993 amended september 14 1993 1 purposethe purpose 1983 stock option plan amended restated january 1 1993 plan secure company stockholders benefits incentive inherent common stock ownership officers key employees company subsidiaries affiliates largely responsible companys future growth continued financial success providing longterm incentives addition current compensation certain key executives company subsidiaries affiliates contribute significantly longterm performance growth company subsidiaries affiliates intended former purpose effected grant stock options stock appreciation rights plan latter purpose effected award conditionally granting performance units plan either independently conjunction related nonqualified stock option grant plan bristolmyers squibb company longterm performance award plan amended january 17 1983 effect december 31 1992 ltpap merged consolidated plan january 1 1993 used herein term prior plan shall mean bristolmyers squibb company 1983 stock option plan amended may 1 1991 effect december 31 1992 prior amendment restatement january 1 1993 2 definitionsfor purposes plan aaffiliate shall mean entity company ownership interest least 20 bcode shall mean internal revenue code 1986 amended ccommon stock shall mean companys common stock par value 10 per share dcompany shall mean bristolmyers squibb company edisability disabled shall mean qualifying receiving payments disability pay plan company subsidiary affiliate fexchange act shall mean securities exchange act 1934 amended gfair market value shall mean average high low sale prices share common stock new york stock exchange inc composite tape date measurement date determined e21 committee trades date day trade occurred next preceding date h retirement shall mean termination employment employee company subsidiary affiliate employees 65th birthday ii employees 55th birthday employee completed 10 years service company subsidiaries andor affiliates furthermore employee makes election retire article 19 bristolmyers squibb company retirement income plan retirement income plan shall additional years age service credited article 19 retirement income plan taken account determining employees age service section 2h election shall deemed retirement purposes section 2h purposes plan subsidiary shall mean corporation time qualifies subsidiary company definition subsidiary corporation section 424 code 3 amount stock amount stock may made subject grants options awards performance units plan calendar year 1993 shall exceed amount equal 09 outstanding shares companys common stock january 1 1993 plus ii amount shares available made subject grants options prior plan january 1 1993 less iii number shares subject options granted 1993 prior plan iv number shares corresponding awards performance units outstanding ltpap date plan approved stockholders company respect succeeding year amount stock may made subject grants options awards performance units plan shall exceed amount equal 09 outstanding shares companys common stock january 1 year plus subject section 3 ii year number shares equal amount shares available grants awards prior year made subject grant award prior year iii number shares subject options awards granted hereunder prior plan options awards terminated expired prior year without exercised common stock issued hereunder may authorized reissued shares issued shares acquired company subsidiaries market otherwise 4 administration plan shall administered supervision board directors company shall exercise powers extent herein provided agency compensation management development committee shall appointed board directors company shall consist less three directors shall serve pleasure board member committee shall e22 within one year prior appointment serving committee granted awarded equity securities company pursuant plan company subsidiaries affiliates except extent participation plan receipt grant award would adversely affect committee members status disinterested person purposes rule 16b3 exchange act committee time may adopt rules regulations carrying provisions purposes plan make determinations inconsistent terms plan committee shall deem appropriate interpretation construction provision plan committee shall unless otherwise determined board directors final conclusive committee shall maintain written record proceedings majority committee shall constitute quorum acts majority members present meeting quorum present acts unanimously approved writing shall acts committee 5 eligibility options awards may granted present future officers key employees company subsidiaries affiliates including subsidiaries affiliates become adoption plan officer key employee company subsidiary affiliate shall eligible receive one options awards plan director officer employee company one subsidiaries affiliates member committee time members service thereafter shall ineligible receive option award plan adoption plan shall deemed give officer employee right award granted option purchase common stock company except extent upon terms conditions may determined committee 6 stock options stock options plan shall consist incentive stock options section 422 code nonqualified stock options intended qualify incentive stock options committee shall determine addition committee may grant stock appreciation rights conjunction option set forth section 6b11 may grant awards conjunction option set forth section 6b10 associated option shall subject following terms conditions grant options committee shall 1 select officers key employees company subsidiaries affiliates options may time granted 2 determine whether e23 incentive stock options nonqualified stock options granted 3 determine number shares covered option granted 4 determine terms conditions inconsistent plan option granted hereunder including limited restrictions upon options conditions exercise shares common stock issuable upon exercise thereof 5 determine whether nonqualified stock options incentive stock options granted plan shall include stock appreciation rights shall determine terms conditions thereof accordance section 6b11 hereof 6 determine whether nonqualified stock options granted plan shall associated options 7 prescribe form instruments necessary advisable administration options b terms conditions option granted plan shall evidenced stock option agreement executed company optionee form committee shall approve agreement shall subject following terms conditions shall contain additional terms conditions inconsistent plan case incentive stock option inconsistent provisions code applicable incentive stock options committee shall prescribe 1 number shares subject option stock option agreement shall specify number shares common stock subject agreement option associated option number shares common stock subject associated option shall initially equal number performance units subject award one share common stock shall canceled performance unit paid award 2 option price purchase price per share common stock purchasable option determined committee less fair market value share common stock date grant option 3 option period option shall fixed committee option shall exercisable expiration ten years date option granted 4 consideration optionee consideration grant option shall remain continuous employ company one subsidiaries affiliates least one year date granting option shall exercisable completion one year period employment optionee 5 exercise option may exercised whole part time option period determined committee specified installments option period giving written notice exercise company specifying number shares purchased notice accompanied payment full purchase price withholding taxes defined section 10 hereof due either certified bank check shares common stock company owned optionee fair market value date exercise equal purchase price withholding taxes due combination foregoing provided however payment shares common stock company e24 permitted unless least 100 shares common stock required delivered purpose shares shall issued full payment therefor made optionee shall rights stockholder respect shares stock certificates issued optionee 6 nontransferability options option stock appreciation right granted plan shall transferable optionee otherwise laws descent distribution option stock appreciation right shall exercisable optionees lifetime optionee 7 retirement termination employment death disability optionee shall cease employed company subsidiaries affiliates reason termination employment reason death disability optionee shall continuously employed one year granting option shall exercisable extent optionee otherwise entitled exercise time cessation employment company subsidiary affiliate event expiration option period set forth therein except case cessation employment reason retirement death option shall event exercisable date three months next succeeding cessation employment plan confer upon optionee right respect continuation employment company subsidiaries affiliates 8 disability optionee ceases employed reason disability shall treated though optionee remained employ company subsidiary affiliate earlier cessation payments disability pay plan company subsidiary affiliate ii optionees death iii optionees 65th birthday 9 death optionee event death optionee employ company subsidiaries affiliates within whichever period retirement cessation employment optionee specified subsection 7 8 applicable provided optionee shall continuously employed one year granting option shall exercisable executors administrators legatees distributees optionees estate case may time following death event expiration option period set forth therein extent optionee would otherwise entitled exercise optionee living except case death optionee retirement cessation employment option shall event exercisable later date twelve months next succeeding death ii last day period retirement cessation employment optionee specified section 6b7 event option exercised executors administrators legatees distributees estate deceased optionee company shall obligation issue stock thereunder unless company satisfied person persons exercising option duly appointed legal representatives deceased optionees estate proper legatees distributees thereof e25 10 long term performance awards committee may time grant nonqualified stock options plan conjunction related award performance units made long term performance award set forth section 7b11 event notwithstanding provision hereof number shares associated option applies shall initially equal number performance units granted award number shares shall reduced one shareforone unit basis extent committee determines pursuant terms award pay optionee optionees beneficiary performance units granted pursuant award ii associated option shall cancelable discretion committee without consent optionee conditions extent specified award 11 stock appreciation rights case option granted plan either time grant amendment option time grant may included stock appreciation right shall subject terms conditions inconsistent plan committee shall impose including following stock appreciation right shall exercisable extent option included time exercisable may exercised within period time times may determined committee b stock appreciation right shall entitle optionee person entitled act provisions subsection 9 hereof surrender unexercised option stock appreciation right included portion option company receive company exchange therefor number shares aggregate value equal discretion committee less excess value one share provided value exceed multiple option price per share may specified committee option price per share specified option times number shares called option portion thereof surrendered committee shall entitled cause company settle obligation arising exercise stock appreciation right payment cash equal aggregate value shares company would otherwise obligated deliver partly payment cash partly delivery shares election shall made within 30 business days receipt committee written notice exercise stock appreciation right value share purpose shall fair market value thereof last business day preceding date election exercise stock appreciation right c fractional shares shall delivered subsection 11 lieu thereof cash adjustment shall made stock appreciation right included option exercised option shall deemed exercised extent number shares called option portion thereof surrendered exercise stock appreciation right new option may granted covering shares plan e option includes stock appreciation right exercised e26 stock appreciation right shall deemed canceled extent number shares called option portion thereof exercised new stock appreciation rights may granted covering shares plan 12 incentive stock options case incentive stock option granted plan aggregate fair market value shares common stock company determined time grant option respect incentive stock options granted plan company parent subsidiary exercisable first time employee calendar year shall exceed 100000 amount may required code year maximum number shares respect incentive stock options may granted shall exceed 4000000 shares 7 longterm performance awards plan shall consist conditional grant participants specified number performance units conditional grant performance unit participant entitle participant receive specified dollar value variable conditions specified award performance objectives specified award achieved terms conditions thereof satisfied award subject following terms conditions grant awards committee shall 1 select officers key executives company subsidiaries affiliates awards may time granted 2 determine number performance units covered award 3 determine terms conditions performance unit awarded award period performance objectives respect award 4 determine periods participant may request committee approve deferred payment percentage 50 100 award deferred portion interest rate return thereon basis interest rate return thereon determined 5 determine whether payment respect portion award deferred current portion payment respect deferred portion award shall made entirely cash entirely common stock partially cash partially common stock 6 determine whether award made independently conjunction nonqualified stock option granted plan 7 prescribe form instruments necessary advisable administration awards b terms conditions award conditionally granting performance units participant shall evidenced performance unit agreement executed company participant form committee shall approve agreement shall contain substance following terms conditions additional terms conditions committee shall prescribe 1 number performance units performance unit agreement shall specify number performance units conditionally granted participant award made conjunction grant associated option number performance units granted shall initially equal number shares participant granted right purchase pursuant associated option e27 one performance unit shall canceled share companys common stock purchased upon exercise associated option stock appreciation right included option exercised 2 value performance units performance unit agreement shall specify threshold target maximum dollar values performance unit corresponding performance objectives provided section 7b5 3 award periods award committee shall designate award period duration determined committee discretion event less three calendar years within specified performance objectives attained may several award periods existence one time duration performance objectives may differ 4 consideration participant consideration award performance units shall remain continuous employ company one subsidiaries affiliates least one year date making award shall payable completion one year employment participant 5 performance objectives committee shall establish performance objectives respect company award period basis criteria accomplish objectives committee may time determine performance objectives may include objective subjective criteria award period committee may adjust performance objectives award period deems equitable recognition unusual nonrecurring events affecting company changes applicable tax laws accounting principles factors committee may determine 6 determination payment performance units earned soon practicable end award period committee shall determine extent awards earned basis companys actual performance relation established performance objectives set forth performance unit agreement performance unit agreement shall specify soon practicable end award period committee shall determine whether conditions sections 7b4 7b5 hereof met shall ascertain amount payable participant respect performance units promptly practicable determined amount payable respect award committee shall cause current portion award paid participant participants beneficiaries case may committees discretion either entirely cash entirely common stock partially cash partially common stock deferred portion award shall contingently credited payable participant deferred period shall credited interest rate return determined committee discretion shall determine conditions upon method payment deferred portions whether payment made entirely cash entirely common stock partially cash partially common stock e28 making payment award common stock hereunder cash equivalent common stock shall determined fair market value common stock day committee designates performance units shall paid 7 nontransferability awards designation beneficiaries award plan shall transferable participant laws descent distribution except participant may designate beneficiary pursuant provisions hereof participant participants beneficiary shall attempt assign participants rights plan violation provisions thereof companys obligation make payments participant participants beneficiaries shall forthwith terminate participant may name one beneficiaries receive payment award participant may entitled plan event participants death form provided committee participant may change participants beneficiary designation time manner designated beneficiary living date payment becomes payable participants beneficiary payment payable person persons first following classes successive preference widow widower living ii surviving children equally iii surviving parents equally iv surviving brothers sisters equally v executors administrators term beneficiary used plan shall include person persons 8 retirement termination employment death disability event retirement prior end award period participant satisfied one year employment requirement section 7b4 respect award prior retirement participant estate shall entitled payment award end award period pursuant terms plan participants performance unit agreement provided however participant shall deemed earned proportion nearest whole unit value performance units granted participant award number months award period elapsed since first day calendar year award made end month participants retirement occurs bears total number months award period participants rights remaining performance units shall canceled forfeited subject section 7b6 hereof performance unit agreement shall specify rights participant performance units granted participant shall conditional shall canceled forfeited surrendered participants continuous employment company subsidiaries affiliates shall terminate e29 reason participants death disability retirement prior end award period committee may discretion waive whole part cancellation forfeiture surrender performance units 9 disability participant purposes award participant becomes disabled shall deemed suspended active employment reason disability commencing date participant becomes entitled receive payments disability pay plan company subsidiary affiliate continuing date participant longer entitled receive payments event participant becomes disabled award period participant satisfied one year employment requirement section 7b4 respect award prior becoming disabled upon determination committee extent award earned pursuant section 7b6 participant shall deemed earned proportion nearest whole unit value performance units granted participants award number months award period participant disabled bears total number months award period participants rights remaining performance units shall canceled forfeited committee may discretion waive whole part cancellation forfeiture performance units 10 death participant event death prior end award period participant satisfied one year employment requirement respect award prior date death participants beneficiaries estate case may shall entitled payment award upon end award period pursuant terms plan participants performance unit agreement provided however participant shall deemed earned proportion nearest whole unit value performance units granted participant award number months award period elapsed since first day calendar year award made end month participants death occurs bears total number months award period participants rights remaining performance units shall canceled forfeited committee may discretion waive whole part cancellation forfeiture performance units 11 grant associated option committee determines conditional grant performance units plan made participant conjunction grant nonqualified stock option plan committee shall grant participant associated option plan subject terms conditions subsection 11 event award plan shall contingent upon participants granted associated option pursuant number shares optionee may purchase shall initially equal number performance units conditionally granted award ii number shares shall reduced one shareforone unit basis extent committee determines pursuant section 7b6 hereof pay participant participants beneficiaries performance units e210 conditionally granted pursuant award iii associated option shall cancelable discretion committee without consent participant conditions extent specified herein section 7b6 hereof amount payable respect conditionally granted performance units award performance units shall deemed canceled forfeited surrendered associated option shall continue effect accordance terms amount payable respect performance units granted conjunction associated option committee shall within 30 days determination committee referred first sentence section 7b6 determine sole discretion either cancel full associated option event value performance units payable pursuant sections 7b5 6 shall paid b cancel full performance units event amount shall paid participant respect thereof associated option shall continue effect accordance terms c cancel performance units event value performance units payable pursuant sections 7b5 6 canceled shall paid associated option shall canceled respect number shares equal number conditionally granted performance units remain payable action taken committee pursuant preceding sentence shall uniform respect awards award period committee takes action shall deemed determined cancel full award accordance clause b 8 determination breach conditions determination committee whether event occurred resulting forfeiture termination reduction companys obligations accordance provisions plan shall conclusive 9 adjustment event change stock event changes outstanding common stock company reason stock dividends recapitalization mergers consolidations splitups combinations exchanges shares like aggregate number class shares available plan number class price shares subject outstanding options andor awards number performance units andor dollar value unit shall appropriately adjusted committee whose determination shall conclusive 10 taxes connection transfer shares common stock optionee subject section 16 exchange act result exercise nonqualified stock option stock appreciation right participant subject section 16 exchange act upon payment award company shall right retain sell without notice demand surrender shares common stock fair market value taking account commissions e211 expenses company may incur upon sale shares date amount required governmental entity withheld otherwise deducted paid respect transfer withholding tax determined tax date sufficient cover amount applicable tax amount withholding tax plus incremental amount determined basis highest marginal tax rate applicable optionee participant federal insurance contribution act taxes governmental impost levy make payment reimburse payment made appropriate taxing authority amount cash equal amount applicable tax remitting balance optionee participant optionee participant executive officer company subject section 16 exchange act shall entitled satisfy obligation pay withholding tax applicable tax providing company funds sufficient enable company pay withholding tax applicable tax requiring company retain accept upon delivery thereof optionee participant shares common stock sufficient value determined accordance last sentence preceding paragraph cover amount withholding tax applicable tax election optionee participant shares retained deliver shares purpose shall subject following restrictions election must writing made prior tax date ii election must irrevocable iii election shall subject disapproval committee 11 amendment plan board directors may amend suspend plan time amendment plan may however increase maximum number shares offered options awards change manner determining option price change designation employees class employees eligible receive options awards permit transfer issue stock payment therefor full without written consent optionee participant alter impair option award previously granted plan prior plan ltpap 12 amendment options outstanding prior plan prior plan certain nonqualified options granted outstanding thereunder hereby amended provide nonqualified option outstanding date plan adopted vote holders majority shares companys common stock 200 convertible preferred stock present person proxy duly held shareholders meeting quorum representing majority outstanding voting stock present shall exercisable accordance sections 6b7 6b9 except purpose options retirement shall additionally mean termination employment employee completing 35 years service company subsidiaries furthermore employee makes election retire article 19 retirement income plan shall additional years age service credited article 19 retirement income plan taken account determining employees age years service company subsidiaries section 12 election shall deemed retirement purposes section 12 purposes plan e212 13 miscellaneous accepting benefits plan optionee participant person claiming optionee participant shall conclusively deemed indicated acceptance ratification consent action taken made taken made plan company board committee appointed board participant person claiming shall right interest whether vested otherwise plan option stock appreciation right award thereunder contingent otherwise unless terms conditions provisions plan agreement affect participant person shall complied nothing contained plan agreement shall require company segregate earmark cash property neither adoption plan operation shall way affect rights powers company subsidiaries affiliates dismiss andor discharge employee time 14 term plan shall become effective january 1 1993 action board directors conditioned subject approval plan vote holders majority shares common stock 200 convertible preferred stock company present person proxy duly held shareholders meeting quorum representing majority outstanding voting stock present plan shall terminate december 31 2002 earlier date may determined board directors termination plan however shall affect rights optionees options theretofore granted rights participants awards theretofore granted unexpired options awards shall continue force operation termination plan except may lapse terminated terms conditions e213 squibb corporation exhibit 10b 1982 option restricted stock performance unit plan 1 definitions following terms shall following meanings purposes plan award cycle means period less three fiscal years performance units granted particular year earned committee means committee described paragraph 4 shall administer plan common stock means common stock corporation means squibb corporation designated beneficiary means person persons designated writing participant legal recipient payments due performance unit award event participants death absence designation participants estate designation must file committee order effective unless participant made irrevocable designation may changed time participant means employee received award performance units plan payment schedule means schedule adopted committee accordance paragraph 6 respect award cycle govern determination payment value performance unit end award cycle accordance paragraph 6 payment value means value expressed dollars performance unit conclusion award cycle determined accordance paragraph 6 restricted stock means shares common stock referred paragraph 8 unit base value means average rounded next highest cent case fractions cent high low sales prices common stock corporation new york stock exchange day performance units awarded sales common stock day highest asked price therefor new york stock exchange day 2 stock subject plan reserved issuance upon payment performance units awarded exercise options granted plan 3500000 authorized unissued shares common stock issuance restricted stock 200000 authorized unissued shares common stock option granted plan shall expire terminate reason including without limitation reason surrender e31 pursuant provisions fourth paragraph 7b otherwise cancellation whole part pursuant provisions paragraph 7g otherwise substitution place thereof new option without exercised full shares subject thereto shall available purposes issuance upon payment performance units awarded exercise options granted plan restricted stock shall become subject forfeiture returned corporation pursuant provisions paragraph 8 hereof shares shall available purposes issuance restricted stock plan event shall authorized unissued shares common stock plan authorized used payment performance unit awards deemed unavailable purposes plan shares shall issued payment thereof accordance provisions paragraph 6g 3 administration plan shall administered committee subject express provisions plan committee shall plenary authority discretion determine individuals time times performance units restricted stock shall awarded options shall granted including without limitation whether options shall incentive stock options nonqualified stock options combination thereof terms hereinafter defined number units andor shares covered award grant provided however event shall restricted stock award made employee time award officer director corporation making determinations committee may take account nature services rendered respective employees present potential contributions corporations success factors committee discretion may deem relevant subject express provisions plan committee shall also plenary authority interpret plan prescribe amend rescind rules regulations relating determine terms provisions respective restricted stock performance unit option agreements need identical make determinations necessary advisable administration plan committees determinations matters referred paragraph 3 shall conclusive provided however committee board administering plan shall authority interpret plan prescribe amend rescind rules regulations inconsistent provisions plan prohibiting acceleration payments plan ii modification interest rate credited plan 4 committee shall consist three members board directors corporation eligible receive options restricted stock performance units plan committee shall appointed board directors may time appoint members committee substitution members previously appointed may fill vacancies however caused committee shall select one members chairman shall hold meetings times places may determine majority members shall constitute quorum determinations committee shall made less majority members e32 decision determination reduced writing signed members shall fully effective made majority vote meeting duly called held committee may appoint secretary shall keep minutes meetings shall make rules regulations conduct business shall deem advisable 5 eligibility performance units restricted stock may awarded options granted key employees term used herein includes officers corporation present future subsidiary corporations herein called subsidiaries director corporation subsidiary also employee corporation subsidiary eligible receive performance unit restricted stock award option employee may receive one performance unit awards one options one restricted stock awards combination thereof committee shall time determine determinations may different employees may vary different awards grants notwithstanding foregoing restricted stock award may event made employee time award made officer director corporation 6 performance unit awards performance units awarded participant shall payment value end applicable award cycle contingent upon performance corporation andor participants subsidiary division department award cycle performance measures may include shall limited cumulative growth pretax profits earnings per share return shareholders equity return capital employed measures may applied absolute basis relative industry indices shall defined manner committee shall deem appropriate award cycle committee shall establish payment schedule based upon performance measures determined award cycle length award cycle course award cycle occur opinion committee significant changes economic conditions nature operations corporation subsidiary division department committee foresee establishing performance measures cycle committees sole judgment expected substantial effect performance corporation participants subsidiary division department cycle committee may revise payment schedule performance measures formerly determined manner committee sole judgment may deem appropriate b determining number performance units awarded committee shall take account employees responsibility level performance potential cash compensation level considerations deems appropriate c award performance units participant shall terminate purposes participant remain award cycle continuously employ corporation one subsidiaries except case death disability retirement corporations pension plan including early retirement e33 request corporation case provided participant time death disability retirement aforesaid shall continuously employ corporation one subsidiaries period commencing date award granted ending first anniversary thereof participant entitled payment made accordance provisions paragraph 6d portion payment value award participant would otherwise paid payment value determined conclusion applicable award cycle accordance provisions paragraphs 6a 6e portion award cycle participant employed bears full award cycle particular circumstances committee may make determinations respect participants whose services meet foregoing requirements including waiver requirements subparagraph c relating periods employment unless committee otherwise determines payment respect performance units made participant prior end participants award cycle provided however participant die award cycle participants award shall terminated hereunder prior death participants designated beneficiary may elect instead subject approval committee pro rata portion payment value determined committee end year participants death occurred based upon application payment schedule part award cycle shall elapsed purpose cumulative growth rate achieved end fiscal year death occurs assumed continue award cycle event pro rata portion shall paid cash common stock provided paragraph 6g soon practicable following year number installments shall requested participant approved committee participants designated beneficiary e except otherwise provided paragraph 6d case death participants interest performance units awarded participant shall mature last day award cycle award payment value performance unit shall dollar amount calculated basis payment schedule applicable award cycle f total amount payment value due participant conclusion award cycle shall paid date following conclusion award cycle committee shall designate except specifically otherwise provided plan provided however committee shall authority deems appropriate defer payment cash stock specified percentages payment value due participant shall request committee time prior 180th day preceding last day award cycle award respect awards made one deferred installments cash interest shall credited semiannually award rate determined semiannually committee event shall rate less average rate 10year aaa new industrial corporate bonds semiannual period e34 calculated basis average rates calendar week ending period january 1 june 30 july 1 december 31 provided awards made sixmonth period shall credited basis average rate period provided installments paid sixmonth period shall credited basis average rate next preceding sixmonth period case adjusted number days award credited unless paid recipient award time credited interest foregoing rate shall credited interest credited paid foregoing minimum interest rate award payable one deferred installments plan may modified without prior written consent participant whenever award made one deferred installments stock committee may determine shall credited award amount equivalent dividends would paid respect shares stock issued outstanding dividend equivalents shall credited dividend record dates certificates shares shall delivered recipient award earlier date committee may determine interest dividend equivalents shall paid recipient award cash property related dividend shall property time times deferred period award time cash shares stock interest dividend equivalents apply committee shall determine committee may also determine dividend equivalents may used purchase additional shares outstanding stock shares valued purpose mean high low sales prices stock new york stock exchange dividend record date added shares stock covered award held subject terms conditions including provisions relating payment amounts equivalent dividends thereon g payment value due participant shall made election committee participant cash ii shares common stock corporation determined dividing payment value matured performance units average high low sales prices stock new york stock exchange five trading days immediately preceding date payment iii combination cash shares common stock valued h payment award shall deferred termination employment recipient corporation one subsidiaries cash stock covered award together deferred interest dividend equivalents thereon shall delivered 20 annual installments commencing later january 31 termination employment date committee time shall determine committee may determine payment award plan deferred payment thereafter may accelerated payment shall made immediately earlier time lesser number installments case committee may time determine e35 prior written consent participant person payment consideration award made whether deferred shall interest cash stock awarded interest dividend equivalents credited cash paid certificates stock delivered case may accordance provisions plan j event changes outstanding stock corporation reason stock dividends stock splits recapitalizations mergers consolidations combinations exchanges shares splitups splitoffs spinoffs liquidations similar changes capitalization distribution shareholders cash dividends committee shall make adjustments light change distribution committee sole discretion shall determine appropriate number shares stock covered award certificates delivered ii dividend equivalents deferred awards stock entitled k recipient deferred award may file committee designation beneficiary beneficiaries form provided committee designation may changed revoked recipients sole action provided change revocation filed committee form provided case death recipient award termination employment unpaid installments deferred award shall pass designated beneficiary unpaid installments deferred award shall paid either installments originally provided otherwise committee may determine individual cases l corporation shall right lieu delivering certificate certificates stock would otherwise deliverable participant pursuant plan pay participant date certificate certificates would otherwise deliverable amount cash equal mean high low sales prices stock new york stock exchange date dates may determined committee five trading days prior date withholding deducting required amount tax committee may determine individual cases 7 option grants purchase price common stock option granted plan shall determined committee shall less 100 fair market value stock time option granted fair market value shall determined committee shall taken less mean rounded next highest cent case fractions cent high low prices common stock new york stock exchange date grant option b committee shall authorized discretion prescribe option grant installments option granted plan shall become exercisable provided option e36 shall exercisable prior first anniversary date grant thereof except provided paragraph 7e except committee otherwise determines case may option exercised less 10 shares one time remaining shares covered option less 10 term option committee shall also authorized establish manner effective date exercise option term option shall ten years date grant thereof shorter period prescribed paragraphs 7d e except provided paragraphs 7d e option may exercised time unless holder thereof employee corporation subsidiary upon exercise option price paid full cash discretion committee shares common stock owned optionee market value date exercise equal aggregate option price discretion committee combination cash shares common stock provided however payment shares common stock shall made unless said shares shall owned optionee period least three months prior date payment purposes paragraph market value shares common stock delivered payment option price shall mean highest lowest selling prices per share common stock new york stock exchange exercise date shares common stock traded exercise date fair market value date shall determined treasury regulation section 2020312 purposes paragraph optionee effect delivery shares common stock delivering certificates shares corporation furnishing corporation registration numbers certificates shares held record nominee benefit optionee furnishing corporation notarized statement attesting number shares optionee intends delivered terms conditions shall approved committee corporation subsidiaries may directly indirectly lend money optionee person accomplish purposes plan including assist person acquire shares common stock acquired upon exercise options separately tend money optionee lend person pay taxes respect transactions contemplated plan lieu requiring optionee pay cash andor stock receive certificates shares common stock corporation upon exercise nonqualified stock option hereinafter defined option provides committee may elect require optionee surrender option corporation cancellation portion number shares covered intended exercise receive exchange surrender payment election committee cash shares common stock corporation combination cash shares common stock corporation equivalent appreciated value shares covered option surrendered cancellation appreciated value shall difference option price shares adjusted pursuant paragraph 10 fair market value shares shall e37 determined committee shall taken less mean high low prices common stock new york stock exchange date optionees notice exercise received corporation upon delivery corporation notice exercise option committee may avail right require optionee surrender option corporation cancellation shares covered intended exercise committees right election shall conditional upon notifying optionee writing immediately date corporations receipt optionees notice exercise ii expired exercised close business fifth business day following delivery corporation notice committee exercise right election delivery aforesaid notice exercise shall constitute exercise optionee option extent therein set forth payment shares covered exercise shall become due c event individual receiving nonqualified stock option hereinafter defined shall remain employ corporation one subsidiaries period least one year date grant option termination individuals service period either cause ii voluntary part individual without written consent corporation subsidiary option shall forthwith terminate date termination employment retirement early normal retirement date prescribed time corporation shall deemed termination employment corporations written consent individual receiving incentive stock option hereinafter defined may exercise one year employment following grant date extent provided option grant termination employment oneyear period terminate rights option event termination employment holder option reason normal early retirement accordance provisions pension plan corporation one subsidiaries affiliates hereinafter retirement death optionee may unless option shall previously terminated pursuant provisions paragraph 7c unless otherwise provided option grant exercise option time within three months termination expiration option extent number shares covered option purchasable optionee date termination employment event termination employment holder option retirement may 5 1987 optionee may unless options shall previously terminated pursuant provisions paragraph 7c unless otherwise provided option grant exercise option time remaining term option expiration option extent number shares covered option purchasable optionee date termination employment event termination employment holder e38 option retirement may 5 1987 option shall unless option shall previously terminated pursuant provisions paragraph 7c unless otherwise provided option grant continue become exercisable accordance terms provisions paragraph 7 option grant holder thereof may exercise option time remaining term thereof expiration option extent time exercisable provided however holder becomes employed direct competitor corporation subsidiaries option held optionee date becoming employed fully exercisable shall forthwith terminate shares purchasable optionee thereunder thereafter optionee may exercise option extent number shares covered option purchased optionee date employment direct competitor notwithstanding foregoing provisions hereof subject provisions paragraph 7c committee may determine sole discretion case termination employment holder option may exercise option extent remaining shares covered thereby whether shares become purchasable individual date termination employment options granted plan shall affected change employment long holder continues employee corporation subsidiary option grant may contain provisions committee may approve reference effect approved leaves absence nothing plan option granted pursuant plan shall confer individual right continue employ corporation subsidiaries interfere way right corporation subsidiaries terminate employment time e event death individual option granted plan individual employed corporation subsidiary option theretofore granted unless option shall previously terminated pursuant provisions paragraph 7c unless otherwise provided option grant may exercised legatee legatees option holder optionees last personal representatives distributees optionee individuals death occurs prior may 5 1987 time within period one year death ii individuals death occurs may 5 1987 remaining term option neither event expiration option extent remaining shares covered option whether shares become purchasable individual date death event death individual threemonth period following termination employment said termination reasons retirement option previously terminated pursuant provisions paragraph 7c unless otherwise provided option grant may exercised legatee legatees option holder optionees last optionees personal representatives e39 distributees extent number shares purchasable employee pursuant provisions paragraph 7d date termination optionees employment within one year date death expiration option event individual option granted plan dies following retirement option theretofore granted individual previously terminated pursuant provisions paragraph 7c unless otherwise provided option grant may exercised legatee legatees option holder optionees last optionees personal representatives distributees time remaining term option expiration option retirement commenced prior may 5 1987 extent number shares purchasable individual pursuant provisions paragraph 7d date termination employment ii retirement commenced may 5 1987 extent number shares covered option whether shares become purchasable individual date death subject however limitations described paragraph 71 f subject provisions paragraph 7h date grant option pursuant plan shall date specified committee time grants option provided date shall prior date action committee shall promptly notify grantee award written option grant shall promptly duly executed delivered behalf corporation g committee shall authorized absolute discretion permit optionees surrender outstanding options exchange grant new options require optionees surrender outstanding options condition precedent grant new options number shares covered new options option price option period terms conditions new options shall determined accordance plan may different provisions surrendered options however incentive stock option surrendered nevertheless considered outstanding purposes paragraph 7h h option granted modified hereunder intended incentive stock option used herein term incentive stock option shall defined section 422a united states internal revenue code options granted hereunder referred nonqualified stock options shall exercisable outstanding incentive stock option granted granting option optionee purchase stock optionees employer corporation time granting option parent subsidiary employer corporation predecessor corporations purposes paragraph 7h incentive stock option shall treated outstanding option exercised full expires reason lapse time case option modified meet requirements applicable incentive stock options prior modifications thereafter date e310 modification shall treated date grant purposes paragraph 7h determining whether incentive stock option exercisable time optionees retirement restrictions order exercise set forth paragraph 7h shall disregarded restrictions shall continue apply respect order options may exercised event shall optionee granted calendar year 1982 subsequent year incentive stock option incentive stock options entitling optionee purchase stock corporation parent corporation subsidiaries corporation aggregate fair market value determined time option options granted excess 100000 plus amount unused limit carryover calendar year case option modified meet requirements applicable incentive stock options prior modification thereafter date modification shall treated date grant purposes paragraph 7i eligibility optionee unused limit carryover year amount thereof shall determined accordance applicable provisions internal revenue code 8 restricted stock awards consideration received shares restricted stock issued hereunder authorized unissued shares shall equal cash amount equal par value thereof continued employment participant restricted period hereafter defined recipient restricted stock shall recorded stockholder corporation shall subject provisions hereof rights stockholder respect shares receive dividends distributions made paid respect shares provided shares new additional different shares securities recipient may entitled receive respect shares virtue stock split stock dividend change corporate capital structure corporation shall subject restrictions hereinafter described b period years following date grant determined committee shall event less four hereinafter referred restricted period restricted stock may sold assigned transferred pledged hypothecated otherwise encumbered disposed recipient except event death hereinafter provided ii transfer thereof corporation provisions next succeeding paragraph event death recipient said restricted period aforesaid restrictions restricted stock shall immediately lapse legal representatives estate recipient shall free transfer encumber otherwise dispose restricted stock event restricted period employment recipient corporation one subsidiaries terminated reason including termination without cause corporation subsidiary resignation recipient retirement pension plan corporation e311 one subsidiaries termination employment due death recipient shares restricted stock held recipient shall forfeited corporation recipient shall immediately transfer return corporation certificates representing restricted stock recipients rights stockholder respect restricted stock shall cease effective termination employment recipients rights restricted stock may assigned transferred except laws descent distribution event attempt sell exchange transfer pledge otherwise dispose said shares recipient violation provisions hereof shares shall forfeited corporation c committee shall authority deems appropriate extend restricted period respect award restricted stock recipient shall request committee time prior 180th day preceding date restricted period originally scheduled lapse event restricted period extended restricted period termination employment recipient corporation one subsidiaries restrictions restricted stock shall lapse twenty annual installments commencing later january 31 termination employment date committee time shall determine committee may determine restricted period extended lapsing restrictions thereafter may accelerated restrictions shall lapse immediately earlier time less number installments case committee may time determine prior written consent recipient event death recipient extended restricted period restrictions restricted stock shall immediately lapse legal representatives estate recipient shall free transfer encumber otherwise dispose restricted stock 9 transferability shareholder rights holders performance units options performance unit awarded option granted plan shall transferable otherwise pursuant paragraph 6k laws descent distribution option may exercised lifetime holder thereof holder performance unit award option shall none rights shareholder case performance unit awards recipient interest therein accordance paragraph 6i ii case options shares subject thereto shall registered name person persons exercising option transfer books corporation upon exercise 10 adjustments upon changes capitalization notwithstanding provisions plan option grants may contain provisions committee may determine appropriate adjustment number class shares subject options option prices options covered thereby event e312 changes outstanding common stock reason stock dividends stock splits recapitalizations merger consolidations combinations exchanges shares splitups splitoffs spinoffs liquidations similar changes capitalization distribution common shareholders cash dividends event change outstanding common stock aggregate number class shares available plan maximum number shares options may granted performance units awarded maximum number shares restricted stock may awarded shall appropriately adjusted committee 11 amendment termination unless plan shall theretofore terminated hereinafter provided plan shall terminate awards performance units restricted stock options shall made december 31 1987 provided said plan termination shall effect awards performance units restricted stock options made prior thereto plan may terminated modified amended stockholders corporation board directors corporation may also terminate plan modify amend plan respects shall deem advisable order conform change law regulation applicable thereto respects shall change total number shares options may granted may used payment performance unit awards plan may issued restricted stock ii class employees eligible receive awards performance units restricted stock options iii manner determining unit base value minimum option prices iv period awards performance units restricted stock may made options may granted exercised v minimum period four years set forth paragraph 8b vi provisions relating administration plan committee consisting directors corporation eligible participate plan provided respect awards previously granted plan board directors shall authority modify amend provisions plan prohibiting acceleration payments plan ii modification interest rate credited plan 12 withholding connection transfer shares common stock result exercise nonqualified stock option payment performance units payment restricted stock award corporation shall right retain sell without notice demand surrender shares common stock value sufficient cover amount withholding tax portion applicable tax defined required governmental entity withheld otherwise deducted paid respect reimburse payment made transfer make payment reimburse payment made appropriate taxing authority amount cash equal amount withholding tax remitting balance employee purposes paragraph value shares common stock retained surrendered shall average high low sales prices per share new york stock exchange date amount withholding tax determined tax date value shares common stock sold shall actual net sale price per share deduction commissions received e313 corporation notwithstanding foregoing employee shall entitled satisfy obligation pay withholding tax employee officer corporation within meaning section 16 securities exchange act 1934 section 16 satisfy obligation pay tax governmental entity respect transfer including federal state local income tax amount determined basis highest marginal tax rate applicable employee federal insurance contribution act taxes governmental impost levy applicable tax whole part providing corporation funds sufficient enable corporation pay withholding tax applicable tax requiring corporation retain accept upon delivery thereof employee shares common stock sufficient value determined accordance last sentence preceding paragraph cover amount withholding tax applicable tax election employee shares retained deliver shares purpose shall subject following restrictions election must writing made prior tax date ii election must irrevocable iii election shall subject disapproval committee iv employee officer corporation within meaning section 16 election may made within six months grant related stock option award related performance units restricted stock except restriction shall apply event death disability employee occurs within six months grant award v employee officer corporation within meaning section 16 election must made least six months prior tax date tenbusiness day window period beginning third business day following date corporation releases publication annual quarterly statements sales earnings ending twelfth business days following date release thereof prior tax date 13 effectiveness plan shall become effective date adoption board directors corporation performance unit restricted stock awards may made options granted immediately thereafter performance unit award may paid restricted stock issued option exercised plan unless plan shall approved vote holders majority outstanding shares common stock meeting shareholders within twelve months date adoption plan board directors approval obtained within said period plan awards made options granted plan shall null void committee may discretion authorize awarding performance units restricted stock granting options payment issuance exercise respectively shall expressly subject conditions shares common stock reserved issue plan shall duly listed upon official notice issuance upon stock exchange united states upon common stock traded ii registration statement securities act 1933 respect shares shall become effective e314 amendment squibb corporation exhibit 10c 1986 option restricted stock performance unit plan squibb corporation 1986 option restricted stock performance unit plan hereby amended effective july 1 1993 deleting section 12 entirety inserting therefor following 12 withholding connection transfer shares common stock par value 10 per share bristolmyers squibb company bms stock participant result exercise nonqualified stock option payment performance units payment restricted stock award corporation shall right retain sell without notice demand surrender shares bms stock value sufficient cover amount withholding tax portion applicable tax defined required governmental entity withheld otherwise deducted paid respect transfer applicable tax make payment reimburse payment made appropriate taxing authority amount cash equal amount withholding tax applicable tax remitting balance participant purposes paragraph value shares bms stock retained surrendered shall average high low sales prices per share new york stock exchange date amount withholding tax determined tax date value shares bms stock sold shall actual net sale price per share deduction commissions received corporation notwithstanding foregoing participant shall entitled satisfy obligation pay withholding tax employee officer corporation within meaning section 16 securities exchange act 1934 act satisfy obligation pay tax governmental entity respect transfer including federal state local income tax amount determined basis highest marginal tax rate applicable participant federal insurance contribution act taxes governmental impost levy applicable tax whole part providing corporation funds sufficient enable corporation pay withholding tax applicable tax requiring corporation retain accept upon delivery thereof participant shares page two amendment squibb corp 1986 option restricted stock performance united plan bms stock sufficient value determined accordance last sentence preceding paragraph cover amount withholding tax applicable tax election participant shares retained deliver shares purpose shall subject following restrictions election must writing made prior tax date ii election must irrevocable iii election shall subject disapproval committee iv participant officer corporation within meaning section 16 1934 act election may made within six months grant related option award related performance units restricted stock except restriction shall apply event death disability participant occurs e41 amendment squibb corporation 1986 option restricted stock performance unit plan within six months grant award v participant officer corporation within meaning section 16 1934 act election must made least six months prior tax date tenbusiness day window period beginning third business day following date corporation releases publication annual quarterly statements sales earnings ending twelfth business day following date release thereof prior tax date e42 amendment exhibit 10d bristolmyers squibb company performance incentive plan effective january 1 1994 bristolmyers squibb company performance incentive plan hereby amended follows 1section 2 plan shall hereby amended entirety provide follows 2 regulations compensation management development committee board directors company hereinafter referred committee board respectively shall power adopt rules regulations hereinafter referred regulations inconsistent provisions plan administration thereof alter amend revoke regulations adopted 2section 3 plan shall hereby amended entirety provide follows 3 administration committee shall interpret administer plan 3section 5 plan shall hereby amended entirety provide follows 5 participation participants plan shall key executives company subsidiaries may designated executive compensation committee bristolmyers squibb company participate plan respect fiscal year 4the final sentence section 7 paragraph subparagraph vi shall hereby deleted entirety 5section 7 paragraph b plan shall hereby amended entirety provide follows b time commencement fiscal year reserve determined prior close thereof committee may discretion eliminate add participants increase decrease award participant except otherwise provided award participant committee may allot deferred portion award participant added increase ratio deferred portion cash portion award change allotment deferred portion one performance incentive fund increase award shall allotted cash portion award 6section 8 paragraph subparagraph plan shall hereby amended adding following end first sentence thereof e51 provided however award may provide payment shall made participant prior certification writing committee performance goals objectives fact satisfied e52 benefit equalization plan exhibit 10e bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated effective january 1 1993 amended october 1 1993 purpose plan purpose plan provide benefits certain employees participating bristolmyers squibb company retirement income plan retirement income plan bristolmyers squibb puerto rico inc retirement income plan puerto rico plan referred herein collectively retirement plans whose funded benefits retirement plans limited application employee retirement income security act 1974 amended erisa internal revenue code 1986 amended code plan intended excess benefit plan term defined section 336 erisa respect participants whose benefits retirement plans limited section 415 code top hat plan meeting requirements sections 2012 301a3 401a1 4021b6 erisa respect participants whose benefits retirement plans limited section 401a17 code respect certain employees covered squibb corporation supplementary pension plan squibb plan december 31 1990 plan continuation successor plan benefit equalization plan bristolmyers company subsidiary affiliated corporations participating bristolmyers company retirement income plan bristolmyers company savings investment program effect january 1 1983 amended thereafter prior plan amounts accrued part iv prior plan continue accrued plan effective january 1 1991 plan assumed liabilities benefits payable squibb plan respect active former employees foreign employees accrued december 31 1990 respect benefits provided squibb plan benefits due squibb employees election defer annual incentive award benefits payable foreign employees squibb therefore plan continuation successor plan squibb plan respect benefits accrued thereunder prior january 1 1991 respect employees participated squibb corporation pension plan employees participants squibb plan accrue benefits plan january 1 1991 shall entitled benefits provided plan respect service covered either retirement income plan puerto rico plan e61 ii administration plan pension committee appointed board directors bristolmyers squibb company administer retirement plans shall also administer plan committee shall full authority determine questions arising connection plan including interpretation may adopt procedural rules may employ rely legal counsel actuaries accountants agents may deem advisable assist administration plan decisions committee shall conclusive binding persons iii participation plan member retirement income plan puerto rico plan employed corporation participating either retirement plan hereinafter referred participating employer term also includes company shall eligible participate plan whenever benefit applicable retirement plan time effect would exceed limitations benefits contributions imposed section 415 code calculated september 2 1974 b amounts compensation would excluded final average compensation determined retirement plan reason application section 401a17 code c participates bristolmyers squibb company performance incentive plan performance incentive plan iv equalization benefits related retirement plan participant plan beneficiaries shall entitled receive plan supplemental pension benefit equal excess 1 benefit would payable participant beneficiaries applicable retirement plan determined without regard provision therein incorporating limitations imposed section 415 code b deeming compensation purposes determining final average compensation retirement plan amounts elected deferred bristolmyers squibb company savings investment program savings investment program due section 415 limitations accordance participants election credited benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program savings investment bep 2 actual benefit payable participant beneficiaries applicable retirement plan b participant whose compensation applicable retirement plan limited section 401a17 code participates performance incentive plan shall entitled receive additional supplemental pension benefit plan equal amount supplemental pension benefit determined paragraph article iv would greater hypothetical benefit calculated clause 1 paragraph determined disregarding addition section 415 limitations participants final average compensation imposed reason section 401a17 code b including annual rate compensation purposes e62 determining final average compensation retirement plan amounts elected deferred savings investment program due section 401a17 limitations accordance participants election credited savings investment bep c recalculating annual rate compensation year used determining final average compensation retirement plan substituting cash award paid performance incentive plan calendar year cash award earned participant performance incentive plan calendar year purposes clause c preceding sentence performance incentive award calendar year participant retires otherwise terminates employment shall assumed fully earned though performance goals conditions full payment attained retirement termination date c supplemental pension benefits determined paragraphs b article iv shall calculated utilizing actuarial assumptions used compute participants retirement plan benefit payments assumptions may determined committee time shall payable participant beneficiary upon election case participant member retirement income plan elects october 1 1993 december 30 1993 inclusive retire article 19 retirement income plan supplemental pension benefits determined paragraphs b article iv shall payable participant beneficiary form participants benefit retirement income plan payable utilizing actuarial assumptions used compute participants retirement income plan benefit payments assumptions may determined committee time commencing within 60 days earlier retirement entitling receive payments retirement income plan b death c total disability defined retirement income plan participants employment terminates prior date entitled receive payments retirement income plan date attains early retirement date retirement income plan ii case participants either lifetime benefit 50 joint survivor 100 joint survivor variable retirement income annuity forms payment provided applicable retirement plan commencing within 60 days earlier 1 retirement entitling receive payments applicable retirement plan 2 death 3 total disability defined applicable retirement plan 4 participants employment terminates prior date entitled receive payments applicable retirement plan date attains early retirement date retirement plan election shall made writing concurrent participants benefit election applicable retirement plan shall become irrevocable retirement date b lump sum provided one year prior retirement participant irrevocably elects writing receive supplemental e63 pension benefits form payment shall made within 60 days retirement entitling receive payments applicable retirement plan except case participant eligible retire applicable retirement plan involuntary termination unplanned retirement irrevocably elects writing 90 days prior retirement receive supplemental pension benefits form payment shall made first anniversary retirement provision article iv contrary notwithstanding upon participants termination employment retirement present value amount supplemental pension benefits determined paragraphs b article iv 3500 payments would less 50 per month benefit shall paid cash participant single sum time termination retirement participants supplemental pension benefits plan shall paid participating employer participant employed one participating employer proportion paid participating employer shall ratio credited service defined applicable retirement plan participant participating employer bears total credited service participant participating employers v designation beneficiaries event death upon death participant prior receipt part amount account balance remaining account shall paid follows participant designated joint annuitant beneficiary applicable retirement plan person shall deemed joint annuitant beneficiary purposes plan participant designated joint annuitant beneficiary retirement plan joint annuitant beneficiary living time participants death amount participants account distributable upon death shall distributed person persons would otherwise entitled receive distribution participants retirement plan benefits payment one persons shall completely discharge plan respect amount paid vi miscellaneous plan may terminated time board directors company event rights participants accrued supplemental pension benefits plan shall become nonforfeitable company participating employer may terminate plan respect employees participating retirement plans event rights participants accrued supplemental pension benefits plan payable terminating corporation shall become nonforfeitable plan terminated distribution shall made participant beneficiary attributable termination 90 day period following termination thereafter providing company subject insolvency bankruptcy proceeding amounts accrued behalf participant shall distributed beneficiary within 60 days end 90day period e64 company subject insolvency bankruptcy proceeding distribution amounts shall suspended subject pendency proceeding right payment interest plan may alienated sold transferred pledged assigned made subject attachment execution levy kind nothing plan shall construed giving employee right retained employ participating employer participating employer plan expressly reserves right dismiss employee time without regard effect dismissal might upon plan may amended time board directors company except amendment shall deprive participant supplemental pension benefit accrued time amendment extent grantor trust established company committee may time reserve unto right vote shares equity securities held pension trust fund may permit committee investment manager managers may designate exercise responsibility benefits payable plan shall funded shall made general funds participating employers grantor trust established purpose participating employers shall required segregate contributions made participants plan shall become part general funds participating employers plan shall construed administered enforced according substantive internal laws conflict laws provisions state new york vii effective date amended restated plan shall effective january 1 1993 retirements terminations employment date upon adoption board directors bristolmyers squibb company e65 amendment exhibit 10g squibb corporation supplementary pension plan effective january 1 1992 squibb corporation supplementary pension plan hereby amended follows 1 references plan bristolmyers key international pension plan hereby amended bristolmyers squibb company key international pension plan 2 section 1 plan hereby amended add following paragraph end thereof effective january 1 1992 benefit liabilities accrued squibb universal retirement income plan squibb universal plan assumed became payable bristolmyers squibb company key international pension plan years beginning january 1 1992 foreign employees described clause ii section 3 hereunder became eligible terms bristolmyers squibb company key international pension plan accordingly benefit accruals foreign employees plan cease december 31 1991 3section 3 amended add following paragraph end thereof effective january 1 1992 employees described clause ii section 3 shall longer covered plan benefits accrued december 31 1991 employees shall assumed bristolmyers squibb company key international pension plan e71 amendment bristolmyers exhibit 10h squibb company 1989 restricted stock award plan bristolmyers squibb company restricted stock award plan hereby amended effective july 1 1993 deleting section 8 entirety inserting therefor following 8 taxes participant shall later tax date defined pay company make arrangements satisfactory committee regarding payment withholding tax defined respect award company subsidiaries shall extent permitted law right deduct amount payment kind otherwise due participant company shall also right retain sell without notice demand surrender shares common stock value sufficient cover amount withholding tax portion applicable tax defined required governmental entity withheld otherwise deducted paid respect award make payment reimburse payment made appropriate taxing authority amount cash equal amount withholding tax remitting balance participant purposes paragraph value shares common stock retained surrendered shall average high low sales prices per share new york stock exchange date amount withholding tax determined tax date value shares common stock sold shall actual net sale price per share deduction commissions received company notwithstanding foregoing participant shall entitled satisfy obligation pay withholding tax satisfy obligation pay tax governmental entity respect award including federal state local income tax amount determined basis highest marginal tax rate applicable participant federal insurance contribution act taxes governmental impost levy applicable tax whole part providing company funds sufficient enable company pay withholding tax applicable tax requiring company retain accept upon delivery thereof participant shares common stock sufficient value determined accordance last sentence preceding paragraph cover amount withholding tax applicable tax page two amendment bristolmyers squibb company 1989 restricted stock award plan greater amount deemed appropriate company election participant shares retained deliver shares purpose shall subject following restrictions election must writing made prior tax date ii election must irrevocable iii election shall subject disapproval committee iv participant officer company within meaning section 16 1934 act election may made within six months award date except restriction shall apply event death disability participant occurs within six months award date v participant officer company within meaning section 16 1934 act e81 amendment bristolmyers squibb company 1989 restricted stock award plan election must made least six months prior tax date tenbusiness day window period beginning third business day following date company releases publication annual quarterly statements sales earnings ending twelfth business day following date release thereof prior tax date e82 exhibit 11 bristolmyers squibb company exhibit respect omission dilutive elements primary fully diluted earnings per share view percentages effect assumed exercise stock options warrants considered dilutive accordance footnote 2 paragraph 14 apb opinion 15 e91 exhibit 11 bristolmyers squibb company exhibit respect omission dilutive elements primary fully diluted earnings per share e92 exhibit 11 bristolmyers squibb company exhibit respect omission dilutive elements primary fully diluted earnings per share view percentages effect assumed issuance pursuant stock plans options rights warrants conversions preferred stock considered dilutive accordance footnote 2 paragraph 14 apb opinion 15 e93 bristolmyers squibb company exhibit 21 subsidiary list alive well inc delaware carmen curlers denmark allard laboratories inc delaware bristolmyers squibb thailand ltd delaware apothecon inc delaware bm group proprietary limited republic south africa bristolabs proprietary ltd republic south africa blisa inc delaware bristolmyers limited thailand bristol laboratories international sa delaware bl pharmaceuticals proprietary limited republic south africa bristol laboratories products inc panama bristolmyers squibb sa colombia bristolmyers squibb taiwan limited taiwan bristol pharmaceutical information center sa panama laboratorios bristol del ecuador ca ecuador bristolmyers ecuatoriana sa ecuador laboratorios industriales grove sa ecuador gie centre de recherche de biologie moleculaire france grove limited thailand bms french holding company delaware boclaro inc new york bristol caribbean inc delaware bristol farmaceutica portuguesa lda portugal bristol iran private company limited iran bristol iran sa delaware bristol laboratories corporation delaware bristol laboratories inc new york bristol laboratories medical information systems inc delaware bristolmyers squibb aktiebolag sweden bristol laboratorier aktiebolag sweden bristolmyers bangladesh inc delaware bristolmyers barceloneta inc delaware bristolmyers company delaware bristolmyers de colombia sa delaware bristolmyers de mexico sa de cv mexico bristolmyers foreign sales corporation virgin islands bristolmyers industrial dominicana inc delaware bristolmyers international srl italy bristolmyers japan limited japan bristolmyers lion ltd japan bristolmyers middle east sal lebanon bristolmyers nederland inc delaware bristolmyers nz limited new zealand bristolmyers overseas corporation delaware bristolmyers pakistan pvt limited pakistan bristolmyers private ltd zimbabwe bristolmyers zaire ltd delaware bristolmyers squibb aebe greece bristolmyers squibb asiapacific inc delaware bristolmyers squibb belgium bristolmyers squibb brasil sa brazil e101 bristolmyers squibb company subsidiary list bristolmyers squibb de venezuela sa venezuela servicios administrativos bristolmyers sa venezuela bristolmyers squibb canada inc canada bristolmyers squibb dominicana sa delaware bristolmyers squibb philippines inc bristolmyers squibb peruana sa peru bristolmyers squibb service ltd bermuda bristolmyers squibb sp zoo poland bristolmyers squibb scandinavia ltd delaware bristolmyers squibb global properaties ltd delaware bristolmyers squibb holdings bv netherlands bristolmyers squibb bv netherlands mead johnson bv netherlands zimmer bv netherlands bristolmyers squibb hong kong limited hong kong bristolmyers squibb international corporation new york bristolmyers squibb kk japan bristolmyers squibb malaysia sendirian berhad malaysia bristolmyers squibb products switzerland bristolmyers squibb proprietary limited south africa bristolmyers squibb puerto rico inc delaware bristolmyers squibb singapore pte ltd singapore bristolmyers squibb west indies ltd delaware bristolmyers superannuation limited australia cancer research inc washington oncogen limited partnership washington clairol de mexico sa de cv mexico clairol japan limited japan clairol incorporated delaware clairol appliances inc delaware duart industries ltd california logics international inc delaware compania bristolmyers squibb de centro america delaware bristolmyers squibb de costa rica sa costa rica compania clairol de argentina delaware dalton holdings ltd cayman islands bwi grove insurance company ltd bermuda intrafin sa switzerland bristolmyers squibb mea sa switzerland linvatec corporation florida xomedtreace pr inc delaware listo bv netherlands listo international bv netherlands listo netherlands bv netherlands orpex france listo investment bv netherlands mead johnson company business bristolmyers squibb uspharmaceutical mead johnson nutritional group delaware mead johnson de mexico sa de cv mexico selecciones mercantiles sa de cv mexico mead johnson ecuador sa ecuador mead johnson guangzhou company china e102 bristolmyers squibb company subsidiary list mead johnson international ltd canada bristolmyers squibb argentina sa argentina mead johnson jamaica ltd delaware mead johnson limited england mead johnson manufacturing jamaica limited jamaica mead johnson philippines inc philippines mead johnson pharmaceutical inc philippines mead johnson farmaceutica limitada portugal medical engineering corporation delaware mec subsidiary corporation wisconsin monarch crown corporation delaware oldcorp productions inc delaware palopic inc delaware ppi music corp delaware oy bristolmyers squibb finland ab finland route 22 real estate holding corporation delaware squibb industria farmaceutica sa spain bristolmyers sa spain convatec sa spain apothecon sa spain squibb corporation delaware bristolmyers squibb caribbean corporation delaware er squibb sons inc delaware bristolmyers oncology therapeutic network inc delaware bristolmyers squibb gmbh germany convatec gmbh germany zimmer chirurgie gmbh germany sg implants gmbh germany agit ges fur informationssyskme undtechniken mbh germany bristolmyers gmbh germany bristolmyers ges mbh austria bristol arzneimittel gmbh germany carboplant spezialimplante gmbh germany orthoplant endoprothetik gmbh germany bristolmyers squibb gesmbh austria bristol salor pharma gmbh germany bristolmyers squibb zentrum fur forschung und fortbildung im gesundheitswesen gmbh germany elektrochemische gesellschaft hirschfelde mbh germany er squibb sons nz limited new zealand princeton pharmaceuticals limited new zealand laboratorio farmaceutico squibb sa guatemala salorpharma gmbh germany squibb pharma gmbh germany squibb von heyden gmbh germany unterstutzungrasse bristolmyers squibb gmbhgermany von heyden pharma gmbh germany bristolmyers squibb holdings limited england bristol laboratories limited england bristolmyers company limited england convatec limited england kingsdown medical consultants ltd england bristol pharmaceutical drug company limited england e103 bristolmyers squibb company subsidiary list clairol limited england er squibb sons limited england bristolmyers squibb pharmaceutical ltd england zimmer europe limited england zimmer limited england bristolmyers squibb pharmaceuticals limited ireland bristolmyers squibb pharmaceuticals pty ltd australia bristolmyers squibb sa france bristolmyers squibb spa italy bristolfoundation italy bristol italiana sud spa italy clairol international spa italy laboratori guieu spa italy laboratories guieu france sarl france mibema srl italy mead johnson spa italy zimmer srl italy convatec sp zoo poland convatec spol sro czechoslovokia ewi corporation delaware er squibb sons inc new jersey er squibb sons interamerican corporation delaware er squibb sons de venezuela ca venezuela gie institut de recherche squibb france laboratoires convatec sarl france laboratorios linson sa productos farmaceuticos argentina societe francaise de complements alimentaires sa france squibb aps denmark squibb bangladesh limited pakistan squibb europe inc delaware squibb far east limited hong kong squibb manufacturing inc delaware squibb pacific ltd hong kong squibb surgicare limited england swords laboratories limited ireland bristolmyers squibb international company ireland lawrence laboratories ltd ireland linson investments limited cayman islands bristolmyers squibb de mexico sa de cv mexico fair laboratories limited england fray sa dominican republic industrias linson sa ecuador pt squibb indonesia squibb development limited england squibb pakistan pvt ltd pakistan squibb middle east sa panama squibb farmaceutica portuguesa limitada portugal heyden farmaceutica portuguesa limitada portugal squibb thailand limited thailand squibb overseas investments inc delaware squibb properties inc delaware 345 bm corporation delaware bristolmyers company pty limited australia e104 bristolmyers squibb company subsidiary list joy corporation limited australia crisena corporation pty limited australia united hairdressing supplies vic pty limited australia joy cosmetics engineering pty limited australia united hairdressing supplies nsw pty limited australia bristolmyers squibb ag switzerland grove products far east limited england wallingford research inc delaware westwood products sa switzerland stamford holdings bv netherlands westwoodsquibb pharmaceuticals inc delaware xomed treace inc delaware zimmer inc delaware snyder laboratories inc delaware zimmer canada limited canada zimmer australia pty limited australia zimmer pte ltd singapore zimmer new zealand limited new zealand zimmer caribe inc delaware zimmer sa france osmat sa france delmed sa france zimmer sa spain zimmer korea co ltd korea e105 exhibit 23 consent independent accountants hereby consent incorporation reference prospectuses constituting part registration statements form s8 nos 3330856 3331055 3335586 3338411 3338587 3344788 3352691 posteffective amendment 2 form s8 333075602 form s4 form s3 3333682 preeffective amendment 1 form s3 3362496 bristolmyers squibb company report dated january 20 1994 appearing page 50 form 10k price waterhouse price waterhouse new york new york march 28 1994 e111item 14 exhibits financial statement schedules reports form 8k page number 1 financial statements 2630 notes consolidated financial statements 3149 report independent accountants 50 2 financial statement schedules schedule page number valuation qualifying accounts ii s1 schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 unless otherwise indicated exhibits part commission file number 11136 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 3b bylaws bristolmyers squibb company amended may 4 1993 incorporated herein reference exhibit 3b form 10k fiscal year ended december 31 1993 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b rights agreement dated december 4 1987 bristol myers squibb company manufacturers hanover trust company amended incorporated herein reference exhibit 1 form 8a dated december 10 1987 exhibit 1 form 8 dated july 27 1989 4c indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4d form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 10a bristolmyers squibb company 1983 stock option plan amended restated january 1 1993 amended adopted incorporating amendments october 1 1993 incorporated herein reference exhibit 10a form 10k fiscal year ended december 31 1993 10b squibb corporation 1982 option restricted stock performance unit plan amended incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1993 10c squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10d bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amended january 1 1994 filed herewith 10e benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristol myers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 10f benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristol myers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amended effective october 1 1994 filed herewith 10g squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein reference exhibit 10g form 10k fiscal year ended december 31 1993 10h bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended july 1 1993 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 filed herewith 10i bristolmyers squibb company retirement income plan non employee directors amended october 3 1989 incorporated herein reference exhibit 10u form 10k fiscal year ended december 31 1989 10j bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1991 10k bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 10l squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10m amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 11 computation per share earnings filed herewith 21 subsidiaries registrant filed herewith 23 consent price waterhouse llp filed herewith 27 bristolmyers squibb company financial data schedule filed herewith b reports form 8k registrant file reports form 8k quarter ended december 31 1994 signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant richard l gelb richard l gelb chairman board march 29 1995 date pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date chairman richard l gelb board director march 29 1995 richard l gelb president chief executive officer director principal executive charles heimbold jr officer march 29 1995 charles heimbold jr chief financial officer senior vice president corporate staff principal financial michael f mee officer march 29 1995 michael f mee controller vice president corporate staff principal accounting frederick schiff officer march 29 1995 frederick schiff signature title date robert e allen director march 29 1995 robert e allen executive vice michael e autera president march 29 1995 director michael e autera ellen v futter director march 29 1995 ellen v futter louis v gerstner jr director march 29 1995 louis v gerstner jr john macomber director march 29 1995 john macomber alexander rich md director march 29 1995 alexander rich md james robinson iii director march 29 1995 james robinson iii andrew c sigler director march 29 1995 andrew c sigler louis w sullivan md director march 29 1995 louis w sullivan md exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 exhibit number description page 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 3b bylaws bristolmyers squibb company amended may 4 1993 incorporated herein reference exhibit 3b form 10k fiscal year ended december 31 1993 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b rights agreement dated december 4 1987 bristolmyers squibb company manufacturers hanover trust company amended incorporated herein reference exhibit 1 form 8a dated december 10 1987 exhibit 1 form 8 dated july 27 1989 4c indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4d form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 exhibit number description page 10a bristolmyers squibb company 1983 stock option plan amended restated january 1 1993 amended adopted incorporating amendments october 1 1993 incorporated herein reference exhibit 10a form 10k fiscal year ended december 31 1993 10b squibb corporation 1982 option restricted stock performance unit plan amended incorporated reference exhibit 10b form 10k fiscal year ended december 31 1993 10c squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10d bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amendment effective january 1 1994 e11 bristolmyers squibb company performance incentive plan 10e benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 exhibit number description page 10f benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amendment effective october 1 1994 e21 benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended 10g squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein reference exhibit 10g form 10k fiscal year ended december 31 1993 10h bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1993 amendment effective december 6 1994 e31 bristolmyers squibb company restricted stock award plan 10i bristolmyers squibb company retirement income plan nonemployee directors amended october 3 1989 incorporated herein reference exhibit 10u form 10k fiscal year ended december 31 1989 exhibit number description page 10j bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1991 10k bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 10l squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10m amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 11 computation per share earnings e41 21 subsidiaries registrant e51 23 consent price waterhouse llp e61 27 bristolmyers squibb company financial data schedule e71 schedule ii bristolmyers squibb company valuation qualifying accounts dollars millions additions balance charged deductions balance beginning costs bad debts end description period expenses written period allowances discounts doubtful accounts year ended december 31 1994 80 31 34 77 year ended december 31 1993 106 19 45 80 year ended december 31 1992 90 41 25 106 s1item 14 exhibits financial statement schedules reports form 8k page number 1 financial statements 2730 notes consolidated financial statements 3150 report independent accountants 51 2 financial statement schedules schedule page number valuation qualifying accounts ii s1 schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 unless otherwise indicated exhibits part commission file number 11136 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 3b bylaws bristolmyers squibb company amended may 2 1995 incorporated herein reference exhibit 3b form 10q quarterly period ended march 31 1995 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b rights agreement dated december 4 1987 bristolmyers squibb company manufacturers hanover trust company amended incorporated herein reference exhibit 1 form 8a dated december 10 1987 exhibit 1 form 8 dated july 27 1989 4c indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4d form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 10a bristolmyers squibb company 1983 stock option plan amended restated january 1 1993 amended adopted incorporating amendments october 1 1993 incorporated herein reference exhibit 10a form 10k fiscal year ended december 31 1993 10b squibb corporation 1982 option restricted stock performance unit plan amended incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1993 10c squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10d bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10e benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 filed herewith 10f benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10g squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein reference exhibit 10g form 10k fiscal year ended december 31 1993 10h bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1994 10i bristolmyers squibb company retirement income plan nonemployee directors amended october 3 1989 incorporated herein reference exhibit 10u form 10k fiscal year ended december 31 1989 10j bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1991 10k bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 10l squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10m amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 11 computation per share earnings filed herewith 21 subsidiaries registrant filed herewith 23 consent price waterhouse llp filed herewith 27 bristolmyers squibb company financial data schedule filed herewith b reports form 8k reports form 8k filed may 3 1995 june 19 1995 covering item 5 events item 7 financial statements exhibits relative breast implant litigation signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant charles heimbold jr charles heimbold jr chairman board president chief executive officer march 28 1996 date pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date chairman board president chief executive officer director charles heimbold jr principal executive officer march 28 1996 charles heimbold jr chief financial officer senior vice president corporate staff principal michael f mee financial officer march 28 1996 michael f mee controller vice president corporate staff principal accounting frederick schiff officer march 28 1996 frederick schiff signature title date robert e allen director march 28 1996 robert e allen executive vice michael e autera president march 28 1996 director michael e autera ellen v futter director march 28 1996 ellen v futter louis v gerstner jr director march 28 1996 louis v gerstner jr john macomber director march 28 1996 john macomber james robinson iii director march 28 1996 james robinson iii andrew c sigler director march 28 1996 andrew c sigler louis w sullivan md director march 28 1996 louis w sullivan md kenneth e weg executive vice march 28 1996 president kenneth e weg pharmaceutical group director exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designed two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 exhibit number description page 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 3b bylaws bristolmyers squibb company amended may 2 1995 incorporated herein reference exhibit 3b form 10q quarterly period ended march 31 1995 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b rights agreement dated december 4 1987 bristolmyers squibb company manufacturers hanover trust company amended incorporated herein reference exhibit 1 form 8a dated december 10 1987 exhibit 1 form 8 dated july 27 1989 4c indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4d form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 exhibit number description page 10a bristolmyers squibb company 1983 stock option plan amended restated january 1 1993 amended adopted incorporating amendments october 1 1993 incorporated herein reference exhibit 10a form 10k fiscal year ended december 31 1993 10b squibb corporation 1982 option restricted stock performance unit plan amended incorporated reference exhibit 10b form 10k fiscal year ended december 31 1993 10c squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10d bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10e benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amendment effective february 1 1995 e11 benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan exhibit number description page 10f benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10g squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated reference exhibit 10g form 10k fiscal year ended december 31 1993 10h bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended july 1 1993 incorporated reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated reference exhibit 10h form 10k fiscal year ended january 31 1994 10i bristolmyers squibb company retirement income plan nonemployee directors amended october 3 1989 incorporated herein reference exhibit 10u form 10k fiscal year ended december 31 1989 exhibit number description page 10j bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1991 10k bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 10l squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10m amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 11 computation per share earnings e21 21 subsidiaries registrant e31 23 consent price waterhouse llp e41 27 bristolmyers squibb company financial data schedule e51 schedule ii bristolmyers squibb company valuation qualifying accounts dollars millions additions balance charged deductions balance beginning costs bad debts end description period expenses written period allowances discounts doubtful accounts year ended december 31 1995 77 31 8 100 year ended december 31 1994 80 31 34 77 year ended december 31 1993 106 19 45 80 s1item 14 exhibits financial statement schedules reports form 8k page number 1 financial statements 2831 notes consolidated financial statements 3252 report independent accountants 53 2 financial statement schedules schedule page number valuation qualifying accounts ii s1 schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 unless otherwise indicated exhibits part commission file number 11136 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 3b bylaws bristolmyers squibb company amended november 5 1996 filed herewith 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b rights agreement dated december 4 1987 bristolmyers squibb company manufacturers hanover trust company amended incorporated herein reference exhibit 1 form 8a dated december 10 1987 exhibit 1 form 8 dated july 27 1989 rights agreement certificate filed herewith 4c indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4d form 715 debenture due 2023 bristolmyers squibb company 55 incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4e form 680 debenture due 2026 bristolmyers squibb company filed herewith 10a bristolmyers squibb company 1997 stock incentive plan filed herewith 10b bristolmyers squibb company executive performance incentive plan filed herewith 10c bristolmyers squibb company 1983 stock option plan amended restated september 10 1996 filed herewith 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1996 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 56 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein reference exhibit 10g form 10k fiscal year ended december 31 1993 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1994 10k bristolmyers squibb company retirement income plan nonemployee directors amended march 5 1996 filed herewith 10l bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended january 13 1997 filed herewith 10m bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 11 computation per share earnings filed herewith 57 21 subsidiaries registrant filed herewith 23 consent price waterhouse llpfiled herewith 27 bristolmyers squibb company financial data schedule filed herewith 99 additional exhibit filed herewith b reports form 8k none 58 signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant charles heimbold jr charles heimbold jr chairman board chief executive officer march 31 1997 date pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date chairman board chief executive officer director principal charles heimbold jr executive officer march 31 1997 charles heimbold jr chief financial officer senior vice president corporate staffprincipal michael f mee financial officer march 31 1997 michael f mee controller vice president corporate staffprincipal frederick schiff accounting officer march 31 1997 frederick schiff 59 signature title date robert e allen director march 31 1997 robert e allen executive vice michael e autera president director march 31 1997 michael e autera ellen v futter director march 31 1997 ellen v futter louis v gerstner jr director march 31 1997 louis v gerstner jr john macomber director march 31 1997 john macomber james robinson iii director march 31 1997 james robinson iii andrew c sigler director march 31 1997 andrew c sigler louis w sullivan md director march 31 1997 louis w sullivan md executive vice president worldwide medicines group kenneth e weg director march 31 1997 kenneth e weg 60 exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designed two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 exhibit number description page 3a restated certificate incorporation bristol myers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 3b bylaws bristolmyers squibb company amended e11 november 5 1996 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 311983 4b rights agreement certificate e21 4c indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4d form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4e form 680 debenture due 2026 bristolmyers e31 squibb company 61 exhibit number description page 10a bristolmyers squibb company 1997 stock incentive e41 plan 10b bristolmyers squibb company executive performance e51 incentive plan 10c bristolmyers squibb company 1983 stock option plan e61 amended restated september 10 1996 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated reference exhibit 10e form 10k fiscal year ended december 31 1995 62 exhibit number description page 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated reference exhibit 10g form 10k fiscal year ended december 31 1993 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended july 1 1993 incorporated reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated reference exhibit 10h form 10k fiscal year ended january 31 1994 10k bristolmyers squibb company retirement income plan e71 nonemployee directors amended march 51996 10l bristolmyers squibb company 1987 deferred e81 compensation plan nonemployee directors amended january 13 1997 63 exhibit number description page 10m bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 11 computation per share earnings e91 21 subsidiaries registrant e101 23 consent price waterhouse llp e111 27 bristolmyers squibb company financial e121 data schedule 99 additional exhibit e131 64 schedule ii bristolmyers squibb company valuation qualifying accounts dollars millions additions balance charged deductions balance beginning costs bad debts end description period expenses written period allowances discounts doubtful accounts year ended december 31 1996 100 39 32 107 year ended december 31 1995 77 31 8 100 year ended december 31 1994 80 31 34 77 s1item 14 exhibits financial statement schedules reports form 8k page number 1 financial statements 3337 notes consolidated financial statements 3856 report independent accountants 57 2 financial statement schedules schedule page number valuation qualifying accounts ii s1 schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 unless otherwise indicated exhibits part commission file number 11136 3a restated certificate incorporation bristolmyers squibb company filed exhibit 4a registrants registration statement form s3 registration statement 3333682 dated march 7 1990 amended may 6 1997 3b bylaws bristolmyers squibb company amended january 1 1998 incorporated herein reference exhibit 4b registration statement form s8 filed march 5 1998 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent filed herewith 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent filed herewith 10a bristolmyers squibb company 1997 stock incentive plan effective may 6 1997 amended effective december 2 1997 incorporated herein reference exhibit 99a registration statement form s8 filed march 5 1998 filed herewith 10b bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10c bristolmyers squibb company 1983 stock option plan amended restated september 10 1996 amended january 1 1997 filed herewith 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristol myers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1995 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristol myers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein reference exhibit 10g form 10k fiscal year ended december 31 1993 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1994 10k bristolmyers squibb company retirement income plan nonemployee directors amended march 5 1996 incorporated herein reference exhibit 10k form 10k fiscal year ended december 31 1996 10l bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended january 13 1998 filed herewith 10m bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 13 1998 filed herewith 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 10p employment agreement march 1998 charles heimbold jr filed herewith 21 subsidiaries registrant filed herewith 23 consent price waterhouse llpfiled herewith 27 bristolmyers squibb company financial data schedule filed herewith 99 additional exhibit filed herewith b reports form 8k none signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant charles heimbold jr charles heimbold jr chairman board chief executive officer march 31 1998 date pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date chairman board chief executive officer director principal charles heimbold jr executive officer march 31 1998 charles heimbold jr chief financial officer senior vice president corporate staffprincipal michael f mee financial officer march 31 1998 michael f mee controller vice president financial operations corporate staff principal frederick schiff accounting officer march 31 1998 frederick schiff signature title date robert e allen director march 31 1998 robert e allen vance coffman director march 31 1998 vance coffman ellen v futter director march 31 1998 ellen v futter louis v gerstner jr director march 31 1998 louis v gerstner jr laurie h glimcher md director march 31 1998 laurie h glimcher md john macomber director march 31 1998 john macomber james robinson iii director march 31 1998 james robinson iii andrew c sigler director march 31 1998 andrew c sigler louis w sullivan md director march 31 1998 louis w sullivan md executive vice president worldwide medicines kenneth e weg group director march 31 1998 kenneth e weg exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designed two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 exhibit number description page 3a restated certificate incorporation bristol myers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 3b bylaws bristolmyers squibb company amended january 1 1998 incorporated herein reference exhibit 4b registration statement form s8 filed march 5 1998 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 311983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 exhibit number description page 4f five year competitive advance revolving e11 credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent 4g 364day competitive advance revolving credit e21 facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent 10a bristolmyers squibb company 1997 stock incentive e31 plan effective may 6 1997 amended effective december 2 1997 incorporated herein reference exhibit 99a registration statement form s8 filed march 5 1998 10b bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10c bristolmyers squibb company 1983 stock option plan e41 amended restated september 10 1996 amended january 1 1997 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k exhibit number description page fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated reference exhibit 10e form 10k fiscal year ended december 31 1995 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated reference exhibit 10g form 10k fiscal year ended december 31 1993 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 exhibit number description page incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended july 1 1993 incorporated reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated reference exhibit 10h form 10k fiscal year ended january 31 1994 10k bristolmyers squibb company retirement income plan nonemployee directors amended march 51996 incorporated herein reference exhibit 10k form 10k fiscal year ended december 31 1996 10l bristolmyers squibb company 1987 deferred e51 compensation plan nonemployee directors amended january 13 1998 10m bristolmyers squibb company nonemployee directors e61 stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 13 1998 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 exhibit number description page 10p employment agreement march 1998 charles e71 heimbold jr 21 subsidiaries registrant e81 23 consent price waterhouse llp e91 27 bristolmyers squibb company financial e101 data schedule 99 additional exhibit e111 schedule ii bristolmyers squibb company valuation qualifying accounts dollars millions additions balance charged deductions balance beginning costs bad debts end description period expenses written period allowances discounts doubtful accounts year ended december 31 1997 107 19 17 109 year ended december 31 1996 100 39 32 107 year ended december 31 1995 77 31 8 100 s1item 14 exhibits financial statement schedules reports form 8k page number 1 financial statements 3337 notes consolidated financial statements 3860 report independent accountants 61 2 financial statement schedules schedule page number valuation qualifying accounts ii s1 schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 unless otherwise indicated exhibits part commission file number 11136 3a restated certificate incorporation bristolmyers squibb company filed exhibit 4a registrants registration statement form s3 registration statement 3333682 dated march 7 1990 amended may 6 1997 3b bylaws bristolmyers squibb company amended november 3 1998 incorporated herein reference exhibit 3b form 10q quarterly period ended september 30 1998 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4f form 10k fiscal year ended december 31 1997 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4g form 10k fiscal year ended december 31 1997 10a bristolmyers squibb company 1997 stock incentive plan effective may 6 1997 amended effective november 3 1998 filed herewith 10b bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10c bristolmyers squibb company 1983 stock option plan amended restated january 1 1997 amended november 3 1998 filed herewith 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1996 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein reference exhibit 10g form 10k fiscal year ended december 31 1993 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1994 10k bristolmyers squibb company retirement income plan nonemployee directors amended march 5 1996 incorporated herein reference exhibit 10k form 10k fiscal year ended december 31 1996 10l bristolmyers squibb company 1987 deferred compensation plan non employee directors amended january 13 1998 incorporated herein reference exhibit 10l form 10k fiscal year ended december 31 1997 10m bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 12 1999 filed herewith 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristol myers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 10p employment agreement march 12 1999 charles heimbold jr filed herewith 21 subsidiaries registrant filed herewith 23 consent pricewaterhousecoopers llpfiled herewith 27 bristolmyers squibb company financial data schedule filed herewith 99 additional exhibit filed herewith b reports form 8k none signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant charles heimbold jr charles heimbold jr chairman board chief executive officer march 31 1999 date pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date chairman board chief executive officer director principal charles heimbold jr executive officer march 31 1999 charles heimbold jr chief financial officer senior vice president corporate staffprincipal michael f mee financial officer march 31 1999 michael f mee controller vice president financial operations corporate staff principal frederick schiff accounting officer march 31 1999 frederick schiff signature title date robert e allen director march 31 1999 robert e allen lewis b campbell director march 31 1999 lewis b campbell vance coffman director march 31 1999 vance coffman ellen v futter director march 31 1999 ellen v futter louis v gerstner jr director march 31 1999 louis v gerstner jr laurie h glimcher md director march 31 1999 laurie h glimcher md leif johansson director march 31 1999 leif johansson james robinson iii director march 31 1999 james robinson iii louis w sullivan md director march 31 1999 louis w sullivan md executive vice president kenneth e weg director march 31 1999 kenneth e weg exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designed two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 exhibit number description page 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 3b bylaws bristolmyers squibb company amended november 3 1998 incorporated herein reference exhibit 3b form 10q quarterly period ended september 30 1998 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 311983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 exhibit number description page 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent 10a bristolmyers squibb company 1997 stock incentive plan e11 effective may 6 1997 amended effective november 3 1998 10b bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10c bristolmyers squibb company 1983 stock option plan e21 amended restated january 1 1997 amended november 3 1998 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 exhibit number description page 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristol myers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated reference exhibit 10e form 10k fiscal year ended december 31 1995 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporation participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated reference exhibit 10g form 10k fiscal year ended december 31 1993 exhibit number description page 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended july 1 1993 incorporated reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated reference exhibit 10h form 10k fiscal year ended january 31 1994 10k bristolmyers squibb company retirement income plan nonemployee directors amended march 51996 incorporated herein reference exhibit 10k form 10k fiscal year ended december 31 1996 10l bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended january 13 1998 10m bristolmyers squibb company nonemployee directors stock e31 option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 12 1999 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 exhibit number description page 10p employment agreement march 12 1999 charles e41 heimbold jr 21 subsidiaries registrant e51 23 consent pricewaterhousecoopers llp e61 27 bristolmyers squibb company financial data schedule e71 99 additional exhibit e81 schedule ii bristolmyers squibb company valuation qualifying accounts dollars millions additions balance charged deductions balance beginning costs bad debts end description period expenses written period allowances discounts doubtful accounts year ended december 31 1998 109 57 19 147 year ended december 31 1997 107 19 17 109 year ended december 31 1996 100 39 32 107 s1item 14 exhibits financial statement schedules reports form 8k page number 1 financial statements 3135 notes consolidated financial statements 3658 report independent accountants 59 2 financial statement schedules schedule page number valuation qualifying accounts ii s1 schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 unless otherwise indicated exhibits part commission file number 1 1136 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registrants registration statement form s3 registration statement 3333682 dated march 7 1990 amended may 5 1999 certificate amendment filed herewith 3b bylaws bristolmyers squibb company amended january 20 2000 filed herewith 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4f form 10k fiscal year ended december 31 1997 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4g form 10k fiscal year ended december 31 1997 10a bristolmyers squibb company 1997 stock incentive plan effective may 6 1997 amended effective november 3 1998 incorporated herein reference exhibit 4g form 10 k fiscal year ended december 31 1998 10b bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10 k fiscal year ended december 31 1996 10c bristolmyers squibb company 1983 stock option plan amended restated january 1 1997 amended november 3 1998 incorporated herein reference exhibit 4g form 10k fiscal year ended december 31 1998 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristol myers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1996 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10 k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein reference exhibit 10g form 10k fiscal year ended december 31 1993 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1994 10k bristolmyers squibb company retirement income plan non employee directors amended march 5 1996 incorporated herein reference exhibit 10k form 10k fiscal year ended december 31 1996 10l bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended january 13 1998 incorporated herein reference exhibit 10l form 10k fiscal year ended december 31 1997 10m bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 12 1999 incorporated herein reference exhibit 4g form 10 k fiscal year ended december 31 1998 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 10p employment agreement march 12 1999 charles heimbold jr incorporated herein reference exhibit 4g form 10k fiscal year ended december 31 1998 10q form agreement effective june 1 1999 entered registrant following officers following dates peter r dolan july 29 1999 donald j hayden jr july 30 1999 richard j lane august 6 1999 john l mcgoldrick august 10 1999 michael f mee july 28 1999 christine poon july 29 1999 peter ringrose phd august 5 1999 stephen sadove july 29 1999 frederick schiff july 29 1999 john l skule august 5 1999 charles g tharp phd july 28 1999 kenneth e weg july 29 1999 incorporated herein reference exhibit 10q form 10q quarterly period ended september 30 1999 21 subsidiaries registrant filed herewith 23 consent pricewaterhousecoopers llpfiled herewith 27 bristolmyers squibb company financial data schedule filed herewith 99 additional exhibit filed herewith b reports form 8k none signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant charles heimbold jr charles heimbold jr chairman board chief executive officer march 30 2000 date pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date chairman board chief executive officer director principal charles heimbold jr executive officer march 30 2000 charles heimbold jr chief financial officer executive vice president corporate staff principal michael f mee financial officer march 30 2000 michael f mee controller senior vice president financial operations corporate staff principal frederick schiff accounting officer march 30 2000 frederick schiff signature title date robert e allen director march 30 2000 robert e allen lewis b campbell director march 30 2000 lewis b campbell vance coffman director march 30 2000 vance coffman peter r dolan president director march 30 2000 peter r dolan ellen v futter director march 30 2000 ellen v futter louis v gerstner jr director march 30 2000 louis v gerstner jr laurie h glimcher md director march 30 2000 laurie h glimcher md leif johansson director march 30 2000 leif johansson james robinson iii director march 30 2000 james robinson iii louis w sullivan md director march 30 2000 louis w sullivan md vice chairman kenneth e weg director march 30 2000 kenneth e weg exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designed two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 exhibit number description page 3a restated certificate incorporation bristolmyers squibb e11 company incorporated herein reference exhibit 4a registration statement 3333682 form s3 dated march 7 1990 amended may 5 1999 certificate amendment filed herewith 3b bylaws bristolmyers squibb company amended e21 january 20 2000 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 311983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national associationas trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 exhibit number description page 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent 10a bristolmyers squibb company 1997 stock incentive plan effective may 6 1997 amended effective november 3 1998 incorporated herein reference exhibit 10a form 10k fiscal year ended december 31 1998 10b bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10c bristolmyers squibb company 1983 stock option plan amended restated january 1 1997 amended november 3 1998 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1998 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 exhibit number description page 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 11994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated reference exhibit 10e form 10k fiscal year ended december 31 1995 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporation participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10 k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated reference exhibit 10g form 10k fiscal year ended december 31 1993 exhibit number description page 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended july 1 1993 incorporated reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated reference exhibit 10h form 10k fiscal year ended january 31 1994 10k bristolmyers squibb company retirement income plan nonemployee directors amended march 51996 incorporated herein reference exhibit 10k form 10k fiscal year ended december 31 1996 10l bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended january 13 1998 incorporated herein reference exhibit 10l form 10k fiscal year ended december 31 1997 10m bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 12 1999 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1998 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 exhibit number description page 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 10p employment agreement march 12 1999 charles heimbold jr incorporated herein reference exhibit 10p form 10k fiscal year ended december 31 1998 10q form agreement effective june 1 1999 entered registrant following officers following dates peter r dolan july 29 1999 donald j hayden jr july 30 1999 richard j lane august 6 1999 john l mcgoldrick august 10 1999 michael f mee july 28 1999 christine poon july 29 1999 peter ringrose phd august 5 1999 stephen sadove july 29 1999 frederick schiff july 29 1999 john l skule august 5 1999 charles g tharp phd july 28 1999 kenneth e weg july 29 1999 incorporated herein reference exhibit 10q form 10q quarterly period ended september 30 1999 21 subsidiaries registrant e31 23 consent pricewaterhousecoopers llp e41 27 bristolmyers squibb company financial data schedule e51 99 additional exhibit e61 schedule ii bristolmyers squibb company valuation qualifying accounts dollars millions additions balance charged deductions balance beginning costs bad debts end description period expenses written period allowances discounts doubtful accounts year ended december 31 1999 147 65 44 168 year ended december 31 1998 109 57 19 147 year ended december 31 1997 107 19 17 109 s1item 14 exhibits financial statement schedules reports form 8k page number 1 financial statements 2933 notes consolidated financial statements 3453 report independent accountants 2 financial statement schedules schedule number page number valuation qualifying accounts ii s1 schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 unless otherwise indicated exhibits part commission file number 11136 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registrants registration statement form s3 registration statement 3333682 dated march 7 1990 amended may 5 1999 certificate amendment incorporated herein reference exhibit 3a form 10k fiscal year ended december 311999 3b bylaws bristolmyers squibb company amended february 1 2001 filed herewith 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4f form 10k fiscal year ended december 31 1997 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4g form 10k fiscal year ended december 31 1997 10a bristolmyers squibb company 1997 stock incentive plan effective may 6 1997 amended effective november 3 1998 incorporated herein reference exhibit 10a form 10k fiscal year ended december 31 1998 10b bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10c bristolmyers squibb company 1983 stock option plan amended restated january 1 1997 amended november 3 1998 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1998 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1996 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated may 1 1990 incorporated herein reference exhibit 19d form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1990 amended january 1 1991 incorporated herein reference exhibit 19e form 10k fiscal year ended december 31 1991 amended october 1 1994 incorporated herein reference exhibit 10f form 10k fiscal year ended december 31 1994 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein reference exhibit 10g form 10k fiscal year ended december 31 1993 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1994 10k bristolmyers squibb company retirement income plan nonemployee directors amended march 5 1996 incorporated herein reference exhibit 10k form 10k fiscal year ended december 31 1996 10l bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended january 13 1998 incorporated herein reference exhibit 10l form 10k fiscal year ended december 31 1997 10mbristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 12 1999 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1998 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 10p employment agreement march 12 1999 charles heimbold jr incorporated herein reference exhibit 10p form 10k fiscal year ended december 31 1998 10q form agreement effective june 1 1999 entered registrant following officers following dates peter r dolan july 29 1999 donald j hayden jr july 30 1999 richard j lane august 6 1999 john l mcgoldrick august 10 1999 michael f mee july 28 1999 peter ringrose phd august 5 1999 stephen sadove july 29 1999 frederick schiff july 29 1999 john l skule august 5 1999 charles g tharp phd july 28 1999 incorporated herein reference exhibit 10q form 10q quarterly period ended september 30 1999 10r form agreement effective february 1 2001 entered registrant kenneth e weg filed herewith 21 subsidiaries registrant filed herewith 23 consent pricewaterhousecoopers llp filed herewith 99 additional exhibit filed herewith b reports form 8k form 8k january 24 2001 filed company including financial statements restated present clairol includes matrix essentials inc affiliate zimmer discontinued operations signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant charles heimbold jr charles heimbold jr chairman board chief executive officer march 30 2001 date pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date charles heimbold jr chairman board chief executive officer director principal executive officer march 30 2001 charles heimbold jr michael f mee chief financial officer executive vice president corporate staff principal financial officer march 30 2001 michael f mee frederick schiff controller senior vice president financial operations corporate staff principal accounting officer march 30 2001 frederick schiff signature title date robert e allen director march 30 2001 robert e allen lewis b campbell director march 30 2001 lewis b campbell vance coffman director march 30 2001 vance coffman peter r dolan president chief executive officerdesignate director march 30 2001 peter r dolan ellen v futter director march 30 2001 ellen v futter louis v gerstner jr director march 30 2001 louis v gerstner jr laurie h glimcher md director march 30 2001 laurie h glimcher md leif johansson director march 30 2001 leif johansson james robinson iii director march 30 2001 james robinson iii louis w sullivan md director march 30 2001 louis w sullivan md exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designed two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 exhibit description page 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 dated march 7 1990 amended may 5 1999 certificate amendment incorporated herein reference exhibit 3a form 10k fiscal year ended december 311999 3b bylaws bristolmyers squibb company amended february 1 2001 filed herewith e11 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 311983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 exhibit description page 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent 10a bristolmyers squibb company 1997 stock incentive plan effective may 6 1997 amended effective november 3 1998 incorporated herein reference exhibit 10a form 10k fiscal year ended december 31 1998 10b bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10c bristolmyers squibb company 1983 stock option plan amended restated january 1 1997 amended november 3 1998 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1998 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 exhibit description page 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 10p employment agreement march 12 1999 charles heimbold jr incorporated herein reference exhibit 10p form 10k fiscal year ended december 31 1998 10q form agreement effective june 1 1999 entered registrant following officers following dates peter r dolan july 29 1999 donald j hayden jr july 30 1999 richard j lane august 6 1999 john l mcgoldrick august 10 1999 michael f mee july 28 1999 peter ringrose phd august 5 1999 stephen sadove july 29 1999 frederick schiff july 29 1999 john l skule august 5 1999 charles g tharp phd july 28 1999 incorporated herein reference exhibit 10q form 10q quarterly period ended september 30 1999 10r form agreement effective february 1 2001 entered registrant kenneth e weg filed herewith e21 21 subsidiaries registrant e31 23 consent pricewaterhousecoopers llp e41 99 additional exhibit e51 schedule ii bristolmyers squibb company valuation qualifying accounts dollars millions s1item 14 exhibits financial statement schedules reports form 8k schedules included additional financial data omitted applicable required information included financial statements notes thereto 3exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 unless otherwise indicated exhibits part commission file number 11136 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registrants registration statement form s3 registration statement 3333682 dated march 7 1990 amended may 5 1999 certificate amendment incorporated herein reference exhibit 3a form 10k fiscal year ended december 311999 3b bylaws bristolmyers squibb company amended november 6 2001 filed herewith 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4f form 10k fiscal year ended december 31 1997 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4g form 10k fiscal year ended december 31 1997 4h form 475 note due 2006 form 575 note due 2011 bristolmyers squibb company incorporated herein reference form 424b5 filed september 26 2001 10a bristolmyers squibb company 1997 stock incentive plan effective may 6 1997 amended effective november 3 1998 incorporated herein reference exhibit 10a form 10k fiscal year ended december 31 1998 10b bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10c bristolmyers squibb company 1983 stock option plan amended restated january 1 1997 amended november 3 1998 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1998 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristol myers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1996 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristol myers squibb company savings investment program amended restated effective january 1 1996 filed herewith 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein reference exhibit 10g form 10k fiscal year ended december 31 1993 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1994 10k bristolmyers squibb company retirement income plan nonemployee directors amended march 5 1996 incorporated herein reference exhibit 10k form 10k fiscal year ended december 31 1996 101 bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended january 13 1998 incorporated herein reference exhibit 101 form 10k fiscal year ended december 31 1997 10m bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 12 1999 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1998 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 10p employment agreement march 12 1999 charles heimbold jr incorporated herein reference exhibit 10p form 10k fiscal year ended december 31 1998 10q form agreement entered registrant following officers following dates stephen e bear december 4 2001 peter r dolan july 29 1999 donald j hayden jr july 30 1999 tamar howson october 11 2001 richard j lane august 6 1999 john l mcgoldrick august 10 1999 peter ringrose phd august 5 1999 frederick schiff july 29 1999 john l skule august 5 1999 incorporated herein reference exhibit 10q form 10q quarterly period ended september 30 1999 21 subsidiaries registrant filed herewith 23 consent pricewaterhousecoopers llp filed herewith breports form 8k october 12 2001 company filed form 8k announcing completion purchase dupont pharmaceuticals business october 1 2001 november 15 2001 company filed form 8k announcing completion sale clairol beauty care business clairol procter gamble signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant peter r dolan peter r dolan chairman board directors chief executive officer date april 1 2002 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date peter r dolan peter r dolan chairman board directors chief executive officer principal executive officer april 1 2002 frederick schiff frederick schiff senior vice president chief financial officer corporate staff principal financial officer april 1 2002 curtis l tomlin curtis l tomlin vice president controller corporate staff principal accounting officer april 1 2002 robert e allen robert e allen director april 1 2002 lewis b campbell lewis b campbell director april 1 2002 vance coffman vance coffman director april 1 2002 ellen v futter ellen v futter director april 1 2002 louis v gerstner jr louis v gerstner jr director april 1 2002 laurie h glimcher md laurie h glimcher md director april 1 2002 leif johansson leif johansson director april 1 2002 james robinson iii james robinson iii director april 1 2002 louis w sullivan md louis w sullivan md director april 1 2002 exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designed two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 exhibit description page 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registration statement 3333682 form s3 dated march 7 1990 amended may 5 1999 certificate amendment incorporated herein reference exhibit 3a form 10k fiscal year ended december 31 1999 3b bylaws bristolmyers squibb company amended november 6 2001 filed herewith e11 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent 4h form 475 note due 2006 form 575 note due 2011 bristolmyers squibb company incorporated herein reference form 424b5 filed september 26 2001 10a bristolmyers squibb company 1997 stock incentive plan effective may 6 1997 amended effective november 3 1998 incorporated herein reference exhibit 10a form 10k fiscal year ended december 31 1998 10b bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10c bristolmyers squibb company 1983 stock option plan amended restated january 1 1997 amended november 3 1998 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1998 10d squibb corporation 1982 option restricted stock performance unit plan amended incorporated reference exhibit 10b form 10k fiscal year ended december 31 1993 10e squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10f bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10g benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated reference exhibit 10e form 10k fiscal year ended december 31 1995 10h benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated effective january 1 1996 filed herewith e21 10i squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated reference exhibit 10g form 10k fiscal year ended december 31 1993 10j bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended july 1 1993 incorporated reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated reference exhibit 10h form 10k fiscal year ended january 31 1994 10k bristolmyers squibb company retirement income plan nonemployee directors amended march 5 1996 incorporated herein reference exhibit 10k form 10k fiscal year ended december 31 1996 10l bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended january 13 1998 incorporated herein reference exhibit 101 form 10k fiscal year ended december 31 1997 10m bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 12 1999 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1998 amended may 2 2000 incorporated herein reference exhibit 10m form 10q quarterly period ended march 31 2000 10n squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10o amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 10p employment agreement march 12 1999 charles heimbold jr incorporated herein reference exhibit 10p form 10k fiscal year ended december 31 1998 10q form agreement entered registrant following officers following dates stephen e bear december 4 2001 peter r dolan july 29 1999 donald j hayden jr july 30 1999 tamar howson october 11 2001 richard j lane august 6 1999 john l mcgoldrick august 10 1999 peter ringrose phd august 5 1999 frederick schiff july 29 1999 john l skule august 5 1999 incorporated herein reference exhibit 10q form 10q quarterly period ended september 30 1999 21 subsidiaries registrant e31 23 consent pricewaterhousecoopers llp e41 schedule ii bristolmyers squibb company valuation qualifying accounts dollars millions s1 part ia part ii fiveyear financial summary fiveyear financial summary bristolmyers squibb company consolidated statement earnings millions except per share amounts bristolmyers squibb company consolidated statement comprehensive income retained earnings millions except per share amounts bristolmyers squibb company consolidated balance sheet assets dollars millions bristolmyers squibb company consolidated balance sheet liabilities stockholders equity dollars millions bristolmyers squibb company consolidated statement cash flows dollars millions bristolmyers squibb company notes consolidated financial statements dollars millions bristolmyers squibb company notes consolidated financial statements dollars millions report management report independent accountants part iii part iv signatures exhibit index bristolmyers squibb company valuation qualifying accounts dollars millionsitem 14 controls procedures company restated consolidated financial statements three years ended december 31 2001 including corresponding 2001 2000 interim periods quarterly periods ended march 31 2002 june 30 2002 description restatement see amendment 1 companys annual report form 10ka year ended december 31 2001 amendments 1 companys quarterly reports form 10qa quarterly periods ended march 31 2002 june 30 2002 within 90 days prior filing date form 10k company carried evaluation supervision participation chief executive officer chief financial officer pursuant rule 13a15 promulgated securities exchange act 1934 amended effectiveness design operation disclosure controls procedures making evaluation company considered matters relating restatement previously issued financial statements including substantial process undertaken ensure material adjustments necessary correct previously issued financial statements recorded company believes certain restatement adjustments occurred companys control processes procedures related matters underlying adjustments effective company also considered two material weaknesses defined standards established american institute certified public accountants relating accounting public financial reporting significant matters initial recording management review oversight certain accounting matters identified communicated company audit committee companys independent auditors connection audits restatement previously issued financial statements consolidated financial statements year ended december 31 2002 last year company searched hired new chief financial officer outside company restaffed controller position created position chief compliance officer changed leadership pharmaceuticals group response wholesaler inventory buildup matters identified restatement adjustments direction audit committee last year senior management directed company dedicate resources take steps strengthen control processes procedures order identify rectify past accounting errors prevent recurrence circumstances resulted need restate prior period financial statements company also revised budgeting process emphasize bottomup approach contrast topdown approach company implemented review certification process annual quarterly reports securities exchange act 1934 amended exchange act well processes designed enhance monitoring wholesaler inventories addition company process expanding business risks disclosure group includes senior management including chief executive officer chief financial officer taking number additional steps designed create open environment communications flow information throughout company continues identify implement actions improve effectiveness disclosure controls procedures internal controls including plans enhance resources training respect financial reporting disclosure responsibilities review actions audit committee independent auditors based evaluation companys chief executive officer chief financial officer concluded evaluation date disclosure controls procedures reasonably designed ensure information required disclosed company reports files submits exchange act recorded processed summarized reported within time periods specified rules forms securities exchange commission described since evaluation date companys management internal controls significant changes internal controls factors could significantly affect internal controls part iv item 15item 14 auditor fees reference made 2005 proxy statement filed march 23 2005 respect auditor fees incorporated herein reference made part hereof response information required item 14 part iv item 15item 14 auditor fees reference made 2007 proxy statement filed march 19 2007 respect auditor fees incorporated herein reference made part hereof response information required item 14 part iv item 15item 14 auditor fees reference made 2008 proxy statement filed march 21 2008 respect auditor fees incorporated herein reference made part hereof response information required item 14 part iv item 15item 14 auditor fees reference made 2011 proxy statement filed march 21 2011 respect auditor fees incorporated herein reference made part hereof response information required item 14 part iv item 15item 14 auditor fees reference made 2012 proxy statement filed march 20 2012 respect auditor fees incorporated herein reference made part hereof response information required item 14 part iv item 15item 14 auditor fees reference made 2013 proxy statement filed march 21 2013 respect auditor fees incorporated herein reference made part hereof response information required item 14 part iv item 15nannannannannannannanitem 14 auditor fees reference made 2004 proxy statement filed march 26 2004 respect auditor fees incorporated herein reference made part hereof response information required item 13 part iv item 15item 14 auditor fees reference made 2009 proxy statement filed march 23 2009 respect auditor fees incorporated herein reference made part hereof response information required item 14 part iv item 15item 14 auditor fees reference made 2010 proxy statement filed march 23 2010 respect auditor fees incorporated herein reference made part hereof response information required item 14 part iv item 15nanitem 14 auditor fees reference made 2006 proxy statement filed march 22 2006 respect auditor fees incorporated herein reference made part hereof response information required item 14 part iv item 15 item 7 managements discussion analysis financial condition results operations summary 1993 bristolmyers squibbs worldwide sales 114 billion increased 2 prior year domestic sales increased 4 international sales remained prior year levels 5 increase excluding unfavorable effect foreign currency translation earnings continuing operations excluding 1993 special charge 1992 restructuring charge increased 8 2269 million 8 440 per share including charges earnings continuing operations 1959 million 380 per share 1993 1538 million 297 per share 1992 fourth quarter 1993 special charge 500 million taxes 310 million taxes 60 per share recorded connection pending future breast implant product liability claims company subsidiary medical engineering corporation certain subsidiaries special charge consists 15 billion potential liabilities expenses related breast implant claims offset 1 billion expected insurance proceeds special charge discussed note 2 consolidated financial statements included part ii item 8item 7 managements discussion analysis financial condition results operations summary 1994 bristolmyers squibbs worldwide sales increased 5 prior year 120 billion domestic sales increased 4 70 billion international sales increased 7 50 billion excluding 1994 1993 special charges recorded connection pending future breast implant product liability claims earnings income taxes increased 8 3305 million 1994 net earnings increased 3 2330 million earnings per share increased 4 458 440 1993 including charges earnings income taxes 2555 million 1994 2571 million 1993 net earnings 1842 million 1994 1959 million 1993 earnings per share 362 1994 380 1993 1994 early 1995 company made significant external investments build sales earnings acquisition remaining ownership interest upsa group leading maker marketer analgesics france belgium world leader effervescent technology completed company also acquired matrix essentials inc leading manufacturer north america professional hair care beauty products sold exclusively beauty salons equity stakes azupharma gmbh one germanys major generic pharmaceutical companies cadus pharmaceutical biotechnology company develops novel drug screening techniques january 1995 company completed acquisition calgon vestal laboratories skin care infection control products business bristolmyers squibbs financial position remains strong december 31 1994 company held 24 billion cash time deposits marketable securities cash provided operating activities totaled 23 billion continued primary source finance research new product development introductions capital spending working capital needs also used pay dividends nearly 15 billion 1994 dividends per common share 292 1994 increasing 288 per share paid 1993 december 1994 additional dividend increase announced 1995 indicated annual payment 296 1995 annual payment bristolmyers squibb dividends increased compound annual growth rate 13 past 10 years bristolmyers squibbs strong financial position evidenced triple credit rating substantial unused borrowing capacity high return equity net sales earnings worldwide sales increased 5 1994 120 billion compared increases 2 6 1993 1992 respectively volume growth primary contributor increase sales 1994 price increases contributed 1 growth us worldwide basis exchange rate fluctuations effect total sales growth year 1993 2 increase sales reflected 3 increase due volume 2 increase due pricing offset part 3 decrease due unfavorable effect foreign currency translation domestic sales increased 4 1993 compared 1 1992 international sales remained constant 1993 increased 12 1992 company previously reported agreement settle pending future breast implant product liability claims related previously discontinued business subsidiary brought medical engineering corporation subsidiary certain subsidiaries company recorded charge 1993 500 million taxes 310 million taxes 60 per share charge consisted 15 billion anticipation share pending settlement costs litigation offset expected insurance proceeds 1 billion various events occurred 1994 including number claimants opting settlement see notes 2 18 financial statements based upon preliminary analyses number opt outs issues fourth quarter 1994 company recorded special charge earnings 750 million taxes 488 million taxes 96 per share result charges net earnings 1842 million 362 per share 1994 1959 million 380 per share 1993 fourth quarter 1992 charge 890 million taxes 570 million taxes 110 per share recorded connection various restructuring actions earnings continuing operations 1538 million 297 per share 1992 excluding charges net earnings 2330 million 458 per share 1994 2269 million 440 per share 1993 earnings continuing operations 2108 million 407 per share 1992 effective income tax rate earnings income taxes 279 1994 compared 238 226 1993 1992 respectively excluding charges effective income tax rate earnings income taxes 295 1994 261 1993 267 1992 higher 1994 effective income tax rate resulted curtailment certain tax benefits puerto rico operations enacted omnibus budget reconciliation act 1993 expenses total costs expenses percentage sales excluding charges 724 1994 compared 731 1993 742 1992 percentage sales cost products sold decreased 261 1994 265 1993 due favorable product mix divestiture businesses higher cost sales 1993 cost products sold increased percentage sales 256 1992 primarily result higher manufacturing costs newer pharmaceutical products marketing selling administrative expenses percentage sales decreased 264 1994 271 1993 276 1992 primarily result reductions selling expenses companys ongoing commitment contain administrative costs advertising promotion expenses support new existing products increased 1367 million 1994 1255 million 1993 primarily result increases toiletries beauty aids segment due addition matrix pharmaceutical products segment preparation launches certain products 1993 advertising promotion expenses decreased 1992 levels due lower spending nonprescription health pharmaceutical products segments offset part increased spending toiletries beauty aids segment companys investment research development 1994 totaled 1108 million approximated 1993 1992 levels high level spending reflects companys continued commitment research broad range therapeutic areas clinical development support newer products last 10 years research development expenses increased compound annual growth rate 13 1994 research development spending dedicated discovery development pharmaceutical products 136 pharmaceutical sales compared 149 148 1993 1992 respectively industry segments end 1994 bristolmyers squibb 26 products 100 million annual sales including products four industry segments general business companys industry segments seasonal sales pharmaceutical products segment represents largest segment 58 total company sales increased 7 1994 6970 million volume growth primary contributor increase price increases 1 effect exchange rate fluctuations effect segments sales growth year domestic international sales increased 9 4 respectively primarily due volume growth sales cardiovascular drugs largest product group segment 28 billion increased 8 captopril angiotensin converting enzyme ace inhibitor companys largest selling product primarily sold trademark capoten us expiration date capoten patent redefined legislation implementing gatt treaty february 1996 due questions surrounding implementation gatt legislation effect new patent expiration date companys overall performance currently evaluated germany patent expiration capoten february 1995 sales captopril increased 4 1994 15 billion 581 million us benefiting new indications treatment diabetic nephropathy left ventricular dysfunction pravachol companys largest selling cholesterollowering agent sales exceeding 640 million monopril second generation ace inhibitor onceaday dosage performed well good volume growth us overseas markets sales companys antiinfectives decreased 2 15 billion increases sales cefzil oral cephalosporin used treatment respiratory infections introductory sales zerit companys new antiretroviral drug approved us june 1994 offset declines sales azactam videx amikin experiencing generic competition broad spectrum penicillins companys line anticancer drugs sales increased 13 billion strengthening companys leadership position cancer therapy sales taxol paclitaxel companys newest anticancer agent strong april 1994 taxol received clearance us use treatment breast cancer failure combination chemotherapy metastatic disease relapse within six months adjuvant chemotherapy late 1992 taxol initially cleared us canada treatment patients ovarian cancer whose firstline subsequent chemotherapy failed 1993 1994 taxol received clearance marketing number countries europe latin america pacific area sales platinol paraplatin also increased increases partially offset decreases sales vepesid patent expired us november 1993 sales central nervous system drugs increased 17 primarily due growth stadol ns prescription nasal spray analgesic buspar companys novel antianxiety agent dermatological drug sales increased introduction dovonex vitamin d3 analogue treatment moderate psoriasis july 1994 company sold squibb diagnostics contrast media radiopharmaceuticals businesses bracco spa company continue manufacturing certain diagnostic products including prohance isovue nuclear medicine products company also act braccos distributor canada december 1994 company received fda approval market serzone new antidepressant expected glucophage companys new oral antidiabetes agent type ii noninsulin dependent diabetes product licensed french company lipha marketed 1995 1993 pharmaceutical products segment sales increased 3 5 increase due volume 1 increase due pricing 3 decrease due unfavorable effect foreign currency translation increases sales pravachol monopril cefzil vepesid buspar introductory sales taxol offset part decreases sales capoten corgard amikin 1992 sales segment increased 7 primarily result increased cardiovascular antiinfective anticancer central nervous system drug sales operating profit margin 1994 326 remained relatively constant 327 reported prior year 1993 operating profit margin increased 327 310 1992 excluding restructuring charge increase 1993 resulted reductions selling advertising expenses offset part higher manufacturing costs newer pharmaceutical products medical devices segment sales 1685 million remained relatively constant prior year levels excluding sales edward weck incorporated divested december 1993 xomedtreace inc divested april 1994 sales increased 6 reflecting 4 increase due volume 1 increase due pricing 1 increase due favorable effect foreign currency translation accordingly domestic sales increased 1 international sales increased 12 worldwide sales prosthetic implants adversely affected competitive pressures increased 2 growth insallburstein ii modular total knee system mg ii total knee system centralign precoat hip prosthesis sales ostomy care products increased 9 prior year volume growth active lifecolodress surfitcombihesive product lines us international markets result continued product enhancements company worldwide market share leader sales ostomy care products sales wound care products increased 18 due ongoing success duoderm product line january 1995 company completed acquisition calgon vestal laboratories skin care infection control products business 1993 worldwide sales medical devices increased 2 result 3 increase due pricing 1 increase due volume 2 decrease due unfavorable effect foreign currency translation sales growth primarily resulted increased sales prosthetic implants ostomy wound care products 1992 sales segment increased 7 primarily due increased sales prosthetic implants ostomy wound care arthroscopy products offset part volume declines due product lines divested 1991 operating profit margin medical devices segment 295 1994 281 1993 276 1992 excluding charges increase 1994 resulted declines selling expenses percentage sales increase 1993 resulted declines selling administrative expenses result special charges recorded connection pending future breast implant product liability claims related expenses medical devices segment recorded operating losses 253 million 1994 24 million 1993 sales nonprescription health products segment increased 4 2043 million 3 increase due pricing 1 increase due volume exchange rate fluctuations effect segments sales growth year sales infant formulas increased 3 prior year levels due enfamil companys leading routine infant formula lactofree milkbased lactosefree infant formula introductory sales next step toddler formula intended toddlers 18 months beyond 1994 several new contracts federal governments women infants children wic program became effective sales analgesics increased 10 worldwide basis addition efferalgan aspirine upsa dafalgan upsa enhancing companys participation europes growing selfmedication marketplace sales analgesics also reflected increased sales excedrin companys largest selling analgesic us increased sales bufferin japan 1993 worldwide sales nonprescription health products remained prior year levels domestic declines primarily sales excedrin bufferin analgesics adversely affected increased competition us market offset international increases primarily sales bufferin analgesics isocal adult nutritional products 1992 sales segment increased 3 result international sales growth enfamil enfapro prosobee infant formulas bufferin analgesics operating profit margin 223 1994 compared 236 1993 partially result higher manufacturing costs 1993 operating profit margin 236 remained relatively unchanged 237 reported 1992 excluding restructuring charge sales toiletries beauty aids segment increased 4 1994 1286 million reflecting 3 increase due pricing 1 increase due volume exchange rate fluctuations effect segments sales growth year domestic sales increased 8 international sales decreased 2 sales companys haircoloring products reflected strong growth increasing 16 primarily due nice n easy lasting color loving care ultress well introductory sales natural instincts launched us latter part 1994 hair care product sales benefited systeme biolage vavoom matrix essentials lines matrix essentials inc increases sales companys skin care products primarily resulted introduction several new products sea breeze line us well addition matrix skin care line increases partially offset decreased sales ban antiperspirants deodorants due increased competition us divestiture clairol beauty appliance business december 1993 sales toiletries beauty aids segment increased 1 2 increase due pricing 1 increase due volume 2 decrease due unfavorable effect foreign currency translation sales growth primarily due introductory sales glints conditioning color enhancer lasting color loving care brights nice n easy haircoloring products well sales laboratori guieu italian overthecounter skin care company acquired early 1993 1992 sales segment increased 1 increased sales antiperspirants haircoloring products partially offset declines beauty appliances hair care products operating profit margin 1994 131 relatively unchanged 132 reported 1993 131 reported 1992 adjusting restructuring charge geographic areas 1994 sales us increased 4 primarily due strong pharmaceutical sales matrix offset part volume declines due divestiture certain businesses 1993 early 1994 excluding special charges operating profit margin increased 301 1994 300 1993 primarily result declines selling expenses 1993 sales us increased 4 primarily result gains pharmaceutical products segment operating profit margin adjusting charges increased 300 1993 280 1992 due declines selling administrative expenses offset part increased manufacturing costs newer pharmaceutical products international sales increased 7 1994 1993 international sales remained prior year levels excluding effect foreign currency translation international sales increased 6 1994 5 1993 sales europe mideast africa net interarea sales increased 6 1994 primarily due sales upsa increased sales capoten monopril introductory sales taxol operating profit margin increased 215 193 1993 primarily due reduced operating costs pharmaceutical products segment 1993 sales europe mideast africa decreased 8 result unfavorable foreign currency translation lower pharmaceutical sales certain european countries due part government costcontainment measures operating profit margin 193 compared 211 1992 excluding restructuring charge sales western hemisphere countries increased 6 1994 primarily due increased sales antiinfective cardiovascular drugs strong sales haircoloring products successful launch taxol number countries including brazil argentina operating profit margin increased 205 200 1993 primarily due improvement pharmaceutical products segment 1993 sales western hemisphere countries increased 5 reflecting increased sales antiinfectives cardiovasculars haircoloring products antiperspirants latin america operating profit margin 200 1993 relatively unchanged 201 reported 1992 adjusting restructuring charge sales pacific area increased 9 1994 favorable foreign currency translation increased sales bufferin analgesics enfapro followon formulas well successful launch sea breeze shampoos conditioners japan operating profit margin 136 compared 158 1993 partially due declines medical devices nonprescription health products segments 1993 sales pacific area increased 15 result favorable foreign currency translation increased sales prosthetic implants infant formulas anticancer drugs operating profit margin increased 158 1993 126 1992 excluding restructuring charge primarily result improvements pharmaceutical products medical devices segments financial position company considers cash time deposits marketable securities principal measures liquidity items remained high level totaling 24 billion december 31 1994 compared 27 billion 24 billion december 31 1993 1992 respectively working capital also strong totaling 24 billion december 31 1994 although decreasing 1993 1992 levels decrease working capital primarily resulted increase shortterm borrowings issued connection upsa acquisition increase product liability cash time deposits marketable securities conversion working capital items expected adequate fund operations company order mitigate effect foreign currency risk company engages hedging activities impact hedges companys results operations financial position explained note 12 financial statements internally generated cash provided operations remained strong continued companys primary source funds finance operating needs pay dividends nearly 44 billion past three years finance expenditures new plant equipment part companys ongoing commitment improve plant efficiency maintain superior research facilities company invested 18 billion capital expansion past three years cash provided operations also used large part fund 13 billion purchase nearly 23 million shares common stock three year period ended december 31 1994 item 8item 7 managements discussion analysis financial condition results operations summary 1995 bristolmyers squibb achieved record sales four companys segments reporting sales increases sales increased 15 prior year 138 billion domestic sales increased 10 77 billion international sales increased 22 61 billion exchange rate fluctuations favorable effect 1 worldwide sales 3 international sales earnings income taxes excluding 1995 1994 special charges 1995 provision restructuring increased 11 3662 million 1995 net earnings increased 12 2600 million earnings per share increased 12 514 458 1994 including charges earnings income taxes 2402 million 1995 2555 million 1994 net earnings 1812 million 1995 1842 million 1994 earnings per share 358 1995 362 1994 past two years company broadened enhanced product lines number strategic acquisitions collaborations 1994 company acquired remaining interest upsa group leading maker marketer analgesics france belgium acquired matrix essentials inc leading manufacturer north america professional hair care products beauty salons acquired equity interest azupharma gmbh one germanys major generic pharmaceutical companies 1995 company acquired calgon vestal laboratories wound skin care infection control products business gea farmaceutisk fabrik leading manufacturer marketer branded generic pharmaceuticals scandinavian market 1995 company announced research alliances biotechnology collaborations described later research development discussion january 1996 company acquired control pharmavit gyogyszeres elelmiszeripari reszvenytarsasag one hungarys leading manufacturers overthecounter medicines nutritional products generic pharmaceuticals addition strong product lines company continues benefit strong financial position december 31 1995 company held 22 billion cash time deposits marketable securities cash provided operating activities totaled 25 billion 1995 continued primary source financing company growth research new product development introductions capital spending working capital needs also used pay dividends nearly 15 billion 1995 dividends per common share 296 1995 increasing 292 per share paid 1994 additional dividend increase announced december 1995 1996 indicated annual payment 300 per share represents twentyfourth consecutive year company raised dividend common stock 1996 annual payment bristolmyers squibb dividends increased compound annual growth rate 11 past 10 years bristolmyers squibbs strong financial position evidenced triple credit rating moodys standard poors making bristolmyers squibb one nine us companies distinction company result substantial unused borrowing capacity pursue objectives net sales earnings worldwide sales increased 15 1995 138 billion compared increases 5 2 1994 1993 respectively volume growth primary contributor increase sales 1995 price increases minimal impact price increases favorable effect exchange rate fluctuations contributed 1 sales growth worldwide basis price increases impact domestic sales growth 1995 1994 5 increase sales reflected 4 increase due volume 1 increase due price increases exchange rate fluctuations attributable effect total company sales growth domestic sales increased 10 1995 4 1994 1993 international sales increased 22 1995 7 1994 remained prior year levels 1993 described notes 2 17 financial statements company previously reported agreement settle pending future breast implant product liability claims related previously discontinued business subsidiary brought medical engineering corporation subsidiary certain subsidiaries fourth quarter 1995 company recorded special charge earnings 950 million taxes 590 million taxes 117 per share 1995 special charge addition charge 750 million taxes 488 million taxes 96 per share recorded fourth quarter 1994 charge 500 million taxes 15 billion liability offset expected insurance proceeds 10 billion 310 million taxes 60 per share recorded fourth quarter 1993 fourth quarter 1995 company recorded provision restructuring 310 million taxes 198 million taxes 39 per share provision primarily relates consolidation plants facilities related employee termination costs result special charges provision restructuring net earnings 1812 million 358 per share 1995 1842 million 362 per share 1994 1959 million 380 per share 1993 excluding special charges 1995 provision restructuring net earnings 2600 million 514 per share 1995 2330 million 458 per share 1994 2269 million 440 per share 1993 effective income tax rate earnings income taxes 246 1995 compared 279 238 1994 1993 respectively excluding special charges provision restructuring effective income tax rate earnings income taxes 290 1995 295 1994 261 1993 1995 effective income tax rate decrease 05 1994 resulted higher levels income lower tax jurisdictions increase 1994 effective income tax rate 295 261 1993 resulted curtailment certain tax benefits puerto rico operations enacted omnibus budget reconciliation act 1993 expenses total costs expenses percentage sales excluding special charges provision restructuring 734 1995 compared 724 1994 731 1993 increase 1995 primarily resulted increased advertising promotion expenditures nonprescription health products toiletries beauty aids segments addition due companys increased participation federal governments women infants children wic program gross margins nonprescription health products segment lower prior year decrease 1994 primarily resulted reductions selling expenses improvements gross margin divestiture businesses higher costs cost products sold percentage sales increased 264 1995 261 1994 increase 1995 due increased participation wic program lower gross margins connection recent acquisitions increases partially offset favorable product mix improved manufacturing efficiencies 1994 cost products sold decreased percentage sales 265 1993 261 due favorable product mix divestiture businesses higher cost sales marketing selling administrative expenses percentage sales 267 1995 compared 264 1994 271 1993 advertising promotion expenses support new existing products increased 1646 million 1995 1367 million 1994 primarily due spending support new product launches 1994 advertising promotion expenses increased 1993 levels primarily result increases toiletries beauty aids segment addition matrix essentials inc pharmaceutical products segment preparation launches new products companys investment research development totaled 1199 million 1995 increase 8 1994 higher level spending reflects companys continued commitment research broad range therapeutic areas clinical development support new products last 10 years research development expenses increased compound annual rate 11 1995 research development spending dedicated discovery development pharmaceutical products 129 pharmaceutical sales compared 136 149 1994 1993 respectively 1995 company announced research alliances biotechnology collaborations following companies seq ltd ultrahigh speed dna sequencing genzyme transgenics production antibodies goats milk phyton inc option license plant cell culture production taxolrpaclitaxel specbiospecs access libraries novel organic chemicals company entered licensing arrangement taiho japan develop market uft tegafur uracil oral antitumor agent may fewer debilitating side effects current therapy company made equity investments following companies somatix therapy corporation company specializing gene therapy sibia inc company developing products based cloned receptor functional assay technology alzheimers disease treatment ixsys inc company engaged development tumor antigens antibodies entremed inc leader field angiogenesis research 1995 additional equity investment made cadus pharmaceutical corporation company specializes developing novel drug screening techniques january 1996 company announced collaboration neurosearch denmark develop oral compound treatment parkinsons disease industry segments end 1995 bristolmyers squibb 29 product lines 100 million annual sales representing products four industry segments general business companys industry segments seasonal sales pharmaceutical products segment represents largest segment 57 total company sales increased 12 1995 7810 million volume growth primary contributor increase price increases favorable effect exchange rate fluctuations 1 effect segments sales growth year domestic international sales increased 7 18 respectively company strong growing cardiovascular product franchise sales cardiovascular drugs largest product group segment 29 billion increased 6 captopril angiotensin converting enzyme ace inhibitor companys largest selling product primarily sold trademark capoten captopril sales remained prior year levels despite increased competition ace inhibitor market us loss patent exclusivity primarily germany us expiration date capoten patent redefined legislation implementing gatt treaty february 1996 pravachol companys largest selling cholesterollowering agent sales 770 million largest contributor increase cardiovascular sales us several markets pravachol benefited expanded labeling describing reduces 67 risk recurrent myocardial infarction patients elevated cholesterol fourth quarter 1995 results released west scotland coronary prevention study found pravachol associated early sustained reduction heart attack death individuals high cholesterol never heart attack monopril second generation ace inhibitor onceaday dosage performed well strong volume growth us overseas markets company also strong presence antiinfectives market sales companys antiinfective products increased 12 17 billion due increases sales zerit companys newest antiretroviral drug cleared marketing us fdas accelerated approval program june 1994 received full fda approval january 1996 cefzil oral cephalosporin used treatment respiratory infections duricef oral cephalosporin videx antiretroviral drug broad spectrum penicillins addition maxipime fourth generation injectable cephalosporin introduced international markets 1995 approved marketing us early 1996 contributed growth antiinfectives offsetting increases lower sales amikin azactam due increased generic competition bristolmyers squibb remains leader anticancer therapeutics category sales anticancer drugs increased 20 16 billion sales taxol exclusivity expires us december 1997 companys leading anticancer agent 580 million 1995 increasing 68 prior year april 1994 taxol received clearance us use treatment breast cancer failure combination chemotherapy metastatic disease relapse within six months adjuvant chemotherapy late 1992 taxol initially cleared us canada treatment patients ovarian cancer whose firstline subsequent chemotherapy failed also 1995 1994 1993 taxol received clearance marketing number countries europe latin america pacific area sales paraplatin platinol patent expires us december 1996 also increased due use combination therapy taxol increases partially offset decreases sales vepesid exclusivity expired us november 1993 company growing position central nervous system drug category sales central nervous system drugs increased 27 primarily due growth buspar companys novel antianxiety agent stadol ns prescription nasal spray analgesic sales serzone antidepressant treatment offers low incidence side effects launched us markets 1995 addition prodafalgan upsa group also contributed growth central nervous system drugs dermatological drug sales increased 9 largely due sales dovonex vitamin d3 analog treatment moderate psoriasis increases sales estrace lowdose estrogen replacement therapy also contributed sales growth glucophage companys new oral hypoglycemic agent type ii noninsulin dependent diabetes product licensed french company lipha sale us introduced 1995 performed exceptionally well first year market 1994 pharmaceutical products segment sales increased 7 increases sales pravachol taxol capoten monopril cefzil buspar offset part decreases sales vepesid corgard isovue amikin 1993 sales segment increased 3 primarily result increases pravachol monopril anticancer antiinfective central nervous system drug sales partially offset decreases capoten corgard operating profit margin excluding 1995 provision restructuring remained relatively constant 327 1995 compared 326 1994 327 1993 medical devices segment company continued maintain strong leadership positions orthopaedic implants arthroscopy powered instruments ostomy wound care products markets sales 1906 million reflected 13 increase prior year levels excluding calgon vestal laboratories wound skin care infection control products business purchased january 1995 xomedtreace inc divested april 1994 sales increased 7 reflecting 4 increase due volume 3 increase due favorable effect foreign currency translation price increases effect sales growth year excluding acquisition divestiture effect exchange rate fluctuations domestic sales increased 1 international sales increased 7 convatec division company worldwide market share leader ostomy care products sales products increased 14 prior year primarily due volume growth active lifecolodress surfitcombihesivesecure product lines us international markets excluding acquisition calgon vestal laboratories sales convatec wound care products increased 17 due ongoing success duoderm product line companys zimmer division world market share leader knee hip replacements worldwide sales prosthetic implants increased 3 led sales nexgen complete knee solution introduced 1995 continued success centralign precoat hip prosthesis sales companys arthroscopy products experienced strong growth driven apex universal drive irrigation system introduced 1995 1994 worldwide sales medical devices increased 6 result increased sales prosthetic implants ostomy wound care products offset part volume declines product lines divested 1994 1993 sales segment increased 2 primarily due increased sales prosthetic implants ostomy wound care products operating profit margin medical devices segment excluding 1995 provision restructuring 270 1995 295 1994 281 1993 1995 decline resulted increased research development sales force expenditures increase 1994 295 281 1993 resulted declines selling expenses percentage sales nonprescription health products segment includes companys worldwide consumer medicines nutritional products businesses increased 22 2495 million september 1994 company acquired remaining ownership interest upsa group leading maker marketer analgesics france belgium world leader effervescent technology excluding acquisition upsa group sales increased 11 reflecting volume growth price increases foreign currency translation effect sales growth year excluding acquisition effect exchange rate fluctuations domestic sales increased 10 international sales increased 15 1995 companys mead johnson nutritional group became us market leader infant formula volume gains companys principal infant formulas milkbased enfamil soybased prosobee increased addition new solesource contracts including new york florida georgia california western states alliance late 1994 1995 federal governments wic program well strong gains nonwic segments sales lactofree milkbased lactosefree infant formula nutramigen infant formula also increased companys line sustagen products boost sustacal two nutritional beverages launched consumers 1995 performed well sales analgesics increased primarily due strong performance excedrin companys leading analgesic us benefiting introduction excedrin gel tabs 1995 strong growth bufferin japan sales efferalgan dafalgan aspirine upsa europe 1994 worldwide sales nonprescription health products increased 4 due increased sales enfamil introductory sales next step toddler formula well increased sales excedrin bufferin addition products upsa group 1993 sales segment remained prior year levels domestic declines primarily analgesics sales offset international increases primarily sales bufferin isocal adult nutritional products operating profit margin excluding 1995 provision restructuring decreased 185 1995 compared 223 1994 primarily due lower margins infant formula products result increased participation wic program increased advertising marketing expenses support boost sustacal product launches 1994 operating profit margin decreased 223 236 1993 partially result higher manufacturing costs sales toiletries beauty aids segment bristolmyers squibb strong franchises haircoloring hair care skin care products increased 21 1995 1556 million august 1994 company acquired matrix essentials inc leading manufacturer north america professional hair care beauty products sold exclusively beauty salons excluding acquisition matrix sales increased 10 reflecting 8 increase due volume 3 increase due pricing 1 decrease due unfavorable effect foreign currency translation excluding acquisition foreign currency translation domestic sales increased 7 international sales increased 18 1994 companys clairol division continued maintain market share leadership us haircolorings product line sales companys haircoloring products higher increasing 10 primarily due nice n easy continued success natural instincts hair care product sales benefited systeme biolage vavoom matrix essentials lines matrix essentials inc introduction herbal essences complete line shampoos conditioners companys skin care products primarily sea breeze matrix skin care lines mum line antiperspirants deodorants also contributed segments growth 1994 sales toiletries beauty aids segment increased 4 primarily due increased sales haircoloring hair care skin care products partially offset decreases antiperspirants deodorants sales 1993 divestiture clairol beauty appliance business 1993 sales segment increased 1 primarily due increases sales haircoloring skin care products operating profit margin 1995 excluding 1995 provision restructuring 102 compared 131 1994 due increased advertising promotion expenditures related new product introductions established products 1994 operating profit margin 131 remained relatively unchanged 132 reported 1993 geographic areas bristolmyers squibb products available virtually every country world largest markets us france japan 1995 sales us increased 10 primarily due strong growth sales taxol pravachol paraplatin zerit enfamil prosobee lactofree excedrin natural instincts haircoloring also contributing sales growth us successful product launches glucophage serzone nexgen complete knee solution boost herbal essences complete line shampoos conditioners addition products acquisitions matrix essentials calgon vestal laboratories sales us excluding acquisitions increased 7 compared 1994 excluding 1995 provision restructuring operating profit margin 273 1995 compared 301 1994 decrease 1995 result lower gross margins wic sales increased advertising promotion expenditures new product launches 1994 sales us increased 4 primarily due strong pharmaceutical sales matrix essentials offset part volume declines due divestiture certain businesses 1993 early 1994 operating profit margin remained relatively constant 301 1994 300 1993 1995 1994 international sales increased 22 7 respectively excluding effect foreign currency translation international sales increased 19 1995 6 1994 sales europe mideast africa increased 30 due strong sales growth pravachol taxol ampicillin amoxicillin duricef ostomy wound care products introductory sales maxipime sales efferalgan dafalgan aspirine upsa analgesic products upsa group also contributed sales growth region excluding 1995 provision restructuring operating profit margin increased 256 1995 215 1994 primarily result higher utilization manufacturing facilities lower tax jurisdictions 1994 sales europe mideast africa increased 6 primarily due sales upsa increased sales capoten monopril introductory sales taxol 1994 operating profit margin increased 215 193 1993 primarily due reduced operating costs pharmaceutical products segment sales western hemisphere countries net interarea sales increased 5 1995 due strong sales taxol cardiovascular drugs serzone ostomy care products increases partially offset unfavorable effect foreign currency translation excluding 1995 provision restructuring operating profit margin decreased 152 205 1994 primarily result lower foreign exchange gains 1994 sales western hemisphere countries increased 6 primarily due increased sales antiinfective cardiovascular drugs haircoloring products successful launch taxol number countries including brazil argentina 1994 operating profit margin increased 205 1994 200 1993 primarily due improvements pharmaceutical products segment sales pacific net interarea sales increased 16 1995 result increased sales bufferin enfalac enfapro sustagen junior alacta antiinfective cardiovascular drugs sea breeze product line excluding 1995 provision restructuring operating profit margin 108 1995 compared 136 1994 due increased advertising promotion expenses support new product launches 1994 sales pacific area increased 9 result favorable foreign currency translation increased sales bufferin analgesics enfapro followon formulas launch sea breeze hair care products japan 1994 operating profit margin decreased 136 158 1993 partially due declines medical devices nonprescription health products segments financial position company considers cash time deposits marketable securities principal measures liquidity items totaled 22 billion december 31 1995 compared 24 billion 27 billion december 31 1994 1993 respectively working capital 22 billion december 31 1995 compared 24 billion 35 billion december 31 1994 1993 respectively working capital decreased large measure result product liability costs acquisitions dividends companys continuing share repurchase program cash time deposits marketable securities conversion working capital items expected adequate fund nearterm operating needs company order mitigate effect foreign currency risk company engages hedging activities impact hedges companys results operations financial position explained note 11 financial statements internally generated cash provided operations 25 billion 1995 23 billion 1994 26 billion 1993 cash provided operations continued companys primary source funds used finance operating needs productivity initiatives expenditures new plant equipment part companys ongoing commitment improve plant efficiency maintain superior research facilities company invested 17 billion capital expansion past three years 1995 company opened powderprocessing plants zeeland michigan largest infant formula powder plant world guangzhou china cash provided operations also used pay dividends nearly 45 billion past three years fund 14 billion purchase nearly 24 million shares companys common stock period item 8item 7 managements discussion analysis financial condition results operations summary nineteen ninetysix marked another year record growth sales earnings bristolmyers squibb worldwide sales 151 billion 9 increase 1995 domestic sales increased 10 85 billion international sales increased 9 66 billion exchange rate fluctuations unfavorable effect 2 worldwide sales 4 international sales growth resulted 11 increase due volume changes overall pricing activity 1996 significant contributions companys sales growth made thirtysix products representing four business segments annual sales least 100 million fact sixteen products experienced double digit sales growth better earnings income taxes increased 10 4013 million 1996 net earnings increased 10 2850 million earnings per share increased 11 284 excluding 1995 charges including charges earnings income taxes 4013 million 1996 2402 million 1995 net earnings 2850 million 1996 1812 million 1995 earnings per share 284 1996 179 1995 bristolmyers squibbs financial position remains strong december 31 1996 company held 22 billion cash time deposits marketable securities cash provided operating activities totaled 26 billion continued primary source funding finance research new product development introductions capital spending working capital needs also used pay dividends 15 billion 1996 dividends per common share 150 1996 increasing 148 per share paid 1995 december 1996 company announced additional dividend increase twentyfifth consecutive year dividends increased 1997 indicated annual payment 152 per share compared 150 per share paid 1996 1997 annual payment bristolmyers squibb dividends increased compound annual growth rate 8 past 10 years bristolmyers squibbs strong financial position evidenced triplea credit rating moodys standard poors making bristolmyers squibb one eight us companies distinction accordingly company substantial borrowing capacity disposal total market capitalization 545 billion december 31 1996 257 increase last year total return shareholders capital appreciation together reinvested dividends 321 1996 compares favorably 230 return standard poors 500 march 1996 board directors extended companys share repurchase program increasing programs authorization 150 million shares 1996 company purchased 19 million shares common stock cost 852 million bringing total shares acquired since programs inception 107 million december 3 1996 companys board directors declared twoforone stock split common stock company effective february 1997 board directors also recommended amendment considered stockholder approval annual meeting stockholders increase number authorized shares common stock 15 billion 225 billion share per share information presented herein adjusted effect stock split 19 net sales earnings worldwide sales increased 9 1996 151 billion compared increases 15 5 1995 1994 respectively consolidated sales growth resulted 11 increase due volume 2 decrease due unfavorable foreign exchange rate fluctuations changes overall pricing activity 1995 15 increase sales reflected 13 increase due volume price increases exchange rate fluctuations contributed 1 growth worldwide basis 1994 5 increase sales reflected 4 increase due volume 1 increase due pricing exchange rate fluctuations effect domestic sales increased 10 1996 1995 4 1994 international sales increased 9 1996 22 1995 7 1994 general businesses companys industry segments seasonal effective income tax rate earnings income taxes 290 1996 compared 246 279 1995 1994 respectively excluding 1995 special charge provision restructuring effective income tax rate earnings income taxes 290 1996 1995 295 1994 lower 1996 1995 effective income tax rates compared 1994 resulted increased income lower tax rate jurisdictions partially offset reduced benefits operations puerto rico described notes financial statements company recorded special charges earnings 950 million taxes 590 million taxes 58 per share fourth quarter 1995 750 million taxes 488 million taxes 48 per share fourth quarter 1994 also fourth quarter 1995 company recorded provision restructuring 310 million taxes 198 million taxes 20 per share expenses total costs expenses percentage sales excluding 1995 special charge provision restructuring 734 1996 1995 compared 724 1994 1996 increases advertising promotion support new existing products offset decreases marketing selling administrative expenses research development spending increase 1995 primarily resulted increased advertising promotion expenditures nonprescription health products toiletries beauty aids segments addition gross margins nonprescription health products segment lower 1995 prior year due companys expanded participation federal governments women infants children wic program percentage sales cost products sold remained relatively unchanged 263 1996 compared 264 1995 excluding 1996 acquisitions cost products sold percentage sales decreased 255 due favorable product mix introduction semisynthetic material yielding lower production costs taxolrpaclitaxel manufacturing efficiencies 1995 cost products sold percentage sales increased 264 261 1994 result increased participation wic program lower gross margins connection acquisitions offset favorable product mix improved manufacturing efficiencies 20 marketing selling administrative expenses percentage sales decreased 261 1996 267 1995 264 1994 1996 increases marketing selling expenses pharmaceutical segment offset decreases administrative costs advertising promotion expenses support new existing products increased 18 1946 million 1996 1646 million 1995 principally due incremental spending pharmaceutical toiletries beauty aids segments supporting directtoconsumer campaigns new product launches respectively 1995 advertising promotion expenses increased 1994 levels primarily due spending support new product launches companys investment research development totaled 1276 million 1996 increase 6 1995 spending level reflects companys commitment research broad range therapeutic areas clinical development support new products past 10 years research development expenses increased compound annual growth rate 11 1996 research development spending dedicated discovery development pharmaceutical products 123 pharmaceutical sales compared 129 136 1995 1994 respectively 1996 1995 company entered number research alliances licensing agreements biotechnology collaborations agreements providing important new products well early stage compounds development new processes help us screen new drugs effectively collaboration sanofi french pharmaceutical company resulted worldwide filings 1996 irbesartan drug represents advanced class antihypertensive medicines industry segments pharmaceutical products segment companys largest segment 58 total company sales increased 11 8702 million 1996 sales growth resulted 13 increase volume offset 2 decrease due unfavorable effect foreign exchange rate fluctuations changes selling prices effect sales growth domestic international sales increased 13 10 respectively primarily due volume growth excluding capoten sales discussed pharmaceutical product sales increased 21 23 effect foreign exchange strong sales increases established pharmaceutical products offset 377 million domestic decline 68 71 million international decline 7 sales captopril angiotensin converting enzyme ace inhibitor sold primarily trademark capoten due loss patent exclusivity us february 1996 worldwide capoten sales 11 billion 1996 1997 capoten lose exclusivity several countries outside us contributed 208 million capoten sales 1996 sales cardiovascular drugs largest product group segment decreased 3 2816 million excluding capoten sales cardiovascular drugs increased 26 sales pravachol cholesterollowering agent 11 billion increase 39 pravachol first cholesterol lowering drug kind proven reduce risk first heart attack important claim founded upon results studies demonstrated important clinical benefits including landmark fiveyear pravastatin primary prevention study fiveyear cholesterol recurrent events 21 care trial us food drug administration fdain july granted expanded labeling cleared pravachol use diet help reduce risk first heart attack people elevated cholesterol history heart disease indication september company announced nationwide program pravachol public awareness program first heart attack prevention raise awareness risks first heart attack help motivate people take action physicians reduce risks program focuses millions americans high cholesterol considered risk first heart attack monopril second generation ace inhibitor onceaday dosage also increased strong growth domestic international markets sales anticancer drugs increased 23 1971 million sales taxol exclusivity period us expiring december 1997 companys leading anticancer agent increased 40 813 million late 1992 taxol initially cleared us canada treatment patients ovarian cancer whose firstline subsequent chemotherapy failed 1993 1994 taxol received clearance marketing number countries europe latin america pacific area 1994 taxol received clearance us use treatment breast cancer failure combination chemotherapy metastatic disease relapse within six months adjuvant chemotherapy october 1996 taxol approved united kingdom firstline use treatment ovarian cancer company announced december 1996 agreement national institutes health continue extend collaborative research development taxol sales paraplatin exclusivity period us expiring april 2004 used treatment ovarian cancer also increased 16 increases partially offset decreases sales vepesid exclusivity expired us november 1993 platinol october 1996 company acquired oncology therapeutics network specialty distributor anticancer medicines related products antiinfective drug sales 1856 million increase 9 prior year strong growth recorded zerit videx companys two antiretroviral agents benefited positive regulatory agency actions us canada europe ongoing clinical trials demonstrating efficacy combination therapy third quarter videx received clearance fda used firstline treatment hiv january 1997 new oral solution zerit representing significant addition limited therapeutic options available treat hivinfected infants children introduced actions expanding markets products sales cefzil oral cephalosporin used treatment respiratory infections maxipime fourth generation injectable cephalosporin introduced international markets 1995 us third quarter 1996 also contributed growth anti infectives october 1996 cefzil received clearance fda use treatment acute bacterial sinusitis adult pediatric patients growth products partially offset sales decreases duricef amikin due generic competition sales central nervous system drugs increased 26 760 million due strong growth buspar companys novel antianxiety agent serzone antidepressant offers low incidence side effects stadol ns prescription nasal spray analgesic glucophage exclusivity period expires us december 1999 oral medication noninsulin dependent diabetes licensed french company lipha sale us launched 1995 1996 glucophage continued experience 22 exceptionally strong growth due rapid acceptance us market dermatological drug sales increased largely due sales dovonex vitamin d3 analog treatment moderate psoriasis 1995 pharmaceutical products segment sales increased 12 increases sales pravachol taxol paraplatin zerit monopril buspar cefzil introductory sales glucophage serzone maxipime partially offset decreases sales azactam vepesid corgard isovue amikin 1994 sales segment increased 7 due increased sales cardiovascular anticancer antiinfective drugs offset part decreases sales diagnostic agents operating profit margin relatively constant 330 1996 333 1995 excluding 1995 provision restructuring 326 1994 sales nonprescription health products segment increased 10 2750 million reflecting 12 increase due volume 2 decrease due unfavorable effect foreign exchange rate fluctuations international sales increased 12 16 excluding unfavorable effect foreign exchange domestic sales increased 9 sales milkbased enfamil companys largestselling infant formula well nutramigen lactofree special infant formulas performed well us international markets mead johnson nutritional groups leadership wic program allowed company maintain position us market leader also increasing share overall infant formula market contributing infant formula sales us several solesource contracts awarded company past year wic program well gains nonwic segments boost sustacal adult nutritional beverages launched directly consumers fourth quarter 1995 alacta nf nutritious beverage preschool age children sold outside us also contributed sales growth sales analgesic products increased 7 11 excluding effect foreign exchange due volume growth efferalgan dafalgan aspirine upsa group well excedrin bufferin keri line skin care products comtrex coughcold remedies also performed well 1995 worldwide sales nonprescription health products increased 22 increase 11 excluding effect acquisition upsa group september 1994 primarily due increased sales infant formulas adult consumer nutritionals excedrin bufferin analgesics upsa group 1994 sales increased 4 primarily due increased sales infant formulas analgesics operating profit margin improved 199 1996 compared 192 1995 excluding 1995 provision restructuring partially result improved manufacturing efficiencies 1995 operating profit margin excluding 1995 provision restructuring decreased 192 223 1994 primarily due lower margins infant formula products increased advertising marketing expenses medical devices segment sales 1860 million reflected 2 decrease prior year levels volume gains 3 achieved despite 3 decrease due changes selling prices sales also impacted 2 decrease due unfavorable effect foreign exchange international sales decreased 3excluding unfavorable effect foreign exchange sales increased 1 domestic sales decreased 1 companys zimmer division continues world market share leader knee hip replacements 23 worldwide sales prosthetic implants increased 1 excluding unfavorable effect foreign exchange led strong growth nexgen complete knee solution company launched major new hip replacement versys hip system extensive component system market features single set instruments fourth quarter 1996 convatec division company worldwide market share leader ostomy care products sales ostomy care products decreased prior year due overall negative impact foreign exchange product rationalization restructuring distribution arrangements volume growth active lifecolodress product line achieved international markets sales wound care products decreased convatec continues world market share leader modern wound care products 1995 worldwide sales medical devices increased 13 excluding acquisition calgon vestal laboratories divestiture 1994 sales increased 7 result increased sales knee implants ostomy wound care products 1994 medical device sales increased 6 due volume growth prosthetic implants ostomy wound care products offset part declines product lines divested 1994 1993 operating profit margin medical devices segment increased 302 1996 279 1995 excluding 1995 provision restructuring due improved manufacturing efficiencies 1995 operating profit margin 279 excluding 1995 provision restructuring decreased 295 1994 decrease 1995 resulted increased research development sales force expenditures sales toiletries beauty aids segment increased 13 1996 1753 million reflecting 14 increase due volume 2 increase due pricing 3 decrease due foreign exchange rate fluctuations excluding unfavorable effect foreign exchange international sales increased 19 1995 domestic sales increased 13 companys clairol division continued maintain market share leadership us haircolorings fastest growing hair care company us sales companys haircoloring products strong increasing 14 primarily due continued success natural instincts nice n easy ultress lasting color loving care salon haircolorings introduction clairol hydrience unique waterbased permanent haircolor introduced june 1996 clairol hydrience finding growing acceptance marketplace contributing growth haircoloring segment hair care product sales benefited strong sales herbal essences complete line shampoos conditioners styling aids infusium 23 well strong performances systeme biolage vavoom hair care lines matrix essentials companys skin care products primarily sea breeze keri skin care lines ban line antiperspirants deodorants also contributed segments volume growth 1995 sales toiletries beauty aids segment increased 21 excluding acquisition matrix essentials 1994 sales increased 10 primarily due increased sales haircoloring hair skin care products antiperspirants deodorants 1994 sales segment increased 4 primarily due increased sales haircoloring hair skin care products partially offset decreases antiperspirant deodorant sales 1993 divestiture clairol beauty appliance business operating profit margin 1996 137 compared 107 1995 excluding 1995 provision restructuring 1996 increase primarily due 24 increased gross margins operating profit margin excluding 1995 provision restructuring 1995 107 compared 131 1994 due higher costs new product introductions high costs acquired businesses geographic areas sales us net interarea sales increased 10 1996 primarily due anticancer antiinfective drugs pharmaceutical segment infant formulas nonprescription health segment haircoloring hair care products toiletries beauty aids segment strong sales increases achieved despite 68 decline sales capoten excluding sales capoten us sales increased 16 compared 1995 operating profit margin 278 1996 284 1995 excluding 1995 provision restructuring primarily due increased advertising promotion expenses 1995 sales us increased 10 due strong sales pharmaceutical nonprescription health segments well introductory sales products every segment excluding 1995 provision restructuring operating profit margin decreased 284 1995 301 1994 primarily result lower gross margins wic sales increased advertising promotion expenditures new existing products international sales increased 9 1996 22 1995 excluding effect foreign exchange rate fluctuations international sales 1996 1995 increased 13 19 respectively sales europe mideast africa net interarea sales increased 8 due strong sales growth products pharmaceutical segment including anticancer antiretroviral drugs partially offset decreases sales capoten penicillins medical devices segment including ostomy wound care products nonprescription health segment sales plusssz vitamins 1996 acquisition pharmavit analgesic products upsa group contributed sales growth region operating profit margin 254 1996 slight decrease 256 1995 excluding 1995 provision restructuring 1995 sales europe mideast africa increased 30 primarily due increased sales cardiovascular anticancer antiinfective drugs ostomy wound care products sales upsa acquisition also contributed sales growth region excluding 1995 provision restructuring operating profit margin increased 256 1995 215 1994 primarily result higher utilization manufacturing facilities lower tax rate jurisdictions sales western hemisphere countries increased 19 1996 due increased sales products pharmaceutical segment including cardiovascular anticancer antiinfective drugs nonprescription health segment including infant formulas toiletries beauty aids segments including haircoloring hair care products sales pharmaceutical products 1996 acquisition argentia sa also contributed sales growth region operating profit margin decreased 148 152 1995 excluding 1995 provision restructuring 1995 sales western hemisphere countries net interarea sales increased 5 due strong sales anticancer cardiovascular drugs serzone ostomy products offset unfavorable effect foreign exchange rate fluctuations excluding 1995 provision restructuring operating profit margin decreased 152 1995 205 1994 primarily result lower foreign exchange gains 25 sales pacific region net interarea sales increased 2 1996 excluding effect unfavorable foreign exchange sales increased 10 result increased sales nonprescription health segment including analgesics infant formulas schoolage nutritional beverages skin care product lines pharmaceutical segment products including anti infective cardiovascular drugs operating profit margin 86 1996 compared 108 1995 excluding 1995 provision restructuring primarily result increases advertising promotion expenditures support new existing products increased research development spending 1995 sales pacific region net interarea sales increased 16 result increased sales analgesics infant formulas antiinfectives cardiovascular drugs skin care products operating profit margin 108 1995 excluding 1995 provision restructuring compared 136 1994 due increases advertising promotion expenditures support new product launches financial position company considers cash time deposits marketable securities principal measures liquidity items totaled 22 billion december 31 1996 compared 22 billion 24 billion december 31 1995 1994 respectively working capital levels remain high 25 billion december 31 1996 compared 22 billion 24 billion december 31 1995 1994 respectively cash time deposits marketable securities conversion working capital items expected fund nearterm operations company november 1996 company issued 350 million principal amount 680 debentures due november 15 2026 proceeds sale securities used general corporate purposes may include working capital expenditures stock repurchase programs repayment refinancing borrowings acquisitions order mitigate effect foreign currency risk company engages hedging activities impact hedges companys results operations financial position explained notes financial statements internally generated cash provided operations increased 26 billion 1996 25 billion 1995 23 billion 1994 cash provided operations continued companys primary source funds finance operating needs expenditures new plant equipment part companys ongoing commitment improve plant efficiency maintain superior research facilities company invested 17 billion capital expansion past three years cash provided operations also used pay dividends nearly 45 billion past three years fund acquisitions finance share repurchase program companys share repurchase program authorizes purchase common stock time open market private transactions market conditions permit past three years company repurchased 51 million shares cost 18 billion 1996 company made number external investments extend sales earnings growth increase global reach acquisitions included pharmavit one hungarys leading manufacturers overthecounter medicines nutritional products generic pharmaceuticals argentia sa one argentinas largest manufacturers marketers ethical pharmaceuticals 26 oncology therapeutics network specialty distributor anticancer medicines related products number smaller acquisitions company also divested several small business lines 1996 december 3 1996 companys board directors declared twoforone stock split common stock company effective february 1997 board directors also recommended amendment considered stockholder approval annual meeting stockholders increase number authorized shares common stock 15 billion 225 billion 27 item 8item 7 managements discussion analysis financial condition results operations summary 1997 bristolmyers squibb achieved record levels sales earnings per share worldwide sales grew 167 billion 11 increase 1996 domestic sales represent 58 worldwide sales increased 14 96 billion international sales increased 7 71 billion exchange rate fluctuations unfavorable effect 3 worldwide sales 8 international sales growth resulted 14 increase due volume changes overall pricing activity 1997 significant contributions companys sales growth made companys important products many experienced double even tripledigit sales growth worldwide basis earnings income taxes increased 12 4482 million 1997 net earnings increased 12 3205 million basic earnings per share increased 13 322 diluted earnings per share increased 12 314 net earnings basic earnings per share increased compound annual growth rates 12 13 respectively past 10 years bristolmyers squibbs financial position remains strong december 31 1997 company held 18 billion cash time deposits marketable securities cash provided operating activities totaled 25 billion continued primary source funding finance dividend distributions 15 billion treasury stock repurchases 12 billion dividends per common share 152 1997 increasing 150 per share paid 1996 companys payout ratio calculated dividends per common share basic earnings per common share 472 528 576 1997 1996 1995 respectively excluding 1995 special charge provision restructuring december 1997 company announced another dividend increase twentysixth consecutive year dividends increased 1998 indicated annual payment 156 per share bristolmyers squibbs strong financial position evidenced triplea credit rating moodys standard poors making bristolmyers squibb one seven us companies distinction 1997 bristolmyers squibb established longterm strategic objective number one company earnings per share growth within competitive universe achieve objective company making strategic investments behind number high priority projects companys top priority project become productive respected innovative pharmaceutical research development organization world high priority projects focus high growth products fast growing markets including pravachol taxolr paclitaxel glucophage herbal essences well enhancing balanced strength core businesses 1997 increases made advertising promotion expenditures sales force personnel research development facilities personnel help ensure success high priority projects total equity market capitalization 94 billion december 31 1997 723 increase last year total return stockholders share price appreciation together reinvested dividends 770 1997 compares favorably 334 return standard poors 500 index employment levels december 1997 increased 53600 51200 december 1996 increases pharmaceutical sales force increases due acquisitions year company made number strategic acquisitions january 1998 company completed acquisition redmond products inc leading hair care manufacturer united states markets wellknown products including aussie mega shampoo aussie 3 minute miracle conditioner aussie sprunch spray among others latin america company acquired abeefe sa perus largest pharmaceutical manufacturer marketer broad range prescription nonprescription antiinfective respiratory antiinflammatory dermatological products choco milk mexicos leading milkbased nutritional supplement sal de uvas picot leading effervescent antacid product net sales earnings worldwide sales increased 11 1997 167 billion compared increases 9 15 1996 1995 respectively consolidated sales growth resulted 14 increase due volume 3 decrease due unfavorable foreign exchange rate fluctuations changes overall pricing activity 1996 9 increase sales reflected 11 increase due volume 2 decrease due unfavorable foreign exchange rate fluctuations changes overall pricing activity 1995 15 increase sales reflected 13 increase due volume price increases exchange rate fluctuations contributed 1 growth worldwide basis domestic sales increased 14 1997 10 1996 1995 international sales increased 7 1997 9 1996 22 1995 general businesses companys industry segments seasonal net earnings basic earnings per share 1997 increased 12 3205 million 13 322 per share 2850 million 284 per share 1996 1995 net earnings basic earnings per share 1812 million 179 per share 2600 million 257 per share excluding 1995 provision restructuring special charge diluted earnings per share 1997 1996 1995 314 280 178 respectively net earnings margins increased 192 1997 189 1996 1995 excluding 1995 charges effective income tax rate earnings income taxes 285 1997 compared 290 246 1996 1995 respectively excluding 1995 special charge provision restructuring effective income tax rate earnings income taxes 290 1995 lower 1997 effective income tax rate compared 1996 1995 resulted increased income lower tax rate jurisdictions described notes financial statements fourth quarter 1997 company divested linvatec corporation arthroscopy surgical powered instrument business 370 million resulting gain 225 million taxes 140 million taxes time company recorded provision restructuring 225 million taxes 140 million taxes provision restructuring primarily relates consolidation plants facilities related employee termination costs fourth quarter 1995 company recorded special charge earnings 950 million taxes 590 million taxes 58 per common share basic diluted see note 16 contingencies well provision restructuring 310 million taxes 198 million taxes expenses total costs expenses percentage sales 732 1997 compared 734 1996 1995 excluding 1995 special charge provision restructuring percentage sales cost products sold increased 267 1997 263 1996 principally due incremental low margin oncology therapeutic network sales partially offset increased sales higher margin promoted pharmaceutical products 1996 cost products sold percentage sales remained relatively unchanged 263 compared 264 1995 excluding 1996 acquisitions cost products sold percentage sales decreased 255 1996 due favorable product mix manufacturing efficiencies advertising promotion expenses support new existing products increased 15 2241 million 1997 1946 million 1996 percentage sales increased 135 129 principally due increased spending directtoconsumer campaigns several pharmaceutical products well incremental advertising support beauty care products 1996 advertising promotion expenses increased 18 1995 levels primarily due incremental spending pharmaceuticals beauty care segments supporting directtoconsumer campaigns new product launches respectively marketing selling administrative expenses increased 6 4173 million 1997 3925 million 1996 percentage sales decreased 250 1997 261 1996 267 1995 direct result companys productivity programs higher sales volumes companys investment research development totaled 1385 million 1997 increase 9 1996 percentage sales decreased 83 1997 85 1996 spending level reflects companys commitment research broad range therapeutic areas clinical development support new products company acquired new research facility hopewell nj announced intention hire 2000 additional scientists next several years past 10 years research development expenses increased compound annual growth rate 10 1997 research development spending dedicated research development pharmaceutical products 120 pharmaceutical sales compared 123 129 1996 1995 respectively 1997 1996 1995 company entered number research alliances licensing agreements biotechnology collaborations agreements providing important new products well earlystage compounds development new processes help company screen new drugs effectively business segments five companys business segments pharmaceuticals consumer medicines nutritionals medical devices beauty care reported sales increases excluding foreign exchange year end 1997 bristolmyers squibb 63 products 50 million annual sales 33 100 million annual sales pharmaceuticals segment companys largest segment 59 total company increased 15 9932 million 1997 sales growth resulted 17 increase volume 1 increase selling prices offset 3 decrease due unfavorable effect foreign exchange rate fluctuations domestic sales increased 23 international sales increased 13 excluding foreign exchange primarily due volume growth sales pravachol cholesterollowering agent companys largest selling product 14 billion increase 34 domestic sales increased 39 875 million results longterm intervention pravastatin ischaemic disease lipid trial showed pravachol treatment reduced consequences coronary heart disease including heart attack stroke death 20 30 sales monopril second generation angiotensin converting enzyme ace inhibitor onceaday dosing increased 28 328 million strong growth domestic international markets company sanofi sa received us marketing clearance us food drug administration fda irbesartan clopidogrel irbesartan sold avapro united states angiotensin ii receptor blocker treatment hypertension clopidogrel sold plavix united states platelet inhibitor reduction stroke heart attack patients atherosclerosis avapro launched united states fourth quarter plavix planned launch early 1998 sales cardiovascular drugs largest product group segment increased 3 2905 million due loss patent exclusivity several european countries first quarter 1997 united states february 1996 sales captopril ace inhibitor sold primarily trademark capoten declined 296 million 795 million excluding capoten sales cardiovascular drugs increased 22 sales anticancer drugs increased 23 2420 million sales taxol companys leading anticancer agent increased 16 941 million june september 1997 company granted use patents united states covering specific dosage regimes taxol august 1997 fda cleared taxol use secondline treatment aidsrelated kaposis sarcoma sales paraplatin used combination therapy treatment ovarian cancer increased 17 sales oncology therapeutics network otn specialty distributor anticancer medicines related products acquired october 1996 480 million antiinfective drug sales 2235 million increase 20 prior year strong growth recorded zerit videx companys two antiretroviral agents sales zerit companys fastest growing product increased 258 million 185 398 million sales videx grew 35 152 million december 1997 zerit became commonly prescribed thymidine nucleoside reverse transcriptase inhibitor hiv therapy united states surpassing azt august 1997 zerit received approval european union use combination therapy firstline treatment hiv january 1997 new oral solution zerit representing significant addition limited therapeutic options available treat hivinfected infants children introduced sales cefzil oral cephalosporin used treatment respiratory infections maxipime fourth generation injectable cephalosporin also contributed growth antiinfectives sales central nervous system drugs increased 26 955 million due strong growth buspar companys novel antianxiety agent serzone antidepressant offers low incidence side effects sales buspar increased 20 443 million sales serzone increased 70 185 million may 1997 studies presented american psychiatric association meeting demonstrated serzone increased sleep efficiency people suffering depression glucophage oral medication type 2 noninsulindependent diabetes continued experience strong growth sales increasing 74 579 million company sponsored public awareness program offers information physicians patients proper management type 2 diabetes serious undertreated medical condition afflicts 15 million americans glucophage leading branded product united states disease 1996 pharmaceuticals segment sales increased 12 1995 levels increases sales pravachol taxol paraplatin zerit monopril buspar cefzil glucophage serzone videx partially offset decreases sales capoten due loss patent exclusivity duricef questran vepesid isovue margin earnings taxes decreased 297 1997 304 1996 primarily due increased investment advertising promotion expenses support high priority products lower margin sales otn 1996 margin earnings taxes increased 304 296 1995 due decrease percentage sales research development spending sales consumer medicines segment increased 6 1351 million reflecting 13 increase due volume 6 decrease due unfavorable effect foreign exchange rate fluctuations 1 decrease selling prices international sales increased 6 17 excluding unfavorable effect foreign exchange domestic sales increased 5 sales analgesic products increased 3 9 excluding effect foreign exchange due volume growth efferalgan aspirine upsa group well domestic growth excedrin january 1998 company received clearance fda market excedrin migraine first medication migraine headache pain available consumers without prescription sea breeze keri lines skin care products also performed well strong growth japanese marketplace vagistat1 first onedose overthecounter medication vaginal yeast infections introduced april 1997 1996 worldwide sales consumer medicines increased 5 1995 levels increase 11 excluding foreign exchange primarily due increased sales excedrin bufferin analgesics upsa group including efferalgan dafalgan aspirine upsa margin earnings taxes improved 93 1997 77 1996 58 1995 result efficiency gains due productivity programs sales nutritionals segment increased 7 1911 million reflecting 10 increase due volume 2 decrease due unfavorable effect foreign exchange rate fluctuations 1 decrease selling prices international sales increased 15 21 excluding unfavorable effect foreign exchange domestic sales increased 1 mead johnson continues increase worldwide us leadership position infant formula market total infant formula sales increased due growth nutramigen lactofree prosobee special infant formulas sales enfamil companys largest selling infant formula decreased 3 674 million worldwide increasing 9 internationally 167 million excluding foreign exchange boost sustacal adult nutritional beverages alacta nf nutritious beverage preschoolage children sold outside us also contributed sales growth 1996 worldwide sales nutritionals increased 13 1995 levels primarily due increased sales infant formulas including enfamil adult consumer nutritionals margin earnings taxes improved 211 1997 207 1996 199 1995 primarily due higher sales volumes improved manufacturing efficiencies gains due productivity programs medical devices segment sales 1802 million reflected 3 decrease prior year levels volume gains 2 achieved sales impacted 1 decrease due changes selling prices 4 decrease due effect foreign exchange international sales remained constant excluding effect foreign exchange sales increased 8 domestic sales decreased 6 companys convatec division worldwide market share leader ostomy advanced wound care products sales ostomy wound care products increased 6 16 respectively excluding foreign exchange companys zimmer division continues world market share leader knee hip replacements worldwide sales knee prosthetic joint implants increased 2 excluding effect foreign exchange led growth nexgen complete knee solution hip replacement sales decreased 4 excluding effect foreign exchange zimmer restructuring focus core businesses orthopaedic implants fracture fixation devices discussed notes financial statements company completed sale linvatec corporation arthroscopy surgical powered instruments business december 1997 also part restructuring zimmer announced 10 reduction domestic work force well restructuring european business 1996 worldwide sales medical devices declined 46 million 2 although excluding foreign exchange remained 1995 levels 1995 medical device sales increased 13 result increased sales knee implants ostomy wound care products excluding acquisition calgon vestal laboratories divestiture 1994 sales increased 7 1995 margin earnings taxes medical devices segment decreased 200 1997 225 1996 228 1995 due price decreases lower sales volumes incremental manufacturing costs connection recently introduced products sales beauty care segment increased 16 1997 1705 million reflecting 16 increase due volume 1 increase due pricing 1 decrease due foreign exchange rate fluctuations excluding effect foreign exchange international sales increased 28 1996 domestic sales increased 12 companys clairol division number one hair products company united states continues maintain market share leadership us haircolorings sales companys hair care products especially strong increasing 36 1997 primarily due sales herbal essences complete line shampoos conditioners styling aids body wash increased 168 351 million aided launch additional countries 1997 sales infusium 23 hair care products also contributed growth hair care products september clairol launched daily defense complete line shampoos conditioners designed purify fortify hair protect environmental styling stresses also september companys matrix essentials division launched vital nutrients innovative hair care line provides micronutrients daily protection internal moisture balance haircoloring product sales increased 4 benefiting continued success nice n easy natural instincts salon haircolorings hydrience increased 86 following launch international markets 1996 sales beauty care segment increased 13 1995 levels primarily due increased sales haircoloring hair skin care products margin earnings taxes 1997 171 compared 170 1996 increased 153 1995 primarily due higher volumes productivity programs offset cost new product introductions spending programs geographic areas bristolmyers squibb products available virtually every country world largest markets united states france japan germany canada sales us net interarea sales increased 14 1997 sales pharmaceuticals beauty care nutritionals segments comprised 59 12 11 respectively regions sales products strong growth region included pravachol glucophage zerit herbal essences taxol buspar paraplatin nutramigen boost incremental sales otn acquisition margin earnings taxes decreased 245 1997 260 1996 primarily due increases percentage sales cost products sold advertising promotion expenses 1996 sales us increased 10 net interarea sales primarily due anticancer antiinfective drugs pharmaceuticals segment infant formulas nutritionals segment haircoloring hair care products beauty care segment strong sales increases achieved despite 68 decline sales capoten margin earnings taxes increased 260 1996 256 1995 sales europe mideast africa net interarea sales increased 2 12 excluding foreign exchange pharmaceuticals consumer medicines comprised nearly 73 sales region increased 10 17 respectively excluding foreign exchange products strong growth region included zerit pravachol taxol maxipime efferalgan plusssz vitaminenriched effervescent drink introductions herbal essences hydrience increases sales products partially offset decreases sales capoten due loss exclusivity several european countries early 1997 margin earnings taxes increased 238 1997 219 1996 primarily due manufacturing efficiencies result companys productivity programs 1996 sales europe mideast africa net interarea sales increased 8 10 excluding foreign exchange due strong sales growth products pharmaceuticals segment including anticancer antiretroviral drugs partially offset decreases sales capoten penicillins medical devices segment including ostomy wound care products nutritionals segment sales plusssz vitamins 1996 acquisition pharmavit well analgesic products consumer medicines segment contributed sales growth region margin earnings taxes decreased 219 1996 227 1995 sales western hemisphere countries net interarea sales increased 25 1997 26 excluding foreign exchange pharmaceuticals comprised nearly 66 regions sales increased 22 products strong growth included pravachol videx zerit taxol introductory sales hydrience herbal essences sales acquisitions choco milk sal de uvas picot margin earnings taxes increased 142 1997 111 1996 reflecting improved gross margins due manufacturing efficiencies 1996 sales western hemisphere countries increased 19 25 excluding foreign exchange due increased sales cardiovascular anticancer antiinfective drugs pharmaceuticals segment infant formulas nutritionals segment haircoloring hair care products beauty care segment sales pharmaceutical products 1996 acquisition argentia sa also contributed sales growth region margin earnings taxes decreased 111 1996 122 1995 sales pacific region increased 5 net interarea sales 13 excluding foreign exchange 1997 pharmaceuticals nutritionals comprised 38 30 respectively regions sales products strong growth included pravachol sea breeze zerit taxol keri products alacta nf enfamil launch herbal essences margin earnings taxes decreased 32 1997 44 1996 due increases percentage sales cost products sold sales force expenses 1996 sales pacific region net inter area sales increased 2 12 excluding foreign exchange result increased sales analgesics infant formulas schoolage nutritional beverages skin care antiinfective cardiovascular drugs margin earnings taxes decreased 44 1996 58 1995 primarily result increases percentage sales advertising promotion expenditures support new existing products financial position cash equivalents time deposits marketable securities totaled 18 billion december 31 1997 compared 22 billion december 31 1996 1995 working capital 27 billion december 31 1997 compared 25 billion 22 billion december 31 1996 1995 respectively cash equivalents time deposits marketable securities conversion working capital items expected fund nearterm operations company august 1997 company issued 300 million principal amount 6875 debentures due august 1 2097 november 1996 company issued 350 million principal amount 680 debentures due november 15 2026 proceeds sale securities used general corporate purposes including working capital expenditures stock repurchase programs repayment refinancing borrowings acquisitions company exposed market risk including changes currency exchange rates interest rates reduce financial risks company enters certain derivative financial instruments available cost effective basis hedge underlying economic exposure instruments also managed consolidated basis efficiently net exposures thus take advantage natural offsets companys policy hedge underlying economic exposures reduce foreign exchange interest rate risk derivative financial instruments used trading purposes gains losses hedging transactions offset gains losses underlying exposures hedged foreign exchange option contracts lesser extent forward contracts used hedge anticipated transactions companys primary foreign currency exposures relation us dollar french franc deutsche mark spanish peseta japanese yen table summarizes companys outstanding foreign exchange option contracts december 31 1997 fair value option contracts change time estimated based forward currency rates relevant market factors fair value option contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates dollars millions weighted average notional carrying fair strike price amount value maturity option contracts purchased right sell french franc ff 589 461 6 19 1998 deutsche mark dm 177 286 6 11 1998 spanish peseta pts 14707 113 2 6 1998 currencies various 175 3 12 1998 right buy japanese yen 12760 103 2 3 1998 japanese yen deutsche marks dm 7377 113 2 3 1998 currencies various 28 1 1998 1279 22 55 company maintains cash equivalents time deposits marketable securities various financial institutions financial institutions located primarily us puerto rico ireland company policy designed limit exposure one financial institution cash equivalents time deposits marketable securities december 31 1997 denominated primarily us dollar instruments nearterm maturities average interest yield cash equivalents 56 december 31 1997 interest yields time deposits marketable securities averaged 51 december 31 1997 shortterm borrowings longterm debt december 31 1997 denominated primarily us dollars also include french franc shortterm borrowings due banks 191 million japanese yen longterm debt 171 million disclosures related shortterm borrowings longterm debt included notes financial statements internally generated cash provided operations 25 billion 1997 26 billion 1996 25 billion 1995 cash provided operations continued companys primary source funds finance operating needs expenditures new plants equipment part companys ongoing commitment improve plant efficiency maintain superior research facilities company invested nearly 19 billion capital expansion past three years cash provided operations also used pay dividends 45 billion past three years fund acquisitions cost 920 million last three years finance share repurchase program companys share repurchase program authorizes purchase common stock time open market private transactions market conditions permit 1997 company purchased 168 million shares common stock cost 1162 million bringing total shares acquired since programs inception 123 million past three years company repurchased 43 million shares cost 23 billion return stockholders equity 465 1997 460 1996 451 1995 excluding 1995 special charge provision restructuring company adopt recently issued statement financial accounting standards 132 employers disclosures pensions postretirement benefits 1998 statement change measurement recognition pension postretirement expenses eliminates certain current disclosures requires additional disclosures changes benefit obligation fair value plan assets subsequent year end company entered two revolving credit facility agreements totaling 500 million available use needed general corporate purposes company reviewed information systems year 2000 compliance initiated plans remedy deficiencies timely manner result review action plan company believes cost remedial corrective actions material companys financial position results operations cash flows item 8item 7 managements discussion analysis financial condition results operations summary 1998 bristolmyers squibb achieved record levels sales four companys business segments reporting sales increases excluding effects foreign exchange divestitures worldwide sales grew 183 billion 9 increase 1997 domestic sales represent 61 worldwide sales increased 15 111 billion international sales increased 2 72 billion sales growth resulted 10 increase due volume 2 increase changes selling prices exchange rate fluctuations unfavorable effect 3 worldwide sales 7 international sales primarily due asian latin american currencies 1998 companys important products experienced doubledigit sales increases worldwide basis made significant contributions companys sales growth two products pravachol taxolr paclitaxel exceeded 1 billion sales 1998 additional seven products exceeded half billion dollars annual sales end 1998 bristolmyers squibb 64 product lines 50 million annual sales 36 100 million annual sales earnings income taxes excluding 1998 special charge increased 13 51 billion 1998 net earnings basis increased 13 36 billion basic diluted earnings per share increased 14 183 179 respectively net earnings diluted earnings per share excluding special charges increased compound annual growth rate 10 past five years bristolmyers squibbs financial position remains strong december 31 1998 company held 25 billion cash time deposits marketable securities cash provided operating activities reached time high 41 billion returns shareholders included dividend distributions 16 billion treasury stock repurchases 16 billion dividends per common share 78 1998 increasing 76 per share paid 1997 companys payout ratio 43 47 53 net income 1998 1997 1996 respectively excluding 1998 special charge december 1998 company announced another dividend increase 27th consecutive year dividends increased 1999 indicated annual payment 86 per share 10 increase 1998 bristolmyers squibbs strong financial position evidenced triplea credit rating moodys standard poors making bristolmyers squibb one eight us industrial companies distinction bristolmyers squibbs priorities past five years focused growth productivity dynamic operating culture 1997 company established longterm strategic objective number one company earnings per share growth year within competitive universe help achieve objective company making strategic investments behind number high priority projects year progress made number areas projects including goals pharmaceutical research development exceeded eleven major regulatory approvals obtained nine major dossiers filed year pravachol cholesterollowering agent shown provide additional cardiovascular benefits addition established reduction deaths coronary heart disease risk heart attacks taxol companys leading anticancer agent received new indication combination cisplatin firstline ovarian cancer glucophage leading branded oral medication treatment noninsulindependent type 2 diabetes shown excellent therapeutic efficacy profile treatment type 2 diabetes leader us oral antidiabetic market herbal essences became number two us shampooconditioner category three years market companys productivity growth program contributed 600 million incremental benefits total equity market capitalization 133 billion december 31 1998 42 increase last year 1997 equity market capitalization 94 billion increase 72 1996 total return stockholders share price appreciation together reinvested dividends 430 1998 770 1997 321 1996 1998 return compares favorably 286 return standard poors 500 index december 1 1998 companys board directors declared twoforone stock split common stock company effective february 1999 second stock split past two years board directors also recommended amendment considered stockholder approval annual meeting stockholders increase number authorized shares common stock 225 billion 45 billion share per share information presented herein adjusted effect stock split net sales earnings worldwide sales increased 9 1998 183 billion compared increases 11 9 1997 1996 respectively consolidated sales growth resulted 10 increase due volume 3 decrease due foreign exchange rate fluctuations 2 increase due changes selling prices 1997 11 increase sales reflected 14 increase due volume 3 decrease due foreign exchange rate fluctuations changes overall pricing activity 1996 9 increase sales reflected 11 increase due volume 2 decrease due foreign exchange rate fluctuations changes overall pricing activity domestic sales increased 15 1998 14 1997 10 1996 international sales increased 2 1998 9 excluding foreign exchange 7 1997 15 excluding foreign exchange 9 1996 13 excluding foreign exchange general businesses companys industry segments seasonal described notes 2 16 financial statements company determined final cost breast implant product liability related previously discontinued business subsidiary cost litigation prescription drug pricing cases accordingly fourth quarter 1998 company recorded special charge 800 million taxes 495 million taxes 24 per diluted share augment reserve breast implant liability prescription drug pricing litigation offset expected insurance recoveries breast implant component charge 700 million taxes 800 million liability offset insurance receivables 100 million prescription drug pricing component 100 million taxes result special charge 1998 net earnings 3141 million basic earnings per share 158 diluted earnings per share 155 net earnings excluding special charge 3636 million 13 increase prior year basic earnings per share 183 diluted earnings per share 179 increasing 14 1997 net earnings 3205 million increased 12 2850 million 1996 basic diluted earnings per share 161 157 respectively increased 13 12 142 140 respectively 1996 net earnings margins excluding special charge increased 199 1998 192 1997 189 1996 effective income tax rate earnings income taxes 283 1998 excluding special charge compared 285 290 1997 1996 respectively effective income tax rate decreased since 1996 due increased income lower tax rate jurisdictions described note 4 financial statements 1998 company completed acquisition redmond products inc leading hair care manufacturer united states company also 1998 acquired phytoervas line premium retail hair care products brazil donga biotech co ltd marketer distributor pharmaceutical products south korea 1997 company acquired abeefe sa perus largest pharmaceutical manufacturer marketer company also 1997 acquired choco milk mexicos leading milkbased nutritional supplement sal de uvas picot leading effervescent antacid product mexico 1996 company acquired pharmavit one hungarys leading manufacturers overthecounter medicines nutritional products generic pharmaceuticals company also 1996 acquired argentia sa one argentinas largest manufacturers marketers ethical pharmaceuticals completed acquisition oncology therapeutics network specialty distributor anticancer medicines related products described note 4 financial statements first quarter 1998 company divested ban brand antiperspirants deodorants second quarter 1998 company divested gea denmarkbased generic drug business hexachimie specialty chemical manufacturer based france fourth quarter 1997 company divested linvatec corporation arthroscopy surgical powered instrument business divestitures resulted gains taxes 201 million 1998 225 million 1997 company recorded restructuring charges 201 million 1998 225 million 1997 restructuring charges consist primarily asset writedowns employeerelated costs related consolidation closure plants facilities expenses total costs expenses percentage sales excluding special charge 723 1998 compared 732 1997 734 1996 percentage sales cost products sold remained relatively unchanged 266 1998 compared 267 1997 cost products sold percentage sales increased 267 263 1996 principally due incremental lower margin oncology therapeutics network sales partially offset increased sales higher margin promoted pharmaceutical products following 15 increase advertising promotion expenses 1997 due product launches directtoconsumer campaigns high priority pharmaceutical products 1998 expenses increased 3 2312 million 2241 million marketing selling administrative expenses percentage sales decreased 242 1998 250 1997 261 1996 decreasing trend direct result companys productivity programs partially offset increases pharmaceutical sales force personnel companys investment research development totaled 1577 million 1998 increase 14 1997 percentage sales increased 86 1998 83 1997 spending level reflects companys commitment research broad range therapeutic areas clinical development support new products past 10 years research development expenses increased compound annual growth rate 9 1998 research development spending dedicated research development pharmaceutical products increased 16 124 pharmaceutical sales compared 120 123 1997 1996 respectively 1998 company initiated filings us food drug administration fda orzel first oral agent colorectal cancer us tequin broadspectrum oral quinolone antibiotic additional filings expected 1999 omapatrilat novel antihypertensive 1998 1997 1996 company entered number research alliances licensing agreements biotechnology collaborations agreements providing important new products earlystage compounds development new processes help company screen new drugs effectively business segments four companys business segments medicines nutritionals medical devices beauty care reported sales increases excluding foreign exchange divestitures year sales medicines segment pharmaceuticals consumer medicines companys largest segment 69 total company increased 12 12573 million 1998 sales growth resulted 13 increase due volume 2 increase selling prices offset 3 decrease due effect foreign exchange rate fluctuations domestic sales increased 20 international sales increased 8 excluding foreign exchange primarily due volume growth sales pravachol companys largestselling product 16 billion increase 14 domestic sales increased 17 1022 million november 1998 results landmark lipid trial published new england journal medicine showing pravachol improved total mortality improved results patients unstable angina reduced total hospitalizations july 1998 additional findings cholesterol recurrent events care trial published journal american college cardiology demonstrating cardiovascular protection women subgroup studied well broad range patients june 1998 fda cleared enhanced drug interaction labeling pravachol reduced potential interact commonly prescribed medications march 1998 fda cleared pravachol use reducing risk stroke patients heart attack normal cholesterol levels pravachol drug type indicated reduce risk heart attack patients without established coronary heart disease sales monopril second generation angiotensin converting enzyme ace inhibitor onceaday dosing increased 16 380 million strong growth domestic international markets strong acceptance among managed care organizations united states products bristolmyers squibb sanofi sa joint venture avapro plavix launched fourth quarter 1997 first quarter 1998 respectively plavix platelet aggregation inhibitor reduction stroke heart attack vascular death atherosclerotic patients reached sales 144 million year avapro angiotensin ii receptor blocker treatment hypertension sales 120 million sales cardiovascular drugs largest product group medicines segment increased 11 3210 million due loss patent exclusivity several european countries first quarter 1997 united states february 1996 sales captopril ace inhibitor sold primarily trademark capoten declined 20 636 million excluding capoten sales cardiovascular drug sales increased 22 sales anticancer drugs increased 21 2925 million sales taxol increased 28 1206 million september 1998 fda approved genentech incs product herceptinr firstline therapy combination taxol treatment patients metastatic breast cancer also september european community approved taxol indication nonsmall cell lung cancer may 1998 usbased cooperative group study sponsored bristolmyers squibb cooperative research development agreement national cancer institute showed adding taxol regimen commonly used chemotherapy drugs risk death women earlystage breast cancer reduced 26 study enrolled 3000 women first show significant survival benefit earlystage breast cancer 20 years april 1998 taxol combination cisplatin approved fda first line treatment ovarian cancer sales paraplatin used combination therapy treatment ovarian cancer increased 20 525 million sales oncology therapeutics network otn 657 million antiinfective drug sales 2412 million increase 8 prior year sales zerit antiretroviral agent increased 38 551 million sales videx grew 7 162 million zerit commonly prescribed thymidine nucleoside reverse transcriptase inhibitor hiv therapy united states june 1998 company announced large phase iii study evaluate safety efficacy oncedaily dosing videx bristolmyers squibb seeks develop convenient dosing regimen hiv patients sales cefzil oral cephalosporin used treatment respiratory infections sinusitis maxipime fourth generation injectable cephalosporin also contributed growth antiinfectives sales central nervous system drugs increased 15 1099 million due strong growth buspar companys novel antianxiety agent serzone antidepressant sales buspar increased 20 531 million sales serzone increased 39 257 million glucophage continued experience strong growth sales increasing 49 861 million september 1998 results united kingdom prospective diabetes study demonstrated excellent therapeutic efficacy profile glucophage treatment type 2 diabetes sales excedrin increased 17 241 million following clearance fda january 1998 market excedrin migraine first nonprescription medication approved relief migraine pain 1997 medicines segment sales increased 14 1996 levels increases sales pravachol taxol paraplatin zerit monopril buspar cefzil glucophage serzone videx volume growth efferalgan aspirine upsa group partially offset decreases sales capoten margin earnings taxes decreased slightly 278 1998 279 1997 increases percentage sales research development expenditures sales force expenditures offset decreases advertising promotional spending general administrative expenses 1997 margin earnings taxes decreased 279 280 1996 due increased investment advertising promotion expenses support high priority products lower margin sales otn sales medical devices segment excluding december 1997 divestiture zimmers arthroscopy surgical powered instrument business increased 7 prior year levels 1647 million reflecting 10 increase due volume 3 decrease due effect foreign exchange effect selling prices domestic sales increased 9 international sales increased 6 11 excluding effect foreign exchange including divestiture medical device sales decreased 9 companys convatec division worldwide market share leader ostomy advanced wound care products sales ostomy wound care products increased 5 9 respectively excluding foreign exchange worldwide sales knee prosthetic joint implants increased 1 hip replacement sales decreased 2 excluding effect foreign exchange 1997 worldwide sales medical devices decreased 3 increase 1 excluding foreign exchange margin earnings taxes medical devices segment improved 205 1998 195 1997 due decreases percentage sales marketing general administrative expenses partially offset increases cost products sold due higher costs products sold distribution agreement acquirer linvatec margin earnings taxes medical devices segment decreased 195 1997 225 1996 due incremental manufacturing costs connection recently introduced products sales nutritionals segment decreased 2 1759 million reflecting 2 increase due volume 6 decrease due effect foreign exchange rate fluctuations primarily asia 2 increase due changes selling prices international sales decreased 7 increase 7 excluding effect foreign exchange domestic sales increased 2 mead johnson continues leader worldwide us infant formula markets total infant formula sales decreased 1 1203 million increase 2 excluding foreign exchange sales enfamil companys largest selling infant formula decreased 3 649 million worldwide decrease 1 excluding foreign exchange gains recorded nutramigen lacto free specialty infant formulas boost adult nutritional beverage choco milk milkbased nutritional supplement acquired july 1997 also contributed sales growth 1997 worldwide sales nutritionals increased 6 1996 levels primarily due growth nutramigen lacto free prosobee specialty infant formulas adult consumer nutritionals margin earnings taxes improved 214 1998 206 1997 primarily due decrease percentage sales cost products sold resulting improved manufacturing efficiencies productivity programs margin earnings taxes nutritionals segment decreased 206 1997 211 1996 sales beauty care segment increased 22 1998 2305 million reflecting 22 increase due volume 3 increase due pricing 3 decrease due foreign exchange rate fluctuations excluding effect foreign exchange international sales increased 26 1997 domestic sales increased 25 companys clairol division continues number one hair products company united states sales companys hair care products especially strong increasing 49 1998 primarily due sales herbal essences complete line shampoos conditioners styling aids body wash increased 60 561 million herbal essences number two brand total shampoo conditioner market us three years market number three body wash less two years market redmond aussie brand acquired january 1998 added 100 million sales year daily defense vital nutrients launched september 1997 contributed 82 million 34 million respectively sales year haircoloring product sales increased 6 benefiting continued success hydrience natural instincts salon haircolorings launch revitalique new premium permanent haircolor 1997 sales beauty care segment increased 14 1996 levels primarily due increased sales hair care products led herbal essences margin earnings taxes 1998 improved 157 148 1997 144 1996 primarily due higher volumes manufacturing efficiencies due productivity programs partially offset investment spending behind new product introductions geographic areas bristolmyers squibb products available virtually every country world largest markets united states france japan germany canada sales us net interarea sales increased 15 1998 sales medicines beauty care segments comprised 68 15 respectively regions sales products strong growth region included glucophage taxol pravachol herbal essences buspar paraplatin initial sales plavix aussie hair care products margin earnings taxes increased 262 1998 245 1997 primarily due decreases percentage sales cost products sold advertising general administrative expenses 1997 sales us increased 14 net interarea sales primarily due anticancer antiinfective drugs medicines segment specialty infant formulas nutritionals segment hair care products beauty care segment margin earnings taxes decreased 245 1997 260 1996 primarily due increases percentage sales cost products sold advertising promotion expenses sales europe mideast africa net interarea sales increased 4 6 excluding foreign exchange medicines segment comprise nearly 77 sales region products strong growth region included taxol zerit pravachol herbal essences initial sales avapro increases sales products partially offset decreases sales capoten 104 million due loss exclusivity several european countries early 1997 margin earnings taxes decreased 234 1998 238 1997 primarily due increases percentage sales promotional expenses 1997 sales europe mideast africa net interarea sales increased 2 12 excluding foreign exchange due sales growth products medicines segment including anticancer antiretroviral analgesic products introductions herbal essences hydrience beauty care segment increases partially offset decreases sales capoten due loss exclusivity margin earnings taxes increased 238 1997 219 1996 due manufacturing efficiencies result companys productivity programs sales western hemisphere countries net interarea sales increased 11 1998 20 excluding foreign exchange medicines beauty care segments comprised nearly 62 18 respectively regions sales products strong growth included herbal essences choco milk due recent introductions region margin earnings taxes decreased 128 1998 142 1997 reflecting increases percentage sales cost products sold 1997 sales western hemisphere countries net interarea sales increased 25 26 excluding foreign exchange due increased sales cardiovascular anticancer antiinfective drugs medicines segment introductory sales hydrience herbal essences beauty care segment sales acquisitions choco milk sal de uvas picot margin earnings taxes increased 142 1997 111 1996 reflecting improved gross margins due manufacturing efficiencies sales pacific region increased 5 1998 net interarea sales excluding effect foreign exchange including foreign exchange sales decreased 11 primarily due currency fluctuations japan philippines thailand australia economic downturns region medicines nutritionals segments comprised 45 22 respectively regions sales increases taxol herbal essences launched region 1997 offset part decreases infant formulas capoten lost patent exclusivity japan 1997 result economic downturns unfavorable fluctuations exchange rates earnings taxes pacific region minimal 1998 1997 sales pacific region net interarea sales increased 5 13 excluding foreign exchange result increased sales pharmaceuticals skin care products infant formulas launch herbal essences margin earnings taxes decreased 32 1997 44 1996 primarily result increases percentage sales cost products sold sales force expenses financial instruments cash equivalents time deposits marketable securities totaled 25 billion december 31 1998 compared 18 billion 22 billion december 31 1997 1996 respectively working capital 30 billion december 31 1998 compared 27 billion 25 billion december 31 1997 1996 respectively cash equivalents time deposits marketable securities conversion working capital items expected fund nearterm operations company exposed market risk including changes currency exchange rates interest rates reduce risks company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments also managed consolidated basis efficiently net exposures thus take advantage natural offsets companys policy hedge certain underlying economic exposures reduce foreign exchange interest rate risk derivative financial instruments used trading purposes gains losses hedging transactions offset gains losses underlying exposures hedged foreign exchange option contracts lesser extent forward contracts used hedge anticipated transactions companys primary foreign currency exposures relation us dollar french franc deutsche mark japanese yen table summarizes companys outstanding foreign exchange option contracts december 31 1998 fair value option contracts change time estimated based forward currency rates relevant market factors fair value option contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates dollars millions weighted average notional carrying fair strike price amount value maturity option contracts purchased right sell french franc ff 560 342 6 1999 deutsche mark dm 169 388 7 6 1999 currencies various 312 9 6 1999 contracts various 265 5 13 1999 1307 27 31 december 31 1997 company held right sell option contracts aggregate notional amount carrying value fair value 1035 million 17 million 48 million respectively contracts primarily related option contracts right sell french francs deutsche marks company also held right buy option contracts primarily buy japanese yen us dollars japanese yen deutsche marks aggregate notional amount carrying value fair value 244 million 5 million 7 million respectively company maintains cash equivalents time deposits marketable securities various financial institutions financial institutions located primarily us europe company policy designed limit exposure one financial institution recently issued accounting standard june 15 1998 financial accounting standards board fasb issued sfas 133 accounting derivative instruments hedging activities fas 133 becomes effective financial statements beginning january 1 2000 fas 133 requires companies recognize derivatives either assets liabilities balance sheet measure instruments fair value company currently evaluating statement impact companys existing accounting policies financial reporting disclosures year 2000 company reviewed information systems year 2000 compliance year 2000 problem arises many computer systems use two digits represent year programs may process dates beyond 1999 may cause miscalculations system failures company comprehensive compliance program assess year 2000 problem processing data companys information technology nonit systems including manufacturing research development systems regard systems program implemented assessment well required corrective actions testing substantially complete regard critical manufacturing research development systems assessment completed corrective actions testing substantially completed midyear 1999 connection compliance program company also asked critically important vendors customers suppliers governmental regulatory authorities financial institutions whose incomplete untimely resolution year 2000 problem could potentially significant impact companys operations assess year 2000 readiness assessment substantially completed contingency plans prepared necessary minimize significant exposures failures third parties year 2000 compliant plans substantially completed midyear 1999 include development backup procedures identification alternate suppliers possible increases inventory levels company expect year 2000 problem well cost compliance program material impact companys results operations financial condition cash flows however absolute assurance third parties convert systems timely manner way compatible companys systems euro conversion january 1 1999 certain members european union established fixed conversion rates existing currencies european unions common currency known euro transition period introduction euro january 1 1999 january 1 2002 planned july 1 2002 participating countries withdraw currencies use euro exclusively company committed resources conduct assessments take corrective actions ensure prepared introduction euro company currently evaluating methods address many areas involved introduction euro including information management finance legal tax review includes conversion information technology business financial systems evaluating currency risk effect companys financial instruments well impact pricing distribution companys products company believes effect introduction euro well related cost conversion material impact companys results operations financial condition cash flows financial position cash equivalents time deposits marketable securities december 31 1998 denominated primarily us dollar instruments nearterm maturities average interest yield cash equivalents 47 december 31 1998 interest yields time deposits marketable securities averaged 45 december 31 1998 shortterm borrowings longterm debt december 31 1998 denominated primarily us dollars however subsidiary company 167 million commercial paper outstanding december 31 1998 commercial paper original maturities exceeding 270 days 116 million denominated ecus euros 51 million denominated us dollars also included japanese yen longterm debt 284 million 1998 company entered two credit facilities aggregating 500 million syndicate lenders support commercial paper program credit facilities consist 250 million 364day credit facility may renewed annually consent lenders additional 364day period 250 million 5year credit facility extendible anniversary date consent lenders borrowings outstanding credit facilities december 31 1998 addition company unused shortterm lines credit foreign banks 494 million disclosures related shortterm borrowings longterm debt included notes financial statements internally generated cash provided operations 41 billion 1998 25 billion 1997 26 billion 1996 cash provided operations continued companys primary source funds finance operating needs expenditures new plants equipment part companys ongoing commitment improve plant efficiency maintain superior research facilities company invested 21 billion capital expansion past three years cash provided operations also used pay dividends 45 billion past three years fund acquisitions cost 663 million past three years finance share repurchase program companys share repurchase program authorizes purchase common stock time open market private transactions market conditions permit 1998 company purchased 306 million shares common stock cost 16 billion bringing total shares acquired since programs inception 277 million past three years company repurchased 101 million shares cost 36 billion employment levels december 1998 increased 54700 53600 december 1997 increases primarily pharmaceutical sales force research development personnel return stockholders equity continued improve last three years 492 1998 excluding special charge 465 1997 460 1996 item 8item 7managements discussion analysis financial condition results operations summary 1999 bristolmyers squibb surpassed 20 billion annual global sales achieved record levels sales earnings four companys business segments achieved record levels sales bringing worldwide sales 202 billion 11 increase 1998 domestic sales representing 63 worldwide sales increased 15 128 billion international sales increased 3 74 billion sales growth resulted 9 increase due volume 2 increase changes selling prices exchange rate fluctuations effect worldwide sales unfavorable effect 2 international sales primarily due latin american european currencies companys important product lines experienced doubledigit sales increases worldwide basis fact three products pravachol taxol paclitaxel glucophage exceeded 1 billion sales six additional products exceeded onehalf billion dollars annual sales bristolmyers squibb 64 product lines 50 million annual sales including 35 100 million annual sales earnings income taxes excluding 1998 special charge described increased 14 58 billion 1999 net earnings basis increased 15 42 billion basic diluted earnings per share increased 15 210 206 respectively past five years net earnings diluted earnings per share excluding special charges increased compound annual growth rates 12 13 respectively 1999 company reported 15 diluted earnings per share growth prior year first three quarters excluding 1998 special charge 16 growth rate fourth quarter 1999 consistent mission company extend enhance human life develop highest quality products company invested 18 billion research development 17 growth prior year growing annualized rate 11 past five years continuing investment led discovery innovative new products development new indications existing products including vanlev omapatrilat novel cardiovascular compound treatment hypertension first antihypertensive ever receive priority review us food drug administration fda prescription drug user fee act glucophageglyburide product glucophage xr extended release tablets diabetes vaniqa topical treatment excessive facial hair women tequin advanced antibiotic treatment multiple common infections easiertodigest entericcoated treatment form videx hivaids taxolfor adjuvant treatment nodepositive breast cancer bristolmyers squibbs financial position remains strong december 31 1999 company held almost 30 billion cash time deposits marketable securities cash provided operating activities reached 45 billion highest last 10 years returns shareholders included dividend distributions 17 billion stock repurchases 14 billion dividends per common share 86 1999 increasing 78 per share paid 1998 company continued lower dividend payout ratio represents cash dividends paid per common share divided diluted earnings per common share amounted 42 43 48 1999 1998 1997 respectively excluding 1998 special charge december 1999 company announced dividend increase 28th consecutive year dividends increased expanded share repurchase program authorization additional 2 billion 2000 indicated annual payment 98 per common share 14 increase 1999 following 10 dividend increase 1999 evidence strong financial position bristolmyers squibb one seven us industrial companies receive triplea credit rating moodys standard poors net sales earnings worldwide sales increased 11 1999 202 billion compared increases 9 11 1998 1997 respectively consolidated sales growth 1999 resulted 9 increase due volume 2 increase due changes selling prices change due foreign exchange rate fluctuations 1998 9 increase sales reflected 10 increase due volume 3 decrease due foreign exchange rate fluctuations 2 increase due changes selling prices 1997 11 increase sales reflected 14 increase due volume 3 decrease due foreign exchange rate fluctuations changes overall pricing activity domestic sales increased 15 1999 1998 14 1997 international sales increased 3 1999 5 excluding foreign exchange 2 1998 9 excluding foreign exchange 7 1997 15 excluding foreign exchange general businesses companys industry segments seasonal earnings income taxes excluding 1998 charge described increased 14 5767 million 5068 million 1998 net earnings basis increased 15 4167 million compared 3636 million 1998 basic earnings per share increased 15 210 183 prior year diluted earnings per share increased 15 206 179 net earnings margins excluding 1998 special charge increased 206 1999 199 1998 described notes financial statements fourth quarter 1998 company recorded special charge 800 million taxes 495 million taxes 24 per diluted share augment reserve breast implant liability prescription drug pricing litigation offset expected insurance recoveries breast implant component charge 700 million taxes 800 million liability offset insurance receivables 100 million prescription drug pricing component 100 million taxes result special charge 1998 net earnings 3141 million basic earnings per share 158 diluted earnings per share 155 1998 net earnings excluding 1998 special charge 3636 million 13 increase 1997 basic earnings per share 183 diluted earnings per share 179 increasing 14 1997 net earnings margins excluding special charge increased 199 1998 192 1997 effective income tax rate earnings income taxes 277 1999 compared 283 1998 excluding special charge 285 1997 effective income tax rate decreased since 1997 due increased income lower tax rate jurisdictions described note 2 financial statements 1999 company acquired calctose leading nutritional milk modifier product mexico 1998 company acquired redmond products inc leading hair care manufacturer us 1998 company also acquired phytoervas line premium retail hair care products brazil donga biotech co ltd marketer distributor pharmaceutical products south korea 1997 company acquired abeefe sa perus largest pharmaceutical manufacturer marketer company also 1997 acquired choco milk mexicos leading milkbased nutritional supplement sal de uvas picot leading effervescent antacid product mexico described note 2 financial statements fourth quarter 1999 company completed sale laboratori guieu spa italianbased gynecological pediatric dermatological products business first quarter 1998 company divested ban brand antiperspirants deodorants second quarter 1998 company divested gea denmarkbased generic drug business hexachimie specialty chemical manufacturer based france fourth quarter 1997 company divested linvatec corporation arthroscopy powered surgical instrument business january 2000 company announced intention sell matrix essentials inc subsidiary manufacturer professional hair care products sold exclusively beauty salons expenses total costs expenses percentage sales improved last three years 715 1999 compared 723 1998 excluding 1998 special charge 732 1997 percentage sales cost products sold increased 274 1999 compared 266 1998 principally due sales growth lower margin products oncology therapeutics network otn specialty distributor anticancer medicines related products 1998 cost products sold percentage sales remained prior years level 266 compared 267 1997 accordingly company maintained cost goods sold percentage sales consistently last three years excluding oncology distribution business advertising promotion expenses increased 4 prior year 2409 million 1999 primarily due continued support pravachol excedrin glucophage plavix medicines segment promotional campaigns related existing products new product launches beauty care nutritional segments including enfamil boost ultress viactiv soft calcium chews aussie land 1998 advertising promotion expenses increased 3 2312 million 2241 million 1997 percentage sales advertising promotion expenses decreased 119 1999 126 1998 134 1997 reflecting improvement effectiveness advertising promotion spending decreasing trend primarily due reductions directtoconsumer advertising increases medical education efforts medicines segment marketing selling administrative expenses percentage sales decreased 226 1999 242 1998 250 1997 decreasing trend result slower rates increase marketing sales force general administrative expenses compared revenue increases period companys investment research development totaled 1843 million 1999 increase 17 1998 increase 91 1999 percentage sales 86 1998 83 1997 spending level reflects companys commitment research broad range therapeutic areas clinical development new products past five years research development expenses increased compound annual growth rate 11 1999 research development spending dedicated pharmaceutical products increased 18 126 pharmaceutical sales compared 124 120 1998 1997 respectively 1999 eight regulatory approvals obtained 10 dossiers filed us notably december 1999 company received fda approval tequin advanced antibiotic treatment multiple common infections including respiratory tract company also received marketing clearance new indications several products including october 1999 use taxol injection adjuvant treatment nodepositive breast cancer following standard chemotherapy september 1999 zerit videx approved use firstline components combination antiretroviral therapy regimen hivinfected patients january 2000 company submitted new drug application nda videx didanosine oncedaily easier todigest entericcoated form videx december 1999 company submitted filing vanlev omapatrilat us european union canada vanlev clinically developed member new class cardiovascular compounds developed treatment hypertension 1999 company also initiated filings gain marketing approval two antidiabetic drugs new oral antidiabetic combination drug leverages benefits two widely prescribed oral antidiabetic medications glucophage metformin glyburide wellestablished sulfonylurea antidiabetic glucophage xr metformin hydrochloride extended release tablets oncedaily version glucophage nda vaniqa topical treatment excessive facial hair women filed september 1999 company announced number research alliances collaborations commercialization agreements companies including development commercialization collaboration agreement otsuka pharmaceutical co ltd aripiprazole novel drug study phase iii trials treatment schizophrenia alliance millennium predictive medicine inc subsidiary millennium pharmaceutical inc emerging field cancer pharmacogenomics licensing agreement research collaboration oxigene inc develop commercialize combretastatin antitumor vascular targeting agents company recorded 201 million 225 million gains sale businesses 1998 1997 respectively company also recorded restructuring charges 201 million 1998 225 million 1997 restructuring charges consisted primarily asset writedowns employeerelated costs related consolidation closure plants facilities business segments four companys business segments medicines beauty care medical devices nutritionals reported sales increases year sales medicines segment pharmaceuticals consumer medicines bristolmyers squibbs largest segment 71 total company increased 14 14309 million 1999 sales growth resulted 12 increase due volume 3 increase selling prices offset 1 decrease due effect foreign exchange rate fluctuations domestic sales increased 23 international sales increased 5 excluding foreign exchange primarily due volume growth sales pravachol companys largest selling product increased 4 1704 million international sales increased 8 10 excluding foreign exchange 671 million domestic sales increased 1 1033 million reflecting intensifying competition products us market share leveled 15 year 1999 results prospective pravastatin pooling project largest statin drug analysis found pravachol consistently helps reduce risk recurrent coronary events women older patients diabetes company also announced launch pravastatin atorvastatin evaluation infection therapy prove trial first major clinical trial compare effects pravachol versus lipitor reducing risk heart attacks cardiac events clinical trial also seeks examine role infection atherosclerosis sales taxol companys leading anticancer agent increased 23 15 billion product continued benefit increased use ovarian breast nonsmall cell lung cancer following standard chemotherapy october 1999 fda approved use taxol injection adjuvant treatment nodepositive breast cancer following standard chemotherapy composition matter patent paclitaxel active ingredient taxol united states company presently manufacturer marketer product containing paclitaxel 1997 1998 company filed several lawsuits alleging number generic drug companies infringed patents covering certain methods administering paclitaxel filed abbreviated new drug applications seeking regulatory approval sell paclitaxel defendants asserted infringe companys patents invalid unenforceable defendants also asserted counterclaims seeking damages alleged antitrust unfair competition violation january 4 2000 district court granted companys motion dismiss certain antitrust unfair competition counterclaims companys motion summary judgment remaining antitrust unfair competition counterclaims denied march 17 2000 february 29 2000 district court granted part generic companies summary judgment motions invalidity finding claims companys patents dispute invalid except claims limited treatment ovarian cancer result ruling generic companies may obtain us food drug administration approval market paclitaxel solely treatment metastatic breast cancer failure combination chemotherapy district courts opinion left determination trial validity claims companys patents directed low dose threehour administration paclitaxel ovarian cancer denied generic companies summary judgment motion arguing noninfringement companys patents company may pursue appeal rights future claims remaining lawsuits currently scheduled trial may 2000 possible time make reasonable assessment outcome remaining claims actions reasonably estimate impact taxol sales amount damages company prevail glucophage sales increased 53 1317 million glucophage leading branded oral medication treatment noninsulin dependent type 2 diabetes 1999 market share 313 269 prior year may 1999 fda approved avandia combination glucophage treatment type 2 diabetes avandia product smithkline beecham copromoted bristolmyers squibb us hatchwaxman legislation exclusivity glucophage expires september 2000 plavix platelet aggregation inhibitor reduction stroke heart attack vascular death atherosclerotic patients reached sales 547 million year compared 144 million prior year sales avapro angiotensin ii receptor blocker treatment hypertension increased 107 255 million avapro plavix cardiovascular products launched bristolmyers squibb sanofi sa joint venture sales zerit videx companys two antiretroviral agents increased 10 605 million 27 205 million respectively zerit commonly prescribed thymidine nucleoside reverse transcriptase inhibitor hiv therapy us 1999 zerit videx received regulatory approvals use firstline components combination antiretroviral therapy regimen hivinfected patients also november fda approved oncedaily dosing videx sales buspar companys novel antianxiety agent increased 14 605 million sales serzone novel antidepressant increased 29 332 million exclusivity period buspar expires may 2000 sales paraplatin used combination therapy treatment ovarian cancer increased 14 600 million sales cefzil oral cephalosporin used treatment respiratory infections sinusitis increased 12 402 million monopril secondgeneration angiotensin converting enzyme ace inhibitor onceaday dosing increased sales 12 reaching 424 million sales oncology therapeutics network specialty distributor anticancer medicines related products reached 894 million year increase 36 1998 international sales maxipime fourthgeneration injectable cephalosporin increased 28 133 million effective january 1 1999 dura pharmaceuticals inc appointed exclusive domestic distributor maxipime sales excedrin remained prior year levels 240 million october 1999 fda expanded excedrin migraine indication treatment mild moderate migraine pain encompass severe pain associated symptoms full migraine syndrome sales bufferin increased 18 147 million due increased sales japan sales efferalgan effervescent analgesic sold primarily france increased 9 166 million sales captopril ace inhibitor sold primarily trademark capoten declined 24 484 million due loss patent exclusivity international markets 1998 medicines segment sales increased 12 1997 levels increases sales pravachol taxol paraplatin zerit monopril buspar cefzil glucophage serzone videx avapro plavix excedrin partially offset decreases sales capoten margin earnings taxes medicines segment improved 281 1999 271 1998 reductions percentage sales force expenditures advertising promotion spending general administrative expenses partially offset increases cost products sold 1998 margin earnings taxes 271 remained prior year level increases research development sales force expenditures offset decreases advertising promotional spending general administrative expenses sales beauty care segment increased 3 1999 2381 million reflecting 2 increase due volume 2 increase due pricing 1 decrease due foreign exchange rate fluctuations international sales increased 7 9 excluding effect foreign exchange domestic sales increased 1 softening market demand combination operating factors including introduction new demand management manufacturing system slowed domestic shipments year companys clairol division continues number one hair products company us hair care product sales increased 6 1999 primarily due sales herbal essences complete line shampoos conditioners styling aids body wash facial care sales herbal essences line increased 14 637 million due launch herbal essences facial care line us launch herbal essences hair care line japan germany brazil herbal essences number three brand total shampoo conditioner market us number four body wash sales daily defense increased 44 118 million following launch international markets sales aussie products 124 million increase 15 prior year haircolor sales increased 1 increases nice n easy 3 187 million natural instincts 9 94 million partially offset decrease 8 hydrience 92 million 1998 sales beauty care segment increased 22 1997 levels primarily due increased sales hair care products led herbal essences margin earnings taxes beauty care segment decreased 104 1999 149 1998 primarily due increase percentage sales cost products sold reflecting change product mix higher levels operating costs slower product shipments compared prior year increased promotional expenditures new product introductions support existing products including ultress aussie land also contributed decline 1998 margin earnings taxes improved 149 142 1997 primarily due higher volumes manufacturing efficiencies partially offset investment spending behind new product introductions sales medical devices segment increased 4 1682 million excluding sales 1998 distribution agreement acquirer zimmers divested arthroscopy powered surgical instrument business including sales 1998 distribution agreement medical devices sales increased 2 reflecting 1 increase due volume 1 increase due effect foreign exchange effect changes selling prices domestic sales increased 2 international sales increased 3 1 excluding effect foreign exchange worldwide sales knee prosthetic joint replacements companys zimmer division increased 11 hip replacement sales increased 12 companys convatec division worldwide market share leader ostomy advanced wound care products convatec sales decreased 1 719 million remaining prior year levels excluding foreign exchange sales ostomy products decreased 3 sales wound care products slightly prior year levels 1998 worldwide sales medical devices segment excluding december 1997 divestiture zimmers arthroscopy surgical powered instrument business increased 7 margin earnings taxes medical devices segment improved 217 1999 204 1998 primarily due decrease cost products sold result improved manufacturing processes margin earnings taxes medical devices segment improved 204 1998 191 1997 due decreases percentage sales marketing general administrative expenses partially offset increases cost products sold due higher costs products sold distribution agreement acquirer linvatec sales nutritionals segment increased 5 1850 million reflecting 5 increase due volume 1 decrease due effect foreign exchange rate fluctuations primarily latin america 1 increase due changes selling prices international sales increased 2 5 excluding effect foreign exchange domestic sales increased 7 mead johnson continues leader worldwide us infant formula markets total infant formula sales increased 2 1233 million 3 excluding foreign exchange sales enfamil companys largest selling infant formula increased 9 735 million worldwide adult consumer nutritional sales increased 27 result 32 increase sales boost 29 million sales viactiv soft calcium chews launched december 1998 worldwide sales nutritionals decreased 2 1997 levels primarily due decreases infant formula sales partially offset growth nutramigen lacto free boost choco milk margin earnings taxes nutritionals segment decreased 203 1999 211 1998 primarily due increased advertising promotion expenditures enfamil boost viactiv soft calcium chews margin earnings taxes nutritionals segment improved 211 1998 201 1997 due decreases percentage sales cost products sold resulting improved manufacturing efficiencies geographic areas bristolmyers squibb products available virtually every country world largest markets us france japan germany canada sales united states net interarea sales increased 15 1999 sales medicines beauty care segments comprised 72 12 respectively regions sales products strong growth region included glucophage taxol enfamil buspar plavix paraplatin avapro margin earnings taxes decreased 242 1999 253 1998 primarily due increases percentage sales cost products sold 1998 sales united states increased 15 net interarea sales primarily due growth products medicines segment including glucophage taxol pravachol hair care products beauty care segment margin earnings taxes increased 253 1998 234 1997 primarily due decreases percentage sales cost products sold advertising general administrative expenses sales europe mideast africa net interarea sales increased 2 4 excluding foreign exchange medicines segment comprised nearly 79 sales region products strong growth region included pravachol taxol plavix avapro daily defense increases sales products partially offset decreases sales ostomy supplies capoten due loss exclusivity generic competition margin earnings taxes increased 252 1999 234 1998 primarily due improved sales force effectiveness evidenced lower sales force expense percentage sales decrease promotional expenses 1998 sales europe mideast africa net interarea sales increased 4 6 excluding foreign exchange due sales growth products including taxol zerit pravachol herbal essences increases partially offset decreases sales capoten due loss exclusivity margin earnings taxes decreased 234 1998 238 1997 due increases percentage sales promotional expenses sales western hemisphere countries net interarea sales excluding foreign exchange increased 6 1999 medicines beauty care segments comprised nearly 57 21 respectively regions sales including foreign exchange sales decreased 5 primarily resulting decreases sales capoten pravachol partially offset growth herbal essences enfamil daily defense avapro plavix margin earnings taxes decreased 65 1999 128 1998 result currency devaluation brazil regional economic downturns 1998 sales western hemisphere countries net interarea sales increased 11 20 excluding foreign exchange due introduction herbal essences choco milk region margin earnings taxes decreased 128 1998 142 1997 reflecting increases percentage sales cost products sold sales pacific region net interarea sales increased 17 1999 8 excluding foreign exchange favorable effect foreign exchange primarily experienced japan medicines nutritionals segments comprised 49 20 respectively regions sales products strong growth included bufferin taxol herbal essences paraplatin taxol sales improved 90 prior year following japanese ministry health welfare clearance new indications taxol treatment breast nonsmall cell lung cancers 1999 margin earnings taxes increased 49 primarily due decrease percentage sales advertising promotion spending result economic downturns unfavorable fluctuations exchange rates earnings taxes pacific region minimal 1998 sales net interarea sales decreased 11 excluding foreign exchange sales 1998 increased 5 result increases taxol herbal essences partly offset decreases infant formulas capoten financial instruments cash equivalents time deposits marketable securities totaled almost 30 billion december 31 1999 compared 25 billion 18 billion december 31 1998 1997 respectively working capital continued improve 1999 37 billion december 31 1999 compared 30 billion 27 billion december 31 1998 1997 respectively cash equivalents time deposits marketable securities conversion working capital items expected fund nearterm operations company exposed market risk due changes currency exchange rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments also managed consolidated basis efficiently net exposures thus take advantage natural offsets companys policy hedge certain underlying economic exposures reduce foreign exchange risk derivative financial instruments used trading purposes gains losses hedging transactions offset gains losses underlying exposures hedged foreign exchange option contracts lesser extent forward contracts used hedge anticipated transactions companys primary foreign currency exposures relation us dollar european currencies japanese yen table summarizes companys outstanding foreign exchange option contracts december 31 1999 fair value option contracts change time estimated based currency rates relevant market factors fair value option contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates weighted average dollars millions strike notional carrying fair price amount value maturity option contracts purchased right sell euro 107 971 10 56 2000 mexican peso 1116 212 6 2000 canadian dollar 148 111 1 2000 british pound 164 66 1 2 2000 brazilian real 194 63 5 2 2000 australian dollar 065 53 1 2000 greek drachma 31626 40 1 2 2000 swiss franc 148 28 2 2000 currencies various 77 3 4 2000 right buy japanese yen 11449 123 19 2000 british pound 161 18 1 2000 1762 28 89 december 31 1998 company held righttosell option contracts aggregate notional amount carrying value fair value 1042 million 22 million 18 million respectively contracts primarily related option contracts right sell french francs deutsche marks contracts december 31 1998 included rightto buy option contracts primarily buy japanese yen us dollars british pounds deutsche marks well option contracts include right buy sell several currencies contracts aggregate notional amount carrying value fair value 265 million 5 million 13 million respectively company maintains cash equivalents time deposits marketable securities various financial institutions financial institutions located primarily us europe company policy designed limit exposure one financial institution recently issued accounting standards june 1999 financial accounting standards board issued statement financial accounting standards 137 accounting derivative instruments hedging activities deferral effective date fasb statement 133 statement defers effective date sfas 133 accounting derivative instruments hedging activities fiscal years beginning june 15 2000 statement requires companies recognize derivatives either assets liabilities balance sheet measure instruments fair value company adopt statement january 1 2001 currently evaluating impact companys existing accounting policies financial reporting disclosures euro conversion january 1 1999 certain members european union established fixed conversion rates existing currencies european unions common currency known euro planned july 1 2002 participating countries withdraw currencies exclusively use euro company committed resources conduct assessments take corrective actions ensure prepared introduction euro company actively addressing many areas involved introduction euro including information management finance legal tax review includes conversion information technology business financial systems evaluating currency risk effect companys financial instruments well impact pricing distribution company products company believes effect introduction euro well related cost conversion material impact results operations financial condition cash flows financial position cash equivalents time deposits marketable securities december 31 1999 denominated primarily us dollar instruments nearterm maturities average interest yield cash equivalents 59 december 31 1999 interest yields time deposits marketable securities averaged 48 december 31 1999 shortterm borrowings longterm debt december 31 1999 denominated primarily us dollars however company 177 million commercial paper outstanding december 31 1999 commercial paper original maturities exceeding 270 days denominated euros us dollars also included japanese yen long term debt 280 million internally generated cash provided operations 45 billion 1999 41 billion 1998 25 billion 1997 cash provided operations continued companys primary source funds finance operating needs expenditures new plants equipment part companys ongoing commitment improve plant efficiency maintain superior research facilities company invested 23 billion capital expansion past three years cash flow operations also included product liability payments net insurance recoverable receipts 667 million 1999 519 million 1998 561 million 1997 cash provided operations also used past three years pay dividends 48 billion finance 41 billion companys share repurchase program fund business acquisitions cost 613 million companys share repurchase program authorizes company purchase common stock time open market private transactions market conditions permit 1999 company purchased 223 million shares common stock cost 14 billion bringing total shares acquired since programs inception 2996 million december 1999 company announced 2 billion increase stock repurchase program authorization past three years company repurchased 865 million shares cost 41 billion may 1999 annual meeting stockholders approved increase number shares common stock authorized 45 billion shares employment levels 54500 december 1999 essentially remained prior year levels 54700 sales per employee improved 371 thousand 1999 335 thousand 1998 310 thousand 1997 return stockholders equity improved last three years 514 1999 492 1998 excluding special charge 465 1997 forward looking information certain statements form 10k annual report may constitute forward looking statements within meaning private securities litigation reform act 1995 statements involve number risks uncertainties factors could cause actual results differ materially expected historical results certain factors may affect companys operations prospects discussed exhibit 99 form 10k annual report item 8item 7 managements discussion analysis financial condition results operations summary september 2000 company announced planned divestitures zimmer clairol businesses accordingly results reported discontinued operations excluded consolidated sales expenses years february 2001 company announced intention separate zimmer business taxfree spinoff shareholders transaction expected completed end third quarter 2001 2000 bristolmyers squibb reported 182 billion annual global sales increase 8 11 excluding foreign exchange 1999 domestic sales representing 67 worldwide sales increased 14 121 billion international sales decreased 2 5 increase excluding foreign exchange 61 billion sales growth resulted 8 increase due volume 3 increase changes selling prices 3 decrease due exchange rate fluctuations total company sales including discontinued operations increased 5 8 excluding foreign exchange 213 billion companys important product lines made significant contributions companys sales growth many experienced doubledigit growth worldwide basis three products pravachol taxol paclitaxel glucophage exceeded 15 billion annual sales five additional products exceeded 500 million annual sales bristolmyers squibb 54 product lines 50 million annual sales including 31 100 million annual sales total company earnings continuing discontinued operations income taxes increased 12 65 billion 58 billion 1999 net earnings increased 13 47 billion basic diluted earnings per share increased 14 240 15 236 respectively earnings continuing operations income taxes excluding restructuring charges gain sales businesses increased 13 58 billion 2000 net earnings basis increased 14 43 billion basic diluted earnings per share increased 15 219 16 216 respectively past five years net earnings diluted earnings per share continuing operations excluding gains sales businesses restructuring special charges increased compound annual growth rate 14 growth rate enabled company achieve goal doubling 1993 earnings per share end 2000 consistent companys mission extend enhance human life develop highest quality products company invested 19 billion research development 10 increase prior year research development expenditure dedicated pharmaceutical products increased 14 1999 compound annualized rate 14 past five years significant investment led discovery innovative new products development new indications existing products leading 2000 eight regulatory approvals filing three dossiers us notable approvals included glucovance new oral combination drug glucophage xr extended release tablets oncedaily version glucophage diabetes vaniqa topical treatment unwanted facial hair women videx ec onceaday easiertodigest entericcoated form videx hivaids also 2000 company announced number research alliances collaborations commercialization agreements companies including global agreement excluding japan novartis ag codevelop copromote tegaserod novartiss new investigational drug treatment irritable bowel syndrome drug discovery alliance field genomics 3dimensional pharmaceuticals inc company receive worldwide rights compounds discovered developed collaboration agreement one dozen major genomics agreements company entered past three years bristolmyers squibbs financial position remains strong december 31 2000 company held almost 34 billion cash time deposits marketable securities cash provided operating activities reached 47 billion highest past 10 years returns shareholders included dividend distributions 19 billion stock repurchases 23 billion dividends per common share 98 2000 increasing 86 per share paid 1999 december 2000 company announced dividend increase 29th consecutive year dividends increased 2001 indicated annual payment 110 per common share 12 increase 2000 evidence strong financial position bristolmyers squibb one seven us industrial companies receive triplea credit rating moodys standard poors net sales increased 8 2000 182 billion compared increases 12 10 1999 1998 respectively consolidated sales growth 2000 resulted 8 increase due volume 3 increase due changes selling prices 3 decrease due foreign exchange rate fluctuations 1999 12 increase sales reflected 11 increase due volume 2 increase due changes selling prices 1 decrease due foreign exchange rate fluctuations 1998 10 increase sales reflected 11 increase due volume 2 increase due changes selling prices 3 decrease due foreign exchange rate fluctuations domestic sales increased 14 2000 19 1999 international sales decreased 2 2000 5 increase excluding foreign exchange increased 2 1999 5 excluding foreign exchange general business company seasonal 2000 worldwide pharmaceutical sales increased 11 us pharmaceutical sales 18 prior year key pharmaceutical product sales include sales pravachol cholesterollowering agent companys largest selling product increased 7 1817 million primarily result increase retail prescriptions domestic sales increased 9 1127 million international sales increased 3 14 excluding foreign exchange 690 million glucophage sales increased 32 1732 million glucophage leading branded oral medication treatment noninsulin dependent type 2 diabetes market share 334 2000 313 prior year marketing exclusivity glucophage expired september 2000 however generic competition existed end year company received fda approval glucovance important advance diabetes treatment glucophage xr extended release tablets oncedaily version glucophage sales glucovance glucophage xr since launches 110 million 50 million respectively sales taxol companys leading anticancer agent increased 7 1592 million product continued benefit increased use ovarian breast nonsmall cell lung cancer following standard chemotherapy generic paclitaxel became available us third quarter 2000 sales plavix antiplatelet medication increased 65 903 million results landmark cure trial clopidogrel unstable angina prevent recurrent ischemic events jointly sponsored company sanofisynthelabo announced march 2001 international trial 12500 patients acute coronary syndromes unstable angina nonq wave myocardial infarction plavix significantly superior standard therapies including aspirin reducing cluster clinical events heart attack stroke cardiovascular death sales avapro angiotensin ii receptor blocker treatment hypertension increased 49 381 million avapro plavix cardiovascular products launched bristolmyers squibb sanofisynthelabo joint venture sales buspar companys novel antianxiety agent increased 17 709 million us anxiolytic use patent expired june 2000 food drug administration fda granted company additional six months exclusivity based performance pediatric studies november 2000 company received patent covering anxiolytic use buspar metabolite compound produced body oral administration buspar buspirone patent subsequently delisted course litigation brought generic manufacturers march 28 2001 three generic manufacturers received final approval fda respective abbreviated new drug applications andas buspirone three andas covers separate dosage strength buspirone fda approvals additional andas buspirone dosage strength occur time beginning september 2001 litigation ongoing sales serzone novel antidepressant increased 8 360 million sales paraplatin used combination therapy treatment ovarian cancer increased 15 690 million sales megace os indicated treatment anorexia cachexia patients aids increased 58 180 million sales maxipime fourthgeneration injectable cephalosporin antibiotic increased 10 146 million sales tequin quinolone antibiotic launched december 1999 131 million november 2000 tequin became first quinolone antibiotic prescribed one million patients us 10 months market sales dovonex adult dermatological treatment increased 20 prior year 121 million sales ifex used combination chemotherapy treatment increased 23 108 million sales captopril ace inhibitor sold primarily trademark capoten declined 26 356 million due generic competition sales oncology therapeutics network specialty distributor anticancer medicines related products 1080 million year increase 21 1999 nonpharmaceutical sales included sales bufferin increased 10 5 excluding foreign exchange 161 million due increased sales japan sales efferalgan effervescent analgesic sold primarily france increased 4 20 excluding foreign exchange 172 million total infant formula sales decreased 2 1212 million sales enfamil companys largest selling infant formula remained prior year levels 732 million worldwide sales ostomy products decreased 5 1 increase excluding foreign exchange 428 million sales wound care products decreased 3 increase excluding foreign exchange 232 million earnings 2000 earnings continuing operations income taxes excluding nonrecurring items described increased 13 5826 million 5158 million 1999 net earnings basis increased 14 4309 million compared 3789 million 1999 basic earnings per share increased 15 219 191 prior year diluted earnings per share increased 16 216 187 net earnings margins increased 237 2000 224 1999 net earnings 3789 million 18 increase 1998 excluding nonrecurring items described basis basic earnings per share diluted earnings per share increased 18 1998 net earnings margins increased 224 1999 214 1998 company recorded certain nonrecurring items nonrecurring items 2000 earnings continuing operations including gain sales businesses three pharmaceutical products estrace cream ovcon 35 ovcon 50 well sea breeze brand japan 160 million taxes 116 million taxes 06 per diluted share well restructuring charges 508 million taxes 329 million taxes 17 per diluted share connection workforce reductions asset writedowns related consolidation closure plants facilities expenses 1998 company recorded certain nonrecurring items earnings continuing operations including gain sales businesses ban gea hexachimie 201 million taxes 125 million taxes 06 per diluted share well restructuring charges 157 million taxes 98 million taxes 05 per diluted share connection asset writedowns employeerelated costs related consolidation closure plants facilities also 1998 company recorded special charge 800 million taxes 495 million taxes 24 per diluted share augment reserve breast implant liability prescription drug pricing litigation offset expected insurance recoveries effective income tax rate earnings continuing operations income taxes 252 2000 compared 265 1999 244 1998 effective income tax rate earnings continuing operations income taxes excluding nonrecurring items 260 2000 compared 265 1999 268 1998 effective income tax rate decreased since 1998 due increased income lower tax jurisdictions total company earnings continuing discontinued operations taxes increased 12 6486 million 5767 million 1999 net earnings increased 13 4711 million compared 4167 million 1999 basic earnings per share increased 14 240 210 prior year diluted earnings per share increased 15 236 206 1999 net earnings 4167 million increase 15 3636 million 1998 excluding special charge basis basic earnings per share 210 diluted earnings per share 206 increasing 15 1998 expenses total costs expenses excluding nonrecurring items percentage sales improved past three years 680 2000 compared 694 1999 708 1998 cost products sold percentage sales improved 261 2000 269 1999 principally due manufacturing efficiencies 1999 cost products sold percentage sales increased 269 compared 259 1998 principally due sales growth lower margin products oncology therapeutics network advertising promotion expenses increased 8 prior year 1672 million 2000 primarily result directtoconsumer campaign pravachol launch spending glucovance tequin 1999 advertising promotion expenses increased 2 1998 1549 million percentage sales advertising promotion expenses remained prior year levels 92 decreased 101 1998 reflecting improvement effectiveness advertising promotion spending marketing selling administrative expenses percentage sales decreased 212 2000 224 1999 245 1998 decreasing trend result slower rates increase marketing sales force general administrative expenses compared revenue increases period companys investment research development totaled 1939 million 2000 increase 10 1999 106 2000 percentage sales compared 104 1999 100 1998 spending level reflects companys commitment research broad range therapeutic areas clinical development new products past five years research development expenses increased compound annual growth rate 11 2000 research development spending dedicated pharmaceutical products increased 14 130 pharmaceutical sales compared 126 124 1999 1998 respectively described notes financial statements first quarter 2000 company completed sale three pharmaceutical products estrace cream ovcon 35 ovcon 50 well sea breeze brand japan 1999 company acquired calctose leading nutritional milk modifier product mexico also 1999 company completed sale laboratori guieu spa italianbased gynecological pediatric dermatological products business 1998 company acquired donga biotech co ltd marketer distributor pharmaceutical products south korea also 1998 company divested ban brand antiperspirants deodorants gea denmarkbased generic drug business hexachimie specialty chemical manufacturer based france discontinued operations clairol sales decreased 6 1894 million domestic sales decreased 4 international sales decreased 9 8 excluding foreign exchange 1999 clairol sales increased 4 2020 million 1940 million 1998 zimmer sales increased 9 1053 million led increase sales knee joint replacements 10 416 million hip replacements 14 329 million fracture management products 15 145 million 1999 zimmer sales increased 5 963 million 919 million 1998 described notes financial statements third quarter 2000 company completed sale matrix essentials inc matrix affiliate clairol matrix sales first six months 2000 168 million 361 million full year 1999 described note 2 financial statements 2000 1998 company recorded restructuring charges discontinued operations 34 million 44 million taxes respectively primarily connection workforce reductions 2000 company recorded pretax gain 402 million 240 million taxes sale matrix gain included gain disposal discontinued operations result restructuring charges net earnings discontinued operations 375 million 2000 391 million 1998 net earnings discontinued operations excluding restructuring charges increased 5 397 million 2000 decreased 10 378 million 1999 geographic areas bristolmyers squibb products available virtually every country world companys largest markets us france japan germany canada sales united states increased 14 2000 products strong growth region included glucophage plavix buspar paraplatin avapro 1999 sales united states increased 19 primarily due growth glucophage taxol enfamil buspar plavix paraplatin avapro sales europe mideast africa decreased 9 2000 sales increased 3 excluding foreign exchange result growth france due increased sales pravachol efferalgan partially offset decreased sales capoten due generic competition italy due increased sales taxol avapro spain due increased sales pravachol avapro plavix excluding foreign exchange sales germany 2 prior year levels due increased emphasis generics governmental spending controls 1999 sales europe mideast africa increased 2 4 excluding foreign exchange due sales growth products including pravachol taxol plavix avapro increases partially offset decreases sales ostomy supplies capoten due generic competition sales western hemisphere countries increased 3 6 excluding foreign exchange 2000 primarily result growth canada due increased sales plavix avapro enfamil mexico due growth enfamil calctose 1999 sales western hemisphere countries decreased 9 3 increase excluding foreign exchange primarily resulting decreases sales capoten pravachol partially offset growth enfamil avapro plavix sales pacific region increased 12 2000 11 excluding foreign exchange products strong growth included bufferin taxol paraplatin japan nutritional products philippines thailand 1999 pacific region sales increased 18 10 excluding foreign exchange result increases bufferin taxol paraplatin favorable effect foreign exchange experienced primarily japan financial instruments cash equivalents time deposits marketable securities totaled almost 34 billion december 31 2000 compared 30 billion 25 billion december 31 1999 1998 respectively working capital continued improve 42 billion december 31 2000 compared 37 billion 30 billion december 31 1999 1998 respectively cash equivalents time deposits marketable securities addition conversion working capital items expected fund nearterm operations company exposed market risk due changes currency exchange rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments also managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used trading purposes gains losses hedging transactions offset gains losses underlying exposures hedged foreign exchange option contracts lesser extent forward contracts used hedge anticipated transactions companys primary foreign currency exposures relation us dollar euro mexican peso canadian dollar brazilian real japanese yen table summarizes companys outstanding foreign exchange option contracts december 31 2000 fair value option contracts changes time estimated using blackscholes model based yearend currency rates fair value option contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates december 31 1999 company held righttosell option contracts aggregate notional amount carrying value fair value 1621 million 28 million 69 million respectively contracts related primarily option contracts right sell euros mexican pesos canadian dollars contracts december 31 1999 included righttobuy option contracts primarily buy japanese yen us dollars contracts aggregate notional amount fair value 141 million 20 million respectively carrying value company maintains cash equivalents time deposits marketable securities various financial institutions financial institutions located primarily us europe company policy designed limit exposure one financial institution recently issued accounting standards june 1998 financial accounting standards board fasb issued statement financial accounting standards sfas 133 accounting derivative instruments hedging activities statement requires companies recognize derivatives either assets liabilities balance sheet measure instruments fair value june 1999 fasb issued sfas 137 accounting derivative instruments hedging activities deferral effective date fasb statement 133 statement deferred effective date sfas 133 fiscal years beginning june 15 2000 june 2000 fasb issued sfas 138 accounting certain derivative instruments certain hedging activities made minor amendments sfas 133 company adopted sfas 133 amended january 1 2001 adoption accounting requirement material effect either companys consolidated financial statements hedging programs euro conversion january 1 1999 certain members european union established fixed conversion rates existing currencies european unions common currency known euro planned july 1 2002 participating countries withdraw currencies use euro exclusively company committed resources conduct assessments take corrective actions ensure prepared introduction euro company actively addressing many areas involved introduction euro including information management finance legal tax review includes conversion information technology business financial systems evaluation currency risk effect companys financial instruments well impact pricing distribution company products company believes effect introduction euro well related cost conversion material impact results operations financial condition cash flows financial position cash equivalents time deposits marketable securities december 31 2000 denominated primarily us dollar instruments nearterm maturities average interest yield cash equivalents 59 december 31 2000 interest yields time deposits marketable securities averaged 57 december 31 2000 shortterm borrowings longterm debt december 31 2000 denominated primarily us dollars also include japanese yen longterm debt 272 million year company reduced shortterm borrowings 247 million primarily result paydown international commercial paper program internally generated cash provided operations 47 billion 2000 42 billion 1999 38 billion 1998 cash provided operations continued companys primary source funds finance operating needs expenditures new plants equipment part companys ongoing commitment improve plant efficiency maintain superior research facilities company invested 21 billion capital expansion past three years cash flow operations also included product liability payments net insurance recoverable receipts 73 million 2000 667 million 1999 519 million 1998 cash provided operations also used past three years pay dividends 52 billion finance 53 billion companys share repurchase program fund business acquisitions including purchase patents trademarks cost 555 million companys share repurchase program authorizes company purchase common stock time open market private transactions market conditions permit 2000 company purchased 40 million shares common stock cost 23 billion bringing total shares acquired since programs inception 340 million september 2000 company announced 2 billion increase stock repurchase program authorization past three years company repurchased 93 million shares cost 53 billion employment levels continuing operations 44004 december 2000 decreased prior year levels 45955 sales per employee improved 414 thousand 2000 367 thousand 1999 324 thousand 1998 return stockholders equity excluding nonrecurring items improved last three years 483 2000 467 1999 435 1998 forward looking information form 10k annual report written oral statements company makes time contain certain forwardlooking statements within meaning private securities litigation reform act 1995 regarding among things statements relating goals plans projections respect companys financial position results operations market position product development business strategy statements may identified fact use words anticipate estimate expect project intend plan believe words terms similar meaning connection discussion future operating financial performance forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes results differ materially current expectations factors include among things market factors competitive product development governmental regulations legislation patent positions litigation details discussion risks uncertainties included exhibit 99 form 10k annual report undertake obligation publicly update forwardlooking statement whether result new information future events otherwise item 8item 7 managements discussion analysis financial condition results operations summary year 2001 one change bristolmyers squibb consistent strategy become focused pharmaceutical company number transactions completed year including divestiture two nonpharmaceutical businesses clairol beauty care zimmer orthopaedics results businesses reported discontinued operations excluded consolidated sales expenses years addition fourth quarter 2001 company acquired dupont pharmaceuticals business dupont made 199 equity investment biotechnology companyimclone systems inc imclone including sales dupont bristolmyers squibb reported 194 billion annual global sales 2001 increase 7 9 excluding foreign exchange 2000 domestic sales representing 68 worldwide sales increased 9 131 billion international sales increased 3 8 excluding foreign exchange 63 billion sales company excluding sales dupont 191 billion increase 5 7 excluding foreign exchange 2000 companys important product lines made significant contribution companys sales growth many experienced double digit growth worldwide basis year company four blockbuster products annual sales excess 1 billionpravachol glucophage plavix taxol paclitaxel fact pravachol glucophage annual sales excess 2 billion company 50 product lines 50 million annual sales including 28 100 million annual sales four 500 million annual sales earnings continuing operations income taxes increased 11 64 billion 58 billion 2000 standalone basis excludes effects dupont imclone transactions nonrecurring items basis net earnings increased 10 47 billion basic diluted earnings per share increased 11 244 12 241 respectively net earnings total company continuing discontinued operations increased 11 52 billion 2001 basis basic diluted earnings per share increased 13 270 267 respectively bristolmyers squibbs financial position remains strong december 31 2001 company held almost 57 billion cash time deposits marketable securities cash provided operating activities reached 54 billion 2001 connection dupont imclone transactions company issued 50 billion notes 25 billion matures 2006 25 billion matures 2011 coupon interest rates 475 575 respectively returns shareholders included dividend distributions 21 billion stock repurchases 16 billion dividends per common share 110 2001 increasing 098 per share paid 2000 december 2001 company announced dividend increase 30th consecutive year dividends increased 2002 indicated annual payment 112 per common share 2 increase 2001 evidence strong financial position bristolmyers squibb one seven us industrial companies receive aaa credit rating moodys standard poors investment rating agencies 2001 consistent mission extend enhance human life developing highestquality products company standalone basis invested 21 billion research development 10 growth 2000 research development dedicated pharmaceutical products increased 11 2000 compound annualized growth spending 14 past five years continuing investment led discovery innovative new products development new indications existing products 2001 led twelve regulatory filings including vanlev hypertension aripiprazole schizophrenia plavix acute coronary syndrome addition company received seven regulatory approvals supplemental submissions including tequin shortcourse fiveday regimen us patents expected expire next three years include composition matter patents monopril december 2002 serzone march 2003 addition use patent paraplatin expire april 2004 hatchwaxman data protection expire glucophage xr october 2003 glucovance july 2003 expiry dates could extended additional six months pediatric extension upon completion acceptance pediatric studies us food drug administration fda advance expiration october 2001 company acquired dupont pharmaceuticals business e dupont de nemours company 78 billion 2001 company also announced collaboration agreement exelixis inc create new generation cancer drugs selectively destroy cancers harbor defects tumorsuppressed gene pathways september 2001 company entered commercial agreement imclone codevelop copromote investigational cancer drug erbitux commercial agreement company required pay imclone aggregate 1 billion upon achievement three milestones 200 million paid 2001 november 2001 company also purchased 144 million shares imclone 70 per share represented approximately 199 imclone shares outstanding prior commencement public tender offer december 28 2001 imclone announced fda refused accept filing biologics license application bla submitted imclone erbitux bla submitted gain marketing approval treat irinotecanrefractory colorectal carcinoma january 18 2002 subcommittee oversight investigations house energy commerce committee announced investigating questions conduct imclone development erbitux january 25 2002 imclone announced received informal inquiry securities exchange commission well inquiries justice department aforementioned subcommittee company cooperate investigations company imclone met fda february 2002 currently evaluating next steps march 5 2002 agreement imclone revised reduce total payments 900 million 1 billion new agreement company paid imclone 140 million first quarter 2002 pay imclone 60 million march 2003 aggregate 500 million upon achievement two milestones also agreement company pay imclone distribution fee based flat rate 39 product revenues north america carrying value companys approximately 199 equity investment imclone 481 million december 31 2001 pershare basis carrying value companys imclone investment closing market value imclone shares december 31 2001 3340 4646 respectively given fdas december 28 2001 action market value imclone shares since december 31 2001 1958 per share january 24 2002 possible company could recognize charge impairment investment imclone future periods based upon developments status erbitux market value imclone net sales increased 7 2001 194 billion including sales dupont acquisition domestic sales increased 9 2001 14 2000 international sales increased 3 2001 8 excluding foreign exchange decreased 2 2000 5 increase excluding foreign exchange standalone basis excluding sales dupont acquisition sales increased 5 2001 191 billion compared increases 8 12 2000 1999 respectively consolidated sales growth 2001 standalone basis resulted 5 increase due volume 2 increase due changes selling prices 2 decrease due foreign exchange rate fluctuations 2000 8 increase sales reflected 8 increase due volume 3 increase due changes selling prices 3 decrease due foreign exchange rate fluctuations 1999 12 increase sales reflected 11 increase due volume 2 increase due changes selling prices 1 decrease due foreign exchange rate fluctuations general business company seasonal significant portion companys domestic pharmaceutical sales made wholesalers result financial results quarterly comparisons affected fluctuations buying patterns major wholesalers corresponding changes inventory levels maintained wholesalers changes may reflect underlying prescriber demand company cannot verify wholesaler inventory levels company believes average wholesaler inventories products us increased 2001 approximately four weeks average sales wholesalers primarily due sales incentives offered company result company estimates companys 2001 domestic pharmaceutical sales included approximately four weeks additional sales company believes current inventories products held wholesalers us significantly exceed levels company considers desirable goingforward basis company process developing plan reduce wholesaler inventory levels company expects reduction wholesaler inventories lower levels negatively impact financial results future periods company make disclosure later april 2002 plans developing reduce wholesaler inventory levels companys expectations respect likely impact financial results 2001 worldwide pharmaceutical sales standalone basis increased 6 8 excluding foreign exchange us pharmaceutical sales 8 prior year key pharmaceutical products sales include following sales pravachol cholesterollowering agent companys largestselling product increased 20 2173 million domestic sales increased 21 1366 million international sales increased 17 22 excluding foreign exchange 807 million december 2001 fda approved 80milligram version pravachol glucophage franchise sales increased 42 2682 million glucophage ir leading branded oral medication treatment noninsulindependent type 2 diabetes saw sales increase 18 2049 million company expects sales glucophage ir decline significantly generic metformin became available us january 2002 glucovance new oral combination drug glucophage xr extended release tablets sales 330 million 303 million respectively compared introductory sales 2000 110 million 50 million respectively sales plavix platelet aggregation inhibitor increased 50 1350 million driven part positive results cure study clopidogrel unstable angina prevent recurrent ischemic events published new england journal medicine august 2001 sales avapro angiotensin ii receptor blocker treatment hypertension increased 34 510 million avapro plavix cardiovascular products launched alliance bristolmyers squibb sanofisynthelabo sales taxol companys leading anticancer agent decreased 25 1197 million international sales increased 8 15 excluding foreign exchange 652 million led strong sales japan france domestic sales decreased 45 545 million due generic competition sales paraplatin used combination therapy treatment ovarian cancer increased 2 702 million monopril secondgeneration angiotensin converting enzyme ace inhibitor increased sales 4 reaching 458 million sales serzone novel treatment depression increased 14 409 million sales buspar antianxiety agent decreased 52 338 million due generic competition sales tequin quinolone antibiotic increased 320 million 131 million 2000 november 2001 fda approved tequin shortcourse fiveday regimen treatment acute bacterial exacerbation chronic bronchitis sales videx antiretroviral agent increased 28 259 million due increased sales videx ec entericcoated beadlets launched 2000 sales oncology therapeutics network specialty distributor anticancer medicines related products increased 33 1433 million total infant formula sales increased 4 1255 million worldwide sales enfamil companys largestselling infant formula increased 6 773 million sales ostomy products increased 5 9 excluding foreign exchange 450 million sales wound care products increased 9 13 excluding foreign exchange 252 million earnings 2001 earnings continuing operations income taxes increased 11 6442 million 5826 million 2000 standalone basis excludes impact dupont imclone nonrecurring items described net earnings basis increased 10 4736 million compared 4309 million 2000 basic earnings per share increased 11 244 219 prior year diluted earnings per share increased 12 241 216 net earnings margins increased 248 2001 237 2000 net earnings excluding nonrecurring items described 4309 million 14 increase 1999 basis basic earnings per share diluted earnings per share increased 15 16 respectively 1999 net earnings margins increased 237 2000 224 1999 company recorded certain nonrecurring items nonrecurring items 2001 2000 earnings continuing operations nonrecurring items included 2001 acquired inprocess research development charges 2744 million taxes related dupont imclone transactions pretax expenses dupont imclone transactions 246 million includes loss operations amortization interest expenses onetime costs gain sales businesses three branded pharmaceutical productscorzide delestrogen florinef licensing rights corgard us solage product line 315 million taxes restructuring charges 781 million taxes related primarily workforce reductions contract sales force termination exiting product lines downsizing streamlining business operations 2000 nonrecurring items include gain sales businesses three pharmaceutical productsestrace cream ovcon 35 ovcon 50and sea breeze brand japan 160 million pretax well restructuring charges 508 million taxes connection workforce reductions asset writedowns related consolidation closure plants facilities effective income tax rate earnings continuing operations income taxes 154 2001 compared 252 2000 265 1999 decline effective income tax rate 154 2001 due lower pretax income us result writeoff acquired inprocess research development nonrecurring items effective income tax rate earnings continuing operations income taxes standalone basis 265 2001 compared 260 2000 excluding nonrecurring items 265 1999 effective income tax rate 2001 standalone basis increased result lower production taxol buspar lower tax jurisdictions expenses total costs expenses standalone basis excluding impact dupont imclone transactions nonrecurring items percentage sales improved last three years 662 2001 compared 680 2000 694 1999 including dupont imclone nonrecurring items continuing operations total cost expenses percentage sales 846 cost products sold percentage sales increased 284 2001 261 2000 principally due increased sales lowermargin products oncology therapeutics network decline highermargin taxol buspar sales including dupont cost products sold continuing operations percentage sales increased 287 2000 cost products sold percentage sales declined 261 compared 269 1999 principally due manufacturing variances advertising promotion expenses decreased 14 prior year 1433 million 2001 primarily due lower spending taxol buspar 2000 advertising promotion expenses increased 8 1999 1672 million percentage sales 2001 advertising promotion expenses decreased 74 2000 expenses remained 1999 level 92 marketing selling administrative expenses percentage sales decreased 201 2001 212 2000 224 1999 decreasing trend result continued improvement costefficiencies 2001 decline also partially due reduction sales force expenses companys investment research development standalone basis totaled 2124 million 2001 increase 10 2000 percentage sales increased 111 2001 compared 106 2000 104 1999 spending level reflects companys commitment research broad range therapeutic areas clinical development new products 2001 research development spending dedicated pharmaceutical products increased 11 135 pharmaceutical sales compared 130 126 2000 1999 respectively including dupont imclone research development expenses increased 17 2259 million 116 sales described notes financial statements 2001 company divested three pharmaceutical productscorzide delestrogen florinef licensing rights corgard us estrace tablets apothecon commodity business solage product line 2000 company completed sale three pharmaceutical productsestrace cream ovcon 35 ovcon 50as well sea breeze brand japan 1999 company completed sale laboratori guieu spa italianbased gynecologic pediatric dermatologic products business also 1999 company acquired calctose nutritional milk modifier product mexico discontinued operations described note 2 financial statements fourth quarter 2001 company completed sale clairol resulted pretax gain 42 billion 25 billion taxes gain included net gain disposal discontinued operations also 2001 company spun zimmer holdings inc taxfree transaction resulting common stock dividend 203 million 2000 company completed sale matrix essentials inc affiliate clairol resulting pretax gain 402 million 240 million tax gain included net gain disposal discontinued operations also 2000 company recorded restructuring charges discontinued operations 34 million taxes connection workforce reductions net earnings discontinued operations includes earnings date divestiture decreased 226 million 2001 375 million 2000 378 million 1999 geographic areas bristolmyers squibb products available virtually every country world companys largest markets us france japan germany italy canada sales us increased 9 2001 products strong growth included glucophage plavix pravachol tequin avapro taxol buspar sales declined due generic competition 2000 sales us increased 14 primarily due growth glucophage plavix buspar paraplatin avapro sales europe mideast africa increased 6 2001 excluding foreign exchange sales increased 10 result strong growth pravachol taxol france italy 2000 sales europe mideast africa decreased 9 sales increased 3 excluding foreign exchange result growth pravachol taxol avapro plavix france italy spain increases partially offset decrease capoten sales due generic competition sales western hemisphere countries decreased 2 2001 excluding foreign exchange sales region increased 3 unfavorable impact foreign exchange felt primarily brazil growth driven primarily increased sales mexico 2000 sales western hemisphere countries increased 3 6 excluding foreign exchange primarily result growth canada due increased sales avapro enfamil mexico due growth enfamil calctose sales pacific region decreased 1 2001 11 increase excluding foreign exchange unfavorable impact foreign exchange felt primarily japan products strong growth included taxol paraplatin japan nutritional products philippines thailand china 2000 pacific region sales increased 12 11 excluding foreign exchange result increases bufferin taxol paraplatin financial instruments company exposed market risk due changes currency exchange rates interest rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments also managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used trading purposes gains losses hedging transactions offset gains losses underlying exposures hedged foreign exchange option contracts forward contracts used hedge anticipated transactions companys primary foreign currency exposures relation us dollar japanese yen euro mexican peso canadian dollar table summarizes companys outstanding foreign exchange contracts december 31 2001 fair value foreign exchange option contracts estimated using blackscholes model based yearend currency rates fair value foreign exchange forward contracts based yearend forward currency rates fair value option contracts forward contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates december 31 2000 company held righttosell option contracts aggregate notional amount fair value 1319 million 73 million respectively contracts primarily related option contracts right sell euros mexican pesos brazilian reals contracts december 31 2000 primarily included option contracts right buy japanese yen us dollars aggregate notional amount fair value 76 million 1 million company maintains cash equivalents time deposits marketable securities various financial institutions financial institutions located primarily us europe company policy designed limit exposure one financial institution recently issued accounting standards august 2001 financial accounting standards board fasb issued statement financial accounting standards sfas 144 accounting impairment disposal longlived assets effective fiscal years beginning december 15 2001 sfas 144 addresses accounting models use determining impairment longlived assets appropriate methodology recording impairment loss initial adoption accounting requirement material effect companys consolidated financial statements june 2001 fasb issued sfas 142 goodwill intangible assets effective fiscal years beginning december 15 2001 sfas 142 addresses initial recognition measurement intangible assets acquired outside business combination recognition measurement goodwill intangible assets subsequent acquisition new rules goodwill indefinitelived intangible assets longer amortized subject annual impairment tests intangible assets continue amortized useful lives application nonamortization provisions material effect companys financial statements goodwill associated dupont imclone transactions future business combinations amortized instead reviewed impairment least annually company adopt new rules accounting goodwill intangible assets january 1 2002 critical accounting policies critical accounting policies company described note 1 financial statements policies investments goodwill acquired inprocess research development considered noteworthy involve estimates judgments significant transactions financial position cash equivalents time deposits marketable securities totaled 57 billion december 31 2001 compared 34 billion december 31 2000 working capital 35 billion december 31 2001 compared 42 billion december 31 2000 resulting higher accrued liabilities due restructuring reserves established current year cash equivalents time deposits marketable securities conversion workingcapital items expected fund nearterm operations company cash equivalents time deposits marketable securities december 31 2001 denominated primarily us dollar instruments nearterm maturities average interest yield cash equivalents 20 december 31 2001 interest yields time deposits marketable securities averaged 17 shortterm borrowings longterm debt december 31 2001 denominated primarily us dollars also include japanese yen longterm debt 217 million internally generated cash provided operations 54 billion 2001 47 billion 2000 42 billion 1999 cash provided operations continued companys primary source funds finance operating needs expenditures new plants equipment part companys ongoing commitment improve plant efficiency maintain superior research facilities company invested 23 billion capital expansion past three years cash flow operations also included product liability payments pension contributions cash provided operations also used past three years pay dividends 58 billion finance 53 billion companys share repurchase program fund business acquisitions including purchase patents trademarks cost 595 million companys share repurchase program authorizes company purchase common stock time open market private transactions market conditions permit 2001 company purchased 27 million shares common stock cost 16 billion bringing total shares acquired since programs inception 367 million shares past three years company repurchased 89 million shares cost 53 billion employment levels 46000 december 2001 increased prioryear levels 44000 result dupont acquisition forward looking information annual report form 10k including documents incorporated reference written oral statements company makes time contain certain forwardlooking statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words anticipate estimate may project intend plan believe words similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts statements likely relate among things goals plans projections regarding financial position results operations market position product development based current expectations involve inherent risks uncertainties including factors could delay divert change next several years although possible predict identify factors may including following •new government laws regulations health care reform initiatives united states state federal level countries ii changes fda foreign regulatory approval processes may cause delays approving preventing approval new products iii tax changes phasing tax benefits heretofore available united states certain foreign countries iv new laws regulations judicial decisions affecting pricing marketing •competitive factors new products developed competitors lower prices superior performance features otherwise competitive bristolmyers squibbs current products ii generic competition bristolmyers squibb products mature patents expire products iii technological advances patents attained competitors iv problems licensors suppliers distributors business combinations among companys competitors major customers •difficulties delays inherent product development manufacturing sale products may appear promising development may fail reach market numerous reasons including efficacy safety concerns inability obtain necessary regulatory approvals difficulty excessive cost manufacture ii seizure recall products iii failure obtain imposition limitations use loss patent intellectual property rights iv failure comply current good manufacturing practices application regulations quality assurance guidelines could lead temporary manufacturing shutdowns product shortages delays product manufacturing v manufacturing distribution problems •legal difficulties preclude delay commercialization products adversely affect profitability including intellectual property disputes ii adverse decisions litigation including product liability commercial cases iii inability obtain adequate insurance respect type liability iv recalls pharmaceutical products forced closings manufacturing plants v government investigations vi claims asserting violations securities antitrust laws vii environmental matters •increasing pricing pressures worldwide including rules practices managed care groups institutional governmental purchasers judicial decisions governmental laws regulations related medicare medicaid healthcare reform pharmaceutical reimbursement pricing general •fluctuations buying patterns major distributors retail chains trade buyers may result seasonality pricing wholesaler buying decisions factors •greater expected costs difficulties related integration dupont pharmaceuticals unanticipated effects difficulties acquisitions dispositions events including obtaining regulatory approvals occurring connection evolving business strategies •changes advertising promotional spending categories spending may affect sales •changes companys structure resulting acquisitions divestitures mergers restructurings strategic initiatives •economic factors bristolmyers squibb control changes business economic conditions including limited changes interest rates fluctuation foreign currency exchange rates •changes business political economic conditions due recent terrorist attacks us threat future terrorist activity us parts world related us military action overseas •changes accounting standards promulgated financial accounting standards board securities exchange commission american institute certified public accountants may require adjustments financial statements assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made bristolmyers squibb undertakes obligation release publicly revisions forwardlooking statement result future events developments item 8item 7 managements discussion analysis financial condition results operations recent developments company restated previously issued financial statements three years ended december 31 2001 including corresponding 2001 2000 interim periods quarterly periods ended march 31 2002 june 30 2002 restatement affected periods prior 1999 impact restatement prior periods reflected adjustment opening retained earnings january 1 1999 restatement reported amendment 1 companys annual report form 10ka year ended december 31 2001 amendments 1 companys quarterly reports form 10qa quarterly periods ended march 31 2002 june 30 2002 company experienced substantial buildup wholesaler inventories us pharmaceuticals business several years primarily 2000 2001 buildup primarily due sales incentives offered company wholesalers incentives generally offered towards end quarter order incentivize wholesalers purchase products amount sufficient meet companys quarterly sales projections established companys senior management april 2002 company disclosed substantial buildup developed subsequently undertook plan work orderly fashion wholesaler inventory levels late october 2002 based review consideration previously disclosed buildup wholesaler inventories companys us pharmaceuticals business incentives offered certain wholesalers advice companys independent auditors pricewaterhousecoopers llp company determined required restate sales earnings correct errors timing revenue recognition certain sales certain us pharmaceuticals wholesalers since time company undertook analysis transactions incentive practices us pharmaceuticals wholesalers result analysis company determined certain sales two largest wholesalers us pharmaceuticals business accounted consignment model rather recognizing revenue transactions upon shipment based part relationship amount incentives offered wholesalers amount inventory held wholesalers determination involved evaluation variety criteria number complex accounting judgments following determination restate sales earnings matters described company also determined would correct certain historical accounting policies conform accounting us generally accepted accounting principles gaap certain known errors made application gaap previously recorded case company believed amount error material companys consolidated financial statements addition part restatement process company investigated accounting practices certain areas involve significant judgments determined restate additional items respect company concluded errors made application gaap including certain revisions inappropriate accounting senior management set aggressive targets companys businesses errors inappropriate accounting corrected restatement arose least part period unrealistic expectations consequent overestimation anticipated performance certain companys products programs connection audits restatement previously issued annual financial statements companys consolidated financial statements year ended december 31 2002 companys independent auditors pricewaterhousecoopers llp identified communicated company audit committee two material weaknesses defined standards established american institute certified public accountants relating companys accounting public financial reporting significant matters initial recording management review oversight certain accounting matters last year company searched hired new chief financial officer outside company restaffed controller position created position chief compliance officer changed leadership pharmaceuticals group response wholesaler inventory buildup matters identified restatement adjustments direction audit committee last year senior management directed company dedicate resources take steps strengthen control processes procedures order identify rectify past accounting errors prevent recurrence circumstances resulted need restate prior period financial statements company also revised budgeting process emphasize bottomup approach contrast topdown approach company implemented review certification process annual quarterly reports securities exchange act 1934 amended well processes designed enhance monitoring wholesaler inventories addition company process expanding business risks disclosure group includes senior management including chief executive officer chief financial officer taking number additional steps designed create open environment communications flow information throughout company continues identify implement actions improve effectiveness disclosure controls procedures internal controls including plans enhance resources training respect financial reporting disclosure responsibilities review actions audit committee independent auditors companys accounting certain sales two largest wholesalers us pharmaceuticals business consignment model discussed net sales throughout following managements discussion analysis financial condition results operations referenced amounts prior periods prior period comparisons reflect balances amounts restated basis summary 2002 company reported annual global sales 181 billion sales increased 1 prior year level reflecting volume increases 4 offset net price declines 3 net impact foreign exchange fluctuations earnings continuing operations 2002 2034 million 105 per share basic diluted basis compared 2043 million 105 basic earnings per share 104 diluted earnings per share 2001 several items affected comparability results 2002 2001 discussed earnings addition items earnings 2002 adversely affected generic competition us several key pharmaceutical products increase interest expense due 50 billion debt issued third quarter 2001 finance dupont imclone transactions partially offsetting decline 2002 favorable impact dupont operations 2002 company two blockbuster products sales 15 billionpravachol plavix pravachol sales grew 8 23 billion plavix sales grew 61 19 billion addition two products company 42 product lines 50 million annual sales including 27 products 100 million annual sales four annual sales excess 500 million companys financial position remains strong december 31 2002 company held almost 40 billion cash time deposits marketable securities approximately 37 billion cash time deposits marketable securities held companys foreign subsidiaries repatriation cash us would require additional tax provisions reflected consolidated financial statements discussion matter see critical accounting policiesincome taxes cash provided operating activities 10 billion working capital healthy 18 billion company paid dividends approximately 22 billion provided dividend yield 48 2002 consistent companys mission extend enhance human life developing highestquality products company invested 22 billion research development 2 growth 2001 research development dedicated pharmaceutical products 21 billion increased 144 pharmaceutical sales compared 142 2001 compound annualized growth pharmaceutical research development spending 12 past five years research development highlights included •us food drug administration fda regulatory approval new chemical entity nce abilify new antipsychotic medication indicated treatment schizophrenia us company markets abilify jointly otsuka america pharmaceutical •eight fda regulatory approvals following life cycle management lcm indications videx ec daily tablet sustiva daily tablet plavix acute coronary syndrome avaproaprovel diabetic nephropathy glucovance combination thiazolidinediones pravachol pediatrics zerit xr prolonged release capsule tequin uncomplicated skin structure indication •seven regulatory filings achieved 2002 including us european submissions nce atazanavir six lcm supplemental filings serzone pediatrics taxol® firstline metastatic breast cancer pravachol pediatrics monopril pediatrics platinol hepatocellular carcinoma glucophage xr 750 mg reduced mass tablet patent expirations us several key products including glucophage ir taxol® buspar significant impact companys financial performance 2002 us patents expected expire next three years include patent cefzil december 2005 one several patents relating plavix july 2003 addition use patent paraplatin expire april 2004 hatchwaxman data protection expire glucophage xr october 2003 glucovance july 2003 expiry dates could extended sixmonths pediatric extension upon completion acceptance pediatric studies fda advance expiration company received sixmonth pediatric extension composition matter patent monopril expected expire june 2003 composition matter patent serzone expected expire september 2003 patent covering formulation videx ec expected expire may 2004 except respect plavix discussed item 3 legal proceedings part form 10k note 22 litigation matters consolidated financial statements company believes single patent license material importance relation business whole net sales 2002 181 billion increase 1 prior year compared sales increases 3 6 2001 2000 respectively sales 2002 2001 include approximately 1540 million 331 million respectively sales related products acquired part dupont acquisition completed october 1 2001 domestic sales decreased 3 11361 million 2002 compared increase 2 11744 million 2001 international sales increased 8 6758 million 2002 foreign exchange significant impact compared increase 3 6243 million 2001 foreign exchange unfavorably impacted sales 6 general companys business seasonal information us pharmaceuticals prescriber demand reference made table page 31 sets forth comparison changes net sales estimated total retail mail order customers prescription growth certain companys primary care pharmaceutical products composition net increase sales follows significant portion companys us pharmaceuticals sales made wholesalers company experienced substantial buildup wholesaler inventories us pharmaceuticals business several years primarily 2000 2001 buildup primarily due sales incentives offered company wholesalers including discounts buyins anticipation price increases extended payment terms certain us pharmaceuticals wholesalers incentives generally offered towards end quarter order incentivize wholesalers purchase products amount sufficient meet companys quarterly sales projections established companys senior management timing companys recognition revenue sales wholesalers differs wholesaler period historically company recognized revenue sales upon shipment product customers gaap revenue recognized substantially risks rewards ownership transferred case sales made wholesalers 1 result incentives 2 excess wholesalers ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesalers cost carrying inventory excess wholesalers ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory companys cost inventory company recognizes revenue net discounts rebates estimated sales allowances accruals returns consignment inventory longer subject incentive arrangements later inventory sold wholesalers customers firstin firstout fifo basis additional discussion companys revenue recognition policy see note 1 accounting policies consolidated financial statements company restated previously issued financial statements period 1999 second quarter 2002 correct timing revenue recognition certain previously recognized us pharmaceuticals sales cardinal health inc cardinal mckesson corporation mckesson two largest wholesalers companys us pharmaceuticals business based application criteria described recorded error time shipment accounted using consignment model company determined shipments product cardinal shipments product mckesson met consignment model criteria set forth july 1 1999 july 1 2000 respectively case continuing end 2002 period thereafter accordingly consignment model required applied shipments prior respective periods company recognized revenue respect sales cardinal mckesson upon shipment product although company generally views approximately one month supply desirable level wholesaler inventory goingforward basis level wholesaler inventory representative industry average applying consignment model sales cardinal mckesson company defined inventory excess wholesalers ordinary course business inventory level inventory two weeks three weeks supply respectively based levels inventory cardinal mckesson required used basis negotiation incentives granted result restatement adjustment net sales reduced 1015 million 475 million 409 million 2001 2000 1999 respectively increased 508 million six months ended june 30 2002 corresponding effect earnings continuing operations minority interest income taxes reduction 789 million 399 million 322 million 2001 2000 1999 respectively increase 412 million six months ended june 30 2002 separately discussion march 2001 company entered distribution agreement mckesson provision warehousing order fulfillment services companys oncology therapeutics network otn specialty distributor anticancer medicines related products prior restatement company recorded error sales companys products agreement upon shipment product mckesson company restated previously issued financial statements account sales consignment model resulting effect net sales earnings continuing operations minority interest income taxes reduction 81 million 77 million respectively 2001 increase 25 million 24 million respectively six months ended june 30 2002 december 31 2002 2001 2000 companys aggregate cost pharmaceutical products held cardinal mckesson accounted using consignment model accordingly reflected consignment inventory companys consolidated balance sheet approximately 58 million 208 million 99 million respectively approximately 1 million 4 million december 31 2002 2001 respectively related otn deferred revenue recorded gross invoice sales price related inventory pharmaceutical products accounted using consignment model approximately 470 million 2026 million 908 million december 31 2002 2001 2000 respectively approximately 39 million 81 million december 31 2002 2001 respectively related otn result restatement application consignment model approximately 1980 million sales calculated net customary 2 early pay cash discounts reversed period 1999 2001 approximately 1395 million recognized 2002 inventory held cardinal mckesson worked approximately 422 million projected recognized 2003 significant portion expected recognized first quarter 2003 corresponding effect earnings continuing operations minority interest income taxes increase 1093 million 2002 corresponding projected effect earnings continuing operations minority interest income taxes 2003 increase approximately 290 million significant portion expected recognized first quarter 2003 sales cardinal mckesson represented approximately 56 52 41 us pharmaceuticals net sales 2002 2001 2000 respectively company determined although sales incentives offered wholesalers buildup inventories wholesalers consignment model criteria discussed met accordingly company recognized revenue products shipped wholesalers company estimates inventory pharmaceutical products held us pharmaceuticals wholesalers excess approximately one month supply case companys exclusive products approximately one half months supply case plavix avapro marketed companys alliance sanofisynthelabo approximately two months supply case companys nonexclusive products range approximately 550 million 750 million december 31 2001 companys estimates inventories held wholesalers based projected prescription demandbased sales products well companys analysis thirdparty information including information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data companys internal information companys estimates subject inherent limitations estimates rely thirdparty data certain thirdparty information form estimates reflect limitations april 2002 company disclosed substantial buildup wholesaler inventories us pharmaceuticals business developed subsequently undertook plan work orderly fashion wholesaler inventory levels facilitate orderly workdown companys plan included continuing offer sales incentives reduced levels certain wholesalers respect mckesson cardinal company entered agreements orderly workdown provide wholesalers make specified levels purchases company offer specified levels incentives workdown period company expects orderly workdown inventories pharmaceutical products held us pharmaceuticals wholesalers substantially completed end 2003 company also expects consignment model criteria longer met respect companys us pharmaceuticals sales cardinal mckesson abovementioned sales related otn end 2003 december 31 2002 companys aggregate cost pharmaceutical products held cardinal mckesson accounted using consignment model accordingly reflected consignment inventory companys consolidated balance sheet approximately 58 million december 31 2002 deferred revenue recorded gross invoice sales price related inventory approximately 470 million including approximately 39 million related otn company estimates based data noted inventory pharmaceutical products held us pharmaceuticals wholesalers excess approximately one month supply case companys exclusive products approximately one half months supply case plavix avapro marketed companys alliance sanofisynthelabo approximately two months supply case companys nonexclusive products range approximately 100 million level supply 100 million excess level supply december 31 2002 estimate subject inherent limitations noted company expects account certain pharmaceutical sales relating otn using consignment model abovementioned agreement mckesson expires 2006 companys financial results prior period quarterly comparisons affected buildup orderly workdown wholesaler inventories well application consignment model certain sales certain wholesalers addition respect sales accounted using consignment model companys financial results prior period quarterly comparisons affected fluctuations buying patterns wholesalers including effect incentives offered corresponding changes inventory levels maintained wholesalers wholesaler buying patterns wholesaler inventory levels may reflect underlying prescriber demand information us pharmaceuticals prescriber demand reference made table page 31 sets forth comparison changes net sales estimated total retail mail order customers prescription growth certain companys primary care pharmaceutical products company expects consignment model longer applied respect sales cardinal mckesson buying patterns fluctuations inventory levels wholesalers effect companys financial results prior period quarterly comparisons earnings 2002 earnings continuing operations minority interest income taxes increased 19 2647 million 2218 million 2001 earnings continuing operations 2002 2034 million consistent 2043 million earned 2001 basic earnings per share continuing operations flat prior year 105 diluted earnings per share continuing operations increased 1 105 104 prior year 2001 earnings continuing operations minority interest income taxes decreased 58 2218 million 5247 million 2000 earnings continuing operations decreased 47 2001 2043 million 3830 million 2000 basic earnings per share continuing operations decreased 46 105 2001 195 2000 diluted earnings per share continuing operations decreased 46 104 2001 192 2000 net earnings margins continuing operations decreased 112 2002 114 2001 218 2000 years ended december 31 2002 2001 2000 company recorded several items affected comparability results periods presented herein set forth following table discussion items see note 2 alliances investments note 3 restructuring items note 4 acquisitions divestitures note 5 discontinued operations consolidated financial statements 115 million restructuring reversal 58 million 40 million restructuring expense included cost products sold 2002 2001 2000 respectively 69 million accelerated depreciation research facilities included research development 2002 74 million deductions customer chargebacks related abandoned product lines included reduction net sales 2001 company also incurred 61 million costs related dupont acquisition 30 million included cost products sold gross margin percentages 647 697 730 2002 2001 2000 respectively gross margins adversely impacted generic competition change product mix effective income tax rate earnings continuing operations minority interest income taxes 164 2002 compared 33 2001 252 2000 2002 effective income tax rate includes income tax benefit 235 million due settlement certain prior year tax matters determination company expected settlement ongoing tax litigation partially offset 192 million valuation allowances comprised 112 million related certain state net deferred tax assets 45 million related certain state tax net operating loss carryforwards 35 million related foreign tax credit carryforwards company currently believe likely realized future low effective income tax rate 2001 results primarily lower pretax income us caused writeoff acquired inprocess research development well proportionately greater income earned lowtax jurisdictions expenses total costs expenses percentage sales 854 2002 compared 877 2001 701 2000 cost products sold percentage sales increased last three years 353 2002 compared 303 2001 270 2000 principally due increased sales lowermargin products otn decline highermargin glucophage ir taxol® buspar sales result introduction generic products us cost products sold includes 15 million reversal prior period reserves inventory writeoffs related actions cancelled 2002 58 million 40 million restructuring expense 2001 2000 respectively advertising promotion expenses decreased slightly 1295 million 2002 1299 million 2001 primarily result reduced spending metformin franchise vaniqa partially offset abilify product launch expenses increased support plavix avapro us 2001 advertising promotion expenses decreased 15 2000 1299 million result lower spending taxol® buspar percentage sales 2002 advertising promotion expenses decreased 71 72 2001 87 2000 marketing selling administrative expenses percentage sales increased 217 2002 216 2001 slight increase 2002 mainly due higher sales force expenses result addition medical imaging business acquired october 2001 part dupont acquisition 2001 marketing selling administrative expenses percentage sales decreased 216 220 2000 primarily result costefficiencies reduction sales force expenses companys investment research development totaled 2218 million 2002 increase 2 2001 percentage sales increased 122 2002 compared 121 2001 107 2000 research development included 69 million accelerated depreciation research facilities 2002 research development spending dedicated pharmaceutical products increased 144 pharmaceutical sales compared 142 124 2001 2000 respectively lower growth research development spending 2002 consistent new priorities company announced ensure company fully realize value research development pipeline new priorities include rebalancing drug discovery development increase support companys full latestage development pipeline also include devoting greater resources ensuring successful nearterm product launches increasing companys efforts inlicensing opportunities consistent priorities company expects midtohigh teens increase percentage basis spending advertising promotion 2002 charges related acquired inprocess research development 169 million primarily related milestone payments imclone erbitux 200 million milestone payable imclone 160 million 801 expensed acquired inprocess research development first quarter 2002 remaining 40 million recorded additional equity investment eliminate income statement effect portion milestone payment company economic claim 199 ownership interest imclone acquired inprocess research development charge 2001 2772 million including 2009 million related dupont acquisition 735 million attributable imclone equity investment addition acquired inprocess research development 2002 2001 2000 include charges 9 million 28 million 38 million respectively licensing payments related products yet approved marketing restructuring programs implemented 2002 downsize realign streamline operations order increase productivity reduce operating expenses rationalize companys manufacturing network research facilities programs include costs termination approximately 1040 employees including research manufacturing administrative personnel addition company eliminated nonstrategic research efforts consolidated research facilities us actions restructuring program expected substantially complete late 2003 result actions company expects annual benefit earnings continuing operations minority interest income taxes approximately 150 million future years restructuring programs implemented 2001 downsize realign streamline operations order increase productivity reduce operating expenses rationalize companys manufacturing network research facilities programs include costs termination approximately 3400 employees including sales force manufacturing administrative research personnel addition contract sales force terminated company also exited nutritional business eastern europe pharmaceutical production facility us research facility france actions restructuring program expected substantially complete early 2003 result actions company expects annual benefit earnings continuing operations minority interest income taxes approximately 400 million future years portion realized 2002 restructuring programs implemented 2000 downsize realign streamline operations order increase productivity reduce operating expenses rationalize companys manufacturing network research facilities program approximately 5200 employees terminated including sales force manufacturing administrative personnel addition company also exited production facility us certain international operations convatec research facility japan result actions company expects annual benefit earnings continuing operations minority interest income taxes approximately 275 million future years majority realized actions substantially complete additional information restructuring see note 3 restructuring items consolidated financial statements business segments company operates three reportable segmentspharmaceuticals nutritionals healthcare percent companys sales segment follows pharmaceuticals 2002 worldwide pharmaceuticals sales decreased 2 14705 million reflecting 4 price decline 2 volume increase foreign exchange impact domestic sales declined 7 9174 million primarily due generic competition us glucophage ir taxol® buspar partially offset increased sales plavix addition products acquired dupont acquisition completed october 1 2001 addition decrease domestic pharmaceutical sales impacted buildup prior period inventory levels us wholesalers accounted consignment model subsequent workdown 2002 international sales increased 9 5531 million foreign exchange significant impact primarily due increased sales pravachol plavix europe taxol® japan addition products acquired dupont acquisition approximately 1395 million sales calculated net customary 2 early pay cash discounts recognized year ended december 31 2002 reversed prior years 2001 worldwide pharmaceuticals sales increased 3 14941 million reflecting 3 price increase 2 volume increase partially offset 2 decrease foreign exchange domestic sales 2001 increased 2 9853 million primarily due strong growth plavix pravachol tequin glucophage ir partially offset decreased sales taxol® buspar due generic competition addition 2001 domestic sales increase reflects favorable impact previously disclosed buildup inventory levels us wholesalers accounted consignment model international sales 2001 increased 4 5088 million including 6 decrease foreign exchange result increased sales pravachol europe plavix internationally taxol® japan partially offset decreased sales capoten key pharmaceutical products sales include following •sales pravachol cholesterollowering agent companys largestselling product increased 8 2266 million 2002 domestic sales increased 1 1311 million 2002 international sales increased 18 foreign exchange 4 favorable impact 955 million october 2002 fda approved new indication use treating pediatric patients heterozygous familial hypercholesterolemia additionally sixmonth exclusivity extension granted april 2006 pravachol sales increased 19 2101 million 2001 •sales otn specialty distributor anticancer medicines related products increased 33 1900 million 2002 33 1433 million 2001 •sales plavix platelet aggregation inhibitor increased 61 1890 million 2002 driven part positive results cure clopidogrel unstable angina prevent recurrent ischemic events study addition american college cardiology american heart association issued updated guidelines adding plavix standard therapy including aspirin treat people acute coronary syndrome sales avapro angiotensin ii receptor blocker treatment hypertension increased 20 586 million 2002 sales avapro plavix increased 35 32 487 million 1171 million respectively 2001 avapro plavix cardiovascular products launched alliance bristolmyers squibb sanofisynthelabo •glucophage franchise sales decreased 67 778 million 2002 compared 34 increase 2337 million 2001 glucophage ir leading branded oral medication treatment noninsulin dependent type 2 diabetes saw 2002 sales decrease 88 220 million decline glucophage ir due introduction generic metformin us early 2002 glucophage ir sales increased 7 1838 million 2001 glucovance oral combination drug glucophage xr extended release tablets sales 2002 246 million 297 million respectively compared sales 2001 269 million 230 million respectively 2002 fda approved metaglip combination glipizide metformin hci tablets initial drug therapy people type 2 diabetes sales metaglip 15 million 2002 •sales taxol® decreased 23 857 million 2002 international sales increased 11 foreign exchange 1 favorable impact 719 million led strong sales japan france domestic sales decreased 70 138 million due generic competition taxol® sales decreased 29 1112 million 2001 •sales paraplatin used combination therapy treatment ovarian cancer increased 23 727 million 2002 paraplatin sales decreased 9 592 million 2001 •sales zerit antiretroviral drug used treatment hiv decreased 14 443 million 2002 primarily result decreased demand due adverse side effects zerit sales decreased 11 515 million 2001 •monopril secondgeneration angiotensin converting enzyme ace inhibitor increased sales 3 reaching 426 million 2002 monopril sales increased 2 413 million 2001 •sales sustiva coumadin products acquired dupont october 2001 455 million 300 million respectively 2002 total us prescriptions coumadin decreased 16 2002 •sales videxvidex ec antiretroviral agent increased 9 262 million 2002 videxvidex ec sales increased 16 240 million 2001 •sales serzone treatment depression decreased 34 221 million 2002 primarily result labeling change indicating serious side effect product serzone sales increased 5 334 million 2001 following table sets forth comparison reported net sales changes estimated total retail mail order customers prescription growth certain companys us primary care pharmaceutical products estimated prescription growth amounts based thirdparty data significant portion companys domestic pharmaceutical sales made wholesalers changes reported net sales differs prescription growth change net sales may reflect underlying prescriber demand earnings minority interest income taxes 2002 2001 2413 million 1158 million respectively increase 2002 mainly due lowered earnings 2001 result writeoff 2772 million acquired inprocess research development earnings 2002 unfavorably affected higher sales lower margin products including products otn business full year impact generic competition glucophage ir taxol® buspar us earnings minority interest income taxes 1158 million 2001 decreased 4371 million 2000 primarily due acquired inprocess research development expenses 2001 together impact generic competition taxol® buspar us nutritionals 2002 nutritionals sales comparable prior year level 18 billion reflecting 3 increase due price offset 2 decrease due volume 1 decrease due foreign exchange worldwide infant formula sales decreased 4 1176 million primarily specialty infant formula business worldwide sales enfamil companys largestselling infant formula 750 million 2002 consistent 753 million 2001 mead johnson continues leader us infant formula markets worldwide childrens nutritionals sales increased 24 including 2 decrease foreign exchange 383 million 2002 308 million 2001 result 53 increase sales enfagrow primarily across pacific region 121 million 2002 sales enfagrow increased 34 79 million 2001 nutritionals sales flat prior year 18 billion reflecting 3 increase due price offset 1 decrease due volume 2 decrease due foreign exchange worldwide infant formula sales increased 3 including 1 decrease foreign exchange 1226 million 2001 primarily due 5 increase sales enfamil worldwide adult nutritional sales decreased 15 143 million 169 million 2000 result divestiture viactiv business earnings minority interest income taxes nutritionals segment decreased 444 million 2002 482 million 2001 result increased promotional spending sales force expense related enfamil product line 2001 earnings minority interest income taxes nutritionals segment increased 482 million 348 million 2000 primarily due copromotion income cefzil pharmaceuticals segment lower advertising promotion spending viactiv healthcare segment includes convatec medical imaging business consumer medicines us japan sales healthcare segment increased 30 1586 million 2002 including 465 million sales medical imaging purchased october 2001 part dupont acquisition healthcare sales increase result 28 increase due volume 2 increase changes selling prices foreign exchange net impact sales change 2001 sales segment increased 6 1219 million 1152 million 2000 2001 healthcare sales increase result 9 increase due volume 1 increase changes selling prices 4 decrease due foreign exchange healthcare sales business follows 2002 increase convatec sales due 3 increase sales ostomy products 459 million strong growth wound care products increased 11 276 million foreign exchange contributed 1 sales increase 2002 2001 increase convatec sales due 4 increase sales ostomy products 444 million strong growth wound care products increased 9 248 million foreign exchange 2001 4 negative effect sales steady decline sales consumer medicines 467 million 2000 377 million 2002 primarily result lower demand analgesics keri products us earnings minority interest income taxes healthcare segment increased 394 million 2002 287 million 2001 primarily due strong growth convatec business addition medical imaging business october 2001 earnings minority interest income taxes segment increased 287 million 2001 252 million 2000 primarily due addition medical imaging business geographic areas companys products available virtually every country world largest markets us france japan germany spain canada italy sales us decreased 3 2002 primarily due generic competition us glucophage ir taxol® buspar lesser extent buildup prior period inventory levels us wholesalers accounted consignment model subsequent workdown 2002 decrease partially offset increase plavix sales addition products acquired dupont pharmaceuticals us sales 2002 603 million 2001 sales us increased 2 primarily due growth plavix pravachol glucophage ir offset declines taxol® buspar dupont pharmaceuticals us sales 2001 106 million companys acquisition dupont completed october 1 2001 information us pharmaceuticals prescriber demand reference made table page 31 sets forth comparison changes net sales estimated total retail mail order customers prescription growth certain companys primary care pharmaceutical products sales europe mideast africa increased 12 2002 including 4 increase foreign exchange result strong growth pravachol france united kingdom plavix spain addition dupont products throughout region dupont sales region 309 million 2002 2001 sales europe mideast africa increased 6 including 4 decrease foreign exchange primarily due growth pravachol france italy sales western hemisphere countries decreased 6 including 8 decrease foreign exchange 2002 unfavorable impact foreign exchange primarily brazil argentina underlying sales growth primarily due increased sales plavix canada increased sales nutritional products mexico 2001 sales western hemisphere countries decreased 2 including 5 decrease foreign exchange unfavorable impact foreign exchange mainly brazil underlying sales growth 2001 primarily driven increased sales nutritional products mexico sales pacific region increased 12 including 2 decrease foreign exchange 2002 products strong growth included taxol® paraplatin japan nutritional products china indonesia 2001 pacific region sales decreased 1 including 12 decrease foreign exchange underlying sales growth 2001 driven primarily strong growth taxol® japan nutritional products philippines thailand china financial position cash equivalents time deposits marketable securities totaled approximately 40 billion december 31 2002 compared 57 billion december 31 2001 approximately 37 billion cash equivalents time deposits marketable securities held companys foreign subsidiaries repatriation cash us would require additional tax provisions reflected consolidated financial statements discussion matter see critical accounting policiesincome taxes working capital decreased 18 billion december 31 2002 21 billion december 31 2001 primarily result decrease cash equivalents increase commercial paper outstanding partially offset lower deferred revenue consigned inventory cash equivalents time deposits marketable securities conversion workingcapital items expected fund nearterm operations cash equivalents time deposits marketable securities december 31 2002 denominated primarily us dollar instruments nearterm maturities average interest yield cash equivalents 15 20 december 31 2002 2001 respectively interest yields time deposits marketable securities averaged 13 17 respectively shortterm borrowings longterm debt december 31 2002 denominated primarily us dollars also include japanese yen longterm debt 102 million majority companys debt fixed rate company entered fixed floating interest rate swaps 30 billion longterm debt interest expense 2002 2001 2000 410 million 182 million 108 million respectively average interest rate shortterm borrowings 958 741 current installments longterm debt 277 403 case december 31 2002 2001 respectively 2002 companys longterm credit ratings moodys standard poors credit rating agencies reduced aaaaaa aa2 aa respectively december 2002 moodys placed companys longterm shortterm debt ratings review possible downgrade since company held discussions moodys provided additional information requested facilitate review march 2003 moodys confirmed prime1 shortterm ratings company companys longterm ratings remain review possible downgrade net cash provided operating activities approximately 10 billion 2002 54 billion 2001 47 billion 2000 decrease 2002 attributable lower net earnings income tax cash outflows 21 billion primarily related taxes gain arising sale clairol business cash flow operations also included pension contributions 547 million 300 million 267 million 2002 2001 2000 respectively cash provided operations primarily used past three years pay dividends 62 billion repurchase 73 million shares cost 41 billion company also invested 26 billion past three years capital expansion improve plant efficiency maintain superior research facilities 2002 company purchased 5 million shares common stock cost 164 million bringing total shares acquired since share repurchase programs inception 372 million shares company repurchased 27 million 41 million shares common stock cost 1589 million 2338 million 2001 2000 respectively share repurchase program authorizes company purchase common stock time open market private transactions market conditions permit program intended reduce increase shares outstanding option exercises obtain shares general corporate purposes employment levels 44000 december 2002 decreased prioryear levels 46000 result workforce reductions associated restructuring activities overall attrition dividends declared per common share 2002 2001 2000 112 111 101 respectively december 2002 company declared quarterly dividend 280 per common share indicated dividend full year 2003 112 per share contractual obligations 12003 payments included shortterm borrowings companys consolidated balance sheet 2excludes 40 million expiry date discussion contractual obligations reference made note 15 shortterm borrowings longterm debt note 17 financial instruments note 19 leases consolidated financial statements march 5 2002 company imclone revised agreement reducing total payment 900 million 1 billion pursuant agreement company paid imclone 200 million 2001 140 million 2002 60 million 2003 pay aggregate 500 million upon achievement two milestones discussion companys agreement imclone see note 2 alliances investments consolidated financial statements recently issued accounting standards january 2003 financial accounting standards board fasb issued interpretation 46 consolidation variable interest entities fin 46 fin 46 requires variable interest entity consolidated company subject majority risk loss variable interest entitys activities entitled receive majority entitys residual returns fin 46 also requires disclosures variable interest entities company required consolidate significant variable interest consolidation requirements fin 46 apply immediately variable interest entities created january 31 2003 existing entities first fiscal year interim period beginning june 15 2003 certain disclosure requirements apply financial statements issued january 31 2003 regardless variable interest entity established company process assessing impact pronouncement consolidated financial statements based preliminary analysis impact fin 46 company believes reasonably possible imclone could meet criteria considered variable interest entity relation company accordingly company included required transitional disclosures fin 46 note 2 alliances investments consolidated financial statements december 2002 fasb issued sfas 148 accounting stockbased compensationtransition disclosure sfas 148 amends sfas 123 accounting stockbased compensation provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation addition sfas 148 amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results provisions sfas 148 effective financial statements year ended december 31 2002 sfas 148 material impact companys consolidated financial statements adoption standard require company change company plan change fair value based method accounting stockbased compensation november 2002 fasb issued interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others fin 45 fin 45 requires guarantor recognize liability inception guarantee fair value obligation undertaken issuing guarantee include detailed disclosure respect guarantees types contracts company enters meet scope interpretation financial performance standby letters credit behalf whollyowned subsidiaries fin 45 effective guarantees issued modified december 31 2002 initial adoption accounting pronouncement material effect companys consolidated financial statements june 2002 fasb issued sfas 146 accounting exit disposal activities effective exit disposal activities initiated december 31 2002 sfas 146 addresses issues regarding recognition measurement reporting costs associated exit andor disposal activities including restructuring activities currently accounted pursuant guidance emerging issues task force eitf set forth eitf issue 943 liability recognition certain employee termination benefits costs exit activity including certain costs incurred restructuring sec set forth staff accounting bulletin 100 restructuring impairment charges initial adoption accounting standard material effect companys consolidated financial statements april 2002 fasb issued sfas 145 superseded sfas 4 requirement aggregate gains losses extinguishment debt classify material extraordinary item net related income tax effect result criteria accounting principles board opinion 30 used classify gains losses sfas 145 also amends sfas 13 require certain lease modifications economic effects similar saleleaseback transactions accounted manner saleleaseback transactions initial adoption standard materially affect companys consolidated financial statements 2002 company adopted sfas 142 goodwill intangible assets sfas 144 accounting impairment disposal longlived assets see note 1 accounting policies accompanying consolidated financial statements information june 2001 fasb issued sfas 143 accounting asset retirement obligations sfas 143 fair value liability asset retirement obligation must recognized period incurred reasonable estimate fair value made associated asset retirement costs capitalized part carrying amount longlived asset provisions sfas 143 effective financial statements fiscal years beginning june 15 2002 initial adoption standard expected material impact companys consolidated financial statements retirement benefits plan description company certain subsidiaries defined benefit pension plans defined contribution plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan principal defined contribution plan bristolmyers squibb savings investment program approximately 85 total company defined benefit pension plan assets liabilities held us plans assets us plans held single trust common asset allocation unless specified otherwise references section total company plans us plans together international plans benefits companys defined benefit pension plans based primarily years credited service participants compensation assets companys defined benefit plans consist primarily equity fixedincome securities december 31 2002 fair market value plan assets companys defined benefit plans decreased 3267 million 3508 million december 31 2001 us plans assets allocated 67 equity securities compared 70 end 2001 26 fixed income securities compared 23 end 2001 7 real estate investments change end 2001 bristolmyers squibb common stock represented less 1 assets us plans end 2002 2001 company provides comprehensive medical group life benefits substantially us retirees elect participate companys comprehensive medical group life plans asset allocation postretirement plans identical asset allocation described us defined benefit pension plans accrual accounting significant assumptions consistent gaap requirements set forth sfas 87 employers accounting pensions company accounts pension benefits using accrual method recognizing pension expense payment benefits retirees accrual method accounting pension benefits necessarily requires actuarial assumptions concerning future events determine amount timing benefit payments companys key assumptions used calculating cost pension benefits discount rate compensation increase expected longterm rate return plan assets company consultation actuaries evaluates key actuarial assumptions used calculating cost pension benefits retirement turnover mortality rates based expectations actual experience appropriate determines assumptions december 31 year calculate liability information date pension expense following year depending assumptions used pension expense could vary within range outcomes material effect reported earnings addition assumptions materially affect accumulated benefit obligations future cash funding actual results given year may differ estimated economic factors assumed discount rate used company determining future pension obligations us plans based indices aa aaarated corporate bonds indices high quality corporate bonds selected reflect weightedaverage remaining period benefit payments assumed rate compensation increase used company determining future pension obligations reflects estimate change actual future compensation levels due general price levels productivity seniority factors 2002 net pension expense companys defined benefit pension plans included earnings minority interest income taxes 45 million compared 77 million 2001 included 25 million us curtailmentsettlement loss us plans pension expense 2002 determined using 725 assumed discount rate 425 assumed rate compensation increase accumulated benefit obligation december 31 2002 us plans determined using 675 assumed discount rate assumed discount rate used determining us plans pension expense 2002 reduced 05 expense would increased approximately 14 million assumed rate compensation increase used determining us plans pension expense 2002 reduced 025 expense would decreased approximately 5 million assumed discount rate used determining accumulated benefit obligation december 31 2001 reduced 05 accumulated benefit obligation would increased 217 million determining expected longterm rate return plan assets company evaluates allocation assets expected returns various asset classes company evaluates shortterm market volatility context longterm nature pension commitments us plans pension expense 2002 determined using 10 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans pension expense 2002 reduced 1 expense would increased 35 million actual rates return earned us plan assets last ten years follows discussed accounting principles provide differences expected actual returns recognized average future service employees december 31 2001 company lowered assumed discount rate 775 725 reflect decline yields high quality corporate bonds assumed rate compensation increase 475 425 reflect expectations lower inflation future consistent reduction assumed discount rate reduction assumed discount rate increased present value future benefit obligations accordingly effect increasing us plans pension expense 2002 contrast reduction assumed rate compensation increase decreased present value benefit obligations accordingly effect decreasing us plans pension expense 2002 december 31 2002 company lowered assumed discount rate us plans 725 675 assumed rate compensation increase us plans 425 4 aggregate revisions effect increasing present value future benefit obligations accordingly effect increasing pension expense 2003 addition company revised based change expectations future terminations retirements retirement turnover assumptions revision effect decreasing present value future benefit obligations accordingly effect decreasing pension expense 2003 course last several years global equity markets experienced negative returns negative equity market returns 2001 2000 compounded market decline 2002 sp 500 declined 221 company evaluates market conditions determining expected longterm rate return plan assets company reduced expected rate return us plans assets december 31 2002 10 9 reduction expected result higher pension expense 2003 approximately 34 million company expects net pension expense defined benefit pension plans included earnings minority interest income taxes approximately 120 million higher 2003 2002 reflecting among things decreases assumed discount rate expected longterm rate return outlined decrease value assets companys defined benefit pension plans company used assumed discount rates expected longterm rates return plan assets calculating cost postretirement benefits calculating cost pension benefits delayed recognition actuarial gains losses december 31 2002 2001 unrecognized net actuarial losses companys defined benefit plans 1635 million 645 million respectively based fair market value plan assets unrecognized net actuarial losses reflect decline fair market value plan assets reduction weightedaverage discount rate 2002 2001 sfas 87 provides delayed recognition actuarial gains losses including amounts arising changes estimated plan benefit obligations due changes assumed discount rate differences actual expected returns plan assets assumption changes sfas 87 requires unrecognized net actuarial gain loss determined based marketrelated value plan assets differs fair market value calculated value recognizes changes fair value systematic rational manner five years amortized pension income expense year extent unrecognized net actuarial loss gain exceeds 10 greater projected benefit obligation marketrelated value plan assets beginning year net gains losses recognized pension income expense prospectively period approximates average remaining service period active employees expected receive benefits plans approximately 10 years extent offset losses gains subsequent years december 31 2001 unrecognized net actuarial loss determined based marketrelated value plan assets 180 million amount exceed 10 greater projected benefit obligation marketrelated value plan assets beginning year accordingly required amortized pension expense 2002 december 31 2002 unrecognized net actuarial loss determined based marketrelated value plan assets 971 million amount exceeded 10 greater projected benefit obligation market related value plan assets 565 million unless offset future unrecognized gains higher discount rates higher expected returns plan assets amortization 565 million unrecognized loss expected increase pension expense following ten years approximately 57 million per year amount reflected expected increase pension expense 2003 approximately 120 million compared 2002 event fair market value pension plan assets particular plan less accumulated benefit obligation plan yearend gaap may require additional minimum liability circumstances reduction stockholders equity establishment intangible asset december 31 2002 fair market value companys defined benefit pension plan assets 3267 million related accumulated benefit obligation 3500 million december 31 2001 fair market value companys defined benefit pension plans assets 3508 million related accumulated benefit obligation 3300 million company recognized additional minimum liability 138 million december 31 2002 offset creation 10 million intangible asset 128 million charge comprehensive income included stockholders equity company also recognized additional minimum liability approximately 37 million 17 million december 31 2001 2000 respectively plan funding companys funding policy defined benefit plans contribute amounts provide current service fund past service liability company contributed defined benefit plans 547 million 300 million 267 million 2002 2001 2000 respectively recent decline global equity markets resulted decrease value assets companys pension plans decline expected adversely affect companys related accounting results future periods higher pension expense increased cash funding requirements companys contribution defined contribution plans based employee contributions level company match company contributed principal defined contribution plan 50 million 54 million 53 million 2002 2001 2000 respectively critical accounting policies company prepares financial statements accordance gaap preparation financial statements conformity gaap requires use estimates assumptions affect reported amounts assets liabilities including disclosure contingent assets contingent liabilities date financial statements reported amounts revenue expenses reporting period companys critical accounting policies important companys financial condition results operations require difficult subjective complex judgments part management application often result need make estimates effect matters inherently uncertain uncertainty factors surrounding estimates judgments used preparation consolidated financial statements actual results may vary estimates company believes following represent critical accounting policies summary companys significant accounting policies including critical accounting policies discussed see note 1 accounting policies consolidated financial statements management companys independent accountants discussed companys critical accounting policies audit committee board directors revenue recognition companys accounting policy revenue recognition substantial impact reported results relies certain estimates require difficult subjective complex judgments part management company recognizes revenue sales upon shipment product customers except case certain transactions us pharmaceuticals wholesalers accounted using consignment model gaap revenue recognized substantially risks rewards ownership transferred case sales made wholesalers 1 result incentives 2 excess wholesalers ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesalers cost carrying inventory excess wholesalers ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory companys cost inventory company recognizes revenue net discounts rebates sales allowances accruals returns involve significant estimates judgments consignment inventory longer subject incentive arrangements later inventory sold wholesalers customers firstin firstout fifo basis companys estimates inventory wholesalers deferred revenue consigned inventory based projected prescription demandbased sales products well companys analysis thirdparty information including information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data companys internal information companys estimates subject inherent limitations estimates rely thirdparty data certain thirdparty information form estimates reflect limitations acquired inprocess research development fair value inprocess research development acquired business combination acquired iprd determined independent appraisal based present value research projects projected cash flows utilizing income approach consistent aicpa practice aid assets acquired business combinations used research development activities focus software electronic devices pharmaceutical industries future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research projects underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating companys weighted average cost capital impairment longlived assets accordance sfas 144 accounting impairment disposal longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable longlived assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value goodwill evaluated least annually impairment accordance sfas 142 goodwill intangible assets sfas 142 requires goodwill tested impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting units goodwill exceeds estimated fair value sfas 142 requires indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net book value exceeds estimated fair value estimates future cash flows based reasonable supportable assumptions projections require managements judgment changes key assumptions companys businesses prospects changes market conditions could result impairment charge equity investments company reviews equity investments impairment based determination whether decline market value investment companys carrying value temporary making determination company considers accounting principles board opinion 18 equity method accounting investments common stock sets forth factors evaluated determining whether loss value recognized including companys ability hold investment market price market price fluctuations investments publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment companys investment imclone subject accounting see note 2 alliances investments consolidated financial statements discussion companys investment imclone retirement benefits companys pension plans postretirement benefit plans accounted using actuarial valuations required sfas 87 employers accounting pensions sfas 106 employers accounting postretirement benefits pensions company considers accounting retirement plans critical management required make significant subjective judgments number actuarial assumptions including discount rates salary growth longterm return plan assets retirement turnover health care cost trend rates mortality rates depending assumptions estimates used pension postretirement benefit expense could vary within range outcomes material effect reported earnings addition assumptions materially affect accumulated benefit obligations future cash funding detailed discussion companys retirement benefits see retirement benefits note 20 retirement plans note 21 postretirement benefit plans pensions consolidated financial statements restructuring downsize streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results could vary estimates resulting adjustment earnings contingencies normal course business company subject contingencies legal proceedings claims arising business cover wide range matters including product liability environmental liability tax matters accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated discussion contingencies reference made note 8 income taxes note 22 litigation matters consolidated financial statements income taxes december 31 2002 taxes provided approximately 90 billion undistributed earnings foreign subsidiaries company invested expects invest undistributed earnings indefinitely future earnings repatriated united states company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided company evaluates need deferred tax asset valuation allowance assessing whether likely realize deferred tax assets future assessment whether valuation allowance required often requires significant judgement including forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowance made earnings period assessment made addition company operations tax jurisdictions located areas world subject audit jurisdictions tax audits nature often complex require several years resolve accruals tax contingencies require management make estimates judgments respect ultimate outcome tax audit actual results could vary estimates outlook 2003 company currently expects 2003 sales growth closely reflect underlying prescription trends sales growth expected benefit absence significant inventory workdown wholesalers consignment model expected 2003 sales growth drivers several key products including plavix avapro pravachol paraplatin abilify expected introduction atazanavir subject fda approval well growth otn business company also expects significant sales growth sustiva cardiolite products obtained october 2001 acquisition dupont pharmaceuticals partially offsetting growth drivers expected loss exclusivity 2003 several products including monopril serzone glucophage xr us taxol® europe gross margins 2003 expected consistent gross margins 2002 adverse impact generic competition changes product mix expected offset growth new products continued growth current key products company plans increase product advertising promotion 2003 approximately midto high teens percentage basis focusing support abilify avapro plavix pravachol research development expenses expected comparable 2002 continued rebalancing drug discovery development provide additional support latestage development pipeline selling general administrative expenses expected increase single digits percentage basis underlying drivers operating expense growth 2003 include expected higher pension cost estimated negatively impact earnings minority interest income taxes approximately 120 million lesser extent expected increase sales force expense due fullyear abilify sales force support fewer open sales force positions compared 2002 minority interest expense expected increase due higher sales products worldwide alliance sanofi company projects fully diluted earnings per share 2003 160 165 excluding impact inprocess research development may arise external development agreements noncomparable items company expects consignment model longer applied sales us pharmaceuticals wholesalers end 2003 except sales distribution agreement related otn thereafter company expects buying patterns fluctuations inventory levels wholesalers effect companys financial results comparability prior periods actual results may differ materially estimates expectations described factors could affect estimates expectations described cautionary factors may affect future results cautionary factors may affect future results annual report form 10k including documents incorporated reference written oral statements company makes time contain certain forwardlooking statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words expect anticipate estimate may project guidance intend plan believe words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things companys goals plans projections regarding companys financial position results operations market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including factors could delay divert change next several years although possible predict identify factors may include following •new government laws regulations health care reform initiatives united states state federal level countries ii changes fda foreign regulatory approval processes may cause delays approving preventing approval new products iii tax changes phasing tax benefits heretofore available united states certain foreign countries iv new laws regulations judicial decisions affecting pricing marketing •competitive factors new products developed competitors lower prices superior performance features otherwise competitive companys current products ii generic competition products mature patents expire products iii technological advances patents attained competitors iv problems licensors suppliers distributors v business combinations among companys competitors major customers •difficulties delays inherent product development manufacturing sale products may appear promising development may fail reach market numerous reasons including efficacy safety concerns inability obtain necessary regulatory approvals difficulty excessive cost manufacture ii seizure recall products iii failure obtain imposition limitations use loss patent intellectual property rights iv failure comply current good manufacturing practices application regulations quality assurance guidelines could lead temporary manufacturing shutdowns product shortages delays product manufacturing v manufacturing distribution problems •legal difficulties preclude delay commercialization products adversely affect profitability including intellectual property disputes ii adverse decisions litigation including product liability commercial cases iii inability obtain adequate insurance respect type liability iv recalls pharmaceutical products forced closings manufacturing plants v government investigations vi claims asserting violations securities antitrust laws vii environmental matters viii tax liabilities •increasing pricing pressures worldwide including rules practices managed care groups institutional governmental purchasers judicial decisions governmental laws regulations related medicare medicaid healthcare reform pharmaceutical reimbursement pricing general •fluctuations buying patterns major distributors retail chains trade buyers may result seasonality pricing wholesaler buying decisions factors including effect incentives offered companys wholesaler inventory management policies including workdown wholesaler inventory levels factors •greater expected costs difficulties including unanticipated effects difficulties acquisitions dispositions events including obtaining regulatory approvals occurring connection evolving business strategies legal defense costs insurance expense settlement costs risk adverse decision related litigation •changes advertising promotional spending categories spending may affect sales •changes companys structure resulting acquisitions divestitures mergers restructurings strategic initiatives •economic factors company control changes business economic conditions including limited changes interest rates fluctuation foreign currency exchange rates •changes business political economic conditions due recent terrorist attacks us threat future terrorist activity us parts world related us military action overseas •changes accounting standards promulgated financial accounting standards board securities exchange commission american institute certified public accountants may require adjustments financial statements although company believes prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made company undertakes obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary company bristolmyers squibb worldwide pharmaceutical related healthcare products company whose mission extend enhance human life company engaged discovery development licensing manufacturing marketing distribution sale pharmaceuticals healthcare related products company employs approximately 43000 people 2004 company reported annual global sales continuing operations 194 billion sales increased 4 prior year level due favorable impact foreign exchange rate fluctuations us sales remained constant 106 billion increased sales key brands newer products offset exclusivity losses older brands international sales increased 10 88 billion including 8 favorable foreign exchange impact 2004 two product lines achieved sales 25 billion eachplavix pravachol plavix sales grew 35 including 2 favorable foreign exchange impact 33 billion pravachol sales decreased 7 including 4 favorable foreign exchange impact 26 billion additional 44 product lines achieved 50 million annual sales including 30 product lines 100 million annual sales 7 annual sales excess 500 million fourth quarter 2004 company signed definitive agreement sell oncology therapeutics network otn business distributor pharmaceutical products officebased oncologists january 2005 company announced intends divest us canadian consumer medicines businesses support mission extend enhance human life developing highestquality products 2004 company invested 25 billion research development 10 growth 2003 expects increase spending drug development 2005 accelerate development latestage pipeline research development dedicated pharmaceutical products including milestone payments inlicensing development programs 23 billion percentage pharmaceutical sales 148 compared 142 2003 august 2004 company announced entered settlement united states securities exchange commission sec concluding sec’s investigation regarding wholesaler inventory accounting matters settlement reached consent order company currently operating sec’s investigation arose company’s announcement april 2002 company experienced substantial buildup wholesaler inventories us pharmaceuticals business several years primarily 2000 2001 buildup primarily due sales incentives offered company well company’s subsequent restatement 2002 restatement consolidated financial statements period ended december 31 2002 prior periods march 2003 discussion matters see “restatement previously issued financial statement” “sec consent order” help ensure circumstances led need financial restatement recur company taken steps enhance effectiveness disclosure controls procedures including internal control financial reporting completing 2002 restatement company continued identify implement actions improve effectiveness disclosure controls procedures internal controls financial reporting actions contributed significantly company identifying additional errors relating prior periods reflected 2002 restatement accordingly company restated consolidated financial statements 2004 correct errors years 2001 2002 company continues strengthen disclosure controls procedures surrounding internal controls financial reporting specifically respect section 404 sarbanesoxley act 2002 actions include establishment policies procedures enhance compliance focus risk management business environment pharmaceutical industry company conducts business highly competitive subject numerous government regulations sales company’s products affected significantly many competitive factors including product efficacy safety price costeffectiveness marketing effectiveness product labeling quality control quality assurance manufacturing operating research development new products successfully compete business healthcare industry company must demonstrate products offer medical benefits also cost advantages currently new products introduced company must compete products therapeutic category already market company manufactures branded products subject higher prices generic products generic competition one company’s biggest challenges globally pharmaceutical industry majority innovative product’s commercial value usually realized period product market exclusivity product loses exclusivity longer protected patent subject new competing products form generic brands upon exclusivity loss product company lose major portion product’s sales short period time discussion product exclusivity see “item 1 businessintellectual property product exclusivity” us internationally healthcare industry subject various governmentimposed regulations authorize prices price controls could impact company’s sales us congress state legislatures considered number proposals enacted laws could effect major changes healthcare system either nationally state level driven part budget concerns medicaid access reimbursement restrictions implemented states proposed many others example december 2003 medicare prescription drug improvement modernization act mma enacted provide outpatient prescription drug coverage senior citizens united states company cannot predict potential impact legislation business however could negative impact company’s us pharmaceutical business greater federal involvement budget constraints may increase likelihood pricing pressures controls future many markets outside united states company operates environments governmentmandated costcontainment programs european countries except united kingdom germany provide market pricing new medicines pricing freedom limited united kingdom operation profit control plan germany operation reference price system companies also face significant delays market access new products two years elapse new medicines become available national markets growth managed care organizations mcos us played large role competition surrounds healthcare industry mcos seek reduce healthcare expenditures participants making volume purchases entering longterm contracts negotiate discounts various pharmaceutical providers market potential created large pool participants marketing prescription drugs mcos become important part company’s strategy companies compete inclusion mco formulary company generally successful major products included pharmaceutical production processes complex highly regulated vary widely product shifting adding manufacturing capacity lengthy process requiring significant capital expenditures regulatory approvals biologics manufacturing involves complex processes traditional pharmaceutical operations although company capacity manufacture biologics clinical trials commercial launch current capacity manufacture larger commercial volumes products limited company maintained competitive position market strives uphold position dependent success discovering developing innovative costeffective products serve unmet medical needs strategy company implementing new strategy discover develop innovative costeffective medicines address significant unmet medical needs ten critical disease areas affective psychiatric disorders alzheimer’sdementia atherosclerosisthrombosis diabetes hepatitis human immunodeficiency virusautoimmune immunodeficiency virus hivaids obesity oncology rheumatoid arthritis related diseases solid organ transplant company continuously strives create better treatments patients building high quality drug discovery development pipeline since 2003 company undergone transition pharmaceutical product portfolio older product lines including glucophage franchise monopril taxol® paraplatin experienced exclusivity loss successful launches newer products including abilify treatment psychiatric disorders reyataz human immunodeficiency virus hiv erbitux cancer portfolio refocused growth brands fall within ten critical disease areas targeting specialists high value primary care physicians sales products within ten disease areas increasing steadily expected comprise half pharmaceutical product sales end 2005 company making significant investments behind new product launches redeploying marketing promotional spending older products newer products 2004 company submitted two new drug applications ndas us food drug administration fda regulatory approval including entecavir hepatitis b muraglitazar type 2 diabetes rolling biologics license application bla abatacept potential treatment rheumatoid arthritis also expected completed early 2005 successful launch investigational compounds enhance company’s strategy transition product portfolio cover ten disease areas discussed internal growth vital company’s future success company continually evaluating pursuing external possibilities alliances collaborative agreements company notable record executing successful licensing arrangements supplement pipeline many arrangements led fruitful codevelopment copromotion comarketing agreements company expects continue complement pipeline 2005 additional licensed products another component company’s strategy includes entry biologics business requires increased investments manufacturing facilities thirdparty manufacturing arrangements meet future commercial demand expected generated new product launches addition company continues maintain collaborations major biotechnology research institutions enhance life cycle company’s product portfolio beyond initial approvalcommercialization offering combination therapy product extensions another major aspect company’s strategy relates business specifically marketing sales approaches specialists playing even greater role decisions related patient treatment care particularly ten critical disease areas company focusing efforts reason company recasting business model focus specialists well primary care physicians involved treating patients select disease areas order achieve strategic objectives company also plans moderate selling general administrative spending next several years customer model noted well elimination organizational inefficiencies results operations following discussion company’s results continuing operations excludes results related otn business segregated continuing operations reflected discontinued operations periods presented see “discontinued operations” change excess 200 net sales net sales continuing operations 2004 increased 4 194 billion due favorable impact foreign exchange rate fluctuations us net sales 2004 remained constant 106 billion compared 2003 growth prescription demand key brands including plavix avaproavalide sustiva new product introductions including abilify reyataz erbitux offset lower sales products result exclusivity losses monopril paraplatin glucophage franchise us net sales increased 13 2003 94 billion 2002 international net sales increased 18 80 billion 2003 68 billion 2002 8 excluding favorable foreign exchange international net sales increased 10 88 billion 2004 2 excluding favorable foreign exchange 2 growth sales primarily attributable increased sales plavix avaproavalide launch reyataz abilify europe offset decline pravachol 2003 net sales continuing operations increased 15 187 billion including 4 favorable impact foreign exchange rate fluctuations composition net increase sales follows general company’s business seasonal information us pharmaceuticals prescriber demand reference made table within business segments pharmaceuticals section sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain company’s primary care pharmaceutical products company operates three reportable segmentspharmaceuticals nutritionals healthcare 2004 company signed definitive agreement sell otn previously presented separate segment results operations otn presented part company’s results discontinued operations accordance sfas 144 “accounting impairment disposal longlived assets” accordingly otn results operations prior periods reclassified discontinued operations conform current year presentations percent company’s sales segment follows company recognizes revenue sales substantially risks rewards ownership transferred customer generally occurs date shipment substantially risks rewards ownership transfer company uses consignment model recognize revenue model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory company’s cost inventory company recognizes revenue net gross net sales adjustments discussed involve significant estimates judgments risks rewards ownership transferred customer later inventory sold wholesalers’ customers firstin firstout fifo basis company’s aggregate cost pharmaceutical products accounted using consignment model accordingly reflected consignment inventory company’s consolidated balance sheet significant december 31 2004 2003 deferred revenue related inventory pharmaceutical products accounted using consignment model fully worked december 31 2004 deferred revenue recorded gross invoice sales price approximately 12 million december 31 2003 approximately 10 million 321 million 1397 million deferred revenue recognized 2004 2003 2002 respectively corresponding effect earnings continuing operations minority interest income taxes increase 8 million 237 million 1095 million 2004 2003 2002 respectively company recognizes revenue gross sales basis deducts various sales adjustments arrive net sales reported consolidated statement earnings adjustments referred grosstonet sales adjustments described “critical accounting policies” following table summarizes company’s grosstonet sales adjustments significant category 2004 increase 2003 prime vendor chargebacks medicaid rebates primarily due shift sales products higher discounts prime vendor medicaid programs decrease sales returns primarily attributable higher sales returns 2003 resulting discontinued products product conversions overall increase grosstonet sales adjustments 2003 2002 primarily due sales growth increases managed care rebates principally due shift sales products higher discounts partially offset decrease wic rebates due decline state wic contracts following table sets forth activities ending balances significant category grosstonet sales adjustments 2004 company recorded charges 55 million medicaid rebates related sales made prior periods charges include 34 million rebate claims prior years certain states primarily relation medicaid utilization oncology products previously reported company revisions resulting availability additional information addition company recorded 32 million adjustments result lower expected rebates foreign governments significant revisions made estimates grosstonet sales adjustments 2004 2003 pharmaceuticals composition net increase pharmaceutical sales follows 2004 worldwide pharmaceuticals sales increased 4 15482 million due favorable foreign exchange impact domestic sales 2004 remained constant 8446 million compared 8431 million 2003 domestic sales negatively affected increased competition pravachol exclusivity losses paraplatin glucophage franchise offset increased sales plavix newer products including abilify reyataz erbitux international sales 2004 increased 8 7036 million decrease 1 excluding favorable foreign exchange impact primarily due generic competition pravachol taxol® partially offset launches abilify reyataz continued growth plavix avaproavalide 2003 worldwide pharmaceuticals sales increased 16 14925 million 11 excluding favorable foreign exchange impact domestic sales 2003 increased 16 8431 million primarily due increased sales plavix pravachol abilify glucovance paraplatin partly due impact 2002 sales workdown nonconsignment wholesaler inventory launch reyataz july 2003 partially offset decreased sales glucophage ir taxol® primarily due generic competition international sales 2003 increased 17 6494 million including 11 favorable foreign exchange impact primarily due increased sales pravachol taxol® plavix avaproavalide analgesic products europe partially offset price declines principally germany italy key pharmaceutical products sales representing 79 78 74 total pharmaceutical sales 2004 2003 2002 respectively follows change excess 200 • sales plavix platelet aggregation inhibitor sold company primarily us increased 35 including 2 favorable foreign exchange impact 3327 million 2004 2003 primarily due strong prescription growth 24 us market sales 2003 2467 million increase 31 including 3 favorable foreign exchange impact 1890 million 2002 primarily due strong prescription growth 29 us plavix cardiovascular product launched alliance company sanofiaventis sanofi market exclusivity plavix expected expire 2011 us 2013 eu statements exclusivity subject adverse determination may occur respect plavix patent litigation additional information plavix patent litigation see “item 1 financial statementsnote 21 legal proceedings contingencies” • sales pravachol hmg coa reductase inhibitor decreased 7 including 4 favorable foreign exchange impact 2635 million 2004 domestic sales decreased 12 1420 million 2004 total us prescription demand decreased 10 international sales decreased 1 including 10 favorable foreign exchange impact 1215 million due exclusivity loss select european markets including germany uk sales pravachol increased 25 2827 million 2003 2266 million 2002 primarily due wholesaler workdown inventory us 2002 continued growth europe particularly france uk italy market exclusivity protection pravachol expected expire april 2006 us market exclusivity eu expired 2004 exception france sweden expiration occur august march 2006 respectively italy expiration occur january 2008 • sales avaproavalide angiotensin ii receptor blocker treatment hypertension increased 23 including 5 favorable foreign exchange impact 930 million 2004 driven increased sales europe strong us prescription growth approximately 15 sales increased 29 including 6 favorable foreign exchange impact 757 million 2003 586 million 2002 primarily due strong us prescription growth price increases avaproavalide cardiovascular products launched alliance company sanofi market exclusivity avaproavalide known eu aprovelkarvea expected expire 2011 us 2012 countries eu avaproavalide currently marketed japan • sales monopril second generation angiotesin converting enzyme ace inhibitor treatment hypertension decreased 42 including 4 favorable foreign exchange impact 274 million due impact market exclusivity loss sales 2003 470 million increase 10 including 5 favorable foreign exchange impact 426 million 2002 resulting introduction branded generic product new government contract market exclusivity protection monopril expired 2003 us expired expected expire 2001 2008 countries eu monopril currently marketed japan • sales coumadin oral anticoagulant used predominately patients atrial fibrillation deep venous thrombosispulmonary embolism decreased 16 255 million 2004 compared 2003 sales due increased generic competition sales 2003 increased 1 303 million 300 million 2002 market exclusivity coumadin expired us 1997 • sales sustiva nonnucleoside reverse transcriptase inhibitor treatment hiv increased 14 including 5 favorable foreign exchange impact 621 million 2004 prior year primarily due increased demand 2004 higher prices us sales increased 9 364 million 2004 total us prescription growth increased 4 2004 international sales sustiva increased 22 including 13 favorable foreign exchange impact 257 million 2004 driven increased sales spain uk france italy 2003 sustiva sales increased 20 544 million 455 million 2002 primarily due workdown us wholesaler inventory third quarter 2002 market exclusivity protection sustiva expected expire 2013 us countries eu company others market sustiva japan • sales reyataz protease inhibitor treatment hiv launched us third quarter 2003 europe second quarter 2004 414 million compared 88 million 2003 reyataz achieved weekly new prescription share us protease inhibitors market approximately 28 market exclusivity reyataz expected expire 2017 us countries eu japan • sales videxvidex ec antiretroviral agent used treatment hiv increased 3 decreased 3 excluding 6 favorable foreign exchange impact 274 million 2004 videxvidex ec sales increased 2 267 million 2003 262 million 2002 due increased sales europe partially offset sales declines us company licensing arrangement us government videxvidex ec terms became nonexclusive 2001 us government’s method use patent expires 2007 us includes earned pediatric extension japan 2006 2009 countries eu license company nonexclusive allowed another company obtain license us government receive approval marketing respect videxvidex ec company patents covering reduced mass formulation videxvidex ec expire 2012 us eu japan however patents apply type reduced mass formulation specified patent reduced mass formulations may exist currently issued patent covering videx ec formulation • sales zerit antiretroviral agent used treatment hiv decreased 23 including 4 favorable foreign exchange impact 272 million 2004 primarily result continued decrease demand due potential adverse side effects zerit sales decreased 20 including 5 favorable foreign exchange impact 354 million 2003 443 million 2002 primarily result decreased demand due potential adverse side effects market exclusivity protection zerit expected expire 2008 us 2007 2011 countries eu 2008 japan • sales cefzil antibiotic treatment mild moderately severe bacterial infections decreased 17 including 2 favorable foreign exchange impact 270 million 2004 primarily due decreased domestic demand partially offset higher international sales cefzil sales increased 14 327 million 2003 287 million 2002 market exclusivity expected expire 2005 us 2007 2009 eu expired 2004 japan • tequin antibiotic used treatment respiratory tract infections sales 169 million 2004 decrease 19 compared 2003 sales 2003 sales increased 13 208 million 184 million 2002 tequin seasonal product sales increasing flu season sales fluctuations 2002 2004 due strong flu season 2003 weak flu season 2004 basic us patent expires 2007 however expected patent eligible statutory patent term extension 2009 • sales taxol® company’s leading anticancer agent 991 million 2004 compared 934 million 2003 sales taxol® almost exclusively international increased 6 decreased 3 excluding favorable foreign exchange primarily result generic competition europe generic competition taxol® majority major european markets began second quarter 2004 increased second half 2004 2003 taxol® sales increased 9 decreased 3 excluding favorable foreign exchange 934 million 857 million 2002 primarily due generic competition us partially offset strong sales japan france market exclusivity protection taxol® expired 2002 us 2003 eu expected expire 2003 2013 japan • sales paraplatin anticancer agent decreased 26 including 1 favorable foreign exchange impact 673 million due generic competition us began mid2004 increased entry multiple generic competitors fourth quarter domestic sales paraplatin decreased 30 537 million 2003 paraplatin sales increased 24 significant foreign exchange impact 905 million 727 million 2002 primarily due introduction new formulation paraplatin 2003 price increases market exclusivity protection paraplatin expired october 2004 us 2000 eu 1998 japan • erbitux injection used combination irinotecan treatment patients epidermal growth factor receptor egfrexpressing metastatic colorectal cancer refractory irinotecanbased chemotherapy single agent treatment patients egfrexpressing metastatic colorectal cancer intolerant irinotecanbased chemotherapy approved fda february 2004 sales erbitux sold almost exclusively us 261 million year ended december 31 2004 patent relating combination therapy erbitux expires 2017 company’s right market erbitux north america japan expires september 2018 company others market erbitux countries eu • total revenue abilify primarily domestic alliance revenue company’s 65 share net sales copromotion countries otsuka pharmaceutical co ltd otsuka 593 million 2004 compared 283 million 25 million 2003 2002 respectively due continued growth prescription demand since launch schizophrenia agent introduced united states november 2002 december 2004 achieved 10 weekly new prescription share us antipsychotic market european commission granted marketing authorization abilify june 2004 total revenue reached 26 million since public sales commenced june 2004 september 2004 fda approved abilify treatment acute bipolar mania us market exclusivity protection abilify expected expire 2009 us may extended 2014 pending patent term extension granted company also right copromote abilify several european countries united kingdom france germany spain act exclusive distributor product rest european union eu market exclusivity protection abilify expected expire 2009 eu may extended 2014 pending supplemental protection certificates granted company’s right market abilify expires november 2012 us puerto rico countries eu company exclusive right market abilify june 2014 additional information revenue recognition abilify see “item 8 financial statementsnote 2 alliances investments” • glucophage franchise sales decreased 65 336 million 2004 compared 22 increase 948 million 2003 778 million 2002 decrease sales 2004 primarily resulted increased generic competition glucophage ir oral medication treatment noninsulin dependent type 2 diabetes experienced sales decrease 42 68 million sales decreased 46 118 million 2003 220 million 2002 glucovance oral combination drug glucophage xr extended release tablets sales 2004 169 million 67 million respectively compared sales 2003 424 million 395 million respectively sales 2002 246 million 297 million respectively market exclusivity protection expired march 2000 glucophage ir october 2003 glucophage xr january 2004 glucovance company others market products eu japan instances basic exclusivity loss date indicated expiration date patent claims active ingredient drug method using drug approved indication instances basic exclusivity loss date indicated expiration date data exclusivity period situations data exclusivity without patent protection competitor could seek regulatory approval submitting clinical trial data obtain marketing approval company assesses market exclusivity period products casebycase basis length market exclusivity company’s products difficult predict certainty complex interaction patent regulatory forms exclusivity factors assurance particular product enjoy market exclusivity full period time company currently anticipates discussion market exclusivity protection including chart showing net sales key products together year basic exclusivity loss occurred expected occur us eu japan see “item 1 businessproducts” “intellectual property product exclusivity” following table sets forth comparison reported net sales changes estimated total us prescription growth retail mail order customers certain company’s us pharmaceutical prescription products estimated prescription growth amounts based thirdparty data provided ims health supplier market research pharmaceutical industry significant portion company’s domestic pharmaceutical sales made wholesalers changes reported net sales differ prescription growth change net sales may reflect underlying prescriber demand excess 200 reflects change net sales dollar terms including change average selling prices wholesaler buying patterns b reflects change total prescriptions unit terms based thirdparty data following table sets forth company’s key pharmaceutical products sold company’s us pharmaceuticals business amount us pharmaceuticals business’s net sales applicable product year ended december 31 2004 estimated number months hand applicable product us wholesaler distribution channel december 31 2004 company determines months hand estimates dividing estimated amount product wholesaler distribution channel estimated amount outmovement product period four weeks calculated described factors may influence company’s estimates include generic competition seasonality products wholesaler purchases light increases wholesale list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers paraplatin lost exclusivity october 2004 demand since decreased significantly resulting estimated months hand greater one month value paraplatin inventory one month hand december 31 2004 approximately 4 million company plans continue monitor paraplatin sales intention working wholesaler inventories less one month hand company maintains inventory management agreements imas us wholesalers account nearly 100 total gross sales us pharmaceutical products current terms imas wholesalers provide company information respect inventory levels product hand amount outmovement products inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals company determines amount outmovement product period one month using recent prior four weeks outmovement product provided wholesalers company also determines months hand estimates using factors historical sales made wholesalers thirdparty market research data related prescription trends patient demand nutritionals composition net increase nutritional sales follows key nutritional product lines sales representing 94 84 85 total nutritional sales 2004 2003 2002 respectively follows worldwide nutritional sales decreased 1 2001 million 2004 2003 excluding impact adult nutritional business divested first quarter 2004 worldwide sales increased 9 1973 million 1817 million 2003 international sales excluding impact adult nutritional business increased 15 primarily due increased sales infant formula children’s nutritional products increase international sales primarily due 15 increase enfagrow toddler children’s nutritional product 15 increase enfamil company’s largestselling infant formula including 2 favorable foreign exchange impact domestic sales excluding impact adult nutritional business increased 3 945 million 2004 920 million 2003 primarily due increased sales enfamil 2003 nutritionals sales 2023 million increase 11 including 1 unfavorable impact foreign exchange 2002 international sales increased 9 including 2 unfavorable foreign exchange impact 938 million 862 million 2002 domestic sales increased 13 1085 million 959 million 2002 worldwide infant formula sales increased 10 1284 million 2003 primarily due increased sales enfamil international sales enfamil increased 5 239 million 2003 228 million 2002 domestic sales enfamil increased 10 569 million 2003 518 million 2002 worldwide toddler children’s nutritionals sales increased 10 including 5 unfavorable foreign exchange impact 421 million 2003 383 million 2002 result 29 increase sales enfagrow primarily throughout pacific region 156 million 2003 healthcare segment includes convatec medical imaging business consumer medicines united states japan composition net increase healthcare sales follows healthcare sales business key products years ended december 31 follows • 2004 increase convatec sales due 6 increase volume 8 increase due foreign exchange partially offset 1 decrease changes selling prices increase 2003 result increased worldwide sales wound therapeutics products increased 23 including 8 favorable foreign exchange impact 391 million ostomy sales flat excluding 8 increase due foreign exchange impact 2003 increase convatec sales 2002 due 13 increase worldwide sales ostomy products 512 million strong growth worldwide wound therapeutics products increased 17 319 million foreign exchange contributed 9 sales increase 2003 • 2004 increase medical imaging sales due 9 increase volume 6 increase changes selling prices 1 increase due foreign exchange increase medical imaging sales 2004 2003 primarily driven increased sales cardiolite increase partially due change timing revenue recognition result new distribution agreements entered january 2004 • consumer medicines sales remained flat 354 million 2004 compared 2003 declined 377 million 2002 2004 sales increase us primarily driven higher sales excedrin offset decreased sales japan primarily due lower sales bufferin overthecounter medicines sales decline 2003 part due distributors reducing us inventory levels desirable levels geographic areas least company’s products available countries world largest markets united states france japan spain germany italy canada uk company’s sales geographic areas follows sales united states remained constant 2004 growth prescription demand key brands including plavix avaproavalide sustiva newer products including abilify reyataz erbitux offset lower sales products result exclusivity losses monopril paraplatin glucophage franchise 2003 sales united states increased 13 primarily due increased sales plavix pravachol abilify glucovance paraplatin sales increases partially offset continued impact generic competition united states glucophage ir taxol® result loss exclusivity label change indicating potential serious side effect serzone sales europe middle east africa increased 10 decreased 1 excluding impact foreign exchange result sales decline pravachol due exclusivity loss select markets including germany uk taxol® generic competition majority major european markets began second quarter 2004 decrease sales mostly offset increased sales plavix germany spain avaproavalide italy spain sustiva majority major markets 2003 sales increased 23 including 16 increase foreign exchange result sales growth pravachol france taxol® france germany spain italy analgesics france plavix germany spain avaproavalide italy sustiva spain sales western hemisphere countries increased 7 including 2 increase foreign exchange primarily due increased sales plavix avaproavalide canada 2003 sales increased 10 including 5 decrease foreign exchange primarily due increased sales plavix canada pacific region sales increased 11 including 5 increase foreign exchange 2004 result increased sales taxol® paraplatin japan plavix avaproavalide australia 2003 sales increased 12 including 6 increase foreign exchange result increased sales taxol® japan increased sales enfagrow throughout region expenses change excess 200 • cost products sold percentage sales increased last 2 years 309 2004 compared 290 2003 289 2002 increase primarily due increase accelerated depreciation 36 million 100 million 75 million increase product liability reserves unfavorable impact us pharmaceutical sales mix due impact generic competition us glucophage franchise paraplatin launch lower margin erbitux partially offset sales growth abilify reyataz plavix cost products sold also included 26 million commercial litigation expense 25 million product liability insurance recovery 2003 cost products sold included 53 million accelerated depreciation assets manufacturing facilities north america expected closed end 2006 14 million charge asset impairment restructuring expenses cost products sold 2002 included 15 million reversal prior period reserves inventory writeoffs related cancelled actions • marketing selling administrative expenses percentage sales 259 2004 248 2003 252 2002 2004 marketing selling administrative expenses increased 9 5016 million 2003 primarily due increased sales marketing support newer products including additional sales representatives supporting abilify addition increase also related costs associated compliance sarbanesoxley act 2002 unfavorable foreign exchange driven strengthening euro marketing selling administrative expenses increased 13 4620 million 2003 4081 million 2002 primarily due increased sales support abilify avaproavalide higher pension costs higher charges related system infrastructure higher insurance premiums unfavorable foreign exchange impact principally related euro • advertising product promotion expenditures remained constant 14 billion compared 2003 increased investments abilify reyataz plavix offset lower spending inline nonexclusive products 2003 advertising promotion expenses increased 24 1415 million 1142 million 2002 primarily result promotional support abilify reyataz launches plavix us additional support inline products unfavorable foreign exchange impact europe • company’s investment research development totaled 2500 million 2004 increase 10 2003 increase 2003 3 2002 percentage sales 129 2004 compared 122 2003 136 2002 2004 increase research development expenses primarily due higher spending new development projects including investments latestage development including muraglitazar dual ppar agonist diabetes abatacept potential treatment rheumatoid arthritis entecavir hepatitis b investments area biologics partially offset merck’s share codevelopment costs related muraglitazar research development costs also included 58 million consisting primarily upfront milestone payments 2004 102 million charges related upfront payments licensing agreements 2003 69 million accelerated depreciation research facilities 2002 2004 research development spending dedicated pharmaceutical products increased 148 pharmaceuticals sales compared 142 2003 decreased compared 165 2002 increase reflects company’s strategic focus ten critical disease areas affective psychiatric disorders alzheimer’sdementia atherosclerosisthrombosis diabetes hepatitis hivaids obesity oncology rheumatoid arthritis related diseases solid organ transplant company focusing research development activities fully realize value research development pipeline new priorities include rebalancing drug discovery development increase support company’s full latestage development pipeline closing unnecessary facilities also include devoting greater resources ensuring successful nearterm product launches increasing company’s efforts inlicensing opportunities • 2004 63 million charge acquired inprocess research development related purchase acordis ukbased company expected strengthen company’s leadership position wound therapeutics 2002 charges related acquired inprocess research development 169 million primarily related milestone payments imclone systems incorporated imclone erbitux 200 million milestone payment imclone 160 million expensed acquired inprocess research development first quarter 2002 remaining 40 million recorded additional equity investment eliminate income statement effect portion milestone payment company economic claim ownership interest imclone • restructuring programs implemented downsize realign streamline operations order increase productivity reduce operating expenses rationalize company’s manufacturing network research facilities sales marketing organizations actions 2004 restructuring program expected complete 2006 actions 2003 restructuring programs substantially completed actions 2002 restructuring programs completed december 31 2004 result actions company expects future annual benefit earnings continuing operations minority interest income taxes approximately 186 million 64 million 150 million 2004 2003 2002 programs respectively additional information restructuring see “item 8 financial statementsnote 3 restructuring items” • litigation charges net settlement income 420 million 2004 compared 199 million 2003 659 million 2002 420 million 2004 consisted 336 million related private litigation governmental investigations related wholesaler inventory issues accounting matters 50 million related platinol litigation settlement 34 million related pharmaceutical pricing sales practices 2003 company established reserves liabilities total amount 250 million comprised 150 million relation wholesaler inventory issues certain accounting matters 100 million relation pharmaceutical pricing sales marketing practices addition company recorded charges 31 million litigation matters recognized income 82 million 82 million income consists primarily 30 million income patent defense cost reimbursement 27 million litigation settlement income 21 million settlement antitrust litigation involving vitamin manufacturers 2002 charges 659 million primarily related buspar taxol® settlements additional information litigation see “item 8 financial statementsnote 21 legal proceedings contingencies” • equity net income affiliates 2004 273 million compared 151 million 80 million 2003 2002 respectively equity net income affiliates principally related company’s joint venture sanofi investment imclone 2004 2003 increases equity net income affiliates primarily reflects higher net income sanofi joint venture additional information equity net income affiliates see “item 8 financial statementsnote 2 alliances investments” • expenses net income 52 million 179 million 229 million 2004 2003 2002 respectively expenses include net interest expense foreign exchange gains losses income thirdparty contract manufacturing royalty income gains losses disposal property plant equipment favorability 2004 primarily due higher income thirdparty contract manufacturing lower net interest expense lower net foreign exchange losses decrease expenses 2003 2002 primarily due net gains interest rate swaps years ended december 31 2004 2003 2002 company recorded several items affected comparability results periods presented herein set forth following table discussion items see “item 8 financial statementsnote 2 alliances investments” “note 3 restructuring items” “note 4 acquisitions divestitures” “note 5 discontinued operations” year ended december 31 2004 relates wholesaler inventory accounting matters consisting 16 million reserves recorded fourth quarter 320 million disclosed company second quarter 2004 amounts incremental 150 million recorded last year bringing total reserve 486 million b incremental 100 million reserve recorded company last year bringing total reserve 134 million year ended december 31 2003 year ended december 31 earnings 2004 earnings continuing operations minority interest income taxes decreased 6 4418 million 4680 million 2003 contributing decrease 2004 increases costs products sold result change product mix products losing exclusivity increased investment research development income expenses affected comparability results discussed partially offset higher international sales net earnings continuing operations decreased 23 2004 2378 million 3097 million 2003 2004 basic earnings per share continuing operations decreased 23 123 160 2003 diluted earnings per share continuing operations decreased 24 121 159 2003 earnings continuing operations minority interest income taxes increased 70 4680 million 2748 million 2002 increase primarily result increased sales charges 1207 million recorded 2002 litigation settlements asset impairments writeoffs inprocess research development increase partially offset increased investment advertising promotion marketing selling administrative expenses earnings continuing operations increased 50 2003 3097 million 2059 million 2002 2003 basic diluted earnings per share continuing operations increased 50 160 159 respectively 107 106 2002 respectively effective income tax rate earnings continuing operations minority interest income taxes 344 2004 compared 258 2003 140 2002 higher effective tax rate 2004 attributable primarily 575 million charge estimated deferred taxes taken fourth quarter anticipation repatriating 2005 approximately 9 billion special dividends company’s nonus subsidiaries pursuant american jobs creation act 2004 increase estimates contingent tax matters 2004 compared 2003 charge related establishment valuation allowance certain charitable contribution carryforwards increase partially offset favorable resolution certain tax refund claims increased foreign tax credits 2003 effect certain litigation reserves nondeductible 2003 company’s estimate tax cost related dividend repatriation december 31 2004 based tax laws effect estimate may revised result additional guidance clarifying language may issued congress andor department treasury changes company’s factual assumptions may occur increase 2003 effective tax rate 2002 effective tax rate primarily due decrease effective tax rate benefit operations ireland puerto rico switzerland treatment provisions certain litigation reserves nondeductible increase estimates contingent tax matters 2003 compared 2002 company recorded valuation allowances certain state net deferred tax assets state net operating loss tax credit carryforwards foreign net operating loss tax credit carryforwards charitable contribution carryforwards company currently believes state net deferred tax assets state net operating loss tax credit carryforwards foreign net operating loss tax credit carryforwards charitable contribution carryforwards valuation allowances provided likely realized future pharmaceutical earnings minority interest income taxes 4257 million 2004 decreased 4369 million 2003 primarily driven gross margin erosion due generic competition product mix additional sales representatives supporting abilify increased spending research development higher nonclinical grants litigation settlement income 2003 partially offset higher sales earnings minority interest income taxes 2002 3187 million increase 2003 2002 primarily due increased sales partially offset increased advertising product spending new existing inline products nutritional earnings minority interest income taxes increased 586 million 2004 542 million 2003 increase primarily due increased global infant formula sales price increase infant formula line favorable manufacturing variances tight operating expense management 2003 earnings minority interest income taxes nutritionals segment increased 486 million 2002 result increased sales enfamil healthcare earnings minority interest income taxes healthcare segment increased 573 million 2004 408 million 2003 primarily due sales growth convatec medical imaging businesses addition favorable pricing product mix 2003 earnings minority interest income taxes segment decreased 427 million 2002 primarily result unfavorable product mix inventory writeoffs excedrin quicktabs consumer medicines business discontinued operations december 2004 company committed plan sell otn entered definitive sale agreement one equity partners llc otn formerly reported distinct operating segment transaction expected completed first half 2005 sale price equal 210 million plus certain price adjustments based otn’s excess current assets current liabilities closing date sale result pretax gain 40 50 million subject certain price adjustments postclosing matters gain sale otn recognized closing date discussions otn see “item 8 financial statementsnote 5 discontinued operations” following amounts related otn business segregated continuing operations reflected discontinued operations periods presented net earnings discontinued operations 40 million reflected 2002 statement earnings primarily reflects reduction 32 million tax contingency reserve related spinoff zimmer holdings inc 2001 developments january 2005 company announced intends divest us canadian consumer medicines business company’s primary consumer medicine brands us canada excedrin keri choice comtrex year ended december 31 2004 sales consumer medicines brands us canada totaled approximately 270 million company’s consumer medicines businesses japan asia pacific latin america europe middle east africa included divestiture december 2004 company provided update rolling bla abatacept submitted provisions fda’s continuous marketing application pilot 1 abatacept investigational biologic drug treatment rheumatoid arthritis development program granted fast track status fda complete nonclinical clinical sections bla already submitted fda remaining section expected submitted early year december 2004 company somerset pharmaceuticals inc somerset joint venture mylan laboratories inc watson pharmaceuticals inc entered agreement commercialization distribution somerset’s emsam® selegiline transdermal system investigational monoamine oxidase inhibitor administered transdermal patch acute maintenance treatment patients major depressive disorder somerset received “approvable” letter fda emsam® february 2004 approved fda emsam® would first transdermal treatment major depressive disorder december 2004 company corgentech inc announced topline results first two phase 3 clinical trials edifoligide e2f decoy trial involving patients undergoing peripheral artery vein grafts primary secondary endpoints failed show benefit edifoligidetreated group compared placebo group defined rate vein graft failure 12 months following surgery edifoligide investigational product prevent vein graft failure coronary peripheral arteries december 2004 company gilead sciences inc gilead entered joint venture develop commercialize fixeddose combination company’s sustiva gilead’s truvada emtricitabine tenofovir disoproxil fumarate united states approved new product would first complete highly active antiretroviral therapy haart treatment regimen hiv available fixeddose combination taken daily november 2004 company medarex inc medarex entered worldwide collaboration develop commercialize mdx010 fully human antibody investigational product targeting ctla4 receptor mdx010 developed medarex currently phase iii clinical development treatment metastatic melanoma collaboration agreement became effective january 2005 time company made cash payment 25 million medarex expensed research development additional 25 million equity investment medarex september 2004 company completed submission nda fda entecavir investigational antiviral agent development treatment chronic hepatitis b addition fda granted company priority review entecavir company also submitted marketing authorization application entecavir european medicines evaluation agency august 2004 fda approved company’s supplemental new drug application snda include new longterm virologic clinical data bms study 006 prescribing information related sustiva efavirenz new data demonstrate longterm durability virologic response people living hiv1 naive protease inhibitors lamivudine 3tc nonnucleoside reverse transriptase inhibitors nnrti three years treatment combination regimen containing sustiva july 2004 fda approved company’s snda include new scientific data dosing package insert labeling related reyataz snda reyataz labeling includes data indicating combination hiv treatments containing reyatazritonavir kaletra lopinavirritonavir abbott laboratories inc similar primary efficacy outcome measurement timeaveraged difference change baseline hiv rna level hivinfected patients previously taking antihiv medicines june 2004 company otsuka announced european commission granted marketing authorization abilify antipsychotic medication treatment schizophrenia otsuka pharmaceutical europe ltd otsuka’s european holding company holds marketing authorization abilify europe company otsuka currently copromote abilify united kingdom germany also copromote france spain addition company also exclusive right sell abilify number countries europe us fda approved abilify treatment acute bipolar mania september 2004 december 2004 company otsuka received approval fda oral solution formulation abilify oral solution became available us pharmacies february 2005 may 2004 company entered worldwide codevelopment cocommercialization agreement solvay pharmaceuticals solvay codevelop copromote investigational compound slv319 currently phase development potential use treating obesity metabolic disorders company may also elect develop market two additional investigational compounds selected solvay’s pool eligible compounds company paid solvay upfront milestone payment 10 million july 2004 expensed research development milestone payments expected made upon successful outcome certain development regulatory stages april 2004 company entered collaboration agreement merck worldwide codevelopment copromotion muraglitazar company’s dual ppar peroxisome proliferator activated receptor agonist currently phase iii clinical development use treating type 2 diabetes nda muraglitazar submitted fda december 2004 us regulatory approval terms agreement company received 100 million upfront payment may 2004 received additional 55 million milestone payment january 2005 filing nda company entitled receive 220 million additional payments upon achievement certain regulatory milestones company merck jointly develop clinical marketing strategy muraglitazar share equally future development commercialization costs copromote product physicians global basis merck receive payments based net sales levels april 2004 company pierre fabre medicament sa pierre fabre entered agreement develop commercialize javlor vinflunine novel investigational anticancer agent javlor currently phase iii clinical trials europe treatment bladder nonsmall cell lung cancer phase ii clinical trials breast ovarian cancer terms agreement company received exclusive license javlor united states canada japan korea select southeast asian markets pierre fabre responsible development marketing javlor countries including europe agreement company made expensed upfront milestone payments 35 million 2004 potential additional 175 million milestone payments time april 2004 company announced completion acquisition acordis 158 million acordis privately held company based uk licenses patent rights supplies materials convatec wound therapeutics line acquired business incorporated part company’s convatec division acquisition enable convatec strengthen position field wound care management continue provide new treatment options patients acute chronic wound care needs see “item 1 financial statementsnote 4 acquisitions divestitures” march 2004 company announced medical imaging business entered agreement kereos inc kereos development commercialization novel molecular imaging agents terms agreement companies work together develop molecular imaging agents cardiovascular diseases cancer using kereos’ core technology medical imaging obtained exclusive worldwide rights develop commercialize select cardiovascular molecular imaging agents magnetic resonance imaging mri kereos obtained exclusive worldwide rights use family medical imaging targeting molecules kereos’ core technology develop commercialize molecular cancer imaging agents targeted therapeutics including ki001 kereos’ lead candidate early mri detection tumors february 2004 fda approved bla erbitux anticancer agent company developing partnership imclone erbitux injection use combination irinotecan treatment patients epidermal growth factor receptor egfrexpressing metastatic colorectal cancer refractory irinotecanbased chemotherapy use single agent treatment patients egfrexpressing metastatic colorectal cancer intolerant irinotecanbased chemotherapy accordance agreement company paid imclone 250 million march 2004 milestone payment approval erbitux fda also approved imclone’s chemistry manufacturing controls supplemental bla licensure bb36 manufacturing facility erbitux june 2004 financial position liquidity capital resources cash equivalents marketable securities totaled approximately 75 billion december 31 2004 compared 56 billion december 31 2003 company continues maintain high level working capital 50 billion december 31 2004 increasing 45 billion december 31 2003 2005 company expects cash generated us operations together borrowings capital markets sufficiently cover cash needs working capital expenditures milestone payments dividends paid united states cash equivalents marketable securities conversion workingcapital items borrowings expected fund nearterm operations december 31 2004 company approximately 169 billion undistributed earnings foreign subsidiaries company accrued provision 575 million estimated deferred taxes fourth quarter 2004 expected paid 2005 anticipation repatriating approximately 9 billion undistributed earnings 2005 pursuant american jobs creation act 2004 ajca taxes provided balance undistributed earnings approximately 79 billion company invested expects invest undistributed earnings permanently offshore future earnings repatriated united states company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided ajca president bush signed law october 22 2004 provides temporary 85 percent dividends received deduction certain cash distributions earnings foreign subsidiaries deduction would result federal tax rate approximately 525 repatriated earnings assuming marginal federal tax rate 35 earnings qualify deduction repatriated earnings must reinvested united states pursuant domestic reinvestment plan approved company’s chief executive officer subsequently board directors january 2005 department treasury issued guidelines permitted investments plan company expects meet requirements criteria qualify deduction however several provisions ajca require clarification may addressed coming months treasury congress company’s estimate tax cost related repatriation december 31 2004 based tax laws effect extent tax laws guidance changes estimate revised company’s estimate may also revised result changes company’s factual assumptions may occur cash equivalents december 31 2004 primarily consisted us dollar denominated bank deposits original maturity three months less marketable securities december 31 2004 primarily consisted us dollar denominated floating rate instruments ‘aaaaaa’ credit rating due nature instruments company considers reasonable expect fair market values significantly impacted change interest rates liquidated cash short notice average interest yield cash equivalents 23 12 december 31 2004 2003 respectively interest yields marketable securities averaged 25 13 respectively longterm debt december 31 2004 denominated primarily us dollars also included japanese yen debt 187 million longterm debt remained constant 85 billion december 31 2004 2003 majority company’s debt fixed rate company however entered fixed floating interest rate swaps 62 billion longterm debt interest expense net interest swap gains 310 million 277 million 364 million 2004 2003 2002 respectively increase interest expense 2004 2003 primarily due increased shortterm borrowings higher interest rates decrease 2003 2002 driven net gains interest rate swaps us commercial paper outstanding december 31 2004 16 billion average interest rate 23 us commercial paper outstanding december 31 2003 average interest rate year ended december 31 2004 2003 international shortterm borrowings 93 80 respectively current installments longterm debt 28 13 respectively december 2004 company replaced prior 1 billion revolving credit facilities new 2 billion five year revolving credit facility syndicate lenders extendable anniversary date consent lenders availability facility subject company’s ability time borrowing meet certain conditions including financial covenant net debt capital cannot exceed 50 facility contain material adverse change representation company’s business condition borrowing december 31 2004 company ratio consolidated net debt consolidated capital 14 compliance covenant since inception facility changes public credit ratings affect availability credit facility borrowings outstanding revolving credit facilities december 31 2004 2003 company also unused shortterm lines credit foreign banks 158 million 363 million december 31 2004 2003 respectively april 2003 moody’s investors service moody’s lowered company’s longterm credit rating aa2 a1 march 2003 affirmed prime1 shortterm credit rating company july 2003 standard poor’s sp lowered longterm credit rating company aa affirmed a1 shortterm rating march 2004 sp placed longterm shortterm ratings company watch negative implications august 2004 sp downgraded shortterm credit rating company a1 longterm credit rating company moody’s sp’s longterm credit rating remains negative outlook following discussion working capital cash flow activities • increase working capital 422 million 2003 primarily due increased receivables resulting higher sales higher foreign withholding taxes expected refunded higher inventories resulting new product introductions higher demand existing key brands partially offset higher accounts payable due higher purchasing activities 2004 higher accrued expenses rebates returns mainly due increases royalties higher unrealized losses derivatives medicaid rebates • net cash provided operating activities 32 billion 2004 35 billion 2003 09 billion 2002 decrease net cash provided operating activities 2004 mainly attributable lower earnings higher usage working capital significant changes operating assets liabilities 2004 2003 260 million increase inventory primarily due introduction new products including reyataz erbitux higher demand key brands including plavix avaproavalide sustiva 350 million decrease deferred revenue consigned inventory due workdown consignment inventory 2003 146 million decrease accounts payable accrued expenses including advertising promotion deferred revenue abilify milestone payments increase 2003 2002 primarily due income tax payment 2002 related gain arising sale clairol business increase earnings higher rate decrease deferred revenue consigned inventory due workdown consignment inventory higher accounts payable accrued expenses partially offset reduction accounts receivable increased litigation settlement payments • net cash used investing activities 16 billion 2004 compared 24 billion 2003 20 billion 2002 decrease net cash used investing activities mainly attributable 364 million cash proceeds sale company’s adult nutritional business lower purchases marketable securities 261 million lower capital spending partially offset milestone payment 250 million imclone 150 million payment acordis acquisition increased purchases trademarks patents licenses • net cash used financing activities 05 billion 2004 10 billion 2003 2002 decrease 2004 2003 mainly attributable increase shortterm borrowings 2004 partially offset proceeds received issuance convertible debt 2003 cash provided operations borrowings primarily used past three years pay dividends 65 billion company also invested 27 billion past three years capital expansion improve plant efficiency maintain superior research facilities 2004 2003 company repurchase common stock company repurchased 5 million shares common stock cost 164 million 2002 bringing total shares acquired since share repurchase program’s inception 372 million shares share repurchase program authorizes company purchase common stock time open market private transactions market conditions permit program intended reduce increase shares outstanding option exercises obtain shares general corporate purposes dividends declared per common share 112 2004 2003 2002 december 2004 company declared quarterly dividend 28 per common share indicated dividend full year 2005 112 per share dividend decisions made quarterly basis board directors company’s financial condition liquidity could affected obligations make milestone onetime payments outcome pending litigations investigations including challenge plavix patent information see “item 1 businessstrategic alliances arrangements” “item 8 financial statementsnote 2 alliances investments” “note 21 legal proceedings contingencies” contractual obligations payments due period company’s contractual obligations december 31 2004 follows 1 2005 longterm debt obligations included shortterm borrowings company’s consolidated balance sheet december 31 2004 balances represent outstanding nominal longterm debt values contractual obligations table excludes interest payment obligations addition company committed make potential future “milestone” payments thirdparties part inlicensing development programs payments agreements generally become due payable upon achievement certain developmental regulatory andor commercial milestones achievement milestones neither probable reasonably estimable contingencies recorded company’s consolidated balance sheet discussion contractual obligations reference made “item 8 financial statementsnote 15 shortterm borrowings longterm debt” “note 17 financial instruments” “note 19 leases” “note 20 pension postretirement benefit plans” restatement previously issued financial statements previously disclosed company experienced substantial buildup wholesaler inventories us pharmaceuticals business 2000 2001 buildup primarily due sales incentives offered company wholesalers incentives generally offered towards end quarter order incentivize wholesalers purchase products amount sufficient meet company’s quarterly sales projections established company’s senior management april 2002 company disclosed substantial buildup developed subsequently undertook plan work orderly fashion wholesaler inventory levels reducing amount sales made company wholesalers relative amount sales made wholesalers customers thereby reducing inventories company’s products held wholesalers october 2002 based review consideration previously disclosed buildup wholesaler inventories company’s us pharmaceuticals business incentives offered certain wholesalers advice pricewaterhousecoopers llp pwc independent registered public accounting firm company determined required restate sales earnings correct errors timing revenue recognition certain sales made two largest wholesalers us pharmaceuticals business company determined sales accounted consignment model based part relationship amount nature incentives offered wholesalers amount inventory held wholesalers following determination company also determined would correct historical accounting policies conform accounting gaap known errors made application gaap previously recorded case company believed amount error material company’s consolidated financial statements addition part restatement process company investigated accounting practices areas involved significant judgment determined restate additional items respect company concluded errors made application gaap including revisions inappropriate accounting march 2003 company completed restatement financial statements items restated financial statements three years ended december 31 2001 2002 restatement completing 2002 restatement company continued identify implement actions improve effectiveness disclosure controls procedures internal controls financial reporting connection effort company substantially strengthened organization personnel senior financial control functions ii adopted rigorous policies procedures respect balance sheet review process iii focused internal audit function financial reporting controls iv engaged consultant assist evaluation documentation certain financial reporting disclosure processes throughout company particular respect designing standard operating procedures implementing tools ensure disclosure issues effectively identified managed controlled globally v engaged consultant assist company’s personnel conduct comprehensive detailed review certain company’s tax reporting accounting particular respect developing effective processes establishing monitoring deferred income taxes valuation allowances company’s annual effective tax rate addition request company’s audit committee independent registered public accounting firm performed extensive procedures respect company’s interim financial information 2003 based auditors’ assessment company’s risk profile expanded scope amount field work performed certain areas connection audit company 2003 actions contributed significantly company identifying additional errors relating prior periods reflected 2002 restatement march 2004 company corrected errors restating financial statements two years ended december 31 2002 sec consent order previously disclosed august 4 2004 company entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10s company’s quarterly report form 10q period ended september 30 2004 consent company agreed without admitting denying liability violate certain provisions securities laws company also agreed establish 150 million fund class shareholders distributed court’s supervision 150 million fund included 100 million civil penalty distributed certain company shareholders plan distribution established sec terms consent company agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice company established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis company maintains inventory management agreements imas us pharmaceutical wholesalers account nearly 100 total gross sales us pharmaceuticals products current terms imas wholesalers provide company information inventory levels product hand amount outmovement products information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals company determines outmovement product period onemonth using recent prior four weeks outmovement product provided wholesalers company also determines months hand estimates us pharmaceuticals business using factors historical sales made wholesalers third party market research data related prescription trends patient demand contrast company’s pharmaceuticals business outside united states nutritionals healthcare business units around world company significantly direct customers limited information direct customer product level inventory corresponding movement information reliability third party demand information available varies widely accordingly company relies variety methods estimate direct customer product level inventory calculate months hand business units company expects complete analysis direct customer inventory levels businesses first quarter 2005 provide additional disclosure information respect direct customer inventory levels company continue enhance methods estimate direct customer product level inventory months hand business units taking account complexities described company continue disclose key pharmaceutical products sold us pharmaceutical business amount net sales estimated number months hand us wholesaler distribution channel end immediately preceding quarter end applicable quarter quarterly annual reports forms 10q 10k business units company expects disclose quarterly basis key product level inventories information required estimate months hand direct customer distribution nonus pharmaceuticals business available prior time company required file quarterly reports form 10q accordingly company expects disclose information website approximately 60 days end quarter addition foregoing quarterly disclosure company include foregoing information business units quarter annual report form 10k company believes abovedescribed procedures provide reasonable basis ensure compliance consent order provides sufficient information comply disclosure requirements company agreed consent certain measures implemented implement including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer company’s accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring company’s budget process gives appropriate weight inputs come bottom top come top bottom adequately documenting process company also agreed consent retain “independent adviser” date company’s form 10k year ended 2005 filed sec consent defines certain powers responsibilities independent adviser consent includes process independent adviser make recommendations regarding company’s compliance applicable federal securities laws corporate obligations company agreed consent adopt independent adviser’s recommendations regarding compliance applicable federal securities laws corporate obligations settlement resolve ongoing investigation sec activities certain current former members company’s management connection wholesaler inventory issues accounting matters investigation ongoing addition investigation us attorney’s office district new jersey concerning inventory accounting matters covered company’s settlement sec continuing company continuing cooperate investigations recently issued accounting standards december 2004 financial accounting standards board fasb issued revised statement financial accounting standards sfas 123 sfas 123r sharebased payment standard eliminates ability account sharebased compensation transactions using intrinsic valuebased method accounting principles board opinion 25 accounting stock issued employees requires instead transactions accounted using fairvaluebased method sfas 123r effective financial statements issued first interim period beginning june 15 2005 currently company discloses pro forma net income related pro forma income per share information accordance sfas 123 accounting stockbased compensation sfas 148 accounting stockbased compensation coststransition disclosure company evaluating impact statement could material impact results operations december 2004 fasb issued final staff position fsp 1091application sfas 109 accounting income taxes tax deduction qualified production activities provided american jobs creation act 2004 effect adoption fsp 1091 material company’s consolidated financial statements see “item 8 financial statementsnote 1 accounting policiesincome taxes” december 2004 fasb issued fas 153 exchanges nonmonetary assets provisions statement effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 provisions statement applied prospectively eliminates exception fair value measurement nonmonetary exchanges similar productive assets paragraph 21b apb opinion 29 accounting nonmonetary transactions replaces exception exchanges commercial substance adoption accounting pronouncement expected material effect consolidated financial statements november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 standard requires abnormal amounts idle facility related expenses recognized current period charges also requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective inventory costs incurred fiscal years beginning june 15 2005 company evaluating impact statement financial position results operations june 2004 fasb issued fsp 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 medicare act medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part fsp 1062 requires effects new law accounted sfas 106 employers’ accounting postretirement benefits pensions company adopted fsp 1062 third quarter 2004 retroactive january 1 2004 reduction net periodic benefit cost benefits 8 million 2004 based remeasurement accumulated postretirement benefit obligation january 1 2004 effect adoption fsp 1062 material company’s consolidated financial statements see “item 8 financial statementsnote 20 pension postretirement benefit plans” march 2004 emerging issues task force eitf reached consensus issue 0306 participating securities twoclass method fas 128 requires use twoclass method computing earnings per share enterprises participating securities multiple classes common stock consensus effective fiscal periods beginning march 31 2004 adoption eitf 0306 affect company’s consolidated financial statements december 2003 fasb revised interpretation 46 consolidation variable interest entities fin 46 fin 46 requires variable interest entity consolidated company subject majority risk loss variable interest entity’s activities entitled receive majority entity’s residual returns fin 46 also requires disclosures variable interest entities company required consolidate significant variable interest consolidation requirements fin 46 revised apply immediately variable interest entities created january 31 2003 existing entities first fiscal year interim period ending march 15 2004 certain disclosure requirements apply financial statements issued january 31 2003 regardless variable interest entity established accounting pronouncement material effect consolidated financial statements critical accounting policies company prepares financial statements conformity accounting principles generally accepted united states preparation financial statements conformity gaap requires use estimates assumptions affect reported amounts assets liabilities including disclosure contingent assets contingent liabilities date financial statements reported amounts revenue expenses reporting period company’s critical accounting policies important company’s financial condition results operations require difficult subjective complex judgments part management application often result need make estimates effect matters inherently uncertain uncertainty factors surrounding estimates judgments used preparation consolidated financial statements actual results may vary estimates company believes following discussion represents critical accounting policies management company’s independent registered public accounting firm discussed company’s critical accounting policies audit committee board directors revenue recognition company recognizes revenue accordance sab 101 revenue recognition financial statements amended sab 104 revenue recognition company’s accounting policy revenue recognition substantial impact reported results relies certain estimates require difficult subjective complex judgments part management company recognizes revenue sales substantially risks rewards ownership transferred customer generally occurs date shipment exceptions described previous years certain transactions company’s us pharmaceuticals wholesalers accounted using consignment model case sales made wholesalers 1 result incentives 2 excess wholesaler’s ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesaler’s cost carrying inventory excess wholesaler’s ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoiced wholesaler recorded deferred revenue gross invoice sales price classified inventory held wholesalers consignment inventory company’s cost inventory company recognized revenue net gross net sales adjustments discussed involve significant estimates judgments consignment inventory longer subject incentive arrangements described later inventory sold wholesalers’ customers fifo basis case new products product introduction extension existing line product company determines products similar therapeutic category company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns discussions revenue recognition see “item 8 financial statementsnote 1 accounting policiesrevenue recognition” “sales rebate return accruals” “note 11 consignment” gross net sales adjustments company following significant categories gross net sales adjustments impact company’s three reportable segments prime vendor chargebacks wic rebates managed health care rebates contract discounts medicaid rebates cash discounts sales returns adjustments involve significant estimates judgments require company use information external sources company accounts gross net sales adjustments accordance eitf issue 019 accounting consideration given vendor customer including reseller vendor’s products sfas 48 revenue recognition right return exists sfas 48 applicable see “net sales” section reconciliations company’s gross sales net sales significant category grosstonet sales adjustments prime vendor chargebacks company’s us businesses participate prime vendor programs government entities significant us department defense us department veterans affairs parties whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower prime vendor price wholesalers charge difference acquisition cost lower prime vendor price back company accounts prime vendor chargebacks reducing accounts receivable amount equal company’s estimate chargeback claims attributable sale company determines estimate prime vendor chargebacks primarily based historical experience regarding prime vendor chargebacks current contract prices prime vendor programs company considers prime vendor payments levels inventory distribution channel company’s claim processing time lag adjusts reduction accounts receivable periodically throughout quarter reflect actual experience wic rebates company’s us nutritionals business participates competitive bidding basis nutrition programs sponsored states tribal governments commonwealth puerto rico territory guam women infants children wic programs company reimburses entities difference wholesaler list price contract price eligible products company accounts wic rebates establishing accrual amount equal company’s estimate wic rebate claims attributable sale company determines estimate wic rebate accrual primarily based historical experience regarding wic rebates current contract prices wic programs company considers levels inventory distribution channel new wic contracts terminated wic contracts changes existing wic contracts wic participations adjusts accrual periodically throughout quarter reflect actual experience managed health care rebates contract discounts company offers rebates discounts managed health care organizations us globally contract counterparties hospitals group purchasing organizations company accounts managed health care rebates contract discounts establishing accrual amount equal company’s estimate managed health care rebates contract discounts attributable sale company determines estimate managed health care rebates contract discounts accrual primarily based historical experience regarding rebates discounts current contract prices company considers sales performance products subject managed health care rebates contract discounts levels inventory distribution channel adjusts accrual periodically throughout quarter reflect actual experience medicaid rebates company’s us businesses participate state governmentmanaged medicaid programs well certain qualifying federal state government programs whereby discounts rebates provided participating state local government entities discounts rebates provided latter programs included company’s medicaid rebate accrual considered medicaid rebates purposes discussion company accounts medicaid rebates establishing accrual amount equal company’s estimate medicaid rebate claims attributable sale company determines estimate medicaid rebates accrual primarily based historical experience regarding medicaid rebates well expansion prospective basis participation nonmandatory aspects qualifying federal state government programs legal interpretations applicable laws related medicaid qualifying federal state government programs new information regarding changes medicaid programs’ regulations guidelines would impact amount rebates company considers outstanding medicaid claims medicaid payments levels inventory distribution channel adjusts accrual periodically throughout quarter reflect actual experience cash discounts us certain countries company offers cash discounts generally approximately 2 sales price incentive prompt payment company accounts cash discounts reducing accounts receivable full amount discounts company considers payment performance adjusts accrual reflect actual experience sales returns company accounts sales returns accordance sfas 48 establishing accrual amount equal company’s estimate sales recorded related products expected returned 2004 2003 2002 provision sales returns 276 million 348 million 345 million respectively 1 2 respectively gross sales returns established products company determines estimate sales return accrual primarily based historical experience regarding sales returns also considers factors could impact sales returns factors include levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products company considers factors adjusts accrual periodically throughout quarter reflect actual experience company considers level inventory distribution channel determines whether believes adjustment sales return accrual appropriate example levels inventory distribution channel increase company analyzes reasons increase reasons indicate sales returns larger expected company adjusts sales return accrual taking account historical experience company’s returned goods policy shelf life company’s products ranges average approximately 12 48 months situations company aware products distribution channel nearing expiration date company analyzes situation analysis indicates sales returns larger expected company adjusts sales return accrual taking account historical experience company’s returned goods policy levels inventory distribution channel event product recall product discontinuance company considers reasons impact actions adjusts sales return accrual appropriate taking account historical experience levels inventory distribution channel product discontinuances estimates continuing demand although company considers price changes competitive products introductions generic products introductions competitive new products company generally believe factors impact sales returns based historical experience company’s returned goods policy returns new products significantly difficult company assess company determines estimate sales return accrual primarily based historical sales returns experience similar products within line product within similar therapeutic category limited circumstances new product extension existing line product company historical experience products similar therapeutic category company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns company also considers shelf life new products determines whether believes adjustment sales return accrual appropriate shelf life connection new products tends shorter shelf life established products company may still developing optimal manufacturing process new product would lengthen shelf life amount launch quantities may manufactured advance launch date ensure sufficient supply exists satisfy market demand cases company assesses reduced shelf life together levels inventory distribution channel projected demand determines whether believes adjustment sales return accrual appropriate adjustments addition significant gross net sales adjustments described company makes gross net sales adjustments example company offers sales discounts significantly nonus businesses also offers consumer coupons rebates significantly us nutritionals consumer medicines pharmaceuticals businesses addition number countries outside us including major european countries company provides rebates government entities company generally accounts gross net adjustments establishing accrual amount equal company’s estimate adjustments attributable sale company generally determines estimates accruals gross net sales adjustments primarily based historical experience performance commitments government entities relevant factors including levels inventory distribution channel cases adjusts accruals periodically throughout quarter reflect actual experience use information external sources company uses information external sources estimate significant gross net sales adjustments company’s estimates inventory wholesalers deferred revenue consigned inventory based projected prescription demandbased sales products historical inventory experience well company’s analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data company’s internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals company receives information ims health supplier market research pharmaceutical industry uses project prescription demandbased sales many us pharmaceutical products company also uses information external sources identify prescription trends patient demand average selling prices company’s estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date company receives thirdparty information retirement benefits company’s pension plans postretirement benefit plans accounted using actuarial valuations required sfas 87 employers’ accounting pensions sfas 106 employers’ accounting postretirement benefits pensions company considers accounting retirement plans critical management required make significant subjective judgments number actuarial assumptions including discount rates salary growth longterm return plan assets retirement turnover health care cost trend rates mortality rates depending assumptions estimates used pension postretirement benefit expense could vary within range outcomes material effect reported earnings addition assumptions materially affect accumulated benefit obligations future cash funding plan description company certain subsidiaries defined benefit pension plans defined contribution plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan principal defined contribution plan bristolmyers squibb savings investment program approximately 80 total company defined benefit pension plan assets liabilities held us plans assets us plans held single trust common asset allocation unless specified otherwise references section total company plans ie us plans together international plans benefits company’s defined benefit pension plans based primarily years credited service participants’ compensation assets company’s defined benefit plans consist primarily equity fixedincome securities december 31 2004 fair market value plan assets company’s defined benefit plans increased 4602 million 4085 million december 31 2003 us plans assets allocated 70 equity securities compared 71 end 2003 23 fixed income securities compared 23 end 2003 7 private equity investments compared 6 end 2003 bristolmyers squibb common stock represented less 1 assets us plans end 2004 2003 company provides comprehensive medical group life benefits substantially us retirees elect participate company’s comprehensive medical group life plans asset allocation postretirement plans identical asset allocation described us defined benefit pension plans accrual accounting significant assumptions consistent requirements sfas 87 employers’ accounting pensions company accounts pension benefits using accrual method recognizing pension expense payment benefits retirees accrual method accounting pension benefits necessarily requires actuarial assumptions concerning future events determine amount timing benefit payments company’s key assumptions used calculating cost pension benefits discount rate compensation increase expected longterm rate return plan assets company consultation actuaries evaluates key actuarial assumptions used calculating cost pension benefits retirement turnover mortality rates based expectations actual experience appropriate determines assumptions december 31 year calculate liability information date pension expense following year depending assumptions used pension expense could vary within range outcomes material effect reported earnings addition assumptions materially affect accumulated benefit obligations future cash funding actual results given year may differ estimated economic factors assumed discount rate used company determining future pension obligations us plans based indice aarated corporate bonds indices high quality corporate bonds selected reflect weightedaverage remaining period benefit payments assumed rate compensation increase used company determining future pension obligations reflects estimate change actual future compensation levels due general price levels productivity seniority factors 2004 net pension expense company’s defined benefit pension plans included earnings minority interest income taxes 276 million compared 136 million 2003 us plans pension expense 2004 determined using 625 assumed discount rate 356 assumed rate compensation increase present value benefit obligations december 31 2004 us plans determined using 575 assumed discount rate salary increase rate assumed discount rate used determining us plans pension expense 2004 reduced 05 expense would increased approximately 302 million assumed rate compensation increase used determining us plans pension expense 2004 reduced 025 expense would decreased approximately 85 million assumed discount rate used determining accumulated benefit obligation december 31 2004 reduced 05 accumulated benefit obligation would increased 2519 million us plans pension expense 2004 determined using 9 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans pension expense 2004 reduced 1 expense would increased 33 million actual rates return earned us plan assets last ten years follows discussed gaap provides differences expected actual returns recognized average future service employees december 31 2004 company lowered assumed discount rate us plans 625 575 maintained assumed rate compensation increase 356 compensation assumed increase scale different rates different ages 356 rate disclosed december 31 2004 single rate used age would produce present value benefit obligations reduction discount rate effect increasing present value benefit obligations accordingly effect increasing pension expense 2005 addition company revised based upon review experience assumption lump sum utilization revision effect increasing present value benefit obligations accordingly effect increasing pension expense 2005 following many years strong performance global equity market fell sharply 2000 2002 eg sp 500 declined cumulative 376 reversed 20032004 eg sp 500 rose cumulative 427 company reduced expected rate return us plan assets 9 2004 875 2005 revision effect increasing pension expense 2005 company expects net pension expense defined benefit pension plans included earnings minority interest income taxes approximately 75 million higher 2005 276 million 2004 reflecting among things decrease assumed discount rate company used assumed discount rates expected longterm rates return plan assets calculating cost pension benefits cost postretirement benefits us plans except case discount rates december 31 2004 2003 rates 575 625 used pension benefits versus 550 600 respectively postretirement benefits reflect shorter duration postretirement liabilities us health care costs retiree population assumed increase 90 2005 trend expected increase 45 per year 2012 actual costs higher assumed likely put significant upward pressure company’s expense retiree health care december 8 2003 president bush signed law medicare prescription drug improvement modernization act 2003 effects medicare act reflected 2004 net periodic postretirement benefit cost reduction 8 million accumulated postretirement benefit obligation december 31 2004 reduction 58 million delayed recognition actuarial gains losses december 31 2004 2003 unrecognized net actuarial losses company’s defined benefit plans 2017 million 1676 million respectively based fair market value plan assets unrecognized net actuarial losses reflect large part steady reduction weightedaverage discount rate years sfas 87 provides delayed recognition actuarial gains losses including amounts arising changes estimated plan benefit obligations due changes assumed discount rate differences actual expected returns plan assets assumption changes sfas 87 requires unrecognized net actuarial gain loss determined based marketrelated value plan assets differs fair market value calculated value recognizes changes fair value systematic rational manner five years amortized pension income expense year extent unrecognized net actuarial loss gain exceeds 10 greater projected benefit obligation marketrelated value plan assets beginning year net gains losses recognized pension income expense prospectively period approximates average remaining service period active employees expected receive benefits plans approximately 10 years extent offset losses gains subsequent years december 31 2004 unrecognized net actuarial loss determined based marketrelated value plan assets 2278 million amount exceeded 10 greater projected benefit obligation market related value plan assets 1730 million unless offset future unrecognized gains higher discount rates higher expected returns plan assets amortization unrecognized loss expected increase pension expense following ten years approximately 173 million per year amount reflected higher expense expected 2005 december 31 2003 unrecognized net actuarial loss determined based marketrelated value plan assets 1717 million amount exceeded 10 greater projected benefit obligation market related value plan assets 1241 million event fair market value pension plan assets particular plan less accumulated benefit obligation plan yearend gaap may require additional minimum liability circumstances reduction stockholders’ equity establishment intangible asset december 31 2004 fair market value company’s defined benefit pension plan assets 4602 million related accumulated benefit obligation 4828 million company recognized additional minimum liability 146 million cumulatively 349 million december 31 2004 offset 153 million charge comprehensive income included stockholders’ equity 7 million reduction intangible asset december 31 2003 fair market value company’s defined benefit pension plan assets 4085 million related accumulated benefit obligation 4154 million company recognized additional minimum liability 53 million cumulatively 203 million december 31 2003 offset 53 million charge comprehensive income included stockholders’ equity plan funding company’s funding policy defined benefit plans contribute amounts provide current service fund past service liability company contributed 367 million 332 million defined benefit plans 2004 2003 respectively discussions retirement benefits see “item 8 financial statementsnote 20 pension postretirement benefit plans” acquired inprocess research development fair value inprocess research development acquired business combination determined independent appraisal based present value research project’s projected cash flows income approach utilized consistent guidance practice aid issued american institute certified public accountants entitled “assets acquired business combination used research development activities focus software electronic devices pharmaceutical industries” future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weighted average cost capital discussions acquired inprocess research development see “item 8 financial statementsnote 1 accounting policiesacquired inprocess research development” impairment longlived assets accordance sfas 144 accounting impairment disposal longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable longlived assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value goodwill evaluated least annually impairment accordance sfas 142 goodwill intangible assets sfas 142 requires goodwill tested impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value sfas 142 requires indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net book value exceeds estimated fair value estimates future cash flows based reasonable supportable assumptions projections require management’s judgment changes key assumptions company’s businesses prospects changes market conditions could result impairment charge discussions impairment longlived assets see “item 8 financial statementsnote 1 accounting policiesimpairment longlived assets” “goodwill intangible assets” equity investments company reviews equity investments impairment based determination whether decline market value investment company’s carrying value temporary making determination company considers accounting principles board opinion 18 equity method accounting investments common stock related interpretations set forth factors evaluated determining whether loss value recognized including company’s ability hold investment market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment company’s investment imclone subject accounting see “item 8 financial statementsnote 2 alliances investments” discussion company’s investment imclone discussions equity investments see “item 8 financial statementsnote 1 accounting policiesinvestments” “note 2 alliances investments” restructuring downsize streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results could vary estimates resulting adjustment earnings discussions restructuring see “item 8 financial statementsnote 1 accounting policiesrestructuring” “note 3 restructuring items” contingencies normal course business company subject contingencies legal proceedings claims arising business cover wide range matters including government investigations shareholder lawsuits product environmental liability accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated discussions contingencies see “item 8 financial statementsnote 1 accounting policiesincome taxes” “contingencies” “note 8 income taxes” “note 21 legal proceedings contingencies” income taxes december 31 2004 company approximately 169 billion undistributed earnings foreign subsidiaries company accrued provision 575 million estimated deferred taxes fourth quarter 2004 anticipation repatriating approximately 9 billion earnings 2005 pursuant ajca taxes provided balance undistributed earnings approximately 79 billion company invested expects invest undistributed earnings permanently offshore future earnings repatriated united states company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided company evaluates need deferred tax asset valuation allowance assessing whether likely realize deferred tax assets future assessment whether valuation allowance required often requires significant judgment including forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made december 31 2004 company net deferred tax assets 1713 million net valuation allowance 507 million addition company conducts business various countries throughout world subject tax numerous jurisdictions result business activities company files significant number tax returns subject audit various tax authorities tax audits often complex tax authorities may disagree treatment items reported company may require several years resolve company recorded accruals tax contingencies related potential audit exposures including limited transfer pricing certain tax credits various state foreign tax matters accruals based management’s judgment best estimate ultimate outcome tax audits actual audit results could vary estimates discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 8 income taxes” outlook previously disclosed although anticipated sales declines due continued exclusivity losses 2005 2006 expected less offset growth sales company’s inline recently launched potential new products period changes product mix adversely impact gross margins products lost expected lose exclusivity generally higher margins addition earnings adversely affected company’s investments support introduction new products development launch additional new compounds 2007 based management’s current estimates growth company’s inline recently launched products riskadjusted assessment potential new product launches company expects earnings growth resume company continue rationalize cost base line strategy increase sales marketing emphasis specialists high value primary care physicians previously disclosed company experienced substantial revenue losses last years due expiration market exclusivity protection certain products company expects substantial incremental revenue losses 2005 2006 2007 representing continuing declines revenues products well declines revenues certain additional products lose market exclusivity primarily 2005 2006 2005 company estimates reductions net sales range 14 billion 15 billion 2004 levels products lost lose exclusivity protection 2003 2004 2005 specifically monopril united states canada europe glucophage xr glucovance united states cefzil united states paraplatin united states videx ec united states taxol® europe pravachol europe company also expects substantial incremental revenue losses 2006 2007 representing continuing declines net sales products lost exclusivity protection 2002 2003 2004 additional declines attributable products lose exclusivity protection primarily 2005 2006 products years lose exclusivity protection include glucophageglucovanceglucophagexr united states 2002 2004 taxol® europe japan 2003 pravachol united states 2006 europe 2002 2007 paraplatin united states 2004 monopril united states 2003 canada 2003 europe 2001 2008 zerit united states 2008 europe 2007 2011 cefzil united states 2005 europe 2004 2009 videxvidex ec 2004 2009 timing amounts sales reductions exclusivity losses realization particular periods eventual levels remaining sales revenues uncertain dependent levels sales time exclusivity protection ends timing degree development generic competition speed approvals market entry impact factors pravachol hmg coa reductase inhibitor statin net sales 26 billion 2004 company experienced increased competition pravachol established brands new entrants us prescriptions pravachol declined 10 2004 compared 2003 product begun lose exclusivity markets anticipated loss us exclusivity april 2006 expected rate decline sales market share could accelerated increased competition established brands new entrants company’s expectations future sales growth include substantial expected increases sales plavix net sales 33 billion 2004 currently company’s largest product ranked net sales composition matter patent plavix expires 2011 currently subject litigation united states similar proceedings involving plavix instituted outside united states company continues believe patent valid infringed alliance partner patentholder sanofi vigorously pursuing cases possible time reasonably assess outcome litigations adverse determination litigations timing potential generic competition plavix however generic competition occur company believes unlikely occur second half 2005 company subsidiaries subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcome investigations litigations management continues believe previously disclosed next years aggregate impact beyond current reserves legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity company’s expectations next several years described reflect potential impact litigation company’s results operations cautionary factors may affect future results annual report form 10k including documents incorporated reference written oral statements company makes time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “will” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things company’s goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years although possible predict identify factors may include limited following • new government laws regulations health care reform initiatives united states state federal level countries ii changes fda foreign regulatory approval processes may cause delays approving preventing approval new products iii tax changes phasing tax benefits heretofore available united states certain foreign countries iv new laws regulations judicial decisions affecting pricing marketing within across jurisdictions v changes intellectual property law • competitive factors new products developed competitors lower prices superior performance features otherwise competitive company’s current products ii generic competition company’s products mature patents expire products iii technological advances patents attained competitors iv problems licensors suppliers distributors v business combinations among company’s competitors major customers • difficulties delays inherent product development manufacturing sale products may appear promising development fail reach market approved additional indications number reasons including efficacy safety concerns inability obtain necessary regulatory approvals difficulty excessive cost manufacture ii failure products achieve maintain commercial viability iii seizure recalls pharmaceutical products forced closings manufacturing plants iv failure obtain imposition limitations use loss patent intellectual property rights v failure company vendors suppliers comply current good manufacturing practices application regulations quality assurance guidelines could lead temporary manufacturing shutdowns product shortages delays product manufacturing vi manufacturing distribution problems including changes manufacturing production sites manufacturing capacity due regulatory requirements changes types products produced biologics physical limitations could impact continuous supply • legal difficulties including lawsuits claims proceedings investigations preclude delay commercialization products adversely affect operations profitability liquidity financial condition including intellectual property disputes ii adverse decisions litigation including product liability commercial cases iii inability obtain adequate insurance respect type liability iv recalls pharmaceutical products forced closings manufacturing plants v failure fulfill obligations supply contracts government customers may result liability vi government investigations including relating wholesaler inventory financial restatement product pricing promotion vii claims asserting violations securities antitrust federal state pricing laws viii environmental health safety matters ix tax liabilities assurance increase scope matters future lawsuits claims proceedings investigations material • increasing pricing pressures worldwide including rules practices managed care groups institutional governmental purchasers judicial decisions governmental laws regulations related medicare medicaid healthcare reform potential impact importation legislative otherwise pharmaceutical reimbursement pricing general • fluctuations buying patterns inventory levels major distributors retail chains trade buyers may result seasonality pricing wholesaler buying decisions including effect incentives offered company’s wholesaler inventory management policies including workdown changes wholesaler inventory levels factors • greater expected costs difficulties including unanticipated effects difficulties acquisitions dispositions events including obtaining regulatory approvals connection evolving business strategies legal defense costs insurance expense settlement costs risk adverse decision related litigation • changes advertising promotional spending categories spending may affect sales • changes product mix may affect margins • changes company’s structure operations revenues costs staffing efficiency resulting acquisitions divestitures mergers alliances restructurings strategic initiatives • economic factors company control changes business economic conditions including limited changes interest rates fluctuation foreign currency exchange rates • changes business political economic conditions due political social instability military armed conflict nationalization assets debt payment moratoriums restrictions commerce actual threatened terrorist attacks united states parts world related military action • changes accounting standards promulgated fasb sec aicpa may require adjustments financial statements • capacity efficiency reliability security potential breakdown invasion destruction interruption information systems • reliance company vendors partners third parties meet contractual regulatory obligations relation arrangements company • results clinical studies relating company’s competitor’s products although company believes prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made company undertakes obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary company bristolmyers squibb company bms company bristolmyers squibb worldwide pharmaceutical related health care products company whose mission extend enhance human life providing highest quality pharmaceutical related health care products company engaged discovery development licensing manufacturing marketing distribution sale pharmaceuticals related health care products company three reportable segmentspharmaceuticals nutritionals health care pharmaceuticals segment comprised global pharmaceutical international consumer medicines business accounted approximately 77 company’s 2006 net sales nutritionals segment consists mead johnson nutritionals mead johnson primarily infant formula children’s nutritionals business accounted approximately 13 company’s 2006 net sales health care segment consists convatec medical imaging businesses accounted approximately 10 company’s 2006 net sales 2006 financial highlights company made progress longrange strategy despite significant challenges occurred year including atrisk launch generic clopidogrel bisulfate product adversely impacted plavix sales loss exclusivity pravachol united states us certain european markets increase litigation reserves company launched several important products 2006 including orencia sprycel gilead sciences inc gilead atripla orencia sprycel continue gain market share along double digit sales growth 2006 abilify reyataz erbitux sustiva franchise baraclude key components strong product line longterm growth company continues invest late stage compounds development new products growing importance biologics february 2007 company completed land purchase major new biologics facility devens massachusetts along expansion existing facilities syracuse new york manati puerto rico construction devens facility scheduled begin early 2007 worldwide net sales continuing operations 2006 decreased 7 179 billion compared 2005 worldwide net sales products company views growth drivers increased 6 2006 compared period 2005 excluding plavix worldwide net sales growth drivers increased 32 2006 compared period 2005 products company considers growth drivers plavix avaproavalide abilify reyataz erbitux net income 16 billion 2006 compared 30 billion 2005 2006 results include 353 million increase reserves pricing sales litigation settlement 220 million early debt retirement costs 2005 results included 370 million gain sale consumer medicines business plavix company’s largest product ranked net sales plavix clopidogrel bisulfate us sales 27 billion 2006 32 billion 2005 28 billion 2004 composition matter patent plavix expires 2011 currently subject patent litigation us apotex inc apotex corp apotex generic companies well less significant jurisdictions company previously disclosed certain developments pending plavix litigation apotex including atrisk launch generic product apotex august 2006 noted apotex launched generic clopidogrel bisulfate product competes plavix august 8 2006 august 31 2006 us district court southern district new york court granted motion company product partner sanofiaventis sanofi enjoin sales apotex’s generic clopidogrel bisulfate product order apotex recall product customers court’s grant preliminary injunction affirmed appeal trial underlying patent litigation ended february 15 2007 court expected rule following posttrial briefing atrisk launch generic clopidogrel bisulfate significant adverse effect net sales plavix 2006 company estimates range 12 billion 14 billion particular launch significant adverse effect sales third quarter company estimates range 525 million 600 million well fourth quarter 2006 company estimates range 700 million 750 million first second third fourth quarters 2006 us net sales plavix 850 million 988 million 474 million 343 million respectively estimated total us prescription demand clopidogrel bisulfate branded generic increased 14 2006 compared 2005 estimated total us prescription demand branded plavix decreased 18 period company expects generic clopidogrel bisulfate sold distribution channels following apotex atrisk launch august 2006 residual impact plavix net sales company’s overall financial results 2007 full impact apotex’s launch generic clopidogrel bisulfate product company cannot reasonably estimated time depend number factors including among others amount generic product sold apotex whether company sanofi companies prevail underlying patent litigation even companies prevail pending patent case extent launch apotex permanently adversely impact pricing prescription demand plavix amount damages would sought andor recovered companies apotex’s ability pay damages loss market exclusivity plavix andor sustained generic competition would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity company’s us territory partnership alliance sanofi also plaintiff three additional pending patent infringement lawsuits dr reddy’s laboratories inc dr reddy’s laboratories ltd dr reddy’s teva pharmaceuticals usa inc teva cobalt pharmaceuticals inc cobalt related us patent 4847265 ‘265 patent trial date action dr reddy’s set patent infringement actions teva cobalt stayed pending resolution apotex litigation parties actions agreed bound outcome litigation apotex although teva cobalt appeal outcome litigation dr reddy’s teva filed abbreviated new drug application anda us food drug administration fda exclusivity periods statutory stay periods hatchwaxman act expired exception 30month stay applies teva expires february 27 2007 accordingly final approval fda would provide company authorization distribute generic clopidogrel bisulfate product us subject various legal remedies companies may apply including injunctive relief damages company continues believe plavix patents valid infringed sanofi vigorously pursuing enforcement patent rights plavix possible time reasonably assess ultimate outcome ongoing patent litigation apotex plavix patent litigations timing renewed generic competition plavix apotex additional generic competition plavix thirdparty generic pharmaceutical companies however apotex prevail trial company would expect face renewed generic competition plavix apotex promptly thereafter previously disclosed antitrust division us department justice conducting criminal investigation regarding proposed settlement pending patent plavix litigation apotex company cooperating fully investigation possible time reasonably assess outcome investigation impact company also possible time reasonably assess impact investigation company’s compliance deferred prosecution agreement dpa us attorney’s office district new jersey usao also previously disclosed usao initiated investigation conducted monitor dpa monitor usao corporate governance issues relating company’s negotiations proposed settlement apotex included review whether violation federal securities laws connection proposed settlement apotex terms previously disclosed consent order company entered us securities exchange commission august 2004 consent sec consent monitor completed investigation submitted report investigation usao monitor’s report find violation consent federal securities laws connection proposed settlement monitor concluded company violated certain paragraphs dpa related governance matters violations cited monitor report relate among things communication failures including insufficient communications company’s former chief executive officer ceo former general counsel board directors board members senior management well failure comply certain internal company policies procedures monitor make findings respect whether company knowingly materially breached dpa make recommendations usao advised company believes matters cited monitor’s report fully remediated accordingly intend take action dpa respect monitor’s report additional discussion legal matters including plavix patent litigation antitrust division investigation related proposed settlement apotex terms dpa sec consent see “item 8 financial statementsnote 21 legal proceedings contingencies” “outlook” “sec consent order deferred prosecution agreement” business environment company conducts business primarily within pharmaceutical industry highly competitive subject numerous government regulations many competitive factors may significantly affect company’s sales products including product efficacy safety price costeffectiveness marketing effectiveness product labeling quality control quality assurance manufacturing operations research development new products successfully compete business health care industry company must demonstrate products offer medical benefits well cost advantages currently company’s new product introductions compete products already market therapeutic category addition potential future competition new products competitors may introduce future company manufactures branded products priced higher generic products generic competition one company’s leading challenges globally pharmaceutical industry majority innovative product’s commercial value usually realized period product market exclusivity product loses exclusivity longer protected patent subject new competing products form generic brands upon exclusivity loss company lose major portion product’s sales short period time us internationally health care industry subject various governmentimposed regulations authorize prices price controls continue impact company’s sales us congress state legislatures considered number proposals enacted laws could effect major changes health care system either nationally state level driven part budget concerns medicaid access reimbursement restrictions implemented states proposed many others addition january 2006 medicare prescription drug improvement modernization act became effective provides outpatient prescription drug coverage senior citizens us company assessing impact legislation could business including potential negative impact us pharmaceuticals business due legislative andor regulatory changes could result additional pricing pressures controls many markets outside us company operates environments governmentmandated costcontainment programs regulatory bodies groups exert downward pressure pricing freedom limited united kingdom uk instance operation profit control plan germany operation reference price system companies also face significant delays market access new products two years elapse drug approval new medicines become available national markets growth managed care organizations mcos us played large role competition surrounds health care industry mcos seek reduce health care expenditures participants making volume purchases entering longterm contracts negotiate discounts various pharmaceutical providers market potential created large pool participants marketing prescription drugs mcos become important part company’s strategy companies compete inclusion mco formulary company generally successful major products included company believes developments managed care industry including continued consolidation continue generally downward pressure prices pharmaceutical production processes complex highly regulated vary widely product shifting adding manufacturing capacity lengthy process requiring significant capital expenditures regulatory approvals biologics manufacturing involves complex processes traditional pharmaceutical operations biologics become important company’s product portfolio company continue make arrangements thirdparty manufacturers make substantial investments increase internal capacity produce biologics commercial scale including building new stateoftheart manufacturing facility production biologics devens massachusetts construction commence early 2007 company maintained competitive position market strives uphold position dependent success discovering developing innovative costeffective products serve unmet medical need company subsidiaries subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcome investigations litigations management continues believe previously disclosed next years aggregate impact beyond current reserves legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity additional discussion legal matters see “item 8 financial statementsnote 21 legal proceedings contingencies” strategy company continues execute strategy longterm growth currently track strategic transition strategy consists increasing investments behind growth brands new specialty products focusing company’s research development programs products pharmaceutical pipeline disease areas address significant unmet medical need aligning sales marketing emphasis specialists high value primary care prescribers implementing initiatives designed achieve maintain efficient cost base company’s pharmaceutical portfolio continued transition away products lost exclusivity towards growth drivers recently launched products include plavix clopidogrel bisulfate abilify aripiprazole avaproavalide irbesartanirbesartanhydrochlorothiazide reyataz atazanavir sulfate sustiva efavirenz franchise erbitux cetuximab orencia abatacept baraclude entecavir sprycel dasatinib us net sales products accounted 83 company’s us pharmaceutical net sales 2006 compared 71 2005 worldwide net sales products accounted 59 company’s worldwide pharmaceutical net sales 2006 compared 49 2005 company experienced last series major anticipated exclusivity losses 2006 market exclusivity expiration pravachol us certain markets europe expect significant new exclusivity losses next several years order support production specialty products pharmaceutical portfolio including biologics 2006 board directors approved capital expenditures approximately 750 million bulk biologics manufacturing facility us february 2007 company completed land purchase 89 acre site locate new largescale expandable multiproduct bulk biologics manufacturing facility devens massachusetts construction expected begin early 2007 facility projected operationally complete 2009 company expects submit site regulatory approval 2010 commercial production biologic compounds anticipated begin 2011 addition company expand manati puerto rico facility targeted startup 2009 expansion add new space renovate existing space filling finishing company’s sterile products biologic compounds including orencia several investigational compounds given company’s current limited capacity commercial volumes biologics products company also received approval fda may 2006 permits third party manufacture orencia additional facility together another third party facility pending submission approval fda support increased production capacity necessary meet expected longterm demand orencia initial requirements biologics products commercialized keeping strategy company invested 31 billion research development representing 12 growth rate 2005 research development dedicated pharmaceutical products including milestone payments inlicensing development programs 28 billion compared 25 billion 2005 part strategy company reexamining operating costs achieve maintain efficient cost base end 2005 company launched initiative identify realize productivity savings initiative company reexamined operating model focus resources high value priorities simplify streamline business processes improve governance decision making build capabilities sustain cost reductions long term company plan achieve goal realizing minimum 500 million productivity savings 2007 incremental 100 million 2008 well making company productive efficient effective new product pipeline developments january 2007 company astrazeneca plc astrazeneca announced collaboration develop commercialize two investigational compounds saxagliptin dapagliflozin studied treatment type 2 diabetes company discovered compounds collaboration compounds worldwide except japan separately company also announced collaboration otsuka pharmaceutical co ltd otsuka develop saxagliptin japan november 2006 fda granted fast track designation ipilimumab used combination chemotherapy dacarbazine previously untreated metastatic melanoma patients fda also granted fast track designation ipilimumab used monotherapy previously treated metastatic melanoma patients october 2006 company moved investigational antithrombosis compound apixaban phase iii development apixaban oral direct factor xa inhibitor october 2006 company received fda approval new oncedaily 300 mg single capsule formulation reyataz treatment human immunodeficiency virus hiv1 infection adults part combination therapy replace two reyataz 150 mg capsules appropriate patients company onepill oncedaily hiv medicine options available three drug classes part combination therapy company otsuka received approval fda september 2006 european medicines evaluation agency emea october 2006 abilify injection first readytouse singledose vial atypical antipsychotic control agitation adults schizophrenia bipolar mania august 2006 company sanofi received approval fda emea additional indication plavix reduce rate death cause rate combined endpoint reinfarction stroke death patients acute stsegment elevation myocardial infarction july 2006 atripla firstever oncedaily single tablet threedrug regimen hiv intended standalone therapy combination antiretrovirals received approval fda product combines sustiva efavirenz manufactured company truvada emtricitabine tenofovir disoproxil fumarate manufactured gilead company gilead merck co inc submitted marketing authorization approval atripla emea october 2006 addition company gilead submitted atripla regulatory approval canada september 2006 june 2006 company received approval sprycel dasatinib fda treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia philadelphia chromosomepositive acute lymphoblastic leukemia phall resistance intolerance prior therapy including gleevec imatinib mesylate sprycel launched us july 2006 november 2006 company also received approval sprycel committee medicinal products human use emea product launched austria germany france finland sweden uk february 2007 company received approval sprycel without phall indication switzerland april 2006 company launched emsam selegiline transdermal system us emsam first transdermal patch delivery monoamine oxidase inhibitor treatment major depressive disorder adults emsam developed somerset pharmaceuticals inc joint venture mylan laboratories inc mylan watson pharmaceuticals inc watson company obtained exclusive distribution rights commercialize emsam us canada markets emsam existing neuroscience sales force march 2006 fda approved erbitux copromoted company imclone systems incorporated imclone use treatment squamous cell carcinoma head neck erbitux previously indicated treatment metastatic colorectal cancer february 2006 company launched baraclude treatment hepatitis b china company also launched baraclude several new markets third quarter 2006 including germany france uk japan baraclude approved 50 countries worldwide february 2006 company launched orencia treatment signs symptoms rheumatoid arthritis us receiving approval fda december 2005 june 2006 company received approval orencia canada launched product august 2006 outlook 2007 company expects reductions net sales products lost exclusivity previous years range 09 billion 10 billion compared 14 billion 2006 13 billion 2005 company expects generic clopidogrel bisulfate inventory market continued residual impact 2007 plavix net sales company expect plavix net sales earnings growth 2007 assuming absence renewed additional generic competition company expects increased prescription demand plavix well key brands newly launched products compared 2006 gross margin expected improve due growth higher margin products lower margin erosion related exclusivity losses improved manufacturing efficiencies marketing selling administrative expense expected remain relatively unchanged efficiency savings largely offset inflationary cost increases company continues focus high value primary care specialist physicians implements various productivity initiatives company expects continue increase investments develop additional new compounds support introduction new products company subsidiaries subject number significant pending lawsuits claims proceedings investigations including pending plavix litigation described assurance increase scope matters future lawsuits claims proceedings material company addition increasing trend foreign governments scrutinize sales marketing activities pharmaceutical companies assurance investigations material possible time reasonably assess final outcome investigations litigations management continues believe previously disclosed next years aggregate impact beyond current reserves pending plavix patent litigation litigations investigations legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity company’s expectations next several years described reflect potential impact litigation company’s results operations previously disclosed composition matter patent plavix expires 2011 subject litigation us apotex trial underlying patent litigation ended february 15 2007 court expected rule following posttrial briefing apotex prevail trial patent litigation company would expect face renewed generic competition plavix promptly thereafter pending plavix patent litigations us less significant markets product us company’s us territory partnership alliance sanofi plaintiff three additional pending patent infringement lawsuits dr reddy’s teva cobalt related ‘265 patent dr reddy’s teva filed anda fda exclusivity periods statutory stay periods hatchwaxman act expired exception 30month stay applies teva expires february 27 2007 accordingly final approval fda would provide company authorization distribute generic clopidogrel bisulfate product us although launch point time would risk adverse damages award companies prevail underlying patent litigation company continues believe plavix patents valid infringed sanofi vigorously pursuing cases possible time reasonably assess ultimate outcome patent litigation apotex plavix patent litigations timing renewed generic competition plavix apotex additional generic competition plavix generic pharmaceutical companies loss market exclusivity plavix andor development sustained generic competition would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity plavix company’s largest product net sales us net sales plavix 27 billion 32 billion 28 billion 2006 2005 2004 respectively previously disclosed antitrust division us department justice conducting criminal investigation regarding proposed settlement pending plavix patent litigation apotex company cooperating fully investigation possible time reasonably assess outcome investigation impact company also possible time reasonably assess impact investigation company’s compliance dpa usao also previously disclosed usao initiated investigation conducted monitor dpa usao company’s negotiations proposed settlement apotex included review corporate governance issues whether violation federal securities laws connection proposed settlement apotex terms previously disclosed consent company entered securities exchange commission sec monitor completed investigation submitted report investigation usao monitor’s report find violation consent federal securities laws connection proposed settlement monitor concluded company violated certain paragraphs dpa related governance matters violations cited monitor report relate among things communication failures including insufficient communications company’s former ceo former general counsel board members senior management well failure comply certain internal company policies procedures monitor make findings respect whether company knowingly materially breached dpa make recommendations usao advised company believes matters cited monitor’s report fully remediated accordingly intend take action dpa respect monitor’s report additional discussion legal matters including plavix patent litigation antitrust division investigation related proposed settlement apotex terms dpa sec consent see “executive summaryplavix” “sec consent order deferred prosecution agreement” “item 8 financial statements note 21 legal proceedings contingencies” results operations following discussions company’s results continuing operations exclude results related oncology therapeutics network otn business previously presented separate segment prior divestiture 2005 segregated continuing operations reflected discontinued operations periods presented see “discontinued operations” net sales net sales continuing operations 2006 decreased 7 179 billion compared 2005 us net sales 2006 decreased 7 97 billion compared 2005 international net sales 2006 decreased 6 82 billion compared 2005 including 1 favorable foreign exchange impact 2005 net sales continuing operations decreased 1 192 billion compared 2004 us net sales 2005 decreased 1 105 billion compared 2004 international net sales 87 billion remained relatively constant 2005 compared 2004 including 2 favorable foreign exchange impact composition change net sales follows general company’s business seasonal information us pharmaceutical prescriber demand reference made table within business segments pharmaceuticals section sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain company’s top 15 pharmaceutical products company views current future growth drivers sold within us company operates three reportable segmentspharmaceuticals nutritionals health care may 2005 company completed sale otn previously presented separate segment results operations otn presented part company’s results discontinued operations accordance statement financial standards sfas 144 accounting impairment disposal longlived assets accordingly otn results operations prior periods reclassified discontinued operations conform current year presentations company’s net sales segment follows company recognizes revenue net various sales adjustments arrive net sales reported consolidated statement earnings adjustments referred grosstonet sales adjustments described “critical accounting policies” following table sets forth reconciliation company’s gross sales net sales significant category grosstonet sales adjustments decrease grosstonet sales adjustments 2006 compared 2005 affected number factors including changes customer mix portfolio shift case towards products required lower rebates well changes contract status decrease prime vendor chargebacks primarily result lower plavix net sales volume erosion highly rebated paraplatin carboplatin taxol® paclitaxel due generic competition well impact discontinued commercialization tequin gatifloxacin managed health care rebates contract discounts decreased primarily result reversal reserves related tricare retail pharmacy refund program well exclusivity loss pravachol also reduced medicaid rebates addition lower plavix net sales shift patient enrollment medicaid medicare part resulted decrease medicaid rebates partially offset corresponding increase managed health care rebates decrease cash discounts primarily due exclusivity loss pravachol lower plavix sales volumes increase sales returns primarily due higher returns trends nonexclusive brands well discontinued commercialization tequin 2005 decrease 2004 prime vendor chargebacks managed health care rebates primarily due lower relative sales volume segment due product mix decrease sales returns primarily due lower returns certain products including tequin pravachol sustiva decrease adjustments due lower sales discounts government rebates international businesses following table sets forth activities ending balances significant category grosstonet sales adjustments 2006 company recorded grosstonet sales adjustments related sales made prior periods significant items included charges sales returns 30 million primarily related higher expected return trends certain nonexclusive products well discontinued commercialization tequin credits contract discounts 33 million primarily due reversal reserves related tricare retail pharmacy refund program 2005 significant items included charges 37 million medicaid rebates primarily result higher expected medicaid utilization various products credits 32 million adjustments primarily result lower expected rebates foreign governments credits 27 million sales returns resulting lower returns certain products including tequin avaproavalide plavix significant revisions made estimates grosstonet sales adjustments 2006 2005 pharmaceuticals composition change pharmaceutical sales follows 2006 worldwide pharmaceuticals sales decreased 9 13861 million us pharmaceuticals sales decreased 9 7417 million 8190 million 2005 primarily due lower sales plavix resulting atrisk launch generic clopidogrel bisulfate august 2006 loss exclusivity pravachol offset continued growth abilify erbitux reyataz sustiva franchise avaproavalide sales newer products including orencia baraclude sprycel aggregate estimated us wholesaler inventory levels company’s key pharmaceutical products sold us pharmaceuticals business end 2006 approximately two half weeks international pharmaceuticals sales decreased 9 6444 million 2006 7064 million 2005 primarily due decline pravachol taxol® paclitaxel sales resulting increased generic competition europe partially offset increased sales newer products including reyataz abilify baraclude 2005 worldwide pharmaceuticals sales decreased 2 15254 million us pharmaceuticals sales 2005 decreased 3 8190 million compared 8446 million 2004 primarily due continued impact exclusivity losses paraplatin glucophage franchise increased competition pravachol partially offset increased sales growth drivers including plavix abilify erbitux reyataz aggregate estimated wholesaler inventory levels company’s key pharmaceutical products sold us pharmaceuticals business end 2005 end 2004 approximately threetenths month approximately two half weeks decline inventory levels negatively impacted sales performance certain products 2005 international pharmaceutical sales 2005 decreased 1 including 1 favorable foreign exchange impact 7064 million primarily due increased generic competition pravachol taxol® paclitaxel partially offset increased sales newer products including reyataz abilify well growth plavix key pharmaceutical products sales representing 78 77 71 total pharmaceutical sales 2006 2005 2004 respectively follows excess 200 • sales plavix platelet aggregation inhibitor part company’s alliance sanofi decreased 15 3257 million 2006 2005 sales plavix decreased 18 us 2006 2655 million 2005 primarily result launch generic clopidogrel bisulfate product august 2006 market exclusivity plavix expected expire 2011 us 2013 major european markets composition matter patent plavix subject litigation including litigation apotex noted trial underlying patent litigation ended february 15 2007 court rule following posttrial briefing apotex prevail trial underlying patent litigation additional competition plavix thirdparty generic pharmaceutical companies plavix would face renewed generic competition 2005 sales increased 15 including 1 favorable foreign exchange impact 3823 million 3327 million 2004 us sales increased 14 3235 million 2005 2833 million 2004 primarily due increased demand additional information plavix litigations well generic launch apotex see “executive summaryplavix” “item 8 financial statementsnote 21 legal proceedings contingencies” • sales pravachol hmg coa reductase inhibitor decreased 47 including 1 unfavorable foreign exchange impact 1197 million 2006 2005 due market exclusivity expiration april 2006 resulting generic competition strengths us generic competition key european markets estimated total us prescription demand decreased approximately 59 compared 2005 sales pravachol decreased 14 2256 million 2635 million 2004 primarily due lower demand resulting increased competition related reduction wholesaler inventory levels partially offset lower managed health care rebates 2005 market exclusivity european union eu ended 2004 exception sweden expiration occurred march 2006 italy expiration occur january 2008 france generic competition authorized company commenced july 2006 previously disclosed company authorized watson distribute pravastatin sodium tablets us • sales avaproavalide angiotensin ii receptor blocker treatment hypertension also part sanofi alliance increased 12 including 1 favorable foreign exchange impact 1097 million 2006 2005 us sales increased 13 647 million 2006 compared 2005 primarily due higher average net selling prices higher volume estimated total us prescription demand increased approximately 4 compared 2005 international sales increased 10 including 2 favorable foreign exchange impact 450 million compared 2005 sales increased 6 including 1 favorable foreign exchange impact 982 million 930 million 2004 us sales increased 2 574 million 2005 compared 562 million 2004 international sales increased 11 including 3 favorable foreign exchange impact 408 million 368 million 2004 primarily due increased sales canada france germany market exclusivity avaproavalide known eu aprovelkarvea expected expire 2012 including pediatric extension us 2012 countries eu avaproavalide currently marketed japan • sales coumadin warfarin sodium oral anticoagulant used predominantly patients atrial fibrillation deep venous thrombosispulmonary embolism increased 4 220 million 2006 compared 2005 primarily due higher average net selling prices partially offset lower demand driven continued competition estimated total us prescription demand decreased approximately 21 compared 2005 sales 2005 decreased 17 212 million 255 million 2004 due continued competition market exclusivity coumadin expired us 1997 • sales monopril second generation angiotensin converting enzyme inhibitor treatment hypertension sold almost exclusively nonus markets decreased 24 159 million 2006 sales 2005 208 million decrease 24 including 2 favorable foreign exchange impact 274 million 2004 sales declines years due product supply issues key european markets market exclusivity protection monopril expired 2003 us expired expected expire 2001 2008 countries eu monopril currently marketed japan • sales reyataz protease inhibitor treatment hiv increased 34 including 1 favorable foreign exchange impact 931 million 2006 primarily due increased demand us europe latin america estimated total us prescription demand increased approximately 18 compared 2005 us sales increased 27 514 million 2006 405 million 2005 primarily due higher demand higher average net selling prices international sales increased 43 including 1 favorable foreign exchange impact 417 million 2006 compared 2005 sales 2005 696 million compared 414 million 2004 primarily due increased demand us europe reyataz launched second quarter 2004 market exclusivity reyataz expected expire 2017 us countries eu japan • total revenue sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv increased 16 including 1 favorable foreign exchange impact 791 million 2006 2005 due higher demand launch atripla third quarter 2006 estimated total us prescription demand sustiva franchise increased approximately 11 compared 2005 july 2006 company gilead launched atripla oncedaily single tablet threedrug regimen hiv intended standalone therapy combination antiretrovirals total revenue sustiva franchise includes sales sustiva well revenue bulk efavirenz included combination therapy atripla company records revenue bulk efavirenz component atripla upon sales atripla gilead joint venture thirdparty customers 2005 sustiva sales increased 10 680 million 621 million 2004 primarily due increased demand higher average selling prices lower sales returns market exclusivity sustiva expected expire 2013 us countries eu company others market sustiva japan additional information revenue recognition sustiva franchise see “item 8 financial statementsnote 2 alliances investments” • sales zerit stavudine antiretroviral agent used treatment hiv decreased 28 155 million 2006 primarily result lower demand us europe estimated total us prescription demand decreased approximately 30 compared 2005 zerit sales decreased 21 including 1 favorable foreign exchange impact 216 million 272 million 2004 primarily result decrease demand us market exclusivity protection zerit expected expire 2008 us 2007 2011 countries eu 2008 japan • sales baraclude oral antiviral agent treatment chronic hepatitis b increased 83 million 2006 compared 12 million 2005 baraclude launched us april 2005 china february 2006 uk germany july 2006 france japan september 2006 company composition matter patent expires us 2010 germany france uk 2011 • sales cefzil antibiotic treatment mild moderately severe bacterial infections decreased 66 87 million 2006 2005 primarily due generic competition us 2006 estimated total us prescription demand decreased approximately 91 compared 2005 cefzil sales decreased 4 including 1 favorable foreign exchange impact 259 million 270 million 2004 primarily due lower demand market exclusivity expired december 2005 us expected expire 2007 2009 eu • sales erbitux sold company almost exclusively us increased 58 652 million 2006 413 million 2005 driven continued growth related usage treatment colorectal cancer treatment head neck cancer approved fda march 2006 sales 2005 increased 413 million 261 million 2004 erbitux marketed company distribution copromotion agreement imclone use patent relating combination therapy cytotoxic treatments expires 2017 patent covering monotherapy currently generic versions biological products cannot approved us law however law could change future even absence new legislation fda taking steps toward allowing generic versions certain biologics competitors seeking approval biological products must file safety efficacy data address challenges biologics manufacturing involves complex processes costly traditional pharmaceutical operations company’s right market erbitux north america japan agreement imclone expires september 2018 company others market erbitux countries eu previously disclosed imclone yeda research development company ltd yeda litigation ownership use patent combination therapy cytotoxic treatments relating erbitux september 2006 court granted yeda complete ownership patent imclone appealed court’s decision information pertaining legal proceedings involving erbitux see “item 8 financial statementsnote 21 legal proceedings contingencies” “note 2 alliances investments” • sales taxol® paclitaxel anticancer agent sold almost exclusively nonus markets 563 million 2006 compared 747 million 2005 sales taxol® paclitaxel decreased 25 including 2 unfavorable foreign exchange impact primarily due increased generic competition europe generic entry japan third quarter 2006 2005 taxol® paclitaxel sales decreased 25 including 1 unfavorable foreign exchange impact 747 million 991 million 2004 primarily result increased generic competition europe market exclusivity protection taxol® paclitaxel expired 2000 us 2003 countries eu two generic paclitaxel products received regulatory approval japan one generic product entered market • sprycel oral inhibitor multiple tyrosine kinases treatment adults chronic accelerated myeloid lymphoid blast phase chronic myloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate launched us july 2006 certain european markets fourth quarter 2006 sales 2006 25 million market exclusivity sprycel expected expire 2020 us • total revenue abilify antipsychotic agent treatment schizophrenia acute bipolar mania bipolar disorder increased 41 1282 million 2006 2005 us sales increased 40 1052 million 2006 750 million 2005 primarily due higher demand higher average net selling prices estimated total us prescription demand increased approximately 21 compared 2005 total revenue abilify 912 million compared 593 million 2004 primarily due demand growth us continued growth europe achieved sales 140 million 2005 total revenue abilify primarily consists alliance revenue representing company’s 65 share net sales countries copromotes otsuka product sold otsuka affiliate distributor otsuka’s market exclusivity protection abilify expected expire 2014 us including granted patent term extension otsuka received formal notices six generic pharmaceutical companies stating filed anda fda various dosage forms aripiprazole company otsuka comarket us abilify notices states anda contains piv certification directed us patent 5006528 ‘528 patent covers aripiprazole expires october 2014 addition notices purports provide otsuka respective piv certification certifications contain various allegations regarding enforceability ‘528 patent andor validity andor infringement claims therein otsuka sole rights enforce ‘528 patent additional information see “item 1 business segments pharmaceuticals segment” company also right copromote abilify several european countries uk france germany spain act exclusive distributor product rest eu composition matter patent force germany uk france italy netherlands romania sweden switzerland spain denmark original expiration date 2009 extended 2014 grant supplemental protection certificate countries except romania denmark data exclusivity eu expires 2014 company’s contractual right market abilify expires november 2012 us puerto rico countries eu company exclusive right market abilify june 2014 additional information revenue recognition abilify see “item 8 financial statementsnote 2 alliances investments” • emsam transdermal patch delivery monoamine oxidase inhibitor treatment major depressive disorder adults launched us april 2006 sales 2006 18 million third quarter 2006 result lower expected sales emsam company recorded 27 million impairment charge emsam related assets emsam developed somerset joint venture mylan watson company obtained exclusive distribution rights commercialize emsam us canada markets emsam us existing neuroscience sales force new drug formulation emsam received three years hatchwaxman data exclusivity expires 2009 us • orencia fusion protein indicated adult patients moderate severe rheumatoid arthritis inadequate response one currently available treatments methotrexate antitumor necrosis factor therapy launched us february 2006 sales 2006 89 million substantially us company composition matter patent expires us 2016 patent may eligible patent term restoration could possibly extend term noted generic versions biological products cannot approved us law could change future • sales efferalgan paracetamol formulation acetaminophen pain relief sold principally europe decreased 6 266 million 2006 primarily due change government reimbursement 2005 sales increased 3 including 1 favorable foreign exchange impact 283 million 274 million 2004 primarily due increased sales italy spain result strong flu season 2005 estimated us prescription change data provided includes information retail mail order channels reflect information channels hospitals institutions longterm care among others estimated prescription change data based national prescription audit npa data provided ims health ims supplier market research pharmaceutical industry described instances basic exclusivity loss date indicated expiration date patent claims active ingredient drug method using drug approved indication instances basic exclusivity loss date indicated expiration date data exclusivity period situations data exclusivity without patent protection competitor could seek regulatory approval prior expiration data exclusivity period submitting clinical trial data obtain marketing approval company assesses market exclusivity period products casebycase basis length market exclusivity company’s products difficult predict certainty complex interaction patent regulatory forms exclusivity factors assurance particular product enjoy market exclusivity full period time company currently anticipates estimates market exclusivities reported business planning purposes intended reflect company’s legal opinion regarding strength weakness particular patent legal position estimated enduser demand us pharmaceuticals following tables set forth company’s top 15 pharmaceutical products based 2005 annual net sales products company views current future growth drivers sold us pharmaceuticals business years ended december 31 2006 2005 2004 changes reported us net sales period b estimated total us prescription growth retail mail order channels calculated company based npa data nextgeneration prescription services ngps version 10 data provided ims months ended december 31 2006 2005 2004 estimated us therapeutic category share applicable product calculated company based npa data ngps data provided ims reflects percentage change net sales dollar terms including change average selling prices wholesaler buying patterns b based simple average estimated number prescriptions retail mail order channels provided ims c based weightedaverage estimated number prescription units tablets milliliters retail mail order channels based data provided ims therapeutic categories determined company products considered direct competition company’s products listed compete following therapeutic categories abilify antipsychotics avaproavalide angiotensin receptor blockers baraclude oral antiviral agent cefzil branded oral solid liquid antibiotics coumadin warfarin erbitux oncology glucophage franchise oral antidiabetics kenalog intraarticularintramuscular steroid orencia fusion protein paraplatin carboplatin plavix antiplatelet agents pravachol hmg coa reductase inhibitors reyataz protease inhibitors excluding norvir sprycel tkis leukemia sustiva franchise antiretroviralsthird agents excluding norvir trizivir tequin branded oral solid antibiotics videxvidex ec zerit nucleoside reverse transcriptase inhibitors e baraclude launched us april 2005 f erbitux paraplatin specifically parenterally administered oncology products general prescriptionlevel data physicians write prescriptions products company believes therapeutic category share information provided third parties products may reliable accordingly none presented g company prescription level data kenalog product dispensed retail pharmacy company believes therapeutic category share information provided third parties product may reliable accordingly none presented h orencia launched us february 2006 company prescription level data product dispensed retail pharmacies prior year estimated trx therapeutic category share percentage recalculated conform current year presentation following cefzil recalculated percentage share based combined oral liquidsuspension markets reyataz recalculated percentage share protease inhibitors excluding norvir sustiva franchise recalculated percentage share third agents excluding norvir trizivir j sprycel launched us july 2006 k beginning third quarter 2006 sustiva franchise total revenue includes sales sustiva well revenue bulk efavirenz included combination therapy atripla therapeutic category share information change us total prescriptions growth sustiva franchise antiretrovirals third agents excluding norvir trizivir includes branded sustiva atripla prescription units excess 200 company historically reported estimated total us prescription change estimated therapeutic category share based npa data ims makes available public subscription basis simple average estimated number prescriptions retail mail order channels third quarter 2005 company began disclosing estimated total us prescription change estimated therapeutic category share based npa ngps version 10 data ngps version 10 data collected ims new revised methodology released ims limited basis pilot program ims announced ngps version 20 data available public subscription basis starting january 2007 legacy npa ngps version 10 discontinued company believes ngps data provided ims provides superior estimate prescription data company’s products retail mail order channels company calculated estimated total us prescription change estimated therapeutic category share based ngps data weightedaverage basis reflect fact mail order prescriptions include greater volume product supplied compared retail prescriptions company believes calculation estimated total us prescription change estimated therapeutic category share based ngps data weightedaverage approach respect retail mail order channels provides superior estimate total prescription demand company uses methodology internal demand forecasts estimated prescription change data estimated therapeutic category share reported throughout annual report form 10k include information retail mail order channels reflect information channels hospitals institutions longterm care among others data provided ims product ims’ recordkeeping processes estimates based sampling procedures subject inherent limitations estimates based sampling addition ngps version 10 data part pilot program replaced ims incorporated ngps version 20 released january 2007 company continuously seeks improve quality estimates prescription change amounts therapeutic category share percentages ultimate patientconsumer demand review methodologies processes calculation estimates review analysis third parties’ data used calculations company expects continue review refine methodologies processes calculation estimates continue review analyze third parties’ data used calculations international pharmaceuticals nutritionals health care following table sets forth company’s key pharmaceutical products growth drivers sold company’s international pharmaceuticals business including top 15 pharmaceutical products sold company’s major nonus countries based 2005 net sales key products sold reporting segments listed percentage change company’s estimated ultimate patientconsumer demand months december 2006 september 2006 compared period prior year company commenced collecting estimated ultimate patientconsumer demand reporting segments march 2005 period company believes yeartoyear comparison provides meaningful comparison changes sales quarter quartertoprior quarter comparisons previously provided excess 200 estimated inventory months hand distribution channel us pharmaceuticals following tables set forth company’s top 15 pharmaceutical products based 2005 annual net sales products company views current future growth drivers sold company’s us pharmaceuticals business us pharmaceuticals net sales estimated number months hand applicable product us wholesaler distribution channel quarters ended december 31 september 30 2006 2005 2004 company believes estimated number months hand quarters ended december 31 september 30 three preceding years provide meaningful comparison estimated enduser demand us pharmaceuticals disclosed company’s former practice providing six recent quarters beginning third quarter 2006 sustiva franchise includes sales sustiva well revenue bulk efavirenz included combination therapy atripla estimated months hand product us wholesale distribution channel include branded sustiva inventory baraclude launched us april 2005 anticipation launch company’s us wholesalers built inventories product meet expected demand september 30 2005 baraclude inventory us wholesaler distribution channel exceeded one month hand estimated value baraclude inventory us wholesaler distribution channel worked less one month hand subsequent quarters december 31 2006 september 30 2006 estimated value cefzil inventory us wholesaler distribution channel exceeded one month hand approximately 97 million 118 million respectively demand cefzil decreased significantly 2006 due reduced wholesaler outmovements generic competition began us december 2005 december 31 2004 estimated value cefzil inventory exceeded one month hand approximately 16 million company built higher inventories product meet expected higher demand typically experienced winter months us company continues monitor cefzil sales objective work wholesaler inventory levels one month hand less december 31 2004 estimated value glucophage franchise products inventory glucophage xr glucophage ir glucovance metaglip us wholesaler distribution channel exceeded one month hand approximately 16 million products months hand estimate glucophage franchise products average months hand stockkeeping units skus product group increase months hand glucophage franchise products end fourth quarter 2004 one month hand resulted primarily purchase wholesalers certain skus giving effect purchases increased months hand skus less one month hand however increased months hand skus averaged skus glucophage franchise products aggregate estimated months hand exceeded one month march 31 2005 estimated value glucophage franchise products inventory us wholesaler distribution channel worked approximately one month hand worked remained less one month hand subsequent quarters december 31 2004 september 30 2004 estimated value kenalog inventory us wholesaler distribution channel exceeded one month hand approximately 10 million 26 million respectively due high levels goodsintransit caused shipping delays subsequent quarters estimated value kenalog inventory us wholesaler distribution channel worked less one month hand october 2004 us pediatric exclusivity period paraplatin expired resulting entry multiple generic competitors paraplatin led significant decrease demand paraplatin turn led months hand product us wholesaler distribution channel exceeding one month hand december 31 2006 september 30 2006 september 30 2005 december 31 2004 september 30 2004 estimated value paraplatin inventory us wholesaler distribution channel one month hand approximately 06 million december 31 2006 06 million september 30 2006 07 million september 30 2005 60 million december 31 2004 66 million september 30 2004 company longer produces paraplatin us market continue monitor paraplatin wholesaler inventory levels depleted september 30 2006 estimated value plavix inventory us wholesaler distribution channel exceeded one month hand approximately 414 million due atrisk launch generic clopidogrel bisulfate august 2006 demand plavix decreased precipitously following atrisk launch generic clopidogrel bisulfate december 31 2006 plavix inventory us wholesaler distribution channel worked less one month hand sprycel launched us july 2006 consistent customary practice time new product launch company’s us wholesalers built inventories product meet expected demand december 31 2006 september 30 2006 estimated value sprycel inventory us wholesaler distribution channel exceeded one month hand approximately 14 million 06 million respectively company continues monitor sprycel inventory sales objective work wholesaler inventory levels one month hand less first quarter 2006 company made decision discontinue commercialization tequin commercial reasons company stopped shipping product us wholesalers june 2006 established accrual estimated returns tequin inventory july 2006 company notified us wholesaler retail distribution channels would allow return product regardless expiry dates estimated value tequin inventory us wholesaler distribution channel exceeded one month hand de minimis september 30 2006 december 31 2006 company aware significant amounts tequin inventory remaining us wholesaler distribution channel company expects tequin inventory us channels reduced nominal levels first quarter 2007 estimated value videxvidex ec didanosine inventory us wholesaler distribution channel exceeded one month hand de minimis december 31 2006 approximately 02 million september 30 2005 result generic competition us commencing fourth quarter 2004 demand videxvidex ec decreased significantly products erbitux orencia company determines months hand estimates dividing estimated amount product us wholesaler distribution channel estimated amount outmovement product us wholesaler distribution channel period 31 days calculated described factors may influence company’s estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data represent recordkeeping processes may also reflect estimates company maintains inventory management agreements imas us pharmaceuticals wholesalers account nearly 100 total gross sales us pharmaceutical products current terms imas company’s three largest wholesaler customers provide company weekly information respect inventory levels product hand amount outmovement products three wholesalers accounted approximately 90 total gross sales us pharmaceutical products 2006 inventory information received wholesalers excludes inventory held intermediaries sell retailers hospitals excludes goods transit wholesalers company uses information provided three wholesalers friday closest quarter end calculate amount inventory hand wholesalers applicable quarter end amount increased company’s estimate goods transit wholesalers applicable friday reflected weekly data provided wholesalers company’s revenue recognition policy sales recorded substantially risks rewards ownership transferred us pharmaceuticals business generally product shipped cases goods transit wholesaler owned applicable wholesaler accordingly reflected calculation inventories wholesaler distribution channel company estimates amount goods transit using information provided wholesalers respect open orders applicable friday company’s records sales wholesalers respect open orders company determines outmovement product wholesalers period 31 days using recent four weeks outmovement product provided wholesalers extrapolating amount 31 day basis company estimates inventory levels hand outmovements us pharmaceuticals business wholesaler customers three largest wholesalers product based assumption amounts bear relationship three largest wholesalers’ inventory levels outmovements product percentage aggregate sales products wholesalers applicable quarter bears aggregate sales products company’s three largest wholesalers quarter finally company considers whether adjustments necessary extrapolated amounts based factors historical sales individual products made wholesalers thirdparty market research data related prescription trends patient demand addition company receives inventory information wholesalers selective basis certain key products company’s us pharmaceuticals business imas discussed arrangements substantially direct wholesaler customers requires wholesalers maintain inventory levels one month demand response atrisk launch generic clopidogrel bisulfate august 8 2006 company offered certain us mcos incremental rebates wholesaler list price plavix certain conditions march 31 2007 small number mcos accepted offer offers rejected qualify terminated prior time issuance preliminary injunction august 31 2006 offers made company also provided temporary price reduction federal supply schedule plavix veterans administration limited period august september 2006 primarily result limited participation rebate offer company estimates impact two programs plavix net sales third fourth quarters de minimis orencia launched february 2006 launch second quarter company distributed orencia exclusive distribution arrangement single distributor following approval supplemental biologics license application sbla allows third party manufacture orencia additional site exclusive distribution arrangement terminated july 17 2006 company expanded distribution network orencia multiple distributors estimates months hand calculated dividing inventories orencia held distributors end quarter outmovement product last 31 day period reported distributors inventory hand outmovements reported distributors product distributors’ recordkeeping processes 2004 may 2005 mckesson corporation mckesson one company’s wholesalers provided warehousing packing shipping services erbitux mckesson held erbitux inventory consignment company’s revenue recognition policy company recognized revenue inventory shipped mckesson endusers mckesson also held inventories erbitux account upon divestiture otn may 2005 company discontinued consignment arrangement mckesson longer held inventories account thereafter company sold erbitux intermediaries wholesalers specialty oncology distributors shipped erbitux directly endusers product customers intermediaries beginning third quarter 2006 company expanded distribution model include one company’s wholesalers held erbitux inventory company recognizes revenue upon shipment consistent revenue recognition policy estimate months hand calculated dividing inventories erbitux held wholesaler account reported wholesaler end quarter outmovements product reported wholesaler last 31 day period inventory levels reported wholesaler product wholesaler’s recordkeeping process previously disclosed company’s pharmaceuticals business outside us nutritionals health care business units around world company significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly company relies variety methods estimate direct customer product level inventory calculate months hand business units estimated inventory months hand distribution channel following table sets forth company’s key products sold businesses listed net sales applicable product quarters ended december 31 2006 september 30 2006 december 31 2005 september 30 2005 estimated number months hand applicable product direct customer distribution channel businesses end four quarters company believes estimated number months hand quarters ended december 31 september 30 two preceding years provide meaningful comparison estimated enduser demand international pharmaceuticals nutritionals health care disclosed company’s former practice providing four recent quarters estimates months hand key products described international pharmaceuticals business based data collected company’s significant business units outside us also described information nonkey products amount inventory hand direct customers approximately one month impact de minimis nonpharmaceuticals reporting segments estimates based data collected us significant business units outside us beginning third quarter 2006 sustiva franchise includes sales sustiva well revenue bulk efavirenz included combination therapy atripla estimated months hand product distribution channel include branded sustiva inventory months hand information represents company’s estimates aggregate product level inventory hand direct customers divided expected demand applicable product expected demand estimated ultimate patientconsumer demand calculated based estimated enduser consumption direct customer outmovement data recent 31 day period reasonable period factors may affect company’s estimates include generic competition seasonality products direct customer purchases light price increases new product presentation launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations company relies variety methods calculate months hand businesses reporting segments available company relies information provided third parties determine estimates aggregate product level inventory hand direct customers expected demand businesses reporting segments listed however company limited information direct customer product level inventory enduser consumption direct customer outmovement data quality thirdparty information available varies widely circumstances case new products seasonal products historical enduser consumption outmovement information may available applicable cases company uses estimated prospective demand cases direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available company developed variety methodologies calculate estimates data including using factors historical sales made direct customers thirdparty market research data related prescription trends enduser demand september 30 2006 company entered exclusive distributorship arrangements certain products several eastern central european markets september 30 2006 december 31 2005 september 30 2005 dafalgan analgesic product sold principally europe approximately 11 12 13 months inventory hand respectively direct customers level inventory hand due primarily private pharmacists purchasing dafalgan approximately every eight weeks seasonality product september 30 2005 efferalgan analgesic product sold principally europe approximately 11 months inventory hand direct customers level inventory hand due primarily private pharmacists purchasing efferalgan approximately every eight weeks seasonality product september 30 2006 reyataz antiviral product approximately 11 months inventory hand direct customers increased level inventory hand due primarily government purchasing patterns brazil december 31 2006 september 30 2006 videxvidex ec antiviral product approximately 14 months inventory hand direct customers increased level inventory hand due primarily government purchasing patterns brazil company contractually obligated provide videxvidex ec brazilian government upon placement order product government terms contract company control inventory levels relating orders company however expects inventory levels videxvidex ec worked december 31 2005 september 30 2005 nutramigen infant nutritional product sold principally us approximately 11 months inventory hand direct customers level inventory hand end quarter ended december 31 2005 due primarily holiday stocking retailers quarter ended september 30 2005 due primarily impact retailers holding higher levels inventory response hurricane katrina company continuously seeks improve quality estimates months hand inventories held direct customers including thorough review methodologies processes calculation estimates thorough review analysis third parties’ data used calculations company expects continue review refine methodologies processes calculation estimates continue review analyze third parties’ data calculations company also continue take steps expedite receipt processing data nonus pharmaceuticals businesses health care group combined 2006 revenues health care group increased 3 4053 million compared period 2005 despite 4 unfavorable impact divestiture us canadian consumer medicines consumer medicines business third quarter 2005 combined 2005 revenues health care group increased 4 3953 million compared period 2004 nutritionals composition change nutritionals sales follows key nutritionals product lines sales representing 96 95 94 total nutritional sales 2006 2005 2004 respectively follows worldwide nutritionals sales increased 6 including 1 favorable foreign exchange impact 2347 million 2006 2005 worldwide nutritionals sales 2205 million increase 10 including 1 favorable foreign exchange impact despite 2 unfavorable impact divestiture adult nutritional business 2001 million 2004 first quarter 2004 company divested adult nutritional business international sales increased 11 including 3 favorable foreign exchange impact 1256 million 2006 2005 primarily due increased sales children’s nutritional products 2005 international sales increased 12 including 2 favorable foreign exchange impact despite 1 unfavorable impact divestiture adult nutritional business 1135 million 1010 million 2004 primarily due increased sales enfamil enfagrow us sales increased 2 1091 million 2006 2005 primarily due increased sales enfamil 2005 us sales increased 8 despite 3 unfavorable impact divestiture adult nutritional business 1070 million 991 million 2004 primarily due increased sales enfamil health care health care segment includes convatec medical imaging business well consumer medicines business 2005 2004 third quarter 2005 company sold consumer medicines business related assets composition change health care segment sales follows health care sales decreased 2 1706 million compared period 2005 included 9 unfavorable impact divestiture consumer medicines business health care sales 2005 decreased 4 1748 million compared period 2004 included 7 unfavorable impact divestiture consumer medicines business health care sales business key products years ended december 31 follows • worldwide convatec sales increased 6 including 1 favorable foreign exchange impact 1048 million 2006 2005 ostomy sales increased 1 554 million 2006 including 1 favorable foreign exchange impact sales wound therapeutic products increased 6 including 1 favorable foreign exchange impact 441 million 2006 416 million 2005 primarily due continued growth aquacel franchise 2005 worldwide convatec sales increased 4 including 1 favorable foreign exchange impact 992 million 954 million 2004 primarily due increase worldwide sales wound therapeutic products • worldwide medical imaging sales increased 9 658 million 2006 2005 growth primarily due increase technelite technetium tc99m generator sales resulting competitor’s market absence first quarter 2006 increase definity sales competitor’s continued absence market cardiolite sales decreased 2 408 million 2006 416 million 2005 primarily due decreased price 2005 medical imaging sales increased 2 602 million 589 million 2004 primarily due increased demand cardiolite geographic areas general company’s products available countries world largest markets us france japan canada spain italy mexico germany company’s sales geographic areas follows sales us decreased 7 2006 primarily result lower sales plavix loss exclusivity pravachol april 2006 decrease sales partially offset growth remaining pharmaceutical growth drivers recently launched products 2005 sales us decreased 1 2005 result lower sales paraplatin glucophage franchise due continuing impact earlier exclusivity losses pravachol due lower demand resulting increased competition decrease sales mostly offset increased sales growth drivers including plavix abilify erbitux reyataz well strong sales growth enfamil sales europe middle east africa decreased 12 result sales decline pravachol taxol® paclitaxel resulting increased generic competition decrease sales partially offset increased sales major european markets reyataz avaproavalide 2005 sales decreased 6 including 1 favorable foreign exchange impact result sales decline taxol® paclitaxel due increased generic competition pravachol due exclusivity loss select markets including uk netherlands decrease sales partially offset increased sales major european markets reyataz abilify launched europe second quarter 2004 sales western hemisphere countries increased 1 including 3 favorable foreign exchange impact primarily due increased sales avaproavalide canada key nutritional products partially offset decreased sales tequin pharmaceutical products 2005 sales increased 12 including 7 favorable foreign exchange impact primarily due increased sales plavix canada mexico reyataz brazil canada avaproavalide canada sales pacific region remained consistent compared 2005 sales increased 8 result increased sales taxol® paclitaxel japan enfagrow enfamil china expenses excess 200 • cost products sold percentage sales increased 332 2006 compared 309 2005 2006 company included 91 million 05 percentage sales certain costs cost products sold reported marketing selling administrative expenses prior year results addition reclassification increase primarily due unfavorable impact pharmaceutical net sales mix including lower sales plavix impairment charges tequin emsam related assets well manufacturing facility 2005 2004 cost products sold percentage sales 309 2005 unfavorable impact gross margins resulting change us pharmaceuticals sales mix offset tequin impairment charges 76 million net litigation charges recorded 2004 • marketing selling administrative expenses decreased 4 4919 million compared 2005 including 2 decrease resulting abovementioned reclassification addition reclassification decrease primarily due lower sales force expenses resulting previously announced restructuring us primary care sales organization became effective march 2006 lower expenses pravachol partially offset impact adoption stock option expensing 2005 marketing selling administrative expenses increased 2 5106 million 5016 million 2004 primarily due higher legal costs higher pension expenses reflecting increased amortization unrecognized net losses well change actuarial assumptions partially offset lower sales force expenses resulting focus specialists high value primary care physicians marketing selling administrative expenses percentage sales 275 included 05 decrease reclassification compared 266 259 2005 2004 respectively • advertising product promotion expenditures decreased 8 1351 million compared 2005 primarily driven divestiture consumer medicines business 2005 lower spending mature brands partially offset increased investments new products including orencia sprycel 2005 advertising product promotion expenditures increased 5 1476 million compared 1411 million 2004 primarily due increased investments directtoconsumer marketing campaigns plavix abilify increased costs associated prelaunch activities orencia launch baraclude partially offset lower spending mature products • company’s investment research development 3067 million 2006 increase 12 2005 investment research development 2746 million represented 10 increase 2500 million 2004 increases 2006 2005 reflect company’s strategy continued investments latestage compounds developing pipeline disease areas address significant unmet medical need research development costs also included charges consisting primarily upfront milestone payments 85 million 2006 primarily exelixis pharmaceuticals inc solvay global solvay 72 million 2005 primarily medarex pierre fabre medicament sa pierre fabre 58 million 2004 primarily pierre fabre solvay percentage sales research development expenses 171 2006 compared 143 2005 129 2004 percentage sales 2006 impacted lower plavix sales • acquired inprocess research development 63 million 2004 related purchase acordis ukbased company additional information acquisition see “item 8 financial statementsnote 4 acquisitions divestitures” • restructuring programs implemented realign streamline operations order increase productivity reduce operating expenses rationalize company’s manufacturing network research facilities sales marketing organizations actions 2006 restructuring program expected substantially complete 2008 actions 2005 2004 restructuring programs substantially completed december 31 2006 result actions company expects future annual benefit earnings continuing operations minority interest income taxes approximately 64 million 77 million 186 million 2006 2005 2004 programs respectively additional information restructuring see “item 8 financial statementsnote 3 restructuring” • litigation charges net settlement income insurance recoveries 302 million 2006 269 million 2005 420 million 2004 302 million net charge 2006 consisted increase reserves 353 million settlement principle certain pricing sales investigations partially offset insurance recoveries 37 million unrelated matter 14 million income settlement litigation matter 269 million net charge 2005 consisted increases reserves 590 million liabilities primarily related private litigations governmental investigations partially offset insurance recoveries 321 million 420 million charge 2004 consisted 336 million related private litigation governmental investigations related wholesaler inventory issues accounting matters 50 million related platinol litigation settlement 34 million related pharmaceutical pricing sales practices additional information litigation see “item 8 financial statementsnote 21 legal proceedings contingencies” • gain sale businesses 200 million 130 million net tax 2006 related sale inventory trademark patent intellectual property rights related dovonex gain sale businesses 569 million 370 million net tax 2005 related sale consumer medicines business related assets gain sale business 320 million 198 million net tax 2004 related sale adult nutritional business additional information transactions see “item 8 financial statementsnote 4 acquisitions divestitures” • equity net income affiliates 2006 474 million compared 334 million 273 million 2005 2004 respectively equity net income affiliates principally related company’s joint venture sanofi investment imclone 2006 140 million increase equity net income affiliates primarily due increased net income joint venture sanofi income equity investment imclone 2006 compared loss 2005 61 million increase equity net income affiliates 2004 primarily reflects increase net income sanofi joint venture partially offset net loss investment imclone additional information equity net income affiliates see “item 8 financial statementsnote 2 alliances investments” • expense net 299 million 37 million 52 million 2006 2005 2004 respectively expense net includes net interest expense foreign exchange gains losses income thirdparty contract manufacturing royalty income expense debt retirement costs gains losses disposal property plant equipment gains losses sale marketable securities certain litigation matters 262 million increase expense net 2006 2005 primarily due higher debt retirement costs connection repurchase 2006 25 billion notes due 2011 compared repurchase 2005 25 billion notes due 2006 well 143 million nonrecurring income 2005 resulting termination muraglitazar collaborative agreement partially offset lower net foreign exchange losses 15 million decrease expense net 2005 2004 primarily due deferred income recognized termination collaborative agreement muraglitazar partially offset debt retirement costs connection repurchase 25 billion notes due 2006 higher net foreign exchange losses additional information see “item 8 financial statementsnote 7 expense net” stockbased compensation expense recognized statement financial accounting standard sfas 123 revised 2004 sharebased payment sfas 123r year ended december 31 2006 112 million charges recorded cost product sold marketing selling administrative expenses research development expenses stockbased compensation expense recognized accounting principles board apb 25 years ended december 31 2005 2004 31 million 30 million respectively expenses recorded marketing selling administrative expenses years ended december 31 2006 2005 2004 company recorded several expenseincome items affected comparability results periods presented herein set forth following table discussion items see “item 8 financial statementsnote 2 alliances investments” “note 3 restructuring items” “note 4 acquisitions divestitures” “note 8 income taxes” “note 13 intangible assets” “note 14 shortterm borrowings longterm debt” “note 21 legal proceedings contingencies” earnings minority interest income taxes excess 200 2006 earnings continuing operations minority interest income taxes decreased 42 2635 million 4516 million 2005 decrease primarily driven net impact items affected comparability results discussed lower net sales pharmaceutical products resulting lower plavix net sales loss exclusivity pravachol increased spending research development partially offset increase equity net income affiliates lower advertising promotion expenses 2005 earnings continuing operations minority interest income taxes increased 2 4516 million 4418 million 2004 increase primarily result growth nutritionals segment net impact items affected comparability results discussed partially offset lower sales gross margin pharmaceutical products primarily due exclusivity losses increased spending research development primarily latestage pharmaceutical compounds pharmaceuticals earnings minority interest income taxes 2559 million 2006 decrease 2006 2005 primarily due lower net sales result lower plavix sales loss exclusivity pravachol investment research development continued investment key growth drivers new products earnings minority interest income taxes 3732 million 2005 decreased 4334 million 2004 primarily due lower net sales gross margin primarily related exclusivity losses higher advertising product promotion investments behind growth drivers increased spending research development health care group nutritionals earnings minority interest income taxes 696 million 2006 increase 2006 2005 primarily due sales growth children’s nutritional products partially offset increased investments advertising expense research development programs earnings minority interest income taxes 677 million 2005 increased 610 million 2004 primarily due increased worldwide sales infant formula products international sales toddler children’s nutritional products partially offset increased investments advertising product promotion research development programs health care earnings minority interest income taxes 517 million 2006 increase 2006 2005 primarily driven increased sales convatec medical imaging businesses earnings minority interest income taxes 469 million 2005 decreased 510 million 2004 primarily due sale consumer medicines business third quarter 2005 higher spending research development partially offset sales growth convatec medical imaging businesses corporateother loss minority interest income taxes 1137 million 2006 increase 2006 2005 primarily due higher debt retirement costs 2006 compared 2005 lower gain sale product asset 2006 compared consumer medicines business 2005 143 million income 2005 resulting termination muraglitazar collaborative agreement well lower insurance recoveries 2006 compared 2005 partially offset lower litigation charges 2006 compared 2005 loss minority interest income taxes 2005 362 million decreased 1036 million 2004 primarily due increase gain sales businessesproduct lines deferred income recognized termination collaborative agreement muraglitazar reduction litigation charges net income taxes effective income tax rate earnings continuing operations minority interest income taxes 232 2006 compared 206 2005 344 2004 increase effective tax rate 2006 compared 2005 resulted elimination 2006 tax benefits section 936 internal revenue code treatment provisions portion certain litigation reserves nondeductible 2006 tax benefits 2005 associated settlement internal revenue service irs examination favorable adjustment 2005 taxes special dividends american jobs creation act 2004 ajca partially offset favorable us tax legislation enacted 2006 related tax treatment certain intercompany transactions amongst company’s foreign subsidiaries implementation tax planning strategies 2006 related utilization certain charitable contributions decrease effective tax rate 2005 due primarily charge 2004 approximately 575 million taxes special dividends ajca 2004 charge related establishment valuation allowance certain charitable contributions tax benefits 2005 discussed partially offset lower estimated foreign tax credits 2005 company recorded significant deferred tax assets related us foreign tax credit carryforwards approximately 1071 million us research tax credit carryforwards approximately 259 million expire varying amounts beginning 2012 realization foreign tax credit research tax credit carryforwards dependent generating sufficient domestic taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions increasing biologics manufacturing capacity us implementing tax planning strategies increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit carryforwards amount foreign tax credit research tax credit carryforwards considered realizable however could reduced near term plavix subject either renewed additional generic competition events occur company may need record significant valuation allowances us federal deferred tax assets discussion plavix related matters see “item 8 financial statementsnote 21 legal proceedings contingencies” company’s us federal income tax returns 2002 2003 currently examination irs proposed 1 significant disallowance certain litigation settlement expenses 2 significant reduction us foreign tax credits claimed following company’s previously disclosed 2002 international restructuring irs’ position latter matter also affects us foreign tax credits claimed company 2004 although year currently examination company believes strong positions respect issues intends contest irs’ positions possible predict outcome issues company established tax contingency reserves reflect best estimate probable tax liability matters company prevail final nonappealable determination matters amount loss excess established reserves could material adverse effect company’s results operations however company believe determination would material adverse effect cash flows minority interest 2006 minority interest net taxes decreased 440 million 592 million 2005 primarily due lower earnings company’s partnership sanofi territory covering americas resulting impact august 2006 atrisk launch generic clopidogrel bisulfate discontinued operations may 2005 company completed sale otn one equity partners llc cash proceeds 197 million including impact preliminary working capital adjustment company recorded pretax gain 63 million 13 million net tax presented gain sale discontinued operations consolidated statement earnings otn previously presented separate segment discussions otn see “item 8 financial statementsnote 5 discontinued operations” following amounts related otn business segregated continuing operations reflected discontinued operations periods presented financial position liquidity capital resources cash equivalents marketable securities approximately 40 billion december 31 2006 compared 58 billion december 31 2005 company continues maintain sufficient level working capital approximately 38 billion december 31 2006 decreasing 54 billion december 31 2005 noted recent developments pending patent litigation involving plavix including generic launch apotex august 2006 currently subject preliminary injunction halted sales apotex trial underlying patent litigation ended february 15 2007 court expected rule following posttrial briefing apotex prevail trial company would expect plavix would face renewed generic competition promptly thereafter subject risks company currently believes absence renewed additional generic competition plavix generic pharmaceutical companies 2007 future periods cash generated us operations together existing cash borrowings capital markets sufficient cover cash needs working capital expenditures company expects include substantial investments facilities increase maintain company’s capacity provide biologics commercial scale milestone payments dividends paid us cash equivalents marketable securities conversion workingcapital items borrowings expected fund nearterm operations circumstances renewed additional generic competition plavix would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity additional information pending plavix patent litigation recent adverse developments included “item 8 financial statementsnote 21 legal proceedings contingenciesintellectual propertyplavix litigation” “executive summaryplavix” fourth quarter 2004 company disclosed anticipated repatriating approximately 9 billion special dividends 2005 recorded 575 million provision deferred income taxes pursuant ajca enacted pending matters company repatriated approximately 62 billion foreign subsidiaries first quarter 2005 repatriated remaining balance approximately 28 billion fourth quarter 2005 company used expects continue use special dividends accordance requirements established ajca us treasury department second quarter 2005 us treasury department issued ajca related guidance clarifying “grossup” foreign taxes associated special dividends also qualifies 525 tax rate established ajca result guidance company reduced 575 million provision recording benefit approximately 135 million tax provision 2005 except earnings associated special dividends discussed us income taxes provided balance unremitted earnings nonus subsidiaries since company invested expects invest earnings permanently offshore december 31 2006 company approximately 113 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated us company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided cash equivalents december 31 2006 primarily consisted us dollar denominated bank deposits original maturity three months less marketable securities december 31 2006 primarily consisted us dollar denominated floating rate instruments ‘aaaaaa’ credit rating due nature instruments company considers reasonable expect fair market values significantly impacted change interest rates liquidated cash short notice average interest yield invested cash equivalents 52 41 december 31 2006 2005 respectively interest yields marketable securities averaged 53 44 respectively september 2006 company sanofi posted 200 million towards 400 million bond court collateral support preliminary injunction company pledged issuer bond collateral 200 million bond consisting shortterm high quality securities collateral reported marketable securities company’s consolidated balance sheet december 31 2006 terms pledge agreement company entitled receive income generated marketable securities make certain investment strategy decisions restricted using 200 million pledged securities purpose time bond cancelled december 2006 company completed sale leaseback several administrative facilities new jersey 283 million resulting pretax gain transaction 154 million deferred reduce future lease rental costs lease periods ranging 8 12 years shortterm borrowings end 2006 2005 187 million 231 million respectively company maintains cash balances shortterm investments excess shortterm borrowings longterm debt 72 billion december 31 2006 compared 84 billion december 31 2005 fourth quarter 2006 company restructured longterm debt retiring outstanding 25 billion principal amount 575 notes due 2011 cash tender offer subsequent redemption issuing 500 million aggregate principal 4375 notes due 2016 500 million aggregate principal 4625 notes due 2021 well 125 billion aggregate principal 5875 notes due 2036 company incurred aggregate pretax expense approximately 220 million connection early redemption 2011 notes termination related interest rate swaps included writeoff related unamortized discount issuance costs deferred loss interest rate lock longterm debt december 31 2006 also included japanese yen debt 194 billion yen december 2006 company replaced prior 2 billion revolving credit facility new 2 billion five year revolving credit facility syndicate lenders extendable anniversary date consent lenders facility contains customary terms conditions substantially similar prior facility including financial covenant whereby ratio consolidated debt consolidated capital cannot exceed 50 end quarter company compliance covenant since inception new facility borrowings outstanding revolving credit facility december 31 2006 august 2005 whollyowned subsidiary company entered new 25 billion term loan facility syndicate lenders borrowings facility guaranteed company subsidiaries borrower certain european subsidiaries company facility contains fiveyear tranche 20 billion twoyear tranche 500 million fully drawn december 31 2005 fourth quarter 2006 company repaid entire 500 million twoyear tranche 700 million fiveyear tranche company subject substantially covenants included december 2004 revolving credit facility company also subject restrictions including certain financial covenants prior borrowing proceeds facility 2005 company obtained waiver lenders covenant default facility due onetime intercompany distribution december 31 2006 company full compliance covenants second quarter 2005 company repurchased outstanding 25 billion aggregate principal amount 475 notes due 2006 incurred aggregate pretax loss approximately 69 million connection early redemption notes termination related interest rate swaps majority company’s debt fixed rate company however entered fixed floating interest rate swaps 39 billion longterm debt including 1 billion euro interest expense net interest swap gains 498 million 349 million 310 million 2006 2005 2004 respectively increase interest expense 2006 2005 2004 primarily due higher interest rates moody’s investors service moody’s longterm shortterm credit ratings company currently a2 prime1 respectively following downgrade longterm credit rating third quarter 2006 a1 moody’s longterm credit rating amended negative outlook stable outlook third quarter 2006 standard poor’s sp longterm shortterm credit ratings company currently a1 respectively sp’s longterm credit rating remains negative outlook fitch ratings fitch longterm shortterm credit ratings company currently respectively fitch placed company rating watch negative following discussion working capital decrease working capital 1587 million december 31 2005 december 31 2006 impacted • decrease cash marketable securities primarily due repayment longtem debt • lower receivables primarily due lower plavix sales loss exclusivity pravachol mostly offset higher receivables due alliance partners • increase inventories support growth drivers recently launched products mostly offset reduction pravachol inventory resulting loss exclusivity • reduction deferred tax assets 2006 primarily due litigation settlement payments • lower accounts payable due lower purchases pravachol raw materials • increase deferred income resulting higher deferred alliance revenue • lower accrued rebates returns primarily due exclusivity loss pravachol volume erosion highly rebated paraplatin taxol® paclitaxel lower plavix volumes partially offset higher sales returns following discussion cash flow activities net cash provided operating activities 21 billion 2006 18 billion 2005 247 million increase 2006 compared 2005 mainly attributable significant changes adjustments net earnings 1398 million net changes operating assets liabilities 264 million offset lower net earnings 1415 million significant positive changes adjustments net earnings 2006 compared 2005 1398 million mainly included • 576 million positive cash flow variance deferred income tax expensebenefit due lower level increase deferred tax benefit 2006 compared 2005 2006 increase deferred tax benefits associated us research development foreign tax credits increase litigation reserves 2005 increase deferred tax benefits associated reversal tax liability related repatriation special dividends ajca • 425 million positive cash flow variance due lower gain sale product asset 2006 compared sale business 2005 • 143 million positive cash flow variance deferred income recognized related termination muraglitazar collaborative agreement 2005 net positive changes operating assets liabilities 2006 compared 2005 264 million mainly included • 329 million negative cash flow variance receivables 2006 increase cash flow driven increases receivables due alliance partners partially offset lower trade receivable volume 2005 increase cash flow driven collection foreign withholding taxes alliance partners • 448 million positive cash flow variance inventories primarily due increase inventories 2005 resulting growth newer products anticipation new product launches reduction inventories 2006 resulting pravachol exclusivity loss • 283 million negative cash flow variance litigation primarily due settlement payments 339 million 2006 dpa vanlev litigation partially offset unrelated insurance recoveries 67 million • 443 million positive cash flow variance income taxes payable primarily related payments 2005 settlement examinations irs years 1998 2001 repatriation special dividends ajca net cash provided investing activities 206 million 2006 compared net cash provided 1191 million 2005 985 million negative cash flow variance primarily attributable • 281 million negative cash flow variance mainly sale marketable securities 2005 • 617 million negative cash flow variance lower proceeds sale product asset 2006 compared sale consumer medicines otn businesses 2005 • 280 million negative cash flow variance milestone payments 2006 primarily related imclone • 281 million positive cash flow variance proceeds disposal properties connection sale lease back transaction 2006 net cash used financing activities 3351 million 2006 compared 3637 million 2005 286 million positive cash flow variance mainly attributable • 1655 million positive cash flow variance repayment shortterm borrowings 2005 • 1198 negative cash flow variance retirement longterm debt 2006 company repaid debt 1200 million retired 575 notes due 2011 2425 million 2005 company retired 475 notes due 2006 2507 million net cash provided operating activities 18 billion 2005 32 billion 2004 1340 million decrease 2005 compared 2004 mainly attributable significant changes adjustments net earnings 1648 million net changes operating assets liabilities 304 million offset higher net earnings 612 million significant negative changes adjustments net earnings 2005 compared 2004 1648 million mainly included • 1090 million negative cash flow variance due primarily reversal 575 million ajca deferred tax provision recorded 2004 • 151 million negative cash flow variance due lower litigation settlement expenses 2006 • 312 million negative cash flow variance due higher gain sale businesses 2005 compared 2004 net changes operating assets liabilities 2005 compared 2004 304 million mainly included • 1095 million positive cash flow variance receivables increase cash flow receivables driven lower sales volume 2005 increase foreign withholding taxes receivable 2004 • 511 million positive cash flow variance primarily due lower litigation settlement payments well insurance recoveries 2005 • 626 million negative cash flow variance accounts payable accrued expenses primarily due vendor payments prior sale otn business 2005 lower accrued rebates returns 2005 compared 2004 • 762 million negative cash flow variance income taxes payable primarily related payments 2005 settlement examinations irs years 1998 2001 repatriation special dividends ajca net cash provided investing activities 1191 million 2005 compared net cash used 1622 million 2004 2813 million positive cash flow variance primarily attributable • 1822 million positive cash flow variance mainly sale marketable securities 2005 compared purchases 2004 • 479 million positive cash flow variance higher proceeds sale consumer medicines otn businesses 2005 compared sale adult nutritionals business 2004 • 250 million positive cash flow variance due milestone payment 2004 imclone • 150 million positive cash flow variance due purchase acordis specialty fibres 2004 net cash used financing activities 3637 million 2005 compared 463 million 2004 3174 million negative cash flow variance mainly attributable • 3183 million negative cash flow variance retirement commercial paper 2005 compared purchases 2004 • 2500 million negative cash flow variance due 2005 repurchase 25 billion 475 notes due 2006 • 2500 million positive cash flow variance proceeds borrowings new term loan facility 2005 cash provided operations borrowings primarily used past three years pay dividends approximately 66 billion company also invested approximately 22 billion past three years capital expansion improve plant efficiency maintain superior research facilities past three years company repurchase common stock total shares acquired since share repurchase program’s inception 372 million shares share repurchase program authorizes company purchase common stock time open market private transactions market conditions permit program intended reduce increase shares outstanding option exercises obtain shares general corporate purposes dividends declared per common share 112 2006 2005 2004 december 2006 company declared quarterly dividend 28 per common share indicated dividend full year 2007 112 per share dividend decisions made quarterly basis company’s board directors company’s financial condition liquidity could affected obligations make milestone onetime payments outcome pending litigations investigations including challenge plavix patent andor potential renewed additional generic competition plavix information see “item 8 financial statementsnote 2 alliances investments” “note 21 legal proceedings contingencies” contractual obligations payments due period company’s contractual obligations december 31 2006 follows 1 current portion longterm debt obligations included shortterm borrowings company’s consolidated balance sheet december 31 2006 balances approximate outstanding nominal longterm debt values contractual obligations table excludes interest payment obligations company’s convertible debenture included due payment 2008 contains 2008 put call feature addition company committed make potential future “milestone” payments thirdparties part inlicensing development programs payments agreements generally become due payable upon achievement certain developmental regulatory andor commercial milestones achievement milestones neither probable reasonably estimable contingencies recorded company’s consolidated balance sheet discussion contractual obligations see “item 8 financial statementsnote 14 shortterm borrowings longterm debt” “note 17 financial instruments” “note 19 leases” “note 20 pension postretirement benefit plans” sec consent order deferred prosecution agreement previously disclosed august 4 2004 company entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 company’s quarterly report form 10q period ended september 30 2004 terms consent company agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice company also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer company’s accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring company’s budget process gives appropriate weight inputs come bottom top come top bottom adequately documenting process company agreed consent retain “independent advisor” date company’s form 10k year ended 2005 filed sec independent advisor continues serve monitor dpa discussed previously disclosed june 15 2005 company entered dpa usao district new jersey resolving investigation usao company relating wholesaler inventory various accounting matters covered company’s settlement sec pursuant dpa usao filed criminal complaint company alleging conspiracy commit securities fraud defer prosecution company dismiss complaint two years company satisfies requirements dpa copy dpa filed exhibit 992 form 8k filed company june 16 2005 incorporated reference hereto exhibit 10w form 10k fiscal year ended december 31 2006 dpa among things company agreed include forms 10q 10k filed sec annual report shareholders following information estimated wholesalerdirect customer inventory levels top fifteen 15 products sold us pharmaceuticals business b major nonus countries estimated aggregate wholesalerdirectcustomer inventory levels top fifteen 15 pharmaceutical products sold countries taken whole measured aggregate annual sales countries c arrangements policies concerning wholesalerdirect customers distributors products including efforts company control monitor wholesalerdistributor inventory levels data concerning prescriptions measures enduser demand products pursuant dpa company also agreed include filings reports information acquisition divestiture restructuring reserve policies activity rebate accrual policies activity company also agreed implement remedial measures already undertaken mandated consent settlements derivative litigation federal securities class action relating wholesaler inventory various accounting matters addition company agreed undertake additional remedial actions corporate reforms actions including appointing additional nonexecutive director acceptable usao b establishing maintaining training education program topics include corporate citizenship financial reporting obligations c making additional 300 million payment shareholder compensation fund established connection consent engaging attempting engage criminal conduct term defined dpa e continuing cooperate usao including respect ongoing investigation regarding individual current former employees company f retaining monitor also part dpa board separated roles chairman chief executive officer ceo company june 15 2005 elected nonexecutive chairman noted dpa company agreed engage attempt engage criminal conduct “criminal conduct” defined dpa crime related company’s business activities committed one executive officers directors b securities fraud accounting fraud financial fraud business fraud materially affecting books records publicly filed reports company c obstruction justice usao discretion may prosecute company federal crimes usao knowledge including matters subject criminal complaint referenced usao determine company committed criminal conduct monitor defined powers responsibilities dpa including responsibility least april 2007 oversee company’s compliance terms dpa consent settlements derivative action federal securities class action monitor authority require company take steps believes necessary comply terms dpa company required adopt recommendations made monitor unless company objects recommendation usao agrees adoption recommendation required addition monitor reports usao least quarterly basis company’s compliance dpa implementation effectiveness internal controls financial reporting disclosure processes related compliance functions company september 12 2006 board announced company’s current ceo general counsel would leaving respective positions effective immediately announcement took place board received considered reports company’s outside counsel issues relating plavix patent litigation apotex preliminary recommendation monitor terminate employment individuals monitor’s recommendation followed investigation initiated usao conducted monitor usao corporate governance issues relating company’s negotiations proposed settlement apotex company advised monitor usao investigation involve matters subject ongoing investigation antitrust division department justice plavix settlement agreement time monitor made preliminary recommendation monitor usao also advised company found violation dpa unlawful conduct company employees investigation included review whether violation federal securities laws connection proposed settlement apotex terms sec consent monitor completed investigation submitted report investigation usao monitor’s report find violation consent federal securities laws connection proposed settlement monitor concluded company violated certain paragraphs dpa related governance matters violations cited monitor report relate among things communication failures including insufficient communications company’s former ceo former general counsel board members senior management well failure comply certain internal company policies procedures monitor make findings respect whether company knowingly materially breached dpa make recommendations usao advised company believes matters cited monitor’s report fully remediated accordingly intend take action dpa respect monitor’s report additional information pending plavix patent litigation antitrust division investigation see “item 8 financial statementsnote 21 legal proceedings contingencies” company established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis company maintains imas us pharmaceutical wholesalers account nearly 100 total gross sales us pharmaceutical products current terms imas company’s three largest wholesaler customers provide company weekly information respect months hand product level inventories amount outmovement products three wholesalers currently account 90 total gross sales us pharmaceutical products 2006 2005 2004 inventory information received wholesalers together company’s internal information used estimate months hand product level inventories wholesalers company estimates months hand product inventory levels us pharmaceutical business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers company considers whether adjustments necessary extrapolated amounts based factors historical sales individual products made wholesalers thirdparty market research data related prescription trends patient demand contrast company’s pharmaceutical business outside us nutritionals health care business units around world company significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly company relies variety methods estimate months hand product level inventories business units company discloses top fifteen 15 pharmaceutical products based 2005 net sales pharmaceutical products company views current future growth drivers sold us pharmaceuticals business amount net sales estimated number months hand us wholesaler distribution channel end immediately preceding quarter end applicable quarter well corresponding information prior year quarterly annual reports forms 10q 10k company discloses corresponding information top fifteen pharmaceutical products pharmaceutical products company views current future growth drivers sold within major nonus countries described business units company discloses quarterly basis key product level inventories information required estimate months hand product level inventories direct customer distribution nonus pharmaceuticals businesses available prior filing quarterly report form 10q applicable quarter accordingly company discloses information website approximately 60 days end applicable quarter furnishes form 8k company’s form 10q following quarter addition foregoing quarterly disclosure company include foregoing information business units immediately preceding quarter applicable quarter well corresponding information prior year annual report form 10k products described inventory direct customers exceeds approximately one month hand company disclose estimated months hand products except impact company de minimis company enhanced continue seek enhance methods estimate months hand product inventory levels us pharmaceuticals business nonus pharmaceuticals businesses around world taking account complexities described company also taken continue take steps expedite receipt processing data nonus pharmaceuticals businesses company believes abovedescribed procedures provide reasonable basis ensure compliance consent dpa provides sufficient information comply disclosure requirements recently issued accounting standards company adopted sfas 123r sharedbased payment requires measurement recognition compensation expense stockbased payment awards made employees directors based estimated fair values sfas 123r supersedes company’s previous accounting apb 25 accounting stock issued employees periods beginning january 1 2006 march 2005 sec issued staff accounting bulletin sab 107 sharebased payment relating sfas 123r company applied provisions sab 107 adoption sfas 123r company adopted sfas 123r using modified prospective transition method requires application accounting standard january 1 2006 elected alternative method provided fasb staff position fsp 123r3 transition election related accounting tax effects share based payment awards determining company’s pool excess tax benefits company’s consolidated financial statements year ended december 31 2006 reflect impact sfas 123r accordance modified prospective transition method company’s consolidated financial statements prior periods restated reflect include impact sfas 123r stockbased compensation expense recognized sfas 123r year ended december 31 2006 112 million 73 million net tax 004 per share corresponding amount recorded additional paidin capital within stockholders’ equity additionally 10 million related performance awards reclassified liabilities stockholders’ equity connection adoption sfas 123r february 2007 financial accounting standards board fasb issued sfas 159 fair value option financial assets financial liabilities permits entity measure certain financial assets financial liabilities fair value objective sfas 159 improve financial reporting allowing entities mitigate volatility reported earnings caused measurement related assets liabilities using different attributes without apply complex hedge accounting provisions sfas 159 entities elect fair value option instrument report unrealized gains losses earnings subsequent reporting date fair value option election irrevocable unless new election date occurs sfas 159 establishes presentation disclosure requirements help financial statement users understand effect entity’s election earnings eliminate disclosure requirements accounting standards assets liabilities measured fair value must displayed face balance sheet statement effective fiscal years beginning november 15 2007 company evaluating pronouncement september 2006 fasb issued sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r pronouncement requires employer recognize overfunded underfunded status defined benefit postretirement plan multiemployer plan asset liability statement financial position recognize changes funded status year changes occur comprehensive income business entity pronouncement also requires employer measure funded status plan date yearend statement financial position limited exceptions pronouncement require prior periods restated reflect impact sfas 158 company adopted sfas 158 fiscal year ended december 31 2006 adoption accounting pronouncement resulted 1064 million reduction accumulated comprehensive income stockholders’ equity 767 million reduction total assets 297 million increase total liabilities adoption sfas 158 impact company’s results operations cash flows september 2006 fasb issued sfas 157 fair value measurements pronouncement defines fair value establishes framework measuring fair value expands disclosures fair value measurements statement effective fiscal years beginning november 15 2007 adoption accounting pronouncement expected material effect company’s consolidated financial statements september 2006 sec issued staff accounting bulletin sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements expresses staff’s views regarding process quantifying financial statement misstatements bulletin effective interim period first fiscal year ending november 15 2006 sab 108 requires companies utilize “dual approach” assess quantitative effects financial statement misstatements dual approach includes income statement focus balance sheet focus assessment adoption bulletin effect company’s consolidated financial statements july 2006 fasb issued fasb interpretation fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 case company effective january 1 2007 fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 accounting income taxes fin 48 requires tax positions evaluated using recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return differences tax positions taken tax return amounts recognized financial statements recorded adjustments income taxes payable receivable adjustments deferred taxes fin 48 also requires expanded disclosure end annual reporting period including tabular reconciliation unrecognized tax benefits accordance fin 48 company report difference net amount assets liabilities recognized statement financial position prior application fin 48 cumulative effect adjustment opening balance retained earnings adoption accounting pronouncement expected material effect company’s consolidated financial statements march 2006 fasb issued sfas 156 accounting servicing financial assetsan amendment fasb statement 140 pronouncement relates accounting separately recognized servicing assets servicing liabilities statement effective fiscal years beginning september 15 2006 adoption accounting pronouncement expected material effect company’s consolidated financial statements february 2006 fasb issued sfas 155 accounting certain hybrid financial instruments amendment fasb statements 133 140 pronouncement primarily resolves certain issues addressed implementation sfas 133 accounting derivative instruments hedging activities concerning beneficial interests securitized financial assets statement effective financial instruments acquired issued subject remeasurement event occurring beginning 2007 fiscal year adoption accounting pronouncement expected material effect company’s consolidated financial statements may 2005 fasb issued sfas 154 accounting changes error corrections replaces apb opinion 20 accounting changes sfas 3 reporting accounting changes interim financial statements pronouncement applies voluntary changes accounting principle revises requirements accounting reporting change accounting principle sfas 154 requires retrospective application prior periods’ financial statements voluntary change accounting principle unless impracticable pronouncement also requires change method depreciation amortization depletion longlived nonfinancial assets accounted change accounting estimate affected change accounting principle sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 statement change transition provisions existing accounting pronouncements including transition phase effective date sfas 154 adoption accounting pronouncement material effect company’s consolidated financial statements march 2005 fasb issued fin 47 accounting conditional asset retirement obligations fin 47 clarifies entity must record liability conditional asset retirement obligation fair value obligation reasonably estimated asset retirement obligations covered fin 47 entity legal obligation perform asset retirement activity even timing method settling obligation conditional future event may within control entity fin 47 also clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation adoption accounting pronouncement material effect company’s consolidated financial statements december 2004 fasb issued fsp 1091application sfas 109 accounting income taxes tax deduction qualified production activities provided american jobs creation act 2004 fsp 1091 provides deduction qualified production activities treated “special deduction” described sfas 109 accounting income taxes accordingly tax effect deduction reported component company’s tax provision effect deferred tax assets liabilities may 24 2006 irs issued final tax regulations ftr respect deduction qualified production activities section 199 internal revenue code final regulations effective taxable years beginning june 1 2006 adoption ftr fsp 1091 material impact company’s consolidated financial statements december 2004 fasb issued sfas 153 exchanges nonmonetary assets provisions statement effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 provisions statement applied prospectively eliminates exception fair value measurement nonmonetary exchanges similar productive assets paragraph 21b apb 29 accounting nonmonetary transactions replaces exception exchanges commercial substance adoption accounting pronouncement material effect company’s consolidated financial statements november 2004 fasb issued sfas 151 inventory costsan amendment arb 43 chapter 4 pronouncement requires abnormal amounts idle facility related expenses recognized current period charges also requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective inventory costs incurred fiscal years beginning june 15 2005 adoption accounting pronouncement material effect company’s consolidated financial statements critical accounting policies company prepares financial statements conformity accounting principles generally accepted us preparation financial statements conformity us generally accepted accounting principles gaap requires use estimates assumptions affect reported amounts assets liabilities including disclosure contingent assets contingent liabilities date financial statements reported amounts revenue expenses reporting period company’s critical accounting policies important company’s financial condition results operations require difficult subjective complex judgments part management application often result need make estimates effect matters inherently uncertain uncertainty factors surrounding estimates judgments used preparation consolidated financial statements actual results may vary estimates company believes following discussion represents critical accounting policies management discussed company’s critical accounting policies audit committee board directors revenue recognition company recognizes revenue accordance sab 101 revenue recognition financial statements amended sab 104 revenue recognition company’s accounting policy revenue recognition substantial impact reported results relies certain estimates require difficult subjective complex judgments part management company recognizes revenue substantially risks rewards ownership transferred customer generally occurs date shipment exceptions described previous years certain transactions company’s us pharmaceutical wholesalers accounted using consignment model case sales made wholesalers 1 result incentives 2 excess wholesaler’s ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesaler’s cost carrying inventory excess wholesaler’s ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory company’s cost inventory company recognizes revenue net gross net sales adjustments discussed involve significant estimates judgments consignment inventory longer subject incentive arrangements later inventory sold wholesalers’ customers firstin firstout basis fifo case new products product introduction extension existing line product company determines products similar therapeutic category company determines new product dissimilar characteristics existing products company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns discussions revenue recognition see “item 8 financial statementsnote 1 accounting policiesrevenue recognition sales rebate return accruals” grosstonet sales adjustments company following significant categories grosstonet sales adjustments prime vendor chargebacks wic rebates managed health care rebates contract discounts medicaid rebates cash discounts sales returns adjustments involve significant estimates judgments require company use information external sources company accounts grosstonet sales adjustments accordance emerging issues task force issue 019 accounting consideration given vendor customer including reseller vendor’s products sfas 48 revenue recognition right return exists applicable see “net sales” section reconciliation company’s gross sales net sales significant category grosstonet sales adjustment prime vendor chargebacks company’s us businesses participate prime vendor programs government entities significant us department defense us department veterans affairs parties whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower prime vendor price wholesalers charge difference acquisition cost lower prime vendor price back company accounts prime vendor chargebacks reducing accounts receivable amount equal company’s estimate chargeback claims attributable sale company determines estimate prime vendor chargebacks primarily based historical experience regarding prime vendor chargebacks current contract prices prime vendor programs company considers prime vendor payments levels inventory distribution channel company’s claim processing time lag adjusts reduction accounts receivable periodically throughout quarter reflect actual experience wic rebates company’s us nutritionals business participates competitive bidding basis nutrition programs sponsored states tribal governments commonwealth puerto rico us territories wic programs company reimburses entities difference wholesaler list price contract price eligible products company accounts wic rebates establishing accrual amount equal company’s estimate wic rebate claims attributable sale company determines estimate wic rebate accrual primarily based historical experience regarding wic rebates current contract prices wic programs company considers levels inventory distribution channel new wic contracts terminated wic contracts changes existing wic contracts wic participation adjusts accrual periodically throughout quarter reflect actual experience managed health care rebates contract discounts company offers rebates discounts managed health care organizations us manage prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit addition commercial plans well globally contract counterparties hospitals group purchasing organizations company accounts managed health care rebates contract discounts establishing accrual amount equal company’s estimate managed health care rebates contract discounts attributable sale company determines estimate managed health care rebates contract discounts accrual primarily based historical experience regarding rebates discounts current contract prices company considers sales performance products subject managed health care rebates contract discounts levels inventory distribution channel adjusts accrual periodically throughout quarter reflect actual experience medicaid rebates company’s us businesses participate state governmentmanaged medicaid programs well certain qualifying federal state government programs whereby discounts rebates provided participating state local government entities discounts rebates provided latter programs included company’s medicaid rebate accrual considered medicaid rebates purposes discussion company accounts medicaid rebates establishing accrual amount equal company’s estimate medicaid rebate claims attributable sale company determines estimate medicaid rebates accrual primarily based historical experience regarding medicaid rebates well expansion prospective basis participation nonmandatory aspects qualifying federal state government programs legal interpretations applicable laws related medicaid qualifying federal state government programs new information regarding changes medicaid programs’ regulations guidelines would impact amount rebates company considers outstanding medicaid claims medicaid payments levels inventory distribution channel adjusts accrual periodically throughout quarter reflect actual experience cash discounts us certain countries company offers cash discounts approximating 2 sales price incentive prompt payment company accounts cash discounts reducing accounts receivable full amount discounts company considers payment performance adjusts accrual reflect actual experience sales returns company accounts sales returns accordance sfas 48 revenue recognition right return exists establishing accrual amount equal company’s estimate sales recorded related products expected returned 2006 2005 2004 provision sales returns 230 million 164 million 276 million respectively 1 gross sales three years returns established products company determines estimate sales return accrual primarily based historical experience regarding sales returns also considers factors could impact sales returns factors include levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products company considers factors adjusts accrual periodically throughout quarter reflect actual experience company considers level inventory distribution channel determines whether believes adjustment sales return accrual appropriate company adjusts sales return accrual based historical experience company’s returned goods policy shelf life company’s products life cycle product levels inventory distribution channel company considers introductions generic products factors impact sales returns calculation based historical experience company’s returned goods policy event product recall product discontinuance company considers reasons impact actions adjusts sales return accrual appropriate taking account historical experience estimated levels inventory distribution channel product discontinuances estimates continuing demand sales returns accruals new products estimated primarily based historical sales returns experience similar products within line product within similar therapeutic category limited circumstances new product extension existing line product company historical experience products similar therapeutic category company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns company also considers shelf life new products determines whether believes adjustment sales return accrual appropriate shelf life connection new products tends shorter shelf life established products company may still developing optimal manufacturing process new product would lengthen shelf life addition higher launch quantities may manufactured advance launch date ensure sufficient supply exists satisfy market demand cases company assesses reduced shelf life together estimated levels inventory distribution channel projected demand determines whether believes adjustment sales return accrual appropriate adjustments addition grosstonet sales adjustments described company makes grosstonet sales adjustments example company offers sales discounts significantly nonus businesses also offers consumer coupons rebates significantly us nutritionals pharmaceuticals business addition number countries outside us including major european countries company provides rebates government entities company generally accounts grosstonet adjustments establishing accrual amount equal company’s estimate adjustments attributable sale company generally determines estimates accruals grosstonet sales adjustments primarily based historical experience performance commitments government entities relevant factors including estimated levels inventory distribution channel adjusts accruals periodically throughout quarter reflect actual experience use information external sources company uses information external sources estimate grosstonet sales adjustments company’s estimates inventory wholesalers deferred revenue consigned inventory based projected prescription demandbased sales products historical inventory experience well company’s analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data company’s internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals company receives information ims supplier market research pharmaceutical industry uses project prescription demandbased sales many us pharmaceutical products company historically reported estimated total us prescription growth estimated therapeutic category share based npa data ims made available public subscription basis simple average estimated number prescriptions retail mail order channels third quarter 2005 company began disclosing estimated total us prescription growth estimated therapeutic category share based npa ngps version 10 data ngps version 10 data collected ims new revised methodology released ims limited basis pilot program ims announced ngps version 20 data available public subscription basis starting january 2007 legacy npa ngps version 10 discontinued company believes ngps data provided ims provides superior estimate prescription data company’s products retail mail order channels company calculated estimated total us prescription growth estimated therapeutic category share based ngps data weighted average basis reflect fact mail order prescriptions include greater volume product supplied compared retail prescriptions company believes calculation estimated total us prescription growth estimated therapeutic category share based ngps data weighted average approach respect retail mail order channels provide superior estimate total prescription demand company uses methodology internal demand forecasts company also uses information external sources identify prescription trends patient demand average selling prices company’s estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date company receives thirdparty information retirement benefits company’s pension plans postretirement benefit plans accounted using actuarial valuations required sfas 87 employers’ accounting pensions sfas 106 employers’ accounting postretirement benefits pensions company considers accounting retirement plans critical management required make significant subjective judgments number actuarial assumptions including discount rates salary growth longterm return plan assets retirement turnover health care cost trend rates mortality rates depending assumptions estimates used pension postretirement benefit expense could vary within range outcomes material effect reported earnings addition assumptions materially affect projected benefit obligations future cash funding company adopted sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r fiscal year ended december 31 2006 adoption accounting pronouncement resulted 1064 million reduction accumulated comprehensive income stockholder’s equity 767 million reduction total assets 297 million increase total liabilities adoption sfas 158 impact company’s results operations cash flows plan description company certain subsidiaries defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan principal defined contribution plan bristolmyers squibb savings investment program approximately 80 total company defined benefit pension plan assets liabilities held us plans assets us plans held single trust common asset allocation unless specified otherwise references section total company plans ie us plans together international plans benefits company’s defined benefit pension plans based primarily years credited service participants’ compensation assets company’s defined benefit plans consist primarily equity fixedincome securities december 31 2006 fair market value plan assets company’s defined benefit plans increased 5658 million 5017 million december 31 2005 us plans assets allocated 69 equity securities compared 68 end 2005 23 fixed income securities compared 25 end 2005 8 private equity investments compared 7 end 2005 bristolmyers squibb common stock represented less 1 assets us plans end 2006 2005 company provides comprehensive medical group life benefits substantially us retirees elect participate company’s comprehensive medical group life plans asset allocation postretirement plans identical asset allocation described us defined benefit pension plans accrual accounting significant assumptions consistent requirements sfas 87 company accounts pension benefits using accrual method recognizing pension expense payment benefits retirees accrual method accounting pension benefits necessarily requires actuarial assumptions concerning future events determine amount timing benefit payments company’s key assumptions used calculating cost pension benefits discount rate compensation increase expected longterm rate return plan assets company consultation actuaries evaluates key actuarial assumptions used calculating cost pension benefits retirement turnover mortality rates based expectations actual experience appropriate determines assumptions december 31 year calculate liability information date pension expense following year depending assumptions used pension expense could vary within range outcomes material effect reported earnings addition assumptions materially affect projected benefit obligations future cash funding actual results given year may differ estimated economic factors determining discount rate company uses yield high quality corporate bonds coincides cash flows plans’ estimated payouts citigroup median yield curve used determining discount rate us plans assumed rate compensation increase used company determining future pension obligations reflects estimate change actual future compensation levels due general price levels productivity seniority factors 2006 net pension expense company’s defined benefit pension plans included earnings minority interest income taxes 332 million compared 392 million 2005 us plans’ pension expense 2006 determined using 575 assumed discount rate 356 assumed rate compensation increase present value benefit obligations december 31 2006 us plans determined using 600 assumed discount rate 356 assumed rate compensation increase assumed discount rate used determining us plans pension expense 2006 reduced 025 expense would increased approximately 18 million assumed rate compensation increase used determining us plans pension expense 2006 reduced 025 expense would decreased approximately 9 million assumed discount rate used determining accumulated benefit obligation december 31 2006 reduced 025 accumulated benefit obligation would increased 123 million us plans’ pension expense 2006 determined using 875 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans pension expense 2006 reduced 1 expense would increased 38 million actual rates return earned us plan assets last 10 years follows december 31 2006 company increased assumed discount rate us plans 575 600 maintained assumed rate compensation increase 356 compensation assumed increase scale different rates different ages 356 rate disclosed december 31 2006 single rate used age would produce present value benefit obligations company maintained expected rate return us plan assets 875 2007 company expects net pension expense defined benefit pension plans included earnings minority interest income taxes approximately 25 million lower 2007 332 million 2006 reflecting primarily positive delayed impact favorable 20042006 investment returns company used assumed discount rates expected longterm rates return plan assets calculating cost pension benefits cost postretirement benefits us plans except case discount rates december 31 2006 2005 rates 600 575 respectively used pension benefits versus 575 550 respectively postretirement benefits reflect shorter duration postretirement liabilities december 31 2006 2005 respectively us health care costs retiree population assumed increase 100 2007 trend expected increase 45 per year 2018 actual costs higher assumed likely put significant upward pressure company’s expense retiree health care effects medicare prescription drug improvement modernization act 2003 reflected 2006 net periodic postretirement benefit cost reduction 11 million accumulated postretirement benefit obligation january 1 2006 reduction 94 million recognition actuarial gains losses 2006 sfas 158 requires recognition actuarial gains losses component stockholders’ equity accumulated comprehensive income sfas 87 provides delayed recognition years prior 2006 amounts arise changes estimated plan benefit obligations due changes assumed discount rate differences actual expected returns plan assets assumption changes net actuarial gain loss determined based marketrelated value plan assets differs fair market value calculated value recognizes changes fair value systematic rational manner five years amortized pension income expense year extent unrecognized net actuarial loss gain exceeds 10 greater projected benefit obligation marketrelated value plan assets beginning year net gains losses recognized pension income expense prospectively period approximates average remaining service period active employees expected receive benefits plans approximately 10 years extent offset losses gains subsequent years unrecognized net actuarial loss reflects large part steady reduction weightedaverage discount rate years unless offset future unrecognized gains higher discount rates higher expected returns plan assets amortization unrecognized loss expected increase pension expense 133 million 2007 progressively lower amounts following nine years plan funding company’s funding policy defined benefit plans contribute amounts provide current service fund past service liability company contributed 325 million 423 million defined benefit plans 2006 2005 respectively discussions retirement benefits see “item 8 financial statementsnote 20 pension postretirement benefit plans” acquired inprocess research development fair value inprocess research development acquired business combination determined independent appraisal based present value research project’s projected cash flows income approach utilized consistent guidance practice aid issued american institute certified public accountants assets acquired business combination used research development activities focus software electronic devices pharmaceutical industries future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weighted average cost capital acquired inprocess research development expensed incurred underlying product received regulatory approval future alternative use addition costs nonrefundable related acquisition licensing products yet received regulatory approval marketed alternative future use charged earnings incurred discussions acquired inprocess research development see “item 8 financial statementsnote 1 accounting policiesacquired inprocess research development” impairment longlived assets accordance sfas 144 accounting impairment disposal longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value accordance sfas 142 goodwill intangible assets goodwill tested least annually impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value sfas 142 requires indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net book value exceeds estimated fair value intangible assets evaluated impairment accordance sfas 144 described estimates future cash flows based reasonable supportable assumptions projections require management’s judgment changes key assumptions company’s businesses prospects changes market conditions could result impairment charge discussions impairment longlived assets see “item 8 financial statementsnote 1 accounting policiesimpairment longlived assets” “goodwill intangible assets” equity investments company reviews equity investments impairment based determination whether decline market value investment company’s carrying value temporary making determination company considers apb opinion 18 equity method accounting investments common stock related interpretations set forth factors evaluated determining whether loss value recognized including company’s ability hold investment market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment company’s investment imclone subject accounting discussion company’s investment imclone see “item 8 financial statementsnote 2 alliances investments” discussions equity investments see “item 8 financial statementsnote 1 accounting policiesinvestments” “note 2 alliances investments” restructuring streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results could vary estimates adjustments 14 million 1 million 8 million recorded 2006 2005 2004 respectively reflect changes estimates restructuring actions taken prior periods discussions restructuring see “item 8 financial statementsnote 1 accounting policiesrestructuring” “note 3 restructuring items” contingencies normal course business company subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability tax matters accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated discussions contingencies see “item 8 financial statementsnote 1 accounting policiesincome taxes contingencies” “note 8 income taxes” “note 21 legal proceedings contingencies” income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases company’s assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recorded reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made december 31 2006 2005 company net deferred tax assets 3154 million 2380 million respectively net valuation allowances 625 million 559 million respectively increase net deferred tax assets 2006 primarily resulted adoption sfas 158 see “item 8 financial statementsnote 8 income taxes” “note 20 pension postretirement benefit plans” company recorded significant deferred tax assets related us foreign tax credit carryforwards approximately 1071 million us research tax credit carryforwards approximately 259 million expire varying amounts beginning 2012 realization foreign tax credit research tax credit carryforwards dependent generating sufficient domestic taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions increasing biologics manufacturing capacity us implementing tax planning strategies increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit carryforwards amount foreign tax credit research tax credit carryforwards considered realizable however could reduced near term plavix subject either renewed additional generic competition events occur company may need record significant valuation allowances us federal deferred tax assets discussion plavix related matters see “item 8 financial statementsnote 21 legal proceedings contingencies” company conducts business various countries throughout world subject tax numerous jurisdictions result business activities company files significant number tax returns subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported company may require several years resolve company establishes liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known december 31 2006 company approximately 113 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated us company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 8 income taxes” stockbased compensation expense company adopted sfas 123r sharebased payment requires measurement recognition compensation expense stockbased payment awards made employees directors based estimated fair values company uses modified prospective transition method requires application accounting standard january 1 2006 elected alternative method provided fsp 123r3 determining company’s pool excess tax benefits company’s consolidated financial statements year ended december 31 2006 reflect impact sfas 123r accordance modified prospective transition method company’s consolidated financial statements prior periods restated reflect include impact sfas 123r stockbased compensation expense recognized sfas 123r year ended december 31 2006 112 million 73 million net tax 004 per share corresponding amount recorded additional paidin capital within stockholders’ equity comparatively pro forma basis stockbased compensation expense 31 million 30 million 20 million 19 million net tax respectively recognized years ended december 31 2005 2004 respectively apb 25 additionally 10 million related performance awards reclassified liabilities stockholders’ equity connection adoption sfas 123r company estimates fair value stockbased payment awards date grant using optionpricing model value portion award ultimately expected vest recognized expense requisite service periods company’s consolidated statement earnings prior adoption sfas 123r company accounted stockbased awards employees directors using intrinsic value method related stock options accordance apb 25 allowed sfas 123 accounting stockbased compensation intrinsic value method stockbased compensation expense recognized company’s consolidated statement earnings exercise price company’s stock options granted employees directors equaled fair market value underlying stock date grant stockbased compensation expense recognized period based value portion stockbased payment awards ultimately expected vest period stockbased compensation expense recognized company’s consolidated statement earnings year ended december 31 2006 included compensation expense stockbased payment awards granted prior yet vested january 1 2006 based grant date fair value estimated accordance pro forma provisions sfas 123r compensation expense stockbased payment awards granted subsequent january 1 2006 based grant date fair value estimated accordance provisions sfas 123r conjunction adoption sfas 123r company changed method attributing value stockbased compensation expense accelerated multipleoption approach straightline single option method compensation expense stockbased payment awards granted prior 2006 continue recognized using accelerated multipleoption approach compensation expense stockbased payment awards service condition granted subsequent january 1 2006 recognized using straightline singleoption method stockbased payment awards granted subsequent january 1 2006 service market condition recognized using accelerated multipleoption approach required sfas 123r prior 2006 company applied apb opinion 25 recognize compensation expense stock options granted plans exercise price option date grant equal fair market value date however grants restricted stock company recognized compensation expense straightline basis period restrictions expire fair value options granted 2006 2005 2004 estimated 474 per common share 549 per common share 591 per common share respectively date grant using blackscholes optionpricing model following assumptions company determines fair value certain stockbased payment awards date grant using optionpricing model affected company’s stock price well assumptions regarding number highly complex subjective variables include limited company’s expected stock price volatility term awards actual projected employee stock option exercise behaviors respect accounting treatment retirement eligibility provisions employee stockbased compensation awards company historically followed nominal vesting period approach upon adoption sfas 123r company follows nonsubstantive vesting period approach recognizes compensation cost oneyear period awards granted retirement eligible employees period grant date retirement eligibility achieved one year less vesting period impact applying nonsubstantive vesting period approach material company’s consolidated financial statements stockbased compensation expense recognized consolidated statement earnings year ended december 31 2006 based awards ultimately expected vest reduced estimated forfeitures company estimates forfeitures time grant revised necessary subsequent periods actual forfeitures differ estimates company’s pro forma information required sfas 123 periods prior 2006 company accounted forfeitures occurred special note regarding forwardlooking statements annual report written oral statements company makes time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things company’s goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years company included important factors cautionary statements included annual report company believes could cause actual results differ materially forwardlooking statement although company believes prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made company undertakes obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary company bristolmyers squibb company bms company bristolmyers squibb global biopharmaceutical related health care products company whose mission extend enhance human life providing highest quality pharmaceutical related health care products company engaged discovery development licensing manufacturing marketing distribution sale pharmaceuticals related health care products company three reportable segmentspharmaceuticals nutritionals convatec pharmaceuticals segment consists global pharmaceuticalbiotechnology international consumer medicines business accounted approximately 81 company’s 2007 net sales nutritionals segment consists mead johnson nutritionals mead johnson primarily infant formula children’s nutritionals business accounted approximately 13 company’s 2007 net sales convatec segment consists ostomy wound skin care business accounted approximately 6 company’s 2007 net sales previously included health care operating segment january 2008 company completed sale medical imaging business avista capital partners lp avista results medical imaging business previously included former health care operating segment presented part company’s results discontinued operations 2007 financial highlights worldwide net sales continuing operations 2007 increased 12 193 billion compared 2006 plavix clopidogrel bisulfate sales grew 46 primarily reflecting adverse impact generic competition august 2006 mid2007 well strong underlying sales growth key products within company’s pharmaceuticals segment including avaproavalide irbesartanirbesartanhydrochlorothiazide reyataz atazanavir sulfate sustiva efavirenz franchise abilify aripiprazole experienced double digit sales growth year sales company’s newer specialty biologics medicines baraclude entecavir orencia abatacept sprycel dasatinib continue strong addition company launched ixempra ixabepilone treatment metastatic locally advanced breast cancer overall worldwide sales growth however moderated significant decline pravachol pravastatin sodium sales due generic competition net earnings continuing operations 20 billion 2007 compared 14 billion 2006 2007 results include 230 million charge acquired inprocess research development related purchase adnexus therapeutics inc adnexus 292 million charge connection company’s threeyear productivity transformation initiative pti 275 million impairment charge company’s investment certain auction rate securities ars 2006 results include 353 million increase reserves pricing sales litigation settlement 220 million early debt retirement costs additionally company also recorded gains sale product assets properties 273 million 200 million 2007 2006 respectively december 2007 company announced board directors board declared 11 percent dividend increase first increase since 2002 dividend increase result quarterly dividend thirtyone cents 31 per share company’s common stock indicative dividend full year 2008 124 per share subject normal quarterly review board business environment company conducts business primarily within pharmaceuticalbiotechnology industry highly competitive subject numerous government regulations many competitive factors may significantly affect company’s sales products including product efficacy safety price costeffectiveness marketing effectiveness product labeling quality control quality assurance manufacturing operations research development new products successfully compete business health care industry company must demonstrate products offer medical benefits well cost advantages currently company’s new product introductions compete products already market therapeutic category addition potential competition new products competitors may introduce future company manufactures branded products priced higher generic products generic competition one company’s leading challenges globally pharmaceuticalbiotechnology industry majority innovative product’s commercial value usually realized period product market exclusivity product loses exclusivity longer protected patent subject new competing products form generic brands upon exclusivity loss company lose major portion product’s sales short period time currently generic versions biological products cannot approved us law however law could change future even absence new legislation us food drug administration fda taking steps toward allowing generic versions certain biologics competitors seeking approval biological products must file safety efficacy data address challenges biologics manufacturing involves complex processes costly traditional pharmaceutical operations us internationally health care industry subject various governmentimposed regulations authorize prices price controls continue impact company’s sales us congress state legislatures considered number proposals enacted laws could effect major changes health care system either nationally state level driven part budget concerns medicaid access reimbursement restrictions implemented states proposed many others addition medicare prescription drug improvement modernization act provides outpatient prescription drug coverage senior citizens us legislation modest favorable impact company result increase number seniors drug coverage continues potential negative impact us pharmaceutical business could result pricing pressures controls many markets outside us company operates environments governmentmandated costcontainment programs regulatory bodies groups exert downward pressure pricing freedom limited united kingdom uk instance operation profit control plan germany operation reference price system companies also face significant delays market access new products two years elapse drug approval new medicines become available national markets growth managed care organizations mcos us played large role competition surrounds health care industry mcos seek reduce health care expenditures participants making volume purchases entering longterm contracts negotiate discounts various pharmaceutical providers market potential created large pool participants marketing prescription drugs mcos become important part company’s strategy companies compete inclusion mco formulary company generally successful major products included company believes developments managed care industry including continued consolidation continue generally downward pressure prices pharmaceuticalbiotechnology production processes complex highly regulated vary widely product shifting adding manufacturing capacity lengthy process requiring significant capital expenditures regulatory approvals biologics manufacturing involves complex processes traditional pharmaceutical operations biologics become important company’s product portfolio company continue make arrangements thirdparty manufacturers make substantial investments increase internal capacity produce biologics commercial scale one investment building new stateoftheart manufacturing facility production biologics devens massachusetts construction began may 2007 company maintained competitive position market strives uphold position dependent success discovering developing innovative costeffective products serve unmet medical need recently several company’s competitors announced cost reduction programs effort reduce respective cost bases increase productivity competitiveness company also announced threeyear pti reduce costs streamline operations rationalize global manufacturing part efforts become productive competitive biopharmaceutical company subsidiaries subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcome investigations litigations additional discussion legal matters see “item 8 financial statementsnote 22 legal proceedings contingencies” strategy december 2007 company outlined multiyear strategy designed transform company nextgeneration biopharmaceutical company strategy encompasses aspects geographies business yield substantial cost savings cost avoidance increase company’s financial flexibility take advantage attractive market opportunities may arise company develops nextgeneration biopharmaceutical company continue invest key growth products including specialty biologic medicines cardiovascular metabolic drugs company continues execute ongoing strategy longterm growth scale back assets profitable though declining mature brands increased focus key new growth products include plavix abilify avaproavalide reyataz sustiva franchise erbitux cetuximab orencia baraclude sprycel ixempra company experienced last series major anticipated exclusivity losses 2006 expect significant new exclusivity losses next several years order support production specialty products pharmaceutical portfolio including biologics company completed land purchase 2007 89acre site locate new largescale expandable multiproject bulk biologics manufacturing facility devens massachusetts company committed 750 million fund construction facility began may 2007 facility projected operationally complete 2009 company plans submit site regulatory approval 2010 commercial production biologic compounds anticipated begin 2011 addition company expanded manati puerto rico facility expansion targeted startup 2008 new stateoftheart facility well expanded manati puerto rico facility support filling finishing company’s sterile products biologic compounds including orencia company’s first internally discovered developed biologic medicine commercial quantities compounds currently development compounds receive regulatory approval keeping strategy company invested 33 billion research development representing 10 growth rate 2006 research development dedicated pharmaceutical products including milestone payments inlicensing development programs 31 billion compared 28 billion 2006 consistent company’s objective maximize value nonpharmaceutical businesses january 2008 company completed sale medical imaging business avista company continue seek opportunities maximize value remaining health care group businesses transitions nextgeneration biopharmaceutical company seeks reallocate resources enable strategic acquisitions acquisition adnexus october 2007 well pursue partnerships collaborative arrangements worldwide alliance astrazeneca plc astrazeneca discover develop commercialize saxagliptin dapagliflozin two separate agreements pfizer inc pfizer research development commercialization pfizer discovery program development commercialization apixaban productivity transformation initiative company undertook broad range actions fourth quarter 2007 part previously announced threeyear pti reducing costs streamlining operations rationalizing global manufacturing initiative track achieve 15 billion annual cost savings cost avoidance pretax basis 2010 central company’s strategy become nimble flexible next generation biopharmaceutical enterprise key productivity initiatives include reducing general administrative operations simplifying standardizing outsourcing appropriate processes services rationalizing company’s mature brands portfolio consolidating global manufacturing network eliminating complexity enhancing profitability simplifying geographic footprint implementing efficient gotomarket model specific productivity goals include reducing number brands company’s mature products portfolio 60 percent 2007 2011 reducing number manufacturing facilities 50 percent end 2010 reducing total headcount approximately 10 percent 2007 2010 positions eliminated 2007 although substantial majority positions eliminated 2008 2009 among many productivity activities across entire organization fourth quarter 2007 impending closure several manufacturing facilities including mayaguez puerto rico barceloneta puerto rico costs associated implementation pti estimated 09 billion 11 billion pretax basis 292 million incurred 2007 approximately 500 million expected incurred 2008 ultimate timing recording charges cannot predicted certainty affected occurrence triggering events expense recognition us generally accepted accounting principles gaap among factors new product pipeline developments december 2007 company medarex inc medarex announced topline data three registrational trials 008 022 007 constitute monotherapy program ipilimumab patients metastatic melanoma results study 008 conducted special protocol assessment meet primary endpoint rule best objective response rate less 10 percent however totality data registrational program included clear dose response effect observed study 022 best objective response rates across three studies ranging midsingle digits midteens determined independent radiology review receipt additional data ongoing clinical trials companies plan meet fda discuss regulatory pathway goal submitting regulatory filing middle 2008 supported data november 2007 company pierre fabre medicament sa pierre fabre announced termination license agreement development vinflunine chemotherapy agent investigation treatment advanced metastatic bladder cancer tumor types november 2007 abilify approved fda adjunctive addon treatment antidepressant therapy adults major depressive disorder mdd abilify first medication approved fda addon treatment mdd fda also approved abilify treatment schizophrenia adolescent patients ages 1317 accepted priority review supplemental new drug application snda treatment pediatric patients ages 1017 bipolar disorder update sprycel label include lower recommended starting dose 100 mg daily 70 mg twice daily starting dose patients chronicphase chronic myeloid leukemia resistant intolerant imatinib approved fda november 2007 european commission august 2007 first quarter 2007 sprycel received approval andor reimbursement additional european markets including ireland norway sweden greece also approved canada new zealand october 2007 atripla efavirenz 600 mgemtricitabine 200 mgtenofovir disoproxil fumarate 300 mg approved canada first oncedaily singletablet regimen treatment human immunodeficiency virus1 infection adults december 2007 european commission granted marketing authorization atripla formally approving commercialization 27 countries european union eu well norway iceland atripla launched uk germany austria october 2007 company launched ixempra treatment patients metastatic locally advanced breast cancer us addition japanese new drug application ixabepilone submitted december 2007 marketing authorization application ixabepilone review european medicines evaluation agency emea following submission september 2007 october 2007 company acquired privatelyheld adnexus developer new therapeutic class biologics called adnectins proprietary class targeted biologics based naturally occurring protein found human serum october 2007 company imclone systems incorporated imclone announced fda approved update erbitux product labeling include overall survival data single agent epidermal growth factor inhibitor egfrexpressing metastatic colorectal cancer mcrc patients failure irinotecan oxaliplatinbased regiments september company imclone announced phase iii study erbitux combination platinumbased chemotherapy conducted merck kgaa met primary endpoint increasing overall survival compared chemotherapy alone patients advanced nonsmall cell lung cancer previously disclosed earlier study conducted imclone company evaluating use erbitux combination different platinumbased therapy meet primary endpoint increasing progressionfree survival patients advanced nonsmall cell lung cancer key secondary endpoints study however statistically significant favored erbituxcontaining arm september 2007 fda approved snda single 300 mg tablet plavix 300 mg loading dose proven effective broad acute coronary syndrome patient population 300 mg tablet clopidogrel bisulfate launched us december 2007 currently emea review august 2007 company pfizer finalized collaborative agreement research development commercialization pfizer discovery program includes advanced preclinical compounds potential applications treatment metabolic disorders including obesity diabetes company recorded upfront charge 60 million accordance terms agreement pfizer responsible research earlystage development activities metabolic disorders program companies jointly conduct phase iii development commercialization activities companies share development commercialization expenses along profitslosses 6040 basis pfizer assuming larger share expenses profitslosses august 2007 fda accepted filing review supplemental biologics license application orencia treatment pediatric patients juvenile idiopathic arthritis orencia approved european commission may 2007 received approval andor reimbursement several european markets including uk germany austria sweden netherlands denmark april 2007 fda approved update orencia product labeling regarding progression structural joint damage important measure treatment rheumatoid arthritis ra indication strengthened “slowing” “inhibiting” progression structural damage adult patients moderately severely active ra inadequate response one diseasemodifying antirheumatic drugs methotrexate tumor necrosis factor antagonists july 2007 company imclone amended terms agreement codevelopment copromotion erbitux north america amendment companies jointly agreed expand investment ongoing clinical development plan erbitux development costs threshold value sole responsibility company costs excess threshold shared companies according predetermined ratio additional funding companies intend explore use erbitux additional tumor types including brain breast bladder gastric lung pancreas prostate may 2007 company isis pharmaceuticals inc isis entered collaborative agreement discover develop commercialize novel antisense drugs targeting proprotein convertase subtilisin kexin 9 prevention treatment cardiovascular disease company made upfront payment 15 million isis part agreement provide isis least 9 million research funding period three years april 2007 company pfizer entered worldwide collaboration develop commercialize apixaban anticoagulant discovered company studied prevention treatment broad range venous arterial thrombotic conditions accordance terms agreement pfizer made upfront payments 250 million 40 million company may 2007 december 2007 respectively pfizer fund 60 development costs effective january 1 2007 going forward company fund 40 company may also receive additional payments 780 million pfizer based development regulatory milestones companies jointly develop clinical marketing strategy apixaban share commercialization expenses profitslosses equally global basis february 2007 baraclude added american association study liver disease treatment guidelines hepatitis b firstline treatment option baraclude also received approval andor reimbursement additional european markets including italy throughout first quarter 2007 january 2007 company entered two worldwide except japan codevelopment cocommercialization agreements astrazeneca develop commercialize two investigational compounds studied treatment type 2 diabetes company received upfront payments 100 million astrazeneca addition company receive milestone payments astrazeneca upon successful achievement various regulatory sales related stages companies agreed upon initial development plans two compounds 2007 2009 majority development costs paid astrazeneca subsequent development costs generally shared equally july 2007 companies decided move investigational compound dapagliflozin selective inhibitor sodiumglucose transporter 2 studied treatment diabetes phase iii testing based results phase ii clinical trials december 2006 company entered collaboration agreement exelixis pharmaceuticals inc exelixis discover develop commercialize novel targeted therapies treatment cancer agreement became effective january 2007 accordance terms agreement company made upfront payment 60 million exelixis january 2008 company exercised option develop commercialize compounds targeting one therapeutic target paid exelixis 20 million february 2008 exelixis also eligible receive 20 million two additional investigational drug candidates selected company option exelixis companies share equally development costs along commercial profits us otherwise company responsible development pay development milestones royalties exelixis results operations following discussions company’s results continuing operations exclude results related medical imaging business previously presented component former health care operating segment prior divestiture january 2008 oncology therapeutics network otn business previously presented separate operating segment prior divestiture 2005 businesses segregated continuing operations reflected discontinued operations periods presented see “discontinued operations” company’s results operations follows net sales net sales continuing operations 2007 increased 12 193 billion including 3 favorable foreign exchange impact compared 2006 us net sales 2007 increased 18 108 billion compared 2006 international net sales 2007 increased 5 85 billion compared 2006 including 7 favorable foreign exchange impact 2006 net sales continuing operations decreased 7 173 billion compared 2005 us net sales 2006 decreased 8 92 billion compared 2005 international net sales decreased 7 81 billion 2006 compared 2005 composition change net sales follows general company’s business seasonal information us pharmaceutical prescriber demand reference made table within business segments pharmaceuticals section sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain company’s key pharmaceutical products new products sold us pharmaceuticals business company operates three reportable segmentspharmaceuticals nutritionals convatec previously component health care operating segment january 2008 company completed sale avista medical imaging business previously presented component health care operating segment may 2005 company completed sale otn previously presented separate operating segment results operations medical imaging otn presented part company’s results discontinued operations accordance statement financial standards sfas 144 accounting impairment disposal longlived assets accordingly medical imaging otn results operations prior periods reclassified discontinued operations conform current year presentations company’s net sales segment follows company recognizes revenue net various sales adjustments arrive net sales reported consolidated statement earnings adjustments referred grosstonet sales adjustments described “critical accounting policies” reconciliations company’s gross sales net sales significant category grosstonet sales adjustments follows slight decrease grosstonet sales adjustments 2007 compared 2006 affected number factors sales returns decreased primarily due higher accruals 2006 cardiovascular nonexclusive brands discontinued commercialization tequin gatifloxacin decrease prime vendor chargebacks primarily due lower sales taxol® paclitaxel result loss exclusivity partially offset increases managed health care rebates contract discounts primarily result higher plavix sales reversal reserves 2006 related tricare retail pharmacy refund program partially offset lower sales pravachol due loss exclusivity additionally increase cash discounts primarily due higher plavix sales volumes decrease grosstonet sales adjustments 2006 compared 2005 affected number factors including changes customer mix portfolio shift case towards products required lower rebates well changes contract status decrease prime vendor chargebacks primarily result lower plavix net sales volume erosion highlyrebated paraplatin carboplatin taxol® paclitaxel due generic competition well impact discontinued commercialization tequin managed health care rebates contract discounts decreased primarily result reversal reserves related tricare retail pharmacy refund program well exclusivity loss pravachol also reduced medicaid rebates addition lower plavix net sales shift patient enrollment medicaid medicare part resulted decrease medicaid rebates partially offset corresponding increase managed health care rebates decrease cash discounts primarily due lower sales pravachol due loss exclusivity lower plavix sales volumes increase sales returns primarily due higher returns trends nonexclusive brands well discontinued commercialization tequin activities ending balances significant category grosstonet sales adjustments follows 2007 company recorded grosstonet sales adjustments related sales made prior periods significant items included charges sales returns 18 million primarily related higher expected returns certain nonexclusive products 2006 company recorded grosstonet sales adjustments related sales made prior periods significant items included charges sales returns 30 million primarily related higher expected return trends certain nonexclusive products well discontinued commercialization tequin credits contract discounts 33 million primarily due reversal reserves related tricare retail pharmacy refund program significant revisions made estimates grosstonet sales adjustments 2007 2006 pharmaceuticals composition change pharmaceutical sales follows 2007 worldwide pharmaceuticals sales increased 13 15622 million including 3 favorable foreign exchange impact compared period 2006 us pharmaceuticals sales increased 21 8992 million 7417 million 2006 primarily due increased plavix sales reflecting adverse impact generic competition august 2006 mid2007 well strong underlying sales growth sales growth also attributed increased sales abilify sustiva franchise reyataz avaproavalide erbitux sales newer products sprycel orencia baraclude ixempra increase partially offset increased generic competition pravachol international pharmaceuticals sales increased 3 including 6 favorable foreign exchange impact 6630 million 2007 6444 million 2006 excluding impact foreign exchange decrease sales primarily due increased generic competition pravachol taxol® paclitaxel partially offset sales growth abilify reyataz plavix avaproavalide newer products baraclude sprycel 2006 worldwide pharmaceuticals sales decreased 10 13861 million us pharmaceuticals sales decreased 11 7417 million 8338 million 2005 primarily due lower sales plavix resulting launch generic clopidogrel bisulfate august 2006 loss exclusivity pravachol partially offset continued growth abilify erbitux reyataz sustiva franchise avaproavalide sales newer products including orencia baraclude sprycel international pharmaceuticals sales decreased 9 6444 million 2006 7070 million 2005 primarily due decline pravachol taxol® paclitaxel sales resulting increased generic competition europe partially offset increased sales newer products including reyataz abilify baraclude key pharmaceutical products sales representing 80 75 71 total pharmaceutical sales 2007 2006 2005 respectively follows change excess 200 • sales plavix platelet aggregation inhibitor part company’s alliance sanofi increased 46 including 1 favorable foreign exchange impact 4755 million 2007 3257 million 2006 us sales increased 53 4060 million 2007 2655 million 2006 company estimates adverse effect generic clopidogrel bisulfate launched august 2006 range 12 billion 14 billion 2006 2007 company estimates negative impact generic clopidogrel bisulfate range 250 million 350 million inventory generic clopidogrel bisulfate distribution channels substantially depleted june 30 2007 estimated total us prescription demand clopidogrel bisulfate branded generic increased approximately 8 2007 compared 2006 estimated total us prescription demand branded plavix increased 34 period 2006 sales decreased 15 3257 million 3823 million 2005 us sales decreased 18 2655 million 2006 3235 million 2005 market exclusivity plavix expected expire 2011 us 2013 major european markets composition matter patent plavix subject litigation data exclusivity plavix expires july 2008 eu key composition matter patent expires 2013 majority eu member countries additional information plavix litigations see “item 8 financial statementsnote 22 legal proceedings contingencies” • sales avaproavalide angiotensin ii receptor blocker treatment hypertension also part sanofi alliance increased 10 including 3 favorable foreign exchange impact 1204 million 2007 1097 million 2006 us sales increased 7 692 million 2007 647 million 2006 primarily due higher average net selling prices estimated total us prescription demand decreased approximately 4 2007 compared 2006 international sales increased 14 including 8 favorable foreign exchange impact 512 million 450 million 2006 sales increased 12 including 1 favorable foreign exchange impact 1097 million 982 million 2005 us sales increased 13 647 million 2006 574 million 2005 international sales increased 10 including 2 favorable foreign exchange impact 450 million 408 million 2005 market exclusivity avaproavalide known eu aprovelkarvea expected expire 2012 including pediatric extension us 20122013 countries eu company others market avaproavalide japan • sales pravachol hmg coa reductase inhibitor decreased 63 including 2 favorable foreign exchange impact 443 million 2007 1197 million 2006 due increased generic competition us key european markets estimated total us prescription demand decreased approximately 82 2007 compared 2006 sales decreased 47 1197 million 2256 million 2005 due market exclusivity expiration april 2006 resulting generic competition strengths us generic competition key european markets market exclusivity eu ended 2004 exception sweden expiration occurred march 2006 italy expiration occurred january 2008 france generic competition authorized company commenced july 2006 previously disclosed company authorized watson pharmaceutical distribute pravastatin sodium tablets us • sales coumadin oral anticoagulant used predominantly patients atrial fibrillation deep venous thrombosispulmonary embolism decreased 9 including 1 favorable foreign exchange impact 201 million 2007 220 million 2006 primarily due lower demand driven continued competition partially offset higher average net selling prices estimated total us prescription demand decreased approximately 16 2007 compared 2006 sales increased 4 220 million 212 million 2005 primarily due higher average net selling prices partially offset lower demand driven continued competition market exclusivity coumadin expired us 1997 • sales reyataz protease inhibitor treatment hiv increased 21 including 4 favorable foreign exchange impact 1124 million 2007 931 million 2006 primarily due increased demand majority markets us sales increased 14 587 million 2007 514 million 2006 primarily due higher demand estimated total us prescription demand increased approximately 13 2007 compared 2006 international sales increased 29 including 8 favorable foreign exchange impact 537 million 2007 417 million 2006 sales increased 34 931 million 696 million 2005 primarily due increased demand us europe latin america market exclusivity reyataz expected expire 2017 us countries eu japan data exclusivity eu expires 2014 • total revenue sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv increased 21 including 4 favorable foreign exchange impact 956 million 2007 791 million 2006 us sales increased 22 604 million 495 million 2006 primarily due higher demand resulting successful launch atripla july 2006 estimated total us prescription demand sustiva franchise increased approximately 20 2007 compared 2006 international sales increased 19 including 10 favorable foreign exchange impact 352 million 296 million 2006 primarily due higher demand across markets july 2006 company gilead sciences inc gilead launched atripla oncedaily single tablet threedrug regimen hiv intended standalone therapy combination antiretrovirals total revenue sustiva franchise includes sales sustiva well revenue bulk efavirenz included combination therapy atripla company records revenue bulk efavirenz component atripla upon sales atripla joint venture gilead thirdparty customers 2006 sales increased 16 791 million 680 million 2005 due higher demand launch atripla third quarter 2006 market exclusivity sustiva expected expire 2013 us countries eu company others market sustiva japan additional information revenue recognition sustiva franchise see “item 8 financial statementsnote 2 alliances investments” • sales baraclude oral antiviral agent treatment chronic hepatitis b increased 275 million 2007 83 million 2006 due continued growth across markets including us china japan korea 2006 sales increased 83 million 12 million 2005 baraclude launched us april 2005 china february 2006 uk germany july 2006 france japan september 2006 company composition matter patent expires us 2015 eu 2011 2016 japan 2016 previously disclosed uncertainty china’s exclusivity laws due uncertainty possible one companies china could receive marketing authorization china’s health authority 2010 • sales erbitux sold company almost exclusively us increased 6 692 million 2007 652 million 2006 primarily due increased demand usage treatment head neck cancer transition broader distribution model 2006 sales increased 58 652 million 413 million 2005 erbitux marketed company distribution copromotion agreement imclone use patent relating combination therapy cytotoxic treatments expires 2017 patent covering monotherapy currently generic versions biological products cannot approved us law however law could change future even absence new legislation fda taking steps toward allowing generic versions certain biologics competitors seeking approval biological products must file safety efficacy data address challenges biologics manufacturing involves complex processes costly traditional pharmaceutical operations company’s right market erbitux north america japan agreement imclone expires september 2018 company others market erbitux countries eu previously disclosed imclone yeda research development company ltd yeda litigation ownership use patent combination therapy cytotoxic treatments relating erbitux september 2006 district court granted yeda complete ownership patent pursuant settlement agreement executed imclone sanofi yeda announced december 2007 end worldwide litigation related use patent settlement agreement change imclone’s worldwide royalty rate erbitux sales commercial agreement imclone company pays royalty imclone sales erbitux impacted settlement agreement information pertaining legal proceedings involving erbitux see “item 8 financial statementsnote 22 legal proceedings contingencies” “note 2 alliances investments” • sales taxol® paclitaxel anticancer agent sold almost exclusively nonus markets decreased 25 including 1 favorable foreign exchange impact 422 million 2007 563 million 2006 primarily due increased generic competition europe japan 2006 sales decreased 25 including 2 unfavorable foreign exchange impact 563 million 747 million 2005 primarily due increased generic competition europe generic entry japan third quarter 2006 market exclusivity protection taxol® paclitaxel expired 2000 us 2003 countries eu two generic paclitaxel products received regulatory approval japan entered market • sales sprycel oral inhibitor multiple tyrosine kinases treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate increased 158 million 2007 25 million 2006 sprycel launched us july 2006 certain european markets beginning fourth quarter 2006 market exclusivity sprycel expected expire 2020 us several eu countries patent pending granted would expire 2020 • sales ixempra microtubule inhibitor treatment patients metastatic locally advanced breast cancer 15 million 2007 ixempra launched us october 2007 company composition matter patent us corresponding patent eu countries expiring 2018 company submitted request patent term extension composition matter patent us could possibly extent term patent corresponding patent eu countries may eligible patent term restoration could possibly extend term patent eu countries • total revenue abilify antipsychotic agent treatment schizophrenia acute bipolar mania bipolar disorder increased 29 including 2 favorable foreign exchange impact 1660 million 2007 1282 million 2006 us sales increased 24 1305 million 2007 1052 million 2006 primarily due higher demand higher average net selling prices estimated total us prescription demand increased approximately 12 2007 compared 2006 sales increased 41 1282 million 912 million 2005 primarily due higher demand higher average net selling prices total revenue abilify primarily consists alliance revenue representing company’s 65 share net sales countries copromotes otsuka pharmaceutical co ltd otsuka product sold otsuka affiliate distributor otsuka’s market exclusivity protection abilify expected expire 2014 us including granted patent term extension information patent litigations relating abilify see “item 8 financial statementsnote 22 legal proceedings contingencies” company also right copromote abilify several european countries uk france germany spain act exclusive distributor product rest eu composition matter patent force germany uk france italy netherlands romania sweden switzerland spain denmark original expiration date 2009 extended 2014 grant supplemental protection certificate countries except romania denmark data exclusivity eu expires 2014 company’s contractual right market abilify expires november 2012 us puerto rico countries eu company exclusive right market abilify june 2014 additional information revenue recognition abilify see “item 8 financial statementsnote 2 alliances investments” • sales orencia fusion protein indicated adult patients moderate severe ra inadequate response one currently available treatments methotrexate antitumor necrosis factor therapy increased 160 including 1 favorable foreign exchange impact 231 million 2007 89 million 2006 primarily due demand substantially sales orencia currently us launched february 2006 orencia launched europe may 2007 company submitted request patent term extension one composition matter patents expires 2015 could possibly extend term patent noted generic versions biological products cannot approved us law could change future • sales efferalgan paracetamol formulation acetaminophen pain relief sold principally europe increased 16 including 9 favorable foreign exchange impact 308 million 2007 266 million 2006 primarily due severe 2007 flu season 2006 sales decreased 6 266 million 283 million 2005 primarily due change government reimbursement instances basic exclusivity loss date indicated expiration date patent claims active ingredient drug method using drug approved indication instances basic exclusivity loss date indicated expiration date data exclusivity period situations data exclusivity without patent protection competitor could seek regulatory approval prior expiration data exclusivity period submitting clinical trial data obtain marketing approval company assesses market exclusivity period products casebycase basis length market exclusivity company’s products difficult predict certainty complex interaction patent regulatory forms exclusivity factors assurance particular product enjoy market exclusivity full period time company currently anticipates estimates market exclusivities reported business planning purposes intended reflect company’s legal opinion regarding strength weakness particular patent legal position estimated us prescription change data provided includes information retail mail order channels reflect information channels hospitals institutions longterm care among others estimated prescription data based nextgeneration prescription service ngps version 20 provided ims health ims supplier market research pharmaceutical industry described company calculated estimated total us prescription change based ngps version 20 data weightedaverage basis reflect fact mail order prescriptions include greater volume product supplied compared retail prescriptions mail order prescriptions typically reflect 90day prescription whereas retail prescriptions typically reflect 30day prescription calculation derived multiplying ngps mail order prescription data factor approximates three adding ngps retail prescriptions company believes calculation estimated total us prescription change based weightedaverage approach respect retail mail order channels provides superior estimate total prescription demand company uses methodology internal demand forecasts estimated enduser demand following tables set forth company’s key pharmaceutical products sold us pharmaceuticals business years ended december 31 2007 2006 2005 total us net sales period ii change reported us net sales period iii estimated total us prescription change retail mail order channels calculated company based ngps version 20 weightedaverage basis iv months inventory hand distribution channel prior year prescription data adjusted conform ngps 20 version data reflects percentage change net sales dollar terms including change average selling prices wholesaler buying patterns b derived multiplying ngps mail order prescription data factor approximates three adding ngps retail prescriptions c beginning third quarter 2006 sustiva franchise total revenue includes sales sustiva well revenue bulk efavirenz included combination therapy atripla change us total prescriptions growth sustiva franchise includes branded sustiva atripla prescription units baraclude launched us april 2005 e erbitux orencia ixempra parenterally administered products prescriptionlevel data physicians write prescriptions products f sprycel launched us july 2006 g ixempra launched us october 2007 h orencia launched us february 2006 change excess 200 estimated prescription change data reported throughout annual report form 10k include information retail mail order channels reflect information channels hospitals institutions longterm care among others data provided ims product ims’ recordkeeping processes estimates based ims’ sampling procedures subject inherent limitations estimates based sampling margin error company continuously seeks improve quality estimates prescription change amounts ultimate patientconsumer demand review methodologies processes calculation estimates review analysis third parties’ data used calculations company expects continue review refine methodologies processes calculation estimates continue review analyze third parties’ data used calculations pursuant us securities exchange commission sec consent order described “sec consent order” company monitors level inventory hand us wholesaler distribution channel outside us direct customer distribution channel company obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception following products estimated levels inventory distribution channel excess one month hand 1 case company’s us pharmaceuticals products december 31 2007 2 case company’s international pharmaceuticals nutritionals convatec products december 31 2007 andor september 30 2007 december 31 2007 kenalog approximately 11 months inventory hand us wholesaler distribution channel estimated value kenalog inventory us wholesaler distribution channel one month hand approximately 03 million december 31 2007 increased level inventory hand december 31 2007 due volatile demand product fourth quarter 2007 result temporary product supply shortage company expects work wholesaler inventory levels one month hand less first quarter 2008 december 31 2007 dafalgan analgesic product sold principally europe approximately 12 months inventory hand direct customers compared approximately 11 months inventory hand september 30 2007 increased level inventory hand due primarily private pharmacists purchasing dafalgan approximately every eight weeks seasonality product december 31 2007 monopril cardiovascular product approximately 11 months inventory hand direct customers compared 12 months inventory hand september 30 2007 increased level inventory hand december 31 2007 due primarily initial stocking new exclusive distributor poland stocking support launch monopril poland 2007 december 31 2007 videxvidex ec antiviral product approximately 13 months inventory hand direct customers compared 14 months inventory hand september 30 2007 increased level inventory hand due primarily government purchasing patterns brazil company contractually obligated provide videxvidex ec brazilian government upon placement order product government terms contract company control inventory levels relating orders december 31 2007 ostomy business approximately 11 months inventory hand direct customers compared 09 months inventory hand september 30 2007 increased level inventory due primarily increased purchases significant wholesaler anticipation price increase us products sold exclusively wholesalers distributors company determines months hand estimates using information respect inventory levels product hand amount outmovement products provided company’s three largest wholesalers accounted approximately 90 total gross sales us pharmaceuticals products 2007 provided company’s distributors factors may influence company’s estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data represent recordkeeping processes may also reflect estimates pharmaceutical products us sold exclusively wholesalers distributors company’s pharmaceuticals business outside us nutritionals convatec business units around world company significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely cases direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available company developed variety methodologies calculate estimates data including using factors historical sales made direct customers thirdparty market research data related prescription trends enduser demand accordingly company relies variety methods estimate direct customer product level inventory calculate months hand business units factors may affect company’s estimates include generic competition seasonality products direct customer purchases light price increases new product presentation launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations health care group health care group consists nutritionals convatec operating segments nutritionals operating segment consists mead johnson nutritionals primarily infant formula children’s nutritionals business convatec operating segment consists ostomy wound skin care business following discussions exclude sales related medical imaging business discontinued operation previously included component former health care segment combined 2007 revenues health care group increased 10 3726 million 2006 combined 2006 revenues health care group increased 6 3395 million 3197 million 2005 nutritionals composition change nutritionals sales follows key nutritionals product lines sales representing 96 95 total nutritional sales 2007 2006 2005 respectively follows worldwide nutritionals sales increased 10 including 3 favorable foreign exchange impact 2571 million 2007 2006 worldwide nutritionals sales 2347 million increase 6 including 1 favorable foreign exchange impact 2205 million 2005 international nutritionals sales increased 15 including 6 favorable foreign exchange impact 1443 million 2007 2006 primarily due increased sales toddler children’s nutritional products enfamil company’s best selling infant formula 2006 international nutritionals sales increased 11 including 3 favorable foreign exchange impact 1256 million 1135 million 2005 primarily due increased sales children’s nutritional products us nutritionals sales 1128 million 1091 million 1070 million 2007 2006 2005 respectively 3 increase sales 2007 2 increase sales 2006 primarily due increased sales enfamil convatec composition change convatec sales follows convatec sales business key products sales years ended december 31 follows worldwide convatec sales increased 10 including 5 favorable foreign exchange impact 1155 million 2007 2006 ostomy sales increased 7 594 million 2007 including 6 favorable foreign exchange impact sales wound therapeutic products increased 11 including 6 favorable foreign exchange impact 488 million 2007 2006 primarily due continued growth aquacel franchise 2006 worldwide convatec sales increased 6 including 1 favorable foreign exchange impact 1048 million 992 million 2005 primarily due sales flexiseal aquacel international convatec sales increased 11 including 8 favorable foreign exchange impact 784 million 2007 2006 primarily due continued growth aquacel 2006 international convatec sales increased 4 including 1 favorable foreign exchange impact 705 million 2005 primarily due growth aquacel us convatec sales increased 8 371 million 2007 2006 primarily due flexiseal continued growth aquacel brand 2006 us convatec sales increased 10 343 million 2005 primarily due flexiseal continued growth aquacel brand geographic areas general company’s products available countries world largest markets us france canada spain japan italy mexico germany company’s sales geographic areas follows sales us increased 18 2007 primarily due increased plavix sales continued growth abilify sustiva franchise erbitux avaproavalide reyataz well sales newer products baraclude orencia sprycel partially offset increased generic competition pravachol 2006 sales us decreased 8 primarily result lower sales plavix loss exclusivity pravachol april 2006 partially offset growth remaining pharmaceutical products including recently launched products sales europe middle east africa increased 3 including 8 favorable foreign exchange impact excluding impact foreign exchange decrease sales primarily due increased generic competition pravachol taxol® paclitaxel partially offset sales growth major european markets sprycel reyataz sustiva franchise abilify 2006 sales decreased 12 result sales decline pravachol taxol® paclitaxel due increased generic competition decrease sales partially offset increased sales major european markets reyataz avaproavalide sales western hemisphere countries increased 8 including 4 favorable foreign exchange impact primarily due increased sales plavix canada mexico key nutritional products avaproavalide canada partially offset discontinued commercialization tequin 2006 sales increased 1 including 3 favorable foreign exchange impact excluding impact foreign exchange decrease sales primarily due decreased sales tequin pharmaceutical products partially offset increased sales avaproavalide canada key nutritional products sales pacific region increased 9 including 5 favorable foreign exchange impact primarily due increased sales baraclude china japan korea key nutritional products partially offset decreased sales taxol® paclitaxel pravachol due increased generic competition 2006 sales remained consistent compared 2005 expenses change excess 200 • cost products sold percentage sales decreased 321 2007 compared 2006 margin improvement primarily due sales growth higher margin products including increased sales plavix 2006 2005 cost products sold percentage sales 333 308 respectively 2006 company included 91 million 05 percentage sales certain costs cost products sold reported marketing selling administrative expenses prior year results addition reclassification increase primarily due unfavorable impact pharmaceutical net sales mix including lower sales plavix impairment charges tequin emsam related assets well manufacturing facility • marketing selling administrative expenses increased 1 4855 million compared 2006 primarily due unfavorable impact foreign exchange higher marketing expenses partially offset lower sales force expenses 2006 marketing selling administrative expenses decreased 4 4800 million 4989 million 2005 primarily due abovementioned reclassification lower sales force expenses resulting previously announced restructuring us primary care sales organization became effective march 2006 lower expenses pravachol partially offset impact adoption stock option expensing marketing selling administrative expenses percentage sales 251 compared 278 included 05 decrease reclassification 268 2006 2005 respectively • advertising product promotion expenditures increased 9 1465 million compared 2006 primarily driven increased spending directtocustomer advertising plavix abilify orencia investments support launch ixempra higher spending newer products europe unfavorable impact foreign exchange 2007 2006 advertising product promotion expenditures decreased 8 1340 million compared 1464 million 2005 primarily driven divestiture consumer medicines business 2005 lower spending mature brands partially offset increased investments new products including orencia sprycel • company’s investment research development 3282 million 2007 increase 10 2006 investment research development 2991 million represented 12 increase 2678 million 2005 increases 2007 2006 reflect company’s strategy continued investments latestage compounds developing pipeline disease areas address significant unmet medical need 2007 increase partially offset sharing codevelopment costs alliance partners astrazeneca pfizer research development costs also included charges 162 million 2007 upfront milestone payments exelixis pfizer adnexus isis research development costs also included charges 85 million 72 million 2006 2005 respectively consisting primarily upfront milestone payments exelixis solvay global 2006 medarex pierre fabre 2005 research development spending dedicated pharmaceutical products 200 pharmaceutical sales 2007 compared 202 165 2006 2005 respectively • acquired inprocess research development charge 230 million 2007 connection purchase adnexus fourth quarter 2007 additional information acquisition see “item 8 financial statementsnote 4 acquisitions divestitures” • restructuring programs 2007 including pti began late 2007 well 2006 2005 implemented realign streamline operations order increase productivity reduce operating expenses rationalize company’s manufacturing network research facilities sales marketing organizations pti expected generate approximately 15 billion cost reductions cost avoidance 2010 additional information restructuring see “item 8 financial statementsnote 3 restructuring” additional information pti see “productivity transformation initiative” • litigation expense net settlement income insurance recoveries 14 million 2007 302 million 2006 269 million 2005 14 million expense 2007 related reserves recorded proposed settlement certain pharmaceutical pricing sales litigations 302 million net expense 2006 consisted increase reserves 353 million settlement principle certain pricing sales investigations partially offset insurance recoveries 37 million unrelated matter 14 million income settlement litigation matter 269 million net expense 2005 consisted increases reserves 590 million liabilities primarily related private litigations governmental investigations partially offset insurance recoveries 321 million additional information litigation see “item 8 financial statementsnote 22 legal proceedings contingencies” • gain sale product assets 273 million 161 million net tax 2007 sale bufferin excedrin brands japan well certain assets related dermatology products gain sale product assets 200 million 130 million net tax 2006 sale inventory patent intellectual property rights related dovonex gain sale businesses 569 million 370 million net tax 2005 related sale consumer medicines business related assets additional information transactions see “item 8 financial statementsnote 4 acquisitions divestitures” • equity net income affiliates 2007 524 million compared 474 million 334 million 2006 2005 respectively equity net income affiliates principally related company’s joint venture sanofi investment imclone 2007 50 million increase equity net income affiliates primarily due increased net income sanofi joint venture partially offset decreased net income equity investment imclone 2006 140 million increase equity net income affiliates primarily due increased net income joint venture sanofi income equity investment imclone 2006 compared loss 2005 additional information equity net income affiliates see “item 8 financial statementsnote 2 alliances investments” • expense net 364 million 299 million 35 million 2007 2006 2005 respectively expense net includes net interest expense foreign exchange gains losses income thirdparty contract manufacturing royalty income expense debt retirement costs impairment marketable securities gains losses disposal property plant equipment gains losses sale marketable securities insurance recoveries deferred income recognized certain litigation matters 65 million increase expense net 2007 2006 primarily due impairment charge 275 million company’s investment ars net unfavorability foreign exchange 2007 partially offset lower net interest expense 2007 debt retirement costs incurred 2006 264 million increase expense net 2006 2005 primarily due higher debt retirement costs connection repurchase 2006 25 billion notes due 2011 compared repurchase 2005 25 billion notes due 2006 well 143 million nonrecurring income 2005 resulting termination muraglitazar collaborative agreement partially offset lower net foreign exchange losses additional information see “item 8 financial statementsnote 7 expense net” “note 9 cash equivalents marketable securities” “note 15 shortterm borrowing longterm debt” stockbased compensation expense recognized sfas 123 revised 2004 sharebased payment sfas 123r years ended december 31 2007 2006 133 million 112 million respectively expenses recorded cost product sold marketing selling administrative expenses research development expenses stockbased compensation expense recognized accounting principles board apb 25 year ended december 31 2005 31 million expenses recorded marketing selling administrative expenses years ended december 31 2007 2006 2005 company recorded several expenseincome items affected comparability results periods presented herein set forth following table discussion items see “item 8 financial statementsnote 2 alliances investments” “note 3 restructuring items” “note 4 acquisitions divestitures” “note 8 income taxes” “note 9 cash equivalents marketable securities” “note 15 shortterm borrowings longterm debt” “note 22 legal proceedings contingencies” earnings continuing operations minority interest income taxes 2007 earnings continuing operations minority interest income taxes increased 47 3534 million 2400 million 2006 increase primarily driven increased plavix sales strong sales growth key products improved gross margins increase equity net income affiliates partially offset net impact items affect comparability results discussed investment advertising product promotion research development 2006 earnings continuing operations minority interest income taxes decreased 44 2400 million 4304 million 2005 decrease primarily driven net impact items affected comparability results discussed lower net sales pharmaceutical products resulting lower plavix net sales loss exclusivity pravachol increased spending research development partially offset increase equity net income affiliates lower advertising promotion expenses pharmaceuticals earnings continuing operations minority interest income taxes increased 35 3471 million 2007 2006 increase 2007 2006 primarily due increased plavix sales strong sales growth key products improved gross margins increase equity net income affiliates partially offset acquired inprocess research development charge continued investment research development including upfront milestone payments investment advertising product promotion earnings continuing operations minority interest income taxes decreased 31 2569 million 2006 3739 million 2005 primarily due lower net sales result lower plavix sales loss exclusivity pravachol investment research development continued investment key products new products nutritionals earnings continuing operations minority interest income taxes increased 2 708 million 2007 2006 primarily due growth key products partially offset lower gross margins primarily due higher dairy costs increased investment advertising product promotion establishment allowance doubtful account 2007 earnings continuing operations minority interest income taxes increased 3 696 million 2006 677 million 2005 primarily due sales growth children’s nutritional products partially offset increased investments advertising expense research development programs convatec earnings continuing operations minority interest income taxes increased 10 348 million 2007 2006 primarily due increased growth key products improved gross margins partially offset increased investment research development programs product promotion earnings continuing operations minority interest income taxes increased 9 315 million 2006 288 million 2005 primarily driven increased sales corporateother loss continuing operations minority interest income taxes decreased 993 million 2007 2006 2007 2006 results included gains sale product assets 273 million 200 million respectively additional difference primarily due debt retirement costs increases reserves pricing sales litigation settlement 2006 lower net interest expense 2007 partially offset impairments certain ars properties higher restructuring charges loss continuing operations minority interest income taxes increased 1180 million 2006 400 million 2005 primarily due lower gain sale product asset 2006 compared gain sale consumer medicines business 2005 higher debt retirement costs 2006 compared 2005 143 million income item 2005 resulting termination muraglitazar collaborative agreement well lower insurance recoveries 2006 compared 2005 partially offset lower litigation charges 2006 compared 2005 income taxes effective income tax rate earnings continuing operations minority interest income taxes 227 2007 compared 224 2006 202 2005 2007 tax rate unfavorably impacted impairment company’s investment certain ars tax benefit nondeductible writeoff acquired inprocess research development expenses related acquisition adnexus partially offset tax benefit 105 million first quarter 2007 due favorable resolution certain tax matters us internal revenues service irs related deductibility litigation settlement expenses impact foreign tax credits effective tax rate 2006 unfavorably impacted elimination tax benefits section 936 internal revenue code treatment provisions portion certain litigation reserves nondeductible partially offset favorable us tax legislation enacted 2006 related tax treatment certain intercompany transactions amongst company’s foreign subsidiaries implementation tax planning strategies related utilization certain charitable contributions increase 2006 effective tax rate 2005 primarily due aforementioned section 936 benefit elimination treatment provisions portion certain litigation reserves nondeductible tax benefits 2005 associated settlement irs examination favorable adjustment 2005 taxes special dividends american jobs creation act 2004 partially offset favorable us tax legislation enacted 2006 related tax treatment certain intercompany transactions amongst company’s foreign subsidiaries implementation tax planning strategies 2006 related utilization certain charitable contributions company recorded significant deferred tax assets december 31 2007 related us foreign tax credit carryforwards approximately 1140 million us research tax credit carryforwards approximately 275 million charitable contribution carryforwards 80 million charitable contribution carryforwards expire varying amounts beginning 2009 foreign tax credit research tax credit carryforwards expire varying amounts beginning 2012 foreign tax credit research tax credit reduced due derecognition fin 48 realization credits charitable contribution carryforwards dependent generating sufficient domestic taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions pti increasing biologics manufacturing capacity us implementing tax planning strategies increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit charitable contribution carryforwards minority interest minority interest net taxes increased 763 million 2007 2006 primarily due higher earnings company’s partnership sanofi territory covering americas 2006 minority interest net taxes decreased 440 million 592 million 2005 primarily due lower earnings company’s partnership sanofi territory covering americas changes three years reflect negative impact generic clopidogrel bisulfate august 2006 mid2007 discontinued operations december 2007 company entered definitive agreement avista sale medical imaging business purchase price approximately 525 million cash subject customary postclosing adjustments closing transaction completed january 7 2008 result transaction company expects recognize pretax gain approximately 20 million 40 million 30 million 50 million loss net tax first quarter 2008 subject postclosing adjustments medical imaging previously included former health care operating segment may 2005 company completed sale otn one equity partners llc cash proceeds 197 million including impact preliminary working capital adjustment company recorded pretax gain 63 million 13 million net tax presented gain sale discontinued operations consolidated statement earnings otn previously presented separate segment following summarized financial information related medical imaging otn businesses segregated continuing operations reported discontinued operations date disposition reflect costs certain services provided medical imaging otn costs allocated company medical imaging otn services included legal counsel insurance external audit fees payroll processing certain human resource services information technology systems support financial position liquidity capital resources cash equivalents marketable securities approximately 22 billion december 31 2007 compared 40 billion december 31 2006 company continues maintain sufficient level working capital approximately 17 billion december 31 2007 decreasing 38 billion december 31 2006 2008 future periods company expects cash generated us operations together existing cash equivalents marketable securities borrowings capital markets sufficient cover cash needs working capital expenditures company expects include substantial investments facilities increase maintain company’s capacity provide biologics commercial scale milestone payments dividends paid us cash equivalents marketable securities conversion workingcapital items borrowings expected fund nearterm operations outside us december 31 2007 company approximately 141 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated us company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided cash equivalents december 31 2007 2006 primarily consisted bank deposits time deposits money market funds cash equivalents primarily highly liquid investments original maturities three months less time purchase recorded cost approximates fair value company maintains cash equivalent balances us dollars foreign currencies subject currency rate risk january 2008 company converted substantial portion cash equivalents money market funds us treasury bills similar investments marketable securities december 31 2007 consisted us dollardenominated floating rate securities frs primarily ‘aaaaaa’ rated frs longterm debt securities coupons reset periodically benchmark interest rate underlying assets company’s frs consist primarily investment grade corporate bonds loans carrying value frs reduced 25 million 362 million 337 million december 31 2007 reflecting change fair market value company assessed decline fair market value temporary recorded pretax 25 million reduction 16 million net tax shareholders’ equity accumulated comprehensive income oci previously disclosed september 2006 company sanofi posted 200 million towards 400 million bond us district court southern district new york district court collateral support preliminary injunction issued august 31 2006 collateral reported marketable securities company’s consolidated balance sheet december 31 2006 result outcome plavix patent litigation noted june 21 2007 district court ordered release 400 million bond release issuer bond liability connection bond company’s obligations collateral arrangements respect bond effectively terminated addition december 31 2007 company 811 million principal invested ars held company private placement securities longterm nominal maturities interest rates reset dutch auction month monthly auctions historically provided liquid market securities company’s investments ars represent interests collateralized debt obligations supported pools residential commercial mortgages credit cards insurance securitizations structured credits including corporate bonds underlying collateral ars held company consists subprime mortgages consistent company’s investment policy guidelines ars investments held company aaaaaa credit ratings time purchase liquidity issues experienced global credit capital markets ars held company december 31 2007 experienced multiple failed auctions amount securities submitted sale exceeded amount purchase orders addition fourth quarter 2007 79 million principal invested ars held company downgraded others placed credit watch securities retained least one aaa rating december 31 2007 estimated market value company’s ars holdings december 31 2007 419 million reflects 392 million adjustment principal value 811 million although ars continue pay interest according stated terms based valuation models analysis otherthantemporary impairment factors company recorded pretax impairment charge 275 million fourth quarter 2007 reflecting portion ars holdings company concluded otherthantemporary decline value addition company recorded unrealized loss 117 million pretax net tax accumulated oci reduction shareholders’ equity reflecting adjustments ars holdings company concluded temporary decline value 275 million impairment charge material impact company’s liquidity financial flexibility historically given liquidity created auctions ars presented current assets marketable securities given failed auctions company’s ars illiquid successful auction accordingly entire amount remaining ars reclassified marketable securities noncurrent assets credit capital markets continued deteriorate 2008 uncertainties credit capital markets continue markets deteriorate company experiences additional ratings downgrades investments portfolio including ars company may incur additional impairments investment portfolio could negatively affect company’s financial condition cash flow reported earnings company believes based company’s current cash equivalents marketable securities balances 22 billion december 31 2007 expected operating cash flows current lack liquidity credit capital markets material impact company’s liquidity cash flow financial flexibility ability fund operations including dividend february 21 2008 company completed sale leaseback administrative facility paris france approximately 155 million company expects record gain majority deferred reduce future lease rental costs lease period december 2006 company completed sale leaseback several administrative facilities new jersey 283 million resulted pretax gain transaction 154 million 145 million deferred reduce future lease rental costs lease periods ranging 8 12 years shortterm borrowings end 2007 2006 19 billion 187 million respectively company maintains cash balances shortterm investments excess shortterm borrowings 108 million 110 yen notes due 2008 31 million 143 yen notes due 2008 400 million 400 notes due 2008 associated unamortized discount interest rate swap valuation 12 billion floating rate convertible debentures due 2023 2008 putcall reclassified longterm debt shortterm borrowings 2007 longterm debt 44 billion december 31 2007 compared 72 billion december 31 2006 28 billion reduction primarily due reclassification shortterm borrowings noted september 2007 repayment remaining 13 billion balance floating rate bank term facility due 2010 fourth quarter 2006 company restructured longterm debt retiring outstanding 25 billion principal amount 575 notes due 2011 cash tender offer subsequent redemption issuing 500 million aggregate principal 4375 notes due 2016 500 million aggregate principal 4625 notes due 2021 well 125 billion aggregate principal 5875 notes due 2036 company incurred aggregate pretax expense approximately 220 million connection early redemption 2011 notes termination related interest rate swaps included writeoff related unamortized discount issuance costs deferred loss interest rate lock addition company repaid 12 billion 25 billion floating rate bank term facility due 2010 december 2006 company replaced prior 2 billion revolving credit facility new 2 billion fiveyear revolving credit facility syndicate lenders extendable anniversary date consent lenders facility contains customary terms conditions substantially similar prior facility including financial covenant whereby ratio consolidated debt consolidated capital cannot exceed 50 end quarter company compliance covenant since inception facility borrowings outstanding revolving credit facility december 31 2007 second quarter 2005 company repurchased outstanding 25 billion aggregate principal amount 475 notes due 2006 incurred aggregate pretax loss approximately 69 million connection early redemption notes termination related interest rate swaps majority company’s debt fixed rate company however entered fixed floating interest rate swaps 26 billion 1 billion 15 billion december 31 2007 longterm debt pretax interest expense net interest swap gains 422 million 498 million 349 million 2007 2006 2005 respectively decrease interest expense 2007 2006 primarily due effects 2006 debt restructuring increase interest expense 2006 2005 primarily due higher interest rates moody’s investors service moody’s longterm shortterm credit ratings company currently a2 prime1 respectively moody’s longterm credit rating remains stable outlook standard poor’s sp longterm shortterm credit ratings company currently a1 respectively second quarter 2007 sp revised longterm credit rating outlook stable negative fitch ratings fitch longterm shortterm credit ratings company currently respectively third quarter 2007 fitch revised longterm credit rating outlook stable negative working capital years ended december 31 2007 2006 follows decrease working capital 21 billion december 31 2006 december 31 2007 impacted • decrease marketable securities due reduction carrying value floating rate securities certain ars fair market value subsequent reclassifications remaining value ars noncurrent assets • increase shortterm borrowings longterm debt due reclassifications noted • increase accrued royalties resulting increased plavix sales • increase receivables primarily due increased plavix sales us • reclassification medical imaging assets liabilities held sale 2007 • reclassification certain tax contingencies current us foreign income taxes payable noncurrent upon adoption fin 48 january 1 2007 following discussions company’s cash flow activities include discontinued operations company’s cash flow activities years ended december 31 2007 2006 2005 follows net cash provided operating activities 32 billion 2007 21 billion 2006 1070 million increase 2007 compared 2006 attributable higher net earnings 580 million higher net changes adjustments net earnings 8 million higher net changes operating assets liabilities 482 million net positive changes adjustments net earnings 2007 compared 2006 8 million mainly included • 288 million negative cash flow variance due lower litigation settlement expenses 2007 • 259 million positive cash flow variance resulting impairment charges asset writeoffs mainly reduction carrying value ars fair value impending closure manufacturing facilities • 230 positive cash flow variance acquired inprocess research development related acquisition adnexus 2007 • 180 million negative cash flow variance deferred income tax benefit 2007 adjustments included deferred tax benefits restructuring company’s international operations upfront cash receipts alliance partners resolution audit issue irs partially offset litigation payments 2006 adjustments included net deferred tax charge payment litigation settlements offset deferred tax benefit additional litigation accruals accrual additional foreign tax credits deferred tax benefit equitybased compensation • 124 million positive cash flow variance due higher provision restructuring 2007 connection pti net positive changes operating assets liabilities 2007 compared 2006 482 million mainly included • 966 million positive cash flow variance accounts payable accrued expenses primarily due increase accrued royalties 2007 resulting increased plavix sales higher purchases raw materials significant paydown payables early 2006 resulting lower payment invoices december 2005 reduction accrued rebates returns first quarter 2006 primarily resulting lower sales volume • 671 million negative cash flow variance receivables primarily due increased plavix sales 2007 lower collection 2007 resulting lower pravachol sales • 368 million positive cash flow variance deferred income liabilities mainly due upfront cash receipts alliance partners 2007 • 132 million negative cash flow variance inventories primarily due increase inventories 2007 anticipation new product launches strategic builds existing products reduction inventories 2006 resulting pravachol exclusivity loss • 108 million negative cash flow variance income taxes payable primarily related payments settle various tax issues 20022003 irs audit net cash used investing activities 202 million 2007 net cash provided investing activities 206 million 2006 408 million negative cash flow variance primarily attributable • 432 million negative cash flow variance acquisition adnexus • 281 million negative cash flow variance proceeds disposal properties connection sales leaseback transaction 2006 • 280 million positive cash flow variance licensing milestone payments 2006 imclone somerset pharmaceuticals inc net cash used financing activities 3213 million 2007 3351 million 2006 138 million positive cash flow variance mainly attributable • 163 million positive cash flow variance mainly higher cash proceeds exercise stock options 2007 compared 2006 net cash provided operating activities 21 billion 2006 18 billion 2005 247 million increase 2006 compared 2005 mainly attributable significant changes adjustments net earnings 1398 million net changes operating assets liabilities 264 million offset lower net earnings 1415 million significant positive changes adjustments net earnings 2006 compared 2005 1398 million mainly included • 576 million positive cash flow variance deferred income tax benefit due lower level increase deferred tax benefit 2006 compared 2005 2006 increase deferred tax benefits associated us research development foreign tax credits increase litigation reserves 2005 increase deferred tax benefits associated reversal tax liability related repatriation special dividends ajca • 425 million positive cash flow variance due lower gain sale product asset 2006 compared sale business 2005 • 143 million positive cash flow variance deferred income recognized related termination muraglitazar collaborative agreement 2005 net positive changes operating assets liabilities 2006 compared 2005 264 million mainly included • 329 million negative cash flow variance receivables 2006 increase cash flow driven increases receivables due alliance partners partially offset lower trade receivable volume 2005 increase cash flow driven collection foreign withholding taxes alliance partners • 448 million positive cash flow variance inventories primarily due increase inventories 2005 resulting growth newer products anticipation new product launches reduction inventories 2006 resulting pravachol exclusivity loss • 283 million negative cash flow variance litigation primarily due settlement payments 339 million 2006 dpa vanlev litigation partially offset unrelated insurance recoveries 67 million • 443 million positive cash flow variance income taxes payable primarily related payments 2005 settlement examinations irs years 1998 2001 repatriation special dividends ajca net cash provided investing activities 206 million 2006 compared net cash provided 1191 million 2005 985 million negative cash flow variance primarily attributable • 281 million negative cash flow variance mainly sale marketable securities 2005 • 617 million negative cash flow variance lower proceeds sale product asset 2006 compared sale consumer medicines otn businesses 2005 • 280 million negative cash flow variance milestone payments 2006 primarily related imclone • 281 million positive cash flow variance proceeds disposal properties connection sale leaseback transaction 2006 net cash used financing activities 3351 million 2006 compared 3637 million 2005 286 million positive cash flow variance mainly attributable • 1655 million positive cash flow variance repayment shortterm borrowings 2005 • 1198 negative cash flow variance retirement longterm debt 2006 company repaid debt 1200 million retired 575 notes due 2011 2425 million 2005 company retired 475 notes due 2006 2507 million cash provided operations borrowings primarily used past three years pay dividends approximately 66 billion company also invested approximately 24 billion past three years capital expansion improve plant efficiency maintain superior research facilities past three years company repurchase common stock share repurchase program authorizes company purchase common stock time open market private transactions market conditions permit program intended reduce increase shares outstanding option exercises obtain shares general corporate purposes dividends declared per common share 115 2007 112 2006 2005 december 2007 company declared quarterly dividend 31 per common share indicated dividend full year 2008 124 per share dividend decisions made quarterly basis company’s board directors company’s financial condition liquidity could affected obligations make milestone onetime payments outcome pending litigations investigations including challenge plavix patent andor potential renewed additional generic competition plavix additional impairments investment portfolio information see “item 8 financial statementsnote 2 alliances investments” “note 9 cash equivalents marketable securities” “note 15 shortterm borrowings longterm debt” “note 22 legal proceedings contingencies” contractual obligations payments due period company’s contractual obligations december 31 2007 follows 1 current portion longterm debt obligations included shortterm borrowings company’s consolidated balance sheet december 31 2007 balances approximate outstanding nominal longterm debt values contractual obligations table excludes interest payment obligations company’s convertible debenture included due payment 2008 contains 2008 put call feature 2 due uncertainty related timing reversal uncertain tax positions shortterm uncertain tax benefits provided table longterm amounts excluded table total 537 million addition company committed make potential future “milestone” payments third parties part inlicensing development programs payments agreements generally become due payable upon achievement certain developmental regulatory andor commercial milestones specific timing cannot predicted achievement milestones neither probable reasonably estimable contingencies recorded company’s consolidated balance sheet discussion contractual obligations see “item 8 financial statementsnote 15 shortterm borrowings longterm debt” “note 18 financial instruments” “note 20 leases” “note 21 pension postretirement benefit plans” sec consent order previously disclosed august 4 2004 company entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 company’s quarterly report form 10q period ended september 30 2004 terms consent company agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice company also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer company’s accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring company’s budget process gives appropriate weight inputs come bottom top come top bottom adequately documenting process company established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis company maintains imas us pharmaceutical wholesalers account nearly 100 total gross sales us pharmaceutical products current terms imas company’s three largest wholesaler customers provide company weekly information respect months hand productlevel inventories amount outmovement products three wholesalers currently account approximately 90 total gross sales us pharmaceuticals products 2007 2006 2005 inventory information received wholesalers together company’s internal information used estimate months hand product level inventories wholesalers company estimates months hand product inventory levels us pharmaceutical business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast company’s pharmaceutical business outside us nutritionals convatec business units around world company significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly company relies variety methods estimate months hand product level inventories business units company believes abovedescribed procedures provide reasonable basis ensure compliance consent previously disclosed june 15 2005 company entered dpa us attorney’s office district new jersey resolving investigation usao company relating wholesaler inventory various accounting matters covered company’s settlement sec pursuant dpa usao filed criminal complaint company alleging conspiracy commit securities fraud agreed defer prosecution company dismiss complaint two years company satisfied requirements dpa copy dpa filed exhibit 992 form 8k filed company june 16 2005 incorporated reference hereto exhibit 10w form 10k fiscal year ended december 31 2006 terms dpa company agreed retain monitor defined powers responsibilities dpa including oversee company’s compliance terms dpa consent settlements derivative action federal securities class action powers responsibilities monitor ended april 12 2007 monitor filed final report usao june 8 2007 june 15 2007 dpa expired complaint dismissed company ongoing obligations dpa recently issued accounting standards december 2007 meeting financial accounting standards board fasb ratified consensus reached emerging issues task force eitf issue 071 accounting collaborative arrangements related development commercialization intellectual property eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenues costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf 9919 reporting revenue gross principal versus net agent accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf 071 applies entire collaborative agreement issue effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date company currently process evaluating impact adopting pronouncement december 2007 fasb issued sfas 141r business combinations replaces sfas 141 business combinations requires acquirer recognize assets acquired liabilities assumed noncontrolling interest acquiree acquisition date measured fair values date limited exceptions statement also requires acquirer business combination achieved stages recognize identifiable assets liabilities well noncontrolling interest acquiree full amounts fair values sfas 141r makes various amendments authoritative literature intended provide additional guidance confirm guidance literature provided statement applies business combinations acquisition date fiscal years beginning december 15 2008 company currently process evaluating impact adopting pronouncement december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment arb no51 sfas 160 establishes accounting reporting standards require ownership interests subsidiaries held parties parent clearly identified labeled presented consolidated statement financial position within equity separate parent’s equity statement also requires amount consolidated net income attributable parent noncontrolling interest clearly identified presented face consolidated statement income changes parent’s ownership interest parent retains controlling financial interest subsidiary must accounted consistently subsidiary deconsolidated retained noncontrolling equity investment former subsidiary must initially measured fair value gain loss deconsolidation subsidiary measured using fair value noncontrolling equity investment statement also requires entities provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners statement effective fiscal years beginning december 15 2008 company currently process evaluating impact adopting pronouncement june 2007 eitf reached consensus issue 073 accounting nonrefundable advance payments goods services received used future research development activities nonrefundable advance payments goods services used rendered future research development activities deferred capitalized amounts recognized expense related goods delivered services performed goods services longer expected provided issue effective fiscal years beginning december 15 2007 earlier application permitted pronouncement expected material effect company’s consolidated financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb statement 115 permits entity measure certain financial assets financial liabilities fair value objective sfas 159 improve financial reporting allowing entities mitigate volatility reported earnings caused measurement related assets liabilities using different attributes without apply complex hedge accounting provisions sfas 159 entities elect fair value option instrument report unrealized gains losses earnings subsequent reporting date fair value option election irrevocable unless new election date occurs sfas 159 establishes presentation disclosure requirements help financial statement users understand effect entity’s election earnings eliminate disclosure requirements accounting standards assets liabilities measured fair value must displayed face balance sheet statement effective fiscal years beginning november 15 2007 company elect early adoption pronouncement permitted adoption accounting pronouncement expected material effect company’s consolidated financial statements september 2006 fasb issued statement sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r pronouncement requires employer recognize overfunded underfunded status defined benefit postretirement plan multiemployer plan asset liability statement financial position recognize changes funded status year changes occur comprehensive income business entity pronouncement also requires employer measure funded status plan date yearend statement financial position limited exceptions pronouncement require prior periods restated reflect impact sfas 158 company adopted sfas 158 fiscal year ended december 31 2006 adoption accounting pronouncement resulted 1064 million reduction accumulated oci stockholders’ equity 767 million reduction total assets 297 million increase total liabilities adoption sfas 158 impact company’s results operations cash flows september 2006 fasb issued sfas 157 fair value measurements pronouncement defines fair value establishes framework measuring fair value expands disclosures fair value measurements statement effective fiscal years beginning november 15 2007 november 14 2007 fasb agreed oneyear deferral implementation sfas 157 nonfinancial assets liabilities adoption accounting pronouncement expected material effect company’s consolidated financial statements financial assets liabilities assets liabilities carried fair value company currently process evaluating impact adopting pronouncement nonfinancial assets liabilities september 2006 sec issued staff accounting bulletin sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements expresses staff’s views regarding process quantifying financial statement misstatements bulletin effective interim period first fiscal year ending november 15 2006 sab 108 requires companies utilize “dual approach” assess quantitative effects financial statement misstatements dual approach includes income statement focus balance sheet focus assessment adoption bulletin effect company’s consolidated financial statements july 2006 fasb issued fasb interpretation fin 48 accounting uncertainty income taxes interpretation fasb statement 109 case company effective january 1 2007 fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 accounting income taxes fin 48 requires tax positions evaluated using recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return differences tax positions taken tax return amounts recognized financial statements recorded adjustments income taxes payable receivable adjustments deferred taxes fin 48 also requires expanded disclosure end reporting period including tabular reconciliation unrecognized tax benefits company adopted fin 48 january 1 2007 result adoption accounting pronouncement company recognized 27 million previously unrecognized tax benefits accounted increase opening balance retained earnings may 2007 fasb issued fasb staff position fsp fin 481 definition settlement fasb interpretation 48 effective retroactively january 1 2007 fsp fin 481 provides guidance determine whether tax position effectively settled purpose recognizing previously unrecognized tax benefits adoption fsp fin 481 effect company’s consolidated financial statements march 2006 fasb issued sfas 156 accounting servicing financial assets amendment fasb statement 140 pronouncement relates accounting separately recognized servicing assets servicing liabilities statement effective fiscal years beginning september 15 2006 adoption accounting pronouncement material effect company’s consolidated financial statements february 2006 fasb issued sfas 155 accounting certain hybrid financial instruments amendment fasb statements 133 140 pronouncement primarily resolves certain issues addressed implementation sfas 133 accounting derivative instruments hedging activities concerning beneficial interests securitized financial assets statement effective financial instruments acquired issued subject remeasurement event occurring beginning 2007 fiscal year adoption accounting pronouncement material effect company’s consolidated financial statements may 2005 fasb issued sfas 154 accounting changes error correctionsa replacement apb opinion 20 fasb statement 3 pronouncement applies voluntary changes accounting principle revises requirements accounting reporting change accounting principle sfas 154 requires retrospective application prior periods’ financial statements voluntary change accounting principle unless impracticable pronouncement also requires change method depreciation amortization depletion longlived nonfinancial assets accounted change accounting estimate affected change accounting principle sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 statement change transition provisions existing accounting pronouncements including transition phase effective date sfas 154 adoption accounting pronouncement material effect company’s consolidated financial statements march 2005 fasb issued fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 fin 47 clarifies entity must record liability conditional asset retirement obligation fair value obligation reasonably estimated asset retirement obligations covered fin 47 entity legal obligation perform asset retirement activity even timing method settling obligation conditional future event may within control entity fin 47 also clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation interpretation effective later end fiscal years ending december 15 2005 company adopted provisions fin 47 fiscal year ended december 31 2005 adoption accounting pronouncement material effect company’s consolidated financial statements december 2004 fasb issued sfas 123 revised 2004 sharebased payment sfas 123r requires measurement recognition compensation expense stockbased payment awards made employees directors based estimated fair values sfas 123r supersedes company’s previous accounting apb 25 accounting stock issued employees periods beginning january 1 2006 march 2005 sec issued sab 107 sharebased payment relating sfas 123r company applied provisions sab 107 adoption sfas 123r company adopted sfas 123r using modified prospective transition method requires application accounting standard january 1 2006 elected alternative method provided fsp 123r3 transition election related accounting tax effects sharebased payment awards determining company’s pool excess tax benefits company’s consolidated financial statements year ended december 31 2006 reflect impact sfas 123r accordance modified prospective transition method company’s consolidated financial statements prior periods restated reflect include impact sfas 123r stockbased compensation expense recognized sfas 123r year ended december 31 2006 112 million 73 million net tax 004 per share corresponding amount recorded additional paidin capital within stockholders’ equity additionally 10 million related performance awards reclassified liabilities stockholders’ equity connection adoption sfas 123r critical accounting policies company prepares financial statements conformity accounting principles generally accepted us preparation financial statements conformity us gaap requires use estimates assumptions affect reported amounts assets liabilities including disclosure contingent assets contingent liabilities date financial statements reported amounts revenue expenses reporting period company’s critical accounting policies important company’s financial condition results operations require difficult subjective complex judgments part management application often result need make estimates effect matters inherently uncertain uncertainty factors surrounding estimates judgments used preparation consolidated financial statements actual results may vary estimates company believes following discussion represents critical accounting policies management discussed company’s critical accounting policies audit committee board directors revenue recognition company recognizes revenue accordance sab 101 revenue recognition financial statements amended sab 104 revenue recognition company’s accounting policy revenue recognition substantial impact reported results relies certain estimates require difficult subjective complex judgments part management company recognizes revenue net grosstonet sales adjustments discussed involve significant estimates judgments title substantially risks rewards ownership transferred customer generally occurs date shipment case new products product introduction extension existing line product company determines products similar therapeutic category company determines new product dissimilar characteristics existing products company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns discussions revenue recognition see “item 8 financial statementsnote 1 accounting policiesrevenue recognition sales rebate return accruals” grosstonet sales adjustments company following significant categories grosstonet sales adjustments prime vendor chargebacks wic rebates managed health care rebates contract discounts medicaid rebates cash discounts sales returns adjustments involve significant estimates judgments require company use information external sources company accounts grosstonet sales adjustments accordance eitf issue 019 accounting consideration given vendor customer including reseller vendor’s products sfas 48 revenue recognition right return exists applicable see “net sales” section reconciliation company’s gross sales net sales significant category grosstonet sales adjustment prime vendor chargebacks company’s us businesses participate prime vendor programs government entities significant us department defense us department veterans affairs parties whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower prime vendor price wholesalers charge difference acquisition cost lower prime vendor price back company accounts prime vendor chargebacks reducing accounts receivable amount equal company’s estimate chargeback claims attributable sale company determines estimate prime vendor chargebacks primarily based historical experience regarding prime vendor chargebacks current contract prices prime vendor programs company considers prime vendor payments levels inventory distribution channel company’s claim processing time lag adjusts reduction accounts receivable periodically throughout quarter reflect actual experience wic rebates company’s us nutritionals business participates competitive bidding basis nutrition programs sponsored states tribal governments commonwealth puerto rico us territories wic programs company reimburses entities difference wholesaler list price contract price eligible products company accounts wic rebates establishing accrual amount equal company’s estimate wic rebate claims attributable sale company determines estimate wic rebate accrual primarily based historical experience regarding wic rebates current contract prices wic programs company considers levels inventory distribution channel new wic contracts terminated wic contracts changes existing wic contracts wic participation adjusts accrual periodically throughout quarter reflect actual experience managed health care rebates contract discounts company offers rebates discounts managed health care organizations us manage prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit addition commercial plans well globally contract counterparties hospitals group purchasing organizations company accounts managed health care rebates contract discounts establishing accrual amount equal company’s estimate managed health care rebates contract discounts attributable sale company determines estimate managed health care rebates contract discounts accrual primarily based historical experience regarding rebates discounts current contract prices company considers sales performance products subject managed health care rebates contract discounts levels inventory distribution channel adjusts accrual periodically throughout quarter reflect actual experience medicaid rebates company’s us businesses participate state governmentmanaged medicaid programs well certain qualifying federal state government programs whereby discounts rebates provided participating state local government entities discounts rebates provided latter programs included company’s medicaid rebate accrual considered medicaid rebates purposes discussion company accounts medicaid rebates establishing accrual amount equal company’s estimate medicaid rebate claims attributable sale company determines estimate medicaid rebates accrual primarily based historical experience regarding medicaid rebates well expansion prospective basis participation nonmandatory aspects qualifying federal state government programs legal interpretations applicable laws related medicaid qualifying federal state government programs new information regarding changes medicaid programs’ regulations guidelines would impact amount rebates company considers outstanding medicaid claims medicaid payments levels inventory distribution channel adjusts accrual periodically throughout quarter reflect actual experience cash discounts us certain countries company offers cash discounts approximating 2 sales price incentive prompt payment company accounts cash discounts reducing accounts receivable full amount discounts company considers payment performance adjusts accrual reflect actual experience sales returns company accounts sales returns accordance sfas 48 revenue recognition right return exists establishing accrual amount equal company’s estimate sales recorded related products expected returned 2007 2006 2005 provision sales returns 160 million 230 million 164 million respectively 1 gross sales three years returns established products company determines estimate sales return accrual primarily based historical experience regarding sales returns also considers factors could impact sales returns factors include levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products company considers factors adjusts accrual periodically throughout quarter reflect actual experience company considers level inventory distribution channel determines whether believes adjustment sales return accrual appropriate company adjusts sales return accrual based historical experience company’s returned goods policy shelf life company’s products life cycle product levels inventory distribution channel company considers introductions generic products factors impact sales returns calculation based historical experience company’s returned goods policy event product recall product discontinuance company considers reasons impact actions adjusts sales return accrual appropriate taking account historical experience estimated levels inventory distribution channel product discontinuances estimates continuing demand sales returns accruals new products estimated primarily based historical sales returns experience similar products within line product within similar therapeutic category limited circumstances new product extension existing line product company historical experience products similar therapeutic category company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns company also considers shelf life new products determines whether believes adjustment sales return accrual appropriate shelf life connection new products tends shorter shelf life established products company may still developing optimal manufacturing process new product would lengthen shelf life addition higher launch quantities may manufactured advance launch date ensure sufficient supply exists satisfy market demand cases company assesses reduced shelf life together estimated levels inventory distribution channel projected demand determines whether believes adjustment sales return accrual appropriate adjustments addition grosstonet sales adjustments described company makes grosstonet sales adjustments example company offers sales discounts significantly nonus businesses also offers consumer coupons rebates significantly us nutritionals pharmaceuticals businesses addition number countries outside us including major european countries company provides rebates government entities company generally accounts grosstonet adjustments establishing accrual amount equal company’s estimate adjustments attributable sale company generally determines estimates accruals grosstonet sales adjustments primarily based historical experience performance commitments government entities relevant factors including estimated levels inventory distribution channel adjusts accruals periodically throughout quarter reflect actual experience use information external sources company uses information external sources estimate grosstonet sales adjustments company’s estimates inventory wholesalers deferred revenue consigned inventory based projected prescription demandbased sales products historical inventory experience well company’s analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data company’s internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals company receives information ims supplier market research pharmaceutical industry uses project prescription demandbased sales many us pharmaceutical products prior third quarter 2005 company historically reported estimated total us prescription growth estimated therapeutic category shares based data ims national prescription audit npa ims’ legacy national projection methodology ims made available subscription basis reported data based simple unweighted sum projected us prescriptions retail mail order channels third quarter 2005 company began disclosing npa prescription growth therapeutic category share data based version 10 ims’ new revised ngps projection methodology consistency ngps version 10 data used current comparative time periods properly account trend breaks new projection methodology coincident change reporting ims data ngps version 10 basis company also began reporting retail mail prescription growth category shares weighted retailequivalent basis accounts significantly larger size average mail order prescription compared size average retail prescription retail equivalization calculations applied mail order volumes shares reported product time period 2007 ims refined improved ngps projection methodology fully rolled ngps version 20 npa subscribers resulted newly revised volume estimates historic time periods therefore since first quarter 2007 company used new ims standard ngps version 20 projection methodology applied ngps version 20 data reporting prescription growth market shares periods presented annual report form 10k company also continued practice combining retail mail prescription volume retailequivalent basis company uses methodology internal demand forecasts company also uses information external sources identify prescription trends patient demand average selling prices company’s estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date company receives thirdparty information retirement benefits company’s pension plans postretirement benefit plans accounted using actuarial valuations required sfas 87 employers’ accounting pensions sfas 106 employers’ accounting postretirement benefits pensions company considers accounting retirement plans critical management required make significant subjective judgments number actuarial assumptions including discount rates salary growth longterm return plan assets retirement turnover health care cost trend rates mortality rates depending assumptions estimates used pension postretirement benefit expense could vary within range outcomes material effect reported earnings addition assumptions materially affect projected benefit obligations future cash funding company adopted sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r fiscal year ended december 31 2006 adoption accounting pronouncement resulted 1064 million reduction accumulated comprehensive income stockholders’ equity 767 million reduction total assets 297 million increase total liabilities adoption sfas 158 impact company’s results operations cash flows plan description company certain subsidiaries defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan principal defined contribution plan bristolmyers squibb savings investment program approximately 75 total company defined benefit pension plan assets liabilities held us plans assets us plans held single trust common asset allocation unless specified otherwise references section total company plans ie us plans together international plans benefits company’s defined benefit pension plans based primarily years credited service participants’ compensation assets company’s defined benefit plans consist primarily equity fixedincome securities december 31 2007 fair market value plan assets company’s defined benefit plans increased 6019 million 5658 million december 31 2006 us plans assets allocated 67 equity securities compared 69 end 2006 24 fixed income securities compared 23 end 2006 9 private equity investments compared 8 end 2006 bristolmyers squibb common stock represented less 1 assets us plans end 2007 2006 company provides comprehensive medical group life benefits substantially us retirees elect participate company’s comprehensive medical group life plans asset allocation postretirement plans identical asset allocation described us defined benefit pension plans accrual accounting significant assumptions consistent requirements sfas 87 company accounts pension benefits using accrual method recognizing pension expense payment benefits retirees accrual method accounting pension benefits necessarily requires actuarial assumptions concerning future events determine amount timing benefit payments company’s key assumptions used calculating cost pension benefits discount rate compensation increase expected longterm rate return plan assets company consultation actuaries evaluates key actuarial assumptions used calculating cost pension benefits retirement turnover mortality rates based expectations actual experience appropriate determines assumptions december 31 year calculate liability information date pension expense following year depending assumptions used pension expense could vary within range outcomes material effect reported earnings addition assumptions materially affect projected benefit obligations future cash funding actual results given year may differ estimated economic factors determining discount rate company uses yield high quality corporate bonds coincides cash flows plans’ estimated payouts citigroup median yield curve used determining discount rate us plans assumed rate compensation increase used company determining future pension obligations reflects estimate change actual future compensation levels due general price levels productivity seniority factors 2007 net pension expense company’s defined benefit pension plans included earnings minority interest income taxes 313 million compared 332 million 2006 us plans’ pension expense 2007 determined using 60 assumed discount rate 356 assumed rate compensation increase present value benefit obligations december 31 2007 us plans determined using 675 assumed discount rate 356 assumed rate compensation increase assumed discount rate used determining us plans’ pension expense 2007 reduced 025 expense would increased approximately 17 million assumed rate compensation increase used determining us plans’ pension expense 2007 reduced 025 expense would decreased approximately 9 million assumed discount rate used determining accumulated benefit obligation december 31 2007 reduced 025 accumulated benefit obligation would increased 115 million us plans’ pension expense 2007 determined using 875 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2007 reduced 1 expense would increased 41 million actual rates return earned us plan assets last 10 years follows december 31 2007 company increased assumed discount rate us plans 600 675 maintained assumed rate compensation increase 356 compensation assumed increase scale different rates different ages 356 rate disclosed december 31 2007 single rate used age would produce present value benefit obligations company maintained expected rate return us plan assets 875 2008 company expects net pension expense defined benefit pension plans included earnings minority interest income taxes approximately 20 million lower 2008 313 million 2007 reflecting primarily increase discount rate company used assumed discount rates expected longterm rates return plan assets calculating cost pension benefits cost postretirement benefits us plans except case discount rates december 31 2007 2006 rates 675 600 respectively used pension benefits versus 650 575 respectively postretirement benefits reflect shorter duration postretirement liabilities december 31 2007 2006 respectively us health care costs retiree population assumed increase 95 2008 trend expected increase 45 per year 2018 actual costs higher assumed likely put significant upward pressure company’s expense retiree health care effects medicare prescription drug improvement modernization act 2003 reflected 2007 net periodic postretirement benefit cost reduction 11 million accumulated postretirement benefit obligation january 1 2007 reduction 98 million recognition actuarial gains losses 2006 sfas 158 required recognition actuarial gains losses component stockholders’ equity accumulated comprehensive income sfas 87 provides delayed recognition years prior 2006 amounts arise changes estimated plan benefit obligations due changes assumed discount rate differences actual expected returns plan assets assumption changes net actuarial gain loss determined based marketrelated value plan assets differs fair market value calculated value recognizes changes fair value systematic rational manner five years amortized pension income expense year extent unrecognized net actuarial loss gain exceeds 10 greater projected benefit obligation marketrelated value plan assets beginning year net gains losses recognized pension income expense prospectively period approximates average remaining service period active employees expected receive benefits plans approximately 10 years extent offset losses gains subsequent years unrecognized net actuarial loss reflects large part steady reduction weightedaverage discount rate years unless offset future unrecognized gains higher discount rates higher expected returns plan assets amortization unrecognized loss expected increase pension expense 98 million 2008 progressively lower amounts following nine years plan funding company’s funding policy defined benefit plans contribute amounts provide current service fund past service liability company contributed 323 million 325 million defined benefit plans 2007 2006 respectively discussions retirement benefits see “item 8 financial statementsnote 21 pension postretirement benefit plans” acquired inprocess research development fair value inprocess research development acquired business combination determined based present value research project’s projected cash flows income approach utilized consistent guidance practice aid issued american institute certified public accountants assets acquired business combination used research development activities focus software electronic devices pharmaceutical industries future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weightedaverage cost capital acquired inprocess research development expensed incurred underlying product received regulatory approval future alternative use addition costs nonrefundable related acquisition licensing products yet received regulatory approval marketed alternative future use charged earnings incurred discussions acquired inprocess research development see “item 8 financial statementsnote 1 accounting policiesacquired inprocess research development” impairment longlived assets accordance sfas 144 accounting impairment disposal longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value accordance sfas 142 goodwill intangible assets goodwill tested least annually impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value sfas 142 requires indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net book value exceeds estimated fair value intangible assets evaluated impairment accordance sfas 144 described estimates future cash flows based reasonable supportable assumptions projections require management’s judgment changes key assumptions company’s businesses prospects changes market conditions could result impairment charge discussions impairment longlived assets see “item 8 financial statementsnote 1 accounting policiesimpairment longlived assets” “goodwill intangible assets” equity investments company reviews equity investments impairment based determination whether decline market value investment company’s carrying value temporary making determination company considers apb opinion 18 equity method accounting investments common stock related interpretations set forth factors evaluated determining whether loss value recognized including company’s ability hold investment market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment company’s investment imclone subject accounting discussion company’s investment imclone see “item 8 financial statementsnote 2 alliances investments” discussions equity investments see “item 8 financial statementsnote 1 accounting policiesinvestments” “note 2 alliances investments” marketable securities company’s marketable securities december 31 2007 consisted us dollar denominated frs primarily ‘aaaaaa’ rated frs long longterm debt securities coupons reset periodically benchmark interest rate underlying assets company’s frs consist primarily investment grade corporate bonds loans company accounts marketable securities accordance sfas 115 accounting certain investments debt equity securities classifies “available sale” addition december 31 2007 company principal invested ars held company private placement securities longterm nominal maturities interest rates reset dutch auction month monthly auctions historically provided liquid market securities company’s investments ars represent interests collateralized debt obligations supported pools residential commercial mortgages credit cards insurance securitizations structured credits including corporate bonds underlying collateral ars held company consists subprime mortgages due lack availability observable market quotes company’s investment portfolio marketable securities ars company utilizes valuation models including based expected cash flow streams collateral values including assessments counterparty credit quality default risk underlying security discount rates overall capital market liquidity valuation company’s investment portfolio subject uncertainties difficult predict factors may impact company’s valuation include changes credit ratings securities well underlying assets supporting securities rates default underlying assets underlying collateral value discount rates counterparty risk ongoing strength quality market credit liquidity credit capital markets continued deteriorate 2008 uncertainties markets continue markets deteriorate company experiences additional ratings downgrades investments portfolio including ars company may incur additional impairments investment portfolio could negatively affect company’s financial condition cash flow reported earnings discussions marketable securities see “item 8 financial statementsnote 9 cash equivalents marketable securities” restructuring streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results could vary estimates adjustments 6 million 14 million 1 million recorded 2007 2006 2005 respectively reflect changes estimates restructuring actions taken prior periods discussions restructuring see “item 8 financial statementsnote 1 accounting policiesrestructuring” “note 3 restructuring items” contingencies normal course business company subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies see “item 8 financial statementsnote 1 accounting policiescontingencies” “note 22 legal proceedings contingencies” income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases company’s assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recorded reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made december 31 2007 2006 company net deferred tax assets 3483 million 3154 million respectively net valuation allowances 1950 million 625 million respectively company recorded significant deferred tax assets december 31 2007 related us foreign tax credit carryforwards approximately 1140 million us research tax credit carryforwards approximately 275 million charitable contribution carryfowards 80 million charitable contribution carryforwards expire varying amounts beginning 2009 foreign tax credit research tax credit carryforwards expire varying amounts beginning 2012 foreign tax credit research credit reduced due derecognition fin 48 realization credits charitable contribution carryforwards dependent generating sufficient domestic taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions pti increasing biologics manufacturing capacity us implementing tax planning strategies increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit charitable contribution carryforwards company conducts business various countries throughout world subject tax numerous jurisdictions result business activities company files significant number tax returns subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported company may require several years resolve company establishes liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known company adopted fin 48 january 1 2007 result adoption accounting pronouncement company recognized 27 million previously unrecognized tax benefits accounted increase opening balance retained earnings previously reported upon adoption fin 48 company’s total amount uncertain tax benefits january 1 2007 net deferred income tax benefits excluding interest penalties 960 million addition company derecognized adoption 180 million unrecognized tax benefits tax rate impact settled gross unrecognized tax benefits january 1 2007 1140 million total amount unrecognized tax benefits december 31 2007 excluding amounts recorded reductions deferred tax assets excluding interest penalties decreased 798 million reduction primarily due tax benefits recognized favorable resolution uncertain tax positions partially offset additional uncertain tax benefits accrued 2007 additional information unrecognized tax benefits see “item 8 financial statementsnote 8 income taxes” december 31 2007 company approximately 141 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated us company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 8 income taxes” stockbased compensation expense company adopted sfas 123r sharebased payment requires measurement recognition compensation expense stockbased payment awards made employees directors based estimated fair values company uses modified prospective transition method requires application accounting standard january 1 2006 elected alternative method provided fsp 123r3 determining company’s pool excess tax benefits company’s consolidated financial statements years ended december 31 2007 2006 reflect impact sfas 123r accordance modified prospective transition method company’s consolidated financial statements prior periods restated reflect include impact sfas 123r stockbased compensation expense recognized sfas 123r years ended december 31 2007 2006 133 million 112 million respectively 88 million 73 million net tax respectively 004 per share respectively corresponding amount recorded additional paidin capital within stockholders’ equity comparatively pro forma basis stockbased compensation expense 31 million 20 million net tax recognized year ended december 31 2005 apb 25 additionally 10 million related performance awards reclassified liabilities stockholders’ equity connection adoption sfas 123r company estimates fair value stockbased payment awards date grant using optionpricing model value portion award ultimately expected vest recognized expense requisite service periods company’s consolidated statement earnings prior adoption sfas 123r company accounted stockbased awards employees directors using intrinsic value method related stock options accordance apb 25 allowed sfas 123 accounting stockbased compensation intrinsic value method stockbased compensation expense recognized company’s consolidated statement earnings exercise price company’s stock options granted employees directors equaled fair market value underlying stock date grant stockbased compensation expense recognized period based value portion stockbased payment awards ultimately expected vest period stockbased compensation expense recognized company’s consolidated statement earnings years ended december 31 2007 2006 included compensation expense stockbased payment awards granted prior yet vested january 1 2006 based grant date fair value estimated accordance pro forma provisions sfas 123r compensation expense stockbased payment awards granted subsequent january 1 2006 based grant date fair value estimated accordance provisions sfas 123r conjunction adoption sfas 123r company changed method attributing value stockbased compensation expense accelerated multipleoption approach straightline single option method compensation expense stockbased payment awards granted prior 2006 continue recognized using accelerated multipleoption approach compensation expense stockbased payment awards service condition granted subsequent january 1 2006 recognized using straightline singleoption method stockbased payment awards granted subsequent january 1 2006 service market condition recognized using accelerated multipleoption approach required sfas 123r prior 2006 company applied apb opinion 25 recognize compensation expense stock options granted plans exercise price option date grant equal fair market value date however grants restricted stock company recognized compensation expense straightline basis period restrictions expire fair value options granted 2007 2006 2005 estimated 656 per common share 474 per common share 549 per common share respectively date grant using blackscholes optionpricing model assumptions used blackscholes optionpricing model follows company determines fair value certain stockbased payment awards date grant using optionpricing model affected company’s stock price well assumptions regarding number highly complex subjective variables include limited company’s expected stock price volatility term awards actual projected employee stock option exercise behaviors respect accounting treatment retirement eligibility provisions employee stockbased compensation awards company historically followed nominal vesting period approach upon adoption sfas 123r company follows nonsubstantive vesting period approach recognizes compensation cost oneyear period awards granted retirementeligible employees period grant date retirement eligibility achieved one year less vesting period impact applying nonsubstantive vesting period approach material company’s consolidated financial statements stockbased compensation expense recognized consolidated statements earnings year ended december 31 2007 2006 based awards ultimately expected vest reduced estimated forfeitures company estimates forfeitures time grant revises necessary subsequent periods actual forfeitures differ estimates company’s pro forma information required sfas 123 periods prior 2006 company accounted forfeitures occurred special note regarding forwardlooking statements annual report written oral statements company makes time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things company’s goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years company included important factors cautionary statements included annual report particularly “item 1a risk factors” company believes could cause actual results differ materially forwardlooking statement although company believes prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made company undertakes obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary bristolmyers squibb company may referred bristolmyers squibb bms company us global biopharmaceutical company consisting global pharmaceuticalbiotechnology international consumer medicines businesses whose mission discover develop deliver innovative medicines help patients prevail serious diseases license manufacture market distribute sell pharmaceutical products continued execute stringofpearls strategy acquisition zymogenetics inc zymogenetics october 2010 various collaboration agreements entered year met productivity transformation initiative pti objectives implemented strategic process designed achieve culture continuous improvement launched kombiglyze saxagliptin metformin united states us treatment type 2 diabetes adults made key product pipeline advancements yervoy ipilimumab dapagliflozin eliquis apixaban baraclude entecavir sprycel dasatinib orencia abatacept received warning letter manati puerto rico facility voluntarily recalled certain lots avalide irbesartanhydrochlorothiazide us puerto rican canadian mexican argentinean markets repurchased 750 million principal value higher interest rate debt tender offer announced 30 billion share repurchase program 23 million shares repurchased 2010 highlights following table summary financial highlights net sales worldwide net sales increased 4 primarily due • growth various key products including plavix clopidogrel bisulfate virology portfolio includes baraclude sustiva efavirenz franchise reyataz atazanavir sulfate orencia sprycel • sales recently launched onglyza saxagliptin kombiglyze net sales increased prior year despite unfavorable impact • increased medicaid rebates us healthcare reform • reduction contractual share abilify aripiprazole net sales 65 58 extension commercialization manufacturing agreement otsuka pharmaceutical co ltd otsuka • declining sales mature brands strategic divestitures generic competition • avalide recall • government austerity measures europe reduce health care costs segment income increase segment income attributed • net sales growth various key products • efficient reduced spending within marketing selling administrative • reduced promotional spending certain key brands coincide product life cycle increase partially offset • reduced equity income impact generic competition international plavix sales international partnership sanofi • increased research development spending support maturing pipeline possible launch new products 2011 net earnings continuing operations attributable bristolmyers squibb company decrease primarily attributed unfavorable impact specified items affect comparability results including • 236 million charge related impairment loss sale manufacturing operations • 207 million tax charge attributed us taxable income earnings foreign subsidiaries previously considered permanently reinvested offshore • gains 360 million prior year sale certain mature brands decrease partially offset • reduced upfront licensing milestone payments • 125 million litigation settlement charge 2009 • increased segment income net earnings discontinued operations attributable bristolmyers squibb company 2009 completed splitoff mead johnson resulting aftertax gain approximately 72 billion results mead johnson business related gain included discontinued operations diluted earnings per share continuing operations diluted earnings per share eps continuing operations increased 10 2010 due lower average outstanding common shares attributed • full year impact 269 million share reduction resulting december 2009 mead johnson splitoff • common stock repurchases 23 million shares 2010 made stock repurchase program announced may 2010 nongaap financial measures including nongaap earnings continuing operations related eps information adjusted exclude certain costs expenses gains losses specified items nongaap diluted eps continuing operations increased 17 2010 adjusting specified items 633 million 2010 428 million 2009 detailed listing specified items information reconciliations nongaap financial measures see “specified items” “nongaap financial measures” cash equivalents marketable securities sources cash equivalents marketable securities included 45 billion generated operating activities primary nonoperating uses cash equivalents marketable securities included • dividend payments 22 billion • debt repurchase means tender offer 855 million • acquisition zymogenetics 829 million • common stock repurchases 576 million • capital expenditures 424 million business environment conduct business primarily within pharmaceuticalbiotechnology industry highly competitive subject numerous government regulations many competitive factors may significantly affect sales products including product efficacy safety price costeffectiveness marketing effectiveness market access product labeling quality control quality assurance manufacturing operations research development new products successfully compete business healthcare industry must demonstrate products offer medical benefits well cost advantages new product introductions compete products already market therapeutic category addition potential competition new products competitors may introduce future manufacture branded products priced higher generic products generic competition one leading challenges globally pharmaceuticalbiotechnology industry majority innovative product’s commercial value usually realized period product market exclusivity product loses exclusivity longer protected patent subject new competing products form generic brands upon exclusivity loss lose major portion product’s sales short period time competitors seeking approval biological products full biologics license application bla must file safety efficacy data address challenges biologics manufacturing involve complex processes costly traditional pharmaceutical operations new us healthcare legislation enacted 2010 described fully abbreviated path regulatory approval generic versions biological products new path approval biosimilar products us healthcare legislation significantly affects regulatory data exclusivity biological products new legislation provides regulatory mechanism allows regulatory approval biologic drugs similar generic copies innovative drugs basis less extensive data required full bla possible time reasonably assess impact new us biosimilar legislation company globally healthcare industry subject various governmentimposed regulations authorizing prices price controls continue impact net sales march 2010 us government enacted healthcare reform legislation signing law patient protection affordable care act hr 3590 reconciliation bill containing package changes healthcare bill new legislation makes extensive changes current system healthcare insurance benefits intended broaden coverage reduce costs bills significantly change americans receive healthcare coverage pay also significant impact companies particular companies pharmaceutical industry healthcare related industries including bms experienced continue experience additional financial costs certain changes business new healthcare law provisions become effective example minimum rebates medicaid drug sales increased 151 percent 231 percent medicaid rebates also extended drugs used riskbased medicaid managed care plans addition extend discounts certain critical access hospitals cancer hospitals covered entities required expansion 340b drug pricing program public health service act 2011 also provide 50 percent discount brandname drugs patients within medicare part coverage gap also referred “donut hole” pay annual nontaxdeductible fee federal government based allocation market share branded prior year sales certain us government programs including medicare medicaid department veterans affairs department defense tricare fee classified financial reporting purposes operating expense new discounts new pharmaceutical company fee 2010 us healthcare reform law including related regulations medicare coverage gap managed medicaid expansion public health service 340b program historical claims experience subject additional changes estimates higher rebates medicaid managed care plans reduced net sales 283 million pretax income 222 million year ended december 31 2010 also recognized onetime tax charge 21 million first quarter 2010 due elimination tax deductibility portion retiree healthcare costs eps impact us healthcare reform 2010 010 incremental yearoveryear basis expect us healthcare reform additional negative impact earnings per share 2011 approximately 015 estimate includes expected reduction net sales approximately 250 million due new discounts associated medicare part “donut hole” coverage gap increase marketing sales administrative expenses approximately 250 million due new annual nontaxdeductible pharmaceutical company fee aggregate financial impact us healthcare reform next years depends number factors including limited pending implementation guidance potential changes sales volume eligible new rebates discounts fees impact cost sharing arrangements certain alliance partners positive impact net sales expected increase number people healthcare coverage could potentially occur future expected 2014 earliest many markets outside us operate environments governmentmandated costcontainment programs regulatory bodies groups exert downward pressure pricing freedom limited uk instance operation profit control plan germany operation reference price system companies also face significant delays market access new products two years elapse drug approval new medicines become available countries growth managed care organizations mcos us played large role competition surrounds healthcare industry mcos seek reduce healthcare expenditures participants making volume purchases entering longterm contracts negotiate discounts various pharmaceutical providers market potential created large pool participants marketing prescription drugs mcos become important part strategy companies compete inclusion mco formularies generally successful major products included believe developments managed care industry including continued consolidation continue downward pressure prices pharmaceutical biotechnology production processes complex highly regulated vary widely product shifting adding manufacturing capacity lengthy process requiring significant capital expenditures regulatory approvals biologics manufacturing involves complex processes traditional pharmaceutical operations biologics become larger percentage product portfolio continue make arrangements thirdparty manufacturers make substantial investments increase internal capacity produce biologics commercial scale one investment new stateoftheart manufacturing facility production biologics devens massachusetts expect submit site regulatory approval late 2011 2012 maintained competitive position market strive uphold position dependent success discovering developing delivering innovative costeffective products help patients prevail serious diseases subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcomes investigations litigations additional discussion legal matters see “item 8 financial statementsnote 26 legal proceedings contingencies” strategy past years transformed company focused biopharmaceutical company transformation encompasses areas business operations focused portfolio products yielded continue yield substantial cost savings cost avoidance turn increases financial flexibility take advantage attractive market opportunities may arise may 2012 expect loss exclusivity us largest product plavix time expect rapid precipitous material decline plavix net sales reduction net income operating cash flow events norm industry companies experience loss exclusivity product recognizing fact focused sustaining business building robust foundation future plan achieve foundation continuing support grow currently marketed products advancing pipeline managing costs maintaining improving financial strength strong balance sheet however part overall strategy build company strategy includes focus emerging markets “stringofpearls” optimizing mature brands portfolio managing costs strategy emerging markets develop commercialize innovative products key highgrowth markets tailoring approach market also remain focused acquisition licensing strategy known “stringofpearls” transactions could range collaboration license agreements acquisition companies october 2010 completed acquisition zymogenetics also entered restructured collaboration agreements various companies 2010 including eli lilly company lilly allergan inc exelixis inc exelixis oncolys biopharma inc continued core biopharmaceutical focus maximization value mature brands portfolio 2010 completed sale various mature brands related manufacturing facilities various countries managing costs another part overall strategy executed pti realized 25 billion annual cost savings cost avoidance based previous strategic plans future years met goal 25 billion cost savings cost avoidance annualized runrate basis achieve reduced general administrative operations simplifying standardizing outsourcing certain processes services rationalized mature brands portfolio consolidated global manufacturing network eliminating complexity enhancing profitability simplified geographic footprint implemented efficient gotomarket model 25 billion annual cost savings avoidance based previous strategic plans future years progress measured annualized runrate basis amount cost savings avoidance correlate directly results operations approximately 60 25 billion annual cost savings cost avoidance relates marketing selling administrative expenses 2025 relates costs products sold 1520 relates research development expenses addition pti continue review cost structure intent create modernized efficient robust balance building competitive advantages securing innovative products planning future product pipeline developments manage research development rd programs portfolio basis investing resources stage research development early discovery latestage development continually evaluate portfolio rd assets ensure appropriate balance earlystage latestage programs support future growth consider rd programs entered phase iii development significant programs constitute latestage development pipeline phase iii development programs include investigational compounds phase iii development initial indications marketed products phase iii development additional indications formulations spending programs represents approximately 3040 annual rd expenses individual investigational compound marketed product represented 10 rd expenses last three years expect latestage development programs make market latestage development programs rd programs could potentially impact revenue earnings within next years following recent significant developments marketed products latestage pipeline yervoy ipilimumab monoclonal antibody currently registrational process treatment metastatic melanoma also studied indications including lung cancer well adjuvant melanoma hormonerefractory prostate cancer • august 2010 us food drug administration fda accepted filing review bla yervoy treatment adult patients advanced melanoma previously treated application granted priority review designation fda’s current stated action date bla march 26 2011 • may 2010 yervoy marketing authorization application maa metastatic melanoma pretreated patients validated european medicines agency ema • june 2010 company announced positive results phase iii randomized double blind study yervoy demonstrated overall survival significantly extended patients previouslytreated metastatic melanoma received yervoy results statistically significant patients receiving yervoy alone yervoy combination gp100 peptide vaccine compared patients received control therapy gp100 alone fortyfour 46 percent patients treated yervoy alive one year compared 25 percent patients treated control arm two years 22 24 percent patients treated yervoy alive compared 14 percent patients treated control arm • may 2010 company announced positive results randomized phase ii study evaluating yervoy combination standard chemotherapy previously untreated patients advanced nonsmall cell lung cancer study known 041 met predefined criteria significant improvement pvalue 01 immunerelated progressionfree survival primary endpoint chemotherapy alone additional analysis progressionfree survival assessed using traditional modified world health organization criteria also reached statistical significance one two dosing schedules combined yervoy standard chemotherapy eliquis apixaban oral factor xa inhibitor phase iii development prevention treatment venous thromboembolic disorders stroke prevention atrial fibrillation part strategic alliance pfizer inc pfizer • based upon discussions fda agreement pfizer expect submit nda filing us including data averroes trial aristotle trial assuming positive outcome aristotle study indication stroke prevention atrial fibrillation cover broadest spectrum patients one single filing expect initial top line results aristotle data second quarter 2011 submit regulatory filings us europe either third fourth quarter 2011 • february 2011 company pfizer published full results averroes study eliquis new england journal medicine study demonstrated patients atrial fibrillation af expected demonstrated unsuitable vitamin k antagonist therapy warfarin eliquis statistically superior aspirin reducing composite stroke systematic embolism without significant increase major bleeding fatal bleeding intracranial bleeding significant differences risk hemorrhagic stroke eliquis aspirin study results also showed eliquis demonstrated superiority secondary efficacy endpoint reducing composite stroke systematic embolism mycordial infarction vascular death patients af compared aspirin • december 2010 company pfizer published results phase iii advance3 study eliquis new england journal medicine results showed eliquis statistically superior 40 mg oncedaily enoxaparin comparable rates bleeding prevention venous thromboembolism following total hip replacement surgery • november 2010 company pfizer reported phase iii appraise2 clinical trial patients recent acute coronary syndrome treated eliquis placebo addition mono dual antiplatelet therapy discontinued study stopped early recommendation independent data monitoring committee due clear evidence clinically important increase bleeding among patients randomized eliquis offset clinically meaningful reductions ischemic events • august 2010 positive preliminary data averroes trial presented european society cardiology congress stockholm sweden preliminary data demonstrated eliquis significantly reduced relative risk composite stroke systematic embolism 54 percent without significant increase major bleeding fatal bleeding intracranial bleeding compared aspirin patients expected demonstrated unsuitable warfarin treatment minor bleeding significantly increased june 2010 company pfizer announced phase iii averroes trial ending early due clear evidence efficacy interim analysis independent data monitoring committee showed clinically important reduction stroke systematic embolism patients atrial fibrillation considered intolerant unsuitable warfarin therapy received eliquis compared aspirin interim analysis also demonstrated acceptable safety profile eliquis compared aspirin • march 2010 results advance2 study published lancet results presented july 2009 showed eliquis statistically superior 40 mg daily enoxaparin reducing incidence venous thromboembolism patients undergoing elective total knee replacement surgery according advance2 study results study results also showed numerically lower rates major clinically relevant nonmajor bleeding patients treated eliquis compared treated enoxaparin latter results meet statistical significance • march 2010 eliquis marketing authorization application prevention venous thromboembolic events adult patients undergone elective hip knee replacement validated european medicines agency nulojix belatacept fusion protein novel immunosuppressive activity targeted prevention solid organ transplant rejection • may 2010 fda issued complete response letter regarding bla nulojix indication prophylaxis organ rejection preservation functioning allograft adult patients receiving renal transplants use combination interleukin2 il2 receptor antagonist mycophenolic acid mpa corticosteroids december 2010 fda informed us information submitted regarding nulojix complete response request additional information outlined fda complete response letter prescription drug user fee act pdufa date fda action bla june 15 2011 fda advised us must resolve gmp issues raised fda’s recent warning letter regarding manufacturing facility manati puerto rico prior granting approval pending bla nulojix december 2010 notified fda manati facility inspectionready upon reinspection fda satisfied could result delay approval nulojix filing see “part item 1a risk factorswe may experience difficulties delays manufacturing distribution sale products” information • may 2010 nulojix subject eight clinical presentations related kidney transplantation american transplant congress • march 2010 fda’s cardiovascular renal drugs advisory committee voted 13 5 recommend approval nulojix selective cosimulation blocker prophylaxis acute rejection de novo kidney transplant patients fda bound recommendations advisory committee takes advice consideration reviewing new drug applications • february 2010 nulojix maa treatment prophylaxis organ rejection kidney transplant patients validated ema dapagliflozin oral sglt2 inhibitor phase iii development treatment diabetes part strategic alliance astrazeneca • december 2010 company astrazeneca completed submission new drug application fda marketing authorization application european medicines agency dapagliflozin oncedaily oral therapy treatment adult patients type 2 diabetes maa validated european medicines agency january 2011 • september 2010 company astrazeneca announced results randomized double blind phase iii clinical study dapagliflozin 46th european association study diabetes easd annual meeting demonstrated addition dapagliflozin glimepiride sulphonylurea therapy produced significant reductions glycosylated hemoglobin levels hba1c adult patients type 2 diabetes compared glimepiride alone study also demonstrated dapagliflozin plus glimepiride achieved reductions secondary efficacy endpoints change total body weight oral glucose tolerance test ogtt fasting plasma glucose fpg levels baseline week 24 compared placebo plus glimepiride people taking dapagliflozin glimepiride able achieve target hba1c less 7 compared patients taking glimepiride alone also drugrelated adverse affects reported similar rate treatment groups signs symptoms reports suggestive genital tract infections urinary tract infections frequently reported dapagliflozin treated subjects • september 2010 company astrazeneca also announced easd results randomized doubleblind phase iii clinical study adults type 2 diabetes inadequately controlled metformin therapy alone study demonstrated dapagliflozin noninferior compared glipizide improving hba1c added existing metformin therapy 52week treatment period study also demonstrated dapagliflozin plus metformin achieved significant reductions key efficacy secondary endpoints reduction total body weight baseline compared weight gain glipizide plus metformin therapy reduced number patients reporting one hypoglycemic events also frequencies adverse events serious adverse events study discontinuations comparable across treatment groups signs symptoms reports suggestive urinary tract genital infections common dapagliflozin treated subjects • june 2010 findings 24week phase iii clinical study published demonstrated dapagliflozin administered monotherapy achieved statistically significant mean reductions 5 mg 10 mg doses daily primary endpoint glycosylated hemoglobin levels treatmentnaïve adult patients newly diagnosed type 2 diabetes compared placebo • june 2010 results 24week phase iii clinical study presented demonstrated addition dapagliflozin achieved reductions primary endpoint glycosylated hemoglobin level inadequately controlled type 2 diabetes patients treated insulin without oral antidiabetes medications oads compared placebo plus insulin without oads study also demonstrated dapagliflozin achieved reductions secondary endpoints evaluated change total body weight baseline change baseline mean daily insulin dose change baseline fasting plasma glucose plavix platelet aggregation inhibitor part alliance sanofiaventis sanofi • january 2011 company sanofi announced fda granted companies additional sixmonth period exclusivity market plavix exclusivity plavix us scheduled expire may 17 2012 • march 2010 company sanofi announced revisions us prescribing information plavix include boxed warning boxed warning concerns diminished effectiveness plavix patients genetic variation leading reduced formation active metabolite patients designated poor metabolizers represent according prescribing information approximately 2 whites 4 blacks 14 chinese percentage poor metabolizers estimated approximately 3 population based published studies revisions addition updates plavix labeling reported november 2009 warnings use prilosec omeprazole certain drugs could interfere plavix reducing effectiveness • march 2010 company sanofi announced approval european commission dual antiplatelet combination tablet duoplavinduocover clopidogrel 75 mg acetylsalicylic acid 100 mg 75 mg indicated prevention atherothrombotic events adult patients already taking clopidogrel acetylsalicylic acid asa avalide angiotensin ii receptor blocker treatment hypertension diabetic nephropathy also part sanofi alliance • january 14 2011 bms partner sanofiaventis voluntarily recalled certain lots avalide us puerto rican canadian mexican argentinean markets due identification less soluble form irbesartan found lots produced humacao puerto rico facility four batches produced evansville indiana facility attributed manufacturing process change supply avalide markets affected indefinitely total avalide sales countries 355 million 2010 working partner sanofiaventis identify possible solutions issue including process adjustments alternate supply sources abilify antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder part strategic alliance otsuka • february 2011 company otsuka announced fda approved abilify adjunct mood stabilizers lithium valproate maintenance treatment bipolar disorder reyataz protease inhibitor treatment hiv • february 2011 fda approved update labeling reyataz include dose recommendations hivinfected pregnant women hiv combination therapy treatment recommended adult dose reyataz 300 mg boosted 100 mg ritonavir achieved minimum plasma concentrations 24 hours postdose third trimester pregnancy comparable observed historically hivinfected adults post partum period atazanavir concentrations may increased therefore dose adjustment necessary patients monitored two months delivery baraclude oral antiviral agent treatment chronic hepatitis b • october 2010 fda approved supplemental new drug application baraclude treatment chronic hepatitis b adult patients decompensated liver disease sprycel oral inhibitor multiple tyrosine kinases indicated treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia chronic phase sprycel part strategic alliance otsuka • december 2010 company announced sprycel 100 mg daily received marketing authorization european commission treatment adult patients newly diagnosed philadelphia chromosomepositive chronic myeloid leukemia chronic phase • december 2010 company otsuka announced 52nd annual meeting american society hematology 18month followup results phase iii dasision study sprycel firstline treatment adults philadelphia chromosomepositive chronic phase chronic myeloid leukemia consistent 12 month data sprycel demonstrated higher faster rates complete cytogenetic response major molecular response compared imatinib • october 2010 company otsuka announced fda approved sprycel 100 mg daily treatment adult patients newly diagnosed philadelphia chromosomepositive chronic myeloid leukemia chronic phase • july 2010 company submitted review japan supplemental new drug application sprycel treatment adult patients newly diagnosed chronic myeloid leukemia • june 2010 company otsuka announced phase iii study results sprycel 100 mg daily demonstrated superior rate confirmed complete cytogenetic response compared gleevec study showed 77 percent sprycel patients versus 66 percent gleevec patients achieved confirmed complete cytogenetic response rates 12 months • june 2010 company otsuka announced four year followup results phase iii randomized openlabel doseoptimization study sprycel chronicphase chronic myeloid leukemia patients resistant intolerant gleevec four years patients administered sprycel 100 mg daily overall survival 82 95 ci 7688 progressionfree survival 66 95 ci 5774 fouryear safety data study consistent previously reported safety profile sprycel 100 mg daily orencia fusion protein indicated rheumatoid arthritis • december 2010 fda accepted review supplemental biologics license application subcutaneous formulation orencia treatment adult patients moderate severe rheumatoid arthritis administered injection skin pdufa date august 4 2011 • november 2010 company announced new phase iii clinical data showed weekly subcutaneous injection investigational formulation orencia following single intravenous iv loading dose provided improvement disease activity similar improvement seen monthly iv administration orencia patients moderate severe rheumatoid arthritis • july 2010 japanese ministry health labour welfare approved japanese new drug application orencia treatment adults rheumatoid arthritis inadequate response existing treatment • july 2010 european commission approved new indication orencia combination methotrexate mtx treatment moderate severe rheumatoid arthritis adult patients responded inadequately previous therapy one diseasemodifying antirheumatic drugs including mtx tnfalpha inhibitor • january 2010 european commission approved orencia combination methotrexate treatment moderate severe active polyarticular juvenile idiopathic arthritis pediatric patients six years age older insufficient response diseasemodifying antirheumatic drugs including least one tnf inhibitor onglyzakombiglyze treatment type 2 diabetes part strategic alliance astrazeneca plc astrazeneca • november 2010 fda approved kombiglyze xr saxagliptin metformin hcl extendedrelease treatment type 2 diabetes adults kombiglyze xr first onceaday metformin extendedrelease xr plus dipeptidyl peptidase4 inhibitor combination tablet offering strong glycemic control across glycosylated hemoglobin levels fasting plasma glucose postprandial glucose • july 2010 marketing authorization application komgiblyze known us kombiglyze fixed dose combination onglyza metformin tablets treatment adults type 2 diabetes validated european medicines agency • june 2010 company astrazeneca announced results 52week phase iiib study adults type 2 diabetes inadequate glycemic control metformin therapy plus diet exercise study found addition onglyza 5 mg existing metformin therapy achieved primary objective demonstrating noninferiority compared addition titrated glipizide sulphonylurea existing metformin therapy reducing glycosylated hemoglobin levels study also found treatment onglyza 5 mg plus metformin resulted statistically significant lower proportion subjects reporting hypoglycemic events statistically significant weight loss compared titrated glipizide plus metformin onglyza 5 mg plus metformin also resulted significantly smaller rise per week hba1c week 24 week 52 compared titrated glipizide plus metformin • june 2010 company astrazeneca announced results 76week phase iii study onglyza initial combination therapy metformin produced longterm glycemic improvements measured hba1c levels treatmentnaïve adults type 2 diabetes mellitus inadequately controlled diet exercise compared treatment investigational 10 mg dose onglyza metformin alone study also demonstrated higher number patients able achieve american diabetes association recommended glycosylated hemoglobin level target less 7 onglyza metformin initial combination therapy compared monotherapy either treatment week 76 • march 2010 company astrazeneca announced commencement “saxagliptin assessment vascular outcomes recorded patients diabetes mellitus” trial savortimi 53 multicenter randomized doubleblind placebocontrolled phase iv study evaluate treatment onglyza adult type 2 diabetes patients cardiovascular risk factors five year study follow approximately 12000 patients type 2 diabetes either history previous cardiovascular events multiple risk factors vascular disease includes patients renal impairment necitumumab imc11f8 investigational anticancer agent part strategic alliance lilly • january 2011 company lilly announced enrollment stopped phase iii inspire study necitumumab firstline treatment advanced nonsmall cell lung cancer trial evaluating addition necitumumab combination alimta pemetrexed injection cisplatin decision stop enrollment followed independent data monitoring committee dmc recommendation new recently enrolled patients continue treatment trial safety concerns related thromboembolism experimental arm study dmc also noted patients already received two cycles necitumumab appear lower ongoing risk safety concerns patients may choose remain trial informed additional potential risks investigators continue assess patients two cycles determine potential benefit treatment necitumumab continues studied another phase iii trial named squire study evaluating necitumumab potential treatment different type lung cancer called squamous nonsmall cell lung cancer combination gemzar gemcitibane hcl injection cisplatin independent dmc recommended trial continue safety concerns observed xl184 june 2010 company terminated development collaboration exelixis experimental cancer drug xl184 rights returning exelixis results operations results continuing operations exclude results related mead johnson business prior splitoff december 2009 convatec business prior divestiture august 2008 medical imaging business prior divestiture january 2008 businesses segregated continuing operations included discontinued operations years presented see “discontinued operations” results continuing operations follows net sales composition change net sales follows us net sales us net sales growth 2010 attributed increased volume higher average net selling prices impact us price increases taken 2010 partially offset • increased medicaid rebates attributed healthcare reform • reduction contractual share abilify net sales 65 58 effective january 1 2010 plavix abilify represented 49 16 total us net sales respectively plavix contributed 80 total us net sales growth driven primarily higher average net selling prices abilify us net sales decreased 6 due changes abilify collaboration agreement 2009 plavix abilify represented 47 18 total us net sales respectively plavix contributed 49 total us net sales growth driven higher average net selling process increased demand abilify contributed 31 total us net sales growth driven increased demand key products also contributed 2010 2009 us net sales growth international net sales international net sales remained relatively flat 2010 lower average net selling prices mostly offset increased volume slight favorability foreign exchange lower average net selling prices primarily attributed government austerity measures europe reduce health care costs 2010 international sales volume reflects • increased net sales baraclude hiv portfolio sprycel abilify orencia • decreased net sales mature brands attributed divestitures generic competition • decreased net sales plavix avaproirbesartanavalide attributed increased generic competition 2009 international net sales decrease includes 6 negative impact foreign exchange partially offset factors impacting 2010 sales growth reported international net sales include copromotion sales reported alliance partner sanofi plavix avaproavalide decreased 2010 2009 due generic competition net sales mature brands businesses divested 2008 2010 represented approximately 1 total net sales year details domestic international key product net sales discussed general business seasonal information us pharmaceutical prescriber demand reference made table within “estimated enduser demand” sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain key pharmaceutical new products us nonus net sales categorized based upon location customer recognize revenue net various sales adjustments arrive net sales reported consolidated statements earnings adjustments referred grosstonet sales adjustments described “critical accounting policies” reconciliation gross sales net sales significant category grosstonet sales adjustments follows activities ending balances significant category grosstonet sales reserve adjustments follows grosstonet sales adjustments percentage gross sales 101 2010 85 2009 2008 primarily function gross sales trends changes sales mix contractual legislative discounts rebates 2010 grosstonet sales adjustments increased overall 26 primarily attributed enactment us healthcare reform expected future increases grosstonet sales adjustments related healthcare reform discussed “executive summarybusiness environment” specifically 2010 • medicaid rebates increased due change minimum rebates drug sales 151 231 extension medicaid rebate rate drugs sold riskbased medicaid managed care organizations • managed healthcare rebates contract discounts increased mainly due increased sales • chargebacks related government programs increased due increased sales us well additional rebates required certain european countries attributed government austerity measures • sales returns decreased primarily due overall reduced provisions various mature brands partially offset 44 million charge estimated returns associated avalide recall • adjustments increased overall due additional rebates required certain products sold europe attributed government austerity measures higher discounts increased rebates coupon programs 2009 grosstonet sales adjustments increased 6 specifically 2009 • managed healthcare rebates contract discounts increased 22 primarily due higher plavix medicare sales increase contractual discount rates • sales returns decreased 38 primarily due lower provisions pravachol zerit partially offset increased provisions sprycel mature brands driven higher anticipated sales returns • medicaid rebates included refunds net overpayments medicaid rebates 60 million three year period 2002 2004 center medicare medicaid services policy group approved revised calculations net sales key products represent 84 total net sales 2010 81 2009 77 2008 following table presents us international net sales key products percentage change prior period foreign exchange impact compared prior period commentary detailing reasons significant variances key products provided change excess 200 plavix platelet aggregation inhibitor part alliance sanofi • us net sales increased 2010 2009 primarily due higher average net selling prices estimated total us prescription demand decreased 1 2010 increased 4 2009 • international net sales continue impacted launch generic clopidogrel products eu countries since august 2008 negative impact net sales relates eu sales comarketing countries equity net income affiliates relates share sales partnership sanofi europe asia expect continued erosion plavix net sales eu impact international net sales equity net income affiliates • january 2011 company sanofi announced fda granted companies additional sixmonth period exclusivity market plavix exclusivity plavix us scheduled expire may 17 2012 • see “item 8 financial statementsnote 26 legal proceedings contingenciesplavix litigation” discussion plavix exclusivity litigation us eu avaproavalide known eu aprovelkarvea angiotensin ii receptor blocker treatment hypertension diabetic nephropathy also part sanofi alliance • us international net sales decreased 2010 primarily due decreased overall demand due generic competition eu reduced supply avalide addition 44 million sales return adjustment recorded result avalide recall estimated total us prescription demand decreased 17 2010 • us net sales decreased 2009 primarily due decreased overall demand estimated total us prescription demand decreased 9 2009 international net sales increased 2009 primarily due higher average net selling prices partially offset unfavorable foreign exchange impact abilify antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder part strategic alliance otsuka • us net sales decreased 2010 primarily due reduction contractual share net sales recognized 65 58 increased medicaid rebates healthcare reform decrease partially offset higher average net selling prices increased overall demand us net sales increased 2009 primarily due increased overall demand new indications certain patients bipolar 1 disorder major depressive disorder higher average net selling prices 2009 increase partially offset 49 million amortization 400 million extension payment made otsuka april 2009 estimated total us prescription demand increased 5 2010 26 2009 • 2010 2009 international net sales increased due increased prescription demand aided new bipolar indication second quarter 2008 eu offset unfavorable foreign exchange impact 2009 reyataz protease inhibitor treatment hiv • us net sales increased 2010 primarily due higher estimated total us prescription demand 4 us net sales increased 2009 due higher estimated total us prescription demand 8 higher average net selling prices • 2010 2009 international net sales increased primarily due higher demand across markets europe key driver due june 2008 approval firstline treatment sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla efavirenz 600 mgemtricitabine 200 mgtenofovir disoproxil fumarate 300 mg product sold joint venture gilead • us net sales increased 2010 primarily due higher estimated total us prescription demand 7 2009 us net sales increased primarily due higher estimated total us prescription demand 10 well higher average net selling prices • 2010 international net sales increased primarily due higher demand partially offset unfavorable foreign exchange • 2009 international net sales increased primarily due continued demand generated launch atripla canada eu fourth quarter 2007 partially offset unfavorable foreign exchange impact baraclude oral antiviral agent treatment chronic hepatitis b • worldwide net sales 2010 2009 increased primarily due continued strong demand international markets • continue implement global campaign raise awareness chronic hepatitis b part overall market expansion effort erbitux monoclonal antibody designed exclusively target block epidermal growth factor receptor expressed surface certain cancer cells multiple tumor types well normal cells currently indicated use colorectal cancer head neck cancer erbitux part strategic alliance lilly • sold us almost exclusively us net sales continue decrease primarily due lower demand lower average net selling prices sprycel oral inhibitor multiple tyrosine kinases indicated treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia chronic phase sprycel part strategic alliance otsuka • worldwide net sales increased primarily due higher demand previously launched markets growth attributed recently launched markets well higher us average net selling prices • fourth quarter 2010 sprycel 100 mg daily approved firstline treatment adult patients newly diagnosed philadelphia chromosomepositive chronic myeloid leukemia chronic phase us eu ixempra microtubule inhibitor treatment patients metastatic locally advanced breast cancer part strategic alliance otsuka • net sales continue remain flat orencia fusion protein indicated adult patients moderate severe rheumatoid arthritis inadequate response one currently available treatments methotrexate antitumor necrosis factor therapy • 2010 worldwide net sales increased primarily due increased demand us net sales also impacted higher average selling prices • 2009 worldwide net sales increased primarily due increased demand onglyzakombiglyze treatment type 2 diabetes • onglyza launched various countries third quarter 2009 • kombiglyze launched fourth quarter 2010 mature products includes products lost exclusivity major markets counter brands • us net sales remained relatively flat 2010 2009 continued generic erosion certain products partially offset higher average net selling prices • international net sales decreased 2010 2009 due continued generic erosion certain brands including taxol pravachol pravastatin sodium lower average net selling prices europe year impact rationalization divestitures nonstrategic product portfolio lower demand certain counter products • net sales 2010 included 15 million recothrom net sales product acquired zymogenetics acquisition october 2010 see “item 8 financial statementsnote 5 acquisitions” details estimated us prescription change data provided throughout report includes information retail mail order channels reflect information channels hospitals home healthcare clinics federal facilities including va hospitals longterm care among others first quarter 2009 changed service provider us prescription data wolters kluwer health inc wk supplier market research audit data pharmaceutical industry external reporting purposes internal demand products prior 2009 used prescription data based nextgeneration prescription service version 20 national prescription audit provided ims health ims continuously seek improve quality estimates prescription change amounts ultimate patientconsumer demand reviewing estimate calculation methodologies processes analyzing internal thirdparty data expect continue review refine methodologies processes calculation estimates continue review analyze third parties’ data used calculations estimated prescription data based source prescription audit provided suppliers product respective recordkeeping projection processes data subject inherent limitations estimates based sampling may include margin error change sprycel demand calculated based upon tablets sold though retail mail order channels based upon data obtained ims health ims national sales perspectives audit product ims’ recordkeeping projection processes data subject inherent limitations estimates based sampling may include margin error calculated estimated total us prescription change weightedaverage basis reflect fact mail order prescriptions include greater volume product supplied compared retail prescriptions mail order prescriptions typically reflect 90day prescription whereas retail prescriptions typically reflect 30day prescription calculation derived multiplying mail order prescription data factor approximates three adding retail prescriptions believe calculation estimated total us prescription change based weightedaverage approach provides superior estimate total prescription demand retail mail order channels use methodology internal demand reporting estimated enduser demand following tables set forth key products sold us years ended december 31 2010 2009 2008 total us net sales year ii change reported us net sales year iii estimated total us prescription change retail mail order channels calculated us based thirdparty data weightedaverage basis iv months inventory hand wholesale distribution channel sustiva franchise total revenue includes sales sustiva revenue bulk efavirenz included combination therapy atripla months hand relates sustiva b erbitux ixempra orencia parenterally administered products prescriptionlevel data physicians write prescriptions products c onglyza launched us august 2009 kombiglyze launched us fourth quarter 2010 onglyza 05 month inventory hand december 31 2010 kombiglyze 518 months inventory hand december 31 2010 support initial product launch change excess 200 pursuant us securities exchange commission sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception us products estimated levels inventory distribution channel excess one month hand december 31 2010 international products estimated levels inventory distribution channel excess one month hand september 30 2010 kombiglyze 518 months inventory hand us support initial product launch inventory nominal expected worked less amount time demand new product increases post launch dafalgan analgesic product sold principally europe 12 months inventory hand direct customers compared 09 months inventory hand december 31 2009 level inventory hand primarily due september launch new dosage france fervex cold flu product 23 months inventory hand internationally direct customers compared 39 months inventory hand december 31 2009 level inventory hand primarily due lower expected demand videx antiviral product 15 months inventory hand internationally direct customers compared 13 months inventory hand december 31 2009 level inventory hand primarily due government purchasing patterns brazil principen antibiotic product 13 months inventory hand direct customers compared 08 months inventory hand december 31 2009 increased level inventory due lower demand reenforcement antibiotic law mexico requires prescriptions antibiotics us products sold exclusively wholesalers distributors generally determined months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 90 total gross sales us products provided distributors factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes businesses outside us significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely cases direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available developed variety methodologies estimate data including using factors historical sales made direct customers thirdparty market research data related prescription trends enduser demand accordingly rely variety methods estimate direct customer product level inventory calculate months hand factors may affect estimates include generic competition seasonality products direct customer purchases light price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2010 available prior filing annual report form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q geographic areas general products available countries world largest markets us france canada japan italy spain germany china united kingdom net sales geographic areas based location end customer follows see “net sales” discussion us net sales increase net sales europe decreased 2010 primarily due 4 unfavorable foreign exchange impact decreased net sales certain mature brands due divestitures increased generic competition plavix avaproavalide partially offset sales growth major european markets abilify hiv portfolio baraclude sprycel onglyza orencia sales growth previously mentioned products tempered continuing fiscal challenges european countries healthcare payers including government agencies reduced expected continue reduce cost healthcare actions directly indirectly impose additional price reductions support expanded use generic drugs measures include limited mandatory discounts rebates price reductions reflected net sales 2009 net sales decreased primarily due 7 unfavorable foreign exchange impact decreased net sales certain mature brands due divestitures increased generic competition plavix partially offset sales growth major european markets hiv portfolio abilify baraclude sprycel orencia net sales japan asia pacific canada increased 2010 primarily due 9 favorable foreign exchange impact increased net sales baraclude sprycel partially offset decreased net sales certain mature brands due divestitures generic competition 2009 net sales remained relatively flat decreased net sales certain mature brands 1 unfavorable foreign exchange impact offset increased net sales baraclude sprycel net sales latin america middle east africa increased 2010 primarily due increased net sales sprycel reyataz baraclude orencia 2 favorable foreign exchange impact partially offset decreased net sales mature brands 2009 net sales decreased primarily due 6 unfavorable foreign exchange impact decreased net sales certain mature brands partially offset increased net sales reyataz orencia plavix emerging markets brazil russia india china turkey net sales emerging markets increased 2010 primarily due 4 favorable foreign exchange impact increased net sales baraclude sprycel abilify reyataz 2009 net sales increased primarily due increased net sales baraclude sprycel partially offset 8 unfavorable foreign exchange impact consists primarily sales supply agreements active pharmaceutical ingredients including temporary supply agreements facilitate recent divestitures manufacturing facilities continuing supply agreements alliance partners net sales decreased 2010 primarily due winddown temporary supply agreements related 2009 manufacturing facility divestitures elimination bulk sales pharmaceutical ingredients previously manufactured us latina italy facility divested 2010 reduced sales irbesartan bulk pharmaceutical ingredients alliance partner due declining worldwide avaproavalide sales net sales increased 2009 primarily due temporary supply agreements entered facilitate divestiture certain manufacturing facilities pakistan egypt australia single country outside us contributed 10 total net sales 2010 2009 2008 expenses change excess 200 cost products sold cost products sold consist material costs internal labor overhead owned manufacturing sites thirdparty processing costs supply chain costs changes foreign currency forward contracts offset manufacturing related assets liabilities denominated foreign currencies essentially costs managed primarily global manufacturing organization referred technical operations addition discovery royalties attributed licensed products connection alliances well amortization milestone payments occur regulatory approval also included costs percentage net sales vary periods result product mix price inflation costs attributed rationalization manufacturing sites resulting accelerated depreciation impairment charges stranded costs addition changes foreign currency may also provide volatility given high percentage total costs denominated foreign currencies • decrease costs products sold percentage net sales 2010 primarily attributed favorable product mix us price increases favorable foreign exchange partially offset reduction share abilify sales related extended commercialization manufacturing agreement abilifyand collaboration fee paid otsuka sprycel ixempra oncology collaboration beginning 2010 additional medicare rebates granted 2010 us healthcare reform international price decreases related government austerity measures european economic crisis • improvement cost products sold percentage net sales 2009 driven favorable foreign exchange higher us average net selling prices favorable product mix realized manufacturing efficiencies pti offset higher manufacturing costs attributed inflation 2009 costs include manufacturing rationalization charges 123 million primarily related implementation pti compared 249 million rationalization charges recognized 2008 marketing selling administrative marketing selling administrative expenses consist employee salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs expenses attributed product manufacturing costs research development expenses managed regional commercialization functions global functions finance law information technology human resources • decrease 2010 primarily attributed reduction sales related activities certain key products coincide respective life cycle prior year impact 100 million funding payment made bms foundation reduction abilify sales force otsuka established sales force promotion abilify sprycel ixempra reduced project standardization implementation costs 2009 role new accounting human resource related systems overall efficiencies gained pti continuous improvement initiatives • decrease 2009 resulted favorable 2 foreign exchange impact efficiencies gained pti advertising product promotion advertising product promotion expenses consist related media sample direct consumer programs • decrease 2010 primarily attributed reduced spending promotion certain key products coincide product life cycle otsuka’s reimbursement certain abilify sprycel ixempra advertising product promotion expenses partially offset increased spending onglyza launch pipeline products • decrease 2009 attributed reduced spending promotion products nearing patent expirations favorable 2 foreign exchange impact partially offset increased spending onglyza launch pipeline products research development research development expenses consist internal salary benefit costs thirdparty grants fees paid clinical research organizations supplies facility costs total research development expenses include costs discovery research preclinical development early lateclinical development drug formulation well clinical trials medical support marketed products proportionate allocations enterprisewide costs appropriate costs expenses also include thirdparty licensing fees typically paid upfront well regulatory contractual milestones met certain expenses shared alliance partners based upon contractual agreements approximately 80 expenses managed global research development organization approximately 75 total spend attributed development activities remainder attributed preclinical research activities expenses vary periods number reasons including timing upfront licensing milestone payments • decrease 2010 primarily attributed timing upfront licensing milestone payments partially offset additional spending support maturing pipeline compounds obtained stringofpearls strategy upfront licensing milestone payments expensed research development 132 million 2010 primarily attributed exelixis allergan pdl biopharma inc 347 million 2009 primarily attributed zymogenetics alder nissan 348 million 2008 primarily attributed exelixis pdl biopharma inc kai pharmaceuticals inc • increase 2009 attributed additional spending support maturing pipeline compounds obtained stringofpearls strategy offset favorable 1 foreign exchange impact acquired inprocess research development charge related acquisition kosan biosciences inc kosan 2008 provision restructuring changes provision restructuring primarily attributable timing implementation certain pti continuous improvement initiatives litigation expense net 2010 amount includes 41 million insurance reimbursement prior litigation partially offset additional reserves established certain average wholesale prices awp litigation 2009 expense primarily due 125 million securities litigation settlement information see “item 8 financial statementsnote 26 legal proceedings contingencies” equity net income affiliates equity net income affiliates primarily related international partnership sanofi varies based international plavix net sales included within partnership • decrease 2010 2009 attributed impact alternative salt form clopidogrel generic clopidogrel competition international plavix net sales commencing 2009 additional information see “item 8 financial statementsnote 2 alliances collaborations” gain sale imclone shares gain sale imclone shares 2008 attributed receipt approximately 10 billion cash tendering investment imclone see “item 8 financial statementsnote 2 alliances collaborations” detail incomeexpense include • interest expense decreased year primarily due lower overall interest rates floating rate debt amortization resulting termination interest rate swaps 2010 2009 less debt outstanding 2010 2009 repurchases • interest income increased 2010 primarily due higher average cash equivalents marketable securities balances higher returns continued diversification investment portfolio interest income decreased 2009 primarily due lower interest rates compared 2008 partially offset higher average cash equivalents marketable securities balances • impairment loss sale manufacturing operations primarily attributed disposal manufacturing operations latina italy see “item 1 financial statementsnote 4 restructuring” • auction rate securities ars impairment charge recognized 2008 due severity duration decline value future prospects issuers ability intent hold securities recover value ars december 31 2010 91 million • impact foreign exchange mainly due foreign exchange hedges discontinued qualify cash flow hedges 2010 net foreign exchange transaction loss includes 17 million charge remeasurement venezuelan monetary assets devaluation bolivar 2008 net foreign exchange gain primarily due sudden dramatic strengthening us dollar second half 2008 generated significant gains foreign currency denominated transactions see “item 8 financial statementsnote 24 financial instruments” • gain sale product lines businesses assets primarily related sale mature brands including businesses within indonesia australia 2009 business egypt 2008 • acquisition related items attributed acquisition zymogenetics 2010 medarex 2009 see “item 1 financial statementsnote 5 acquisitions” • income alliance partners includes income earned sanofi partnership amortization certain upfront licensing milestone receipts related alliances • pension settlementscurtailments primarily attributed amendments eliminated crediting future benefits related service us pension plan participants amendments resulted curtailment charge 6 million 25 million 2010 2009 respectively remainder charges resulted lump sum payments certain plans exceeded sum plan interest costs service costs resulting acceleration portion previously deferred actuarial losses although activity driven pti certain divestitures additional charges may recognized future particularly us pension plans due lower threshold resulting elimination service costs see “item 8 financial statementsnote 21 pension postretirement postemployment liabilities” detail specified items 2010 2009 2008 following specified items affected comparability results periods presented herein items excluded segment results nongaap financial measures nongaap financial measures including nongaap earnings continuing operations related eps information adjusted exclude certain costs expenses gains losses specified items information intended enhance investor’s overall understanding past financial performance prospects future example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap among items gaap measures excluded purposes determining adjusted earnings adjusted measures charges related implementation pti gains losses purchase sale businesses product lines investments discontinued operations restructuring exit costs accelerated depreciation charges asset impairments charges recoveries relating significant legal proceedings upfront licensing milestone payments inlicensing products achieved regulatory approval immediately expensed iprd charges prior 2009 special initiative funding bristolmyers squibb foundation significant tax events detailed listing items excluded nongaap earnings continuing operations see “specified items” similar charges gains items recognized prior periods reasonably possible reoccur future periods reconciliation gaap nongaap follows income taxes effective income tax rate earnings continuing operations income taxes 257 2010 211 2009 228 2008 effective income tax rate lower us statutory rate 35 due decision permanently reinvest earnings certain manufacturing operations ireland puerto rico switzerland offshore us federal research development tax credit favorable tax rates ireland puerto rico grants scheduled expire prior 2023 increase 2010 effective tax rate 2009 primarily due 207 million tax charge recognized fourth quarter 2010 resulted additional us taxable income earnings foreign subsidiaries previously considered permanently reinvested offshore additional information see “item 8 financial statementsnote 10 income taxes” discontinued operations december 23 2009 completed splitoff remaining interest mead johnson means exchange offer bms shareholders august 2008 completed divestiture convatec business cidron healthcare limited affiliate nordic capital fund vii avista capital partners lp avista january 2008 completed divestiture bristolmyers squibb medical imaging medical imaging avista see “item 8 financial statementsnote 7 discontinued operations” noncontrolling interest noncontrolling interest primarily related partnerships sanofi territory covering americas related plavix net sales see “item 8 financial statementsnote 2 alliances collaborations” increase noncontrolling interest corresponds increased net sales plavix us net earnings discontinued operations attributable noncontrolling interest primarily relates 169 publicly owned portion mead johnson prior complete divestiture splitoff summary noncontrolling interest follows financial position liquidity capital resources net cash position december 31 follows maintain significant level working capital approximately 65 billion december 31 2010 76 billion december 31 2009 2010 paid 22 billion dividends reacquired 750 million aggregate principal value outstanding debt 855 million means tender offer acquired zymogenetics 829 million repurchased 576 million common stock 2011 future periods expect cash generated us operations together existing cash equivalents marketable securities borrowings capital markets sufficient cover cash needs working capital expenditures strategic alliances acquisitions milestone payments dividends paid us common stock debt repurchases rely shortterm borrowing meet liquidity needs cash equivalents marketable securities held outside us approximately 14 billion 53 billion december 31 2010 2009 respectively either utilized fund nonus operations repatriated back us taxes previously provided cash repatriations subject restrictions certain jurisdictions may subject withholding taxes cash equivalents marketable securities held us 86 billion december 31 2010 represented approximately 85 total balance cash equivalents marketable securities held us 46 billion december 31 2009 increase resulted internal restructuring certain legal entities diversified investment portfolio acquired noncurrent marketable securities including purchases corporate debt securities investments subject changes fair value result interest rate fluctuations market factors may impact results operations investment policy places limits investments amount time maturity investments institution policy also requires investments made highly rated corporate financial institutions see “item 8 financial statementsnote 12 cash equivalents marketable securities” continue monitor potential impact deteriorating economic conditions certain european countries discussed “geographic areas” related impact prescription trends pricing discounts creditworthiness customers ability collect outstanding receivables countries currently believe conditions material impact liquidity cash flow financial flexibility 20 billion five year revolving credit facility syndicate lenders maturing december 2011 extendable consent lenders facility contains customary terms conditions including financial covenant whereby ratio consolidated net debt consolidated capital cannot exceed 50 end quarter compliance covenant since inception facility borrowings outstanding facility december 31 2010 2009 additional source liquidity sell trade accounts receivables principally nonus governments hospital customers primarily japan italy portugal spain third parties receivables sold nonrecourse basis approximated 932 million 660 million 2010 2009 respectively sales agreements allow recourse event uncollectibility retain interest underlying asset sold credit ratings moody’s investors service moody’s longterm shortterm credit ratings currently a2 prime1 respectively longterm credit outlook remains stable outlook standard poor’s sp longterm shortterm credit ratings currently a1 respectively longterm credit rating remains stable outlook fitch ratings fitch longterm shortterm credit ratings currently respectively longterm credit rating changed august 2010 stable negative outlook credit ratings considered investment grade longterm ratings designate low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings designate strongest capacity timely repayment cash flows following discussion cash flow activities december 31 operating activities cash flows operating activities represent cash receipts cash disbursements related activities investing activities financing activities operating cash flow derived adjusting net earnings • noncontrolling interest • noncash operating items depreciation amortization impairment charges stockbased compensation charges • gains losses attributed investing financing activities gains losses sale product lines businesses • changes operating assets liabilities reflect timing differences receipt payment cash associated transactions recognized results operations net impact changes operating assets liabilities aggregated net cash outflow 166 million 2010 cash inflows 42 million 2009 117 million 2008 items included impact changes receivables inventories deferred income accounts payable income taxes receivablepayable operating assets liabilities discussed detail continue maximize operating cash flows working capital initiatives designed improve working capital items directly affected changes sales volume receivables inventories accounts payable improvements driven several actions including nonrecourse factoring nonus trade receivables revised contractual payment terms customers vendors enhanced collection processes various supply chain initiatives designed optimize inventory levels progress area monitored period component annual incentive plan following summarizes certain working capital components expressed percentage trailing twelve months’ net sales 2010 changes operating assets liabilities aggregated net cash outflow 166 million including • cash outflows receivables 270 million primarily attributed increased sales • cash outflows operating assets liabilities 248 million primarily related pension funding excess current year expense 370 million partially offset increased rebate sales returns 238 million primarily due increase medicaid rebates effective january 1 2010 agencies’ administrative delays payments managed care organizations • cash inflows accounts payables 315 million primarily attributed timing vendor alliance payments • cash inflows inventories 156 million primarily related work inventory balances 2009 changes operating assets liabilities aggregated net cash inflow 42 million including • cash inflows accounts payable 472 million primarily attributed timing payments vendors alliances well impact working capital initiative discussed • cash inflows receivables 227 million primarily attributed additional factoring nonus trade receivables japan spain • cash inflows deferred income 135 million mainly due milestone payments received pfizer 150 million astrazeneca 150 million partially offset amortization • cash outflows operating assets liabilities 932 million primarily related pension funding excess current year expense 532 million payment otsuka amortized reduction net sales extension period 400 million 2008 changes operating assets aggregated net cash inflow 117 million including • cash inflows income tax payablereceivable 371 million includes impact receipt 432 million tax refund including interest related prior year foreign tax credit carryback claim • cash inflows accounts payables 253 million primarily attributed timing vendor alliance payments • cash inflows inventory 130 million primarily attributed utilization inventories built prior year new product launches strategic builds existing products launches including new indications abilify • cash inflows deferred income 61 million primarily due receipt upfront licensing milestone payments alliance partners • cash outflows accounts receivables 360 million attributed increased sales • cash outflows operating assets liabilities 338 million primarily due net litigation related payments 190 million attributed settlement certain pricing sales litigation accrued prior periods pension funding excess current year expense 120 million increase noncurrent inventory 112 million investing activities net cash used investing activities 38 billion 2010 including • net purchases marketable securities 26 billion • purchase zymogenetics inc 829 million • capital expenditures 424 million net cash used investing activities 44 billion 2009 including • acquisition medarex 22 billion net cash acquired 53 million • net purchases marketable securities 14 billion • capital expenditures 730 million • mead johnson cash included splitoff 561 million • proceeds sale businesses investments including businesses within asiapacific region 310 million australia 61 million proceeds sale genmab celldex securities 42 million net cash provided investing activities 51 billion 2008 including • proceeds divestiture convatec 41 billion medical imaging 483 million • proceeds tendering shares imclone 10 billion • proceeds sale leaseback paris france facility 227 million • proceeds sale businesses including mature brands business egypt 209 million • capital expenditures 941 million included expenditures associated construction biologic facility devens massachusetts • acquisition kosan 191 million financing activities net cash used financing activities 33 billion 2010 including • dividend payments 22 billion • debt repurchase means tender offer 855 million • common stock repurchase 576 million • net proceeds exercise stock options 252 million • net proceeds termination interest rate swap agreements 146 million net cash used financing activities 17 million 2009 including • dividend payments 25 billion • repayment mead johnson revolving credit facility 80 million early extinguishment certain debt securities 132 million • net proceeds issuance mead johnson notes 15 billion revolving credit facility 200 million • net proceeds mead johnson ipo 782 million • net proceeds termination interest rate swap agreements 194 million • net proceeds exercise stock options 45 million net cash used financing activities 26 billion 2008 including • dividend payments 25 billion • redemption floating rate convertible senior debentures due 2023 12 billion • repayment 400 notes due august 2008 400 million 110 yen notes due 2008 117 million • repurchase notes 228 million • net proceeds issuance 545 notes due 2018 600 million 6125 notes due 2038 10 billion • net proceeds termination interest rate swap agreements 211 million • net proceeds stock option exercises 2008 5 million reflects exercise fewer stock options 2008 due decrease average stock price compared prior periods dividends declared per common share 129 2010 125 2009 124 2008 december 2010 declared quarterly dividend 033 per common share expect pay dividend full year 2011 132 per share decrease total dividends despite per share increase primarily attributed 269 million share reduction mead johnson splitoff dividend decisions made quarterly basis board directors contractual obligations payments due period contractual obligations december 31 2010 follows includes estimated future interest payments shortterm longterm debt securities also includes accrued interest payable recognized consolidated balance sheets consists primarily accrual interest shortterm longterm debt well accrual periodic cash settlements derivatives netted counterparty b due uncertainty related timing reversal uncertain tax positions shortterm uncertain tax benefits provided table see “item 8 financial statementsnote 10 income taxes” detail c table excludes future contributions us pensions postretirement postemployment benefit plans required contributions contingent upon numerous factors including minimum regulatory funding requirements funded status plan due uncertainty future obligations excluded table contributions us international plans expected 420 million 2011 see “item 8 financial statementsnote 21 pension postretirement postemployment liabilities” detail addition committed approximately 54 billion aggregate potential future research development milestone payments third parties part inlicensing development programs early stage milestones defined milestones achieved phase iii clinical trials comprised 10 billion total committed amount late stage milestones defined milestones achieved post phase iii clinical trials comprised 44 billion total committed amount payments agreements generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted addition certain royalty obligations calculated percentage net sales agreements also provide salesbased milestones aggregate approximately 15 billion would obligated pay alliance partners upon achievement certain sales levels discussion contractual obligations see “item 8 financial statementsnote 21 pension postretirement postemployment liabilities” “note 23 shortterm borrowings longterm debt” “note 24 financial instruments” “note 25 leases” sec consent order previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain inventory management agreements imas us pharmaceutical wholesalers account nearly 100 total gross sales us biopharmaceuticals products current terms imas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 90 total gross sales us biopharmaceuticals products inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us biopharmaceuticals business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast biopharmaceuticals business outside us significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent recently issued accounting standards see “item 8 financial statementsnote 1 accounting policies” discussion impact related recently issued accounting standards critical accounting policies prepare financial statements conformity accounting principles generally accepted us preparation financial statements conformity us generally accepted accounting principles gaap requires use estimates assumptions affect reported amounts assets liabilities including disclosure contingent assets contingent liabilities date financial statements reported amounts revenue expenses reporting period critical accounting policies important financial condition results operations require difficult subjective complex judgments part management application often result need make estimates effect matters inherently uncertain new discounts 2010 us healthcare reform law medicare coverage gap managed medicaid expansion public health service 340b program require additional assumptions due lack historical claims experience addition new pharmaceutical company fee estimate subject external data well calculation based company’s relative share industry results uncertainty factors surrounding estimates judgments used preparation consolidated financial statements actual results may vary estimates accounting policies discussed audit committee board directors revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates require difficult subjective complex judgments part management recognize revenue title substantially risks rewards ownership transferred customer generally occurs date shipment net grosstonet sales adjustments discussed involve significant estimates judgments discussions revenue recognition see “item 8 financial statementsnote 1 accounting policiesrevenue recognition” “sales rebate return accruals” grosstonet sales adjustments following significant categories grosstonet sales adjustments chargebacks managed healthcare rebates contractual discounts medicaid rebates cash discounts sales returns adjustments involve significant estimates judgments require us use information external sources see “net sales” reconciliation gross sales net sales significant category grosstonet sales adjustment chargebacks related government programs us businesses participate programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price account chargebacks reducing accounts receivable amount equal estimate chargeback claims attributable sale determine estimate chargebacks primarily based historical experience regarding programs’ chargebacks current contract prices programs consider chargeback payments levels inventory distribution channel claim processing time lag adjust reduction accounts receivable periodically throughout quarter reflect actual experience cash discounts us certain countries offer cash discounts generally approximating 2 sales price incentive prompt payment account cash discounts reducing accounts receivable full amount discounts consider payment performance adjust accrual reflect actual experience managed healthcare rebates contract discounts offer rebates discounts managed healthcare organizations us manage prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit addition commercial plans well globally contract counterparties hospitals group purchasing organizations beginning 2011 rebates medicare part program include 50 discount company’s brandname drugs patients fall within medicare part coverage gap addition accrue rebates us department defense tricare retail pharmacy refund program account managed healthcare rebates contract discounts establishing accrual amount equal estimate managed healthcare rebates contractual discounts attributable sale determine estimate managed healthcare rebates contractual discounts accrual primarily based historical experience regarding rebates discounts current contract prices consider sales performance products subject managed healthcare rebates contract discounts levels inventory distribution channel adjust accrual periodically throughout quarter reflect actual experience medicaid rebates us businesses participate state government medicaid programs well certain qualifying federal state government programs whereby discounts rebates provided participating state local government entities discounts rebates provided latter programs included medicaid rebate accrual considered medicaid rebates purposes discussion retroactive january 1 2010 minimum rebates medicaid drug sales increased 151 231 medicaid rebates also extended drugs used riskbased medicaid managed care plans beginning march 2010 account medicaid rebates establishing accrual amount equal estimate medicaid rebate claims attributable sale determine estimate medicaid rebates accrual primarily based historical experience regarding medicaid rebates well expansion prospective basis participation nonmandatory aspects qualifying federal state government programs legal interpretations applicable laws related medicaid qualifying federal state government programs new information regarding changes medicaid programs’ regulations guidelines would impact amount rebates consider outstanding medicaid claims medicaid payments levels inventory distribution channel adjust accrual periodically throughout quarter reflect actual experience sales returns account sales returns establishing accrual amount equal estimate sales recognized related products expected returned returns established products determine estimate sales return accrual primarily based historical experience regarding sales returns also consider factors could impact sales returns factors include levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products instances expected precipitous declines demand following loss exclusivity consider factors adjust accrual periodically throughout quarter reflect actual experience event product recall product discontinuance consider reasons impact actions adjust sales return accrual appropriate taking account historical experience estimated levels inventory distribution channel product discontinuances estimates continuing demand sales returns accruals new products estimated primarily based historical sales returns experience similar products within line product within similar therapeutic category limited circumstances new product extension existing line product historical experience products similar therapeutic category cannot reliably estimate expected returns new product defer recognition revenue right return longer exists developed sufficient historical experience estimate sales returns also consider shelf life new products determine whether adjustment sales return accrual appropriate shelf life connection new products tends shorter shelf life established products may still developing optimal manufacturing process new product would lengthen shelf life addition higher launch quantities may manufactured advance launch date ensure sufficient supply exists satisfy market demand cases assess reduced shelf life together estimated levels inventory distribution channel projected demand determine whether adjustment sales return accrual appropriate pharmaceutical company fee pharma fee beginning 2011 pay annual nontaxdeductible fee federal government based allocation market share branded prior year sales certain government programs including medicare medicaid department veterans affairs department defense tricare 2011 pharma fee amount finalized 2012 preliminary funding 2011 based information oneyear lag pharma fee calculated based market data company well industry participants company full visibility fee classified financial reporting purposes operating expense adjustments addition grosstonet sales adjustments described make grosstonet sales adjustments example offer sales discounts significantly nonus businesses also offer consumer coupons rebates us business addition number countries outside us including certain major european countries provide rebates government entities generally account grosstonet sales adjustments establishing accrual amount equal estimate adjustments attributable sale generally determine estimates accruals grosstonet sales adjustments primarily based historical experience performance commitments government entities relevant factors including estimated levels inventory distribution channel adjust accruals periodically throughout quarter reflect actual experience use information external sources use information external sources estimate grosstonet sales adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals effective january 1 2009 changed service provider us prescription data wk supplier market research audit data pharmaceutical industry project prescription demandbased sales many us biopharmaceutical products prior 2009 used prescription data based nextgeneration prescription service version 20 national prescription audit provided ims also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information retirement benefits pension plans postretirement benefit plans accounted using actuarial valuations key assumptions used calculating cost pension benefits discount rate expected longterm rate return plan assets consultation actuaries evaluate select key assumptions others used calculating cost pension benefits salary growth retirement turnover healthcare trends mortality rates based expectations actual experience appropriate determine assumptions remeasurement date including december 31 year calculate liability information date pension expense following year depending assumptions used pension expense could vary within range outcomes material effect reported earnings projected benefit obligations future cash funding actual results given year may differ estimated economic factors determining discount rate use yield high quality corporate bonds coincides cash flows plans’ estimated payouts citigroup pension discount curve used determining discount rate us plans us plans’ pension expense 2010 determined using 574 weightedaverage discount rate present value benefit obligations december 31 2010 us plans determined using 525 discount rate discount rate used determining us plans’ pension expense 2010 reduced 1 expense would increased approximately 2 million assumed discount rate used determining projected benefit obligation december 31 2010 reduced 1 projected benefit obligation would increased approximately 700 million determining expected longterm rate return plan assets estimate returns individual asset classes input external advisors also consider longterm historical returns including actual performance compared benchmarks similar investments us plans’ pension expense 2010 determined using 875 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2010 reduced 1 expense would increased 40 million detailed discussion retirement benefits see “item 8 financial statementsnote 21 pension postretirement postemployment liabilities” business combinations consolidated financial statements reflect acquired business completion acquisition assets acquired liabilities assumed recognized date acquisition respective fair values excess purchase price estimated fair values net assets acquired recognized goodwill determining fair value intangible assets including iprd typically use “income method” method starts forecast expected future net cash flows risk adjusted based estimated probabilities technical regulatory success cash flows adjusted present value applying appropriate discount rate reflects risk factors associated cash flow streams significant estimates assumptions inherent income method methods include amount timing projected future cash flows amount timing projected costs develop iprd commercially viable products discount rate selected measure risks inherent future cash flows assessment asset’s life cycle competitive trends impacting asset including consideration technical legal regulatory economic barriers entry well expected changes standards practice indications addressed asset specific intangible assets following approaches utilized • iprd valued market participant view values preexisting relationship acquiree consider terms respective collaboration arrangement including cost profit sharing splits project’s unit account typically global view would consider potential jurisdictions indications january 1 2009 acquired iprd projects initially capitalized considered indefinitelived assets subject annual impairment reviews often upon occurrence certain events compounds reach commercialization assets amortized expected useful lives prior january 1 2009 amounts allocated acquired iprd expensed date acquisition • technology related specific platforms valued based upon expected annual number antibodies achieving early candidate nomination status • technology commercial products valued utilizing multiperiod excessearnings method income approach premise value intangible asset equal present value aftertax cash flows solely attributed intangible asset • licenses valued utilizing discounted cash flow method utilizing estimates future riskadjusted milestone royalty payments projected earned respective products estimated economic term compounds development significant delays obtaining marketing approval inability bring respective product market could result related intangible assets partially fully impaired commercialized products inability meet sales forecasts could result related intangible assets partially fully impaired determining useful life intangible asset based upon period expected contribute future cash flows pertinent matters associated asset environment operates considered including legal regulatory contractual provisions well effects obsolescence demand competition economic factors amortization periods intangible assets typically follows iprd upon commercialization patent life respective product licenses term respective license arrangement technology estimated life technology zymogenetics inc acquisition october 12 2010 acquired zymogenetics inc aggregate purchase price 885 million 829 million net cash acquired see “item 8 financial statementsnote 5 acquisitions” estimated fair value identifiable intangible assets 678 million included • 448 million iprd projects 310 million assigned pegylatedinterferon lambda currently phase iib development treatment hepatitis c 33 million assigned phase ii product 105 million licenses attributed five products various stages development ultimate realization iprd projects depend upon successful regulatory approvals received market factors relevant typical biopharmaceutical product • 230 million technology associated recothrom whollyowned commercialized product developed marketed use topical hemostat control moderate bleeding surgical procedures amortized 10 year life projected cash flows utilized valuation assumed initial positive cash flows commence shortly receipt expected regulatory approvals subject trial results among things estimated occur number years projected cash flows discounted 12 actual cash flows attributed project likely different assumed medarex inc acquisition september 1 2009 acquired remaining outstanding shares medarex already owned us approximately 23 billion see “item 8 financial statementsnote 5 acquisitions” estimated fair value identifiable intangible assets 19 billion included • 15 billion iprd 10 billion assigned yervoy fully human antibody currently phase iii development treatment metastatic melanoma 2010 fda accepted filing review biologics license application yervoy pretreated advanced melanoma stated action date march 26 2011 also ongoing yervoy phase ii study lung cancer well phase iii studies adjuvant melanoma hormonerefractory prostate cancer ultimate realization yervoy’s asset value depend upon successful regulatory approvals received market factors typical biopharmaceutical product remaining iprd assigned four projects phase ii development 13 projects various stages development generated medarex technology developed licensing partners may generate milestone payments royalties upon commercialization • 120 million technologies attributed technology platforms produce high affinity fully human antibodies use broad range therapeutic areas including immunology oncology developed technology amortized expected useful lives 10 years • 315 million licenses attributed three separate license arrangements received regulatory approval licenses amortized expected useful lives 13 years projected cash flows assumed initial positive cash flows commence shortly receipt expected regulatory approvals subject trial results among things approved could potentially early 2011 2012 projected cash flows discounted 12 actual cash flows attributed project likely different assumed impairment goodwill tested least annually impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill considered impaired carrying amount reporting unit’s goodwill exceeds estimated fair value biopharmaceutical segment includes several separate reporting units based geography aggregated impairment testing purposes based upon recent annual impairment test completed first quarter 2010 fair value goodwill substantially excess related carrying value discussion goodwill acquired inprocess research development intangible assets see “item 8 financial statementsnote 1 accounting policiesgoodwill acquired inprocess research development intangible assets” indefinitelived intangible assets including iprd indefinitelived intangible assets subject amortization tested impairment annually frequently events changes circumstances indicate asset might impaired consider various factors including stage development current legal regulatory environment competitive landscape considering industry’s success rate bringing developmental compounds market iprd impairment charges may occur future periods 2010 recognized 10 million charge related medarex project ceased development longlived assets periodically evaluate whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows report asset disposed lower carrying value estimated net realizable value estimates future cash flows based reasonable supportable assumptions projections requiring judgment changes key assumptions businesses prospects changes market conditions could result impairment charges impairment charges longlived assets 228 million 2010 3 million 2009 63 million 2008 discussion impairment longlived assets see “item 8 financial statementsnote 1 accounting policiesimpairment longlived assets” 2010 200 million asset impairment charge recognized connection writedown assets fair value less cost sell manufacturing operations latina italy met held sale criteria additional 18 million charge recognized operations sold see “item 8 financial statementsnote 4 restructuring” additional information manufacturing operation also evaluated impairment result lower sales forecasts facility depreciated expected useful life net carrying value approximately 300 million december 31 2010 anticipated undiscounted cash flows attributed facility exceeds net carrying value significant amount result impairment recognized 2010 expected cash flows estimated based current sales forecasts expectations subject change based upon near long term production volumes margins generated facility well potential alternative future use may lead future impairment marketable securities investments companies marketable securities classified “available sale” therefore reported fair value changes fair value reported accumulated comprehensive income declines fair value considered temporary charged earnings fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity determining security otherthantemporarily impaired typically consider severity duration decline future prospects issuer ability intent hold security recovery declines fair value determined credit related charged earnings transfers fair value levels recognized beginning reporting period average cost method used determining realized gains losses sale “available sale” securities realized gains losses included incomeexpense level 3 investments including frs ars utilize valuation models including based expected cash flow streams collateral values including assessments counterparty credit quality default risk underlying security discount rates overall capital market liquidity valuation subject uncertainties difficult predict utilize considerable amount judgment estimation factors may impact valuation include changes credit ratings securities well underlying assets supporting securities rates default underlying assets underlying collateral value discount rates counterparty risk ongoing strength quality market credit liquidity discussions current noncurrent marketable securities frs ars see “item 8 financial statementsnote 11 fair value measurement” “note 12 cash equivalents marketable securities” account 50 less owned companies ability exercise significant influence using equity method accounting share net income losses equity investments included equity net income affiliates consolidated statements earnings investments whose fair market value falls carrying value assess decline temporary consider intent ability hold investments market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity impairment losses recognized incomeexpense decline market value deemed temporary contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies see “item 8 financial statementsnote 1 accounting policiescontingencies” “note 10 income taxes” “note 26 legal proceedings contingencies” income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives judgments subject change adjustments deferred tax valuation allowances made earnings period assessments made net deferred tax assets 18 billion 22 billion december 31 2010 2009 respectively net valuation allowances 19 billion 18 billion december 31 2010 2009 respectively recognized deferred tax assets december 31 2010 related us federal net operating loss carryforward 351 million us federal research development tax credit carryforward 243 million net operating loss carryforward expires varying amounts beginning 2022 research development tax credit carryforwards expire varying amounts beginning 2018 realization carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured believe likely deferred tax assets realized provide taxes undistributed earnings foreign subsidiaries expected reinvested permanently offshore 2010 company completed internal restructuring certain legal entities contributed 207 million tax charge recognized fourth quarter 2010 possible us tax authorities could assert additional material tax liabilities arising restructuring assertion occur company would vigorously challenge assertion believes would prevail however assurance result prior mead johnson splitoff following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions relied upon certain assumptions representations covenants mead johnson regarding future conduct business matters could effect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account ela investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code irs could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations agreed certain tax related indemnities mead johnson set forth tax sharing agreement example mead johnson agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets agreed indemnify mead johnson certain taxes related business prior completion ipo created part restructuring facilitate ipo established liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 10 income taxes” special note regarding forwardlooking statements annual report form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years included important factors cautionary statements included annual report form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made undertake obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary bristolmyers squibb company may referred bristolmyers squibb bms company us global biopharmaceutical company whose mission discover develop deliver innovative medicines help patients prevail serious diseases license manufacture market distribute sell pharmaceutical products global basis continued execute stringofpearls strategy acquisition amira pharmaceuticals inc amira september 2011 inhibitex inc inhibitex february 2012 various collaboration agreements entered year yervoy ipilimumab launched united states us european union eu treatment adult patients unresectable inoperable metastatic melanoma also launched subcutaneous formulation orencia abatacept us nulojix belatacept us eu prevention organ rejection adult patients receiving kidney transplant eliquis apixaban eu prevention venous thromboembolic events vte adult patients undergone hip knee replacement surgery announced main results aristotle trial eliquis compared warfarin significantly reduced risk stroke systemic embolism new drug application nda us marketing authorization application maa eu eliquis accepted review january 2012 received complete response letter us food drug administration fda regarding nda dapagliflozin complete response letter requests additional clinical data ongoing studies may require information new clinical trials highlights following table summary financial highlights nongaap financial measures including nongaap earnings related eps information adjusted exclude specified items represent certain costs expenses gains losses items impacting comparability financial results detailed listing specified items information reconciliations nongaap financial measures see “nongaap financial measures” business environment business primarily conducted within pharmaceuticalbiotechnology industry highly competitive subject numerous government regulations many competitive factors may significantly affect sales products including product efficacy safety price demand competition costeffectiveness marketing effectiveness market access product labeling quality control quality assurance manufacturing operations research development new products successfully compete business healthcare industry must demonstrate products offer medical benefits well cost advantages sometimes new product introductions compete products already market therapeutic category addition potential competition new products competitors may introduce future manufacture branded products priced higher generic products generic competition one leading challenges globally pharmaceuticalbiotechnology industry majority innovative product’s commercial value usually realized market exclusivity period afterwards longer protected patent subject new competing products form generic brands upon exclusivity loss lose major portion product’s sales short period time competitors seeking approval biological products full biologics license application bla must file safety efficacy data address challenges biologics manufacturing involve complex processes costly pharmaceutical operations us healthcare legislation enacted 2010 described fully abbreviated path regulatory approval generic versions biological products path approval biosimilar products us healthcare legislation significantly affects regulatory data exclusivity biological products legislation provides regulatory mechanism allows regulatory approval biologic drugs similar generic copies innovative drugs basis less extensive data required full bla possible time reasonably assess impact us biosimilar legislation company globally healthcare industry subject various governmentimposed regulations authorizing prices price controls continue impact net sales march 2010 us government enacted healthcare reform legislation signing law patient protection affordable care act hr 3590 reconciliation bill containing package changes healthcare bill legislation made extensive changes healthcare insurance benefits system intention broadening coverage reducing costs bills significantly changed americans receive healthcare coverage pay also significant impact companies particular companies pharmaceutical industry healthcare related industries including bms experienced continue experience additional financial costs certain changes business healthcare law provisions become effective example 2010 minimum rebates medicaid drug sales increased 151 percent 231 percent medicaid rebates also extended drugs used riskbased medicaid managed care plans two additional provisions impact financial results went effect january 1 2011 first 50 percent discount brandname drugs patients within medicare part coverage gap also referred “donut hole” second annual nontaxdeductible pharmaceutical company fee payable federal government based allocation market share branded prior year sales certain us government programs including medicare medicaid department veterans affairs department defense tricare annual eps impact us healthcare reform increased 010 2010 024 2011 net sales reduced 310 million resulting new discounts associated medicare part coverage gap marketing selling administrative expenses increased 220 million due new annual nontaxdeductible pharmaceutical company fee incremental 014 impact associated medicare part coverage gap annual pharmaceutical company fee aggregate financial impact us healthcare reform next years depends number factors including limited pending implementation guidance potential changes sales volume eligible new rebates discounts fees impact cost sharing arrangements certain alliance partners positive impact net sales expected increase number people healthcare coverage could potentially occur future expected 2014 earliest many markets outside us operate environments governmentmandated costcontainment programs regulatory bodies groups exert downward pressure pricing freedom limited uk instance operation profit control plan germany operation reference price system many european countries continuing fiscal challenges healthcare payers including government agencies reduced expected continue reduce cost healthcare actions directly indirectly impose additional price restrictions companies also face significant delays market access new products two years elapse drug approval new medicines become available countries growth managed care organizations mcos us significantly impacted competition surrounds healthcare industry mcos seek reduce healthcare expenditures participants making volume purchases entering longterm contracts negotiate discounts various pharmaceutical providers market potential created large pool participants marketing prescription drugs mcos become important part strategy companies compete inclusion mco formularies generally successful key products included believe developments managed care industry including continued consolidation continue downward pressure prices pharmaceutical biotechnology production processes complex highly regulated vary widely product shifting adding manufacturing capacity lengthy process requiring significant capital expenditures regulatory approvals biologics manufacturing involves complex processes traditional pharmaceutical operations biologics become larger percentage product portfolio continue make supply arrangements thirdparty manufacturers make substantial investments increase internal capacity produce biologics commercial scale one investment new stateoftheart manufacturing facility production biologics devens massachusetts submitted site regulatory approval 2012 expect fda complete review application end year maintained competitive position market strive uphold position dependent success discovering developing delivering innovative costeffective products help patients prevail serious diseases subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcomes investigations litigations additional discussion legal matters see “item 8 financial statementsnote 22 legal proceedings contingencies” strategy past years transformed company focused biopharmaceutical company transformation encompasses areas business operations focused portfolio products yielded continue yield substantial cost savings cost avoidance turn increases financial flexibility take advantage attractive market opportunities may arise may 2012 expect lose exclusivity us largest product plavix time expect rapid precipitous material decline plavix net sales reduction net income operating cash flow also expect decline avaproavalide irbesartanirbesartanhydrochlorothiazide net sales immediately following loss exclusivity us march 2012 events norm industry companies experience loss exclusivity product recognizing fact continue focus sustaining business building robust foundation future plan achieve foundation continuing support grow currently marketed products advancing pipeline maintaining improving financial strength part overall strategy build company continue expand biologics capabilities still rely significantly small molecules strongest reliable starting point discovering potential new medicines large molecules biologics derived recombinant dna technologies becoming increasingly important currently one three pipeline compounds biologics four key marketed products including yervoy strategy also includes focus certain emerging markets acquisition licensing strategy known “stringofpearls” optimizing mature brands portfolio managing costs strategy emerging markets develop commercialize innovative products key highgrowth markets tailoring approach market continuing focus core biopharmaceuticals maximizing value mature brands portfolio completed following strategic transactions 2011 • acquired amira pharmaceutical inc amira smallmolecule pharmaceutical company focused fibrotic disease • entered agreement ono pharmaceuticals co ltd ono expand territorial rights develop commercialize antibody pd1 investigational cancer immunotherapy create strategic alliance codevelopment cocommercialization orencia japan • obtained exclusive worldwide rights ambrx inc ambrx research develop commercialize novel biologics diabetes heart disease • obtained exclusive worldwide rights innate pharma sa innate develop commercialize iph 2102 novel immuneoncology biologic phase development • entered clinical collaboration roche evaluate utility yervoy combination roche’s investigational braf inhibitor vermurafenib treating patients specific type metastatic melanoma • announced licensing agreement gilead sciences inc gilead development commercialization new fixeddose combination containing reyataz gilead’s cobicistat treatment hiv • entered strategic partnership aslan pharmaceuticals development bms777607 investigational small molecule inhibitor met receptor tyrosine kinase treatment solid tumors • entered clinical collaboration agreement tibotec pharmaceuticals tibotec one janssen pharmaceutical companies evaluate utility daclatasvir bms790052 investigational ns5a replication complex inhibitor combination tibotec’s investigational ns3 protease inhibitor tmc435 treatment chronic hepatitis c virus • agreed codevelop bms795311 preclinical small molecule inhibitor cholesteryl ester transfer protein cetp could potentially raise hdl good cholesterol levels help prevent cardiovascular disease simcere pharmaceutical group simcere • entered clinical collaboration pharmasset inc pharmasset wholly owned subsidiary gilead evaluate utility declatasvir bms790052 ns5a replication complex inhibitor combination psi7977 pharmasset’s nucleotide polymerase inhibitor treatment chronic hepatitis c virus subsequently announced addition four additional treatment arms phase iia trial february 2012 acquired inhibitex inc inhibitex clinicalstage biopharmaceutical company focused developing products treat hepatitis c virus serious infectious diseases product pipeline developments manage research development rd programs portfolio basis investing resources stage research development early discovery latestage development continually evaluate portfolio rd assets ensure appropriate balance earlystage latestage programs support future growth consider rd programs entered phase iii development significant programs constitute latestage development pipeline phase iii development programs include investigational compounds phase iii development initial indications marketed products phase iii development additional indications formulations spending programs represents approximately 3040 annual rd expenses individual investigational compound marketed product represented 10 rd expenses last three years expect latestage development programs make market latestage development programs rd programs could potentially impact revenue earnings within next years following recent significant developments marketed products latestage pipeline yervoy monoclonal antibody treatment patients unresectable inoperable metastatic melanoma currently also studied indications including lung cancer well adjuvant melanoma hormonerefractory prostate cancer • july 2011 company announced european commission approved yervoy treatment adult patients previouslytreated advanced melanoma • june 2011 company announced 47th annual meeting american society clinical oncology results 024 study evaluated newlydiagnosed patients treated yervoy 10mgkg combination dacarbazine versus dacarbazine alone significant improvement overall survival patients treated yervoy plus dacarbazine versus received dacarbazine alone higher estimated survival rates observed one year two years three years patients treated yervoy plus dacarbazine versus received dacarbazine alone • june 2011 company announced entered clinical collaboration roche evaluate utility yervoy combination roche’s investigational braf inhibitor vermurafenib treating patients specific type metastatic melanoma • march 2011 fda approved yervoy treatment patients newly diagnosed previouslytreated unresectable inoperable metastatic melanoma eliquis oral factor xa inhibitor indicated eu prevention venous thromboembolic events vte adult patients undergone elective hip knee replacement surgery development stroke prevention patients atrial fibrillation af prevention treatment venous thromboembolic disorders part strategic alliance pfizer inc pfizer • november 2011 fda accepted review nda eliquis prescription drug user fee act pdufa goal date decision fda march 28 2012 also validated application eu • november 2011 company pfizer announced results phase iii adopt trial evaluated eliquis versus enoxaparin acutely ill medical patients meet primary efficacy outcome superiority enoxaparin endpoint vte vterelated deaths • august 2011 european society cardiology congress company pfizer announced main results phase iii aristotle trial evaluated eliquis compared warfarin prevention stroke systemic embolism patients atrial fibrillation least one risk factor stroke eliquis compared warfarin significantly reduced risk stroke systemic embolism 21 percent major bleeding 31 percent mortality 11 percent • june 2011 company pfizer announced phase iii aristotle trial eliquis met primary efficacy objective noninferiority warfarin combined outcome stroke ischemic hemorrhagic unspecified type systemic embolism addition eliquis met key secondary endpoints superiority efficacy international society thrombosis haemostasis isth major bleeding compared warfarin • may 2011 company pfizer announced european commission approved eliquis prevention vte adult patients undergone elective hip knee replacement surgery • february 2011 company pfizer published full results averroes study eliquis new england journal medicine study demonstrated patients af expected demonstrated unsuitable vitamin k antagonist therapy warfarin eliquis statistically superior aspirin reducing composite stroke systemic embolism without significant increase major bleeding fatal bleeding intracranial bleeding significant differences risk hemorrhagic stroke eliquis aspirin study results also showed eliquis demonstrated superiority secondary efficacy endpoint reducing composite stroke systemic embolism myocardial infarction vascular death patients af compared aspirin nulojix fusion protein novel immunosuppressive activity prevention kidney transplant rejection • june 2011 company announced fda european commission approved nulojix prophylaxis organ rejection adult patients receiving kidney transplant • new data nulojix presented 2011 american transplant congress european society organ transplantation esot meeting including threeyear outcomes benefit phase iii study nulojix vs cyclosporine kidney transplant recipients ii threeyear safety profile nulojix kidney transplant recipients benefit benefitext studies iii renal function two years kidney transplant recipients switched cyclosporine tacrolimus nulojix results longterm extension phase ii study iv threeyear outcomes donor type phase iii studies nulojix vs cyclosporine kidney transplantation benefit benefitext dapagliflozin oral sglt2 inhibitor treatment diabetes part strategic alliance astrazeneca plc astrazeneca • january 2012 fda issued complete response letter regarding nda dapagliflozin complete response letter requests additional clinical data allow better assessment benefitrisk profile dapagliflozin includes clinical trial data ongoing studies may require information new clinical trials companies work closely fda determine appropriate next steps dapagliflozin application ongoing discussions health authorities europe countries part application procedures • december 2011 company astrazeneca announced international diabetes federation 2011 world diabetes conference results phase iii study dapagliflozin showed reductions blood sugar levels glycosylated hemoglobin levels hba1c seen 24 weeks dapagliflozin existing glimepiride sulfonylurea therapy compared placebo added glimepiride maintained 48 weeks adults type 2 diabetes patients taking dapagliflozin added glimepiride also maintained reductions fasting plasma glucose levels postprandial glucose total body weight • november 2011 company astrazeneca presented metaanalysis clinical data cardiovascular safety adult patients type 2 diabetes showed dapagliflozin associated unacceptable increase cardiovascular risk relative comparators pooled clinical programs • july 2011 fda’s endocrinologic metabolic drugs advisory committee voted nine six efficacy safety data provide substantial evidence support approval nda dapagliflozin adjunct diet exercise improve glycemic control adults type 2 diabetes mellitus • june 2011 american diabetes association meeting company astrazeneca presented results several phase iii clinical studies examining dapagliflozin added metformin • maa dapagliflozin validated ema maa submission dapagliflozin filed december 2010 orencia fusion protein indicated rheumatoid arthritis • november 2011 american college rheumatology annual scientific meeting company presented new data orencia clinical trials support recent fda approval subcutaneous formulation orencia reduction signs symptoms adults moderate severe arthritis data presented included longterm immunogenicity data intravenous formulation longterm safety data rheumatoid arthritis results phase iiiii study lupus nephritis • august 2011 maa subcutaneous formulation orencia validated review european medicine agency • july 2011 fda approved subcutaneous formulation orencia treatment adults moderate severe rheumatoid arthritis onglyzakombiglyze saxagliptinsaxagliptin metformin treatment type 2 diabetes part strategic alliance astrazeneca • december 2011 fda approved onglyza use combination therapy insulin without metformin improve blood sugar adult patients type 2 diabetes • november 2011 european commission approved kombiglyze known eu komboglyze treatment type 2 diabetes • november 2011 european commission approved onglyza use combination therapy insulin without metformin improve blood sugar glycemic control adult patients type 2 diabetes • september 2011 47th european association study diabetes annual meeting company astrazeneca announced results investigational phase iiib clinical study reported onglyza 5 mg added insulin without metformin maintained glycemic control glycosylated hemoglobin levels hba1c adult patients type 2 diabetes compared addition placebo 24 52 weeks • june 2011 company astrazeneca announced results investigational phase iiib clinical study reported onglyza 5 mg added insulin without metformin significantly reduced blood sugar levels glycosylated hemoglobin levels hba1c 24 weeks compared treatment placebo added insulin without metformin • may 2011 company astrazeneca announced state food drug administration approved onglyza china • february 2011 company astrazeneca announced european commission approved label update onglyza treatment adults type 2 diabetes moderate severe renal impairment making onglyza first dipeptidyl peptidase4 ddp4 inhibitor europe available type 2 diabetes patients moderate severe renal impairment • february 2011 company astrazeneca announced fda approved inclusion data two clinical studies update onglyza us prescribing information adults type 2 diabetes us label update provides evidence regarding use renally impaired adults type 2 diabetes well comparisons glipizide onglyza patients also taking metformin sprycel dasatanib oral inhibitor multiple tyrosine kinases indicated treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate firstline treatment adults sprycel part strategic alliance otsuka pharmaceuticals inc otsuka • september 2011 china’s state food drug administration approved sprycel treatment adults chronic accelerated lymphoid myeloid chronic myeloid leukemia resistance intolerance prior therapy imatinib • june 2011 regulatory authorities japan approved use sprycel firstline treatment chronic myeloid leukemia • june 2011 company otsuka announced fiveyear follow data sprycel 100 mg daily demonstrated 78 overall survival patients chronicphase myeloid leukemia resistant intolerant gleevec results announced 47th annual meeting american society clinical oncology plavix platelet aggregation inhibitor part alliance sanofi • january 2011 company sanofi announced fda granted companies additional sixmonth period exclusivity market plavix exclusivity plavix us scheduled expire may 17 2012 baraclude entecavir oral antiviral agent treatment chronic hepatitis b • november 2011 62nd annual meeting american association study liver disease company announced results 96week study phase iiib clinical trial showed statistical difference baraclude monotherapy 05 mg daily baraclude 05 mg daily plus tenovir 300 mg daily treatmentnaïve adult patients hbeagpositive hbeagnegative chronic hepatitis b compensated liver disease • february 2011 european commission approved baraclude treatment hepatitis b adult patients decompensated liver disease abilify aripiprazole antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder part strategic alliance otsuka • february 2011 company otsuka announced fda approved abilify adjunct mood stabilizers lithium valproate maintenance treatment bipolar disorder european approval use received january 2011 reyataz atazanavir sulfate protease inhibitor treatment hiv • february 2011 fda approved update labeling reyataz include dose recommendations hivinfected pregnant women hiv combination therapy treatment recommended adult dose reyataz 300 mg boosted 100 mg ritonavir achieved minimum plasma concentrations 24 hours postdose third trimester pregnancy comparable observed historically hivinfected adults post partum period atazanavir concentrations may increased therefore dose adjustment necessary patients monitored two months delivery erbitux cetuximab monoclonal antibody designed exclusively target block epidermal growth factor receptor expressed surface certain cancer cells multiple tumor types well normal cells currently indicated use colorectal cancer head neck cancer erbitux part alliance eli lilly company lilly • november 2011 fda approved erbitux combination platinumbased chemotherapy 5fluorouracil first line treatment recurrent locoregional metastatic squamous cell carcinoma head neck necitumumab imc11f8 investigational anticancer agent part strategic alliance lilly • february 2011 company lilly announced enrollment stopped phase iii inspire study necitumumab firstline treatment advanced nonsmall cell lung cancer trial evaluating addition necitumumab combination alimta pemetrexed injection cisplatin decision stop enrollment followed independent data monitoring committee dmc recommendation new recently enrolled patients continue treatment trial safety concerns related thromboembolism experimental arm study dmc also noted patients already received two cycles necitumumab appear lower ongoing risk safety concerns patients could choose remain trial informed additional potential risks investigators continue assess patients two cycles determine potential benefit treatment necitumumab continues studied another phase iii trial named squire study evaluating necitumumab potential treatment different type lung cancer called squamous nonsmall cell lung cancer combination gemzar gemcitabine hcl injection cisplatin independent dmc recommended trial continue safety concerns observed brivanib investigational anticancer agent • january 2012 american society clinical oncology asco gastrointestinal cancers symposium national cancer institute canada ncic clinical trials group australasian gastrointestinal trials group agitg presented results phase iii randomized trial cetuximab plus either brivanib alaninate placebo patients metastatic chemotherapy refractory kras wild type colorectal carcinoma primary endpoint improvement overall survival met trial • december 2011 company reported phase iii briskps brivanib study hcc patients risk post sorafenib clinical trial patients hepatocellular carcinoma hcc liver cancer failed intolerant sorafenib meet primary endpoint improving overall survival versus placebo results operations net sales composition changes net sales follows total sales growth periods attributable higher volume higher average net selling prices favorable foreign exchange reflects continued growth key products offset declines sales avaproavalide mature brands across regions international sales plavix change us net sales attributed price result higher average net selling prices plavix periods abilify 2011 partially offset reduction contractual share abilify net sales 65 58 2010 reduction 535 2011 higher rebates discounts resulting us healthcare reform legislation change us net sales 2011 attributed volume reflects recent launch yervoy increased demand several key products partially offset decreased prescription demand avaproavalide plavix expect continue decrease result expected loss exclusivity products 2012 change us net sales 2010 attributed volume reflects increased demand several key products see “key products” discussion sales key product net sales europe increased 2011 due favorable foreign exchange sales growth key products partially offset lower sales certain mature brands divestitures generic competition well generic competition plavix avaproavalide net sales europe decreased 2010 due unfavorable foreign exchange previously mentioned generic competition offset sales growth key products net sales periods negatively impacted continuing fiscal challenges many european countries healthcare payers including government agencies reduced expected continue reduce cost healthcare actions directly indirectly impose additional price reductions measures include limited mandatory discounts rebates price reductions restrictive measures net sales japan asia pacific canada increased periods primarily due higher demand baraclude sprycel net sales 2011 also increased recent launch orencia japan approval sprycel first line indication japan impacts partially offset generic competition avaproavalide canada 2011 lower sales mature brands generic competition divestitures periods emerging markets region comprised brazil russia india china turkey net sales growth periods driven increased sales volume primarily china brazil partially offset pricing pressures turkey russia higher net sales china primarily attributable baraclude certain mature brands periods higher net sales brazil primarily attributable reyataz 2011 abilify 2010 single country outside us contributed 10 total net sales 2011 2010 2009 general business seasonal information us pharmaceutical prescriber demand reference made table within “estimated enduser demand” sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain key products us nonus net sales categorized based upon location customer recognize revenue net grosstonet sales adjustments described “critical accounting policies” contractual share abilify atripla sales reflected net grosstonet sales adjustments gross sales reconciliation gross sales net sales significant category grosstonet sales adjustments follows activities ending balances significant category grosstonet sales reserve adjustments follows grosstonet sales adjustments percentage worldwide gross sales 115 2011 101 2010 85 2009 primarily function gross sales trends changes sales mix contractual legislative discounts rebates grosstonet sales adjustments increased due • chargebacks related government programs increased periods primarily due reimbursements price increases excess current inflation rates us • managed healthcare rebates contract discounts increased 2011 due 50 discount patients within medicare part coverage gap • 2010 medicaid rebates increased due change minimum rebates drug sales 151 231 extension medicaid rebate rate drugs sold riskbased medicaid managed care organizations 2011 medicaid rebates continued increase due full year impact expansion medicaid rebates drugs used riskbased medicaid managed care plans higher average net selling prices plavix higher medicaid channel sales • increase unpaid rebates due part timing increasing lag payments attributed government agencies administrative delays • 2011 sales returns included 29 million reduction 44 million us return reserve established 2010 connection recall certain lots avalide due lower returns expected sales returns attributable 2012 sales expected increase result loss exclusivity plavix avaproavalide 2012 key products net sales key products represented 86 total net sales 2011 84 2010 81 2009 following table presents us international net sales key product percentage change prior period foreign exchange impact compared prior period commentary detailing reasons significant variances key products provided change excess 100 plavix platelet aggregation inhibitor part alliance sanofi • us net sales increased periods primarily due higher average net selling prices estimated total us prescription demand decreased 5 1 2011 2010 respectively expect rapid material decline plavix sales following loss exclusivity may 2012 plavix sales depend erosion rates generic competition wholesale retail inventory levels expected returns • international net sales continue impacted launch generic clopidogrel products eu australia negative impact net sales eu comarketing countries australia equity net income affiliates relates share sales partnership sanofi europe asia expect continued erosion plavix net sales eu impact international net sales equity net income affiliates also expect erosion international net sales following recent loss exclusivity plavix canada • see “item 8 financial statementsnote 22 legal proceedings contingenciesplavix litigation” discussion plavix exclusivity litigation us eu avaproavalide known eu aprovelkarvea angiotensin ii receptor blocker treatment hypertension diabetic nephropathy also part sanofi alliance • us net sales decreased 2011 due market share losses subsequent avalide supply shortage first quarter 2011 associated previously reported recalls total estimated us prescription demand decreased 39 2011 decrease us net sales partially offset higher average net selling prices reduction 2011 previously established reserves estimated returns connection recall certain lots avalide 2010 due lower actual returns expected expect rapid material decline avaproavalide sales following loss exclusivity march 2012 international net sales decreased 2011 due lower demand including generic competition certain eu markets canada • us international net sales decreased 2010 primarily due decreased overall demand due generic competition eu reduced supply avalide addition 44 million sales return adjustment recorded result avalide recall estimated total us prescription demand decreased 17 2010 eliquis oral factor xa inhibitor prevention vte adult patients undergone elective hip knee replacement surgery development prevention treatment venous thromboembolic disorders stroke prevention patients atrial fibrillation part strategic alliance pfizer • eliquis approved eu vte prevention may 2011 launched limited number eu countries beginning may 2011 net sales less 1 million abilify antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder part strategic alliance otsuka • us net sales increased 2011 due higher overall demand average net selling prices partially offset reduction contractual share net sales 58 2010 535 2011 estimated total us prescription demand increased 5 2011 • us net sales decreased 2010 primarily due reduction contractual share net sales 65 58 higher medicaid rebates healthcare reform decrease partially offset higher average net selling prices overall demand estimated total us prescription demand increased 5 2010 • periods international net sales increased due higher demand reyataz protease inhibitor treatment hiv • us net sales relatively flat 2011 increased 2010 primarily due higher demand estimated total prescription demand increased 2 2011 4 2010 • periods international net sales increased primarily due higher demand sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla efavirenz 600 mgemtricitabine 200 mgtenofovir disoproxil fumarate 300 mg product sold joint venture gilead • us net sales increased 2011 primarily due higher average net selling prices higher estimated total us prescription demand 7 us net sales increased 2010 primarily due higher estimated total us prescription demand 7 • periods international net sales increased primarily due higher demand baraclude oral antiviral agent treatment chronic hepatitis b • net sales periods increased primarily due higher demand erbitux monoclonal antibody designed exclusively target block epidermal growth factor receptor expressed surface certain cancer cells multiple tumor types well normal cells currently indicated use colorectal cancer head neck cancer erbitux part strategic alliance lilly • sold us almost exclusively us net sales increased 2011 primarily due higher demand including demand approval erbitux firstline treatment recurrent locally regionally advanced metastatic squamous cell carcinoma head neck net sales 2010 decreased primarily due lower demand lower average net selling prices sprycel oral inhibitor multiple tyrosine kinases indicated treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia chronic phase sprycel part strategic alliance otsuka • net sales periods increased primarily due higher demand average net selling prices demand 2011 positively impacted approval sprycel firstline treatment adult patients newly diagnosed philadelphia chromosomepositive chronic myeloid leukemia chronic phase us eu fourth quarter 2010 yervoy monoclonal antibody treatment patients unresectable inoperable metastatic melanoma • yervoy launched us second quarter 2011 limited number eu countries third fourth quarters 2011 • net sales 27 million deferred patient infusion due returns policy established third quarter 2011 us orencia fusion protein indicated adult patients moderate severe rheumatoid arthritis inadequate response one currently available treatments methotrexate antitumor necrosis factor therapy • us net sales increased periods primarily due higher demand including launch orencia subcutaneous formulation higher average net selling prices • international net sales increased periods primarily due higher demand nulojix fusion protein novel immunosuppressive activity targeted prevention kidney transplant rejection • nulojix approved launched us eu 2011 onglyzakombiglyze treatment type 2 diabetes • onglyzakombiglyze increased periods primarily due higher overall demand launches various countries kombiglyze launched us fourth quarter 2010 mature products includes products lost exclusivity major markets counter brands • international net sales decreased 2010 due continued generic erosion certain products lower average net selling prices europe year impact rationalization divestitures nonstrategic product portfolio lower demand certain counter products estimated us prescription change data provided throughout report includes information retail mail order channels reflect product demand within channels hospitals home health care clinics federal facilities including veterans administration hospitals longterm care among others data provided wolters kluwer health wk except sprycel based source prescription audit december 31 2011 sprycel demand based upon information nextgeneration prescription service ngps version 20 national prescription audit provided ims health ims data product respective service providers’ recordkeeping projection processes therefore subject inherent limitations estimates based sampling may include margin error prior december 31 2011 sprycel demand calculated based upon data obtained ims health ims national sales perspectives audit since management believes information ims’ national prescription audit accurately reflects subscriber demands trends versus pill data ims’ national sales perspectives audit prior year sprycel data restated reflect information ims’ national prescription audit continuously seek improve quality estimates prescription change amounts ultimate patientconsumer demand reviewing calculation methodologies employed analyzing internal thirdparty data expect continue review refine methodologies processes calculation estimates monitor quality third parties’ data used calculations calculated estimated total us prescription change weightedaverage basis reflect fact mail order prescriptions include greater volume product supplied compared retail prescriptions mail order prescriptions typically reflect 90day prescription whereas retail prescriptions typically reflect 30day prescription calculation derived multiplying mail order prescription data factor approximates three adding retail prescriptions believe calculation estimated total us prescription change based weightedaverage approach provides superior estimate total prescription demand retail mail order channels use methodology internal demand reporting estimated enduser demand following tables set forth key products sold us years ended december 31 2011 2010 2009 change reported us net sales year ii estimated total us prescription change retail mail order channels calculated us based thirdparty data weightedaverage basis iii months inventory hand wholesale distribution channel sustiva franchise total revenue includes sales sustiva revenue bulk efavirenz included combination therapy atripla months hand relates sustiva b erbitux yervoy orencia nulojix parenterally administered products prescriptionlevel data physicians write prescriptions products c yervoy nulojix launched us second quarter 2011 onglyza launched us third quarter 2009 kombiglyze launched us fourth quarter 2010 onglyza 05 month inventory hand december 31 2010 kombiglyze 518 months inventory hand december 31 2010 support initial product launch change excess 100 pursuant us securities exchange commission sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception estimated levels inventory distribution channel excess one month hand products material dates indicated us products estimated levels inventory distribution channel excess one month hand december 31 2011 international products estimated levels inventory distribution channel excess one month hand september 30 2011 nulojix 35 months inventory hand us support initial product launch inventory nominal expected worked less amount time demand new product increases post launch dafalgan analgesic product sold principally europe 11 months inventory hand direct customers compared 14 months inventory hand december 31 2010 level inventory hand primarily due ordering patterns pharmacists france fervex cold flu product 30 months inventory hand internationally direct customers compared 64 months inventory hand december 31 2010 level inventory hand decreased due higher demand france russia luftal antacid product 15 months inventory hand internationally direct customers compared 13 months inventory hand december 31 2010 level inventory hand primarily due government purchasing patterns brazil us products sold exclusively wholesalers distributors generally determined months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 90 total gross sales us products provided distributors factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes businesses outside us significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely cases direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available developed variety methodologies estimate data including using factors historical sales made direct customers thirdparty market research data related prescription trends enduser demand accordingly rely variety methods estimate direct customer product level inventory calculate months hand factors may affect estimates include generic competition seasonality products direct customer purchases light price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2011 available prior filing annual report form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q expenses change excess 100 cost products sold cost products sold consists material costs internal labor overhead owned manufacturing sites thirdparty processing costs supply chain costs settlement foreign currency forward contracts used hedge forecasted intercompany inventory purchase transactions essentially costs managed primarily global manufacturing organization referred technical operations discovery royalties attributed licensed products connection alliances profit sharing payments certain collaborations amortization acquired developed technology costs business combinations milestone payments occur regulatory approval also included cost products sold cost products sold vary periods result product mix particularly resulting royalties profit sharing expenses connection alliances price inflation costs attributed rationalization manufacturing sites resulting accelerated depreciation impairment charges stranded costs addition changes foreign currency may also provide volatility given high percentage total costs denominated foreign currencies increase cost products sold periods primarily attributable higher sales volume resulting additional royalties collaboration fees profit sharing expense unfavorable foreign exchange cost products sold percentage net sales 264 2011 271 2010 273 2009 reflected favorable product mix 2011 2010 marketing selling administrative marketing selling administrative expenses consist salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs expenses attributed product manufacturing costs research development expenses managed regional commercialization functions global functions finance law information technology human resources • increase 2011 primarily attributed annual pharmaceutical company fee 220 million unfavorable foreign exchange higher marketing costs support new launches key products lesser extent higher bad debt expense eu charitable funding information technology expenses • decrease 2010 primarily attributed reduction sales related activities certain key products coincide respective life cycle prior year impact 100 million funding payment made bms foundation reduction abilify sales force otsuka established sales force promotion abilify sprycel ixempra reduced project standardization implementation costs 2009 role new accounting human resource related systems overall efficiencies gained continuous improvement initiatives advertising product promotion advertising product promotion expenses consist related media sample direct consumer programs • decrease 2010 primarily attributed lower spending promotion certain key products coincide product life cycle otsuka’s reimbursement certain abilify sprycel ixempra advertising product promotion expenses partially offset increased spending onglyza launch pipeline products research development research development expenses consist salary benefit costs thirdparty grants fees paid clinical research organizations supplies facility costs total research development expenses include costs discovery research preclinical development early lateclinical development drug formulation well clinical trials medical support marketed products proportionate allocations enterprisewide costs appropriate costs expenses also include thirdparty licensing fees typically paid upfront well regulatory contractual milestones met certain expenses shared alliance partners based upon contractual agreements expenses managed global research development organization approximately 20 billion total spend attributed development activities remainder attributed preclinical research activities expenses vary periods number reasons including timing upfront milestone licensing payments • increase 2011 attributed higher upfront milestone licensing payments unfavorable foreign exchange additional development costs resulting acquisition zymogenetics upfront milestone licensing payments 207 million 2011 included 88 million payment associated amendment intellectual property license agreement yervoy prior fda approval payments abbott laboratories abbott innate ambrx alder biopharmaceuticals inc alder nissan chemical industries ltd teijin pharma limited nissan teijin exclusive licenses develop commercialize certain programs compounds • decrease 2010 attributed lower upfront milestone licensing payments partially offset additional spending support maturing pipeline compounds obtained stringofpearls strategy upfront milestone licensing payments 132 million 2010 primarily attributed exelixis allergan inc abbott 347 million 2009 primarily attributed zymogenetics alder nissan teijin provision restructuring provision restructuring primarily attributable employee termination benefits continuous improvement initiatives litigation expense net 2009 amount primarily due 125 million securities litigation settlement equity net income affiliates equity net income affiliates primarily related international partnership sanofi varies based international plavix net sales included within partnership • decrease 2010 attributed impact alternative salt form clopidogrel generic clopidogrel competition international plavix net sales commenced 2009 additional information see “item 8 financial statementsnote 3 alliances collaborations” incomeexpense include • impairment loss sale manufacturing operations primarily attributed disposal manufacturing operations latina italy 2010 • gain sale product lines businesses assets primarily related sale mature brands including businesses within indonesia australia 2009 • income alliance partners includes income earned sanofi partnership amortization certain upfront milestone licensing payments related alliances • pension curtailment settlement charges primarily attributed amendments eliminated crediting future benefits related service us pension plan participants amendments resulted curtailment charge 6 million 25 million 2010 2009 respectively remainder charges resulted lump sum payments certain plans exceeded sum plan interest costs service costs resulting acceleration portion previously deferred actuarial losses additional charges may recognized future particularly us pension plans due lower threshold resulting elimination service costs potentially higher lump sum payments see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” detail • product liability charges 2011 2010 additional reserves connection breast implant settlement program hormone replacement therapy products nongaap financial measures nongaap financial measures including nongaap earnings related eps information adjusted exclude certain costs expenses gains losses specified items due significant andor unusual nature evaluated individual basis items excluded segment income similar charges gains items recognized prior periods reasonably possible could reoccur future periods nongaap information intended portray results baseline performance include discovery development licensing manufacturing marketing distribution sale pharmaceutical products global basis enhance investor’s overall understanding past financial performance prospects future example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap specified items follows specified items included cost products sold include accelerated depreciation asset impairment shutdown costs 2011 specified tax benefit relates releases tax reserves specified prior periods 2010 specified tax charge relates tax charge additional us taxable income earnings foreign subsidiaries previously considered permanently reinvested offshore reconciliations gaap nongaap follows income taxes effective income tax rate earnings continuing operations income taxes 247 2011 257 2010 211 2009 effective income tax rate lower us statutory rate 35 due decision indefinitely reinvest earnings certain manufacturing operations ireland puerto rico favorable tax rates ireland puerto rico grants scheduled expire prior 2023 fluctuations effective tax rate impacted 207 million tax charge 2010 earnings mix high low tax jurisdictions contingent tax matters changes prior period estimates upon finalizing tax returns detailed discussion changes effective tax rate see “item 8 financial statementsnote 8 income taxes” future effective tax rate also adversely affected research development tax credit extended discontinued operations december 23 2009 completed splitoff remaining interest mead johnson means exchange offer bms shareholders see “item 8 financial statementsnote 5 mead johnson nutrition company initial public offering splitoff” noncontrolling interest noncontrolling interest primarily related partnerships sanofi territory covering americas related plavix net sales see “item 8 financial statementsnote 3 alliances collaborations” increase noncontrolling interest corresponds increased net sales plavix us following expected loss exclusivity plavix avaproavalide us 2012 expect significant decrease net earnings attributable noncontrolling interest net earnings discontinued operations attributable noncontrolling interest primarily relates 169 publicly owned portion mead johnson prior complete divestiture splitoff summary noncontrolling interest follows financial position liquidity capital resources net cash position follows maintain significant level working capital approximately 75 billion december 31 2011 65 billion december 31 2010 2012 future periods expect cash generated us operations together existing cash equivalents marketable securities borrowings capital markets sufficient cover cash needs dividends common stock repurchases debt repurchases strategic alliances acquisitions including acquisition inhibitex 25 billion milestone payments working capital expenditures rely shortterm borrowings meet current liquidity needs cash equivalents marketable securities held us 87 billion december 31 2011 approximately 23 billion remaining 29 billion held low tax jurisdictions attributable earnings expected indefinitely reinvested offshore cash repatriations subject restrictions certain jurisdictions may subject withholding taxes investment portfolio includes noncurrent marketable securities subject changes fair value result interest rate fluctuations market factors may impact results operations investment policy places limits investments amount time maturity investments institution policy also requires investments entered corporate financial institutions meet high credit quality standards see “item 8 financial statementsnote 10 financial instruments” discussed “strategy” loss exclusivity us largest product plavix may 2012 expected result rapid precipitous material decline operating cash flow additional regulations us could passed future could reduce results operations operating cash flow liquidity financial flexibility also continue monitor potential impact economic conditions certain european countries related impact prescription trends pricing discounts creditworthiness customers ability collect outstanding receivables direct customers currently believe economic conditions eu material impact liquidity cash flow financial flexibility mechanism limit overall credit exposures additional source liquidity sell trade receivables third parties principally wholesalers japan certain governmentbacked entities italy portugal spain sales trade receivables totaled approximately 11 billion 2011 932 million 2010 660 million 2009 amount trade receivables sold italy portugal spain 484 million 2011 477 million 2010 413 million 2009 may available factored future due ongoing european sovereign debt crisis sales agreements allow recourse event uncollectibility retain interest underlying asset sold september 2011 company replaced 20 billion revolving credit facility new 15 billion five year revolving credit facility syndicate lenders contains customary terms conditions extendable anniversary date consent lenders financial covenants new facility borrowings outstanding either revolving credit facility december 31 2011 december 31 2010 continue manage operating cash flows initiatives designed improve working capital items directly affected changes sales volume receivables inventories accounts payable following summarizes components expressed percentage trailing twelve months’ net sales credit ratings moody’s investors service moody’s longterm shortterm credit ratings currently a2 prime1 respectively longterm credit outlook remains stable standard poor’s sp longterm shortterm credit ratings currently a1 respectively longterm credit outlook remains stable fitch ratings fitch longterm shortterm credit ratings currently respectively longterm credit outlook remains negative credit ratings considered investment grade longterm ratings designate low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings designate strongest capacity timely repayment cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts cash disbursements activities investing activities financing activities operating cash flow derived adjusting net earnings noncontrolling interest noncash operating items gains losses attributed investing financing activities changes operating assets liabilities resulting timing differences receipts payments cash transactions recognized results operations result changes cash operating activities reflect timing cash collections customers alliance partners payments suppliers alliance partners employees pension contributions tax payments ordinary course business operating cash flow continued benefit improved operating performance working capital initiatives higher unpaid rebates due part timing increasing lag payments managed care organizations attributed government agencies’ administrative delays investing activities • net purchases marketable securities 859 million 2011 26 billion 2010 14 billion 2009 investments time deposits highlyrated corporate debt securities maturities greater 90 days increased manage return investment • cash used fund acquisitions amira 360 million including 50 million contingent payment 2011 zymogenetics 829 million 2010 medarex 22 billion 2009 • capital expenditures 367 million 2011 424 million 2010 730 million 2009 including costs related devens biologics facility costs support several manufacturing initiatives • proceeds 310 million received sale businesses within asiapacific region 2009 • mead johnson cash included 2009 splitoff transaction 561 million financing activities • dividend payments 23 billion 2011 22 billion 2010 25 billion 2009 dividends declared per common share 133 2011 129 2010 125 2009 december 2011 declared quarterly dividend 034 per common share expect pay dividend full year 2012 136 per share dividend decisions made quarterly basis board directors • 30 billion stock repurchase program authorized may 2010 resulting repurchase common stock 12 billion 2011 576 million 2010 • management periodically evaluates potential opportunities repurchase certain debt securities terminate certain interest rate swap contracts prior maturity cash outflows related repurchase debt 78 million 2011 855 million 2010 132 million 2009 proceeds termination interest rate swap contracts 296 million 2011 146 million 2010 194 million 2009 • proceeds issuances common stock resulting stock option exercises 601 million including 48 million cash retained excess tax benefits 2011 252 million 2010 45 million 2009 issuance common stock result stock option exercises vary period based upon fluctuations market value stock relative exercise price stock options factors • proceeds 23 billion received mead johnson initial public offering issuance mead johnson notes 2009 contractual obligations payments due period contractual obligations december 31 2011 follows includes estimated future interest payments shortterm longterm debt securities also includes accrued interest payable recognized consolidated balance sheets consists primarily accrued interest shortterm longterm debt well accrued periodic cash settlements derivatives b due uncertainty related timing reversal uncertain tax positions shortterm uncertain tax benefits provided table see “item 8 financial statementsnote 8 income taxes” detail c table excludes future contributions us pensions postretirement postemployment benefit plans required contributions contingent upon numerous factors including minimum regulatory funding requirements funded status plan due uncertainty future obligations excluded table contributions us international plans expected 430 million 2012 see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” detail addition committed 55 billion aggregate potential future research development milestone payments third parties part inlicensing development programs early stage milestones defined milestones achieved phase iii clinical trials comprised 10 billion total committed amount late stage milestones defined milestones achieved post phase iii clinical trials comprised 45 billion total committed amount payments agreements generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted addition certain royalty obligations calculated percentage net sales agreements also provide salesbased milestones aggregating 20 billion would obligated pay alliance partners upon achievement certain sales levels also certain manufacturing development commercialization obligations connection alliance arrangements practicable estimate amount obligations see “item 8 financial statementsnote 3 alliances collaborations” information regarding alliances discussion contractual obligations see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” “note 10 financial instruments” “note 21 leases” sec consent order previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain inventory management agreements imas us pharmaceutical wholesalers account nearly 100 total gross sales us biopharmaceuticals products current terms imas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 90 total gross sales us biopharmaceuticals products inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us biopharmaceuticals business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast biopharmaceuticals business outside us significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent recently issued accounting standards see “item 8 financial statementsnote 1 accounting policies” discussion impact related recently issued accounting standards critical accounting policies prepare financial statements conformity accounting principles generally accepted us preparation financial statements conformity us generally accepted accounting principles gaap requires use estimates assumptions affect reported amounts assets liabilities including disclosure contingent assets contingent liabilities date financial statements reported amounts revenue expenses reporting period critical accounting policies important financial condition results operations require difficult subjective complex judgments part management application often result need make estimates effect matters inherently uncertain new discounts 2010 us healthcare reform law medicare coverage gap managed medicaid require additional assumptions due lack historical claims experience increasing lag claims data addition new pharmaceutical company fee estimate subject external data including company’s relative share industry results uncertainty factors surrounding estimates judgments used preparation consolidated financial statements actual results may vary estimates accounting policies discussed audit committee board directors revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates recognize revenue persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally time shipment net grosstonet sales adjustments discussed involve significant estimates judgments grosstonet sales adjustments following categories grosstonet sales adjustments involve significant estimates judgments require us use information external sources see “net sales” discussion analysis significant category grosstonet sales adjustments chargebacks related government programs us businesses participate programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price account chargebacks reducing accounts receivable amount equal estimate chargeback claims attributable sale estimate chargebacks primarily based historical experience regarding programs’ chargebacks current contract prices programs consider chargeback payments levels inventory distribution channel claim processing time lag adjust reserve reflect actual experience cash discounts us certain countries offer cash discounts incentive prompt payment generally approximating 2 sales price account estimated cash discounts reducing accounts receivable based historical claims experience adjust reserve reflect actual experience managed healthcare rebates contract discounts offer rebates discounts managed healthcare organizations us manage prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit addition commercial plans well globally contract counterparties hospitals group purchasing organizations beginning 2011 rebates medicare part program included 50 discount company’s brandname drugs patients fall within medicare part coverage gap addition accrue rebates us department defense tricare retail pharmacy refund program account rebates discounts establishing accrual primarily based historical experience current contract prices consider sales performance products subject rebates discounts increasing level unbilled claims levels inventory distribution channel adjust accrual reflect actual experience medicaid rebates us businesses participate state government medicaid programs well certain qualifying federal state government programs whereby discounts rebates provided participating state local government entities discounts rebates provided programs included medicaid rebate accrual considered medicaid rebates purposes discussion retroactive january 1 2010 minimum rebates medicaid drug sales increased 151 231 medicaid rebates also extended drugs used managed medicaid plans beginning march 2010 account medicaid rebates establishing accrual primarily based historical experience well expansion prospective basis participation programs legal interpretations applicable laws new information regarding changes medicaid programs’ regulations guidelines would impact amount rebates consider outstanding medicaid claims increasing amount unbilled managed medicaid claims levels inventory distribution channel adjust accrual reflect actual experience sales returns account sales returns establishing accrual amount equal estimate sales recognized related products expected returned primarily result product expirations returns established products determine estimate sales return accrual primarily based historical experience regarding sales returns also consider factors could impact sales returns factors include levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products instances expected precipitous declines demand following loss exclusivity consider factors adjust accrual reflect actual experience sales returns accruals new products estimated primarily based historical sales returns experience similar products within line product within similar therapeutic category limited circumstances new product extension existing line product historical experience products similar therapeutic category cannot reliably estimate expected returns new product defer recognition revenue right return longer exists developed sufficient historical experience estimate sales returns estimated levels inventory distribution channel projected demand also considered new products yervoy net sales 27 million deferred patient infusion due returns policy established third quarter 2011 us pharmaceutical company fee pharma fee 2011 began paying annual nontaxdeductible fee federal government based allocation market share branded prior year sales certain government programs including medicare medicaid department veterans affairs department defense tricare 2011 pharma fee amount finalized 2012 preliminary funding 2011 based information oneyear lag pharma fee calculated based market data company well industry participants company full visibility fee classified financial reporting purposes operating expense use information external sources use information external sources estimate grosstonet sales adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information retirement benefits pension postretirement benefit plans accounted using actuarial valuations include key assumptions discount rates expected longterm rates return plan assets consultation actuaries key assumptions others salary growth retirement turnover healthcare trends mortality rates evaluated selected based expectations actual experience remeasurement date pension expense could vary within range outcomes material effect reported earnings projected benefit obligations future cash funding actual results given year may differ estimated economic factors yield high quality corporate bonds coincides cash flows plans’ estimated payouts used determining discount rate citigroup pension discount curve used us plans us plans’ pension expense 2011 determined using 525 weightedaverage discount rate present value benefit obligations december 31 2011 us plans determined using 425 discount rate discount rate used determining us plans’ pension expense 2011 reduced 1 expense would increased approximately 16 million assumed discount rate used determining projected benefit obligation december 31 2011 reduced 1 projected benefit obligation would increased approximately 11 billion expected longterm rate return plan assets estimated considering expected returns individual asset classes input external advisors also consider longterm historical returns including actual performance compared benchmarks similar investments us plans’ pension expense 2011 determined using 875 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2011 reduced 1 expense would increased 42 million detailed discussion retirement benefits see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” business combinations assets acquired liabilities assumed recognized date acquisition respective fair values excess purchase price estimated fair values net assets acquired recognized goodwill determining fair value intangible assets including iprd typically use “income method” method starts forecast expected future net cash flows risk adjusted based estimated probabilities technical regulatory success adjusted present value applying appropriate discount rate reflects risk associated cash flow streams assets valued market participant view following approaches utilized specific intangible assets acquired • iprd values preexisting relationship acquiree consider terms respective collaboration arrangement including cost profit sharing splits project’s unit account typically global view would consider potential jurisdictions indications • technology related specific platforms valued based upon expected annual number antibodies achieving early candidate nomination status • technology commercial products valued utilizing multiperiod excessearnings method income approach premise value intangible asset equal present value aftertax cash flows solely attributed intangible asset • licenses valued utilizing discounted cash flow method based estimates future riskadjusted milestone royalty payments projected earned respective products estimated economic term significant estimates assumptions include • estimates projected cash flows cash flow projections represent would realizable market participant purchaser iprd assume initial positive cash flows commence shortly receipt expected regulatory approvals typically may occur number years actual cash flows attributed project likely different assumed since projections subjected multiple factors including trial results regulatory matters could materially change respective iprds’ ultimate commercial success well significantly alter costs develop respective iprd commercially viable products • probability regulatory success ptrs rate ptrs rates based upon industry averages considering respective iprd’s development stage sought disease indications adjusted specific information data known iprd time acquisition subsequent clinical results internal external data obtained could alter ptrs rate materially impact intangible value • discount rate select discount rate measures risks inherent future cash flows assessment asset’s life cycle competitive trends impacting asset including consideration technical legal regulatory economic barriers entry well expected changes standards practice indications addressed asset • useful life determining useful life intangible asset based upon period expected contribute future cash flows pertinent matters associated asset environment operates considered including legal regulatory contractual provisions well effects obsolescence demand competition economic factors see “item 8 financial statementsnote 4 acquisitions” specific details values assigned assets acquired liabilities assumed acquisitions amira september 7 2011 zymogenetics october 12 2010 medarex september 1 2009 significant estimates utilized time valuations support fair values lead compounds within acquisitions include impairment goodwill tested least annually impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill considered impaired carrying amount reporting unit’s goodwill exceeds estimated fair value geographical reporting units aggregated impairment testing purposes based upon recent annual impairment test completed first quarter 2011 fair value goodwill substantially excess related carrying value discussion goodwill acquired inprocess research development intangible assets see “item 8 financial statementsnote 1 accounting policiesgoodwill acquired inprocess research development intangible assets” indefinitelived intangible assets including iprd indefinitelived intangible assets subject amortization tested impairment annually frequently events changes circumstances indicate asset might impaired consider various factors including stage development current legal regulatory environment competitive landscape adverse trial results significant delays obtaining marketing approval inability bring respective product market could result related intangible assets partially fully impaired commercialized products inability meet sales forecasts could result related intangible assets partially fully impaired considering industry’s success rate bringing developmental compounds market iprd impairment charges may occur future periods recognized charges 28 million 2011 10 million 2010 related three medarex projects development ceased contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability contractual claims tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies see “item 8 financial statementsnote 1 accounting policiescontingencies” “note 8 income taxes” “note 22 legal proceedings contingencies” income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives judgments subject change adjustments deferred tax valuation allowances made earnings period assessments made deferred tax assets 32 billion net valuation allowances 39 billion december 31 2011 31 billion net valuation allowances 19 billion december 31 2010 recognized deferred tax assets december 31 2011 related us federal net operating loss carryforward 251 million us federal research development tax credit carryforward 109 million net operating loss carryforward expires varying amounts beginning 2022 research development tax credit carryforwards expire varying amounts beginning 2018 realization carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured believe likely deferred tax assets realized provide taxes undistributed earnings foreign subsidiaries expected reinvested indefinitely offshore 2010 company completed internal reorganization certain legal entities contributed 207 million tax charge recognized fourth quarter 2010 possible us tax authorities could assert additional material tax liabilities arising reorganization assertion occur company would vigorously challenge assertion believes would prevail however assurance result prior mead johnson splitoff following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions relied upon certain assumptions representations covenants mead johnson regarding future conduct business matters could effect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account ela investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code irs could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations agreed certain tax related indemnities mead johnson set forth tax sharing agreement example mead johnson agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets agreed indemnify mead johnson certain taxes related business prior completion ipo created part restructuring facilitate ipo established liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 8 income taxes” special note regarding forwardlooking statements annual report form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years included important factors cautionary statements included annual report form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made undertake obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary bristolmyers squibb company may referred bristolmyers squibb bms company us global biopharmaceutical company whose mission discover develop deliver innovative medicines help patients prevail serious diseases license manufacture market distribute sell pharmaceutical products global basis following key events transactions occurred 2012 discussed detail strategy product pipeline developments results operations sections management’s discussion analysis • net sales earnings declined result loss exclusivity plavix clopidogrel bisulfate avaproavalide irbesartanirbesartanhydrochlorothiazide • received significant regulatory approvals pertaining eliquis apixaban stroke prevention patients nonvalvular atrial fibrillation nvaf forxiga dapagliflozin orencia abatacept subcutaneous formulation • acquired amylin pharmaceuticals inc amylin expanded diabetes alliance arrangement astrazeneca plc astrazeneca include amylinrelated products • discontinued development bms986094 formerly inx189 compound acquired part acquisition inhibitex inc inhibitex treat hepatitis c virus infection interest patient safety resulted 18 billion pretax impairment charge highlights following table summary financial highlights nongaap financial measures including nongaap earnings related eps information adjusted exclude specified items represent certain costs expenses gains losses items impacting comparability financial results detailed listing specified items information reconciliations nongaap financial measures see “nongaap financial measures” business environment pharmaceuticalbiotechnology industry highly competitive subject numerous government regulations many competitive factors may significantly affect sales products including product efficacy safety price demand competition costeffectiveness marketing effectiveness market access product labeling quality control quality assurance manufacturing operations research development new products successfully compete healthcare industry must demonstrate products offer medical benefits cost advantages new product introductions often compete products already market therapeutic category addition potential competition new products competitors may introduce future manufacture branded products priced higher generic products generic competition one leading challenges pharmaceuticalbiotechnology industry majority innovative product’s commercial value usually realized market exclusivity period afterwards longer protected patent subject new competing products form generic brands upon exclusivity loss experience significant reduction product’s sales short period time competitors seeking approval biological products full biologics license application bla must file safety efficacy data address challenges biologics manufacturing involving complex processes costs pharmaceutical operations us healthcare legislation enacted 2010 abbreviated path regulatory approval generic versions biological products path approval biosimilar products us healthcare legislation significantly affects regulatory data exclusivity biological products legislation provides regulatory mechanism allowing regulatory approval biologic drugs similar generic copies innovative drugs basis less extensive data required full bla possible time reasonably assess impact us biosimilar legislation company globally healthcare industry subject various governmentimposed regulations authorizing prices price controls continue impact net sales march 2010 us government enacted healthcare reform legislation signing law patient protection affordable care act hr 3590 reconciliation bill containing package changes healthcare bill continue experience additional financial costs certain changes business healthcare law provisions become effective aggregate financial impact us healthcare reform next years depends number factors including limited pending implementation guidance potential changes sales volume eligible new rebates discounts fees impact cost sharing arrangements certain alliance partners future net sales beginning 2014 could potentially positively impacted expected increase number people healthcare coverage patient protection affordable care act many markets outside us operate environments governmentmandated costcontainment programs regulatory bodies groups exerting downward pressure pricing example pricing freedom limited uk operation profit control plan germany operation reference price system many european countries continuing fiscal challenges healthcare payers including government agencies reduced expected continue reduce cost healthcare actions directly indirectly impose additional price restrictions companies also face significant delays market access new products two years elapse drug approval new medicines available countries growth managed care organizations mcos us significantly impacted competition healthcare industry mcos seek reduce healthcare expenditures participants volume purchases longterm contractual discounts various pharmaceutical providers market potential created large pool participants marketing prescription drugs mcos important part strategy companies compete inclusion mco formularies generally successful key products included believe developments managed care industry including continued consolidation continue downward pressure prices pharmaceutical biotechnology production processes complex highly regulated vary widely product shifting adding manufacturing capacity usually lengthy process requiring significant capital expenditures regulatory approvals biologics manufacturing involves complex processes traditional pharmaceutical operations biologics become larger percentage product portfolio continue maintain supply arrangements thirdparty manufacturers incur substantial investments increase internal capacity produce biologics commercial scale fda approved large scale multiproduct bulk biologics manufacturing facility devens massachusetts may 2012 maintain competitive position market strive uphold position depending success discovering developing delivering innovative costeffective products help patients prevail serious diseases subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcomes investigations litigations additional discussion legal matters see “item 8 financial statementsnote 21 legal proceedings contingencies” strategy past years transformed company focused biopharmaceutical company continue focus sustaining business building foundation future growing newer key marketed products advancing pipeline portfolio managing costs expect portfolio become increasingly diversified across products geographies next years experienced substantial exclusivity losses year plavix avaproavalide together 8 billion net sales 2011 preparing number years expected experienced rapid precipitous material decline plavix avaproavalide net sales reduction net income operating cash flow events norm industry companies experience loss exclusivity significant product also face additional exclusivity losses coming years also face significant challenges increasingly complex global regulatory environment global economic uncertainty particularly european union eu believe strategy grow newer marketed products robust research development rd pipeline particularly within therapeutic areas immunooncology cardiovascularmetabolic disease virology position us well future continue expand biologics capabilities still rely significantly small molecules strongest reliable starting point discovering potential new medicines large molecules biologics derived recombinant dna technologies becoming increasingly important currently 40 pipeline compounds biologics four key marketed products including yervoy ipilimumab also continue support pipeline licensing acquisitions strategy referred “string pearls” third quarter 2012 acquired amylin biopharmaceutical company dedicated discovery development commercialization innovative medicines patients diabetes metabolic diseases following completion acquisition amylin entered collaboration astrazeneca pharmaceuticals lp whollyowned subsidiary astrazeneca builds upon existing alliance expanding collaboration strategy currently integrating amylin business development manufacturing commercial operations also seeking build relationships academic organizations innovative programs capabilities complement internal efforts product pipeline developments manage research development rd programs portfolio basis investing resources stage research development early discovery latestage development continually evaluate portfolio rd assets ensure appropriate balance earlystage latestage programs support future growth consider rd programs entered phase iii development significant programs constitute latestage development pipeline phase iii development programs include investigational compounds phase iii development initial indications marketed products phase iii development additional indications formulations spending programs represents approximately 3040 annual rd expenses individual investigational compound marketed product represented 10 rd expenses last three years expect latestage development programs make market latestage development programs rd programs could potentially impact revenue earnings within next years following recent significant developments marketed products latestage pipeline eliquis oral factor xa inhibitor targeted stroke prevention nvaf prevention treatment venous thromboembolic vte disorders eliquis part strategic alliance pfizer inc pfizer • december 2012 us food drug administration fda approved eliquis reduce risk stroke systemic embolism patients nvaf eliquis also received regulatory approval indication japan canada december 2012 eu november 2012 south korea january 2013 • december 2012 company announced results phase iii amplifyext trial evaluated treatment eliquis compared placebo one year period prevention recurrent vte 2486 patients already completed six 12 months anticoagulation treatment vte including deep vein thrombosis pulmonary embolism trial extended treatment eliquis 25 mg 5 mg twice daily demonstrated superiority versus placebo reduction composite endpoint symptomatic recurrent vte death cause eliquis also superior placebo predefined secondary efficacy outcome recurrent vte vterelated death rate primary safety outcome major bleeding comparable across treatment groups • october 2012 company announced publication lancet reductions stroke systemic embolism major bleeding mortality demonstrated eliquis compared warfarin aristotle trial consistent across wide range stroke bleeding risk scores patients nvaf • march 2012 additional analyses aristotle averroes clinical trials presented american college cardiology’s 61st annual scientific session forxiga oral sodiumglucose cotransporter 2 sglt2 inhibitor treatment diabetes part alliance astrazeneca • november 2012 ec approved forxiga treatment type 2 diabetes eu • june 2012 72nd american diabetes association scientific sessions company astrazeneca announced results phase iii clinical study showed forxiga 10 mg demonstrated significant reductions blood sugar levels glycosylated hemoglobin levels hba1c compared placebo 24 weeks either agent added existing sitagliptin therapy without metformin adult patients type 2 diabetes results maintained 24week extension similar results observed data stratified background therapy study also demonstrated significant reductions total body weight fasting plasma glucose levels patients taking forxiga added sitigliptin without metformin results maintained throughout duration study • january 2012 fda issued complete response letter crl regarding nda dapagliflozin crl requests additional clinical data allow better assessment benefitrisk profile dapagliflozin companies continue work closely fda determine appropriate next steps dapagliflozin application ongoing discussions health authorities countries part application procedures company met fda path forward potential approval forxiga us company provide additional data ongoing studies fda expects able resubmit nda forxiga mid2013 time company expects fda sixmonth period review resubmission hold advisory committee meeting hepatitis c portfolio peginterferon lambda novel potential firstinclass type 3 interferon development daclatasvir ns5a replication complex inhibitor development asunaprevir ns3 protease inhibitor development • november 2012 company announced results global dlite phase iib study 24week regimen combining investigational compound peginterferon lambda1a investigational directacting antiviral daa daclatasvir ribavirin achieved sustained virologic response 12 weeks posttreatment treatmentnaïve genotype 1b chronic hepatitis c virus infection patients achieved protocoldefined response • november 2012 company announced phase ii data demonstrating 12week triple daa treatment regime daclatasvir asunaprevir bms791325 ns5b nonnucleoside polymerase inhibitor achieved sustained virologic response 12 weeks posttreatment 94 treatment naïve genotype 1 chronic hepatitis c virus infection patients • november 2012 company announced phase ii data demonstrating dual regiment daclatasvir asunaprevir without interferon ribavarin achieved high rates sustained virologic response 12 weeks posttreatment patients genotype 1b hepatitis c virus infections prior null responders alfa interferon ribavarin elotuzumab antics1 antibody investigation treatment multiple myeloma • december 2012 company announced results small randomized phase ii study patients previously treated myeloma two doses tested 10mgkg 20 mgkg combination lenalidomide lowdose dexamethasone 10 mgkg arm median progressionfree survival pfs time without disease progression death reached 208 months follow n36 objective response rate orr 92 patients received elotuzumab dose 20 mgkg median pfs 186 months n37 orr 76 necitumumab novel targeted cancer therapy nonsmall cell lung cancer • november 2012 provided notice termination global codevelopment cocommercialization arrangement necitumumab imc11f8 fully human monoclonal antibody investigated anticancer treatment discovered imclone part alliance company eli lilly company lilly rights returning lilly termination effective may 2014 though lilly may terminate earlier sustiva efavirenz nonnucleoside reverse transcriptase inhibitor treatment hiv • february 2013 company announced fda granted additional sixmonth period exclusivity market sustiva exclusivity sustiva us scheduled expire march 2015 baraclude entecavir oral antiviral agent treatment chronic hepatitis b • february 2013 us district court district delaware invalidated composition matter patent covering baraclude scheduled expire 2015 • october 2012 labeling update baraclude approved fda include data african americans liver transplant recipients chronic hepatitis b infection erbitux cetuximab monoclonal antibody designed exclusively target block epidermal growth factor receptor expressed surface certain cancer cells multiple tumor types well normal cells currently indicated use colorectal cancer head neck cancer erbitux part alliance lilly • july 2012 fda granted full approval erbitux combination chemotherapy regimen folfiri irinotecan 5fluorouracil leucovorin firstline treatment patients kras mutationnegative epidermal growth factor receptorexpressing metastatic colorectal cancer determined fdaapproved tests use • april 2012 fda issued crl regarding supplemental biologics license application sbla firstline nonsmall cell lung cancer stated based current data package firstline indication erbitux combination vinorelbine cisplatin approvable lilly company plan resubmit filing yervoy ipilimumab monoclonal antibody treatment patients unresectable inoperable metastatic melanoma • november 2012 national institute health clinical excellence nice recommended yervoy approved eu treatment previously treated metastatic advanced melanoma within final appraisal determination important recommendation enable eligible patients england wales routinely access treatment yervoy national health services • september 2012 company announced european society medical oncology 2012 congress longterm followup data 024 study evaluated newlydiagnosed patients treated yervoy 10mgkg combination dacarbazine versus dacarbazine alone fiveyear followup data rollover 025 study evaluated patients yervoy 03 mgkg 10 mgkg survival rates observed study 024 years three four stable higher patients treated yervoy plus dacarbazine versus patients received dacarbazine alone estimated survival rates 025 study remained unchanged relatively stable five years compared four years newlydiagnosed patients previouslydiagnosed patients orencia fusion protein indicated rheumatoid arthritis ra • october 2012 ec granted marketing authorization subcutaneous formulation orencia combination methotrexate treatment moderate severe active ra adults • june 2012 european league rheumatism annual european congress rheumatology company announced ample headtohead trial 646 patients comparing subcutaneous formulation orencia vs humira adalimumab background methotrexate mtx biologic naïve patients moderate severe ra met primary endpoint measured noninferiority demonstrating orencia plus mtx achieved comparable rates efficacy american college rheumatology criteria 20 percent acr 20 response one year 648 vs 634 humira plus mtx • may 2012 company announced fda approved company’s biologics manufacturing facility devens massachusetts commercial production orencia nulojix belatacept fusion protein novel immunosuppressive activity prevention kidney transplant rejection • june 2012 american transplant congress company announced new fouryear results longterm extensions lte benefit benefitext clinical trials nulojix first tcell costimulation blocker indicated prophylaxis organ rejection adult epsteinbarr virus seropositive patients receiving kidney transplant combination basiliximab induction mycophenolate mofetil corticosteroids results showed safety profile nulojix year four consistent compared results year three new safety signals identified renal function benefit versus cyclosporine maintained four years patients enrolled lte benefit benefitext trials onglyzakombiglyze saxagliptinonce daily combination saxagliptin metformin hydrochloride extendedrelease treatment type 2 diabetes part strategic alliance astrazeneca • july 2012 company astrazeneca announced 17th world congress heart disease results analyses showing onglyza 5mg demonstrated improvements across key measures blood sugar control glycosylated hemoglobin levels hba1c fasting plasma glucose fpg postprandial glucose ppg compared placebo adult patients type 2 diabetes high risk cardiovascular disease addition august 2012 company discontinued development bms986094 decision made interest patient safety see “item 8 financial statementsnote 13 goodwill intangible assets” information results operations net sales composition changes net sales follows includes puerto rico b includes russia turkey c includes japan china canada australia brazil among countries includes royaltyrelated revenues sales attributed supply agreements change excess 100 change us net sales 2012 attributed volume reflects recent exclusivity losses plavix avaproavalide partially offset increased demand key products addition byetta bydureon symlin following completion acquisition amylin 262 million change us net sales 2011 attributed volume reflects launch yervoy increased demand several key products partially offset decreased prescription demand avaproavalide plavix change us net sales attributed price periods result higher average net selling prices plavix abilify partially offset reduction contractual share abilify net sales 58 535 2011 reduction 515 2012 higher rebates discounts resulting us healthcare reform legislation 2011 see “key products” discussion sales key product net sales europe decreased 2012 primarily due unfavorable foreign exchange lower sales certain mature brands divestitures generic competition well generic competition plavix avaproavalide partially offset sales growth key products net sales europe increased 2011 favorable foreign exchange sales growth key products offset previously mentioned lower sales certain mature brands generic competition plavix avaproavalide net sales periods negatively impacted continuing fiscal challenges many european countries healthcare payers including government agencies reduced expected continue reduce cost healthcare actions directly indirectly impose additional price reductions measures include limited mandatory discounts rebates price reductions restrictive measures net sales rest world decreased 2012 growth certain key products japan china south korea offset generic competition plavix avaproavalide timing government purchases certain countries lower sales mature brands generic competition divestitures net sales rest world increased 2011 primarily due growth certain key products japan china south korea favorable foreign exchange partially offset generic competition avaproavalide lower sales mature brands generic competition divestitures net sales increased 2012 enhanced royaltyrelated revenues higher sales attributed active pharmaceutical ingredients supply agreements resulting recent divestitures manufacturing facilities restructured alliance agreements net sales expected continue increase 2013 result higher royalties alliance revenue attributed restructured sanofi agreement new matureoverthecounter brands collaborative agreements single country outside us contributed 10 total net sales 2012 2011 2010 general business seasonal information us pharmaceutical prescriber demand reference made table within “estimated enduser demand” sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain key products us nonus net sales categorized based upon location customer revenue reduced presented net grosstonet sales adjustments described “critical accounting policies” reconciliation gross sales net sales significant category grosstonet sales adjustments follows activities ending balances significant category grosstonet sales reserve adjustments follows grosstonet sales adjustment rates primarily function changes sales mix contractual legislative discounts rebates grosstonet sales adjustments decreased 2012 increased 2011 due • grosstonet adjustment categories sales returns adjustments decreased 2012 result lower plavix sales following loss exclusivity • managed healthcare rebates contract discounts also decreased 2012 due 67 million reduction estimated amount medicare part coverage gap discounts attributable prior period rebates receiving actual invoices nonrenewal plavix contract discounts medicare part program january 1 2012 rebates discounts increased 2011 due 50 discount patients within medicare part coverage gap • medicaid rebates also decreased 2012 due 37 million reduction estimated amount managed medicaid rebates attributable prior periods receiving actual invoices 2011 medicaid rebates increased due full year impact expansion rebates drugs used riskbased medicaid managed care plans higher average net selling prices plavix higher medicaid channel sales • provision sales returns increased result loss exclusivity us plavix may 2012 avaproavalide march 2012 us sales return reserves products december 31 2012 173 million determined considering several factors including estimated inventory levels distribution channels accordance company policy products eligible returned six months prior 12 months product expiration additional adjustments reserves might required future revised estimates various assumptions including actual returns generally expected occur 2014 2011 sales returns included 29 million reduction 44 million us return reserve established 2010 connection recall certain lots avalide due lower returns expected • adjustments increased 2012 result copay coupon programs • although presented grosstonet adjustment tables contractual share abilify atripla grosstonet sales adjustments approximately 15 billion 2012 13 billion 2011 10 billion 2010 increases primarily attributed additional rebates discounts required us healthcare reform key products net sales key products represented 84 total net sales 2012 86 2011 84 2010 following table presents us international net sales key product percentage change prior period foreign exchange impact compared prior period commentary detailing reasons significant variances key products provided change excess 100 change excess 100 plavix platelet aggregation inhibitor part alliance sanofi • us net sales decreased 2012 continue decrease 2013 due loss exclusivity may 2012 us net sales increased 2011 primarily due higher average net selling prices estimated total us prescription demand decreased 60 2012 5 2011 • international net sales continue negatively impacted generic clopidogrel products eu canada australia avaproavalide known eu aprovelkarvea angiotensin ii receptor blocker treatment hypertension diabetic nephropathy also part sanofi alliance • us net sales decreased 2012 due loss exclusivity march 2012 decreased 2011 due market share losses subsequent avalide supply shortage first quarter 2011 associated previously reported recalls decrease us net sales 2011 partially offset higher average net selling prices estimated returns total estimated us prescription demand decreased 71 2012 39 2011 • international net sales decreased periods due lower demand including generic competition certain eu markets canada eliquis oral factor xa inhibitor targeted stroke prevention atrial fibrillation prevention treatment vte disorders eliquis part strategic alliance pfizer • eliquis approved us prevention stroke systemic embolism adult patients nvaf december 2012 • eliquis approved eu vte prevention may 2011 launched limited number eu countries beginning may 2011 eliquis also approved eu prevention stroke systemic embolism adult patients nvaf november 2012 eliquis approved december 2012 japanese ministry health labor welfare prevention ischemic stroke systemic embolism patients nvaf abilify antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder part strategic alliance otsuka • us net sales increased 2012 due higher average net selling prices 62 million reduction bms’s share estimated amount customer rebates discounts attributable 2011 based actual invoices received partially offset fluctuations retail buying patterns us net sales increased 2011 due higher overall demand higher average net selling prices us net sales periods negatively impacted reduction contractual share net sales 580 2010 535 2011 515 2012 expected continue negatively impacted 2013 result reduction bms’s contractual share abilify net sales estimated approximately 35 estimated total us prescription demand increased 1 2012 5 2011 • international net sales increased periods primarily due higher demand international net sales impacted unfavorable foreign exchange 2012 favorable foreign exchange 2011 reyataz protease inhibitor treatment human immunodeficiency virus hiv • us net sales increased 2012 due higher average net selling prices estimated total prescription demand decreased 5 2012 increased 2 2011 • international net sales decreased 2012 due unfavorable foreign exchange timing government purchases certain countries lower demand resulting competing products international net sales increased 2011 due higher demand sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla efavirenz 600 mgemtricitabine 200 mgtenofovir disoproxil fumarate 300 mg product sold joint venture gilead • us net sales increased periods primarily due higher demand higher average net selling prices estimated total us prescription demand decreased 1 2012 increased 7 2011 • international net sales decreased 2012 due unfavorable foreign exchange international net sales 2011 increased primarily due higher demand baraclude oral antiviral agent treatment chronic hepatitis b • net sales periods increased primarily due higher demand • may experience rapid significant decline us net sales beginning 2013 due possible generic competition following federal court’s decision february 2013 invalidating composition matter patent erbitux monoclonal antibody designed exclusively target block epidermal growth factor receptor expressed surface certain cancer cells multiple tumor types well normal cells currently indicated use colorectal cancer head neck cancer erbitux part strategic alliance lilly • sold us almost exclusively us net sales remained relatively flat 2012 increased 2011 primarily due higher demand sprycel oral inhibitor multiple tyrosine kinases indicated treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia chronic phase sprycel part strategic alliance otsuka • us net sales periods increased primarily due higher demand higher average net selling prices estimated total us prescription demand increased 29 2012 30 2011 • international net sales periods increased primarily due higher demand international net sales impacted unfavorable foreign exchange 2012 favorable foreign exchange 2011 • demand 2011 positively impacted approval sprycel firstline treatment adult patients newly diagnosed philadelphia chromosomepositive chronic myeloid leukemia chronic phase us eu fourth quarter 2010 yervoy monoclonal antibody treatment patients unresectable inoperable metastatic melanoma • yervoy net sales increased higher demand since launch us second quarter 2011 continued launches number international countries since second quarter 2011 orencia fusion protein indicated adult patients moderate severe rheumatoid arthritis inadequate response one currently available treatments methotrexate antitumor necrosis factor therapy • us net sales increased periods primarily due higher demand including launch orencia subcutaneous formulation sc fourth quarter 2011 higher average net selling prices • international net sales increased periods primarily due higher demand including launch orencia sc certain european markets beginning second quarter 2012 international net sales impacted unfavorable foreign exchange 2012 favorable foreign exchange 2011 nulojix fusion protein novel immunosuppressive activity targeted prevention kidney transplant rejection • nulojix approved launched us eu 2011 onglyzakombiglyze known eu onglyzakomboglyze oncedaily oral tablet treatment type 2 diabetes part strategic alliance astrazeneca • us net sales onglyzakombiglyze increased periods primarily due higher overall demand higher average net selling prices 2012 kombiglyze launched us fourth quarter 2010 • international net sales increased periods primarily due higher demand partially offset unfavorable foreign exchange 2012 byetta twice daily glucagonlike peptide1 glp1 receptor agonist treatment type 2 diabetes • byetta net sales included results following completion acquisition amylin third quarter 2012 bydureon onceweekly glp1 receptor agonist treatment type 2 diabetes • bydureon launched amylin us first quarter 2012 eu second quarter 2012 net sales included results following completion acquisition amylin third quarter 2012 mature products includes products including lost exclusivity major markets overthecounter brands royaltyrelated revenue • us net sales continued decrease 2012 generic erosion certain products partially offset sales symlin following completion amylin acquisition third quarter 2012 • international net sales decreased periods due continued generic erosion certain brands unfavorable foreign exchange 2012 estimated us prescription change data provided throughout report includes information retail mail order channels reflect product demand within channels hospitals home health care clinics federal facilities including veterans administration hospitals longterm care among others data provided wolters kluwer health wk except sprycel based source prescription audit sprycel demand based upon information nextgeneration prescription service version 20 national prescription audit provided ims health ims data product respective service providers’ recordkeeping projection processes therefore subject inherent limitations estimates based sampling may include margin error continuously seek improve quality estimates prescription change amounts ultimate patientconsumer demand reviewing calculation methodologies employed analyzing internal thirdparty data expect continue review refine methodologies processes calculation estimates monitor quality third parties’ data used calculations calculated estimated total us prescription change weightedaverage basis reflect fact mail order prescriptions include greater volume product supplied compared retail prescriptions mail order prescriptions typically reflect 90day prescription whereas retail prescriptions typically reflect 30day prescription calculation derived multiplying mail order prescription data factor approximates three adding retail prescriptions believe calculation estimated total us prescription change based weightedaverage approach provides superior estimate total prescription demand retail mail order channels use methodology internal demand reporting estimated enduser demand following tables set forth key products sold us years ended december 31 2012 2011 2010 change reported us net sales year ii estimated total us prescription change retail mail order channels calculated us based thirdparty data weightedaverage basis iii months inventory hand wholesale distribution channel sustiva franchise includes sales sustiva well revenue bulk efavirenz included combination therapy atripla months hand relates sustiva b erbitux yervoy nulojix parenterally administered products prescriptionlevel data physicians write prescriptions products c orencia intravenous formulation parenterally administered product prescriptionlevel data physicians write prescriptions product orencia subcutaneous formulation orencia sc parenterally administered launched us fourth quarter 2011 orencia sc sales 201 million 2012 15 million 2011 yervoy nulojix launched us second quarter 2011 e byetta bydureon net sales included results following completion acquisition amylin third quarter 2012 change excess 100 pursuant us securities exchange commission sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception estimated levels inventory distribution channel excess one month hand products material dates indicated us products estimated levels inventory distribution channel excess one month hand december 31 2012 international products estimated levels inventory distribution channel excess one month hand september 30 2012 plavix 13 months inventory hand us compared 05 months inventory hand december 31 2011 due loss exclusivity may 2012 expect gradual decrease inventory hand plavix occur next years product wholesale distribution channel continues worked returned levels inventory hand wholesale retail distribution channels considered assessing sales return reserves established december 31 2012 avaproavalide 19 months inventory hand us compared 06 inventory hand december 31 2011 due loss exclusivity march 2012 onetime increase 3 million inventory wholesale retail distribution channels corresponding transition avaproavalide manufacturing sanofi pursuant restructured agreement levels inventory hand wholesale retail distribution channels considered assessing sales return reserves established december 31 2012 dafalgan analgesic product sold principally europe 11 months inventory hand direct customers compared 10 months inventory hand december 31 2011 level inventory hand primarily due ordering patterns pharmacists france fervex cold flu product 29 months inventory hand internationally direct customers compared 53 months inventory hand december 31 2011 level inventory hand decreased following peak flu season remaining inventory hand primarily attributable ordering patterns pharmacists france luftal antacid product 15 months inventory hand internationally direct customers compared 19 months inventory hand december 31 2011 level inventory hand primarily due government purchasing patterns brazil us products sold exclusively wholesalers distributors generally determined months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 90 total gross sales us products provided distributors factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes businesses outside us significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely cases direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available developed variety methodologies estimate data including using factors historical sales made direct customers thirdparty market research data related prescription trends enduser demand accordingly rely variety methods estimate direct customer product level inventory calculate months hand factors may affect estimates include generic competition seasonality products direct customer purchases light price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2012 available prior filing annual report form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q expenses change excess 100 cost products sold cost products sold consists material costs internal labor overhead owned manufacturing sites thirdparty processing costs supply chain costs settlement foreign currency forward contracts used hedge forecasted intercompany inventory purchase transactions essentially costs managed global manufacturing supply organization cost products also includes royalties profit sharing attributed licensed products alliances amortization acquired developed technology costs business combinations milestone payments occur regulatory approval cost products sold vary periods result product mix particularly resulting royalties profit sharing expenses connection alliances price inflation costs attributed rationalization manufacturing sites resulting accelerated depreciation impairment charges stranded costs addition changes foreign currency may also provide volatility given high percentage total costs denominated foreign currencies cost products sold percentage net sales 262 2012 264 2011 271 2010 decrease cost products sold 2012 primarily attributed lower sales volume following loss exclusivity plavix avaproavalide resulted lower royalties connection sanofi alliance favorable foreign exchange partially offset impairment charges discussed higher amortization costs resulting amylin acquisition net amortization amylin collaboration proceeds impairment charges 147 million recognized 2012 120 million related partial writedown fair value developed technology costs related nonkey product recothrom acquired acquisition zymogenetics inc zymogenetics developed technology impairment charge resulted continued competitive pricing pressures reduction undiscounted projected cash flows amount less carrying value intangible asset impairment charge calculated difference fair value asset based discounted value estimated future cash flows carrying value intangible asset remaining 27 million impairment charge related abandonment manufacturing facility resulting outsourcing manufacturing process increase 2011 primarily attributable higher sales volume resulting additional royalties collaboration fees profit sharing expense unfavorable foreign exchange marketing selling administrative marketing selling administrative expenses consist salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs expenses attributed product manufacturing costs research development expenses managed regional commercialization organizations global corporate organizations finance law information technology human resources • marketing selling administrative expenses increased slightly 2012 primarily result amylin acquisition 125 million including 67 million related accelerated vesting stock options restricted stock units partially offset reduction salesrelated activities plavix avaproavalide marketing selling administrative expenses also impacted favorable foreign exchange • increase 2011 attributed annual pharmaceutical company fee unfavorable foreign exchange higher marketing costs support new launches key products lesser extent higher bad debt expense eu charitable funding information technology expenses • annual pharmaceutical company fee 246 million 2012 220 million 2011 information regarding annual pharmaceutical company fee refer “item 1 businessgovernment regulation price constraints” advertising product promotion advertising product promotion expenses consist related media sample direct consumer programs • decrease 2012 primarily attributed lower spending promotion plavix avaproavalide abilify certain mature brands us coincide product life cycle research development research development expenses consist salary benefit costs thirdparty grants fees paid clinical research organizations supplies facility costs total research development expenses include costs discovery research preclinical development early lateclinical development drug formulation well clinical trials medical support marketed products proportionate allocations enterprisewide costs facilities information technology employee stock compensation costs appropriate costs expenses also include thirdparty licensing fees typically paid upfront well regulatory contractual milestones met certain expenses shared alliance partners based upon contractual agreements expenses managed global research development organization approximately 19 billion total spend attributed development activities remainder attributed preclinical research activities expenses vary periods number reasons including timing upfront milestone licensing payments • research development expenses increased 2012 primarily 60 million expenses related amylin acquisition including 27 million related accelerated vesting amylin stock options restricted stock units partially offset favorable foreign exchange net impact upfront milestone licensing payments iprd impairment charges refer “specified items” included “nongaap financial measures” amounts attributed period iprd impairment charges relate projects previously acquired medarex inc medarex acquisition inhibitex acquisition including 45 million 2012 related fv100 nucleoside inhibitor reduction shinglesassociated pain resulting unfavorable clinical trial results decisions cease development • increase 2011 attributed higher upfront milestone licensing payments unfavorable foreign exchange additional development costs resulting acquisition zymogenetics upfront milestone licensing payments 207 million 2011 including 88 million payment associated amendment intellectual property license agreement yervoy prior fda approval payments exclusive licenses develop commercialize certain programs compounds impairment charge bms986094 intangible asset 18 billion impairment charge recognized development bms986094 formerly inx189 compound acquired part acquisition inhibitex treat hepatitis c virus infection discontinued interest patient safety see “item 1 financial statements note 13 goodwill intangible assets” information incomeexpense include • interest expense increased due termination interest rate swap contracts 2011 higher borrowings 2012 • investment income included 10 million gain sale auction rate securities 2012 • provision restructuring primarily attributable employee termination benefits continuous improvement initiatives additional employee termination costs approximately 300 million expected incurred 2013 result workforce reductions several european countries majority costs recognized completion discussions local workers council subject local regulations expected employee reductions primarily attributed sales force personnel resulting restructuring sanofi otsuka agreements streamlining operations due challenging market conditions europe • litigation chargesrecoveries 2012 included 172 million share apotex damages award concerning plavix partially offset increases reserves product liability pricing sales promotional matters • equity net income affiliates primarily related international partnership sanofi decreased 2012 result continued impact generic competition international plavix net sales conversion certain territories optout markets impact unfavorable foreign exchange • impairment loss sale manufacturing operations 2010 primarily attributed disposal manufacturing operations latina italy • outlicensed intangible asset impairment charges related assets acquired medarex inc medarex zymogenetics acquisitions resulted unfavorable clinical trial results andor abandonment programs similar charges 15 million included research development 2011 • gain sale product lines businesses assets primarily related sale building mexico 2012 sale mature brands 2011 2010 • income alliance partners includes income earned sanofi partnership amortization certain upfront milestone licensing payments related alliances decrease us plavix net sales resulted lower development royalties owed sanofi 2012 • pension settlement charge recognized 2012 primary us pension plan result annual lump sum payments exceeding interest service costs fourth quarter charge included acceleration portion unrecognized actuarial losses similar charges might occur future see “item 8 financial statementsnote 18 pension postretirement postemployment liabilities” detail • change primarily related higher acquisition costs losses debt repurchases 2012 sales tax reimbursements gains debt repurchases higher upfront milestone licensing receipts 2011 nongaap financial measures nongaap financial measures including nongaap earnings related eps information adjusted exclude certain costs expenses gains losses specified items due significant andor unusual nature evaluated individual basis similar charges gains items recognized prior periods reasonably possible could reoccur future periods nongaap information intended portray results baseline performance include discovery development licensing manufacturing marketing distribution sale pharmaceutical products global basis enhance investor’s overall understanding past financial performance prospects future example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap specified items follows 2012 specified tax benefit relates capital loss deduction 2011 specified tax benefit relates releases tax reserves specified prior periods 2010 specified tax charge relates tax charge additional us taxable income earnings foreign subsidiaries previously considered indefinitely reinvested offshore reconciliations gaap nongaap follows income taxes 161 million income tax benefit 2012 attributable 392 million capital loss deduction resulting tax insolvency inhibitex impact deduction reduced effective tax rate 167 percentage points addition impact effective tax rate 2012 substantially lower 247 2011 257 2010 resulting primarily favorable earnings mix high low tax jurisdictions change earnings mix primarily attributed lower plavix sales 1830 million impairment charge bms986094 intangible asset us lesser extent internal transfer intellectual property transfer selected intellectual property rights outside us existing new products part strategy place key assets closer manufacturing distribution operational decisions made favorable earnings mix high low tax jurisdictions expected continue least 2013 excluding impact impairment charge historically effective income tax rate lower us statutory rate 35 due decision indefinitely reinvest earnings certain manufacturing operations ireland puerto rico favorable tax rates ireland puerto rico grants scheduled expire prior 2023 american taxpayer relief act 2012 act signed law january 2 2013 provisions act included retroactive reinstatement rd tax credit look exception 2012 2013 result 2012 rd tax credit look exception benefit recognized first quarter 2013 detailed discussion income taxes changes effective tax rates refer “item 8 financial statementsnote 7 income taxes” noncontrolling interest noncontrolling interest primarily related plavix avaproavalide partnerships sanofi territory covering americas see “item 8 financial statementsnote 3 alliances collaborations” decrease noncontrolling interest 2012 resulted exclusivity loss us avaproavalide march 2012 plavix may 2012 increase noncontrolling interest 2011 corresponds increased net sales plavix us summary noncontrolling interest follows financial position liquidity capital resources net cashdebt position follows current net debt position reduction working capital 2012 resulted primarily net cash used connection acquisitions amylin inhibitex cash equivalents marketable securities held us approximately 13 billion december 31 2012 remaining 51 billion held primarily lowtax jurisdictions attributable earnings expected indefinitely reinvested offshore cash repatriations subject restrictions certain jurisdictions may subject withholding additional us income taxes started issuing commercial paper meet nearterm domestic liquidity requirements preparation amylin acquisition third quarter 2012 average amount commercial paper outstanding 224 million weightedaverage interest rate 016 2012 maximum monthend amount commercial paper outstanding 700 million outstanding borrowings december 31 2012 likely continue issue commercial paper meet domestic liquidity requirements needed investment portfolio includes noncurrent marketable securities subject changes fair value result interest rate fluctuations market factors may impact results operations investment policy places limits investments amount time maturity investments institution policy also requires investments entered corporate financial institutions meet high credit quality standards see “item 8 financial statementsnote 9 financial instruments” currently two separate 15 billion fiveyear revolving credit facilities syndicate lenders including new facility entered july 2012 facilities provide customary terms conditions financial covenants extendable anniversary date consent lenders borrowings outstanding either revolving credit facility december 31 2012 2011 connection 2012 amylin acquisition bms issued 20 billion senior unsecured notes registered public offering consisting 750 million aggregate principal amount 0875 notes due 2017 750 million aggregate principal amount 2000 notes due 2022 500 million aggregate principal amount 3250 notes due 2042 bms completed acquisition amylin aggregate purchase price 53 billion 2012 bms also assumed amylin’s net debt contractual payment obligation lilly together totaling 20 billion substantially repaid 2012 acquisition financed use existing cash balances issuance commercial paper longterm debt borrowings described additional regulations us could passed future could reduce results operations operating cash flow liquidity financial flexibility also continue monitor potential impact economic conditions certain european countries related impact prescription trends pricing discounts creditworthiness customers ability collect outstanding receivables direct customers currently believe economic conditions eu material impact liquidity cash flow financial flexibility mechanism limit overall credit exposures additional source liquidity sell trade receivables third parties principally wholesalers japan certain governmentbacked entities italy portugal spain sales trade receivables italy portugal spain 322 million 2012 484 million 2011 476 million 2010 sales receivables japan 634 million 2012 593 million 2011 456 million 2010 sales agreements allow recourse event uncollectibility retain interest underlying assets sold continue manage operating cash flows initiatives designed improve working capital items directly affected changes sales volume receivables inventories accounts payable 2012 following changes receivables inventories accounts payable resulted primarily rapid reduction plavix sales acquisition amylin timing expenditures ordinary course business credit ratings moody’s investors service longterm shortterm credit ratings currently a2 prime1 respectively longterm credit outlook remains stable standard poor’s sp longterm shortterm credit ratings currently a1 respectively longterm credit outlook remains stable sp upgraded shortterm credit rating a1 may 2012 fitch ratings fitch longterm shortterm credit ratings currently respectively longterm credit outlook remains negative fitch lowered longterm credit rating july 2012 credit ratings considered investment grade longterm ratings designate low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings designate strongest capacity timely repayment cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts cash disbursements activities investing activities financing activities operating cash flow derived adjusting net earnings noncontrolling interest noncash operating items gains losses attributed investing financing activities changes operating assets liabilities resulting timing differences receipts payments cash transactions recognized results operations result changes cash operating activities reflect timing cash collections customers alliance partners payments suppliers alliance partners employees pension contributions tax payments ordinary course business 21 billion increase operating cash flow 2012 primarily attributable preliminary proceeds 36 billion received astrazeneca consideration entering amylin collaboration partially offset lower operating cash flows attributed plavix avaproavalide sales reductions following exclusivity loss products investing activities • cash used fund acquisitions amylin 50 billion inhibitex 25 billion 2012 amira 360 million including 50 million contingent payment 2011 zymogenetics 829 million 2010 • net sales maturities marketable securities 13 billion 2012 primarily attributed funding amylin acquisition net purchases marketable securities 859 million 2011 26 billion 2010 primarily attributed timing investments time deposits corporate debt securities maturities greater 90 days • investing activities included litigation recoveries 102 million 2011 financing activities • dividend payments 23 billion 2012 23 billion 2011 22 billion 2010 dividends declared per common share 137 2012 133 2011 129 2010 december 2012 declared quarterly dividend 035 per common share expect pay dividend full year 2013 140 per share dividend decisions made quarterly basis board directors • proceeds received issuance senior unsecured notes repayments debt assumed amylin acquisition 20 billion 2012 • management periodically evaluates potential opportunities repurchase certain debt securities terminate certain interest rate swap contracts prior maturity cash outflows related repurchase debt 109 million 2012 78 million 2011 855 million 2010 proceeds termination interest rate swap contracts 2 million 2012 296 million 2011 146 million 2010 • board directors increased authorization repurchase common stock 30 billion june 2012 common stock repurchase capacity remaining 18 billion december 31 2012 cash used repurchase common stock 24 billion 2012 12 billion 2011 576 million 2010 • proceeds stock option exercises 463 million including 71 million cash retained excess tax benefits 2012 601 million including 47 million cash retained excess tax benefits 2011 252 million 2010 amount proceeds vary period based upon fluctuations market value stock relative exercise price stock options factors contractual obligations payments due period contractual obligations december 31 2012 follows includes estimated future interest payments shortterm longterm debt securities also includes accrued interest payable recognized consolidated balance sheets consists primarily accrued interest shortterm longterm debt well accrued periodic cash settlements derivatives b due uncertainty related timing reversal uncertain tax positions shortterm uncertain tax benefits provided table see “item 8 financial statementsnote 7 income taxes” detail c table excludes future contributions us pensions postretirement postemployment benefit plans required contributions contingent upon numerous factors including minimum regulatory funding requirements funded status plan due uncertainty future obligations excluded table contributions us international plans expected 100 million 2013 see “item 8 financial statementsnote 18 pension postretirement postemployment liabilities” detail addition committed 60 billion aggregate potential future research development milestone payments third parties part inlicensing development programs early stage milestones defined milestones achieved phase iii clinical trials comprised 11 billion total committed amount late stage milestones defined milestones achieved post phase iii clinical trials comprised 49 billion total committed amount payments agreements generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted addition certain royalty obligations calculated percentage net sales agreements also provide salesbased milestones aggregating 21 billion would obligated pay alliance partners upon achievement certain sales levels also certain manufacturing development commercialization obligations connection alliance arrangements practicable estimate amount obligations see “item 8 financial statementsnote 3 alliances collaborations” information regarding alliances discussion contractual obligations see “item 8 financial statementsnote 18 pension postretirement postemployment liabilities” “note 9 financial instruments” “note 20 leases” sec consent order previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain inventory management agreements imas us pharmaceutical wholesalers account nearly 100 gross us sales current terms imas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 90 gross us sales inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast nonus business significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent recently issued accounting standards none applicable critical accounting policies preparation financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenue expenses critical accounting policies significantly impact financial condition results operations require difficult subjective complex judgments often result need make estimates effect matters inherently uncertain uncertainty actual results may vary estimates accounting policies discussed audit committee board directors revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates recognize revenue persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally time shipment revenue also reduced grosstonet sales adjustments discussed involve significant estimates judgment considering legal interpretations applicable laws regulations historical experience payer channel mix eg medicare medicaid current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel estimates assessed period adjusted required revised information actual experience addition see “net sales” discussion analysis significant category grosstonet sales adjustments grosstonet sales adjustments following categories grosstonet sales adjustments involve significant estimates judgments information obtained external sources see “net sales” discussion analysis significant category grosstonet sales adjustments chargebacks related government programs us business participates programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price accounts receivable reduced estimated amount unprocessed chargeback claims attributable sale typically within two four week time lag cash discounts us certain countries cash discounts offered incentive prompt payment generally approximating 2 sales price accounts receivable reduced estimated amount unprocessed cash discounts typically within 1 month time lag managed healthcare rebates contract discounts rebates discounts offered managed healthcare organizations us managing prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit addition commercial plans well contract counterparties hospitals group purchasing organizations globally beginning 2011 rebates medicare part program included 50 discount company’s brandname drugs patients fall within medicare part coverage gap rebates also required us department defense tricare retail pharmacy refund program estimated amount unpaid unbilled rebates discounts presented liability 67 million reversal estimated amount 2011 medicare part coverage gap discounts occurred 2012 receipt actual invoices medicaid rebates us businesses participates state government medicaid programs qualifying federal state government programs requiring discounts rebates participating state local government entities discounts rebates provided programs included medicaid rebate accrual retroactive january 1 2010 minimum rebates medicaid drug sales increased 151 231 medicaid rebates also extended drugs used managed medicaid plans beginning march 2010 estimated amount unpaid unbilled rebates presented liability 37 million reversal estimated amount 2010 2011 managed medicaid discounts occurred 2012 receipt actual invoices sales returns products typically eligible returned six months prior twelve months product expiration accordance policy estimated returns established products determined considering historical experience factors including levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products instances expected precipitous declines demand following loss exclusivity estimated amount product returns presented liability reserves 173 million established plavix avaproavalide december 31 2012 considering relevant factors well estimated future retail wholesale inventory work would occur loss exclusivity estimated returns new products determined considering historical sales return experience similar products within product line similar therapeutic category defer recognition revenue right return expires sufficient historical experience estimate sales returns developed limited circumstances typically occurs new product extension existing line product historical experience products similar therapeutic category lacking estimated levels inventory distribution channel projected demand also considered estimating sales returns new products although reflected gross net adjustment 27 million revenue related yervoy deferred 2011 result limited returns experience use information external sources information external sources used estimate grosstonet sales adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information retirement benefits accounting pension postretirement benefit plans requires actuarial valuations based significant assumptions discount rates expected longterm rates return plan assets consultation actuaries significant assumptions others salary growth retirement turnover healthcare trends mortality rates evaluated selected based expectations actual experience remeasurement date pension expense could vary within range outcomes material effect reported earnings projected benefit obligations future cash funding actual results given year may differ estimated economic factors yield high quality corporate bonds coincides cash flows plans’ estimated payouts used determining discount rate citigroup pension discount curve used us plans us plans’ pension expense 2012 determined using 425 weightedaverage discount rate present value benefit obligations december 31 2012 us pension plans determined using 374 discount rate discount rate used determining us plans’ pension expense 2012 reduced additional 1 expense would increase approximately 12 million assumed discount rate used determining us pension plans’ projected benefit obligation december 31 2012 reduced additional 1 projected benefit obligation would increase approximately 12 billion expected longterm rate return plan assets estimated considering expected returns individual asset classes input external advisors also consider longterm historical returns including actual performance compared benchmarks similar investments us plans’ pension expense 2012 determined using 875 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2012 reduced 1 expense would increase 47 million detailed discussion retirement benefits see “item 8 financial statementsnote 18 pension postretirement postemployment liabilities” business combinations goodwill intangible assets acquired business combinations licensing transactions 164 billion december 31 2012 representing 46 total assets acquired liabilities assumed recognized date acquisition respective fair values excess purchase price estimated fair values net assets acquired recognized goodwill fair value intangible assets including iprd typically determined using “income method” method starts forecast net cash flows risk adjusted estimated probabilities technical regulatory success iprd adjusted present value using appropriate discount rate reflects risk associated cash flow streams assets valued market participant view might different specific bms views valuation process complex requires significant input judgment using internal external sources although valuations required finalized within oneyear period must consider facts evidence available acquisition date complex judgmental matters applicable valuation process summarized • unit account intangible assets valued single global assets rather multiple assets jurisdiction indication considering development stage expected levels incremental costs obtain additional approvals risks associated development amount timing benefits expected derived future expected patent lives various jurisdictions intention promote asset global brand • estimated useful life asset life expected contribute meaningful cash flows determined considering pertinent matters associated asset including expected regulatory approval dates unapproved exclusivity periods legal regulatory contractual provisions well effects obsolescence demand competition economic factors including barriers entry • probability technical regulatory success ptrs rate ptrs rates determined based upon industry averages considering respective programs development stage disease indication adjusted specific information data known acquisition date subsequent clinical results internal external data obtained could alter ptrs rate materially impact estimated fair value intangible asset subsequent periods leading impairment charges • projections future revenues estimated considering many factors initial market opportunity pricing sales trajectories peak sales levels competitive environment product evolution future costs expenses estimated considering historical market trends market participant synergies timing level additional development costs obtain initial additional regulatory approvals maintain enhance product generally assume initial positive cash flows commence shortly receipt expected regulatory approvals typically may occur number years actual cash flows attributed project likely different assumed since projections subjected multiple factors including trial results regulatory matters could materially change ultimate commercial success asset well significantly alter costs develop respective asset commercially viable products • tax rates expected future income tax effected using market participant tax rate recent valuations typically use us tax rate applicable state taxes considering jurisdiction intellectual property held location research manufacturing infrastructure also considered earnings repatriation would likely us tax consequences • discount rate discount rates selected considering risks inherent future cash flows assessment asset’s life cycle competitive trends impacting asset including consideration technical legal regulatory economic barriers entry well expected changes standards practice indications addressed asset see “item 8 financial statementsnote 4 acquisitions” specific details values assigned assets acquired liabilities assumed acquisitions amylin inhibitex 2012 amira 2011 zymogenetics 2010 significant estimates utilized time valuations support fair values lead compounds within acquisitions include impairment goodwill 76 billion december 31 2012 goodwill tested least annually impairment enterprise level assessing qualitative factors performing quantitative analysis determining whether likely fair value exceeds carrying value examples qualitative factors assessed current year included share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year positive negative influences relevant factor assessed individually aggregate result concluded additional quantitative testing required discussion goodwill acquired inprocess research development intangible assets see “item 8 financial statementsnote 1 accounting policiesgoodwill acquired inprocess research development intangible assets” intangible assets including iprd intangible assets 88 billion december 31 2012 including licenses 626 million developed technology rights 72 billion capitalized software 261 million iprd 668 million intangible assets tested impairment whenever current facts circumstances warrant review although iprd required tested least annually intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment common potential risks leading impairment include competition earlier expected loss exclusivity pricing pressures adverse regulatory changes clinical trial results delay failure obtain regulatory approval additional development costs inability achieve expected synergies higher operating costs changes tax laws macroeconomic changes complexity estimating fair value intangible assets connection impairment test similar initial valuation considering high risk nature research development industry’s success rate bringing developmental compounds market iprd impairment charges likely occur future periods recognized charges 21 billion 2012 including 18 billion charge resulting discontinued development bms986094 projects previously acquired medarex inc inhibitex acquisition resulting unfavorable clinical trial results additional development costs extended development periods decisions cease development also recognized charges 30 million 2011 10 million 2010 related three medarex projects development ceased iprd closely monitored assessed period impairment addition iprd commercial assets also subject impairment example impairment charge 120 million recognized 2012 related nonkey product recothrom acquired acquisition zymogenetics continuing competitive pricing pressures preliminary estimated fair value developed technology rights resulting acquisition amylin 63 billion including 53 billion allocated recentlylaunched single asset bydureon assets monitored changes expectations used initial valuation including revenue trends operating synergies contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability contractual claims tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies see “item 8 financial statementsnote 1 accounting policiescontingencies” “note 7 income taxes” “note 21 legal proceedings contingencies” income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecasts future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made deferred tax assets 51 billion net valuation allowances 44 billion december 31 2012 32 billion net valuation allowances 39 billion december 31 2011 deferred tax assets related us federal net operating loss carryforward 170 million us federal tax credit carryforward 31 million recognized december 31 2012 net operating loss carryforward expires varying amounts beginning 2022 us federal tax credit carryforward expires varying amounts beginning 2017 realization carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured believe likely deferred tax assets realized addition deferred tax asset related us federal state capital loss 794 million recognized december 31 2012 carried back three years carried forward five years realization carryforward dependent upon generating sufficient capital gains prior expiration 411 million valuation allowance established item december 31 2012 taxes provided undistributed earnings foreign subsidiaries expected reinvested indefinitely offshore 2010 company completed internal reorganization certain legal entities contributed 207 million tax charge recognized fourth quarter 2010 possible us tax authorities could assert additional material tax liabilities arising reorganization assertion occur company would vigorously challenge assertion believes would prevail however assurance result prior mead johnson nutrition company mead johnson splitoff 2009 following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions certain assumptions representations covenants mead johnson relied upon regarding future conduct business matters could affect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account ela existed investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code irs could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations 2009 agreed certain tax related indemnities mead johnson set forth tax sharing agreement example mead johnson agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets agreed indemnify mead johnson certain taxes related business prior completion ipo created part restructuring facilitate ipo established liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 7 income taxes” special note regarding forwardlooking statements annual report form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years included important factors cautionary statements included annual report form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made undertake obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary bristolmyers squibb company may referred bristolmyers squibb bms company us global specialty care biopharmaceutical company whose mission discover develop deliver innovative medicines help patients prevail serious diseases license manufacture market distribute sell pharmaceutical products global basis comparability total revenues earnings prior year periods impacted reduction share abilify aripiprazole revenues 515 2012 340 2013 acquisition amylin expanded diabetes alliance arrangement astrazeneca 2012 loss exclusivity plavix 2012 18 billion intangible asset impairment charge 2012 transitioned away plavix avaproavalide continued grow key brands also shifted strategic focus earlystage research development advanced immunooncology portfolio hepatitis c portfolio rest latestage pipeline february 2014 bms sold astrazeneca diabetes business bms comprised global alliance including rights ownership onglyza saxagliptin forxiga dapagliflozin bydureon exenatide extendedrelease injectable suspension byetta exenatide symlin pramlintide acetate metreleptin astrazeneca paid 27 billion bms closing 600 million milestone february 2014 approval farxiga dapagliflozin us make contingent regulatory salesbased milestone payments 800 million royalty payments based net sales 2025 see “item 8 financial statementsnote 5 assets heldforsale” discussion highlights following table summarizes financial information nongaap financial measures including nongaap earnings related eps information adjusted exclude specified items represent certain costs expenses gains losses items impacting comparability financial results detailed listing specified items information reconciliations nongaap financial measures see “nongaap financial measures” business environment pharmaceuticalbiotechnology industry highly competitive subject numerous government regulations many competitive factors may significantly affect revenues products including product efficacy safety price demand competition costeffectiveness marketing effectiveness market access product labeling quality control quality assurance manufacturing operations research development new products successfully compete healthcare industry must demonstrate products offer medical benefits cost advantages new product introductions often compete products already market therapeutic category addition potential competition new products competitors may introduce future manufacture branded products priced higher generic products generic competition one key challenges pharmaceuticalbiotechnology industry majority innovative product’s commercial value usually realized market exclusivity period afterwards longer protected patent subject new competing products form generic brands upon exclusivity loss experience significant reduction product’s sales short period time competitors seeking approval biological products full biologics license application bla must file safety efficacy data address challenges biologics manufacturing involving complex processes costs pharmaceutical operations us healthcare legislation enacted 2010 abbreviated path regulatory approval biosimilar versions biological products path approval biosimilar products us healthcare legislation significantly affects regulatory data exclusivity biological products legislation provides regulatory mechanism allowing regulatory approval biologic drugs similar necessarily generic copies innovative drugs basis less extensive data required full bla possible time reasonably assess impact us biosimilar legislation company globally healthcare industry subject various governmentimposed regulations authorizing prices price controls continue impact total revenues march 2010 us government enacted healthcare reform legislation signing law patient protection affordable care act hr 3590 reconciliation bill containing package changes healthcare bill continue experience additional financial costs certain changes business healthcare law provisions become effective aggregate financial impact us healthcare reform next years depends number factors including limited pending implementation guidance potential changes sales volume eligible new rebates discounts fees expected increase number people healthcare coverage patient protection affordable care act many regions outside us operate environments governmentmandated costcontainment programs regulatory bodies groups exerting downward pressure pricing example pricing freedom limited united kingdom uk operation profit control plan germany operation reference price system many european countries continuing fiscal challenges healthcare payers including government agencies reduced expected continue reduce cost healthcare actions directly indirectly impose additional price restrictions companies also face significant delays market access new products two years elapse drug approval new medicines available countries growth managed care organizations mcos us significantly impacted competition healthcare industry mcos seek reduce healthcare expenditures participants volume purchases longterm contractual discounts various pharmaceutical providers market potential created large pool participants marketing prescription drugs mcos important part strategy companies compete inclusion mco formularies generally successful key products included believe developments managed care industry including going consolidation continue downward pressure prices pharmaceutical biotechnology production processes complex highly regulated vary widely product shifting adding manufacturing capacity usually lengthy process requiring significant capital expenditures regulatory approvals biologics manufacturing involves complex processes traditional pharmaceutical operations biologics become larger percentage product portfolio continue maintain supply arrangements thirdparty manufacturers incur substantial investments increase internal capacity produce biologics commercial scale united states food drug administration fda approved large scale multiproduct bulk biologics manufacturing facility devens massachusetts may 2012 continue make capital investments facility maintain competitive position market strive uphold position depending success discovering developing delivering innovative costeffective products help patients prevail serious diseases subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcomes investigations litigations additional discussion legal matters see “item 8 financial statementsnote 22 legal proceedings contingencies” strategy since 2007 transforming bms leadingedge biopharma company focused exclusively discovering developing delivering innovative medicines address serious unmet medical needs continue evolve driven fundamental objective grow marketed products progress pipeline focused four core therapeutic areas oncology virology immunology specialty cardiovascular disease within oncology pioneering innovative medicines area immunooncology unlock body’s immune system battle cancer yervoy ipilimumab first immunooncology agent introduced 2011 treatment metastatic melanoma continue invest significantly deep pipeline innovative medicines area covering broad array cancers evolving commercial model growing marketed product portfolio manner consistent overall strategy oncology building success yervoy yielded 2013 revenues nearly 1 billion products sprycel dasatinib erbitux cetuximab beyond oncology continue support key brands virology franchise reyataz atazanavir sulfate baraclude entecavir together accounting approximately 3 billion revenues 2013 addition investing orencia abatacept key brand immunology portfolio accounted approximately 14 billion revenues 2013 additionally strongly committed eliquis apixaban novel oral anticoagulant launched globally 2013 february 2014 divested diabetes portfolio allows us accelerate evolution business model leading specialty care biopharma company transaction also allows us focus resources behind growth opportunities drive greatest longterm value looking ahead continue implement biopharma strategy driving growth key brands executing new product launches investing pipeline maintaining culture continuous improvement pursuing disciplined capital allocation including business development product pipeline developments manage research development rd programs portfolio basis investing resources stage research development early discovery latestage development continually evaluate portfolio rd assets ensure appropriate balance earlystage latestage programs support future growth consider rd programs entered phase iii development significant programs constitute latestage development pipeline development programs include investigational compounds phase iii development initial indications marketed products phase iii development additional indications formulations spending programs represents approximately 3045 annual rd expenses individual investigational compound marketed product represented 10 rd expenses last three years expect latestage development programs make market latestage development programs rd programs could potentially impact revenue earnings within next years following recent significant developments marketed products latestage pipeline hepatitis c portfolio daclatasvir ns5a replication complex inhibitor development asunaprevir ns3 protease inhibitor development bms791325 ns5b nonnucleoside polymerase inhibitor development • january 2014 company announced european medicines agency ema validated marketing authorization application maa use daclatasvir treatment adults chronic hepatitis c compensated liver disease including genotype 1 2 3 4 application seeks approval daclatasvir use combination agents including sofosbuvir treatment chronic hepatitis c emas validation marks start accelerated regulatory review process • november 2013 company announced submission new drug application nda japans pharmaceutical medical devices agency submission based results phase iii study demonstrating 24week alloral regimen daclatasvir asunaprevir achieved overall sustained virologic response 24 weeks end treatment 847 japanese patients chronic hepatitis genotype 1b either interferon ineligibleintolerant nonresponders null partial interferonbased therapies • april 2013 european association study liver amsterdam company announced new phase ii data demonstrating 12 24week triple directacting antiviral treatment regimens daclatasvir asunaprevir bms791325 showed high rates sustained virologic response 94 treatmentnaïve genotype 1 chronic hepatitis c patients time points ranging 4 36 weeks posttreatment fda designated tripledaa regimen breakthrough therapy treatment chronic hepatitis c baraclude entecavir oral antiviral agent treatment chronic hepatitis b • december 2013 company announced fda granted additional six month period exclusivity market baraclude • february 2013 us district court district delaware invalidated composition matter patent covering baraclude scheduled expire 2015 see item 8 financial statementsnote 22 legal proceedings contingencies discussion company prepared take legal action event teva pharmaceutical industries ltd teva chooses launch generic product prior resolution companys appeal sustiva efavirenz nonnucleoside reverse transcriptase inhibitor treatment human immunodeficiency virus hiv • february 2013 company announced fda granted additional sixmonth period exclusivity market sustiva exclusivity sustiva us scheduled expire march 2015 nivolumab fully human monoclonal antibody binds programmed death receptor1 pd1 nkt cells investigated anticancer treatment • october 2013 company announced longterm followup results lung cancer cohort n129 expanded phase doseranging study 003 nivolumab results showed sustained activity heavily pretreated patients nonsmallcell lung cancer defined one twoyear survival rates 42 24 respectively across dose cohorts • june 2013 company announced results study 004 doseranging phase trial evaluating safety antitumor activity nivolumab combined either concurrently sequentially yervoy patients advanced melanoma patients received dose used phase iii trial 1 mgkg nivolumab 3 mgkg yervoy concurrent regimen 53 confirmed objective responses modified world health organization criteria nine responders tumors shrank least 80 time first scheduled clinical treatment assessment 12 weeks including three complete responses sprycel dasatanib oral inhibitor multiple tyrosine kinases indicated firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia chronic phase treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate sprycel part strategic alliance otsuka • december 2013 american society hematology company otsuka announced fouryear followup data phase iii dasision study sprycel 100 mg daily vs gleevec 400 mg daily firstline treatment adults philadelphia chromosomepositive chronic phase chronic myeloid leukemia four years 76 sprycel patients vs 63 gleevec patients achieved major molecular response additionally 84 sprycel patients vs 64 gleevec patients achieved bcrabl ≤10 three months considered optimal molecular response defined treatment guidelines 2013 european leukemianet guidelines patients arms achieved response three months improved overall survival progressionfree survival four years versus four years 67 sprycel patients n172 65 gleevec patients n168 remained treatment yervoy ipilimumab monoclonal antibody treatment patients unresectable inoperable metastatic melanoma • november 2013 ema approved use yervoy first line chemotherapy naïve advanced melanoma patients • september 2013 european cancer congress results presented pooled analysis survival data 12 studies patients metastatic locally advanced unresectable melanoma treated yervoy different doses regimens including investigational dose 10 mgkg patients followed 10 years analysis found plateau survival curve begins three years patients followed ten years three years 22 patients alive • september 2013 company announced results phase iii randomized doubleblind clinical trial study 043 comparing yervoy placebo following radiation patients advanced metastatic castrationresistant prostate cancer received prior treatment docetaxel studys primary endpoint overall survival reach statistical significance however antitumor activity observed across efficacy endpoints including progression freesurvival elotuzumab humanized monoclonal antibody investigated anticancer treatment elotuzumab part strategic alliance abbvie inc abbvie • june 2013 company abbvie announced updated efficacy safety data small randomized phase ii openlabel study patients previouslytreated multiple myeloma evaluated two doses elotuzumab combination lenalidomide lowdose dexamethasone 10 mgkg arm dose used ongoing phase iii trials median progressionfree survival pfs time without disease progression 33 months median followup 208 months objective response rate orr 92 previously reported median pfs 18 months 20 mgkg arm median followup 171 months orr 76 abilify aripiprazole antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder part strategic alliance otsuka • january 2013 european commission ec approved abilify treatment pediatric bipolar mania metreleptin protein development treatment lipodystrophy part strategic alliance astrazeneca included sale diabetes business • june 2013 company astrazeneca announced fda accepted filing granted priority review designation bla july 2013 fda notified company partner astrazeneca require threemonth extension complete review data supporting bla december 2013 company astrazeneca announced fdas endocrinologic metabolic drugs advisory committee emdac recommended metreleptin treatment pediatric adult patients generalized lipodystrophy ld emdac recommend metreleptin patients partial ld indication currently proposed company astrazeneca remain committed pursuing metreleptin treatment patients metabolic disorders associated partial ld companies acknowledged emdacs feedback continue work fda identify appropriate patients partial ld may benefit metreleptin prescription drug user free act pdufa date decision fda expected february 27 2014 farxigaxigduo dapagliflozin metformin hydrochloride oral sodiumglucose cotransporter sglt2 inhibitor treatment diabetes part strategic alliance astrazeneca included sale diabetes business • january 2014 company astrazeneca announced xigduo granted marketing authorization european commission treatment type 2 diabetes eu • january 2014 company astrazeneca announced fda approved farxiga improve glycemic control along diet exercise adults type 2 diabetes • september 2013 annual meeting european association study diabetes easd company astrazeneca announced results phase iii study evaluating dapagliflozin adult patients type 2 diabetes inadequately controlled combination treatment metformin plus sulfonylurea patients treated dapagliflozin add therapy metformin plus sulfonylurea demonstrated significant improvements glycosylated hemoglobin levels hba1c among key secondary endpoints significant reductions fasting plasma glucose body weight compared placebo 24 weeks significant improvements also observed seated systolic blood pressure eight weeks patients treated dapagliflozin compared placebo • june 2013 company astrazeneca announced results twoweek phase iia pilot study evaluating farxiga added insulin 70 adult patients suboptimally controlled type 1 diabetes showed mean daily blood glucose derived 7point glucose measurements trended downward treatment groups day seven reductions total daily insulin dosing day seven observed farxiga • march 2013 japanese ministry health labor welfare also accepted review regulatory submission farxiga treatment type 2 diabetes • january 2013 china‘s state food drug administration accepted review regulatory submission farxiga treatment type 2 diabetes onglyza saxagliptin oncedaily oral tablet treatment type 2 diabetes part strategic alliance astrazeneca included sale diabetes business • february 2014 fda announced requesting clinical trial data investigate possible association use onglyzakombiglyze heart failure fda stated request part broader evaluation fda conducting type 2 diabetes drug therapies cardiovascular risk • september 2013 european society cardiology company astrazeneca announced full results savor clinical trial adult patients type 2 diabetes study onglyza met primary safety objective demonstrating increased risk primary composite endpoint cardiovascular death nonfatal myocardial infarction nonfatal ischemic stroke added patients current standard care without antidiabetic therapies compared placebo onglyza meet primary efficacy endpoint superiority placebo composite endpoint patients treated onglyza experienced improved glycemic control reduced development progression microalbuminuria two years assessed exploratory analyses subsequent meeting annual meeting easd additional subanalyses savor presented subanalyses found increased rate hypoglycemia among patients treated onglyza compared placebo added metformin monotherapy baseline subanalyses also found higher rates hypoglycemia onglyza group compared placebo group among patients taking sulfonylureas agents known cause hypoglycemia baseline addition subanalyses found rates adjudicationconfirmed pancreatitis balanced onglyza placebo treatment groups observed rates pancreatic cancer also low 5 patients onglyza arm versus 12 patients placebo arm orencia abatacept fusion protein indicated adult patients moderate severe rheumatoid arthritis inadequate response one currently available treatments methotrexate antitumor necrosis factor therapy • june 2013 company ono pharmaceutical co ltd announced japanese ministry health labour welfare approved subcutaneous formulation orencia treatment rheumatoid arthritis cases existing treatments inadequate • june 2013 company announced results year two data ample compared subcutaneous formulation orencia versus humira adalimumab background methotrexate biologic naïve patients moderate severe rheumatoid arthritis ample met primary endpoint measured noninferiority american college rheumatology 20 improvement year one orencia regimen achieved comparable rates efficacy versus humira regimen 648 vs 634 respectively eliquis oral factor xa inhibitor targeted stroke prevention nonvalvular atrial fibrillation nvaf prevention treatment venous thromboembolic vte disorders eliquis part strategic alliance pfizer • december 2013 company pfizer announced fda accepted review supplemental new drug application eliquis treatment deep vein thrombosis dvt pulmonary embolism pe reduction risk recurrent dvt pe pdufa date august 25 2014 • november 2013 european medicines agency accepted review application eliquis treatment dvt pe prevention recurrent dvt pe • september 2013 european society cardiology esc congress company pfizer announced results posthoc subanalysis phase iii aristotle trial evaluated eliquis compared warfarin patients without types valvular heart disease vhd eligible enrollment aristotle trial including mitral regurgitation mitral stenosis aortic regurgitation aortic stenosis tricuspid regurgitation valve surgery results subanalysis consistent results overall aristotle trial demonstrated eliquis compared warfarin reduced stroke systemic embolism caused fewer major bleeding events reduced allcause mortality nvaf patients without vhd • august 2013 esc company pfizer announced results posthoc subanalysis phase iii aristotle trial showed comparable rates clinical events versus warfarin treatment arm 30day period following procedure required temporary discontinuation anticoagulant prior following procedure • july 2013 company pfizer announced fda accepted review supplemental new drug application eliquis prophylaxis deep vein thrombosis may lead pulmonary embolism adult patients undergone hip knee replacement surgery pdufa date march 15 2014 • june 2013 company pfizer announced results phase iii amplify trial evaluated eliquis versus current standard care treatment acute venous thromboembolism published online new england journal medicine presented international society thrombosis haemostasis congress amsterdam results showed eliquis demonstrated comparable efficacy significantly lower rates major bleeding patients compared current standard care • may 2013 company pfizer announced results prespecified subanalysis aristotle trial published circulation peerreviewed journal american heart association trends across subgroup analysis consistent overall study results demonstrated eliquis superiority versus warfarin reduction stroke systemic embolism number major bleeding events mortality patients nvaf • eliquis received regulatory approval reduction risk stroke systemic embolism patients nvaf south korea january israel russia february mexico colombia april 2013 • eliquis received regulatory approval prevention venous thromboembolic events adult patients undergone elective hip knee replacement surgery china january mexico april 2013 results operations total revenues composition changes revenues follows total revenues include royalties alliancerelated revenues products sold regional commercial organizations change excess 100 single country outside us contributed 10 total revenues period presented general business seasonal change us revenues periods attributed volume reflects exclusivity loss plavix may 2012 avaproavalide march 2012 partially offset increased demand key products amylinrelated product revenues following completion acquisition august 2012 change us revenues 2013 attributed price result reduction share abilify aripiprazole revenues 515 2012 340 2013 8 impact partially offset higher average net selling prices abilify key products change us revenues 2012 attributed price result higher average net selling prices abilify key products partially offset reduction share abilify revenues 535 515 2012 see “key products” discussion total revenues key product revenues europe increased 2013 due volume growth key products amylinrelated product revenues following transition nonus operations second quarter 2013 favorable foreign exchange partially offset restructured sanofi agreement see item 8 financial statementsnote 3 alliances discussion revenues decreased 2012 primarily due unfavorable foreign exchange lower revenues certain mature brands divestitures generic competition well generic competition plavix avaproavalide partially offset volume growth key products revenues periods continued negatively impacted fiscal challenges many european countries healthcare payers including government agencies reduced expected continue reduce healthcare costs actions directly indirectly impose additional price reductions measures include limited mandatory discounts rebates restrictive measures revenues rest world increased 2013 due volume growth key products partially offset restructured sanofi agreement unfavorable foreign exchange particularly japan generic competition mature brands revenues rest world decreased 2012 due generic competition plavix avaproavalide lower revenues mature brands generic competition divestitures partially offset volume growth key products revenues increased 2013 due higher royalties resulting restructured sanofi agreement alliance revenue attributed mature brands overthecounter products alliances revenues increased 2012 due enhanced royaltyrelated revenues higher revenues attributed active pharmaceutical ingredient supply agreements resulting divestitures manufacturing facilities restructured alliance agreements revenues expected decline 2015 2016 upon expiration certain royalty alliance agreements see item 8 financial statementsnote 3 alliances discussion alliances february 2014 bms sold astrazeneca diabetes business bms comprised global alliance including rights ownership onglyza forxiga bydureon byetta symlin metreleptin total revenues products 17 billion 2013 see item 8 financial statementsnote 5 assets heldforsale discussion recognize revenue net grosstonet adjustments described critical accounting policies share certain abilify atripla revenues reflected net grosstonet adjustments alliance revenues although presented grosstonet adjustment tables share abilify atripla grosstonet adjustments approximately 11 billion 2013 15 billion 2012 13 billion 2011 changes grosstonet adjustments impacted additional rebates discounts required us healthcare reform reduction share abilify revenues activities ending reserve balances significant category grosstonet adjustments follows reconciliation gross product sales net product sales significant category grosstonet adjustments follows change excess 100 grosstonet adjustment rates primarily function changes revenues mix contractual legislative discounts rebates grosstonet adjustments decreased 2013 2012 due • chargebacks related government programs cash discounts medicaid rebates decreased periods result lower plavix revenues following loss exclusivity • managed healthcare rebates contract discounts 2013 increased primarily due amylinrelated net product sales managed healthcare rebates contract discounts 2012 decreased primarily result lower plavix revenues following loss exclusivity managed healthcare rebates contract discounts 2012 also decreased due 67 million reduction estimated amount medicare part coverage gap discounts attributable prior period rebates receiving actual invoices nonrenewal plavix contract discounts medicare part program january 1 2012 • estimated medicaid rebates attributable prior period sales reduced 85 million 2013 37 million 2012 receiving actual invoices information certain state medicaid administrative offices • provision sales returns higher 2012 result loss exclusivity plavix avaproavalide us sales return reserves products 147 million 173 million december 31 2013 2012 respectively determined considering several factors including estimated inventory levels distribution channels accordance company policy products eligible returned six months prior twelve months product expiration adjustments reserves might required future revised estimates various assumptions including actual returns mostly expected occur 2014 • adjustments increased 2013 primarily due higher government rebates nonus markets adjustments increased 2012 due us copay coupon programs key products revenues key products represented 83 total revenue 2013 84 2012 86 2011 following table presents us international revenues key product percentage change prior period foreign exchange impact compared prior period commentary detailing reasons significant variances key products provided change excess 100 baraclude oral antiviral agent treatment chronic hepatitis b • us revenues periods increased due higher average net selling prices higher demand may experience rapid significant decline us revenues beginning 2014 due possible generic competition following federal court’s decision february 2013 invalidating composition matter patent • international revenues increased periods due higher demand partially offset unfavorable foreign exchange reyataz protease inhibitor treatment hiv • us revenues 2013 decreased due lower demand partially offset higher average net selling prices us revenues 2012 increased due higher average net selling prices • international revenues 2013 increased due higher demand timing government purchases certain countries international revenues 2012 decreased due unfavorable foreign exchange timing government purchases certain countries lower demand resulting competing products sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla efavirenz 600 mgemtricitabine 200 mgtenofovir disoproxil fumarate 300 mg product sold alliance gilead • us revenues 2013 increased due higher average net selling prices partially offset lower demand us revenues 2012 increased primarily due higher demand higher average net selling prices • international revenues 2013 increased due favorable foreign exchange international revenues 2012 decreased due unfavorable foreign exchange erbitux monoclonal antibody designed exclusively target block epidermal growth factor receptor expressed surface certain cancer cells multiple tumor types well normal cells currently indicated use colorectal cancer head neck cancer erbitux part strategic alliance lilly • us revenues periods remained relatively flat sprycel oral inhibitor multiple tyrosine kinases indicated firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia chronic phase treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate sprycel part strategic alliance otsuka • us revenues periods increased primarily due higher demand higher average net selling prices • international revenues periods increased primarily due higher demand partially offset unfavorable foreign exchange yervoy monoclonal antibody treatment patients unresectable inoperable metastatic melanoma • us revenues periods increased due higher demand us revenues 2013 also favorably impacted recognition 27 million revenues previously deferred sufficient historical experience estimate sales returns developed • international revenues periods increased due higher demand abilify antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder part strategic alliance otsuka • us revenues decreased due reduction contractual share revenues 515 2012 340 2013 partially offset higher average net selling prices us revenues 2012 increased due higher average net selling prices 62 million reduction bms’s share estimated amount customer rebates discounts attributable 2011 based actual invoices received • international revenues periods increased primarily due higher demand international revenues impacted unfavorable foreign exchange 2012 bydureon onceweekly glp1 receptor agonist treatment type 2 diabetes part strategic alliance astrazeneca • us revenues included results since completion amylin acquisition august 2012 • transition international operations bydureon majority markets lilly completed second quarter 2013 see item 8 financial statementsnote 3 alliances discussion byetta twice daily glucagonlike peptide1 glp1 receptor agonist treatment type 2 diabetes part strategic alliance astrazeneca • us revenues included results since completion amylin acquisition august 2012 • transition international operations byetta majority markets lilly completed second quarter 2013 see item 8 financial statementsnote 3 alliances discussion forxiga oral sodiumglucose cotransporter sglt2 inhibitor treatment type 2 diabetes part strategic alliance astrazeneca • forxiga launched treatment type 2 diabetes limited number eu markets fourth quarter 2012 continues launched various eu markets onglyzakombiglyze known eu onglyzakomboglyze oncedaily oral tablet treatment type 2 diabetes part strategic alliance astrazeneca • us revenues 2013 increased primarily due higher average net selling prices us revenues 2012 increased primarily due higher overall demand higher average net selling prices • international revenues increased periods primarily due higher demand partially offset unfavorable foreign exchange 2012 nulojix fusion protein novel immunosuppressive activity targeted prevention kidney transplant rejection • nulojix approved launched us eu 2011 orencia fusion protein indicated adult patients moderate severe rheumatoid arthritis inadequate response one currently available treatments methotrexate antitumor necrosis factor therapy • us revenues periods increased primarily due higher demand higher average net selling prices • international revenues periods increased primarily due higher demand partially driven launch subcutaneous formulation orencia certain eu markets beginning second quarter 2012 partially offset unfavorable foreign exchange avaproavalide known eu aprovelkarvea angiotensin ii receptor blocker treatment hypertension diabetic nephropathy also part sanofi alliance • us revenues longer recognized following restructured sanofi agreement effective january 1 2013 negative sales 2013 due increase sales return reserve avalide us revenues decreased 2012 due loss exclusivity march 2012 • international revenues impacted changes attributed restructured sanofi agreement see item 8 financial statementsnote 3 alliances discussion international revenues 2012 decreased due lower demand including generic competition certain eu markets canada eliquis oral factor xa inhibitor targeted stroke prevention atrial fibrillation prevention treatment vte disorders eliquis part strategic alliance pfizer • eliquis launched us europe japan canada first quarter 2013 continues launched various markets reduction risk stroke systemic embolism patients nvaf • eliquis approved eu vte prevention may 2011 launched limited number eu countries beginning may 2011 plavix platelet aggregation inhibitor part alliance sanofi • us revenues periods decreased due loss exclusivity may 2012 • international revenues 2013 impacted changes attributed restructured sanofi agreement see item 8 financial statementsnote 3 alliances discussion international revenues 2012 negatively impacted generic clopidogrel products eu canada australia mature products includes products including lost exclusivity major markets overthecounter brands royaltyrelated revenue • us revenues decreased periods generic erosion certain products partially offset sales symlin following completion amylin acquisition august 2012 • international revenues increased 2013 due certain alliances partially offset continued generic erosion products international revenues 2012 decreased due continued generic erosion certain brands unfavorable foreign exchange • international revenues expected decline 2015 2016 upon expiration certain royalty alliance agreements estimated enduser demand pursuant us securities exchange commission sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception estimated levels inventory distribution channel excess one month hand products material dates indicated us products estimated levels inventory distribution channel excess one month hand december 31 2013 international products estimated levels inventory distribution channel excess one month hand september 30 2013 dafalgan analgesic product sold principally europe 11 months inventory hand direct customers september 30 2013 december 31 2012 level inventory hand primarily due ordering patterns pharmacists france reyataz 11 months inventory hand internationally september 30 2013 compared 07 month inventory hand december 31 2012 level inventory hand due government purchasing patterns brazil us generally determine months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 90 total gross sales us products factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes businesses outside us significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available developed variety methodologies estimate data including using factors historical sales made direct customers thirdparty market research data related prescription trends enduser demand accordingly rely variety methods estimate direct customer product level inventory calculate months hand factors may affect estimates include generic competition seasonality products direct customer purchases light price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2013 available prior filing annual report form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q expenses change excess 100 cost products sold cost products sold include material costs internal labor overhead owned manufacturing sites thirdparty processing costs supply chain costs settlement foreign currency forward contracts used hedge forecasted intercompany inventory purchase transactions essentially costs managed global manufacturing supply organization cost products also includes royalties profit sharing attributed licensed products alliances amortization acquired developed technology costs business combinations milestone payments occur regulatory approval cost products sold vary periods result product mix particularly resulting royalties profit sharing expenses connection alliances price inflation costs attributed rationalization manufacturing sites resulting accelerated depreciation impairment charges stranded costs addition changes foreign currency may also provide volatility certain costs denominated foreign currencies cost products sold percentage total revenues 282 2013 262 2012 264 2011 changes primarily attributed less favorable product mix result royalties profit sharing expenses connection alliances • cost products sold 2013 relatively flat higher profit sharing expenses connection alliances including resulting amylin acquisition august 2012 higher net amortization costs attributable amylin acquisition partially offset lower royalties following loss exclusivity plavix avaproavalide higher impairment charges 2012 • decrease cost products sold 2012 primarily attributed lower sales volume following loss exclusivity plavix avaproavalide resulted lower royalties connection sanofi alliance favorable foreign exchange partially offset impairment charges discussed higher amortization costs resulting amylin acquisition net amortization amylin alliance proceeds • impairment charges 147 million recognized 2012 including 120 million related continued competitive pricing pressures reduction undiscounted projected cash flows amount less carrying value developed technology intangible asset remaining 27 million impairment charge related abandonment manufacturing facility resulting outsourcing manufacturing process marketing selling administrative marketing selling administrative expenses include salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs expenses attributed product manufacturing costs research development expenses managed regional commercialization organizations global corporate organizations finance law information technology human resources • marketing selling administrative expenses 2013 decreased due accelerated vesting stock options restricted stock units related amylin acquisition 67 million 2012 lower pharmaceutical company fee assessed federal government reduction sales related activities certain products coincide respective lifecycles partially offset higher spending support launch new key products additional spending following amylin acquisition • marketing selling administrative expenses 2012 increased primarily result amylin acquisition 125 million including accelerated vesting stock options restricted stock units partially offset reduction salesrelated activities plavix avaproavalide marketing selling administrative expenses also impacted favorable foreign exchange advertising product promotion advertising product promotion expenses include media sample direct consumer programs • advertising product promotion expenses 2013 increased primarily due higher spending recently launched key products • advertising product promotion expenses 2012 decreased primarily due lower spending promotion plavix avaproavalide abilify certain mature brands us coincide product life cycle research development research development expenses include salary benefit costs thirdparty grants fees paid clinical research organizations supplies facility costs total research development expenses include costs discovery research preclinical development early lateclinical development drug formulation well clinical trials medical support marketed products proportionate allocations enterprisewide costs facilities information technology employee stock compensation costs appropriate costs upfront licensing fees related payments upon achievement regulatory contractual milestones also included certain expenses shared alliance partners based upon contractual agreements expenses managed global research development organization approximately 22 billion 19 billion 20 billion total spend 2013 2012 2011 respectively attributed development activities remainder attributed preclinical research activities expenses vary periods number reasons including timing upfront milestone licensing payments • research development expenses 2013 decreased primarily due prior year impairment charges accelerated vesting stock options restricted stock units related amylin acquisition upfront milestone licensing payments partially offset additional costs following amylin acquisition higher clinical grant spending • research development expenses 2012 increased primarily 60 million expenses related amylin acquisition including accelerated vesting amylin stock options restricted stock units 27 million partially offset favorable foreign exchange net impact upfront milestone licensing payments iprd impairment charges refer “specified items” included “nongaap financial measures” amounts attributed period iprd impairment charges relate projects previously acquired medarex inc medarex acquisition inhibitex inc inhibitex acquisition including 45 million 2012 related fv100 nucleoside inhibitor reduction shinglesassociated pain resulting unfavorable clinical trial results decisions cease development impairment charge bms986094 intangible asset 18 billion impairment charge recognized 2012 development bms986094 formerly inx189 compound acquired part acquisition inhibitex treat hepatitis c virus infection discontinued interest patient safety see “item 8 financial statements note 14 goodwill intangible assets” information intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment see “critical accounting policies” discussion incomeexpense include • interest expense increased periods due higher average borrowings • provision restructuring primarily attributable employee termination benefits employee termination costs 145 million incurred 2013 result workforce reductions several european countries employee reductions primarily attributed sales force reductions resulting restructuring sanofi otsuka agreements streamlining operations due challenging market conditions europe • litigation chargesrecoveries 2012 included 172 million share apotex damages award concerning plavix • equity net income affiliates primarily related international partnership sanofi europe asia decreased periods result restructuring sanofi agreement continues negatively impacted generic competition plavix europe asia equity net income affiliates 2012 decreased due continued impact generic competition international plavix net sales conversion certain territories optout markets impact unfavorable foreign exchange • outlicensed intangible asset impairment charges 2012 related assets acquired medarex zymogenetics inc zymogenetics acquisitions resulted unfavorable clinical trial results andor abandonment programs • gain sale product lines businesses assets primarily related sale building mexico 2012 sale mature brands 2011 • income alliance partners includes royalties amortization upfront milestone licensing payments related certain alliances decrease us plavix net product sales resulted lower development royalties owed sanofi 2013 royalties received sanofi except europe asia presented revenues beginning 2013 result restructured sanofi agreement see item 8 financial statementsnote 3 alliances discussion • pension settlement charges recognized determining annual lump sum payments would exceed annual interest service costs certain pension plans including primary us pension plan 2013 2012 charges included acceleration portion unrecognized actuarial losses similar charges may occur future see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” detail • change primarily related higher acquisition costs losses debt repurchases 2012 sales tax reimbursements gains debt repurchases higher upfront milestone licensing receipts 2011 income taxes change effective tax rates primarily due 392 million tax benefit 2012 attributed capital loss deduction resulting tax insolvency inhibitex impact deduction reduced effective tax rate 167 percentage points 2012 changes resulted tax benefits attributable higher impairment charges 2012 including 1830 million impairment charge bms986094 intangible asset us favorable earnings mix high low tax jurisdictions attributable lower plavix revenues lesser extent internal transfer intellectual property fourth quarter 2012 legal enactment 2012 2013 research development tax credit 2013 higher charges contingent tax matters historically effective income tax rate lower us statutory rate 35 due decision indefinitely reinvest earnings certain manufacturing operations ireland puerto rico favorable tax rates ireland puerto rico grants scheduled expire prior 2023 noncontrolling interest see “item 8 financial statementsnote 3 alliances” discussion plavix avaproavalide partnerships sanofi territory covering americas decrease noncontrolling interest periods resulted exclusivity loss us plavix may 2012 avaproavalide march 2012 summary noncontrolling interest follows nongaap financial measures nongaap financial measures including nongaap earnings related eps information adjusted exclude certain costs expenses gains losses specified items due significant andor unusual nature evaluated individual basis similar charges gains items recognized prior periods reasonably possible could reoccur future periods nongaap information intended portray results baseline performance include discovery development licensing manufacturing marketing distribution sale pharmaceutical products global basis enhance investor’s overall understanding past financial performance prospects future example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap specified items follows 2012 specified tax benefit relates capital loss deduction 2011 specified tax benefit relates releases tax reserves specified prior periods reconciliations gaap nongaap follows financial position liquidity capital resources net debt position follows cash equivalents marketable securities held us approximately 22 billion december 31 2013 remaining 61 billion held primarily lowtax jurisdictions attributable earnings expected indefinitely reinvested offshore cash repatriations subject restrictions certain jurisdictions may subject withholding additional us income taxes started issuing commercial paper meet nearterm domestic liquidity requirements 2012 average amount commercial paper outstanding 259 million weightedaverage interest rate 012 2013 maximum monthend amount commercial paper outstanding 820 million outstanding borrowings december 31 2013 continue issue commercial paper asneeded basis february 2014 bms sold astrazeneca diabetes business bms comprised global alliance terms agreement astrazeneca made upfront payment 27 billion company bms also received 600 million milestone payment february 2014 approval farxiga us see“item 8 financial statementsnote 5 assets heldforsale” discussion january 2014 notices provided holders 545 notes due 2018 bms exercise call option redeem notes entirety february 2014 outstanding principal amount notes 582 million investment portfolio includes noncurrent marketable securities subject changes fair value result interest rate fluctuations market factors may impact results operations investment policy places limits investments amount time maturity investments institution policy also requires investments entered corporate financial institutions meet high credit quality standards see “item 8 financial statementsnote 10 financial instruments fair value measurements” two separate 15 billion fiveyear revolving credit facilities syndicate lenders facilities provide customary terms conditions financial covenants extendable anniversary date consent lenders borrowings outstanding either revolving credit facility december 31 2013 2012 october 2013 bms issued 15 billion senior unsecured notes registered public offering consisting 500 million aggregate principal amount 1750 notes due 2019 500 million aggregate principal amount 3250 notes due 2023 500 million aggregate principal amount 4500 notes due 2044 proceeds used general corporate purposes including repayment commercial paper borrowings additional regulations us could passed future could reduce results operations operating cash flow liquidity financial flexibility also continue monitor potential impact economic conditions certain european countries related impact prescription trends pricing discounts creditworthiness customers ability collect outstanding receivables direct customers currently believe economic conditions eu material impact liquidity cash flow financial flexibility mechanism limit overall credit exposures additional source liquidity sell trade receivables third parties principally wholesalers japan certain governmentbacked entities italy portugal spain sales trade receivables italy portugal spain 509 million 2013 322 million 2012 484 million 2011 sales receivables japan 522 million 2013 634 million 2012 593 million 2011 sales agreements allow recourse event uncollectibility retain interest underlying assets sold continue manage operating cash flows focusing working capital items directly affected changes sales volume receivables inventories accounts payable credit ratings moody’s investors service longterm shortterm credit ratings currently a2 prime1 respectively longterm credit outlook revised stable negative september 2013 standard poor’s longterm shortterm credit ratings currently a1 respectively longterm credit outlook remains stable fitch lowered longterm credit rating lowered shortterm credit rating revised longterm credit outlook negative stable july 2013 stable negative december 2013 credit ratings considered investment grade longterm ratings reflect agencies opinion low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings reflect agencies opinion good extremely strong capacity timely repayment cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts cash disbursements activities investing activities financing activities operating cash flow derived adjusting net earnings noncontrolling interest noncash operating items gains losses attributed investing financing activities changes operating assets liabilities resulting timing differences receipts payments cash transactions recognized results operations result changes cash operating activities reflect timing cash collections customers alliance partners payments suppliers alliance partners employees pension contributions tax payments ordinary course business changes cash provided operating activities periods primarily attributable • upfront milestone contingent alliance proceeds 967 million 2013 37 billion 2012 36 billion astrazeneca consideration entering amylin alliance 205 million 2011 • lower operating cash flows 700 million 2013 15 billion 2012 attributed plavix avaproavalide revenue reductions following loss exclusivity products 2012 • changes including working capital requirements period investing activities changes cash used investing activities primarily attributable • cash used fund acquisitions amylin 50 billion inhibitex 25 billion 2012 amira 360 million 2011 • cash used sales purchases maturities marketable securities 44 million 2013 859 million 2011 primarily attributed timing investments time deposits corporate debt securities maturities greater 90 days cash generated sales purchases maturities marketable securities 13 billion 2012 cash used partially fund acquisitions 2012 • investing activities included litigation recoveries 102 million 2011 financing activities changes cash used financing activities primarily attributable • cash used repurchase common stock 433 million 2013 24 billion 2012 12 billion 2011 may 2010 board directors authorized repurchase 30 billion june 2012 board directors increased authorization repurchase stock additional 30 billion repurchase program expiration date may consider future repurchases • dividend payments 23 billion 2013 2012 2011 dividends declared per common share 141 2013 137 2012 133 2011 december 2013 declared quarterly dividend 036 per common share expect pay dividend full year 2014 144 per share dividend decisions made quarterly basis board directors • proceeds issuance senior unsecured notes 15 billion 2013 20 billion 2012 • 597 million principal amount 525 notes matured repaid 2013 repayments debt assumed amylin acquisition 20 billion 2012 • management periodically evaluates potential opportunities repurchase certain debt securities terminate certain interest rate swap contracts prior maturity cash outflows related repurchase debt 109 million 2012 78 million 2011 proceeds termination interest rate swap contracts 296 million 2011 • proceeds stock option exercises 435 million excluding 129 million cash retained excess tax benefits 2013 392 million excluding 71 million cash retained excess tax benefits 2012 554 million excluding 47 million cash retained excess tax benefits 2011 amount proceeds vary period based upon fluctuations market value stock relative exercise price stock options factors contractual obligations payments due period contractual obligations december 31 2013 follows includes estimated future interest payments shortterm longterm debt securities also includes accrued interest payable recognized consolidated balance sheets consists primarily accrued interest shortterm longterm debt well accrued periodic cash settlements derivatives b due uncertainty related timing reversal uncertain tax positions shortterm uncertain tax benefits provided table see “item 8 financial statementsnote 8 income taxes” detail c table excludes future contributions us pensions postretirement postemployment benefit plans required contributions contingent upon numerous factors including minimum regulatory funding requirements funded status plan due uncertainty future obligations excluded table contributions us international plans expected 100 million 2014 see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” detail addition committed 36 billion aggregate potential future research development milestone payments third parties part inlicensing development programs earlystage milestones defined milestones achieved phase iii clinical trials comprised 700 million total committed amount latestage milestones defined milestones achieved post phase iii clinical trials comprised 29 billion total committed amount payments agreements generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted addition certain royalty obligations calculated percentage net product sales agreements also provide salesbased milestones aggregating 16 billion would obligated pay alliance partners upon achievement certain sales levels also certain manufacturing development commercialization obligations connection alliance arrangements practicable estimate amount obligations see “item 8 financial statementsnote 3 alliances” information regarding alliances discussion contractual obligations see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” “note 10 financial instruments fair value measurements” “note 21 leases” sec consent order previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain inventory management agreements imas us pharmaceutical wholesalers account nearly 100 gross us revenues current terms imas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 90 gross us revenues inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast nonus business significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent recently issued accounting standards july 2013 financial accounting standards board issued update clarified existing guidance presentation unrecognized tax benefits various qualifying tax benefit carryforwards exist including unrecognized tax benefit presented reduction deferred tax assets liability update required adopted annual periods interim reporting periods beginning december 15 2013 early adoption permitted reduction deferred tax assets expected approximately 250 million critical accounting policies preparation financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenue expenses critical accounting policies significantly impact financial condition results operations require difficult subjective complex judgments often result need make estimates effect matters inherently uncertain uncertainty actual results may vary estimates accounting policies discussed audit committee board directors revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates recognize revenue persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally time shipment revenue also reduced grosstonet sales adjustments discussed involve significant estimates judgment considering legal interpretations applicable laws regulations historical experience payer channel mix eg medicare medicaid current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel estimates assessed period adjusted required revised information actual experience addition see “total revenues” discussion analysis significant category grosstonet sales adjustments grosstonet adjustments following categories grosstonet adjustments involve significant estimates judgments information obtained external sources chargebacks related government programs us business participates programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price accounts receivable reduced estimated amount unprocessed chargeback claims attributable sale typically within two four week time lag cash discounts us certain countries cash discounts offered incentive prompt payment generally approximating 2 sales price accounts receivable reduced estimated amount unprocessed cash discounts typically within one month time lag managed healthcare rebates contract discounts rebates discounts offered managed healthcare organizations us managing prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit addition commercial plans well contract counterparties hospitals group purchasing organizations globally beginning 2011 rebates medicare part program included 50 discount company’s brandname drugs patients fall within medicare part coverage gap rebates also required us department defense tricare retail pharmacy refund program estimated amount unpaid unbilled rebates discounts presented liability 67 million reversal estimated amount 2011 medicare part coverage gap discounts occurred 2012 receipt actual invoices medicaid rebates us businesses participates state government medicaid programs qualifying federal state government programs requiring discounts rebates participating state local government entities discounts rebates provided programs included medicaid rebate accrual retroactive january 1 2010 minimum rebates medicaid drug sales increased 151 231 medicaid rebates also extended drugs used managed medicaid plans beginning march 2010 estimated amount unpaid unbilled rebates presented liability estimated medicaid rebates attributable prior period revenues reduced 85 million 2013 37 million 2012 sales returns products typically eligible returned six months prior twelve months product expiration accordance policy estimated returns established products determined considering historical experience factors including levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products instances expected precipitous declines demand following loss exclusivity estimated amount product returns presented liability reserves established plavix avaproavalide 147 million 173 million december 31 2013 2012 respectively considering relevant factors well estimated future retail wholesale inventory work would occur loss exclusivity estimated returns new products determined considering historical sales return experience similar products within product line similar therapeutic category defer recognition revenue right return expires sufficient historical experience estimate sales returns developed limited circumstances typically occurs new product extension existing line product historical experience products similar therapeutic category lacking estimated levels inventory distribution channel projected demand also considered estimating sales returns new products use information external sources information external sources used estimate grosstonet adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information retirement benefits accounting pension postretirement benefit plans requires actuarial valuations based significant assumptions discount rates expected longterm rates return plan assets consultation actuaries significant assumptions others salary growth retirement turnover healthcare trends mortality rates evaluated selected based expectations actual experience remeasurement date pension expense could vary within range outcomes material effect reported earnings projected benefit obligations future cash funding actual results given year may differ estimated economic factors yield high quality corporate bonds coincides cash flows plans’ estimated payouts used determining discount rate citigroup pension discount curve used us plans us plans’ pension expense 2013 determined using 415 weightedaverage discount rate present value benefit obligations december 31 2013 us pension plans determined using 462 discount rate discount rate used determining us plans’ pension expense 2013 reduced additional 1 expense would increase approximately 10 million assumed discount rate used determining us pension plans’ projected benefit obligation december 31 2013 reduced additional 1 projected benefit obligation would increase approximately 950 million expected longterm rate return plan assets estimated considering expected returns individual asset classes input external advisors also consider longterm historical returns including actual performance compared benchmarks similar investments us plans’ pension expense 2013 determined using 863 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2013 reduced 1 expense would increase 53 million detailed discussion retirement benefits see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” business combinations goodwill intangible assets acquired business combinations licensing transactions 156 billion representing 41 total assets including 62 billion included assets heldforsale december 31 2013 assets acquired liabilities assumed recognized date acquisition respective fair values excess purchase price estimated fair values net assets acquired recognized goodwill fair value intangible assets including iprd typically determined using “income method” method starts forecast net cash flows risk adjusted estimated probabilities technical regulatory success iprd adjusted present value using appropriate discount rate reflects risk associated cash flow streams assets valued market participant view might different specific bms views valuation process complex requires significant input judgment using internal external sources although valuations required finalized within oneyear period must consider facts evidence available acquisition date complex judgmental matters applicable valuation process summarized • unit accounting intangible assets valued single global assets rather multiple assets jurisdiction indication considering development stage expected levels incremental costs obtain additional approvals risks associated development amount timing benefits expected derived future expected patent lives various jurisdictions intention promote asset global brand • estimated useful life asset life expected contribute meaningful cash flows determined considering pertinent matters associated asset including expected regulatory approval dates unapproved exclusivity periods legal regulatory contractual provisions well effects obsolescence demand competition economic factors including barriers entry • probability technical regulatory success ptrs rate ptrs rates determined based upon industry averages considering respective programs development stage disease indication adjusted specific information data known acquisition date subsequent clinical results internal external data obtained could alter ptrs rate materially impact estimated fair value intangible asset subsequent periods leading impairment charges • projections future revenues estimated considering many factors initial market opportunity pricing sales trajectories peak sales levels competitive environment product evolution future costs expenses estimated considering historical market trends market participant synergies timing level additional development costs obtain initial additional regulatory approvals maintain enhance product generally assume initial positive cash flows commence shortly receipt expected regulatory approvals typically may occur number years actual cash flows attributed project likely different assumed since projections subjected multiple factors including trial results regulatory matters could materially change ultimate commercial success asset well significantly alter costs develop respective asset commercially viable products • tax rates expected future income tax effected using market participant tax rate recent valuations typically use us tax rate applicable state taxes considering jurisdiction intellectual property held location research manufacturing infrastructure also considered earnings repatriation would likely us tax consequences • discount rate discount rates selected considering risks inherent future cash flows assessment asset’s life cycle competitive trends impacting asset including consideration technical legal regulatory economic barriers entry well expected changes standards practice indications addressed asset see “item 8 financial statementsnote 4 acquisitions” specific details values assigned assets acquired liabilities assumed acquisitions amylin inhibitex 2012 amira 2011 significant estimates utilized time valuations support fair values lead compounds within acquisitions include impairment goodwill 71 billion december 31 2013 goodwill tested least annually impairment enterprise level assessing qualitative factors performing quantitative analysis determining whether likely fair value exceeds carrying value examples qualitative factors assessed current year included share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year positive negative influences relevant factor assessed individually aggregate result concluded additional quantitative testing required discussion goodwill acquired inprocess research development intangible assets see “item 8 financial statementsnote 1 accounting policiesgoodwill acquired inprocess research development intangible assets” intangible assets including iprd intangible assets 23 billion december 31 2013 including licenses 525 million developed technology rights 10 billion capitalized software 241 million iprd 548 million intangible assets tested impairment whenever current facts circumstances warrant review although iprd required tested least annually intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment common potential risks leading impairment include competition earlier expected loss exclusivity pricing pressures adverse regulatory changes clinical trial results delay failure obtain regulatory approval additional development costs inability achieve expected synergies higher operating costs changes tax laws macroeconomic changes complexity estimating fair value intangible assets connection impairment test similar initial valuation considering high risk nature research development industry’s success rate bringing developmental compounds market iprd impairment charges likely occur future periods recognized charges 21 billion 2012 including 18 billion charge resulting discontinued development bms986094 projects previously acquired medarex inc inhibitex acquisitions resulting unfavorable clinical trial results additional development costs extended development periods decisions cease development also recognized charges 30 million 2011 related three medarex projects development ceased iprd closely monitored assessed period impairment addition iprd commercial assets also subject impairment example impairment charge 120 million recognized 2012 related nonkey product prior acquisition continuing competitive pricing pressures operate dynamic market regulatory environment events occur causing expectations change quickly thus leading potential impairment charges specific intangible assets material carrying values december 31 2013 exposed potential impairment include iprd assets peginterferon lambda 310 million phase iii development treatment hepatitis c virus am152 160 millionin phase ii development treatment fibrosis assets monitored changes expectations used initial valuation property plant equipment property plant equipment tested impairment whenever current facts circumstances warrant review additionally longlived assets periodically reviewed determine change facts circumstances would result change estimated useful life asset possibly resulting acceleration depreciation circumstances exist estimate undiscounted future cash flows generated asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value expectations future cash flows subject change based upon near longterm production volumes margins generated asset well potential alternative future use contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability contractual claims tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies see “item 8 financial statementsnote 1 accounting policiescontingencies” “note 8 income taxes” “note 22 legal proceedings contingencies” income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecasts future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made deferred tax assets 48 billion net valuation allowances 46 billion december 31 2013 51 billion net valuation allowances 44 billion december 31 2012 deferred tax assets related us federal net operating loss carryforward 138 million us federal tax credit carryforward 23 million recognized december 31 2013 net operating loss carryforward expires varying amounts beginning 2022 us federal tax credit carryforward expires varying amounts beginning 2017 realization carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured believe likely deferred tax assets realized addition deferred tax asset related us federal state capital loss 784 million recognized december 31 2013 carried back three years carried forward five years realization carryforward dependent upon generating sufficient capital gains prior expiration 383 million valuation allowance established item december 31 2013 taxes provided undistributed earnings foreign subsidiaries expected reinvested indefinitely offshore prior mead johnson nutrition company mead johnson splitoff 2009 following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions certain assumptions representations covenants mead johnson relied upon regarding future conduct business matters could affect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account ela existed investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code irs could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations 2009 agreed certain tax related indemnities mead johnson set forth tax sharing agreement example mead johnson agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets agreed indemnify mead johnson certain taxes related business prior completion ipo created part restructuring facilitate ipo established liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 8 income taxes” special note regarding forwardlooking statements annual report form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years included important factors cautionary statements included annual report form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made undertake obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary bristolmyers squibb company may referred bristolmyers squibb bms company us global specialty biopharmaceutical company whose mission discover develop deliver innovative medicines help patients prevail serious diseases continue evolve business leading diversified specialty biopharma company evolution accelerated result diabetes business divestiture continued focus certain therapeutic areas including immunooncology following provides brief summary certain key events 2014 discussed detail throughout report opdivo approved us japan unresectable metastatic melanoma announced positive results certain studies melanoma lung hodgkin lymphoma renal cell carcinoma several clinical collaborations also entered us seek opportunities strategically combine opdivo targeted agents dozen tumor types eliquis obtained important label extension 2014 received regulatory approvals hepatitis c franchise including daklinza eu dual regimen daklinza sunvepra japan several business development transactions completed 2014 advance pipeline therapeutic areas including fibrosis genetically defined diseases also expanding biologics manufacturing capacity devens massachusetts announced plans build new facility ireland revenues decreased 3 2014 result diabetes business divestiture exclusivity losses expiration rights partially offset higher sales key products including recently launched products certain markets focus optimize global brands key markets accelerated growth several key products eliquis sales increased 2014 628 million following global launch 2013 yervoy sales increased 36 348 million continued penetration us communitybased setting first line indication improved access internationally hepatitis c franchise sales 256 million following launches japan certain eu countries expect products continue grow 2015 along orencia sprycel recently launched opdivo partially offset revenue reductions resulting expiration certain rights pertaining abilify us royalty alliance agreements exclusivity losses baraclude us changes foreign currency rates higher pension research development related charges contributed reduction gaap eps 154 2013 120 2014 nongaap eps increased 182 185 proceeds diabetes divestiture increased cash marketable securities 35 billion highlights following table summarizes financial information nongaap financial measures including nongaap earnings related eps information adjusted exclude specified items represent certain costs expenses gains losses items impacting comparability financial results detailed listing specified items information reconciliations nongaap financial measures see “nongaap financial measures strategy continue transform bms leading diversified specialty biopharma company focused exclusively discovering developing delivering innovative medicines address serious unmet medical needs continue evolve driven fundamental objective grow marketed products progress pipeline developing new medicines following core therapeutic areas oncology virology immunooncology specialty cardiovascular disease fibrosis genetically defined diseases pioneering innovative medicines area immunooncology unlock body’s immune system battle cancer yervoy ipilimumab first immunooncology agent introduced 2011 treatment metastatic melanoma 2014 announced multiple regulatory milestones us european union eu opdivo nivolumab investigational pd1 immune checkpoint inhibitor continue invest significantly deep pipeline innovative medicines covering broad array cancers entered several collaboration agreements research develop opdivo approved investigational oncology agents combination regiments evolving commercial model growing marketed product portfolio manner consistent overall strategy oncology building success yervoy yielded 2014 revenues approximately 13 billion products sprycel dasatinib erbitux cetuximab beyond oncology remain strongly committed eliquis apixaban launched globally 2013 via alliance pfizer inc pfizer eliquis received regulatory approval us eu treatment deep vein thrombosis dvt pulmonary embolism pe adults among related indications also continue support key brands virology franchise reyataz atazanavir sulfate baraclude entecavir 2014 achieved several regulatory milestones hepatitis c portfolio launched daklinza daclatasvir sunvepra asunaprevir dual regimen japan launched daklinza eu addition continue invest orencia abatacept accounted approximately 17 billion revenues 2014 looking ahead continue implement biopharma strategy driving growth key brands executing new product launches investing pipeline focusing prioritized markets increasing investments biologics manufacturing capabilities maintaining culture continuous improvement pursuing disciplined capital allocation including business development product pipeline developments rd programs managed portfolio basis early discovery latestage development continually evaluate portfolio ensure appropriate balance earlystage latestage programs support future growth rd programs phase iii development considered significant programs constitute latestage development pipeline development programs include investigational compounds phase iii development initial indications marketed products phase iii development additional indications formulations spending programs represents approximately 3045 annual rd expenses individual investigational compound marketed product represented 10 rd expenses last three years latestage development programs could potentially impact revenue earnings within next years although expect latestage development programs make market following recent significant developments marketed products latestage pipeline opdivo nivolumab fully human monoclonal antibody binds programmed death receptor1 pd1 nkt cells investigated anticancer treatment opdivo part alliance ono unresectable inoperable metastatic advanced melanoma • december 2014 company announced us food drug administration fda approved opdivo treatment unresectable metastatic melanoma disease progression following yervoy ipilimumab braf v600 mutation positive braf inhibitor indication approved accelerated approval based tumor response rate durability response continued approval indication may contingent upon verification description clinical benefit confirmatory trials • november 2014 company announced results checkmate066 phase iii randomized double blind study comparing opdivo chemotherapy dacarbazine dtic patients treatment naïve braf wildtype advanced melanoma n418 study met primary endpoint overall survival os median os reached opdivo versus 108 months dtic oneyear survival rate 73 opdivo versus 42 dtic 58 decrease risk death patients treated opdivo hazard ratio death hr 042 p00001 survival advantage also observed opdivotreated patients pdl1 positive pdl1 negative patients • september 2014 company announced results checkmate037 phase iii randomized controlled openlabel study opdivo versus investigator’s choice chemotherapy icc patients advanced melanoma previously treated yervoy based planned interim analysis coprimary endpoint objective response rate 32 95 ci 24 41 opdivo arm n120 11 95 ci 4 23 icc reference arm n47 patients least six months follow • september 2014 european medicines agency ema validated review marketing authorization application maa opdivo advanced melanoma application also granted accelerated assessment ema’s committee medicinal products human use chmp • june 2014 company announced randomized blinded comparative phase iii study evaluating opdivo versus dacarbazine patients previously untreated braf wildtype advanced melanoma checkmate066 stopped early analysis conducted independent data monitoring committee dmc showed evidence superior os patients receiving opdivo compared control arm patients trial unblinded allowed cross opdivo • june 2014 company announced follow results phase ib doseranging trial evaluating safety activity combination regimen opdivo yervoy given either concurrently sequentially patients advanced melanoma study004 n127 additional year follow cohort received concurrent combination regimen opdivo 1 mgkg plus yervoy 3 mgkg n17 oneyear os rate 94 twoyear os rate 88 doses used ongoing phase ii phase iii melanoma trials checkmate069 067 new safety signals reported concurrent combination cohorts additional follow n53 • may 2014 company announced updated survival data advanced melanoma cohort n107 expanded phase ib doseranging study opdivo administered single agent study003 results showed sustained activity heavily pretreated patient population defined two threeyear survival rates 48 41 respectively across dose cohorts nonsmall cell lung cancer • january 2015 company announced openlabel randomized phase iii study evaluating opdivo versus docetaxel previously treated patients advanced squamous cell nonsmall cell lung cancer nsclc stopped early assessment conducted independent dmc concluded study met endpoint demonstrating superior os patients receiving opdivo compared control arm company share data first time indicate survival advantage antipd1 immune checkpoint inhibitor lung cancer health authorities • october 2014 company announced results checkmate063 phase ii singlearm openlabel study opdivo administered single agent patients advanced squamous cell nsclc progressed least two prior systemic treatments 65 receiving three prior therapies n117 approximately 11 months minimum follow objective response rate study’s primary endpoint 15 95 ci 87 222 assessed independent review committee irc using recist 11 criteria median duration response reached estimated oneyear survival rate 41 95 ci 316 497 median overall survival mos 82 months 95 ci 605 1091 • september 2014 ema validated review maa opdivo advanced squamous cell nsclc first completed regulatory submission pd1 immune checkpoint inhibitor tumor type • may 2014 company announced results phase1b study evaluating safety efficacy opdivo single agent patients advanced squamous cell nsclc previously treated study003 phase 1b study evaluating opdivo single agent chemotherapynaïve patients checkmate012 study003 twoyear survival rate 24 across doses n129 previouslytreated patients received opdivo single agent highest 45 patients received 3 mgkg dose n37 checkmate012 overall response rate 50 pdl1 positive tumors 0 pdl1 negative tumors chemotherapynaïve patients received opdivo single agent n20 types treatmentrelated serious adverse events saes checkmate012 consistent opdivo trials 15 patients experiencing grade 34 treatmentrelated saes checkmate012 multiarm study evaluating opdivo monotherapy combination agents • april 2014 company met fda regarding results study 063 evaluated opdivo thirdline squamous cell nsclc initiated rolling submission indication based study063 company completed rolling submission december 2014 indications • december 2014 company announced results cohort patients ongoing phase 1b trial checkmate039 evaluated opdivo patients relapsed refractory hematological malignancies n23 results showed high levels response patients relapsed refractory classical hodgkin lymphoma hl overall response rate 87 n20 stable disease 13 n3 • may 2014 company announced fda granted opdivo breakthrough therapy designation treatment patients hl failure autologous stem cell transplant brentuximab • may 2014 company announced results phase ii phase ib study opdivo patients advanced metastatic renal cell carcinoma phase ii checkmate010 doseranging trial n168 overall response rates opdivo single agent ranged 2022 oneyear survival rate ranged 6372 patients received prior antiangiogenic treatment phase 1b checkmate016 trial overall response rate investigational combination regimen opdivo yervoy n44 ranged 4348 24week progression free survival rate ranged 6465 previously treated treatmentnaïve patients hepatitis c portfolio daklinza daclatasvir dcv ns5a replication complex inhibitor sunvepra asunaprevir asv ns3 protease inhibitor beclabuvir bcv ns5b nonnucleoside polymerase inhibitor development • february 2015 fda notified company intention rescind breakthrough therapy designation certain genotype 1 hepatitis c regimens related daclatasvir investigational bms therapies impact current submissionresubmission timetable new drug application daclatasvir combination antiviral agents treatment hepatitis c • november 2014 company announced fda issued complete response letter crl regarding new drug application nda dcv combination agents treatment hepatitis c virus hcv initial dcv nda submitted fda focused use combination asv given withdrawal asv bms october fda requesting additional data dcv combination antiviral agents treatment hcv bms discussions fda scope data • november 2014 company announced results unity trial program investigating 12week regimen alloral dcvtrio regimen fixeddose combination dcv asv bcv dcvtrio broad range patients genotype 1 hcv primary endpoint studies percentage patients achieved cure defined hcv rnalloq tdtnd posttreatment week 12 treatmentnaïve treatmentexperienced patients unity2 study evaluated cirrhotic patients 12week regimen dcvtrio showed sustained virologic response 12 weeks treatment svr12 among 98 treatmentnaïve 93 treatmentexperienced cirrhotic patients ribavirin rbv 93 treatmentnaïve 87 treatmentexperienced cirrhotic patients without rbv • november 2014 company announced results landmark ally trial investigating ribavirinfree 12week regimen dcv combination sofosbuvir sof genotype 3 hcv patients population emerged one difficult treat results study showed sustained virologic response 12 weeks treatment svr12 90 treatmentnaïve 86 treatmentexperienced patients sof product gilead sciences inc gilead • october 2014 company announced pursue fda approval dual regimen dcv asv treatment hcv genotype 1b patients us therefore withdrawn nda asunaprevir company continue pursue fda approval dcv currently investigated globally multiple treatment regimens hcv patients high unmet needs • august 2014 company announced european commission ec approved daklinza use combination medicinal products across genotypes 1 2 3 4 treatment chronic hcv infection adults daklinza used combination sof alloral interferonfree regimen provided cure rates 100 clinical trials including patients advanced liver disease genotype 3 previously failed treatment protease inhibitors daklinza first ns5a complex inhibitor approved eu available use combination medicinal products providing shorter treatment duration 12 24 weeks compared 48 weeks treatment interferon ribavirinbased regimens • july 2014 company announced japanese ministry health labor welfare approved daklinza sunvepra new hcv treatment lead cure many patients japan currently treatment options daklinza sunvepra dual regimen japan’s first alloral interferon ribavirinfree treatment regimen patients genotype 1 chronic hcv infection including compensated cirrhosis indications daklinza sunvepra japan 1 patients ineligible intolerant interferonbased therapy 2 patients failed respond interferonbased therapy elotuzumab humanized monoclonal antibody investigated anticancer treatment elotuzumab part alliance abbvie inc abbvie • may 2014 company abbvie announced fda granted elotuzumab breakthrough therapy designation use combination lenalidomide dexamethasone treatment multiple myeloma patients received one prior therapies designation based findings randomized phase ii openlabel study evaluated two dose levels elotuzumab combination lenalidomide lowdose dexamethasone previouslytreated patients including 10 mgkg dose studied phase iii trials reyataz atazanavir sulfate franchise protease inhibitor treatment human immunodeficiency virus hiv includes reyataz also included combination therapy evotaz atazanavir 300 mg cobicistat 150 mg evotaz part alliance gilead • january 2015 company announced fda approved evotaz tablets treatment hiv1 infection adults oncedaily single tablet two drug regimen combining reyataz tybost sustiva efavirenz franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla efavirenz 600 mgemtricitabine 200 mgtenofovir disoproxil fumarate 300 mg product sold joint venture gilead • october 2014 company announced successfully resolved outstanding us patent litigation relating efavirenz active ingredient contained sustiva atripla loss exclusivity us efavirenz expected occur december 2017 yervoy ipilimumab monoclonal antibody treatment patients unresectable metastatic melanoma • june 2014 company announced results phase iii randomized double blind study demonstrating yervoy 10 mgkg significantly improved recurrencefree survival rfs length time recurrence death versus placebo patients stage 3 melanoma high risk recurrence following complete surgical resection adjuvant setting 25 reduction risk recurrence death observed three years estimated 465 patients treated yervoy free disease recurrence compared estimated 348 patients placebo median rfs 261 months yervoy versus 171 months placebo median followup 27 years orencia abatacept fusion protein indicated adult patients moderate severe active rheumatoid arthritis ra also indicated reducing signs symptoms certain pediatric patients moderately severely active polyarticular juvenile idiopathic arthritis • november 2014 company announced results several new subanalyses phase iiib avert assessing early rheumatoid arthritis treatment trial investigated use orencia plus methotrexate mtx biologic mtxnaïve citrullinated protein ccppositive early moderate severe ra patients firstline therapy orencia combination mtx resulted patients early ra achieving significantly higher rates stringent measures remission including 37 percent patients achieving booleandefined remission 42 percent patients achieving cdai sdaidefined remission 12 months versus patients mtx alone 224 percent 276 percent 250 percent respectively p005 three measures • june 2014 company announced first release new data phase iiib avert trial showing orencia combination mtx achieved significantly higher rates dasdefined remission 12 months treatment standard care agent mtx biologic mtxnaïve patients early active ra eliquis apixaban oral factor xa inhibitor targeted stroke prevention nonvalvular atrial fibrillation nvaf prevention treatment venous thromboembolic vte disorders eliquis part alliance pfizer • november 2014 company pfizer portola pharmaceuticals announced results first part phase 3 annexa™a andexanet alfa novel antidote anticoagulant effects fxa inhibitors apixaban studies andexanet alfa produced rapid nearly complete reversal approximately 94 percent p value 00001 anticoagulant effect eliquis healthy volunteers ages 50 75 • august 2014 company pfizer announced results prespecified secondary analysis eliquis phase 3 amplifyext trial apixaban initial management pulmonary embolism deep vein thrombosis firstline therapyextended treatment analysis evaluated clinical demographic predictors allcause hospitalization patients vte includes treatment deep vein thrombosis dvt pulmonary embolism pe results analysis demonstrated 12month extended treatment vte eliquis significantly reduced risk hospitalization versus placebo • august 2014 company pfizer announced fda approved supplemental new drug application snda eliquis treatment dvt pe reduction risk recurrent dvt pe following initial therapy • july 2014 company pfizer announced ec approved eliquis treatment dvt pe adults • july 2014 company pfizer announced first patient enrolled phase iv clinical trial called emanate assessing effectiveness safety eliquis patients nvaf undergoing cardioversion • march 2014 company pfizer announced results prespecified subanalysis phase iii aristotle trial assessing effect blood pressure control outcomes study showed results stroke risk reduction eliquis versus warfarin consistent overall aristotle study results demonstrating eliquis reduced stroke systemic embolism caused fewer major bleeding events reduced allcause mortality compared warfarin regardless blood pressure control results also showed poor blood pressure control associated substantially higher risk stroke systemic embolism independent eliquis warfarin treatment • march 2014 company pfizer announced fda approved snda eliquis prophylaxis deep vein thrombosis may lead pe patients undergone hip knee replacement surgery • february 2014 company pfizer announced results prespecified subanalysis phase iii aristotle trial relation patient age aristotle designed evaluate efficacy safety eliquis compared warfarin reducing risk stroke systemic embolism patients nvaf subanalysis found consistent results across age groups reducing risk stroke systemic embolism reducing risk allcause death fewer bleeding events eliquis versus warfarin owing higher risk older age 75 older absolute benefit patients nvaf greater eliquis older population results operations total revenues composition changes revenues follows revenues include royalties alliancerelated revenues products sold regional commercial organizations change excess 100 single country outside us contributed 10 total revenues period presented general business seasonal change us revenues 2014 attributed volume resulted diabetes business divestiture february 2014 partially offset increased demand eliquis yervoy sprycel change us revenues 2013 attributed volume resulted exclusivity loss plavix may 2012 avaproavalide march 2012 partially offset increased demand sprycel yervoy amylinrelated diabetes product revenues following completion acquisition august 2012 change us revenues 2014 attributed price resulted higher average net selling prices abilify aripiprazole key products change us revenues 2013 attributed price resulted reduction share abilify revenues 515 2012 340 2013 8 impact mostly offset higher average net selling prices abilify key products see “key products” discussion total revenues key product change europe revenues 2014 attributed volume resulted expiration eu commercialization rights abilify june 2014 diabetes business divestiture february 2014 loss exclusivity sustiva november 2013 partially offset increased demand eliquis yervoy orencia launch daklinza certain eu countries change europe revenues 2013 attributed volume resulted increased demand key products particularly yervoy sprycel orencia amylinrelated product revenues following transition nonus operations second quarter 2013 partially offset restructured sanofi agreement see item 8 financial statementsnote 3 alliances discussion revenues periods continued negatively impacted fiscal challenges many european countries healthcare payers including government agencies reduced expected continue reduce healthcare costs actions directly indirectly impose additional price reductions measures include mandatory discounts rebates restrictive measures change europe revenues 2014 attributed price also resulted reduction atripla revenue sharing average net selling prices change rest world revenues 2014 attributed volume resulted increased demand key products particularly eliquis yervoy sprycel launch daklinza sunvepra japan partially offset diabetes business divestiture change rest world revenues 2013 attributed volume resulted growth key products partially offset restructured sanofi agreement generic competition mature brands periods impacted unfavorable foreign exchange primarily japan revenues increased periods due higher royalties mature brand overthecounter product alliances diabetes product supply sales 2014 certain alliance revenues expected decline approximately 400 million 2015 continue decline 2016 upon expiration related royalty alliance agreements item 8 financial statementsnote 3 alliances discussion alliances recognize revenue net grosstonet adjustments described critical accounting policies share certain abilify atripla revenues reflected net grosstonet adjustments alliance revenues although presented grosstonet adjustment tables share abilify atripla grosstonet adjustments approximately 16 billion 2014 13 billion 2013 15 billion 2012 changes grosstonet adjustments impacted additional rebates discounts required us healthcare reform reduction share abilify revenues activities ending reserve balances significant category grosstonet adjustments follows reconciliation gross product sales net product sales significant category grosstonet adjustments follows grosstonet adjustment rates primarily function changes revenue mix contractual legislative discounts rebates grosstonet adjustments increased 2014 decreased 2013 due • chargebacks related government programs cash discounts 2013 decreased result lower plavix sales following loss exclusivity 2012 • managed healthcare rebates contract discounts decreased 2014 following diabetes business divestiture february 2014 partially offset higher eliquis sales managed healthcare rebates contract discounts increased 2013 primarily due higher amylinrelated sales • medicaid rebates increased 2014 due incremental discounts price increases taken excess inflation higher program participation rates higher provision reversals related sales made prior periods 2013 medicaid rebates decreased 2013 due lower plavix sales higher provision reversals related sales made prior periods 2013 • sales returns decreased 2013 due additional reserves established 2012 following plavix avaproavalide loss exclusivity us sales return reserves plavix avaproavalide 86 million 147 million december 31 2014 2013 respectively determined considering several factors including estimated inventory levels distribution channels accordance company policy products eligible returned six months prior twelve months product expiration adjustments might required future resulting actual returns expected occur 2015 • adjustments increased 2013 primarily due higher government rebates nonus markets product revenues change excess 100 baraclude oral antiviral agent treatment chronic hepatitis b • us revenues decreased 2014 due launch generic entecavir teva pharmaceutical industries ltd september 2014 us revenues increased 2013 due higher average net selling prices demand • international revenues increased 2013 due higher demand hepatitis c franchise daklinza ns5a replication complex inhibitor sunvepra ns3 protease inhibitor • daklinza launched germany august 2014 certain eu countries september 2014 daklinza sunvepra dual regimen launched japan september 2014 reyataz protease inhibitor treatment hiv • us revenues decreased periods due lower demand resulting competitors products • international revenues decreased 2014 due timing government purchases certain countries lower demand resulting competitors products international revenues increased 2013 due higher demand timing government purchases certain countries periods impacted unfavorable foreign exchange sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla product sold alliance gilead • us revenues increased periods due higher average net selling prices partially offset lower demand • international revenues decreased 2014 due sustivas loss exclusivity europe november 2013 negatively impacted demand average net selling prices atripla revenue sharing erbitux monoclonal antibody designed exclusively target block epidermal growth factor receptor expressed surface certain cancer cells multiple tumor types well normal cells currently indicated use treatment patients certain types metastatic colorectal cancer squamous cell carcinoma head neck erbitux part alliance lilly • us revenues remained flat periods opdivo fully human monoclonal antibody binds pd1 nkt cells investigated anticancer treatment opdivo part alliance ono • opdivo launched us december 2014 japan september 2014 treatment unresectable metastatic melanoma sprycel oral inhibitor multiple tyrosine kinases indicated firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia chronic phase treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate sprycel part alliance otsuka pharmaceutical co ltd otsuka • us revenues increased periods primarily due higher demand • international revenues increased periods primarily due higher demand partially offset unfavorable foreign exchange yervoy monoclonal antibody treatment patients unresectable metastatic melanoma • us revenues increased periods due higher demand us revenues 2013 also favorably impacted recognition 27 million revenues previously deferred • international revenues increased periods due higher demand abilify antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder part alliance otsuka • us revenues increased 2014 primarily due higher average net selling prices partially offset reduction share abilify revenues 34 2013 33 us revenues decreased 2013 due reduction contractual share revenues 515 2012 340 2013 partially offset higher average net selling prices us commercialization rights abilify expire april 20 2015 upon expected loss product exclusivity result significant decline abilify revenues • international revenues decreased 2014 primarily due expiration eu commercialization rights june 2014 otsuka becoming principal end customer sales certain markets international revenues 2013 increased primarily due higher demand orencia fusion protein indicated adult patients moderate severe active ra also indicated reducing signs symptoms certain pediatric patients moderately severely active polyarticular juvenile idiopathic arthritis • us revenues increased periods primarily due higher average net selling prices higher demand subcutaneous formulation • international revenues increased periods primarily due higher demand subcutaneous formulation partially offset unfavorable foreign exchange eliquis oral factor xa inhibitor targeted stroke prevention nonvalvular atrial fibrillation prevention treatment vte disorders eliquis part alliance pfizer • us international revenues continued increase following 2013 launches major markets reduction risk stroke systemic embolism patients nvaf treatment vte 2014 us diabetes alliance includes bydureon byetta farxiga onglyzakombiglyze myalept symlin part alliance astrazeneca • revenues decreased 2014 due diabetes business divestiture february 2014 revenues increased 2013 due amylin acquisition august 2012 higher demand average net selling prices onglyzakombiglyze see item 8 financial statementsnote 3 alliances discussion mature products includes products including lost exclusivity major markets overthecounter brands royaltyrelated revenue • us revenues decreased periods due continued generic erosion certain products including plavix avaproavalide lost exclusivity 2012 resulting lower revenue 24 billion 2013 • international revenues remained relatively flat 2014 due continued generic erosion products offset higher revenues attributed certain alliances international revenues 2013 impacted changes attributed restructured sanofi agreement avaproavalide plavix see “item 8 financial statementsnote 3 alliances” discussion • revenues expected significantly decline 2015 due reduction approximately 400 million related expiration certain royalty alliance agreements well continued decline mature products estimated enduser demand pursuant us securities exchange commission sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception estimated levels inventory distribution channel excess one month hand following products material results operations dates indicated reyataz 13 months inventory hand internationally september 30 2014 compared 11 months inventory hand june 30 2014 level inventory exceeds one month hand primarily due government purchasing patterns brazil efferalgan analgesic product sold principally europe 11 months inventory hand internationally september 30 2014 june 30 2014 level inventory hand primarily due ordering patterns pharmacists france us generally determine months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 90 total gross sales us products factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes businesses outside us significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available developed variety methodologies estimate data including using factors historical sales made direct customers thirdparty market research data related prescription trends enduser demand accordingly rely variety methods estimate direct customer product level inventory calculate months hand factors may affect estimates include generic competition seasonality products direct customer purchases light price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2014 available prior filing annual report form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q expenses change excess 100 cost products sold cost products sold include material costs internal labor overhead owned manufacturing sites thirdparty processing costs supply chain costs settlement foreign currency forward contracts used hedge forecasted intercompany inventory purchase transactions essentially costs managed global manufacturing supply organization cost products also includes royalties profit sharing attributed licensed products alliances amortization acquired developed technology costs business combinations milestone payments occur regulatory approval cost products sold vary periods result product mix particularly resulting royalties profit sharing expenses connection alliances price inflation costs attributed rationalization manufacturing sites resulting accelerated depreciation impairment charges stranded costs addition changes foreign currency may also provide volatility certain costs denominated foreign currencies cost products sold percentage total revenues 248 2014 282 2013 262 2012 • cost products sold decreased 2014 primarily due diabetes business divestiture 11 billion partially offset higher eliquis profit sharing pfizer accelerated depreciation certain manufacturing facilities • cost products sold remained relatively flat 2013 higher profit sharing expenses higher net amortization costs following amylin acquisition offset lower royalties following loss exclusivity plavix avaproavalide lower impairment charges 2013 • impairment charges 147 million recognized 2012 including 120 million related continued competitive pricing pressures reduction undiscounted projected cash flows amount less carrying value developed technology intangible asset remaining 27 million impairment charge related abandonment manufacturing facility resulting outsourcing manufacturing process marketing selling administrative marketing selling administrative expenses include salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs expenses attributed product manufacturing costs research development expenses managed regional commercialization organizations global corporate organizations finance legal information technology human resources certain expenses shared alliance partners based upon contractual agreements • marketing selling administrative expenses remained relatively flat 2014 increased salesrelated activities supporting eliquis yervoy opdivo hepatitis c franchise higher variable employee compensation additional branded prescription drug fee 2014 offset lower expenses following diabetes business divestiture 500 million • july 28 2014 irs issued final rules regulations branded prescription drug fee annual nontaxdeductible fee payable federal government affordable care act based allocation company’s market share branded prescription drugs sold certain government programs prior year final rules accelerated bmss industry participants expense recognition criteria fee obligation year fee paid year market share used allocate fee determined result additional year expense recognized third quarter 2014 including 96 million marketing selling administrative expenses 16 million expense final rules regulations change amount timing annual fees paid • marketing selling administrative expenses decreased 2013 due accelerated vesting amylin stock options restricted stock units 67 million 2012 lower branded prescription drug fee reduction sales related activities certain products coincide respective lifecycles partially offset higher spending support launch new key products additional spending following amylin acquisition advertising product promotion advertising product promotion expenses include media sample direct consumer programs • advertising product promotion expenses decreased 2014 following diabetes business divestiture • advertising product promotion expenses increased 2013 due newly launched products research development research development expenses include salary benefit costs thirdparty grants fees paid clinical research organizations supplies facility costs research development expenses also include costs discovery research preclinical development early lateclinical development drug formulation well clinical trials medical support marketed products proportionate allocations enterprisewide costs facilities information technology employee stock compensation costs appropriate costs upfront licensing fees related payments upon achievement regulatory contractual milestones also included certain expenses shared alliance partners based upon contractual agreements expenses attributed development activities managed global research development organization approximately 23 billion 2014 22 billion 2013 19 billion 2012 remainder attributed preclinical research activities expenses vary periods number reasons including timing upfront milestone licensing payments • research development expenses increased 2014 due 343 million iprd impairment charges including 310 million peginterferon lambda higher variable employee compensation clinical development costs 148 million charge acquisition ipierian upfront contingent milestone payments 130 million 2014 see “item 8 financial statements note 4 acquisitions note 14 goodwill intangible assets” information • research development expenses decreased 2013 due prior year charges including 142 million iprd impairment charges 27 million accelerated vesting amylin stock options restricted stock units 47 million upfront milestone licensing payments partially offset additional costs following amylin acquisition higher clinical grant spending impairment charge bms986094 intangible asset 18 billion impairment charge recognized 2012 development bms986094 formerly inx189 compound acquired part acquisition inhibitex treat hcv discontinued interest patient safety see “item 8 financial statements note 14 goodwill intangible assets” information intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment see “critical accounting policies” discussion incomeexpense • provision restructuring primarily attributable employee termination benefits resulting workforce reductions manufacturing selling administrative research development personnel across geographic regions additional charges approximately 100 million related specialty care transformation initiatives expected 2015 see item 8 financial statementsnote 7 restructuring discussion • litigation chargesrecoveries 2012 included 172 million share apotex damages award concerning plavix • equity net income affiliates primarily related international partnership sanofi europe asia decreased periods result restructuring sanofi agreement continues negatively impacted generic competition plavix europe asia • outlicensed intangible asset impairment charges 2014 2012 related certain assets acquired medarex zymogenetics inc acquisitions resulted unfavorable clinical trial results andor abandonment programs • gain sale product lines businesses assets resulted primarily diabetes business divestiture 2014 see “item 8 financial statementsnote 3 alliances” details • alliance licensing income 2014 includes royalties transitional service fees amortization deferred income attributed development agreement resulting diabetes business divestiture decrease us plavix sales resulted lower development royalties owed sanofi 2013 royalties received sanofi except europe asia presented revenues beginning 2013 result restructured sanofi agreement see item 8 financial statementsnote 3 alliances discussion • pension settlement charge 713 million recognized 2014 following purchase group annuity contract prudential december 2014 additional pension settlement charges also recognized determining annual lump sum payments would exceed annual interest service costs certain pension plans including primary us pension plan 2014 2013 2012 charges include acceleration portion unrecognized actuarial losses similar charges may occur future see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” details income taxes historically effective income tax rate lower us statutory rate 35 due decision indefinitely reinvest earnings certain manufacturing operations ireland puerto rico favorable tax rates ireland puerto rico grants scheduled expire prior 2023 increase effective tax rate 2014 resulted unfavorable earnings mix high low tax jurisdictions retroactive reinstatement 2012 rd credit legislation 2013 additional tax reserves transfer pricing matters partially offset higher tax benefits attributed specified items minimal income taxes attributed diabetes business divestiture gain capital loss deduction sale amylin shares tax basis differences resulting primarily allocated goodwill amylin deferred taxes tax benefits attributed research development charge resulting acquisition ipierian change effective tax rate 2013 resulted 392 million tax benefit 2012 attributed capital loss deduction resulting tax insolvency inhibitex impact deduction reduced effective tax rate 167 percentage points 2012 changes resulting lower discrete tax benefits attributed intangible asset impairment charges 2012 1830 million impairment charge bms986094 2012 higher charges contingent tax matters 2013 offset favorable earnings mix 2013 higher us plavix sales 2012 retroactive reinstatement 2012 rd credit legislation 2013 see “item 8 financial statementsnote 8 income taxes” details noncontrolling interest see “item 8 financial statementsnote 3 alliances” discussion plavix avaproavalide partnerships sanofi territory covering americas decrease noncontrolling interest 2013 resulted exclusivity loss us plavix may 2012 avaproavalide march 2012 summary noncontrolling interest follows nongaap financial measures nongaap financial measures including nongaap earnings related eps information adjusted exclude certain costs expenses gains losses specified items due significant andor unusual nature evaluated individual basis similar charges gains items recognized prior periods reasonably possible could reoccur future periods nongaap information intended portray results baseline performance include discovery development licensing manufacturing marketing distribution sale pharmaceutical products global basis enhance investor’s overall understanding past financial performance prospects future example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap specified items follows includes 16 million additional year branded prescription drug fee third quarter 2014 b 2014 specified tax charge relates transfer pricing matters c 2012 specified tax benefit relates capital loss deduction reconciliations gaap nongaap follows financial position liquidity capital resources net cashdebt position follows cash equivalents marketable securities held us approximately 25 billion december 31 2014 remaining 93 billion held primarily lowtax jurisdictions attributable earnings expected indefinitely reinvested offshore cash repatriations subject restrictions certain jurisdictions may subject withholding additional us income taxes believe existing cash equivalents marketable securities together cash generated operations sufficient satisfy normal cash requirements least next years including dividends capital expenditures milestone payments working capital dividends 24 billion 2014 23 billion 2013 2012 dividend decisions made quarterly basis board directors capital expenditures approximately 500 million past three years expected increase approximately 10 billion 2015 2016 higher spending expected result expanding biologics manufacturing capabilities facilityrelated activities example planning construct new largescale biologics manufacturing facility ireland produce multiple therapies growing biologics portfolio completed 2019 february 2014 sold astrazeneca substantially diabetes business comprising alliance resulting 38 billion cash flow 2014 including royalties see “item 8 financial statementsnote 3 alliances” discussion also redeemed 545 notes due 2018 entirety outstanding principal amount notes 582 million management periodically evaluates potential opportunities repurchase certain debt securities terminate certain interest rate swap contracts prior maturity commercial paper borrowings outstanding december 31 2014 marketable securities portfolio subject changes fair value result interest rate fluctuations market factors may impact results operations investment policy places limits investments amount time maturity investments institution policy also requires investments entered corporate financial institutions meet high credit quality standards see “item 8 financial statementsnote 10 financial instruments fair value measurements” two separate 15 billion fiveyear revolving credit facilities maintained syndicate lenders facilities provide customary terms conditions financial covenants extendable anniversary date consent lenders borrowings outstanding either revolving credit facility december 31 2014 2013 additional regulations us could passed future could reduce results operations operating cash flow liquidity financial flexibility also continue monitor potential impact economic conditions certain european countries related impact prescription trends pricing discounts creditworthiness customers ability collect outstanding receivables direct customers currently believe economic conditions eu material impact liquidity cash flow financial flexibility exposure certain european governmentbacked entities higher risk default governmentbacked entities monitored economic factors including credit ratings creditdefault swap rates debttogross domestic product ratios addition entity specific factors exposure reduced factoring certain receivables including receivables italy portugal spain 454 million 2014 509 million 2013 322 million 2012 factoring receivables japan 358 million 2014 522 million 2013 634 million 2012 factoring agreements allow recourse event uncollectibility retain interest underlying assets sold continue manage operating cash flows focusing working capital items directly affected changes sales volume receivables inventories accounts payable credit ratings moody’s investors service longterm shortterm credit ratings a2 prime1 respectively longterm credit outlook negative standard poor’s longterm shortterm credit ratings a1 respectively longterm credit outlook stable fitchs longterm shortterm credit ratings respectively revised longterm credit outlook negative stable december 2014 credit ratings considered investment grade longterm ratings reflect agencies opinion low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings reflect agencies opinion good extremely strong capacity timely repayment cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts cash disbursements activities investing activities financing activities operating cash flow derived adjusting net earnings noncontrolling interest noncash operating items gains losses attributed investing financing activities changes operating assets liabilities resulting timing differences receipts payments cash transactions recognized results operations result changes cash operating activities reflect timing cash collections customers alliance partners payments suppliers alliance partners employees pension contributions tax payments ordinary course business 397 million decrease cash provided operating activities 2014 primarily attributable • lower upfront contingent alliance proceeds approximately 600 million reckitt alliance proceeds 485 million 2013 • additional net working capital requirements 400 million partially offset • timing cash collections payments ordinary course business including among items lower pension contributions restructuring annual bonus payments 34 billion decrease cash provided operating activities 2013 primarily attributable • lower upfront contingent alliance proceeds approximately 27 billion amylin alliance proceeds 36 billion 2012 • lower operating cash flows attributed plavix avaproavalide revenue reductions following loss exclusivity approximately 700 million investing activities cash requirements investing activities include cash used business acquisitions manufacturing facilityrelated capital expenditures purchase marketable securities maturities greater 90 days reduced proceeds business divestitures sale maturity marketable securities 18 billion decrease cash used investing activities 2014 primarily attributable • proceeds 35 billion allocated diabetes business divestiture 2014 partially offset • higher net purchases marketable securities approximately 16 billion • cash used acquire ipierian 175 million 2014 62 billion decrease cash used investing activities 2013 primarily attributable • cash used acquire amylin 50 billion inhibitex 25 billion 2012 partially offset • higher net proceeds sales purchases maturities marketable securities approximately 13 billion financing activities cash requirements financing activities include cash used pay dividends repurchase common stock repay longterm debt borrowings reduced proceeds exercise stock options issuance longterm debt borrowings 14 billion increase cash used financing activities 2014 primarily attributable • lower net borrowings longterm debt transactions 16 billion 676 million repayments 2014 892 million net borrowings 2013 • lower proceeds stock option exercises 288 million 2014 564 million 2013 including excess tax benefits partially offset • lower cash used repurchase common stock none 2014 433 million 2013 33 billion decrease cash used financing activities 2013 primarily attributable • lower cash used repurchase common stock 20 billion 433 million 2013 24 billion 2012 • higher net borrowings longterm debt transactions 11 billion 892 million net borrowings 2013 158 million net repayments 2012 including debt assumed amylin acquisition • higher proceeds stock option exercises 564 million 2013 463 million 2012 including excess tax benefits contractual obligations payments due period contractual obligations december 31 2014 follows includes estimated future interest payments periodic cash settlements derivatives b includes shortterm uncertain tax benefits uncertainties regarding timing resolution addition committed aggregated 38 billion potential future research development milestone payments third parties inlicensing development programs including earlystage milestones 900 million milestones achieved phase iii clinical trials latestage milestones 29 billion milestones achieved post phase iii clinical trials payments generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted agreements also provide salesbased milestones aggregating 12 billion would obligated pay alliance partners upon achievement certain sales levels addition royalties also certain manufacturing development commercialization obligations connection alliance arrangements practicable estimate amount obligations see “item 8 financial statementsnote 3 alliances” information regarding alliances discussion contractual obligations see “item 8 financial statementsnote 8 income taxes” “note 10 financial instruments fair value measurements” “note 19 pension postretirement postemployment liabilities” “note 21 leases” sec consent order previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain inventory management agreements imas us pharmaceutical wholesalers account nearly 100 gross us revenues current terms imas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 90 gross us revenues inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast nonus business significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent recently issued accounting standards recently issued accounting standards see “item 8 financial statementsnote 1 accounting policiesrecently issued accounting standards” critical accounting policies preparation financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenue expenses critical accounting policies significantly impact financial condition results operations require difficult subjective complex judgments often result need make estimates effect matters inherently uncertain uncertainty actual results may vary estimates accounting policies discussed audit committee board directors revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally upon shipment except certain eu markets occur delivery products customer 2014 deferred approximately 300 million products sold early access program eu portion amount recognized revenue subject final price negotiations local government expected concluded 2015 revenue also reduced grosstonet sales adjustments discussed involve significant estimates judgment considering legal interpretations applicable laws regulations historical experience payer channel mix eg medicare medicaid current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel estimates assessed period adjusted required revised information actual experience addition see “total revenues” discussion analysis significant category grosstonet sales adjustments alliance arrangements involving delivery one element undelivered element evaluated whether qualifies separate unit accounting consideration fixed determinable allocated undelivered element recognized related goods services delivered limited consideration contingent upon future deliverables consideration associated contingent milestones royalties allocated among underlying elements amounts determined payable bms grosstonet adjustments following categories grosstonet adjustments involve significant estimates judgments information obtained external sources chargebacks related government programs us business participates programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price accounts receivable reduced estimated amount unprocessed chargeback claims attributable sale typically within two four week time lag cash discounts us certain countries cash discounts offered incentive prompt payment generally approximating 2 sales price accounts receivable reduced estimated amount unprocessed cash discounts typically within one month time lag managed healthcare rebates contract discounts rebates discounts offered managed healthcare organizations us managing prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit addition commercial plans well contract counterparties hospitals group purchasing organizations globally rebates also required us department defense tricare retail pharmacy refund program estimated amount unpaid unbilled rebates discounts presented liability 67 million reversal estimated amount 2011 medicare part coverage gap discounts occurred 2012 receipt actual invoices medicaid rebates us business participates state government medicaid programs qualifying federal state government programs requiring discounts rebates participating state local government entities discounts rebates provided programs included medicaid rebate accrual medicaid rebates also extended drugs used managed medicaid plans estimated amount unpaid unbilled rebates presented liability estimated medicaid rebates attributable prior period revenues reduced 24 million 2014 85 million 2013 37 million 2012 sales returns products typically eligible returned six months prior twelve months product expiration accordance policy estimated returns established products determined considering historical experience factors including levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products lower demand following loss exclusivity estimated amount product returns presented liability reserves established 2012 plavix avaproavalide following loss exclusivity remaining reserves 86 million 147 million december 31 2014 2013 respectively considering relevant factors well estimated future retail wholesale inventory work would occur loss exclusivity estimated returns new products determined considering historical sales return experience similar products within product line similar therapeutic category defer recognition revenue right return expires sufficient historical experience estimate sales returns developed limited circumstances typically occurs new product extension existing line product historical experience products similar therapeutic category lacking estimated levels inventory distribution channel projected demand also considered estimating sales returns new products use information external sources information external sources used estimate grosstonet adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information retirement benefits accounting pension postretirement benefit plans requires actuarial valuations based significant assumptions discount rates expected longterm rates return plan assets consultation actuaries significant assumptions others salary growth retirement turnover healthcare trends mortality rates evaluated selected based expectations actual experience remeasurement date pension expense could vary within range outcomes material effect reported earnings projected benefit obligations future cash funding actual results given year may differ estimated economic factors yield high quality corporate bonds coincides cash flows plans’ estimated payouts used determining discount rate citigroup pension discount curve used us plans us plans’ pension expense 2014 determined using 43 weightedaverage discount rate present value benefit obligations december 31 2014 us pension plans determined using 38 discount rate discount rate used determining us plans’ pension expense 2014 reduced additional 1 expense would increase approximately 9 million assumed discount rate used determining us pension plans’ projected benefit obligation december 31 2014 reduced additional 1 projected benefit obligation would increase approximately 11 billion new mortality tables rp2014 mortality improvement scales mp2014 issued society actuaries 2014 reflecting longer life expectancies previous tables new tables used measure us pension postretirement obligations beginning september 30 2014 resulting increase obligations approximately 600 million revised mortality rates expected materially impact pension expense future periods expected longterm rate return plan assets estimated considering expected returns individual asset classes input external advisors also consider longterm historical returns including actual performance compared benchmarks similar investments us plans’ pension expense 2014 determined using 81 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2014 reduced 1 expense would increase 49 million detailed discussion retirement benefits see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” business combinations divestitures goodwill intangible assets acquired business combinations licensing transactions 88 billion representing 26 total assets december 31 2014 accounting transactions business combinations divestitures significantly different asset acquisitions divestitures example acquired iprd capitalized business combinations expensed asset acquisitions fair value contingent consideration goodwill recognized business combination transactions likewise portion reporting unit constitutes business divested goodwill associated business included carrying value business determining gain loss derecognition goodwill occur asset dispositions result important determine whether business asset group assets acquired divested business defined asc 805 business combinations integrated set inputs processes capable generating outputs ability provide return investors owners typical inputs include longlived assets including intangible assets rights use longlived assets intellectual property ability obtain access required resources typical processes include strategic operational resource management processes typically documented evident organized workforce consider factors determining whether business acquired divested well stage development commercial products involved example evaluating acquisition ipierian concluded significant processes transferred us thus transaction accounted asset acquisition result 148 million allocated lead investigational compound expensed capitalized addition contingent consideration potential regulatory approval milestones 550 million salesbased royalties included purchase price similarly evaluating divestiture diabetes franchise astrazeneca concluded necessary inputs processes transferred consequently transaction accounted sale business resulted allocation 600 million goodwill carrying value business determining gain sale business combination transactions assets acquired liabilities assumed recognized date acquisition respective fair values excess purchase price estimated fair values net assets acquired recognized goodwill fair value intangible assets including iprd typically determined using “income method” method starts forecast net cash flows risk adjusted estimated probabilities technical regulatory success iprd adjusted present value using appropriate discount rate reflects risk associated cash flow streams assets valued market participant view might different specific bms views valuation process complex requires significant input judgment using internal external sources although valuations required finalized within oneyear period must consider facts evidence available acquisition date complex judgmental matters applicable valuation process summarized • unit accounting intangible assets valued single global assets rather multiple assets jurisdiction indication considering development stage expected levels incremental costs obtain additional approvals risks associated development amount timing benefits expected derived future expected patent lives various jurisdictions intention promote asset global brand • estimated useful life asset life expected contribute meaningful cash flows determined considering pertinent matters associated asset including expected regulatory approval dates unapproved exclusivity periods legal regulatory contractual provisions well effects obsolescence demand competition economic factors including barriers entry • probability technical regulatory success ptrs rate ptrs rates determined based upon industry averages considering respective programs development stage disease indication adjusted specific information data known acquisition date subsequent clinical results internal external data obtained could alter ptrs rate materially impact estimated fair value intangible asset subsequent periods leading impairment charges • projections future revenues estimated considering many factors initial market opportunity pricing sales trajectories peak sales levels competitive environment product evolution future costs expenses estimated considering historical market trends market participant synergies timing level additional development costs obtain initial additional regulatory approvals maintain enhance product generally assume initial positive cash flows commence shortly receipt expected regulatory approvals typically may occur number years actual cash flows attributed project likely different assumed since projections subjected multiple factors including trial results regulatory matters could materially change ultimate commercial success asset well significantly alter costs develop respective asset commercially viable products • tax rates expected future income tax effected using market participant tax rate recent valuations typically use us tax rate applicable state taxes considering jurisdiction intellectual property held location research manufacturing infrastructure also considered earnings repatriation would likely us tax consequences • discount rate discount rates selected considering risks inherent future cash flows assessment asset’s life cycle competitive trends impacting asset including consideration technical legal regulatory economic barriers entry well expected changes standards practice indications addressed asset see “item 8 financial statementsnote 4 acquisitions” specific details values assigned assets acquired liabilities assumed acquisitions ipierian 2014 amylin inhibitex 2012 significant estimates utilized time valuations support fair values lead compounds within acquisitions include valuation processes also required certain multiple element arrangements include determination judgmental complex matters discussed example divestiture diabetes business astrazeneca 2014 required determination best estimated selling price several elements including business supply development agreements including appropriate markups estimated fair value manufacturing facility see item 8 financial statementsnote 3 alliances discussion impairment goodwill 70 billion december 31 2014 goodwill tested least annually impairment enterprise level assessing qualitative factors performing quantitative analysis determining whether likely fair value exceeds carrying value examples qualitative factors assessed current year included share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year positive negative influences relevant factor assessed individually aggregate result concluded additional quantitative testing required discussion goodwill acquired inprocess research development intangible assets see “item 8 financial statementsnote 1 accounting policiesgoodwill acquired inprocess research development intangible assets” intangible assets including iprd intangible assets 18 billion december 31 2014 including licenses 382 million developed technology rights 849 million capitalized software 242 million iprd 280 million intangible assets assessed impairment whenever current facts circumstances warrant review although iprd assessed least annually intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment common potential risks leading impairment include competition earlier expected loss exclusivity pricing pressures adverse regulatory changes clinical trial results delay failure obtain regulatory approval additional development costs inability achieve expected synergies higher operating costs changes tax laws macroeconomic changes complexity estimating fair value intangible assets connection impairment test similar initial valuation considering high risk nature research development industry’s success rate bringing developmental compounds market iprd impairment charges likely occur future periods recognized charges 343 million 2014 including 310 million charge peginterferon lambda phase iii development treatment hcv also recognized charges 21 billion 2012 including 18 billion charge resulting discontinued development bms986094 projects previously acquired medarex inc inhibitex acquisitions resulting unfavorable clinical trial results additional development costs extended development periods decisions cease development iprd closely monitored assessed period impairment discussion iprd impairments see “item 8 financial statementsnote 14 goodwill intangible assets addition iprd commercial assets also subject impairment example impairment charge 120 million recognized 2012 related nonkey product prior acquisition continuing competitive pricing pressures operate dynamic market regulatory environment events occur causing expectations change quickly thus leading potential impairment charges property plant equipment property plant equipment tested impairment whenever current facts circumstances warrant review additionally longlived assets periodically reviewed determine change facts circumstances would result change estimated useful life asset possibly resulting acceleration depreciation circumstances exist estimate undiscounted future cash flows generated asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value expectations future cash flows subject change based upon near longterm production volumes margins generated asset well potential alternative future use accelerated depreciation related charges certain manufacturing facilities 151 million 2014 36 million 2013 147 million 2012 contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability contractual claims tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies see “item 8 financial statementsnote 1 accounting policiescontingencies” “note 8 income taxes” “note 22 legal proceedings contingencies” income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecasts future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made deferred tax assets 38 billion december 31 2014 net valuation allowances 43 billion 48 billion december 31 2013 net valuation allowances 46 billion deferred tax assets related us federal net operating loss carryforward 135 million us federal tax credit carryforward 26 million recognized december 31 2014 net operating loss carryforward expires varying amounts beginning 2022 us federal tax credit carryforward expires varying amounts beginning 2017 realization carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although assured believe likely deferred tax assets realized addition deferred tax asset related us federal state capital loss 562 million recognized december 31 2014 carried back three years carried forward five years realization carryforward dependent upon generating sufficient capital gains prior expiration 436 million valuation allowance established item december 31 2014 taxes provided undistributed earnings foreign subsidiaries expected reinvested indefinitely offshore prior mead johnson nutrition company mead johnson splitoff 2009 following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions certain assumptions representations covenants mead johnson relied upon regarding future conduct business matters could affect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account ela existed investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code irs could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations 2009 agreed certain tax related indemnities mead johnson set forth tax sharing agreement including certain taxes related business prior completion ipo created part restructuring facilitate ipo mead johnson also agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known example additional reserves 123 million established 2014 certain transfer pricing matters related periods 2008 2014 discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 8 income taxes” special note regarding forwardlooking statements annual report form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years included important factors cautionary statements included annual report form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made undertake obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary bristolmyers squibb company may referred bristolmyers squibb bms company us global specialty biopharmaceutical company whose mission discover develop deliver innovative medicines help patients prevail serious diseases revenues increased 4 2015 result recently launched products hepatitis c franchise including previously deferred revenue france opdivo nivolumab continued sales growth eliquis apixaban impacts partially offset changes foreign currency rates expiration us european union eu commercialization rights abilify aripiprazole competitive pressures resulting exclusivity losses factors baraclude entecavir reyataz atazanavir sulfate sustiva efavirenz certain markets expirationtransfer certain licensing royalty rights decrease gaap earnings per share eps 120 2014 093 2015 due higher research development expenses result upfront payments licensing asset acquisitions investigational compounds tax impact specified items contributed changes effective tax rate including nontaxdeductible research development charges acquisitions flexus biosciences inc flexus cardioxyl pharmaceuticals inc cardioxyl adjusting specified items increase nongaap eps 185 2014 201 2015 primarily due higher revenues highlights following table summarizes financial information nongaap financial measures including nongaap earnings related eps information adjusted exclude specified items represent certain costs expenses gains losses items impacting comparability financial results detailed listing specified items information reconciliations nongaap financial measures refer “nongaap financial measures significant product pipeline approvals received 100 approvals new medicines additional indications formulations currently marketed medicines including 20 major markets us eu japan following summary significant approvals received 2015 product date approvals opdivo december 2015 japanese ministry health labour welfare manufacturing marketing approval patients unresectable advanced recurrent nonsmall cell lung cancer nsclc received ono pharmaceutical co ltd ono november 2015 us food drug administration fda approval single agent treatment previously untreated patients braf v600 wildtype unresectable metastatic melanoma november 2015 fda approval treatment previously treated patients advanced metastatic renal cell carcinoma rcc october 2015 fda approval treatment previously treated patients nonsquamous nsq nsclc july 2015 eu approval treatment locally advanced metastatic squamous sq nsclc prior chemotherapy june 2015 eu approval treatment firstline previously treated unresectable metastatic melanoma patients regardless braf status march 2015 fda approval treatment patients advanced sq nsclc progression platinumbased chemotherapy opdivo yervoy ipilimumab september 2015 fda approval treatment patients braf v600 wildtype unresectable metastatic melanoma yervoy october 2015 fda approval adjuvant treatment patients cutaneous melanoma july 2015 japanese ministry health labour welfare approval first second line treatment unresectable malignant melanoma empliciti elotuzumab november 2015 fda approval treatment multiple myeloma combination therapy revlimid dexamethasone patients received one three prior therapies hepatitis c portfolio daklinza daclatasvir july 2015 fda approval use sofosbuvir treatment patients chronic hepatitis c virus hcv genotype 3 refer product pipeline developments marketed products latestage pipeline 2015 strategy transitioned specialty biopharmaceutical company strategy designed leverage reach resources major pharmaceutical company well entrepreneurial spirit agility biotech firm focused discovering developing delivering innovative medicines address serious unmet medical needs four strategic priorities drive business performance maintain leadership immunooncology maintain diversified portfolio within outside immunooncology continue disciplined approach capital allocation business development top priority developing new medicines following core therapeutic areas oncology immunooncology immunoscience cardiovascular diseases fibrosis genetically defined diseases pioneering innovative medicines area immunooncology unlock body’s immune system battle cancer yervoy first immunooncology agent introduced 2011 treatment metastatic melanoma 2015 announced several significant clinical regulatory milestones us eu opdivo programmed death receptor1 pd1 immune checkpoint inhibitor within 12 months opdivos first approval us metastatic melanoma late december 2014 worked unprecedented speed fda received five additional us approvals indications across three different tumor types transforming cancer care advanced nsclc melanoma rcc end 2015 opdivo approved 43 countries continue invest significantly deep pipeline innovative medicines covering broad array cancers entered several collaboration agreements research develop opdivo approved investigational oncology agents combination regimens additionally 2015 enhanced portfolio acquiring rights novel assets across several therapeutic areas including cardiovascular diseases fibrosis evolving commercial model growing marketed product portfolio manner consistent overall strategy oncology building rapid commercial acceptance opdivo revenues approximately 900 million continued success yervoy sprycel dasatinib beyond oncology remain strongly committed orencia abatacept eliquis revenues approximately 19 billion 2015 received us approval daklinza use sofosbuvir treatment patients chronic hcv genotype 3 also continue support key brands virology franchise reyataz baraclude sustiva franchise december 2015 announced divestiture pipeline investigational human immunodeficiency virus hiv medicines viiv healthcare global specialist company exclusively dedicated finding new medicines people living hiv transaction allow us focus therapeutic areas priority drive greatest longterm value us looking ahead continue implement biopharma strategy driving growth key brands executing new product launches investing diverse innovative pipeline including business development focusing prioritized markets increasing investments biologics manufacturing capabilities maintaining culture continuous improvement acquisition licensing arrangements acquisition licensing transactions allow us focus resources behind growth opportunities drive greatest longterm value focused following core therapeutic areas oncology immunooncology immunoscience cardiovascular diseases fibrosis genetically defined diseases significant transactions entered 2015 summarized kyorin pharmaceutical co ltd kyorin december 2015 bms kyorin entered exclusive worldwide license agreement granting bms right develop manufacture commercialize kyorins fpr2 agonist program kyorin option collaborate bms development commercialization japan cardioxyl december 2015 bms acquired outstanding shares cardioxyl privately held biotechnology company focused discovery development novel therapeutic agents cardiovascular disease acquisition provided bms full rights cxl1427 nitroxyl prodrug phase ii development acute decompensated heart failure five prime therapeutics inc five prime november 2015 bms five prime entered exclusive worldwide licensing collaboration agreement development commercialization five prime’s colony stimulating factor 1 receptor csf1r antibody program including fpa008 currently phase development immunology oncology indications bms responsible development manufacturing commercialization fpa008 subject five prime’s option conduct certain studies cost develop fpa008 pigmented vilonodular synovitis pvns combination internal oncology pipeline assets five prime also retained option copromote us agreement replaces previous clinical collaboration agreement two parties promedior inc promedior september 2015 company purchased warrant gives bms exclusive right acquire promedior gain worldwide rights lead asset prm151 recombinant form human pentraxin2 protein phase ii development treatment idiopathic pulmonary fibrosis ipf myelofibrosis mf prm151 granted fast track designation us orphan designation us europe treatment mf addition prm151 granted orphan designation us europe treatment ipf uniqure nv uniqure may 2015 company entered collaboration license agreement uniqure granting bms exclusive license uniqure’s gene therapy technology platform specific collaboration targets potential gene therapy products collaboration targets developed uniqure’s platform may developed disease although parties intend focus initially cardiovascular diseases collaboration includes uniqure’s proprietary gene therapy program congestive heart failure intended restore heart’s ability synthesize s100a1 calcium sensor master regulator heart function thereby improve clinical outcomes patients reduced ejection fraction total companies may collaborate 10 targets including s100a1 bms solely responsible global commercialization products collaboration august 2015 company selected three additional collaboration targets 2015 company acquired 24 million shares uniqure two separate tranches 99 uniqures outstanding shares immediately following second two acquisitions company also granted two warrants company right purchase additional shares together shares currently owned bms would equal 199 uniqures oustanding shares immediately issuance exercise warrant conditioned upon designation bms certain number additional collaboration targets payment bms uniqure related fees collaboration license agreement flexus april 2015 company acquired outstanding shares flexus privately held biotechnology company focused discovering developing novel anticancer therapeutics acquisition provided bms full rights preclinical small molecule ido1inhibitor targeted immunotherapy potential used combination bmss immunooncology portfolio addition transaction included flexuss idotdo discovery program includes idoselective idotdo dual tdoselective compounds novo nordisk novo nordisk march 2015 company acquired exclusive global license novo nordisk discovery biologics research program focused modulating innate immune system therapy autoimmune diseases bavarian nordic bavarian nordic march 2015 company acquired exclusive option globally license commercialize prostvac bavarian nordic’s investigational phase iii prostatespecific antigentargeting cancer immunotherapy development treatment asymptomatic minimally symptomatic metastatic castrationresistant prostate cancer rigel pharmaceuticals inc rigel february 2015 company executed agreement rigel discovery development global commercialization cancer immunotherapies based rigel’s extensive portfolio small molecule tgf beta receptor kinase inhibitors collaboration focus developing new class therapeutics aimed increasing immune system’s activity various cancers either monotherapy combination immune checkpoint inhibitors including opdivo yervoy california institute biomedical research calibr january 2015 company entered worldwide research collaboration calibr develop novel small molecule antifibrotic therapies exclusive global license agreement allows company develop manufacture commercialize calibrs preclinical compounds resulting collaboration results operations total revenues composition changes revenues follows revenues include royalties alliancerelated revenues products sold regional commercial organizations b foreign exchange impacts derived applying prior period average currency rates current period sales increase us revenues 2015 resulted launch opdivo daklinza higher demand eliquis sprycel partially offset expiration commercialization rights abilify transfer erbitux north america average us net selling prices increased approximately 3 refer product sales discussion additional information decrease us revenues 2014 resulted diabetes business divestiture february 2014 partially offset higher demand eliquis yervoy sprycel higher average net selling prices approximately 3 decrease europe revenues 2015 resulted unfavorable foreign exchange expiration commercialization rights abilify eu june 2014 partially offset launch daklinza certain eu countries third quarter 2014 higher demand eliquis revenues also impacted approximately 170 million daklinza net product sales amounts previously deferred 2014 final pricing obtained france occurred 2015 revenues continue negatively impacted many european countries healthcare payers including government agencies continued reduce healthcare costs actions directly indirectly impose additional price reductions decrease europe revenues 2014 resulted expiration eu commercialization rights abilify june 2014 diabetes business divestiture loss exclusivity sustiva november 2013 partially offset higher demand eliquis yervoy orencia launch daklinza certain eu countries third quarter 2014 increase rest world revenues 2015 resulted launch daklinza sunvepra dual regimen japan third quarter 2014 higher demand eliquis partially offset unfavorable foreign exchange primarily japan increase rest world revenues 2014 resulted higher demand key products particularly eliquis yervoy sprycel launch daklinza sunvepra dual regimen japan third quarter 2014 partially offset diabetes business divestiture unfavorable foreign exchange primarily japan decrease revenues 2015 resulted expirationtransfer certain licensing royalty rights increase revenues 2014 resulted higher royalties mature brand overthecounter product alliances diabetes product supply sales 2014 refer item 8 financial statementsnote 3 alliances discussion alliances single country outside us contributed 10 total revenues 2015 2014 2013 except japan contributed 10 total revenues 2015 recognize revenue net grosstonet adjustments described critical accounting policies share certain abilify atripla revenues reflected net grosstonet adjustments alliance revenues although presented grosstonet adjustment tables share abilify atripla grosstonet adjustments approximately 11 billion 2015 16 billion 2014 13 billion 2013 grosstonet adjustments decreased 2015 due expiration us commercialization rights abilify april 2015 activities ending reserve balances significant category grosstonet adjustments follows reconciliation gross product sales net product sales excludes alliance revenues significant category grosstonet adjustments follows grosstonet adjustment rates primarily function changes revenue mix contractual legislative discounts rebates grosstonet adjustments increased 2015 2014 due • chargebacks cash discounts increased 2015 primarily due higher product sales us particularly regarding eliquis opdivo • medicaid medicare rebates increased 2015 primarily due higher product sales rebate rates us particularly medicare eliquis medicaid medicare rebates increased 2014 primarily due higher medicare sales rebate rates eliquis higher medicaid rebates virology products due price increase limitations partially offset diabetes business divestiture february 2014 • us sales return reserve plavix reduced 63 million 2015 30 million 2014 22 million 2013 considering several factors including actual return experience estimated inventory levels distribution channels accordance company policy products eligible returned six months prior twelve months product expiration us sales return reserve plavix material december 31 2015 • rebates discounts adjustments increased 2015 primarily due additional rebates discounts daklinza including approximately 180 million upon obtaining final pricing france amounts deferred march 31 2015 eliquis product revenues change excess 100 baraclude oral antiviral agent treatment chronic hepatitis b • us revenues decreased periods following loss exclusivity september 2014 • international revenues decreased 2015 due unfavorable foreign exchange partially offset higher demand certain countries hepatitis c franchise includes daklinza ns5a replication complex inhibitor revenues 1315 million 2015 201 million 2014 sunvepra asunaprevir ns3 protease inhibitor revenues 288 million 2015 55 million 2014 • daklinza launched us july 2015 additional competition expected us 2016 • daklinza launched germany certain eu countries third quarter 2014 subsequently approved international markets 2015 daklinza sunvepra dual regimen launched japan third quarter 2014 international revenues also include 170 million previously deferred revenue france recognized 2015 international revenues expected significantly decline 2016 due increased competition primarily japan reyataz franchise protease inhibitor treatment hiv includes reyataz also included combination therapy evotaz atazanavir 300 mg cobicistat 150 mg • us revenues decreased periods due lower demand resulting increased competition • international revenues decreased periods due unfavorable foreign exchange lower demand resulting increased competition sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla • us revenues decreased 2015 due lower demand resulting increased competition partially offset higher average net selling prices us revenues increased 2014 due higher average net selling prices partially offset lower demand • international revenues decreased periods due sustivas loss exclusivity europe november 2013 continues negatively impact demand average net selling prices atripla revenue sharing empliciti humanized monoclonal antibody treatment multiple myeloma • empliciti launched us december 2015 erbitux monoclonal antibody designed exclusively target block epidermal growth factor receptor expressed surface certain cancer cells multiple tumor types well normal cells currently indicated use treatment patients certain types metastatic colorectal cancer squamous cell carcinoma head neck • us revenues decreased 2015 due bms transferring rights erbitux north america eli lilly company lilly october 2015 refer item 8 financial statementsnote 3 alliances” discussion opdivo fully human monoclonal antibody binds programmed death receptor1 pd1 natural killer nkt cells approved continues investigated anticancer treatment • us revenues increased 2015 due launch opdivo december 2014 treatment unresectable melanoma subsequent approvals additional indications 2015 including nsq sq nsclc rcc well rapid commercial acceptance opdivo throughout year refer significant product pipeline highlights discussion additional opdivo approvals 2015 • opdivo launched japan september 2014 subsequently approved eu june 2015 treatment unresectable melanoma july 2015 treatment advanced sq nsclc opdivo also approved international markets 2015 sprycel oral inhibitor multiple tyrosine kinases indicated firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia chronic phase treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate • us revenues increased periods primarily due higher demand • international revenues decreased 2015 due unfavorable foreign exchange partially offset higher demand international revenues increased 2014 primarily due higher demand partially offset unfavorable foreign exchange yervoy monoclonal antibody treatment patients unresectable metastatic melanoma • us revenues decreased 2015 due lower demand resulting introduction immunooncology products used treat patients melanoma including opdivo us revenues increased 2014 due higher demand • international revenues decreased 2015 due unfavorable foreign exchange international revenues increased 2014 due higher demand abilify antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder • us revenues decreased 2015 due expiration commercialization rights april 2015 us revenues increased 2014 primarily due higher average net selling prices partially offset reduction share abilify revenues bmss share abilify revenue 50 2015 33 2014 34 2013 • international revenues decreased periods following expiration eu commercialization rights june 2014 otsuka pharmaceutical co ltd becoming principal end customer sales certain markets orencia fusion protein indicated adult patients moderate severe active rheumatoid arthritis ra also indicated reducing signs symptoms certain pediatric patients moderately severely active polyarticular juvenile idiopathic arthritis • us revenues increased periods due higher average net selling prices demand • international revenues increased periods primarily due higher demand subcutaneous formulation partially offset unfavorable foreign exchange eliquis oral factor xa inhibitor targeted stroke prevention nonvalvular atrial fibrillation nvaf prevention treatment venous thromboembolic vte disorders • us international revenues increased periods due higher demand following 2013 launches major markets reduction risk stroke systemic embolism patients nvaf treatment vte 2014 us 2015 eu international revenues also impacted unfavorable foreign exchange mature products includes products including lost exclusivity major markets diabetes alliance products overthecounter brands royalty revenue • us revenues decreased periods primarily due diabetes business divestiture february 2014 • international revenues decreased 2015 due expirationtransfer certain licensing royalty rights diabetes business divestiture february 2014 unfavorable foreign exchange continued generic erosion international revenues decreased 2014 due diabetes business divestiture continued generic erosion products partially offset higher alliance revenues estimated enduser demand pursuant us securities exchange commission sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception estimated levels inventory distribution channel excess one month hand following products material results operations dates indicated us products estimated levels inventory distribution channel excess one month hand december 31 2015 international products estimated levels inventory distribution channel excess one month hand september 30 2015 dafalgan analgesic product sold principally europe 11 months inventory hand internationally direct customers compared 12 months inventory hand june 30 2015 level inventory hand primarily due ordering patterns pharmacists france efferalgan analgesic product sold principally europe 14 months inventory hand internationally direct customers september 30 2015 june 30 2015 level inventory hand primarily due ordering patterns pharmacists france changes distribution model overthecounter products greece fervex cold flu product 29 months inventory hand direct customers compared 31 months inventory hand june 30 2015 level inventory hand primarily russia france support product seasonality donormyl prescription sleeping aid 64 months inventory hand direct customers compared 48 months inventory hand june 30 2015 level inventory hand primarily russia due lower expected demand competitor pricing us generally determine months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 95 total gross sales us products factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes businesses outside us significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available developed variety methodologies estimate data including using factors historical sales made direct customers thirdparty market research data related prescription trends enduser demand accordingly rely variety methods estimate direct customer product level inventory calculate months hand factors may affect estimates include generic competition seasonality products direct customer purchases light price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2015 available prior filing annual report form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q expenses change excess 100 cost products sold cost products sold include material costs internal labor overhead owned manufacturing sites thirdparty processing costs supply chain costs settlement foreign currency forward contracts used hedge forecasted intercompany inventory purchase transactions essentially costs managed global manufacturing supply organization cost products sold also includes royalties profit sharing attributed licensed products alliances amortization acquired developed technology costs business combinations milestone payments occur regulatory approval cost products sold vary periods result product mix volume particularly resulting royalties profit sharing expenses connection alliances changes foreign currency price inflation costs attributed rationalization manufacturing sites resulting accelerated depreciation impairment charges stranded costs • cost products sold remained relatively flat 2015 higher profit sharing royalties alliances primarily eliquis offset favorable foreign exchange • cost products sold decreased 2014 primarily due diabetes business divestiture 11 billion partially offset higher eliquis profit sharing 290 million accelerated depreciation certain manufacturing facilities marketing selling administrative marketing selling administrative expenses include salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs advertising product promotion expenses attributed product manufacturing costs research development expenses managed regional commercialization organizations global corporate organizations finance legal information technology human resources certain expenses shared alliance partners based upon contractual agreements • marketing selling administrative expenses remained relatively flat 2015 increased salesrelated activities supporting eliquis opdivo hepatitis c franchise offset favorable foreign exchange 96 million additional expenses related branded prescription drug fee 2014 resulting changes irs guidelines • marketing selling administrative expenses remained relatively flat 2014 increased salesrelated activities supporting eliquis yervoy opdivo hepatitis c franchise higher variable employee compensation additional branded prescription drug fee 2014 offset lower expenses following diabetes business divestiture 500 million • july 28 2014 irs issued final rules regulations branded prescription drug fee annual nontaxdeductible fee payable federal government affordable care act based allocation company’s market share branded prescription drugs sold certain government programs prior year final rules accelerated bmss industry participants expense recognition criteria fee obligation year fee paid year market share used allocate fee determined result additional year expense recognized third quarter 2014 including 96 million marketing selling administrative expenses 16 million expense final rules regulations change amount timing annual fees paid research development research development activities include discovery research preclinical clinical development drug formulation well clinical trials medical support marketed products expenses include salary benefit costs thirdparty grants fees paid clinical research organizations supplies upfront contingent milestone payments licensing asset acquisitions investigational compounds iprd impairment charges proportionate allocations enterprisewide costs allocations include facilities information technology employee stock compensation costs appropriate costs certain expenses shared alliance partners based upon contractual agreements expenses vary periods number reasons including timing upfront contingent milestone payments licensing asset acquisitions iprd impairment charges • research development expenses increased 2015 due higher charges resulting investigational compound acquisitions including 800 million flexus 167 million cardioxyl upfront payments new alliance licensing agreements including 350 million five prime increased investments accelerate expand opdivo development programs partially offset lower iprd impairment charges including 160 million lpa1 antagonist 2015 favorable foreign exchange • research development expenses increased 2014 due 343 million iprd impairment charges including 310 million peginterferon lambda higher variable employee compensation clinical development costs 148 million charge acquisition ipierian inc ipierian upfront contingent milestone payments alliance licensing agreements 130 million 2014 refer item 8 financial statementsnote 3 alliances note 4 acquisitions divestitures note 14 goodwill intangible assets information incomeexpense • litigation settlements includes additional charge 90 million contractual dispute related license subsequent companys earnings release fourth quarter 2015 • gain sale businesses product lines assets primarily resulted sale ixempra business mount vernon indiana manufacturing facility certain mature overthecounter product businesses transfer erbitux north america 2015 diabetes business divestiture 2014 refer “item 8 financial statementsnote 3 alliances note 4 acquisitions divestitures” details • alliance licensing income includes royalties transitional services fees resulting diabetes business divestitures 2015 2014 income 123 million resulting change fair value written option liability attributed reckitt benckiser group plc reckitt alliance 2015 refer item 8 financial statementsnote 3 alliances discussion • pension settlement charges recognized determining annual lump sum payments would exceed annual interest service costs certain pension plans including primary us pension plan 2015 2014 2013 charges include acceleration portion unrecognized actuarial losses likely occur future additional pension settlement charge 713 million recognized 2014 following purchase group annuity contract prudential insurance company america december 2014 refer “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” details • loss debt redemption 2015 resulted early redemption euro notes tender offer certain debt securities refer item 8 financial statementsnote 10 financial instruments fair value measurements details income taxes historically effective income tax rate lower us statutory rate 35 due decision indefinitely reinvest earnings certain manufacturing operations switzerland ireland puerto rico bms operates favorable tax grant puerto rico scheduled expire prior 2023 tax impact attributed research development charges divestiture transactions specified items including additional transfer pricing reserves 2014 increased effective tax rate 03 2015 reduced effective tax rate 51 2014 46 2013 tax benefits attributed research development charges resulting acquisitions flexus cardioxyl 2015 ipierian 2014 minimal income taxes attributed diabetes business divestiture gain 2014 capital loss deduction sale amylin shares tax basis differences resulting primarily allocated goodwill amylin deferred taxes earnings mix high low tax jurisdictions periods retroactive reinstatement 2012 research development credit legislation 2013 also impacted effective tax rates refer item 8 financial statementsnote 8 income taxes information nongaap financial measures nongaap financial measures including nongaap earnings related eps information adjusted exclude certain costs expenses gains losses specified items due significant andor unusual nature evaluated individual basis similar charges gains items recognized prior periods reasonably possible could reoccur future periods nongaap information intended portray results baseline performance include discovery development licensing manufacturing marketing distribution sale pharmaceutical products global basis enhance investor’s overall understanding past financial performance prospects future example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap specified items follows includes 16 million additional year branded prescription drug fee third quarter 2014 b 2014 specified tax charge relates transfer pricing matters reconciliations gaap nongaap follows financial position liquidity capital resources net cash position follows cash equivalents marketable securities held us approximately 17 billion december 31 2015 remaining 72 billion held primarily lowtax jurisdictions attributable earnings expected indefinitely reinvested offshore cash repatriations subject restrictions certain jurisdictions may subject withholding additional us income taxes believe existing cash equivalents marketable securities together cash generated operations issuance commercial paper us sufficient satisfy normal cash requirements least next years including dividends capital expenditures milestone payments working capital management continuously evaluates company’s capital structure ensure company financed efficiently includes potential opportunities repurchase certain debt securities terminate certain interest rate swap contracts prior maturity access capital markets subject market conditions example issued senior unsecured notes registered public offering generating proceeds 13 billion redeemedrepurchased certain notes nearly 20 billion 2015 refer “item 8 financial statementsnote 10 financial instruments fair value measurements” details issued commercial paper meet nearterm domestic liquidity requirements 2015 average amount commercial paper outstanding 254 million weightedaverage interest rate 016 2015 maximum month end amount commercial paper outstanding 755 million outstanding borrowings december 31 2015 dividend payments 25 billion 2015 24 billion 2014 23 billion 2013 dividend decisions made quarterly basis board directors capital expenditures approximately 800 million 2015 approximately 500 million 2014 2013 expected approximately 13 billion 2016 10 billion 2017 higher spending expected result expanding biologics manufacturing capabilities facilityrelated activities example constructing new largescale biologics manufacturing facility ireland produce multiple therapies growing biologics portfolio completed 2019 marketable securities portfolio subject changes fair value result interest rate fluctuations market factors may impact results operations investment policy places limits investments amount time maturity investments institution policy also requires investments entered corporate financial institutions meet high credit quality standards refer “item 8 financial statementsnote 10 financial instruments fair value measurements” details two separate 15 billion fiveyear revolving credit facilities maintained syndicate lenders facilities provide customary terms conditions financial covenants extendable anniversary date consent lenders borrowings outstanding either revolving credit facility december 31 2015 2014 additional regulations us could passed future could negatively impact results operations operating cash flow liquidity financial flexibility also continue monitor potential impact economic conditions certain european countries related impact prescription trends pricing discounts creditworthiness customers ability collect outstanding receivables direct customers currently believe economic conditions eu material impact liquidity cash flow financial flexibility exposure certain european governmentbacked entities higher risk default governmentbacked entities monitored economic factors including credit ratings creditdefault swap rates debttogross domestic product ratios addition entity specific factors manage exposure factoring certain receivables including receivables italy portugal spain circumstances permit factoring receivables countries 476 million 2015 454 million 2014 509 million 2013 factoring receivables japan 358 million 2014 522 million 2013 factoring agreements allow recourse event uncollectibility retain interest underlying assets sold credit ratings bmss longterm shortterm credit ratings assigned moodys investors service a2 prime1 respectively longterm credit outlook revised negative stable april 2015 bmss longterm shortterm credit ratings assigned standard poors a1 respectively stable longterm credit outlook bmss longterm shortterm credit ratings assigned fitch respectively stable longterm credit outlook longterm ratings reflect agencies opinion low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings reflect agencies opinion good extremely strong capacity timely repayment credit rating downgrade may affect interest rate debt may incur fair market value existing debt ability access capital markets generally cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts cash disbursements activities investing activities financing activities operating cash flow derived adjusting net earnings noncontrolling interest noncash operating items gains losses attributed investing financing activities changes operating assets liabilities resulting timing differences receipts payments cash transactions recognized results operations result changes cash operating activities reflect timing cash collections customers alliance partners payments suppliers alliance partners employees pension contributions tax payments ordinary course business 13 billion decrease cash provided operating activities 2015 primarily attributable • timing payments alliance partners approximately 700 million particularly active product ingredient supply medicaid rebates abilify • higher upfront payments new alliance licensing agreements approximately 600 million • timing customer collections resulting primarily higher net product sales including extended payment terms certain new products less factoring approximately 400 million partially offset • timing cash collections payments ordinary course business including among items changes inventory levels particularly related abilify 397 million decrease cash provided operating activities 2014 primarily attributable • lower upfront contingent alliance proceeds approximately 600 million reckitt alliance proceeds 485 million 2013 • additional net working capital requirements approximately 400 million partially offset • timing cash collections payments ordinary course business including among items lower pension contributions restructuring annual bonus payments investing activities cash requirements investing activities include cash used business asset acquisitions manufacturing facilityrelated capital expenditures purchase marketable securities maturities greater 90 days reduced proceeds business divestitures sale maturity marketable securities 28 billion decrease cash provided investing activities 2015 primarily attributable • lower proceeds resulting diabetes business divestitures 29 billion 700 million 2015 36 billion 2014 • cash used acquire flexus 800 million cardioxyl 200 million 2015 • higher capital expenditures approximately 300 million partially offset • lower net purchases marketable securities 13 billion 2015 • cash used acquire ipierian 175 million 2014 18 billion decrease cash used investing activities 2014 primarily attributable • proceeds 35 billion allocated diabetes business divestiture 2014 partially offset • higher net purchases marketable securities approximately 16 billion • cash used acquire ipierian 175 million 2014 financing activities cash requirements financing activities include cash used pay dividends repurchase common stock repay longterm debt borrowings reduced proceeds exercise stock options issuance longterm debt borrowings 914 million increase cash used financing activities 2015 primarily attributable • lower shortterm borrowings approximately 700 million 2015 consisting primarily changes bank overdrafts 14 billion increase cash used financing activities 2014 primarily attributable • lower net borrowings longterm debt transactions 16 billion 676 million repayments 2014 892 million net borrowings 2013 • lower proceeds stock option exercises 288 million 2014 564 million 2013 including excess tax benefits partially offset • lower cash used repurchase common stock none 2014 433 million 2013 contractual obligations payments due period contractual obligations december 31 2015 follows includes estimated future interest payments periodic cash settlements derivatives b includes shortterm uncertain tax benefits uncertainties regarding timing resolution addition committed aggregated 93 billion potential future research development milestone payments third parties inlicensing asset acquisitions development programs including earlystage milestones 26 billion milestones achieved phase iii clinical trials latestage milestones 67 billion milestones achieved post phase iii clinical trials payments generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted agreements also provide salesbased milestones aggregating 23 billion would obligated pay alliance partners upon achievement certain sales levels addition royalties also certain manufacturing development commercialization obligations connection alliance arrangements practicable estimate amount obligations refer “item 8 financial statementsnote 3 alliances” information regarding alliances discussion contractual obligations refer “item 8 financial statementsnote 8 income taxes” “note 10 financial instruments fair value measurements” “note 19 pension postretirement postemployment liabilities” “note 21 leases” sec consent order fcpa settlement previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain inventory management agreements imas us pharmaceutical wholesalers account nearly 100 gross us revenues current terms imas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 95 gross us revenues inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast nonus business significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent addition previously disclosed october 2015 company reached civil settlement sec alleged foreign corrupt practices act fcpa violations company agreed approximately 147 million disgorgement penalties interest part settlement company also agreed twoyear selfmonitoring period reporting government maintaining procedures ensure compliance recently issued accounting standards recently issued accounting standards refer “item 8 financial statementsnote 1 accounting policiesrecently issued accounting standards” critical accounting policies preparation financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenue expenses critical accounting policies significantly impact financial condition results operations require difficult subjective complex judgments often result need make estimates effect matters inherently uncertain uncertainty actual results may vary estimates accounting policies discussed audit committee board directors revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally upon shipment except certain eu markets occur delivery products customer 2014 deferred approximately 300 million invoiced daklinza early access program france portion amount recognized revenue 2015 final pricing obtained france revenue also reduced grosstonet sales adjustments discussed involve significant estimates judgment considering legal interpretations applicable laws regulations historical experience payer channel mix eg medicare medicaid current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel estimates assessed period adjusted required revised information actual experience alliance arrangements involving delivery one element undelivered element evaluated whether qualifies separate unit accounting consideration fixed determinable allocated undelivered element recognized related goods services delivered limited consideration contingent upon future deliverables consideration associated contingent milestones royalties allocated among underlying elements amounts determined payable bms grosstonet adjustments following categories grosstonet adjustments involve significant estimates judgments information obtained external sources refer “total revenues” discussion analysis significant category grosstonet sales adjustments chargebacks cash discounts us business participates programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price accounts receivable reduced estimated amount unprocessed chargeback claims attributable sale typically within two four week time lag us certain countries cash discounts offered incentive prompt payment generally approximating 2 sales price accounts receivable reduced estimated amount unprocessed cash discounts typically within one month time lag medicaid medicare rebates us business participates state government medicaid programs qualifying federal state government programs requiring discounts rebates participating state local government entities discounts rebates provided programs included medicaid rebate accrual medicaid rebates also extended drugs used managed medicaid plans estimated amount unpaid unbilled rebates presented liability rebates discounts offered managed healthcare organizations us managing prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit also pay 50 point service discount centers medicare medicaid services medicare part beneficiaries coverage gap donut hole estimated amount unpaid unbilled rebates discounts presented liability sales returns products typically eligible returned six months prior twelve months product expiration accordance policy estimated returns established products determined considering historical experience factors including levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products lower demand following loss exclusivity estimated amount product returns presented liability estimated returns new products determined considering historical sales return experience similar products within product line similar therapeutic category defer recognition revenue right return expires sufficient historical experience estimate sales returns developed limited circumstances typically occurs new product extension existing line product historical experience products similar therapeutic category lacking estimated levels inventory distribution channel projected demand also considered estimating sales returns new products rebates discounts adjustments grosstonet sales adjustments include programs based applicable laws regulations individual nonus countries well rebates offered managed healthcare organizations us lesser extent nonus programs include several different pricing schemes cost caps volume discounts outcomebased pricing schemes pricing clawbacks based sales individual companies aggregation companies participating specific market estimated amount unpaid unbilled rebates discounts presented liability use information external sources information external sources used estimate grosstonet adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information retirement benefits accounting pension postretirement benefit plans requires actuarial valuations based significant assumptions discount rates expected longterm rates return plan assets consultation actuaries significant assumptions others salary growth retirement turnover healthcare trends mortality rates evaluated selected based expectations actual experience remeasurement date pension expense could vary within range outcomes material effect reported earnings projected benefit obligations future cash funding actual results given year may differ estimated economic factors yield high quality corporate bonds coincides cash flows plans’ estimated payouts used determining discount rate citigroup pension discount curve used us plans us plans’ pension expense 2015 determined using 40 weightedaverage discount rate present value benefit obligations december 31 2015 us pension plans determined using 42 discount rate discount rate used determining us plans’ pension expense 2015 reduced additional 1 expense would increase approximately 9 million assumed discount rate used determining us pension plans’ projected benefit obligation december 31 2015 reduced additional 1 projected benefit obligation would increase approximately 10 billion new mortality tables rp2014 mortality improvement scales mp2014 issued society actuaries 2014 reflecting longer life expectancies previous tables new tables used measure us pension postretirement obligations beginning september 30 2014 resulting increase obligations approximately 600 million revised mortality rates expected materially impact pension expense future periods expected longterm rate return plan assets estimated considering expected returns individual asset classes input external advisors also consider longterm historical returns including actual performance compared benchmarks similar investments us plans’ pension expense 2015 determined using 78 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2015 reduced 1 expense would increase 39 million detailed discussion retirement benefits refer “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” business combinations divestitures goodwill intangible assets acquired business combinations licensing transactions 83 billion representing 26 total assets december 31 2015 accounting transactions business combinations divestitures significantly different asset acquisitions divestitures example acquired iprd capitalized business combinations expensed asset acquisitions fair value contingent consideration goodwill recognized business combination transactions likewise portion reporting unit constitutes business divested goodwill associated business included carrying value business determining gain loss derecognition goodwill occur asset dispositions result important determine whether business asset group assets acquired divested business defined asc 805 business combinations integrated set inputs processes capable generating outputs ability provide return investors owners typical inputs include longlived assets including intangible assets rights use longlived assets intellectual property ability obtain access required resources typical processes include strategic operational resource management processes typically documented evident organized workforce consider factors determining whether business acquired divested well compounds development phase commercial products involved example evaluating acquisitions cardioxyl flexus 2015 ipierian 2014 concluded significant processes transferred us thus transactions accounted asset acquisitions result amounts allocated lead investigational compounds expensed capitalized addition contingent consideration potential development regulatory approval salesbased milestones salesbased royalties included purchase price refer item 8 financial statementsnote 4 acquisitions divestitures discussion acquisitions similarly evaluating divestitures erbitux ixempra businesses comprising alliances medicines company valeant pharmaceuticals international inc 2015 diabetes business astrazeneca plc astrazeneca 2014 concluded necessary inputs processes transferred consequently transactions accounted sales businesses resulted allocation goodwill 73 million 2015 600 million 2014 carrying value businesses determining gain sale contingent proceeds related divestitures recognized realized valuation processes also required certain multiple element arrangements include determination judgmental complex matters discussed example bms purchased warrant 2015 gives bms exclusive right acquire promedior required determination best estimated selling price two separate elements identified transaction warrant clinical development services similarly divestiture diabetes business astrazeneca 2014 required determination best estimated selling price several elements including business supply development agreements including appropriate markups estimated fair value manufacturing facility refer item 8 financial statementsnote 3 alliances discussion transactions impairment intangible assets including iprd intangible assets 14 billion december 31 2015 including licenses 266 million developed technology rights 758 million capitalized software 275 million iprd 120 million intangible assets assessed impairment whenever current facts circumstances warrant review although iprd assessed least annually intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment common potential risks leading impairment include competition earlier expected loss exclusivity pricing pressures adverse regulatory changes clinical trial results delay failure obtain regulatory approval additional development costs inability achieve expected synergies higher operating costs changes tax laws macroeconomic changes complexity estimating fair value intangible assets connection impairment test similar initial valuation considering high risk nature research development industry’s success rate bringing developmental compounds market iprd impairment charges likely occur future periods recognized 160 million charge 2015 bms986020 phase ii development treatment idiopathic pulmonary fibrosis 343 million 2014 including 310 million charge peginterferon lambda phase iii development treatment hcv discussion iprd impairments refer “item 8 financial statementsnote 14 goodwill intangible assets property plant equipment property plant equipment tested impairment whenever current facts circumstances warrant review additionally longlived assets periodically reviewed determine change facts circumstances would result change estimated useful life asset possibly resulting acceleration depreciation circumstances exist estimate undiscounted future cash flows generated asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value expectations future cash flows subject change based upon near longterm production volumes margins generated asset well potential alternative future use accelerated depreciation related charges certain manufacturing rd facilities 115 million 2015 151 million 2014 36 million 2013 contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability contractual claims tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies refer “item 8 financial statementsnote 1 accounting policiescontingencies” “note 8 income taxes” “note 22 legal proceedings contingencies” income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecasts future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made deferred tax assets 41 billion december 31 2015 net valuation allowances 35 billion 38 billion december 31 2014 net valuation allowances 43 billion deferred tax assets related us federal net operating loss carryforward 146 million us federal tax credit carryforward 27 million recognized december 31 2015 net operating loss carryforward expires varying amounts beginning 2022 us federal tax credit carryforward expires varying amounts beginning 2017 realization carryforwards dependent generating sufficient domesticsourced taxable income prior expiration 6 million valuation allowance established item december 31 2015 although assured believe likely deferred tax assets valued realized taxes provided undistributed earnings foreign subsidiaries expected reinvested indefinitely offshore prior mead johnson nutrition company mead johnson splitoff 2009 following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions certain assumptions representations covenants mead johnson relied upon regarding future conduct business matters could affect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account ela existed investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code irs could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations 2009 agreed certain tax related indemnities mead johnson set forth tax sharing agreement including certain taxes related business prior completion ipo created part restructuring facilitate ipo mead johnson also agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known example additional reserves 123 million established 2014 certain transfer pricing matters related periods 2008 2014 discussions income taxes refer “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 8 income taxes” product pipeline developments rd programs managed portfolio basis early discovery latestage development continually evaluate portfolio ensure appropriate balance earlystage latestage programs support future growth rd programs phase iii development considered significant programs constitute latestage development pipeline development programs include investigational compounds phase iii development initial indications marketed products phase iii development additional indications formulations spending programs represents approximately 3045 annual rd expenses individual investigational compound marketed product represented 10 rd expenses last three years except opdivo 2015 latestage development programs could potentially impact revenue earnings within next years although expect latestage development programs make market following developments marketed products latestage pipeline opdivo fully human monoclonal antibody binds pd1 nkt cells approved continues investigated anticancer treatment opdivo part alliance ono unresectable inoperable metastatic advanced melanoma • january 2016 company announced randomized phase iii study evaluating opdivo versus investigators choice patients recurrent metastatic platinumrefractory squamous cell carcinoma head neck stopped early assessment conducted independent data monitoring committee dmc concluded study met primary endpoint demonstrating superior overall survival patients receiving opdivo compared control arm • january 2016 company announced fda approved opdivo combination yervoy treatment patients braf v600 wildtype braf v600 mutation positive unresectable metastatic melanoma approval expands original indication opdivoyervoy regimen treatment patients braf v600 wildtype unresectable metastatic melanoma include patients regardless braf mutational status based data phase iii checkmate067 trial evaluated progressionfree survival overall survival coprimary endpoints indication approved accelerated approval based progressionfree survival • january 2016 company announced fda expanded use opdivo single agent include previously untreated braf mutation positive advanced melanoma patients use opdivo single agent patients braf v600 mutation positive unresectable metastatic melanoma approved accelerated approval based progressionfree survival • november 2015 company announced fda approved opdivo single agent treatment previously untreated patients braf v600 wildtype unresectable metastatic melanoma • november 2015 company announced results multiple clinical trials ◦ checkmate066 study evaluating opdivo single agent versus dacarbazine patients previously untreated braf wildtype unresectable metastatic melanoma opdivo continued demonstrate superior overall survival versus dacarbazine 577 patients alive two years compared 267 patients treated dacarbazine safety profile opdivo consistent prior studies ◦ study 004 study evaluating opdivo combination yervoy patients unresectable metastatic melanoma proof concept opdivoyervoy regimen approval based data longest follow regimen various phase cohorts showed threeyear overall survival rate 68 across phase dosing cohorts frequency treatmentrelated adverse events study similar cohorts consistent phase ii iii trials combination therapy • september 2015 fda approved opdivo combination yervoy treatment patients braf v600 wildtype unresectable metastatic melanoma announcement marked first fda approval regimen two immunooncology agents cancer indication approved accelerated approval based tumor response rate durability response • july 2015 european medicines agency ema validated company’s type ii variation application seeks extend use opdivo combination yervoy treatment advanced unresectable metastatic melanoma adults application based data phase iii checkmate067 study phase ii checkmate069 study phase ib ca209004 study validation application confirms submission complete starts emas centralized review process • june 2015 company announced european commission ec approved opdivo treatment firstline previously treated unresectable metastatic melanoma patients regardless braf status approval allows marketing opdivo 28 member states eu opdivo pd1 immune checkpoint inhibitor receive accelerated assessment europe first approval given ec pd1 inhibitor cancer • may 2015 company announced positive results phase iii trial checkmate067 evaluating opdivoyervoy regimen opdivo monotherapy vs yervoy monotherapy patients previously untreated advanced melanoma opdivoyervoy regimen n314 opdivo monotherapy n316 demonstrated superiority yervoy n315 current standard care coprimary endpoint progressionfree survival pfs median pfs 115 months opdivoyervoy regimen 69 months opdivo monotherapy vs 29 months yervoy monotherapy opdivoyervoy regimen demonstrated 58 reduction risk disease progression vs yervoy hazard ratio 042 995 ci 031 057 p00001 opdivo monotherapy demonstrated 43 risk reduction versus yervoy monotherapy hazard ratio 057 995 ci 043 076 p000001 hazard ratio exploratory endpoint comparing opdivoyervoy pfs opdivo pfs 074 95 ci 060 092 safety profile consistent previouslyreported studies evaluating opdivoyervoy regimen treatmentrelated adverse event rate 955 opdivoyervoy regimen compared 821 opdivo monotherapy 862 yervoy monotherapy select treatmentrelated adverse events resolved using established management guidelines trial ongoing patients continue followed overall survival coprimary endpoint • april 2015 company announced positive results phase ii trial checkmate069 evaluating opdivoyervoy regimen versus yervoy alone patients previously untreated advanced melanoma patients braf wildtype mutation status treated opdivoyervoy regimen experienced higher objective response rate orr 61 n4472 primary study endpoint compared 11 n437 patients administered yervoy monotherapy p0001 complete responses also reported 22 n16 patients braf wildtype mutation status administered opdivoyervoy regimen patients received yervoy monotherapy similar results also observed braf mutationpositive patients nsclc • december 2015 company ono announced ono received manufacturing marketing approval opdivo japan treatment patients unresectable advanced recurrent nsclc • november 2015 company announced ec approved reconciliation indications nivolumab opdivo european marketing authorization application maa compliance ec regulations bms previously submitted two separate maas ema one name opdivo treatment unresectable metastatic melanoma adults one name nivolumab bms treatment locally advanced metastatic sq nsclc prior chemotherapy application reconcile two indications submitted opdivo brand name following approval indications ec earlier year company voluntarily withdrew marketing authorization nivolumab bms brand name withdrawal impact sq nsclc patients taking nivolumab since opdivo approved treatment sq nsclc well melanoma • october 2015 company announced fda approved opdivo treatment previously treated patients nsq nsclc regardless pdl1 expression expands upon current indication opdivo patients previously treated sq nsclc • september 2015 company announced longer term 18 month survival data checkmate057 openlabel randomized phase iii study evaluating opdivo n292 versus docetaxel n290 previously treated patients advanced nsq nsclc opdivo continued demonstrate superior overall survival study’s primary endpoint estimated 39 patients alive 18 months 95 ci 3445 versus 23 docetaxel based minimum followup 171 months opdivo also continued demonstrate reduction risk death 28 hazard ratio 072 95 ci 060 088 study grade 34 treatmentrelated adverse events reported 10 patients treated opdivo versus 54 docetaxel arm • september 2015 company announced updated results opdivoyervoy arms checkmate012 multiarm phase ib trial evaluating opdivo patients chemotherapynaïve advanced nsclc study opdivo administered monotherapy part combination agents including yervoy different doses schedules results cohorts checkmate012 previouslyunreported updated results include findings administration four new dosing schedules opdivoyervoy n148 resulted confirmed objective response rates ranging 13 39 depending administered regimen median duration response reached arms median followup 62 months 166 months median progressionfree survival pfs ranged 49 months 106 months types treatmentrelated serious adverse events reported cohorts checkmate012 consistent previouslyreported opdivoyervoy cohorts trial new dosing schedules study resulted less toxicity previouslyreported dosing schedules characterized low frequency treatmentrelated adverse events leading discontinuation 3 10 treatmentrelated deaths • september 2015 company announced longer term survival safety data checkmate017 063 two pivotal trials evaluating opdivo previously treated sq nsclc showing sustained survival benefit across studies trials opdivo showed estimated 18 month overall survival rate 27 checkmate063 28 checkmate017 survival benefit independent pdl1 expression safety profile opdivo consistent previouslyreported trials checkmate017 also favorable compared docetaxel • july 2015 ema validated company’s type ii variation application seeks extend use opdivo monotherapy nsq nsclc based data phase iii checkmate057 study • july 2015 company announced ec approved nivolumab bms treatment locally advanced metastatic sq nsclc prior chemotherapy approval marks first major treatment advance sq nsclc decade eu nivolumab first pd1 immune checkpoint inhibitor demonstrate overall survival previouslytreated metastatic sq nsclc • may 2015 company announced results checkmate017 phase iii openlabel randomized study evaluating opdivo n135 versus docetaxel n137 previously treated patients advanced sq nsclc one year opdivo demonstrated overall survival rate 42 versus 24 docetaxel median overall survival 92 months versus 6 months respectively opdivo reduced risk death 41 based upon hazard ratio 059 95 ci 044079 p 000025 safety profile opdivo checkmate017 consistent prior studies favorable versus docetaxel • may 2015 company announced opdivo first pd1 inhibitor demonstrate superior overall survival versus standard care docetaxel openlabel randomized phase iii study checkmate057 evaluating previouslytreated patients advanced nsq nsclc 27 reduction risk progression death primary study endpoint reported opdivo n292 versus docetaxel n290 based upon hazard ratio 073 96 ci 059089 p00015 opdivo associated doubling overall median survival across continuum pdl1 expression starting 1 level expression trial safety profile opdivo checkmate057 favorable versus docetaxel grade 35 treatmentrelated adverse events reported 10 patients treated opdivo versus 54 docetaxel arm april 2015 company announced checkmate057 stopped early assessment conducted independent dmc concluded study met primary endpoint • march 2015 company announced fda approved opdivo treatment patients advanced sq nsclc progression platinumbased chemotherapy opdivo first pd1 therapy demonstrate overall survival previously treated advanced sq nsclc opdivo demonstrated significantly superior overall survival vs docetaxel 41 reduction risk death hazard ratio 059 95 ci 044 079 p000025 prespecified interim analysis phase iii clinical trial median overall survival 92 months opdivo arm 95 ci 73 133 6 months docetaxel arm 95 ci 51 73 indications • november 2015 company announced fda approved opdivo treatment patients advanced rcc received prior antiangiogenic therapy • november 2015 company announced ema validated type ii variation application seeks extend current indication opdivo include treatment adult patients advanced rcc prior therapy validation application confirms submission complete begins ema’s centralized review process • september 2015 company announced results checkmate025 phase iii study comparing opdivo everolimus advanced rcc prior antiangiogenic treatment showing significant overall survival benefit opdivo trial opdivo demonstrated median overall survival benefit 25 months compared 196 months everolimus clinical benefit opdivo observed regardless level pdl1 expression safety profile shown checkmate025 consistent previously reported opdivo trials july 2015 company announced checkmate025 stopped early assessment independent dmc concluded study met primary endpoint • may 2015 company announced results interim analysis ca209040 phase iii doseranging trial evaluating safety antitumor activity opdivo previouslytreated patients hepatocellular carcinoma hcc advanced liver cancer initial findings demonstrated estimated survival rate evaluable patients n47 62 12 months results also show safety profile opdivo generally consistent previously reported opdivo tumor types empliciti humanized monoclonal antibody treatment multiple myeloma empliciti part alliance abbvie inc abbvie • january 2016 company abbvie announced committee medicinal products human use chmp ema adopted positive opinion recommending empliciti granted approval treatment multiple myeloma combination therapy revlimid dexamethasone patients received least one prior therapy application reviewed ec authority approve medicines eu • december 2015 company abbvie announced extended followup data prespecified interim overall survival analysis empliciti combination revlimid dexamethasone erd patients relapsed refractory multiple myeloma eloquent2 followup data demonstrated empliciti combination rd improvement progressionfree survival hazard ratio hr 073 95 ci 060 089 p00014 versus rd alone result consistent improvement pfs observed time primary analysis hr 070 95 ci 057 085 p 00004 • november 2015 company abbvie announced fda approved empliciti treatment multiple myeloma combination therapy revlimid dexamethasone patients received one three prior therapies • june 2015 company abbvie announced results interim analysis phase iii randomized openlabel eloquent2 trial n646 evaluated empliciti combination lenalidomide dexamethasone eld versus lenalidomide dexamethasone alone ld treatment relapsed refractory multiple myeloma study met coprimary endpoints demonstrating superior pfs orr eld arm demonstrated 30 reduction risk disease progression death compared ld arm hr 070 95 ci 057 085 p 00004 pfs rates eld arm versus ld arm 68 versus 57 1 year 41 versus 27 2 years respectively significant orr also observed 79 74 83 eld arm compared 66 60 71 ld arm odds ratio 19 14 28 p00002 safety profile consistent previouslyreported studies minimal incremental adverse events addition empliciti lenalidomide dexamethasone sprycel oral inhibitor multiple tyrosine kinases indicated firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia cml chronic phase cp treatment adults chronic accelerated myeloid lymphoid blast phase cml resistance intolerance prior therapy including gleevec imatinib mesylate sprycel part alliance otsuka pharmaceutical co ltd otsuka • august 2015 company otsuka announced fda approved update sprycel product labeling includes fiveyear efficacy safety data adult patients newly diagnosed philadelphia chromosomepositive ph cml cp sevenyear data cp ph cml patients resistant intolerant prior therapy including gleevec imatinib mesylate yervoy monoclonal antibody treatment patients unresectable metastatic melanoma • october 2015 company announced fda approved yervoy adjuvant treatment patients cutaneous melanoma pathologic involvement regional lymph nodes 1 mm undergone complete resection including total lymphadenectomy • october 2015 company announced yervoy phase iii trial study104 subjects stage ivrecurrent nsclc compared efficacy yervoy combination paclitaxel carboplatin versus placebo versus paclitaxel carboplatin alone meet primary endpoint overall survival yervoy treatment arms discontinued new safety concerns yervoy identified either study company complete full evaluation data work investigators future publication results • july 2015 company announced two yervoy phase iii trials study095 metastatic castration resistant prostate cancer study156 newly diagnosed extensivestage disease small cell lung cancer meet primary endpoints overall survival versus standard care discontinued new safety concerns yervoy identified either study company complete full evaluation data work investigators future publication results • july 2015 japanese ministry health labour welfare approved yervoy first second line treatment unresectable malignant melanoma hepatitis c portfolio daklinza dcv ns5a replication complex inhibitor sunvepra asv ns3 protease inhibitor beclabuvir bcv ns5b nonnucleoside polymerase inhibitor development • january 2016 company announced fda approved daklinza combination sofosbuvir without ribavirin genotypes 1 3 expanded label includes data three additional challengingtotreat patient populations chronic hcv patients hiv1 coinfection advanced cirrhosis postliver transplant recurrence hcv daklinza plus sofosbuvir regimen already available treatment chronic hcv genotype 3 currently 12week oncedaily alloral treatment option patients sustained virologic response svr rates reduced genotype 3 patients cirrhosis receiving daklinza sofosbuvir 12 weeks without ribavirin sofosbuvir product gilead sciences inc gilead • january 2016 company announced ec approved daklinza treatment chronic hcv three new patient populations expanded label allows use daklinza combination sofosbuvir without ribavirin depending indication hcv genotype hcv patients decompensated cirrhosis hiv1 coinfection postliver transplant recurrence hcv 28 member states eu • november 2015 company announced data phase iii ally3 trial investigating regimen daklinza combination sofosbuvir ribavirin genotype 3 hcv patients advanced fibrosis cirrhosis treatment durations 12 16 weeks patient population one difficult treat among svr rates cure proved harder achieve results show 100 patients advanced fibrosis cohort achieved svr12 12 16week arms study svr12 rates 83 89 patients cirrhosis 12 16week arms respectively • october 2015 company announced national institute health care excellence nice recommended daklinza england wales treatment adult patients chronic hcv specifically nice recommended daklinza treat certain patients hcv genotypes 1 3 4 approximately 214000 people uk thought chronic hcv roughly 100000 patients estimated genotype 3 difficulttotreat often aggressive form chronic hcv • september 2015 company announced ec approved updated label daklinza treatment genotype 3 chronic hcv update allows use daklinza combination sofosbuvir 12 weeks patients without cirrhosis 28 member states eu marks first time patients genotype 3 hcv oncedaily alloral treatment regimen shorter duration • july 2015 company announced fda approved daklinza use sofosbuvir treatment patients chronic hcv genotype 3 approval marks first time patients chronic hcv genotype 3 12week oncedaily alloral treatment option svr rates reduced hcv genotype 3infected patients cirrhosis receiving regimen • july 2015 company announced plan seek regulatory approval new drug application hcv tripleregimen trio dcv asv bcv united states europe • may 2015 company announced fda amended previously granted breakthrough therapy designation investigational daclatasvir sofosbuvir combination use hcv patients updated designation reflects recently presented data hcv genotype 1 patients advanced cirrhosis childpugh class b c develop genotype 1 hcv recurrence postliver transplant • april 2015 company announced primary endpoints successfully met ally1 phase iii clinical trial evaluating 12week combination daclatasvir sofosbuvir oncedaily ribavirin treatment patients chronic hcv either advanced cirrhosis postliver transplant recurrence hcv • february 2015 company announced results ally2 phase iii clinical trial evaluating investigational oncedaily combination daclatasvir sofosbuvir treatment patients chronic hcv coinfected hiv patient population historically challenging treat large part due potential drugdrug interactions therapy regimens used treat infection among ally2 patients treated 12 weeks treatmentnaïve experienced 97 n149153 achieved cure svr12 weeks treatment study met primary endpoint 96 n8083 treatmentnaïve genotype 1 patients achieving svr12 treatment daclatasvir combination sofosbuvir study showed high svr rates discontinuations due adverse events serious adverse events related study medications throughout treatment phase • february 2015 fda notified company intention rescind breakthrough therapy designation certain genotype 1 hcv regimens related daclatasvir investigational bms therapies impact current submissionresubmission timetable nda daclatasvir combination antiviral agents treatment hcv reyataz franchise protease inhibitor treatment hiv includes reyataz also included combination therapy evotaz atazanavir 300 mg cobicistat 150 mg evotaz part license agreement gilead • july 2015 company announced ec approved evotaz treatment hiv1 infected adults without known mutations associated resistance atazanavir evotaz oncedaily single tablet two drug regimen combining reyataz tybost product gilead • june 2015 fda granted pediatric exclusivity reyataz provides additional six month period exclusivity us • january 2015 company announced fda approved evotaz treatment hiv1 infection adults oncedaily single tablet two drug regimen combining reyataz tybost orencia fusion protein indicated adult patients moderate severe active ra also indicated reducing signs symptoms certain pediatric patients moderately severely active polyarticular juvenile idiopathic arthritis • june 2015 company announced data orencia phase iiib avert ample trials included early moderate severe ra patients active disease avert trial data suggests potentially faster onset clinical response greater drugfree clinical remission earlier use patients taking orencia plus methotrexate patients taking methotrexate alone exploratory data patients high anticitrullinated protein antibody levels baseline ample trial suggest better response orencia adalimumab product abbvie • april 2015 ema approved clickject prefilled pen new autoinjector delivery device orencia use adult patients eu moderate severe active ra combination methotrexate inadequate diseasemodifying antirheumatic drug response eliquis oral factor xa inhibitor targeted stroke prevention nvaf prevention treatment vte disorders eliquis part alliance pfizer inc pfizer • december 2015 company pfizer announced results posthoc early time course subanalysis phase iii amplify trial subanalysis demonstrated eliquis comparable conventional therapy subcutaneous enoxaparin overlapped followed oral warfarin doseadjusted international normalized ratio 20 30 recurrent vte vterelated death significantly less major bleeding first 7 21 90 days starting treatment results subanalyses consistent overall results eliquis phase iii amplify trial • september 2015 company pfizer announced first patient enrolled phase iv clinical trial augustus evaluate safety eliquis versus warfarin vitamin k antagonists patients nvaf recent acute coronary syndrome undergoing percutaneous coronary intervention also known stent special note regarding forwardlooking statements annual report form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years included important factors cautionary statements included annual report form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made undertake obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary bristolmyers squibb company global specialty biopharmaceutical company whose mission discover develop deliver innovative medicines help patients prevail serious diseases refer summary abbreviated terms end 2016 form 10k terms used throughout document 2016 received 19 approvals new medicines additional indications formulations currently marketed medicines major markets us eu japan well announced multiple regulatory milestone achievements opdivo also encountered significant setback firstline lung cancer announcement negative results checkmate026 announced would pursue accelerated regulatory pathway opdivoyervoy combination therapy firstline lung cancer pursuing broad program firstline lung cancer encompassing combinations opdivoyervoy opdivo chemotherapy opdivo combined yervoy chemotherapy also committed investigating opdivo combination yervoy anticancer agents tumor types continue believe breadth depth io portfolio positions us well future 10 new io compounds clinical development trials across 35 different tumor types october 2016 announced evolution operating model discussed strategy revenues increased 17 2016 result higher opdivo eliquis orencia product sales impacts partially offset expiration us commercialization rights abilify transfer erbitux rights north america increased competition reyataz sustiva baraclude certain markets increase gaap eps 093 2015 265 2016 due higher revenues divestiture gains royalties lower rd license asset acquisition charges partially offset higher eliquis profit sharing opdivo related expenses tax impact specified items earnings mix contributed change effective tax rate adjusting divestiture gains rd license asset acquisition charges specified items nongaap eps increased 201 2015 283 2016 highlights following table summarizes financial information nongaap financial measures including nongaap earnings related eps information adjusted exclude specified items represent certain costs expenses gains losses items impacting comparability financial results detailed listing specified items information reconciliations nongaap financial measures refer “nongaap financial measures significant product pipeline approvals following summary 19 significant approvals received 2016 product date approval opdivo december 2016 jmhlw manufacturing marketing approval treatment relapsed refractory chl received alliance partner ono november 2016 ec approval treatment adult patients relapsed refractory chl asct treatment brentuximab vedotin november 2016 fda approval treatment patients scchn disease progression platinumbased therapy august 2016 jmhlw manufacturing marketing approval treatment unresectable metastatic rcc received alliance partner ono may 2016 fda approval treatment patients chl relapsed progressed autohsct posttransplantation brentuximab vedotin april 2016 ec approval treatment previously treated rcc april 2016 ec approval treatment previously treated patients metastatic nsq nsclc february 2016 jmhlw manufacturing marketing approval treatment previously untreated unresectable melanoma opdivo yervoy may 2016 ec approval treatment unresectable metastatic melanoma regardless braf mutational status january 2016 fda expanded use treatment previously untreated unresectable metastatic melanoma regardless braf mutational status empliciti september 2016 jmhlw manufacturing marketing approval combination revlimid dexamethasone treatment multiple myeloma may 2016 ec approval treatment multiple myeloma combination therapy revlimid dexamethasone patients received least one prior therapy orencia september 2016 ec approval combination mtx treatment highly active progressive disease adult patients ra previously treated mtx july 2016 announced us commercial launch orencia clickject autoinjector new selfadministered autoinjector adults moderate severe ra may 2016 announced commercial launch japan orencia clickject autoinjector adults moderate severe ra hepatitis c franchise december 2016 jmhlw manufacturing marketing approval ximency combination tablet contains daclatasvir asunaprevir beclabuvir treatment hcv genotype 1 february 2016 fda approval daklinza use sofosbuvir treatment chronic hcv genotypes 1 3 three additional patient populations january 2016 ec approval daklinza use sofosbuvir treatment chronic hcv three new patient populations reyataz june 2016 ec approval reyataz oral powder indicated hivinfected children least 3 months5 kg optimized reyataz capsule pediatric dosing recommendations refer product pipeline developments marketed products latestage pipeline 2016 strategy focus specialty biopharmaceutical company discovering developing delivering transformational medicines address serious unmet medical needs strategy combine resources scale capability pharmaceutical company speed focus innovation biotech industry four strategic priorities drive business performance continue build strong franchise io maintain diversified portfolio within outside io continue disciplined approach capital allocation including establishing partnerships collaborations essential component successfully delivering transformational medicines patients developing new medicines following core therapeutic areas oncology including io immunoscience cardiovascular fibrotic disease gdd io continue invest new studies monotherapy combination therapy new molecules mechanisms action delivering promising new treatment options patients lung cancer quickly possible continues priority company continue invest significantly deep pipeline innovative medicines covering broad array cancers entered several collaboration agreements research develop opdivo approved investigational oncology agents combination regimens including yervoy remain focused wellresourced firstline lung development programs continuously look ways strengthen broad portfolio bring forward new treatments beyond cancer continue strengthen early stage portfolio immunoscience cardiovascular fibrotic diseases internally partnerships diverse group companies academic institutions new expanded research activities believe internal external focus differentiated contributes transformation portfolio commercial model continues evolve marketed product portfolio growing manner consistent overall strategy continue drive growth opdivo expanding additional indications tumor types monotherapy combination yervoy anticancer agents beyond opdivo yervoy building continued success remain strongly committed eliquis orencia sprycel commercial infrastructure uniquely leveraged potential growth 2016 announced plans multiyear evolution operating model focusing commercial rd resources key brands markets delivering leaner administrative functions streamlining manufacturing network reflect importance biologics current future portfolio new operating model enable us deliver strategic financial operational flexibility necessary invest highest priorities looking ahead continue implement biopharma strategy driving growth key brands executing product launches investing diverse innovative pipeline including business development focusing prioritized markets increasing investments biologics manufacturing capabilities maintaining culture continuous improvement acquisition licensing arrangements acquisition licensing transactions allow us focus resources behind growth opportunities drive greatest longterm value focused following core therapeutic areas oncology including io immunoscience cardiovascular fibrotic diseases significant transactions entered 2016 summarized nitto denko december 2016 bms nitto denko entered exclusive worldwide license agreement granting bms right develop commercialize nitto denkos investigational sirna molecules targeting hsp47 vitamin containing formulations includes nitto denkos lead asset ndl02s0201 currently phase ib study treatment advanced liver fibrosis agreement also grants bms option receive exclusive licenses hsp47 sirnas vitamin containing formulations treatment lung fibrosis organ fibrosis cormorant july 2016 bms acquired outstanding shares cormorant private pharmaceutical company focused development therapies cancer rare diseases acquisition provides bms full rights cormorants lead candidate humaxil8 phase iii monoclonal antibody represents potentially complementary io mechanism action tcell directed antibodies costimulatory molecules padlock april 2016 bms acquired outstanding shares padlock private biotechnology company dedicated creating new medicines treat destructive autoimmune diseases acquisition provides bms full rights padlock’s pad inhibitor discovery program focused development potentially transformational treatment approaches patients rheumatoid arthritis padlock’s pad discovery program may additional utility treating systemic lupus erythematosus autoimmune diseases portola february 2016 bms pfizer entered collaboration license agreement portola develop commercialize investigational agent andexanet alfa japan andexanet alfa designed reverse anticoagulant activity factor xa inhibitors including eliquis bms pfizer responsible development regulatory activities andexanet alfa japan exclusively commercializing agent japan portola retains rights andexanet alfa outside japan responsible manufacturing supply addition transactions 2016 bms provided notice terminations california institute biomedical research pertaining research collaboration agreement development antifibrotic preclinical compounds dual therapeutics llc pertaining research collaboration agreement development anticancer preclinical compounds results operations regional revenues composition changes revenues follows revenues include royalties alliancerelated revenues products sold regional commercial organizations b foreign exchange impacts derived applying prior period average currency rates current period sales increase us revenues 2016 resulted higher demand opdivo eliquis daklinza partially offset full year impact expirationtransfer commercialization rights abilify erbitux average us net selling prices increased approximately 5 chargebacks rebates discounts refer product revenues commentary additional information increase us revenues 2015 resulted launch opdivo daklinza higher demand eliquis sprycel partially offset partial year impact expirationtransfer commercialization rights abilify erbitux average us net selling prices increased approximately 3 chargebacks rebates discounts increase europe revenues 2016 resulted higher demand opdivo eliquis partially offset lower demand yervoy europe revenues 2015 included recognition approximately 170 million previously deferred daklinza revenue france decrease europe revenues 2015 resulted unfavorable foreign exchange expiration commercialization rights abilify eu june 2014 partially offset launch daklinza certain eu countries third quarter 2014 higher demand eliquis europe revenues 2015 also impacted recognition previously deferred daklinza revenue france decrease rest world revenues 2016 resulted increased competition hepatitis c franchise japan unfavorable foreign exchange primarily latin america partially offset higher demand opdivo eliquis increase rest world revenues 2015 resulted launch daklinza sunvepra dual regimen japan third quarter 2014 higher demand eliquis partially offset unfavorable foreign exchange primarily japan decrease revenues 2016 resulted expiration certain supply arrangements decrease revenues 2015 resulted expirationtransfer certain licensing royalty rights refer item 8 financial statementsnote 3 alliances discussion alliances single country outside us contributed 10 total revenues 2016 2015 2014 except japan contributed 10 total revenues 2015 grosstonet adjustments recognize revenue net grosstonet adjustments described critical accounting policies share certain abilify atripla revenues reflected net grosstonet adjustments alliance revenues although presented grosstonet adjustment tables share abilify atripla grosstonet adjustments approximately 460 million 2016 11 billion 2015 16 billion 2014 grosstonet adjustments decreased 2016 2015 due expiration us commercialization rights abilify april 2015 activities ending reserve balances significant category grosstonet adjustments follows reconciliation gross product sales net product sales significant category grosstonet adjustments follows excluding alliance revenues abilify atripla changes grosstonet adjustments primarily function changes sales volume payer channel mix contractual legislative discounts rebates grosstonet adjustments increased higher rate gross product sales 2016 2015 primarily increasing mix us versus international gross product sales adjustments much higher • chargebacks cash discounts increased periods primarily due higher eliquis opdivo product sales us • medicaid medicare rebates increased periods primarily due higher eliquis product sales us • rebates returns discounts adjustments increased 2016 primarily due higher worldwide sales eliquis opdivo increased 2015 due higher sales eliquis additional rebates daklinza approximately 180 million amounts previously deferred france product revenues change excess 100 empliciti humanized monoclonal antibody treatment multiple myeloma • empliciti launched us december 2015 eu may 2016 japan september 2016 erbitux monoclonal antibody treatment certain types metastatic colorectal cancer scchn • bms transferred rights erbitux north america lilly october 2015 refer item 8 financial statementsnote 3 alliances” discussion opdivo fully human monoclonal antibody binds pd1 nkt cells approved continues investigated anticancer treatment refer significant product pipeline approvals discussion opdivo approvals 2016 2015 • us international revenues increased periods due higher demand resulting rapid commercial acceptance several indications including melanoma head neck lung kidney blood cancer expect competition increase 2017 sprycel oral inhibitor multiple tyrosine kinase indicated firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia chronic phase treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate • us revenues increased periods due higher average net selling prices demand • international revenues increased 2016 due higher demand international revenues decreased 2015 due unfavorable foreign exchange partially offset higher demand may experience decline european revenues second half 2017 due unfavorable epo board appeals decision yervoy monoclonal antibody treatment patients unresectable metastatic melanoma • us revenues increased 2016 due higher demand result approvals adjuvant treatment opdivoyervoy regimen patients metastatic melanoma us revenues decreased 2015 due lower demand resulting introduction io products used treat patients melanoma including opdivo • international revenues decreased 2016 due lower demand resulting introduction io products used treat patients melanoma including opdivo international revenues decreased 2015 due unfavorable foreign exchange eliquis oral factor xa inhibitor targeted stroke prevention adult patients nonvalvular atrial fibrillation prevention treatment venous thromboembolic disorders • us international revenues increased periods due higher demand resulting increased commercial acceptance novel oral anticoagulants market share gains orencia fusion protein indicated adult patients moderate severe active ra also indicated reducing signs symptoms certain pediatric patients moderately severely active polyarticular juvenile idiopathic arthritis • us revenues increased periods due higher average net selling prices demand • international revenues increased periods due higher demand partially offset unfavorable foreign exchange 2015 baraclude oral antiviral agent treatment chronic hepatitis b • us revenues continued decrease periods due loss exclusivity september 2014 • international revenues decreased 2016 following loss exclusivity south korea october 2015 international revenues decreased 2015 due unfavorable foreign exchange partially offset higher demand certain countries hepatitis c franchise daklinza ns5a replication complex inhibitor sunvepra ns3 protease inhibitor • daklinza launched us july 2015 • international revenues decreased 2016 due lower demand resulting increased competition primarily japan international revenues 2015 also included recognition approximately 170 million previously deferred daklinza revenue france international revenues increased 2015 due higher demand following launch certain eu countries japan third quarter 2014 subsequent approvals international markets 2015 • us international revenues expected significantly decline 2017 due lower demand resulting increased competition reyataz franchise includes reyataz protease inhibitor treatment hiv evotaz atazanavir 300 mg cobicistat 150 mg combination therapy containing reyataz tybost • us revenues continued decrease periods due lower demand resulting increased competition partially offset higher average net selling prices 2016 loss exclusivity reyataz expected december 2017 may experience higher decline revenue future periods due generic competition • international revenues continued decrease periods due lower demand resulting increased competition unfavorable foreign exchange sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla • us revenues continued decrease periods due lower demand resulting increased competition partially offset higher average net selling prices loss exclusivity sustiva expected december 2017 may result termination joint venture agreement gilead may reduce revenues beyond 2017 • international revenues continued decrease periods due sustivas loss exclusivity europe november 2013 abilify antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder • us commercialization rights abilify expired april 2015 • international revenues decreased periods following expiration eu commercialization rights june 2014 otsuka becoming principal end customer sales certain markets mature products includes products including lost exclusivity major markets diabetes alliance products otc brands royalty revenue • us revenues decreased 2016 due favorable impact sales return reserve reduction plavix 63 million 2015 us revenues decreased 2015 primarily due diabetes business divestiture february 2014 • international revenues decreased 2016 due expiration certain supply arrangements lower sales due divestiture certain mature products increased competition otc products unfavorable foreign exchange international revenues decreased 2015 due expirationtransfer certain licensing royalty rights diabetes business divestiture unfavorable foreign exchange continued generic erosion estimated enduser demand pursuant sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception estimated levels inventory distribution channel excess one month hand following products material results operations dates indicated us products estimated levels inventory distribution channel excess one month hand december 31 2016 international products estimated levels inventory distribution channel excess one month hand september 30 2016 dafalgan analgesic product sold principally europe 12 months inventory hand internationally direct customers compared 12 months inventory hand june 30 2016 level inventory hand primarily due ordering patterns pharmacists france efferalgan analgesic product sold principally europe 11 months inventory hand internationally direct customers compared 12 months inventory hand june 30 2016 level inventory hand primarily due ordering patterns pharmacists france fervex cold flu product 48 months inventory hand direct customers compared 42 months inventory hand june 30 2016 level inventory hand primarily france support product seasonality perfalgan analgesic product 24 months inventory hand internationally direct customers compared 29 months inventory hand june 30 2016 level inventory hand primarily gulf countries saudi arabia due extended delivery lead time us generally determine months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 95 total gross sales us products factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes nonus businesses significantly direct customers information available direct customer product level inventory corresponding outmovement information reliability thirdparty demand information varies widely limit direct customer sales channel inventory reporting influence demand information exist otherwise available developed variety methodologies estimate data including using historical sales made direct customers thirdparty market research data related prescription trends enduser demand given difficulties inherent estimating thirdparty demand information evaluate methodologies estimate direct customer product level inventory calculate months hand ongoing basis make changes necessary factors may affect estimates include generic competition seasonality products price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2016 available prior filing annual report form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q expenses change excess 100 cost products sold cost products sold include material internal labor overhead costs owned manufacturing sites thirdparty processing costs supply chain costs managed global manufacturing supply organization cost products sold also includes royalties profit sharing attributed licensed products alliances foreign currency hedge settlement gains losses amortization acquired developed technology costs business combinations regulatory approval milestones cost products sold typically vary periods result product mix volume particularly resulting royalties profit sharing expenses connection alliances changes foreign currency price inflation costs attributed rationalization manufacturing sites resulting accelerated depreciation impairment charges stranded costs • cost products sold increased 2016 primarily due higher eliquis profit sharing 700 million lower foreign currency hedge settlement gains higher puerto rico excise tax • cost products sold remained relatively flat 2015 higher eliquis profit sharing 532 million offset favorable foreign exchange marketing selling administrative marketing selling administrative expenses include salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs advertising product promotion expenses attributed product manufacturing costs research development expenses managed regional commercialization organizations global enabling functions finance legal information technology human resources certain expenses shared alliance partners based upon contractual agreements expenses typically vary periods due new product launch promotional activities • marketing selling administrative expenses increased 2016 due higher advertising promotion additional salesrelated activities supporting opdivo partially offset lower spend virology products favorable foreign exchange • marketing selling administrative expenses remained relatively flat 2015 increased salesrelated activities supporting eliquis opdivo hepatitis c franchise offset favorable foreign exchange 96 million additional expenses related branded prescription drug fee 2014 resulting changes irs guidelines research development research development activities include discovery research preclinical clinical development drug formulation well clinical trials medical support marketed products expenses include salary benefit costs thirdparty grants fees paid clinical research organizations supplies upfront contingent milestone payments licensing asset acquisitions investigational compounds iprd impairment charges proportionate allocations enterprisewide costs allocations include facilities information technology employee stock compensation costs appropriate costs certain expenses shared alliance partners based upon contractual agreements expenses typically vary periods number reasons including timing license asset acquisition charges iprd impairment charges • research development expenses decreased 2016 due lower license asset acquisition charges partially offset acceleration expansion opdivo development programs capabilities lower iprd impairment charges • research development expenses increased 2015 due higher license asset acquisition charges acceleration expansion opdivo development programs capabilities partially offset lower iprd impairment charges favorable foreign exchange • license asset acquisition charges 439 million 2016 17 billion 2015 278 million 2014 including 374 million padlock nitto denko flexus cormorant 2016 13 billion flexus cardioxyl five prime 2015 148 million ipierian 2014 100 million milestone paid former shareowners flexus commencement phase clinical trial 2016 • iprd impairment charges 13 million 2016 160 million 2015 343 million 2014 including 160 million lpa1 antagonist 2015 310 million peginterferon lambda 2014 • accelerated depreciation 70 million 2016 29 million 2015 result expected exit certain rd sites us accelerated depreciation results reduction estimated useful lives related assets site various dates 2020 expected approximate 250 million 2017 refer item 8 financial statementsnote 3 alliances note 4 acquisitions divestitures note 13 goodwill intangible assets acquisition licensing arrangements nongaap financial measures specified items information incomeexpense income increased 11 billion 2016 due higher divestiture gains royalties licensing income lesser extent lower litigation settlements pension debt redemption charges expense decreased 397 million 2015 due lower pension charges partially offset lower divestiture gains • divestiture gains 576 million 2016 196 million 2015 564 million 2014 including certain otc products investigational hiv medicines businesses 2016 mount vernon indiana manufacturing facility erbitux ixempra certain mature otc product businesses 2015 diabetes business 2014 • royalties licensing income 719 million 2016 383 million 2015 283 million 2014 including contingent consideration erbitux diabetes business divestitures including transfer certain future royalty rights pertaining amylin product sales • pension charges 91 million 2016 160 million 2015 877 million 2014 including additional pension charge 713 million following purchase group annuity contract prudential insurance company america 2014 • provision restructuring 109 million 2016 118 million 2015 163 million 2014 october 2016 company announced evolution operating model drive company’s continued success near longterm focused investment commercial opportunities key brands markets competitive agile rd organization accelerate pipeline streamlined operations realigned manufacturing capabilities broaden biologics capabilities reflect current future portfolio new operating model enable company deliver strategic financial operational flexibility necessary invest highest priorities across company restructuring charges approximately 300 million expected incurred 2017 actions addition accelerated depreciation impact discussed refer item 8 financial statementsnote 4 acquisitions divestitures note 5 incomeexpense note 6 restructuring note 16 pension postretirement benefit plans information income taxes historically effective income tax rate lower us statutory rate 35 due decision indefinitely reinvest earnings certain manufacturing operations low tax jurisdictions switzerland ireland puerto rico bms operates favorable tax grant puerto rico scheduled expire prior 2023 tax impact attributed rd charges divestiture transactions specified items including additional transfer pricing reserves 2014 increased effective tax rate 18 2016 03 2015 reduced effective tax rate 51 2014 tax benefits attributed rd charges padlock flexus cormorant 2016 flexus cardioxyl 2015 ipierian 2014 lower nondeductible goodwill allocated business divestitures 2015 higher valuation allowances attributed capital loss carryforwards released 2015 impacted effective tax rates minimal income taxes attributed diabetes business divestiture gain 2014 capital loss deduction sale amylin shares tax basis differences resulting primarily allocated goodwill amylin deferred taxes unfavorable earnings mix high low tax jurisdictions higher us foreign tax credits resulting puerto rico excise tax periods also impacted effective tax rates refer item 8 financial statementsnote 7 income taxes information comprehensive us tax reform continues discussed proposed including among items changes corporate tax rate border adjustment tax changes us taxes foreign earnings currently uncertain whether changes enacted effective dates comprehensive tax reform occurs financial condition results operations cash flows could significantly impacted however unable determine potential impact time nongaap financial measures nongaap financial measures including nongaap earnings related eps information adjusted exclude certain costs expenses gains losses specified items evaluated individual basis items adjusted considering quantitative qualitative aspects typically one following characteristics highly variable difficult project unusual nature significant results particular period indicative future operating results similar charges gains recognized prior periods likely reoccur future periods including restructuring costs accelerated depreciation impairment property plant equipment intangible assets rd charges connection acquisition licensing third party intellectual property rights divestiture gains losses pension legal contractual settlement charges debt redemption gains losses among items deferred current income taxes attributed items also adjusted considering individual impact overall tax expense deductibility jurisdictional tax rates nongaap information intended portray results baseline performance supplement enhance management analysts investors overall understanding underlying financial performance facilitate comparisons among current past future periods example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap specified items follows specified items cost products sold accelerated depreciation asset impairment shutdown costs b includes 16 million additional year branded prescription drug fee 2014 c 2014 specified tax charge relates transfer pricing matters reconciliations gaap nongaap follows financial position liquidity capital resources net cash position follows cash equivalents marketable securities held us approximately 11 billion december 31 2016 remaining 80 billion held primarily lowtax jurisdictions attributable earnings expected indefinitely reinvested offshore cash repatriations subject restrictions certain jurisdictions may subject withholding additional us income taxes believe existing cash equivalents marketable securities together cash generated operations issuance commercial paper us sufficient satisfy normal cash requirements least next years including dividends capital expenditures milestone payments working capital maturities longterm debt management continuously evaluates company’s capital structure ensure company financed efficiently may result repurchase common stock debt securities termination interest rate swap contracts prior maturity issuance debt securities example issued senior unsecured notes registered public offering generating proceeds 13 billion redeemedrepurchased certain notes nearly 20 billion 2015 refer “item 8 financial statementsnote 9 financial instruments fair value measurements” details company’s common stock repurchase capacity increased 41 billion october 2016 company entered asr agreements repurchase approximately 20 billion common stock february 2017 refer “item 8 financial statementsnote 15 equity” details dividend payments 25 billion 2016 2015 24 billion 2014 dividend decisions made quarterly basis board directors capital expenditures approximately 12 billion 2016 800 million 2015 500 million 2014 expected approximately 10 billion 2017 900 million 2018 higher spending expected result expanding biologics manufacturing capabilities facilityrelated activities example constructing new largescale biologics manufacturing facility ireland produce multiple therapies growing biologics portfolio completed 2019 marketable securities portfolio subject changes fair value result interest rate fluctuations market factors may impact results operations investment policy places limits investments amount time maturity investments institution policy also requires investments entered corporate financial institutions meet high credit quality standards refer “item 8 financial statementsnote 9 financial instruments fair value measurements” details currently two separate 15 billion revolving credit facilities syndicate lenders facilities provide customary terms conditions financial covenants extended october 2020 july 2021 facility extendable annually one year anniversary date consent lenders borrowings outstanding either revolving credit facility december 31 2016 2015 additional regulations us could passed future may reduce results operations operating cash flow liquidity financial flexibility continue monitor potential impact economic conditions certain european countries related impact prescription trends pricing discounts creditworthiness customers believe economic conditions material impact liquidity cash flow financial flexibility uk voted depart eu june 2016 similar companies industry certain regulatory trade labor aspects business likely affected time however currently believe matters related financial effects material impact consolidated results operations financial position liquidity sales uk represent less 2 total revenues credit ratings bmss longterm shortterm credit ratings assigned moodys investors service a2 prime1 respectively negative longterm credit outlook bmss longterm shortterm credit ratings assigned standard poors a1 respectively stable longterm credit outlook bmss longterm shortterm credit ratings assigned fitch respectively stable longterm credit outlook longterm ratings reflect agencies opinion low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings reflect agencies opinion good extremely strong capacity timely repayment credit rating downgrade may affect interest rate debt may incur fair market value existing debt ability access capital markets generally cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts disbursements activities investing financing activities operating cash flow derived adjusting net earnings noncontrolling interest noncash operating items gains losses attributed investing financing activities changes operating assets liabilities resulting timing differences receipts payments cash transactions recognized results operations result changes cash operating activities reflect timing cash collections customers alliance partners payments suppliers alliance partners employees customer discounts rebates tax payments ordinary course business example annual employee bonuses typically paid first quarter subsequent year addition cash collections continue impacted longer payment terms certain biologic products us primarily newer oncology products including opdivo yervoy empliciti 120 days 150 days longer payment terms used closely align insurance reimbursement timing physicians cancer centers following administration patients 10 billion increase cash provided operating activities 2016 primarily attributable • higher operating cash flow attributed increased sales timing cash collections payments ordinary course business including winddown abilify alliance 2015 • lower upfront milestone payments alliance licensing arrangements approximately 600 million partially offset • higher income tax payments approximately 14 billion 13 billion decrease cash provided operating activities 2015 primarily attributable • timing payments alliance partners approximately 700 million particularly active product ingredient supply medicaid rebates abilify • higher upfront payments new alliance licensing agreements approximately 600 million • timing customer collections resulting primarily higher net product sales including extended payment terms certain new products less factoring approximately 400 million partially offset • timing cash collections payments ordinary course business including among items changes inventory levels particularly related abilify investing activities cash requirements investing activities include cash used acquisitions manufacturing facilityrelated capital expenditures purchases marketable securities maturities greater 90 days reduced proceeds business divestitures including royalties sale maturity marketable securities 31 billion decrease cash used investing activities 2016 primarily attributable • higher net redemptions marketable securities approximately 21 billion 2016 reinvested cash equivalents manage credit interest rate risks • lower asset acquisition payments approximately 800 million asset acquisitions include cormorant padlock 2016 flexus cardioxyl 2015 • higher business divestiture proceeds approximately 600 million including royalties contingent consideration received subsequent divestiture divestitures include certain otc products investigational hiv businesses 2016 mount vernon indiana manufacturing facility ixempra mature otc product businesses 2015 partially offset • higher capital expenditures approximately 400 million 28 billion decrease cash provided investing activities 2015 primarily attributable • lower business divestiture proceeds 29 billion divestitures include mount vernon indiana manufacturing facility ixempra mature otc product businesses 2015 diabetes business 2014 • higher asset acquisition payments approximately 900 million asset acquisitions include flexus cardioxyl 2015 ipierian 2014 • higher capital expenditures approximately 300 million partially offset • lower net purchases marketable securities 13 billion 2015 financing activities cash requirements financing activities include cash used pay dividends repurchase common stock repay longterm debt borrowings reduced proceeds exercise stock options issuance longterm debt borrowings 906 million decrease cash used financing activities 2016 primarily attributable • lower longterm net debt repayments approximately 700 million • higher net shortterm borrowings approximately 600 million 2016 consisting primarily changes bank overdrafts partially offset • repurchase common stock approximately 200 million 2016 none 2015 914 million increase cash used financing activities 2015 primarily attributable • lower net shortterm borrowings approximately 700 million 2015 consisting primarily changes bank overdrafts contractual obligations payments due period contractual obligations december 31 2016 follows includes estimated future interest payments periodic cash settlements derivatives b includes shortterm uncertain tax benefits uncertainties regarding timing resolution c include pension liability addition committed aggregated 104 billion potential future research development milestone payments third parties inlicensing asset acquisitions development programs including earlystage milestones 30 billion milestones achieved phase iii clinical trials latestage milestones 74 billion milestones achieved post phase iii clinical trials payments generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted agreements also provide salesbased milestones aggregating 25 billion would obligated pay alliance partners upon achievement certain sales levels addition royalties also certain manufacturing development commercialization obligations connection alliance arrangements practicable estimate amount obligations refer “item 8 financial statementsnote 3 alliances” information regarding alliances discussion contractual obligations refer “item 8 financial statementsnote 7 income taxes” “note 9 financial instruments fair value measurements”and “note 16 pension postretirement postemployment liabilities” sec consent order fcpa settlement previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain imas us pharmaceutical wholesalers account nearly 100 gross us revenues current terms imas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 95 gross us revenues inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast nonus business significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent addition previously disclosed october 2015 company reached civil settlement sec alleged fcpa violations company agreed pay approximately 147 million disgorgement penalties interest part settlement company also agreed twoyear selfmonitoring period reporting government maintaining procedures ensure compliance recently issued accounting standards recently issued accounting standards refer “item 8 financial statementsnote 1 accounting policiesrecently issued accounting standards” critical accounting policies preparation financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenue expenses critical accounting policies significantly impact financial condition results operations require difficult subjective complex judgments often result need make estimates effect matters inherently uncertain uncertainty actual results may vary estimates revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally upon shipment except certain eu markets occur delivery products customer 2014 deferred approximately 300 million invoiced daklinza early access program france portion amount recognized revenue 2015 final pricing obtained revenue also reduced grosstonet sales adjustments discussed involve significant estimates judgment considering legal interpretations applicable laws regulations historical experience payer channel mix eg medicare medicaid current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel estimates assessed period adjusted required revised information actual experience alliance arrangements involving delivery one element undelivered element evaluated whether qualifies separate unit accounting consideration fixed determinable allocated undelivered element recognized related goods services delivered limited consideration contingent upon future deliverables consideration associated contingent milestones royalties allocated among underlying elements amounts determined payable bms grosstonet adjustments following categories grosstonet adjustments involve significant estimates judgments information obtained external sources refer “total revenues” discussion analysis significant category grosstonet sales adjustments chargebacks cash discounts us business participates programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price accounts receivable reduced estimated amount unprocessed chargeback claims attributable sale typically within two four week time lag us certain countries cash discounts offered incentive prompt payment generally approximating 2 sales price accounts receivable reduced estimated amount unprocessed cash discounts typically within one month time lag medicaid medicare rebates us business participates state government medicaid programs qualifying federal state government programs requiring discounts rebates participating state local government entities discounts rebates provided programs included medicaid rebate accrual medicaid rebates also extended drugs used managed medicaid plans estimated amount unpaid unbilled rebates presented liability rebates discounts offered managed healthcare organizations us managing prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit also pay 50 point service discount centers medicare medicaid services medicare part beneficiaries coverage gap donut hole estimated amount unpaid unbilled rebates discounts presented liability rebates returns discounts adjustments grosstonet sales adjustments include sales returns programs based applicable laws regulations individual nonus countries well rebates offered managed healthcare organizations us lesser extent nonus programs include several different pricing schemes cost caps volume discounts outcomebased pricing schemes pricing clawbacks based sales individual companies aggregation companies participating specific market estimated amount unpaid unbilled rebates discounts presented liability estimated returns established products determined considering historical experience factors including levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products lower demand following loss exclusivity estimated amount product returns presented liability estimated returns new products determined considering historical sales return experience similar products within product line similar therapeutic area andor similar distribution model defer recognition revenue right return expires sufficient historical experience estimate sales returns developed limited circumstances insufficient historical experience products similar therapeutic area distribution method characteristic available typically occurs new product extension existing line product historical experience products similar therapeutic category lacking estimated levels inventory distribution channel projected demand also considered estimating sales returns new products use information external sources information external sources used estimate grosstonet adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information retirement benefits accounting pension postretirement benefit plans requires actuarial valuations based significant assumptions discount rates expected longterm rates return plan assets consultation actuaries significant assumptions others salary growth retirement turnover healthcare trends mortality rates evaluated selected based expectations actual experience remeasurement date pension expense could vary within range outcomes material effect reported earnings projected benefit obligations future cash funding actual results given year may differ estimated economic factors yield high quality corporate bonds coincides cash flows plans’ estimated payouts used determining discount rate citi pension discount curve used us plans present value benefit obligations december 31 2016 us pension plans determined using 40 discount rate assumed discount rate used determining us pension plans’ projected benefit obligation december 31 2016 reduced additional 1 projected benefit obligation would increase approximately 900 million expected longterm rate return plan assets estimated considering expected returns individual asset classes input external advisors also consider longterm historical returns including actual performance compared benchmarks similar investments us plans’ pension expense 2016 determined using 78 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2016 reduced 1 expense would increase 41 million detailed discussion retirement benefits refer “item 8 financial statementsnote 16 pension postretirement postemployment liabilities” business combinations divestitures goodwill intangible assets acquired business combinations licensing transactions 83 billion representing 25 total assets december 31 2016 accounting transactions business combinations divestitures significantly different asset acquisitions divestitures example acquired iprd capitalized business combinations expensed asset acquisitions fair value contingent consideration goodwill recognized business combination transactions likewise portion reporting unit constitutes business divested goodwill associated business included carrying value business determining gain loss derecognition goodwill occur asset dispositions result important determine whether business asset group assets acquired divested business defined asc 805 business combinations integrated set inputs processes capable generating outputs ability provide return investors owners typical inputs include longlived assets including intangible assets rights use longlived assets intellectual property ability obtain access required resources typical processes include strategic operational resource management processes typically documented evident organized workforce consider factors determining whether business acquired divested well compounds development phase commercial products involved example evaluating acquisitions cormorant padlock 2016 cardioxyl flexus 2015 ipierian 2014 concluded significant processes transferred us thus transactions accounted asset acquisitions result amounts allocated lead investigational compounds expensed capitalized addition contingent consideration potential development regulatory approval salesbased milestones salesbased royalties included purchase price refer item 8 financial statementsnote 4 acquisitions divestitures discussion acquisitions similarly evaluating divestitures investigational hiv medicines business comprising alliance reckitt 2016 erbitux ixempra businesses comprising alliances medicines company valeant pharmaceuticals international inc 2015 diabetes business astrazeneca 2014 concluded necessary inputs processes transferred consequently transactions accounted sales businesses resulted allocation goodwill 98 million 2016 73 million 2015 600 million 2014 carrying value businesses determining gain sale contingent proceeds related divestitures recognized realized valuation processes also required certain multiple element arrangements include determination judgmental complex matters discussed example bms purchased warrant 2015 gives bms exclusive right acquire promedior required determination best estimated selling price two separate elements identified transaction warrant clinical development services similarly divestiture diabetes business astrazeneca 2014 required determination best estimated selling price several elements including business supply development agreements including appropriate markups estimated fair value manufacturing facility refer item 8 financial statementsnote 3 alliances discussion transactions impairment intangible assets including iprd intangible assets 14 billion december 31 2016 including licenses 248 million 155 million allocated unapproved products developed technology rights 669 million capitalized software 361 million iprd 107 million intangible assets assessed impairment whenever current facts circumstances warrant review although iprd assessed least annually intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment common potential risks leading impairment include competition earlier expected loss exclusivity pricing pressures adverse regulatory changes clinical trial results delay failure obtain regulatory approval additional development costs inability achieve expected synergies higher operating costs changes tax laws macroeconomic changes complexity estimating fair value intangible assets connection impairment test similar initial valuation considering high risk nature research development industry’s success rate bringing developmental compounds market iprd impairment charges likely occur future periods recognized 160 million charge 2015 bms986020 phase ii development treatment ipf 343 million 2014 including 310 million charge peginterferon lambda phase iii development treatment hcv discussion iprd impairments refer “item 8 financial statementsnote 13 goodwill intangible assets property plant equipment property plant equipment tested impairment whenever current facts circumstances require review including whether likely asset disposed prior estimated remaining useful life additionally longlived assets periodically reviewed determine change facts circumstances would result change estimated useful life asset possibly resulting acceleration depreciation circumstances exist estimate undiscounted future cash flows generated asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value expectations future cash flows subject change based upon near longterm production volumes margins generated asset well potential alternative future use accelerated depreciation related charges certain manufacturing rd facilities 104 million 2016 115 million 2015 151 million 2014 additional charges continue occur result company’s restructuring actions announced fourth quarter 2016 contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability contractual claims tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies refer “item 8 financial statementsnote 1 accounting policiescontingencies” “note 7 income taxes” “note 18 legal proceedings contingencies” income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecasts future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made deferred tax assets 43 billion december 31 2016 net valuation allowances 31 billion 41 billion december 31 2015 net valuation allowances 35 billion deferred tax assets related us federal net operating loss carryforward 129 million us federal tax credit carryforward 27 million recognized december 31 2016 net operating loss carryforward expires varying amounts beginning 2022 us federal tax credit carryforward expires varying amounts beginning 2017 realization carryforwards dependent generating sufficient domesticsourced taxable income prior expiration 11 million valuation allowance established item december 31 2016 although assured believe likely deferred tax assets valued realized taxes provided undistributed earnings foreign subsidiaries expected reinvested indefinitely offshore prior mead johnson splitoff 2009 following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions certain assumptions representations covenants mead johnson relied upon regarding future conduct business matters could affect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis ela existed investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code irs could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations 2009 agreed certain tax related indemnities mead johnson set forth tax sharing agreement including certain taxes related business prior completion ipo created part restructuring facilitate ipo mead johnson also agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known example additional reserves 123 million established 2014 certain transfer pricing matters related periods 2008 2014 discussions income taxes refer “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 7 income taxes” product pipeline developments rd programs managed portfolio basis early discovery latestage development include balance earlystage latestage programs support future growth late stage rd programs phase iii development include investigational compounds initial indications additional indications formulations marketed products spending programs represent approximately 3045 annual rd expenses last three years individual investigational compound marketed product represented 10 rd expenses last three years except opdivo 2016 2015 latestage development programs could potentially impact revenue earnings within next years regulatory approvals obtained products successfully commercialized following developments marketed products latestage pipeline product indication date developments opdivo chl december 2016 jmhlw manufacturing marketing approval treatment relapsed refractory chl received alliance partner ono december 2016 bms seattle genetics inc announced results phase iii study evaluating adcetris brentuximab combination opdivo relapsed refractory chl november 2016 ec approval treatment adult patients relapsed refractory chl asct treatment brentuximab vedotin october 2016 announced new results checkmate205 phase ii trial evaluating opdivo patients chl including patients received brentuximab vedotin andor autohsct june 2016 announced results checkmate205 phase ii trial evaluating opdivo patients chl may 2016 fda approval treatment patients chl relapsed progressed autohsct posttransplantation brentuximab vedotin gastric cancer january 2017 announced results ono453812 phase iii trial evaluating opdivo patients unresectable advanced recurrent gastric cancer refractory intolerant standard therapy november 2016 announcement stated study met primary endpoint ono alliance partner conducted trial december 2016 bmss alliance partner ono submitted supplemental application opdivo treatment unresectable advanced recurrent gastric cancer melanoma april 2016 announced extended followup data ca209003 phase trial evaluating opdivo heavily pretreated advanced melanoma patients january 2016 fda expanded use opdivo single agent include previously untreated braf mutation positive advanced melanoma patients muc february 2017 fda approval treatment patients previously treated locally advanced muc type bladder cancer october 2016 announced results checkmate275 phase ii trial evaluating opdivo platinumrefractory patients muc september 2016 announced ema validated companys type ii variation application seeks extend current indications include treatment locally advanced muc adults failure prior platinumcontaining therapy june 2016 announced data checkmate032 phase iii trial evaluating opdivo patients muc platinumbased therapy nsclc october 2016 announced updated results two phase iii trials checkmate057 checkmate017 evaluating opdivo previously treated metastatic nsclc patients october 2016 presented final primary analysis checkmate026 phase iii trial evaluating opdivo firstline monotherapy patients advanced nsclc whose tumors expressed pdl1 ≥ 1 top line results disclosed august 2016 showed checkmate026 meet primary endpoint superior pfs may 2016 announced data two phase iii trials checkmate017 checkmate057 evaluating opdivo versus docetaxel previously treated metastatic nsclc april 2016 ec approval treatment previously treated patients metastatic nsq nsclc rcc august 2016 jmhlw manufacturing marketing approval treatment unresectable metastatic rcc received alliance partner ono june 2016 announced longterm results two doseranging studies phase ca209003 study phase ii ca209010 study evaluating opdivo patients previously treated advanced rcc april 2016 ec approval treatment previously treated patients advanced rcc scchn november 2016 fda approval treatment patients scchn disease progression platinumbased therapy october 2016 announced new data checkmate141 phase iii trial evaluating opdivo patients recurrent metastatic scchn platinum therapy compared investigators choice therapy july 2016 ema validated japan bmss alliance partner ono submitted applications opdivo patients previously treated recurrent metastatic scchn april 2016 announced data checkmate141 phase iii trial evaluating opdivo patients recurrent metastatic scchn platinum therapy compared investigators choice therapy january 2016 checkmate141 stopped early due dmc concluding study met primary endpoint product indication date developments opdivoyervoy colorectal cancer june 2016 announced data checkmate142 phase ii trial evaluating opdivo alone combination yervoy patients previously treated metastatic colorectal cancer including msih melanoma june 2016 announced results two trials checkmate067 phase iii checkmate069 phase ii evaluating opdivoyervoy combination regimen previously untreated advanced melanoma may 2016 ec approval treatment unresectable metastatic melanoma regardless braf mutational status april 2016 announced data checkmate069 phase ii trial evaluating opdivoyervoy combination regimen previously untreated advanced melanoma january 2016 fda expanded use treatment previously untreated unresectable metastatic melanoma regardless braf mutational status muc november 2016 announced additional results checkmate032 phase iii trial investigating two combination schedules opdivoyervoy patients locally advanced muc previously treated platinumbased therapy nsclc december 2016 announced updated findings checkmate012 phase ib trial evaluating opdivo monotherapy combination yervoy patients chemotherapynaïve advanced nsclc data previously announced june 2016 rcc october 2016 announced updated results checkmate016 phase trial evaluating opdivo yervoy combination regimen previously treated treatmentnaïve patients metastatic rcc sclc december 2016 announced updated results checkmate032 phase iii trial evaluating opdivo monotherapy combination yervoy previously treated sclc patients empliciti multiple myeloma september 2016 jmhlw manufacturing marketing approval combination revlimid lenalidomide dexamethasone treatment multiple myeloma may 2016 ec approval treatment multiple myeloma combination therapy revlimid dexamethasone patients received least one prior therapy yervoy melanoma october 2016 announced new data ca184029 phase iii trial evaluating yervoy stage iii melanoma patients high risk recurrence following complete surgical resection orencia ra september 2016 ec approval combination mtx treatment highly active progressive disease adult patients ra previously treated mtx july 2016 announced commercial launch orencia clickject autoinjector new selfadministered autoinjector adults moderate severe ra june 2016 presented findings first us observational study exploring moderate severe ra patients response treatment based baseline status two biomarkers poor prognosis anticcp rf hepatitis c portfolio hcv december 2016 jmhlw manufacturing marketing approval ximency combination tablet contains daclatasvir asunaprevir beclabuvir treatment hcv genotype 1 february 2016 fda approval daklinza use sofosbuvir treatment chronic hcv genotypes 1 3 three additional patient populations february 2016 announced results first completed alloral chronic hcv regimen daklinza combination asunaprevir phase iii trial includes chinese patient population january 2016 ec approval daklinza use sofosbuvir treatment chronic hcv three new patient populations reyataz hiv june 2016 ec approval reyataz oral powder indicated hivinfected children least 3 months5 kg optimized reyataz capsule pediatric dosing recommendations special note regarding forwardlooking statements annual report form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years included important factors cautionary statements included annual report form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made undertake obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary bristolmyers squibb company global specialty biopharmaceutical company whose mission discover develop deliver innovative medicines help patients prevail serious diseases refer summary abbreviated terms end 2017 form 10k terms used throughout document 2017 received 15 approvals new medicines additional indications formulations currently marketed medicines major markets us eu japan china including multiple regulatory milestone achievements opdivo committed investigating opdivo alone combination yervoy anticancer agents wide array tumor types including broad programs lung head neck liver kidney bladder gastric continue believe breadth depth io portfolio positions us well future 17 new io compounds clinical development studies across 35 different tumor types addition advanced certain nonio rd programs pipeline including fgf21 treatment nash tyk2 inhibitor treatment immune diseases psoriasis also continued progress company transformation initiatives enabling us invest highest priority portfolio opportunities 2017 revenues increased 7 result higher demand prioritized brands including opdivo eliquis partially offset increased competition established brands primarily daklinza 204 decrease gaap eps due tax charges attributed tax reform 176 per share lesser extent higher license asset acquisition restructuring related charges lower divestiture related income items partially offset higher revenues royalties licensing income patentinfringement settlement adjusting impact tax reform specified items nongaap eps increased 018 primarily result higher revenues partially offset product mix higher rd expenses supporting opdivo io programs 2016 revenues increased 17 result higher demand prioritized brands including opdivo eliquis partially offset expiration us commercialization rights abilify transfer erbitux rights north america increased competition reyataz sustiva baraclude certain markets 172 increase gaap eps due higher revenues divestiturerelated income lower license asset acquisition charges partially offset higher opdivo related expenses adjusting impact divestiture gains rd license asset acquisition charges specified items nongaap eps increased 082 primarily result higher revenues partially offset product mix highlights following table summarizes financial information nongaap financial measures including nongaap earnings related eps information adjusted exclude specified items represent certain costs expenses gains losses items impacting comparability financial results detailed listing specified items information reconciliations nongaap financial measures refer “nongaap financial measures significant product pipeline approvals following summary 15 significant approvals received 2017 product date approval opdivo december 2017 fda approval injection intravenous use adjuvant treatment patients melanoma involvement lymph nodes metastatic disease undergone complete resection september 2017 fda approval treatment patients hcc type liver cancer previously treated sorafenib approval japan treatment unresectable advanced recurrent gastric cancer progressed chemotherapy received alliance partner ono august 2017 fda approval treatment adult pediatric patients msih dmmr mcrc progressed following treatment fluoropyrimidine oxaliplatin irinotecan june 2017 ec approval treatment patients previously treated locally advanced unresectable metastatic urothelial carcinoma type bladder cancer adults failure platinumcontaining therapy april 2017 ec approval treatment scchn adults progressing platinumbased therapy march 2017 approval japan treatment recurrent metastatic hnc received alliance partner ono february 2017 fda approval treatment patients previously treated locally advanced metastatic urothelial carcinoma orencia july 2017 ec approval treatment active psa adults response previous diseasemodifying antirheumatic drug therapy including methotrexate inadequate additional systemic therapy psoriatic skin lesions required fda approval treatment active psa adults march 2017 fda approval new subcutaneous administration option use patients two years age older moderately severely active polyarticular jia sprycel november 2017 fda expanded indication sprycel tablets include treatment children philadelphia chromosomepositive cml chronic phase yervoy july 2017 fda approval expanded indication treatment unresectable metastatic melanoma pediatric patients hepatitis c franchise april 2017 china fda approval daklinza sunvepra regimen treatmentnaive experienced patients infected genotype 1b chronic hcv addition daklinza approved china combination use agents including sofosbuvir adult patients hcv genotypes 16 infection refer product pipeline developments marketed products latestage pipeline 2017 early 2018 strategy focus specialty biopharmaceutical company discovering developing delivering transformational medicines address serious unmet medical needs strategy combine resources scale capability pharmaceutical company speed focus innovation biotech industry four strategic priorities drive business performance continue build leading franchise io maintain diversified portfolio within outside io continue disciplined approach capital allocation including establishing partnerships collaborations inlicensing acquiring investigational compounds essential component successfully delivering transformational medicines patients developing new medicines following core therapeutic areas 1 oncology priority io 2 immunoscience priorities lupus rheumatoid arthritis inflammatory bowel disease 3 cardiovascular priority heart disease 4 fibrotic disease priorities lung liver continue advance next wave innovative medicines investing significantly pipeline internally business developments activities io continue invest monotherapy studies combination approaches next wave early assets entered several collaboration agreements expanded others research develop opdivo approved investigational oncology agents combination regimens remain focused wellresourced cancer development programs seek broaden use opdivo earlier lines therapy expand new tumors accelerate next wave io mechanisms develop treatment options refractory io patients beyond cancer continue advance early stage portfolio immunoscience cardiovascular fibrotic diseases strengthen partnerships diverse group companies academic institutions new expanded research activities believe differentiated internal external focus contributes advancing pipeline potentially transformational medicines commercial model evolving revenues marketed product portfolio continue grow demonstrates strong execution strategy continue drive growth opdivo expanding additional indications tumor types monotherapy combination yervoy anticancer agents eliquis continues grow leveraging best class clinical profile extensive real world data number one novel oral anticoagulant total prescriptions us building continued success prioritized brands remain strongly committed orencia sprycel operating model transformation commercial infrastructure uniquely leveraged potential growth operating model continues evolve successful focusing commercial rd resources prioritized brands markets strengthening rd capabilities tumor biology patient selection new biomarkers delivering leaner administrative functions streamlining manufacturing network reflect importance biologics current future portfolio evolution operating model enable us deliver necessary strategic financial operational flexibility invest highest priority opportunities within portfolio looking ahead continue implement biopharma strategy driving growth key brands executing product launches investing diverse innovative pipeline aided strategic business development focusing prioritized markets increasing investments biologics manufacturing capabilities maintaining culture continuous improvement acquisition licensing arrangements acquisition licensing arrangements allow us focus resources behind growth opportunities drive greatest longterm value focused following core therapeutic areas oncology including io immunoscience cardiovascular fibrosis significant arrangements past three years summarized refer item 8 financial statementsnote 4 acquisitions divestitures licensing arrangements information 2017 arrangements ono bms acquired exclusive license develop commercialize ono4578 ono’s prostaglandin e2 receptor 4 antagonist treatment cancer bms acquired worldwide rights except japan south korea taiwan added existing collaboration china asean countries ono retained exclusive rights halozyme bms halozyme entered global collaboration license agreement develop subcutaneously administered bms io medicines using halozymes enhanze drugdelivery technology may allow rapid delivery large volume injectable medications ifm bms acquired outstanding shares ifm providing bms full rights ifms preclinical sting nlrp3 agonist programs focused enhancing innate immune response treating cancer biogen bms outlicensed biogen exclusive rights develop commercialize bms986168 antietau compound development progressive supranuclear palsy roche bms outlicensed roche exclusive rights develop commercialize bms986089 antimyostatin adnectin development duchenne muscular dystrophy cytomx bms cytomx expanded initial 2014 strategic collaboration discover novel cancer treatment therapies include eight additional targets using cytomx’s proprietary probody platform treatment cancer 2016 arrangements psioxus bms acquired exclusive worldwide rights psioxuss ng348 preclinical stage armed oncolytic virus goal addressing solid tumors padlock bms acquired outstanding shares padlock providing bms full rights padlock’s pad inhibitor discovery program focused development treatment approaches patients rheumatoid arthritis cormorant bms acquired outstanding shares cormorant providing bms full rights cormorants lead candidate humaxil8 monoclonal antibody represents potentially complementary io mechanism action tcell directed antibodies costimulatory molecules nitto denko bms acquired exclusive worldwide license develop commercialize nitto denkos investigational sirna molecules targeting heat shock protein 47 hsp47 vitamin containing formulations including nitto denkos lead asset ndl02s0201 currently development treatment advanced liver fibrosis option receive exclusive licenses hsp47 sirnas vitamin containing formulations treatment lung organ fibrosis 2015 arrangements flexus bms acquired outstanding shares flexus providing bms full rights preclinical small molecule ido1inhibitor targeted immunotherapy potential used combination bmss immunooncology portfolio addition transaction included flexuss idotdo discovery program included idoselective idotdo dual tdoselective compounds cardioxyl bms acquired outstanding shares cardioxyl providing bms full rights cxl1427 nitroxyl prodrug development acute decompensated heart failure five prime bms five prime entered exclusive worldwide licensing collaboration agreement develop commercialize five prime’s csf1r antibody program including cabiralizumab currently development io indications pvns bms responsible development manufacturing commercialization cabiralizumab subject five prime’s option conduct certain studies cost develop cabiralizumab pvns combination internal oncology pipeline assets promedior bms acquired warrant providing bms exclusive rights acquire promedior whose lead asset prm151 developed treatment ipf mf warrant exercisable upon provided data following completion either ipf mf phase ii clinical studies directed promedior bavarian nordic bms acquired exclusive option globally license commercialize prostvac bavarian nordic’s investigational phase iii prostatespecific antigentargeting cancer immunotherapy development treatment asymptomatic minimally symptomatic metastatic castrationresistant prostate cancer 2017 independent data monitoring committee determined continuation phase iii prospect study prostvac patients metastatic castrationresistant prostate cancer futile uniqure bms entered collaboration license agreement uniqure granting bms exclusive license uniqure’s gene therapy technology platform 10 specific collaboration targets collaboration includes uniqure’s proprietary gene therapy program congestive heart failure intended restore heart’s ability synthesize s100a1 calcium sensor master regulator heart function thereby improve clinical outcomes patients reduced ejection fraction results operations regional revenues composition changes revenues follows revenues include royalties alliancerelated revenues products sold regional commercial organizations b foreign exchange impacts derived applying prior period average currency rates current period sales us revenues increased 2017 due higher demand eliquis opdivo partially offset lower demand established brands due increased competition primarily daklinza hiv brands lower growth rate us due additional competition opdivo daklinza average us net selling prices approximately 2 higher chargebacks rebates discounts refer product revenues commentary additional information us revenues increased 2016 due higher demand opdivo eliquis daklinza partially offset full year impact expirationtransfer commercialization rights abilify erbitux average us net selling prices approximately 5 higher chargebacks rebates discounts europe revenues increased 2017 due higher demand opdivo eliquis partially offset lower demand daklinza due increased competition europe revenues increased 2016 due higher demand opdivo eliquis partially offset lower demand yervoy rest world revenues decreased 2017 due lower demand established brands including daklinza due increased competition outlicensing mature brand product partially offset higher demand opdivo eliquis rest world revenues decreased 2016 due increased competition hepatitis c franchise japan unfavorable foreign exchange primarily latin america partially offset higher demand opdivo eliquis revenues decreased 2016 result expiration certain supply arrangements refer item 8 financial statementsnote 3 alliances discussion alliances single country outside us contributed 10 total revenues except japan contributed 10 total revenues 2015 gtn adjustments recognize revenue net gtn adjustments described critical accounting policies share certain abilify atripla revenues reflected net gtn adjustments alliance revenues activities ending reserve balances significant category gtn adjustments follows reconciliation gross product sales net product sales significant category gtn adjustments follows excluding alliance revenues abilify atripla gtn adjustments primarily function product sales volume regional payer channel mix contractual legislative discounts rebates gtn adjustments increasing higher rate gross product sales due higher us eliquis gross product sales relatively high gtn adjustment percentage result competitive pressures maintain position healthcare payer formularies allowing patients continued access medical plans product revenues change excess 100 opdivo nivolumab fully human monoclonal antibody binds pd1 nkt cells approved several anticancer indications including bladder blood colon head neck kidney liver lung melanoma stomach continues investigated across tumor types disease areas • us revenues increased periods due higher demand expect increased competition opdivo continue future due new product entrants expanded indications • international revenues increased periods due higher demand result launches additional indications approvals new countries eliquis apixaban oral factor xa inhibitor targeted stroke prevention adult patients nonvalvular atrial fibrillation prevention treatment vte disorders • us international revenues increased periods due higher demand resulting increased commercial acceptance novel oral anticoagulants market share gains orencia abatacept fusion protein indicated adult patients moderate severe active ra psa also indicated reducing signs symptoms certain pediatric patients moderately severely active polyarticular juvenile idiopathic arthritis • us revenues increased periods due higher average net selling prices demand • international revenues increased periods due higher demand sprycel dasatinib oral inhibitor multiple tyrosine kinase indicated firstline treatment adults philadelphia chromosomepositive chronic myeloid leukemia chronic phase treatment adults chronic accelerated myeloid lymphoid blast phase cml resistance intolerance prior therapy including gleevec imatinib meslylate • us revenues increased periods due higher demand average net selling prices • international revenues increased periods due higher demand may experience decline european revenues event generic datasinib product enters market yervoy ipilimumab monoclonal antibody treatment patients unresectable metastatic melanoma • us revenues increased periods primarily due higher demand • international revenues increased 2017 due higher demand europe following approval opdivoyervoy combination therapy melanoma international revenues decreased 2016 due lower demand resulting introduction io products used treat patients melanoma including opdivo empliciti elotuzumab humanized monoclonal antibody treatment multiple myeloma • empliciti launched us december 2015 eu may 2016 japan september 2016 baraclude entecavir oral antiviral agent treatment chronic hepatitis b • international revenues continued decrease periods due lower demand resulting increased competition sustiva efavirenz franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla • us revenues continued decrease periods due lower demand resulting increased competition new product entrants decrease 2016 partially offset higher average net selling prices loe occurred december 2017 gilead terminated bmss participation us canada joint venture following launch generic version sustiva us result bmss share atripla revenues decline next three years refer item 8 financial statementsnote 3 alliances discussion reyataz atazanavir sulfate franchise includes reyataz protease inhibitor treatment hiv evotaz atazanavir 300 mg cobicistat 150 mg combination therapy containing reyataz tybost cobicistat • us revenues continued decrease due lower demand resulting new product entrants decrease 2016 partially offset higher average net selling prices loe occurred december 2017 result higher decline revenues future periods due generic competition • international revenues continued decrease periods due lower demand resulting increased competition decrease 2016 also impacted unfavorable foreign exchange hepatitis c franchise daklinza daclatasvir ns5a replication complex inhibitor sunvepra asunaprevir ns3 protease inhibitor beclabuvir ns5b inhibitor • us revenues decreased 2017 due lower demand resulting new product entrants us revenues increased 2016 due launch daklinza july 2015 • international revenues decreased periods due lower demand resulting increased competition due new product entrants brands includes brands including lost exclusivity major markets otc brands royalty revenue • us revenues decreased 2016 due expiration bmss commercialization rights abilify april 2015 transfer bmss north american erbitux rights lilly october 2015 refer item 8 financial statementsnote 3 alliances discussion • international revenues decreased 2017 due outlicensing divestiture certain brands continued generic erosion international revenues decreased 2016 due expiration certain supply arrangements divestiture certain brands increased competition otc brands unfavorable foreign exchange estimated enduser demand pursuant sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception estimated levels inventory distribution channel excess one month hand following products material results operations dates indicated december 31 2017 daklinza 17 months inventory hand us result minimum required stock levels support patient demand expect inventory hand levels daklinza exceed one month near term international products estimated levels inventory distribution channel excess one month hand september 30 2017 dafalgan analgesic product sold principally europe 12 months inventory hand internationally direct customers compared also 12 months inventory hand june 30 2017 level inventory hand primarily attributable france support product seasonality efferalgan analgesic product sold principally europe 12 months inventory hand internationally direct customers compared 08 months inventory hand june 30 2017 level inventory hand primarily attributable france support product seasonality fervex cold flu product 30 months inventory hand direct customers compared 40 months inventory hand june 30 2017 level inventory hand attributable france support product seasonality perfalgan analgesic product 26 months inventory hand internationally direct customers compared 15 months inventory hand june 30 2017 level inventory hand primarily gulf countries due extended delivery lead time us generally determine months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 95 total gross sales us products factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes nonus businesses significantly direct customers information available direct customer product level inventory corresponding outmovement information reliability thirdparty demand information varies widely limit direct customer sales channel inventory reporting influence demand information exist otherwise available developed variety methodologies estimate data including using historical sales made direct customers thirdparty market research data related prescription trends enduser demand given difficulties inherent estimating thirdparty demand information evaluate methodologies estimate direct customer product level inventory calculate months hand ongoing basis make changes necessary factors may affect estimates include generic competition seasonality products price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2017 available prior filing annual report form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q expenses change excess 100 cost products sold cost products sold include material internal labor overhead costs owned manufacturing sites thirdparty product supply costs supply chain costs managed global manufacturing supply organization cost products sold also includes royalties profit sharing certain excise taxes foreign currency hedge settlement gains losses amortization acquired developed technology costs cost products sold typically vary periods result product mix volume particularly royalties profit sharing lesser extent changes foreign currency price inflation costs attributed manufacturing site exits • cost products sold increased 2017 due higher eliquis profit sharing 719 million 146 million impairment charge reduce carrying value small molecule active pharmaceutical ingredient manufacturing operations swords ireland remaining increase primarily due higher sales volume inventory charges manufacturing startup costs foreign currency refer item 8 financial statementsnote 4 acquisitions divestitures licensing arrangements information • cost products sold increased 2016 due higher eliquis profit sharing 700 million lower foreign currency hedge settlement gains higher puerto rico excise tax marketing selling administrative marketing selling administrative expenses primarily include salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs advertising product promotion expenses managed regional commercialization organizations global enabling functions finance legal information technology human resources certain expenses shared alliance partners based upon contractual agreements expenses typically vary periods due new product launch promotional activities • marketing selling administrative expenses decreased 2017 due lower advertising promotion salesforce expenses supporting daklinza established brands lower bms foundation grants • marketing selling administrative expenses increased 2016 due higher advertising promotion salesforce expenses supporting opdivo partially offset lower spend established brands favorable foreign exchange research development research development activities include discovery research preclinical clinical development drug formulation medical support marketed products expenses include salary benefit costs thirdparty grants fees paid clinical research organizations supplies upfront contingent milestone payments licensing asset acquisitions investigational compounds iprd impairment charges proportionate allocations enterprisewide costs allocations include facilities information technology employee stock compensation costs appropriate costs certain expenses shared alliance partners based upon contractual agreements expenses typically vary periods number reasons including timing license asset acquisition charges iprd impairment charges • research development expenses increased 2017 due higher license asset acquisition charges site exit charges iprd impairment charges expansion opdivo io development programs • research development expenses decreased 2016 due lower license asset acquisition iprd impairment charges partially offset acceleration expansion opdivo development programs significant charges included rd expense follows upfront payment b milestone payment c option fee • license asset acquisition charges resulted strategic transactions acquire license certain investigational oncology cardiovascular immunoscience fibrotic disease compounds options acquire license disclosed acquisition licensing arrangements • iprd impairment charges related discontinued development investigational compound part alliance fstar alpha 2017 lpa1 antagonist phase ii study 2015 • site exit costs resulted expected exit rd sites us 2020 primarily due reduction estimated useful lives related assets impairment charge reduce carrying value rd facility wallingford connecticut income net • income net increased 2017 primarily due patent infringement settlement outlicensing income partially offset lower divestiture gains related service fees higher restructuring debt redemption charges • income net increased 2016 primarily due divestiture gains related service fees royalties lower debt redemption litigation charges components income net follows • restructuring charges relate changes companys operating model drive continued success near longterm focused investment commercial opportunities key brands markets competitive agile rd organization accelerate pipeline streamline operations realign manufacturing capabilities broaden biologics capabilities reflect current future portfolio well streamline simplify smallmolecule supply network new operating model expected enable company deliver strategic financial operational flexibility necessary invest highest priorities across company aggregate restructuring charges 826 million incurred 2017 actions including accelerated depreciation impairment charges resulting early site exits • litigation settlements include bmss share patentinfringement settlement related mercks pd1 antibody keytruda 2017 bms ono signed global patent license agreement merck made initial payment 625 million bms ono bms received 481 million merck also obligated pay ongoing royalties global sales keytruda 65 january 1 2017 december 31 2023 25 january 1 2024 december 31 2026 companies also granted certain rights respective patent portfolios pertaining pd1 payments royalties shared bms ono 7525 percent allocation respectively adjusting parties legal fees • divestiture gains relate additional contingent consideration diabetes business 2017 certain otc brands investigational hiv medicines businesses 2016 mount vernon indiana manufacturing facility erbitux ixempra certain otc product businesses 2015 • royalties licensing income include upfront licensing fees biogen roche connection outlicensing certain investigational genetically defined disease compounds 2017 royalties merck patent infringement settlement 2017 contingent consideration erbitux diabetes business divestitures 2017 2016 2015 including transfer certain royalty rights pertaining amylin product sales • transition service fees included fees resulting divestiture diabetes investigational hiv medicines businesses • pension charges consist primarily settlement charges due magnitude lump sum payments principal us pension plan • written option adjustment includes income 123 million resulting change fair value written option liability attributed reckitt alliance 2015 • loss debt redemption resulted repurchase certain longterm debt obligations 2017 early redemption euro notes tender offer certain debt securities 2015 income taxes new tax reform legislation us enacted december 22 2017 known tax cuts jobs act 2017 act moves worldwide tax system quasiterritorial tax system comprises broad complex changes us tax code including limited 1 reducing us tax rate 35 21 2 adding deemed repatriation transition tax certain foreign earnings profits 3 generally eliminating us federal income taxes dividends foreign subsidiaries 4 including certain income controlled foreign companies us taxable income 5 creating new minimum tax referred base erosion antiabuse income tax 6 limiting certain researchbased credits 7 eliminating domestic manufacturing deduction although many aspects act effective 2018 additional tax expense 29 billion recognized fourth quarter 2017 upon enactment act additional expense increased effective tax rate 567 included 26 billion onetime deemed repatriation transition tax previously untaxed post1986 foreign earnings profits including related tax reserves earnings effectively taxed 155 rate extent specified foreign corporations held cash certain assets 80 rate remaining earnings profits remaining 285 million additional tax expense included adjustment measure net deferred tax assets new us tax rate 21 accounting reduction deferred tax assets 21 tax rate complete tax charge deemed repatriation tax incomplete recorded provisional amount able make reasonable estimate tax provisional amounts may change completed 2018 upon finalizing untaxed post1986 foreign earnings profits related cash certain eligible assets specified foreign corporations provisional amounts may also change additional guidance relevant tax code released excluding transitional impacts related act tax impact attributed nondeductible rd charges divestiture transactions specified items increased effective tax rate 33 2017 18 2016 03 2015 tax benefits attributed rd charges incurred connection acquisitions ifm cormorant padlock cardioxyl flexus warrant acquire promedior lower nondeductible goodwill allocated business divestitures higher valuation allowances attributed capital loss carryforwards released 2015 impacted effective tax rate 2015 addition adoption amended income tax accounting guidance related sharebased payments early adoption intraentity transfers assets inventory reduced effective tax rate 24 2017 earnings mix high low tax jurisdictions domestic manufacturing deductions higher us foreign tax credits resulting puerto rico excise tax attributed remaining changes effective tax rates prior act effective income tax rate typically lower us statutory rate 35 primarily due earnings certain manufacturing operations low tax jurisdictions switzerland ireland puerto rico indefinitely reinvested bms operates favorable tax grant puerto rico scheduled expire prior 2023 although company continues assess broad complex changes us tax code currently expects significant net impact tax reform effective tax rate 2018 refer item 8 financial statementsnote 7 income taxes information nongaap financial measures nongaap financial measures including nongaap earnings related eps information adjusted exclude certain costs expenses gains losses specified items evaluated individual basis items adjusted considering quantitative qualitative aspects typically one following characteristics highly variable difficult project unusual nature significant results particular period indicative future operating results similar charges gains recognized prior periods likely reoccur future periods including restructuring costs accelerated depreciation impairment property plant equipment intangible assets rd charges connection acquisition licensing third party intellectual property rights divestiture gains losses pension legal contractual settlement charges debt redemption gains losses among items deferred current income taxes attributed items also adjusted considering individual impact overall tax expense deductibility jurisdictional tax rates nongaap information intended portray results baseline performance supplement enhance management analysts investors overall understanding underlying financial performance facilitate comparisons among current past future periods example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap specified items follows reconciliations gaap nongaap follows financial position liquidity capital resources net cash position follows cash equivalents marketable securities held us approximately 41 billion december 31 2017 remaining 52 billion held primarily lowtax jurisdictions subject restrictions withholding taxes certain jurisdictions subject onetime deemed repatriation transition tax 26 billion payable eight years result us tax reform however expect flexibility accessing cash future cash may generated foreign subsidiaries believe existing cash equivalents marketable securities together cash generated operations issuance commercial paper us sufficient satisfy normal cash requirements least next years including dividends capital expenditures milestone payments working capital deemed repatriation transition tax maturities longterm debt management continuously evaluates company’s capital structure ensure company financed efficiently may result repurchase common stock debt securities termination interest rate swap contracts prior maturity issuance debt securities company repurchased 25 billion common stock 2017 accelerated share repurchase agreements rule 10b51 plans open market purchases stock repurchases funded 15 billion new longterm debt cash company repaid 750 million longterm debt maturity repurchased 337 million longterm debt 2017 refer “item 8 financial statementsnote 9 financial instruments fair value measurements note 15 equity information issued commercial paper fund nearterm domestic liquidity requirements 2017 average amount commercial paper outstanding 389 million weightedaverage rate 117 2017 maximum amount commercial paper outstanding 13 billion 299 million outstanding december 31 2017 dividend payments 26 billion 2017 25 billion 2016 2015 dividend decisions made quarterly basis board directors annual capital expenditures approximately 11 billion 2017 12 billion 2016 800 million 2015 expected approximately 10 billion 2018 850 million 2019 continue expand biologics manufacturing capabilities facilityrelated activities example constructing new largescale biologics manufacturing facility ireland produce multiple therapies growing biologics portfolio completed 2019 investment portfolio includes noncurrent marketable securities subject changes fair value result interest rate fluctuations market factors investment policy establishes limits amount time maturity investments institution policy also requires investments entered corporate financial institutions meet high credit quality standards refer “item 8 financial statementsnote 9 financial instruments fair value measurements” information currently three separate revolving credit facilities totaling 50 billion syndicate lenders facilities provide customary terms conditions financial covenants 364 day 20 billion facility expires march 2018 two 15 billion facilities extended october 2021 july 2022 two 15 billion fiveyear facilities extendable annually one year anniversary date consent lenders borrowings outstanding revolving credit facility december 31 2017 2016 additional regulations us could passed future including additional healthcare reform initiatives changes tax laws additional pricing laws potential importation restrictions may reduce results operations operating cash flow liquidity financial flexibility continue monitor potential impact economic conditions certain european countries related impact prescription trends pricing discounts creditworthiness customers believe economic conditions material impact liquidity cash flow financial flexibility credit ratings bmss longterm shortterm credit ratings assigned moodys investors service a2 prime1 respectively stable rating outlook bmss longterm shortterm credit ratings assigned standard poors a1 respectively stable rating outlook bmss longterm shortterm credit ratings assigned fitch respectively stable rating outlook longterm ratings reflect agencies opinion low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings reflect agencies opinion good extremely strong capacity timely repayment credit rating downgrade may affect interest rate debt may incur fair market value existing debt ability access capital markets generally cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts disbursements activities investing financing activities operating cash flow derived adjusting net earnings noncontrolling interest noncash operating items gains losses attributed investing financing activities changes operating assets liabilities resulting timing differences receipts payments cash transactions recognized results operations result changes cash operating activities reflect timing cash collections customers alliance partners payments suppliers alliance partners employees customer discounts rebates tax payments ordinary course business example annual employee bonuses typically paid first quarter subsequent year addition cash collections impacted longer payment terms certain biologic products us primarily certain products including opdivo yervoy empliciti 120 days 150 days longer payment terms used closely align insurance reimbursement timing physicians cancer centers following administration patients 22 billion change cash flow operating activities compared 2016 primarily attributable following items addition increased sales timing cash collections payments ordinary course business • lower income tax payments approximately 15 billion • outlicensing proceeds 470 million related biogen roche transactions • litigation settlement proceeds 481 million related mercks pd1 antibody keytruda bmss share partially offset • higher rd licensing payments approximately 400 million primarily due cytomx halozyme nitto denko transactions • higher contributions pension plans approximately 300 million 10 billion change cash flow operating activities compared 2015 primarily attributable following items addition increased sales timing cash collections payments ordinary course business • winddown abilify alliance 2015 approximately 700 million • lower rd licensing payments approximately 600 million primarily due fiveprime promedior transactions 2015 partially offset • higher income tax payments approximately 14 billion investing activities cash requirements investing activities include cash used acquisitions manufacturing facilityrelated capital expenditures purchases marketable securities maturities greater 90 days reduced proceeds business divestitures including royalties sale maturity marketable securities 15 billion change cash flow investing activities compared 2016 primarily attributable • lower net sales marketable securities maturities greater 90 days 745 million essentially offset changes cash equivalents • lower business divestiture proceeds approximately 600 million primarily due certain otc brands investigational hiv medicines businesses 2016 • higher asset acquisition payments approximately 350 million primarily due acquisition ifm 2017 31 billion change cash flow investing activities compared 2015 primarily attributable • higher net sales marketable securities approximately 21 billion 2016 reinvested cash equivalents • lower asset acquisition payments approximately 800 million primarily due acquisition flexus 2015 • higher business divestiture proceeds approximately 600 million including royalties contingent consideration received subsequent divestitures certain otc brands investigational hiv medicines businesses 2016 mount vernon indiana manufacturing facility ixempra mature otc product businesses 2015 partially offset • higher capital expenditures approximately 400 million financing activities cash requirements financing activities include cash used pay dividends repurchase common stock repay longterm debt borrowings reduced proceeds exercise stock options issuance longterm debt borrowings 14 billion change cash flow financing activities compared 2016 primarily attributable • higher repurchase common stock 22 billion primarily due accelerated share repurchase agreements partially offset • higher net borrowing activity 880 million primarily fund repurchase common stock 10 billion change cash flow financing activities compared 2015 primarily attributable • higher net borrowing activity approximately 13 billion 2016 primarily due debt redemptions reductions cash overdrafts 2015 partially offset • repurchase common stock approximately 200 million 2016 none 2015 contractual obligations offbalance sheet arrangements payments due period contractual obligations december 31 2017 follows includes estimated future interest payments periodic cash settlements derivatives b includes shortterm uncertain tax benefits uncertainties regarding timing resolution c excludes pension liabilities uncertainties regarding timing resolution addition committed aggregated 170 billion potential future research development milestone payments third parties inlicensing asset acquisitions development programs including earlystage milestones 31 billion milestones achieved phase iii clinical studies latestage milestones 104 billion milestones achieved post phase iii clinical studies payments generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted agreements also provide salesbased milestones aggregating 35 billion would obligated pay alliance partners upon achievement certain sales levels addition royalties also certain manufacturing development commercialization obligations connection alliance arrangements practicable estimate amount obligations refer “item 8 financial statementsnote 3 alliances” information regarding alliances offbalance sheet arrangements material reasonably likely become material financial condition results operations sec consent order fcpa settlement previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain dsas us pharmaceutical wholesalers account nearly 100 gross us revenues current terms dsas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 95 gross us revenues inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast nonus business significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent addition previously disclosed october 2015 company reached civil settlement sec alleged fcpa violations company agreed pay approximately 147 million disgorgement penalties interest part settlement company agreed twoyear selfmonitoring period reporting government concluded october 2017 recently issued accounting standards recently issued accounting standards refer “item 8 financial statementsnote 1 accounting policiesrecently issued accounting standards” critical accounting policies preparation financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenue expenses critical accounting policies significantly impact financial condition results operations require difficult subjective complex judgments often result need make estimates effect matters inherently uncertain uncertainty actual results may vary estimates revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally upon shipment except certain eu markets occur delivery products customer revenue also reduced gtn sales adjustments discussed involve significant estimates judgment considering legal interpretations applicable laws regulations historical experience payer channel mix eg medicare medicaid current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel estimates assessed period adjusted required revise information actual experience gtn adjustments following categories gtn adjustments involve significant estimates judgments information obtained external sources refer “total revenues” discussion analysis significant category gtn sales adjustments chargebacks cash discounts us business participates programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price accounts receivable reduced estimated amount unprocessed chargeback claims attributable sale typically within two four week time lag us certain countries cash discounts offered incentive prompt payment generally approximating 2 sales price accounts receivable reduced estimated amount unprocessed cash discounts typically within one month time lag medicaid medicare rebates us business participates state government medicaid programs qualifying federal state government programs requiring discounts rebates participating state local government entities discounts rebates provided programs included medicaid rebate accrual medicaid rebates also extended drugs used managed medicaid plans estimated amount unpaid unbilled rebates presented liability rebates discounts offered managed healthcare organizations us managing prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit also pay 50 point service discount centers medicare medicaid services medicare part beneficiaries coverage gap donut hole estimated amount unpaid unbilled rebates discounts presented liability rebates returns discounts adjustments gtn sales adjustments include sales returns programs based applicable laws regulations individual nonus countries well rebates offered managed healthcare organizations us lesser extent nonus programs include several different pricing schemes cost caps volume discounts outcomebased pricing schemes pricing clawbacks based sales individual companies aggregation companies participating specific market estimated amount unpaid unbilled rebates discounts presented liability estimated returns established products determined considering historical experience factors including levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products lower demand following loe estimated amount product returns presented liability estimated returns new products determined considering historical sales return experience similar products within product line similar therapeutic area andor similar distribution model defer recognition revenue right return expires sufficient historical experience estimate sales returns developed limited circumstances insufficient historical experience products similar therapeutic area distribution method characteristic available typically occurs new product extension existing line product historical experience products similar therapeutic category lacking estimated levels inventory distribution channel projected demand also considered estimating sales returns new products use information external sources information external sources used estimate gtn adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information retirement benefits accounting pension postretirement benefit plans requires actuarial valuations based significant assumptions discount rates expected longterm rates return plan assets consultation actuaries significant assumptions others salary growth retirement turnover healthcare trends mortality rates evaluated selected based expectations actual experience remeasurement date pension expense could vary within range outcomes material effect reported earnings projected benefit obligations future cash funding actual results given year may differ estimated economic factors yield high quality corporate bonds coincides cash flows plans’ estimated payouts used determining discount rate citi pension discount curve used us plans present value benefit obligations december 31 2017 us pension plans determined using 35 discount rate assumed discount rate used determining us pension plans’ projected benefit obligation december 31 2017 reduced additional 1 projected benefit obligation would increase approximately 950 million expected longterm rate return plan assets estimated considering expected returns individual asset classes input external advisors also consider longterm historical returns including actual performance compared benchmarks similar investments us plans’ pension expense 2017 determined using 78 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2017 reduced 1 expense would increase 40 million detailed discussion retirement benefits refer “item 8 financial statementsnote 16 pension postretirement postemployment liabilities” business combinations divestitures goodwill intangible assets acquired business combinations licensing transactions 81 billion representing 24 total assets december 31 2017 accounting transactions business combinations divestitures significantly different asset acquisitions divestitures example acquired iprd capitalized business combinations expensed asset acquisitions fair value contingent consideration goodwill recognized business combination transactions likewise portion reporting unit constitutes business divested goodwill associated business included carrying value business determining gain loss derecognition goodwill occur asset dispositions result important determine whether business asset group assets acquired divested business defined asc 805 business combinations integrated set inputs processes capable generating outputs ability provide return investors owners typical inputs include longlived assets including intangible assets rights use longlived assets intellectual property ability obtain access required resources typical processes include strategic operational resource management processes typically documented evident organized workforce consider factors determining whether business acquired divested well compounds development phase commercial products involved example evaluating acquisitions ifm cormorant padlock cardioxyl flexus past three years concluded significant processes transferred us thus transactions accounted asset acquisitions result amounts allocated lead investigational compounds expensed capitalized addition contingent consideration potential development regulatory approval salesbased milestones salesbased royalties included purchase price refer item 8 financial statementsnote 4 acquisitions divestitures discussion acquisitions similarly evaluating divestitures small molecule manufacturing operations swords ireland investigational hiv medicines business businesses comprising alliance reckitt medicines company valeant pharmaceuticals international inc erbitux ixempra concluded necessary inputs processes transferred consequently transactions accounted sales businesses resulted allocation goodwill 12 million 2017 98 million 2016 73 million 2015 carrying value businesses determining gain sale contingent proceeds related divestitures recognized realized also concluded inputs significant processes capable generating outputs transferred outlicensing arrangements biogen roche consequently transactions accounted sales businesses 2017 longlived assets intangible assets including iprd intangible assets 12 billion december 31 2017 including licenses 254 million 152 million allocated unapproved products developed technology rights 565 million capitalized software 359 million iprd 32 million intangible assets assessed impairment whenever current facts circumstances warrant review although iprd assessed least annually intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment common potential risks leading impairment include competition earlier expected loe pricing pressures adverse regulatory changes clinical study results delay failure obtain regulatory approval additional development costs inability achieve expected synergies higher operating costs changes tax laws macroeconomic changes complexity estimating fair value intangible assets connection impairment test similar initial valuation considering high risk nature research development industry’s success rate bringing developmental compounds market impairment charges likely occur future periods recognized 75 million charge 2017 fstar alphas fs102 phase development treatment breast gastric cancer 160 million 2015 bms986020 phase ii development treatment ipf discussion iprd impairments refer “item 8 financial statementsnote 13 goodwill intangible assets property plant equipment property plant equipment tested impairment whenever current facts circumstances require review including whether likely asset disposed prior estimated remaining useful life additionally longlived assets periodically reviewed determine change facts circumstances would result change estimated useful life asset possibly resulting acceleration depreciation circumstances exist estimate undiscounted future cash flows generated asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value expectations future cash flows subject change based upon near longterm production volumes margins generated asset well potential alternative future use divestiture small molecule active pharmaceutical ingredient manufacturing operations swords ireland sale rd facility wallingford connecticut resulted 146 million 79 million impairment charges respectively reduce carrying value assets heldforsale fair value 2017 accelerated depreciation impairment related charges certain manufacturing rd facilities 533 million 2017 104 million 2016 115 million 2015 additional charges continue occur result company’s restructuring actions announced fourth quarter 2016 assets heldforsale following criteria considered concluding assets classified heldforsale 1 management’s commitment plan sell 2 availability immediate sale present condition 3 initiation active program identify buyer 4 probability completed sale within one year 5 actively marketed sale reasonable price relation current fair value 6 likelihood significant changes plan made plan withdrawn criteria met balance sheet date net assets presented separately balance sheet heldforsale lower carrying amount fair value less costs sell longer depreciated amortized classified heldforsale example evaluating divestitures small molecule manufacturing operations swords ireland sale rd facility wallingford connecticut concluded necessary heldforsale criteria met 2017 quarterly period prior completed sale evaluating divestitures investigational hiv medicines business businesses comprising alliances reckitt lilly concluded necessary heldforsale criteria met 2015 income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecasts future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made deferred tax assets 23 billion december 31 2017 net valuation allowances 28 billion 43 billion december 31 2016 net valuation allowances 31 billion us federal net operating loss carryforwards 317 million december 31 2017 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 foreign state net operating loss carryforwards expire varying amounts beginning 2018 certain amounts unlimited lives discussed fully results operations section mda tax charges attributed onetime deemed repatriation tax certain foreign earnings 26 billion recognized fourth quarter 2017 accounting income tax effect act incomplete issuance date financial statements necessary information available prepared analyzed complete accounting however able make reasonable estimate tax recorded provisional amount provisional amount may change completed 2018 upon finalizing 2017 taxable income untaxed post1986 foreign earnings profits related cash certain eligible assets specified foreign corporations provisional amounts may also change additional interpretations relevant tax code released prior mead johnson splitoff 2009 following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions certain assumptions representations covenants mead johnson relied upon regarding future conduct business matters could affect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account ela existed investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code irs could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations 2009 agreed certain tax related indemnities mead johnson set forth tax sharing agreement including certain taxes related business prior completion ipo created part restructuring facilitate ipo mead johnson also agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known discussions income taxes refer “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 7 income taxes” contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability contractual claims tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies refer “item 8 financial statementsnote 1 accounting policiescontingencies” “note 7 income taxes” “note 18 legal proceedings contingencies” product pipeline developments rd programs managed portfolio basis early discovery latestage development include balance earlystage latestage programs support future growth late stage rd programs phase iii development include investigational compounds initial indications additional indications formulations marketed products spending programs represent approximately 3045 annual rd expenses last three years opdivo investigational compound marketed product represented greater 10 rd expenses last three years latestage development programs could potentially impact revenue earnings within next years regulatory approvals obtained products successfully commercialized following developments marketed products latestage pipeline product indication date developments opdivo biliary tract cancer april 2017 bms ono announced opdivo designated treatment biliary tract cancer sakigake designation system japan offers priority consultation review chl december 2017 bms seattle genetics inc highlighted updated interim results phase iii study evaluating opdivo adcetris relapsedrefractory chl interim results previously highlighted june 2017 bms announced extended followup data checkmate205 phase ii study evaluating opdivo patients relapsed progressed chl autologous stem cell transplant june 2017 bms seattle genetics inc expanded clinical collaboration evaluate combination opdivo adcetris brentuximab vedotin pivotal phase iii study relapsedrefractory transplant advanced chl april 2017 fda approval updated indication opdivo treatment adult patients chl relapsed progressed autohsct brentuximab vedotin three lines systemic therapy includes autohsct gastric september 2017 approval japan treatment unresectable advanced recurrent gastric cancer progressed chemotherapy received alliance partner ono january 2017 announced results ono453812 phase iii study evaluating opdivo patients previously treated advanced gastric cancer refractory intolerant standard therapy ono alliance partner conducted study gbm april 2017 announced checkmate143 randomized phase iii study evaluating efficacy safety opdivo patients first recurrence gbm meet primary endpoint improved overall survival bevacizumab monotherapy hcc september 2017 fda approval treatment patients hcc type liver cancer previously treated sorafenib hnc april 2017 ec approval treatment scchn adults progressing platinumbased therapy march 2017 approval treatment recurrent metastatic hnc japan received alliance partner ono hpv june 2017 announced data cohort phase iii checkmate358 study evaluating opdivo treatment patients advanced cervical vaginal vulvar cancers associated infection hpv mcrc august 2017 fda approval treatment adult pediatric patients msih dmmr mcrc progressed following treatment fluoropyrimidine oxaliplatin irinotecan melanoma december 2017 fda approval injection intravenous use adjuvant treatment patients melanoma involvement lymph nodes metastatic disease undergone complete resection october 2017 announced ema validated type ii variation application seeks expand current indications include treatment patients melanoma high risk disease recurrence following complete surgical resection september 2017 announced treatment opdivo resulted significant improvement recurrencefree survival compared yervoy patients stage iiibc stage iv melanoma following complete surgical resection july 2017 announced phase iii study evaluating opdivo versus yervoy patients stage iiibc stage iv melanoma high risk recurrence following complete surgical resection met primary endpoint recurrencefree survival planned interim analysis june 2017 announced proofofconcept data phase iiia study opdivo combination bms986016 investigational antilag3 therapy patients advanced melanoma previously treated antipd1pdl1 therapy muc june 2017 ec approval treatment patients previously treated locally advanced unresectable muc type bladder cancer adults failure platinumcontaining therapy february 2017 fda approval treatment patients previously treated locally advanced metastatic urothelial carcinoma type bladder cancer multiple myeloma december 2017 announced fda lifted partial clinical holds placed checkmate039 ca204142 two clinical studies investigating opdivo based combinations patients relapsed refractory multiple myeloma september 2017 announced fda placed partial clinical holds checkmate602 checkmate039 ca204142 three clinical studies investigating opdivo based combinations patients relapsed refractory multiple myeloma partial clinical hold related risks identified studies studying another antipd1 agent pembrolizumab patients multiple myeloma opdivo nsclc november 2017 announced phase iii study checkmate078 multinational randomized study evaluating opdivo versus docetaxel previously treated advanced metastatic nsclc stopped early met primary endpoint demonstrating superior overall survival checkmate078 multinational phase iii study predominately chinese patients bms submitted bla opdivo china food drug administration cfda proposed indication previously treated nsclc accepted cfda september 2017 announced threeyear overall survival data checkmate017 checkmate057 two pivotal phase iii randomized studies evaluating opdivo vs docetaxel patients previously treated metastatic nsclc april 2017 announced fiveyear overall survival data study ca209003 phase study evaluating opdivo patients previously treated advanced nsclc rcc november 2017 announced threeyear overall survival update checkmate025 phase iii study evaluating opdivo vs everolimus previously treated advanced rcc various july 2017 bms clovis oncology inc announced clinical collaboration evaluate combination opdivo rubraca rucaparib pivotal phase iii studies advanced ovarian cancer triplenegative breast cancer well phase ii study metastatic castrationresistant prostate cancer announced fda accepted companys sblas update opdivo dosing include 480 mg infused 30 minutes every four weeks currently approved monotherapy indications fda action date march 5 2018 april 2017 bms incyte announced companies advance clinical development program evaluating combination opdivo epacadostat phase iii registrational study firstline nsclc across spectrum pdl1 expression firstline hnc opdivoyervoy crc january 2018 announced new data checkmate142 phase ii study evaluating opdivo monotherapy combination yervoy previously treated patients dmmr msih metastatic crc interim data previously announced june 2017 melanoma june 2017 announced efficacy data checkmate204 phase ii study evaluating opdivoyervoy potential treatment patients melanoma metastatic brain april 2017 announced overall survival data checkmate067 phase iii study evaluating opdivo alone combination yervoy patients previously untreated advanced melanoma mpm june 2017 announced results ifct1501 maps2 study evaluating opdivo combined yervoy previously treated unresectable mpm patients nsclc february 2018 announced pivotal phase iii checkmate227 study demonstrated superior progressionfree survival combination opdivoyervoy versus chemotherapy firstline nsclc patients high tumor mutation burden regardless pdl1 expression study continue planned assess opdivoyervoy combination coprimary endpoint overall survival patients express pdl1 rcc december 2017 announced fda accepted companys sblas priority review opdivoyervoy treat intermediate poorrisk patients advanced rcc fda action date april 16 2018 november announced results new exploratory analysis pdl1 expression subgroups phase iii checkmate214 study evaluating opdivoyervoy vs standard care sunitinib intermediate poorrisk patients previously untreated advanced metastatic rcc november 2017 announced ema validated type ii variation application seeks expand current indications opdivoyervoy include treatment intermediate poorrisk patients advanced rcc september 2017 announced checkmate214 phase iii study evaluating opdivoyervoy versus sunitinib patients previously untreated advanced metastatic rcc met coprimary endpoint demonstrating superior overall survival intermediate poorrisk patients combination also met secondary endpoint improved overall survival randomized patients based planned interim analysis independent data monitoring committee recommended study stopped early august 2017 announced topline results checkmate214 combination opdivoyervoy met coprimary endpoint objective response rate favored coprimary endpoint progressionfree survival however reach statistical significance july 2017 bms exelixis inc announced initiation phase iii checkmate 9er study evaluate opdivo combination cabometyx cabozantinib exelixiss small molecule inhibitor receptor tyrosine kinases opdivo yervoy combination cabometyx versus sunitinib patients previously untreated advanced metastatic rcc sclc october 2017 announced data evaluating opdivo opdivoyervoy previously treated sclc patients whose tumors evaluable tumor mutation burden phase iii checkmate032 study various february 2017 bms exelixis announced clinical development collaboration evaluate cabometyx opdivo either alone combination yervoy agreement expected include phase iii study firstline rcc additional studies planned bladder cancer hcc potentially tumor types eliquis nvaf august 2017 announced results realworld data analysis us humana database treatment eliquis associated significantly lower risk strokesystemic embolism lower rates major bleeding compared warfarin patients aged 65 years older nvaf announced data emanate phase iv study exploring safety efficacy eliquis patients nvaf undergoing cardioversion announced results realworld data analysis pooled four large us insurance claims databases treatment eliquis associated lower risk strokesystemic embolism lower rates major bleeding compared warfarin overall population selected highrisk patient subpopulations march 2017 announced findings realworld data analysis us medicare database comparing risk stroke systemic embolism rate major bleeding among patients nonvalvular atrial fibrillation treated direct oral anticoagulants versus warfarin orencia psa july 2017 ec approval treatment active psa adults response previous diseasemodifying antirheumatic drug therapy including methotrexate inadequate additional systemic therapy psoriatic skin lesions required fda approval active psa adults chronic inflammatory disease affect skin musculoskeletal system jia march 2017 fda approval new subcutaneous administration option use patients two years age older moderately severely active polyarticular jia sprycel december 2017 announced data phase ii ca180372 study pediatric patients newly diagnosed philadelphia chromosomepositive treated sprycel added chemotherapy regimen cml november 2017 fda expanded indication sprycel tablets include treatment children philadelphia chromosomepositive cml chronic phase june 2017 announced data phase ii ca180226 study evaluating sprycel imatinibresistant intolerant newly diagnosed pediatric patients chronic phase cml may 2017 announced ema validated grouped type ii variationextension application treat children adolescents aged 1 year 18 years chronic phase philadelphia chromosome positive cml include powder oral suspension yervoy melanoma january 2018 ec approval expanded indication treatment unresectable metastatic melanoma pediatric patients 12 years age older october 2017 announced fda added fiveyear overall survival data phase iii ca184029 study prescribing information yervoy adjuvant treatment fully resected cutaneous melanoma pathologic involvement regional lymph nodes 1 mm july 2017 fda approval expanded indication treatment unresectable metastatic melanoma pediatric patients june 2017 announced relapsefree survival results phase iii study evaluating yervoy 3 mgkg yervoy 10mgkg patients stage iii resectable stage iv melanoma high risk recurrence following complete surgical resection empliciti multiple myeloma june 2017 announced fouryear followup data phase iii study evaluating empliciti plus lenalidomidedexamethasone vs lenalidomidedexamethasone alone patients relapsedrefractory multiple myeloma hepatitis c franchise hcv april 2017 china fda approval daklinza sunvepra regimen treatmentnaive experienced patients infected genotype 1b chronic hcv addition daklinza approved china combination use agents including sofosbuvir adult patients hcv genotypes 16 infection prostvac prostate cancer september 2017 bavarian nordic announced independent data monitoring committee determined continuation phase iii prospect study prostvac patients metastatic castrationresistant prostate cancer futile special note regarding forwardlooking statements annual report form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years included important factors cautionary statements included annual report form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made undertake obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis results operations financial condition provided supplement read conjunction consolidated financial statements related notes included elsewhere 2018 form 10k enhance understanding results operations financial condition cash flows executive summary bristolmyers squibb company global specialty biopharmaceutical company whose mission discover develop deliver innovative medicines help patients prevail serious diseases refer summary abbreviated terms end 2018 form 10k terms used throughout document 2018 received 14 approvals new medicines additional indications formulations currently marketed medicines major markets us eu japan china including multiple regulatory milestone achievements opdivo opdivoyervoy combinations committed investigating opdivo alone combination yervoy anticancer agents wide array tumor types including broad programs lung head neck liver kidney bladder stomach continue believe breadth depth io portfolio positions us well future 17 new io compounds clinical development studies across 35 different tumor types addition advanced certain nonio rd programs pipeline including tyk2 inhibitor treatment psoriasis autoimmune diseases factor xia inhibitor treatment thrombosis collaboration janssen pegbelfermin pegfgf21 treatment nash 2018 revenues increased 9 result higher demand prioritized brands including opdivo eliquis partially offset increased competition established brands primarily hiv brands daklinza 240 increase gaap eps primarily due 2017 tax charges attributed tax reform higher revenues items partially offset higher losses equity investments adjusting impact tax reform equity investment losses specified items nongaap eps increased 097 primarily result higher revenues higher royalties licensing income lower effective tax rate cost savings resulting transformation initiatives continue redeployed rd areas higher priorities january 3 2019 announced entered definitive merger agreement celgene acquire celgene discussion pending acquisition celgene acquisitions divestitures licensing arrangements refer “item 1a risk factors” “item 8 financial statements supplementary datanote 4 acquisitions divestitures licensing arrangements” “note 19 subsequent event” 2017 revenues increased 7 result higher demand prioritized brands including opdivo eliquis partially offset increased competition established brands primarily daklinza 204 decrease gaap eps due tax charges attributed tax reform 176 per share lesser extent higher license asset acquisition restructuring related charges lower divestiture related income items partially offset higher revenues royalties licensing income patentinfringement settlement adjusting impact tax reform specified items nongaap eps increased 018 primarily result higher revenues partially offset product mix higher rd expenses supporting opdivo io programs highlights following table summarizes financial information nongaap financial measures including nongaap earnings related eps information adjusted exclude specified items represent certain costs expenses gains losses items impacting comparability financial results detailed listing specified items information reconciliations nongaap financial measures refer “nongaap financial measures” significant product pipeline approvals following summary 14 significant approvals received 2018 product date approval opdivo august 2018 approval japan patients mpm progressed chemotherapy august 2018 approval japan adjuvant treatment melanoma august 2018 fda approval first io treatment option patients metastatic sclc whose cancer progressed platinumbased chemotherapy least one line therapy july 2018 ec approval adjuvant treatment adult patients melanoma involvement lymph nodes metastatic disease undergone complete resection june 2018 approval china treatment locally advanced metastatic nsclc prior platinumbased chemotherapy adult patients without egfr alk genomic tumor aberrations opdivoyervoy august 2018 approval japan opdivo plus lowdose yervoy treatment unresectable metastatic rcc july 2018 fda approval opdivo plus lowdose yervoy treatment adult pediatric patients 12 years older msih dmmr mcrc progressed following treatment fluoropyrimidine oxaliplatin irinotecan may 2018 approval japan opdivoyervoy combination previously untreated patients unresectable melanoma april 2018 fda approval opdivoyervoy combination previously untreated patients intermediate poorrisk advanced rcc orencia february 2018 approval japan intravenously administered treatment moderate severe polyarticular jia patients two years age older empliciti november 2018 fda approval empliciti injection intravenous use combination pomalidomide dexamethasone treatment adult patients multiple myeloma received least two prior therapies including lenalidomide proteasome inhibitor sprycel december 2018 fda expanded indication sprycel include treatment pediatric patients one year age older newly diagnosed philadelphia chromosomepositive combination chemotherapy july 2018 ec expanded indication sprycel include treatment children adolescents aged 1 year 18 years chronic phase philadelphia chromosomepositive cml include powder oral suspension refer “product pipeline developments” developments marketed products latestage pipeline 2018 early 2019 strategy focus specialty biopharmaceutical company discovering developing delivering transformational medicines address serious unmet medical needs strategy combine resources scale capability pharmaceutical company speed focus innovation biotech industry four strategic priorities drive business performance continue build leading franchise io maintain diversified portfolio within outside io continue disciplined approach capital allocation including establishing partnerships collaborations inlicensing acquiring investigational compounds essential component successfully delivering transformational medicines patients developing new medicines following core therapeutic areas 1 oncology priority certain tumor types 2 immunoscience priorities psoriasis lupus ra inflammatory bowel disease 3 cardiovascular priority heart disease 4 fibrotic disease priorities lung liver continue advance next wave innovative medicines investing significantly pipeline internally business development activities expect planned acquisition celgene position us leading biopharmaceutical company expanding oncology immunoscience portfolios several nearterm assets additional external partnerships continue invest io portfolio pursuing monotherapy combination approaches advancing next wave early assets entered several new collaboration agreements across therapeutic areas focus expanded others research develop opdivo approved investigational oncology agents combination regimens remain focused wellresourced cancer development programs seek broaden use opdivo earlier lines therapy expand new tumors accelerate next wave io mechanisms develop treatment options refractory io patients beyond cancer continue advance early stage portfolio immunoscience cardiovascular fibrotic diseases strengthen partnerships diverse group companies academic institutions new expanded research activities believe differentiated internal external focus contributes advancing pipeline potentially transformational medicines commercial model evolving revenues prioritized brands continue grow demonstrates strong execution strategy continue drive growth opdivo expanding additional indications tumor types monotherapy combination yervoy anticancer agents eliquis continues grow leveraging best class clinical profile extensive real world data number one novel oral anticoagulant total prescriptions us building continued success prioritized brands remain strongly committed orencia sprycel operating model transformation commercial infrastructure uniquely leveraged potential growth operating model continues evolve successful focusing commercial rd manufacturing resources prioritized brands markets strengthening rd capabilities tumor biology patient selection new biomarkers delivering leaner administrative functions streamlining manufacturing network reflect importance biologics current future portfolio evolution operating model focuses maintaining disciplined approach marketing selling administrative expenses enable us deliver necessary strategic financial operational flexibility invest highest priority opportunities within portfolio looking ahead continue implement biopharma strategy driving growth prioritized brands executing product launches investing diverse innovative pipeline aided strategic business development focusing prioritized markets increasing investments biologics manufacturing capabilities maintaining culture continuous improvement acquisitions divestitures licensing collaboration arrangements acquisitions divestitures licensing collaboration arrangements allow us focus resources behind growth opportunities drive greatest longterm value focused following core therapeutic areas oncology including io immunoscience cardiovascular fibrosis significant acquisitions divestitures licensing collaboration arrangements past three years summarized refer “item 8 financial statements supplementary data note 3 alliances” “note 4 acquisitions divestitures licensing arrangements” information 2018 arrangements nektar bms nektar commenced worldwide license collaboration development commercialization nktr214 nektar’s investigational immunostimulatory therapy janssen bms janssen commenced worldwide collaboration development commercialization factor xia program including bms’s factor xia inhibitor bms986177 investigational anticoagulant compound studied prevention treatment major thrombotic conditions promedior bms notified promedior company would exercising warrant obtained 2015 purchase outstanding shares promedior rigel bms notified rigel pharmaceuticals inc company would discontinue participation preclinical collaboration cancer immunotherapies based rigels small molecule tgf beta receptor kinase inhibitors originally commenced 2015 bavarian nordic bms notified bavarian nordic company exercising option globally license commercialize prostvac bavarian nordic’s investigational psatargeting cancer immunotherapy 2017 arrangements ono bms acquired exclusive license develop commercialize ono4578 ono’s prostaglandin e2 receptor 4 antagonist treatment cancer bms acquired worldwide rights except japan south korea taiwan added existing collaboration china asean countries ono retained exclusive rights halozyme bms halozyme entered global collaboration license agreement develop subcutaneously administered bms io medicines using halozymes enhanze drugdelivery technology may allow rapid delivery large volume injectable medications ifm bms acquired outstanding shares ifm providing bms full rights ifms preclinical sting nlrp3 agonist programs focused enhancing innate immune response treating cancer biogen bms outlicensed biogen exclusive rights develop commercialize bms986168 antietau compound development progressive supranuclear palsy roche bms outlicensed roche exclusive rights develop commercialize bms986089 antimyostatin adnectin development duchenne muscular dystrophy cytomx bms cytomx expanded initial 2014 strategic collaboration discover novel cancer treatment therapies include eight additional targets using cytomx’s proprietary probody platform treatment cancer 2016 arrangements psioxus bms acquired exclusive worldwide rights psioxuss ng348 preclinical stage “armed” oncolytic virus goal addressing solid tumors padlock bms acquired outstanding shares padlock providing bms full rights padlock’s pad inhibitor discovery program focused development treatment approaches patients ra cormorant bms acquired outstanding shares cormorant providing bms full rights cormorants lead candidate humaxil8 monoclonal antibody represents potentially complementary io mechanism action tcell directed antibodies costimulatory molecules nitto denko bms acquired exclusive worldwide license develop commercialize nitto denkos investigational sirna molecules targeting heat shock protein 47 hsp47 vitamin containing formulations including nitto denkos lead asset ndl02s0201 currently development treatment advanced liver fibrosis option receive exclusive licenses hsp47 sirnas vitamin containing formulations treatment lung organ fibrosis results operations regional revenues composition changes revenues follows revenues include royalties alliancerelated revenues products sold regional commercial organizations b foreign exchange impacts derived applying prior period average currency rates current period sales us revenues 2018 impacted higher demand opdivo eliquis partially offset lower demand established brands due increased competition primarily hiv brands daklinza higher growth rate us due additional indication approvals opdivo average us net selling prices 2018 unchanged chargebacks rebates discounts refer “product revenues commentary” additional information europe revenues 2018 impacted higher demand eliquis opdivo foreign exchange partially offset lower demand established brands due increased competition lower average net selling prices rest world revenues 2018 impacted lower demand established brands due increased competition lower average net selling prices foreign exchange partially offset higher demand opdivo eliquis us revenues 2017 impacted higher demand eliquis opdivo partially offset lower demand established brands due increased competition primarily daklinza hiv brands average us net selling prices approximately 2 higher chargebacks rebates discounts refer “product revenues commentary” additional information europe revenues 2017 impacted higher demand opdivo eliquis partially offset lower demand daklinza due increased competition lower average net selling prices rest world revenues 2017 impacted lower demand established brands including daklinza due increased competition outlicensing mature brand product partially offset higher demand opdivo eliquis lower average net selling prices single country outside us contributed 10 total revenues 2018 2017 2016 gtn adjustments recognize revenue net gtn adjustments described “critical accounting policies” activities ending reserve balances significant category gtn adjustments follows reconciliation gross product sales net product sales significant category gtn adjustments follows gtn adjustments primarily function product sales volume regional payer channel mix contractual legislative discounts rebates gtn adjustments increasing higher rate gross product sales due higher us eliquis gross product sales relatively high gtn adjustment percentage result competitive pressures maintain position healthcare payer formularies allowing patients continued access medical plans product revenues change excess 100 opdivo nivolumab fully human monoclonal antibody binds pd1 nkt cells approved several anticancer indications including bladder blood colon head neck kidney liver lung melanoma stomach continues investigated across tumor types disease areas • us revenues increased periods due higher demand higher growth rate 2018 primarily due approvals treatment adjuvant melanoma liver cancer opdivoyervoy combination kidney cancer partially offset decline lung cancer indication • international revenues increased periods due higher demand result approvals additional indications launches new countries lower growth rate 2018 primarily due additional competition opdivo nsclc indication eliquis apixaban oral factor xa inhibitor targeted stroke prevention adult patients nvaf prevention treatment vte disorders • us revenues increased periods due market share gains partially offset lower average net selling prices • international revenues increased periods due higher demand attributed market share gains growth novel oral anticoagulants market orencia abatacept fusion protein indicated adult patients moderate severe active ra psa also indicated reducing signs symptoms certain pediatric patients moderately severely active polyarticular jia • us revenues increased periods due higher demand higher average net selling prices • international revenues increased periods due higher demand may experience additional competition europe biosimilars competitor products future periods sprycel dasatinib oral inhibitor multiple tyrosine kinase indicated firstline treatment adults philadelphia chromosomepositive cml chronic phase treatment adults chronic accelerated myeloid lymphoid blast phase cml resistance intolerance prior therapy including gleevec imatinib mesylate • us revenues decreased 2018 due inventory workdown offset higher average net selling prices us revenues increased 2017 due higher demand higher average net selling prices • international revenues remained unchanged 2018 international revenues increased 2017 due higher demand may experience decline european revenues event generic datasinib product enters market yervoy ipilimumab monoclonal antibody treatment patients unresectable metastatic melanoma • us revenues increased periods due higher demand revenue growth rate 2018 decreased due lower demand resulting io products used adjuvant treatment patients melanoma including opdivo • international revenues increased periods due higher demand primarily europe following approval opdivoyervoy combination therapy melanoma baraclude entecavir oral antiviral agent treatment chronic hepatitis b • international revenues decreased periods due lower demand resulting increased competition reyataz atazanavir sulfate franchise includes reyataz protease inhibitor treatment hiv evotaz atazanavir 300 mg cobicistat 150 mg combination therapy containing reyataz tybost cobicistat • loe reyataz us occurred december 2017 result revenues continue decline • international revenues decreased periods due lower demand resulting increased competition sustiva efavirenz franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla • loe sustiva us occurred december 2017 gilead terminated bmss participation us canada joint venture following launch generic version sustiva us result bmss share atripla revenues decline next two years refer “item 8 financial statementsnote 3 alliances” discussion • international revenues 2018 include 204 million us atripla royalty revenue hepatitis c franchise daklinza daclatasvir ns5a replication complex inhibitor sunvepra asunaprevir ns3 protease inhibitor beclabuvir ns5b inhibitor • us international revenues decreased periods due lower demand resulting increased competition brands includes brands including lost exclusivity major markets otc brands royalty revenue • international revenues decreased 2018 primarily due lower plavix royalties result adoption amended revenue guidance expiration rights abilify canada lower diabetes product supply sales continued generic erosion revenue decrease 2017 due outlicensing divestiture certain brands continued generic erosion estimated enduser demand pursuant sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception estimated levels inventory distribution channel excess one month hand following products material results operations dates indicated december 31 2018 daklinza 6 months inventory hand us result minimum required stock levels support patient demand expect inventory hand levels daklinza exceed one month near term international products estimated levels inventory distribution channel excess one month hand september 30 2018 dafalgan analgesic product sold principally europe 12 months inventory hand internationally direct customers compared 13 months inventory hand june 30 2018 level inventory hand primarily due ordering patterns pharmacists france efferalgan analgesic product sold principally europe 17 months inventory hand internationally direct customers compared also 14 months inventory hand june 30 2018 level inventory hand primarily due ordering patterns pharmacists france fervex cold flu product 13 months inventory hand direct customers compared 15 months inventory hand june 30 2018 level inventory hand primarily due ordering patterns pharmacists france daklinza hepatitis c product 12 months inventory hand internationally direct customers compared 14 months inventory hand june 30 2018 level inventory hand attributable low volume inmarket sales canada perfalgan analgesic product 13 months inventory hand internationally direct customers compared 15 months inventory hand june 30 2018 level inventory hand primarily gulf countries due extended delivery lead time sustiva hiv product 11 months inventory hand internationally direct customers compared 10 months inventory hand june 30 2018 level inventory hand attributable low volume inmarket sales canada us generally determine months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 97 total gross sales us products factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes nonus businesses significantly direct customers information available direct customer product level inventory corresponding outmovement information reliability thirdparty demand information varies widely limit direct customer sales channel inventory reporting influence demand information exist otherwise available developed variety methodologies estimate data including using historical sales made direct customers thirdparty market research data related prescription trends enduser demand given difficulties inherent estimating thirdparty demand information evaluate methodologies estimate direct customer product level inventory calculate months hand ongoing basis make changes necessary factors may affect estimates include generic competition seasonality products price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2018 available prior filing 2018 form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q expenses cost products sold cost products sold include material internal labor overhead costs owned manufacturing sites thirdparty product supply costs supply chain costs managed global manufacturing supply organization cost products sold also includes royalties profit sharing certain excise taxes foreign currency hedge settlement gains losses amortization acquired developed technology costs cost products sold typically vary periods result product mix volume particularly royalties profit sharing lesser extent changes foreign currency price inflation costs attributed manufacturing site exits • cost products sold increased 2018 due higher royalties profit sharing 905 million resulting primarily higher eliquis sales partially offset product cost improvements 146 million impairment charge 2017 reduce carrying value small molecule active pharmaceutical ingredient manufacturing operations swords ireland lower inventory charges • cost products sold increased 2017 due higher royalties profit sharing 753 million resulting primarily higher eliquis sales 146 million impairment charge discussed remaining increase primarily due higher sales volume inventory charges manufacturing startup costs foreign currency marketing selling administrative marketing selling administrative expenses primarily include salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs advertising product promotion expenses managed regional commercialization organizations global enabling functions finance legal information technology human resources certain expenses shared alliance partners based upon contractual agreements expenses typically vary periods due new product launch promotional activities • marketing selling administrative expenses decreased 2018 due lower advertising promotion marketing expenses lower costs attributed transformation initiatives lower branded prescription drug fee partially offset higher bms foundation grants • marketing selling administrative expenses decreased 2017 due lower advertising promotion salesforce expenses supporting daklinza established brands lower bms foundation grants research development research development activities include discovery research preclinical clinical development drug formulation medical support marketed products expenses include salary benefit costs thirdparty grants fees paid clinical research organizations supplies upfront contingent milestone payments licensing asset acquisitions investigational compounds iprd impairment charges proportionate allocations enterprisewide costs allocations include facilities information technology employee stock compensation costs appropriate costs certain expenses shared alliance partners based upon contractual agreements expenses typically vary periods number reasons including timing license asset acquisition charges iprd impairment charges • research development expense decreased 2018 due lower site exit costs iprd impairment charges partially offset expansion opdivo io development programs including nktr214 • research development expense increased 2017 due higher license asset acquisition charges site exit charges iprd impairment charges expansion opdivo io development programs significant charges included rd expense follows upfront payment b milestone payment • license asset acquisition charges resulted strategic transactions acquire license certain investigational oncology cardiovascular immunoscience fibrotic disease compounds options acquire license disclosed “acquisitions divestitures licensing collaboration arrangements” • iprd impairment charges includes discontinued development investigational compound part alliance fstar 2017 • site exit costs resulted expected exit rd sites us 2020 primarily due reduction estimated useful lives related assets impairment charge 2017 reduce carrying value rd facility wallingford connecticut income net • income net decreased 2018 primarily due losses equity investments related nektar patent infringement settlement 2017 partially offset lower restructuring debt redemption charges • income net increased 2017 primarily due patent infringement settlement outlicensing income partially offset lower divestiture gains related service fees higher restructuring debt redemption charges components income net follows • lossgain equity investments includes fair value adjustment 534 million related companys equity investment nektar 2018 • restructuring charges relate changes companys operating model drive continued success near longterm focused investment commercial opportunities key brands markets competitive agile rd organization accelerate pipeline streamline operations realign manufacturing capabilities broaden biologics capabilities reflect current future portfolio well streamline simplify smallmolecule supply network new operating model expected enable company deliver strategic financial operational flexibility necessary invest highest priorities across company aggregate restructuring charges 268 million 826 million incurred 2018 2017 respectively actions including accelerated depreciation impairment charges resulting early site exits • litigation settlements include 481 million bmss share patentinfringement settlement related mercks pd1 antibody keytruda 2017 70 million related intellectual property product liability settlements 2018 including 42 million recognized subsequent companys earnings release fourth quarter 2018 • divestiture gains includes divestiture multiple mature global product lines oncology infectious therapy 2018 additional contingent consideration diabetes business 2017 certain otc brands investigational hiv medicines businesses 2016 • royalties licensing income includes keytruda royalties 2018 2017 upfront licensing fees biogen roche connection outlicensing certain investigational genetically defined disease compounds 2017 contingent consideration erbitux diabetes business divestitures 2018 2017 2016 including transfer certain royalty rights pertaining diabetes product sales 50 million fee amending royalty rate 25 million salesbased milestone also included 2018 • transition service fees included fees resulting divestiture diabetes investigational hiv medicines businesses 2017 2016 • pension postretirement includes interest cost expected return plan assets amortization components net periodic benefit cost credit well net charges settlements curtailments special termination benefits 121 million 2018 162 million 2017 92 million 2016 • intangible asset impairment includes 64 million 2018 outlicensed asset obtained 2010 acquisition zymogenetics inc meet primary endpoint phase ii clinical study • debt redemption loss 109 million resulted early redemption certain longterm debt obligations 2017 income taxes changes effective tax rate primarily due new us tax reform legislation known tax cuts jobs act 2017 act enacted december 22 2017 act moved worldwide tax system quasiterritorial tax system comprised broad complex changes us tax code including limited 1 reduced us tax rate 35 21 2 added deemed repatriation transition tax certain foreign earnings profits 3 generally eliminated us federal income taxes dividends foreign subsidiaries 4 included certain income controlled foreign companies us taxable income gilti 5 created new minimum tax referred base erosion antiabuse income tax 6 limited certain researchbased credits 7 eliminated domestic manufacturing deduction although many aspects act effective 2018 additional tax expense 29 billion recognized fourth quarter 2017 upon enactment act additional expense increased effective tax rate 567 included 26 billion onetime deemed repatriation transition tax previously untaxed post1986 foreign earnings profits including related tax reserves earnings effectively taxed 155 rate extent specified foreign corporations held cash certain assets 80 rate remaining earnings profits remaining 285 million additional tax expense included adjustment measure net deferred tax assets new us tax rate 21 accounting reduction deferred tax assets 21 tax rate complete december 31 2017 provisional tax charge deemed repatriation transition tax reduced 56 million 2018 upon completion accounting reduced effective tax rate 09 addition tax impact attributed specified items including nondeductible rd charges valuation allowances certain tax assets resulting equity investment losses jurisdiction tax rates increased effective tax rate 09 2018 33 2017 18 2016 considering impact specified items including transitional impacts act discussed effective tax rate decreased 39 2018 primarily due ongoing impact act tax reserve releases partially offset taxes attributed internal cash repatriations earnings mix high low tax jurisdictions considering impact specified items effective tax rate decreased 10 2017 primarily due adoption amended income tax accounting guidance related sharebased payments early adoption intraentity transfers assets inventory partially offset earnings mix high low tax jurisdictions refer “item 8 financial statements supplementary datanote 7 income taxes” information nongaap financial measures nongaap financial measures including nongaap earnings related eps information adjusted exclude certain costs expenses gains losses specified items evaluated individual basis items adjusted considering quantitative qualitative aspects typically one following characteristics highly variable difficult project unusual nature significant results particular period indicative future operating results similar charges gains recognized prior periods likely reoccur future periods including restructuring costs accelerated depreciation impairment property plant equipment intangible assets rd charges connection acquisition licensing thirdparty intellectual property rights divestiture gains losses pension legal contractual settlement charges debt redemption gains losses among items deferred current income taxes attributed items also adjusted considering individual impact overall tax expense deductibility jurisdictional tax rates nongaap information intended portray results baseline performance supplement enhance management analysts investors overall understanding underlying financial performance facilitate comparisons among current past future periods example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap specified items follows specified items included amounts upon adoption amended guidance recognition measurement financial assets liabilities 2018 reconciliations gaap nongaap follows financial position liquidity capital resources net cash position follows cash equivalents marketable securities held us approximately 93 billion december 31 2018 remaining 14 billion held primarily international affiliates local operating needs subject onetime deemed repatriation transition tax 21 billion payable next eight years result us tax reform expect flexibility accessing cash future cash may generated foreign subsidiaries believe existing cash equivalents marketable securities together cash generated operations issuance commercial paper us sufficient satisfy normal cash requirements least next years including dividends capital expenditures milestone payments working capital deemed repatriation transition tax 13 billion debt maturing 2019 management continuously evaluates company’s capital structure ensure company financed efficiently may result repurchase common stock debt securities termination interest rate swap contracts prior maturity issuance debt securities average amount commercial paper outstanding 19 million weightedaverage rate 127 2018 maximum amount commercial paper outstanding 300 million outstanding borrowings december 31 2018 dividend payments 26 billion 2018 2017 25 billion 2016 dividend decisions made quarterly basis board directors annual capital expenditures approximately 10 billion 2018 11 billion 2017 12 billion 2016 expected approximately 800 million 2019 600 million 2020 continue expand biologics manufacturing capabilities facilityrelated activities example constructed new largescale biologics manufacturing facility ireland produce multiple therapies growing biologics portfolio approved commercial use early 2020 also paid 185 billion nektar 2018 certain collaboration rights 83 million shares common stock representing 48 ownership interest investment portfolio includes noncurrent marketable securities subject changes fair value result interest rate fluctuations market factors investment policy establishes limits amount time maturity investments institution policy also requires investments entered corporate financial institutions meet high credit quality standards refer “item 8 financial statements supplementary datanote 9 financial instruments fair value measurements” information december 31 2018 three revolving credit facilities totaling 50 billion consisted 364day 20 billion facility scheduled expire march 2019 two fiveyear 15 billion facilities extended september 2022 july 2023 respectively facilities provide customary terms conditions financial covenants two 15 billion revolving facilities extendable annually one year anniversary date consent lenders borrowings outstanding revolving facilities december 31 2018 2017 connection pending acquisition celgene january 2019 entered bridge commitment letter provides 335 billion 364day senior unsecured bridge loan facility also entered 8 billion term loan credit agreement consisting 1 billion 364day tranche 4 billion threeyear tranche 3 billion fiveyear tranche term loan reduced commitments bridge facility 255 billion obtain additional funding issuing securities obtaining loans amount bridge facility correspondingly reduced bridge loan term loan subject customary terms conditions financial covenants amounts borrowed either bridge loan term loan prior closing pending acquisition celgene january 2019 also entered two new revolving credit facilities totaling 30 billion 364day 20 billion facility expiring january 2020 threeyear 10 billion facility expiring january 2022 364day 20 billion facility replaced existing 364day 20 billion revolving facility terminated concurrently upon effectiveness new 364day facility supports commercial paper borrowings facilities provide customary terms conditions financial covenants borrowings outstanding two revolving facilities two 15 billion revolving facilities february 25 2019 following announcement pending acquisition celgene also entered forward starting interest rate swap option contracts swaptions total notional value 76 billion hedge future interest rate risk associated anticipated issuance longterm debt fund acquisition swaptions provide us right enter forward starting interest rate swap contracts periods 10 30 years january 2020 additional regulations us could passed future including additional healthcare reform initiatives changes tax laws additional pricing laws potential importation restrictions may reduce results operations operating cash flow liquidity financial flexibility continue monitor potential impact economic conditions certain european countries related impact prescription trends pricing discounts creditworthiness customers believe economic conditions material impact liquidity cash flow financial flexibility uk voted depart eu june 2016 similar companies industry certain regulatory trade labor aspects business likely affected time however currently believe matters related financial effects material impact consolidated results operations financial position liquidity sales uk represent less 3 consolidated revenues credit ratings january 2019 moodys placed bms review downgrade standard poors placed bms creditwatch negative implications following announcement acquire celgene bmss current longterm shortterm credit ratings assigned moodys investors service a2 prime1 respectively bmss current longterm shortterm credit ratings assigned standard poors a1 respectively longterm ratings reflect agencies opinion low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings reflect agencies opinion good extremely strong capacity timely repayment credit rating downgrade may affect interest rate debt may incur fair market value existing debt ability access capital markets generally current longterm shortterm ratings reflect impact proposed acquisition celgene cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts disbursements activities investing financing activities operating cash flow derived adjusting net earnings noncontrolling interest noncash operating items gains losses attributed investing financing activities changes operating assets liabilities resulting timing differences receipts payments cash transactions recognized results operations result changes cash operating activities reflect timing cash collections customers alliance partners payments suppliers alliance partners employees customer discounts rebates tax payments ordinary course business example annual employee bonuses typically paid first quarter subsequent year addition cash collections continue impacted longer payment terms certain biologic products us primarily newer oncology products including opdivo yervoy empliciti 90 days 120 days longer payment terms used closely align insurance reimbursement timing physicians cancer centers following administration patients 700 million change cash flow operating activities compared 2017 primarily attributable • higher cash collections timing payments ordinary course business approximately 22 billion partially offset • higher rd licensing collaboration payments approximately 600 million primarily due nektar transaction 2018 • lower litigation settlement proceeds approximately 500 million primarily due merck settlement 2017 • lower outlicense proceeds approximately 400 million primarily due biogen roche transactions 2017 22 billion change cash flow operating activities compared 2016 primarily attributable • higher cash collections timing payments ordinary course business approximately 400 million • lower income tax payments approximately 15 billion • litigation settlement proceeds approximately 500 million primarily due merck settlement • outlicensing proceeds 500 million primarily due biogen roche transactions partially offset • higher rd licensing payments approximately 400 million primarily due cytomx halozyme nitto denko transactions • higher contributions pension plans approximately 300 million investing activities cash requirements investing activities include cash used acquisitions manufacturing facilityrelated capital expenditures purchases marketable securities original maturities greater 90 days time purchase reduced proceeds business divestitures including royalties sale maturity marketable securities 800 million change cash flow investing activities compared 2017 primarily attributable • lower net sales maturities marketable securities maturities greater 90 days approximately 900 million • higher net acquisition payments approximately 500 million primarily due purchase 83 million shares nektar common stock 2018 partially offset • higher business divestiture proceeds approximately 500 million primarily due divestiture manufacturing operations swords ireland certain mature brands 15 billion change cash flow investing activities compared 2016 primarily attributable • lower net sales marketable securities maturities greater 90 days approximately 700 million • lower business divestiture proceeds approximately 600 million primarily due certain otc brands investigational hiv medicines businesses 2016 • higher asset acquisition payments approximately 300 million primarily due acquisition ifm 2017 financing activities cash requirements financing activities include cash used pay dividends repurchase common stock repay longterm debt borrowings reduced proceeds exercise stock options issuance longterm debt borrowings 500 million change cash flow financing activities compared 2017 primarily attributable • lower repurchases common stock 21 billion primarily due accelerated share repurchase agreements 2017 partially offset • lower net borrowings 15 billion primarily due issuance longterm debt used repurchase common stock 2017 14 billion change cash flow financing activities compared 2016 primarily attributable • higher repurchase common stock 22 billion primarily due accelerated share repurchase agreements partially offset • higher net borrowing activity 900 million primarily fund repurchase common stock contractual obligations offbalance sheet arrangements payments due period contractual obligations december 31 2018 follows includes estimated future interest payments periodic cash settlements derivatives b includes shortterm uncertain tax benefits uncertainties regarding timing resolution c excludes pension liabilities uncertainties regarding timing resolution addition committed aggregated 140 billion potential future research development milestone payments third parties inlicensing asset acquisitions development programs including earlystage milestones 55 billion milestones achieved phase iii clinical studies latestage milestones 85 billion milestones achieved post phase iii clinical studies payments generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted agreements also provide salesbased milestones aggregating 44 billion would obligated pay alliance partners upon achievement certain sales levels addition royalties also certain manufacturing development commercialization obligations connection alliance arrangements practicable estimate amount obligations refer “item 8 financial statements supplementary datanote 3 alliances” information regarding alliances offbalance sheet arrangements material reasonably likely become material financial condition results operations sec consent order fcpa settlement previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain dsas us pharmaceutical wholesalers account nearly 100 gross us revenues current terms dsas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 97 gross us revenues inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast nonus business significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent recently issued accounting standards recently issued accounting standards refer “item 8 financial statements supplementary datanote 1 accounting policies recently issued accounting standards” critical accounting policies preparation financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenue expenses critical accounting policies significantly impact financial condition results operations require difficult subjective complex judgments often result need make estimates effect matters inherently uncertain uncertainty actual results may vary estimates revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates revenue recognized following fivestep model 1 identify customer contract 2 identify contracts performance obligation 3 determine transaction price 4 allocate transaction price performance obligation 5 recognize revenue performance obligation satisfied revenue also reduced gtn sales adjustments discussed involve significant estimates judgment considering legal interpretations applicable laws regulations historical experience payer channel mix eg medicare medicaid current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel estimates assessed period adjusted required revise information actual experience gtn adjustments following categories gtn adjustments involve significant estimates judgments information obtained external sources refer “item 8 financial statements supplementary datanote 2 revenue” discussion analysis significant category gtn sales adjustments chargebacks cash discounts us business participates programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price accounts receivable reduced estimated amount unprocessed chargeback claims attributable sale typically within two four week time lag us certain countries cash discounts offered incentive prompt payment generally approximating 2 sales price accounts receivable reduced estimated amount unprocessed cash discounts typically within one month time lag medicaid medicare rebates us business participates state government medicaid programs qualifying federal state government programs requiring discounts rebates participating state local government entities discounts rebates provided programs included medicaid rebate accrual medicaid rebates also extended drugs used managed medicaid plans estimated amount unpaid unbilled rebates presented liability rebates discounts offered managed healthcare organizations us managing prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit also pay 50 point service discount cms medicare part beneficiaries coverage gap “donut hole” estimated amount unpaid unbilled rebates discounts presented liability rebates returns discounts adjustments gtn sales adjustments include sales returns programs based applicable laws regulations individual nonus countries well rebates offered managed healthcare organizations us lesser extent nonus programs include several different pricing schemes cost caps volume discounts outcomebased pricing schemes pricing clawbacks based sales individual companies aggregation companies participating specific market estimated amount unpaid unbilled rebates discounts presented liability estimated returns established products determined considering historical experience factors including levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products lower demand following loe estimated returns new products determined considering historical sales return experience similar products within product line similar therapeutic area andor similar distribution model estimated levels inventory distribution channel projected demand estimated amount product returns presented liability use information external sources information external sources used estimate gtn adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information pension benefits accounting pension postretirement benefit plans requires actuarial valuations based significant assumptions discount rates expected longterm rates return plan assets consultation actuaries significant assumptions others salary growth retirement turnover lump sum election rates healthcare trends mortality rates evaluated selected based expectations actual experience remeasurement date pension expense could vary within range outcomes material effect reported earnings projected benefit obligations future cash funding actual results given year may differ estimated economic factors yield high quality corporate bonds coincides cash flows plans’ estimated payouts used determining discount rate citi pension discount curve used us plans present value benefit obligations december 31 2018 us pension plans determined using 41 discount rate assumed discount rate used determining us pension plans’ projected benefit obligation december 31 2018 reduced additional 1 projected benefit obligation would increase approximately 500 million expected longterm rate return plan assets estimated considering expected returns individual asset classes input external advisors also consider longterm historical returns including actual performance compared benchmarks similar investments bristolmyers squibb retirement income plans pension expense 2018 determined using average 66 expected longterm rate return plan assets us plans pension expense determined using 78 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2018 reduced 1 expense would increase 42 million detailed discussion retirement benefits refer “item 8 financial statements supplementary datanote 16 retirement benefits” longlived assets intangible assets intangible assets 11 billion december 31 2018 including licenses 192 million 84 million allocated unapproved products developed technology rights 501 million capitalized software 366 million iprd 32 million intangible assets assessed impairment whenever current facts circumstances warrant review although iprd assessed least annually intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment common potential risks leading impairment include competition earlier expected loe pricing pressures adverse regulatory changes clinical study results delay failure obtain regulatory approval additional development costs inability achieve expected synergies higher operating costs changes tax laws macroeconomic changes complexity estimating fair value intangible assets connection impairment test similar initial valuation property plant equipment property plant equipment tested impairment whenever current facts circumstances require review including whether likely asset disposed prior estimated remaining useful life additionally longlived assets periodically reviewed determine change facts circumstances would result change estimated useful life asset possibly resulting acceleration depreciation circumstances exist estimate undiscounted future cash flows generated asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value expectations future cash flows subject change based upon near longterm production volumes margins generated asset well potential alternative future use accelerated depreciation impairment related charges certain manufacturing rd facilities 137 million 2018 533 million 2017 104 million 2016 additional charges continue occur result company’s restructuring actions announced 2016 assets heldforsale following criteria considered concluding assets classified heldforsale 1 management’s commitment plan sell 2 availability immediate sale present condition 3 initiation active program identify buyer 4 probability completed sale within one year 5 actively marketed sale reasonable price relation current fair value 6 likelihood significant changes plan made plan withdrawn criteria met balance sheet date assets liabilities presented separately balance sheet heldforsale lower carrying amount fair value less costs sell longer depreciated amortized classified heldforsale classified 479 million assets 152 million liabilities heldforsale december 31 2018 related planned sale upsa consumer health business division bms manufactures markets pain treatment otc products domestic sale france export sales outside france income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecasts future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made deferred tax assets 21 billion december 31 2018 net valuation allowances 32 billion 23 billion december 31 2017 net valuation allowances 28 billion us federal net operating loss carryforwards 206 million december 31 2018 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 foreign state net operating loss carryforwards expired varying amounts beginning 2018 certain amounts unlimited lives discussed fully “item 8 financial statements supplementary datanote 7 income taxes” provisional tax charge 26 billion attributable onetime deemed repatriation transition tax certain foreign earnings recognized fourth quarter 2017 accounting reduction deferred tax assets 21 tax rate complete december 31 2017 tax charge deemed repatriation transition tax complete december 31 2018 provisional tax charge deemed repatriation transition tax reduced 56 million 2018 prior mead johnson splitoff 2009 following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions certain assumptions representations covenants mead johnson relied upon regarding future conduct business matters could affect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account ela existed investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code irs could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations 2009 agreed certain tax related indemnities mead johnson set forth tax sharing agreement including certain taxes related business prior completion ipo created part restructuring facilitate ipo mead johnson also agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known discussions income taxes refer “item 8 financial statements supplementary datanote 1 accounting policies recently issued accounting standardsincome taxes” “note 7 income taxes” contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability contractual claims tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies refer “item 8 financial statements supplementary datanote 1 accounting policies recently issued accounting standardscontingencies” “note 7 income taxes” “note 18 legal proceedings contingencies” product pipeline developments rd programs managed portfolio basis early discovery latestage development include balance earlystage latestage programs support future growth late stage rd programs phase iii development include investigational compounds initial indications additional indications formulations marketed products spending programs represent approximately 3545 annual rd expenses last three years opdivo investigational compound marketed product represented greater 10 rd expenses last three years latestage development programs could potentially impact revenue earnings within next years regulatory approvals obtained products successfully commercialized following developments marketed products latestage pipeline product indication date developments opdivo melanoma august 2018 approval japan treatment adjuvant melanoma july 2018 ec approval adjuvant treatment adult patients involvement lymph nodes metastatic disease undergone complete resection june 2018 announced results phase iii checkmate238 trial evaluating opdivo versus yervoy patients stage iiibc stage iv melanoma high risk recurrence following complete surgical resection demonstrated statistically longer recurrencefree survival opdivo primary endpoint study versus yervoy minimum followup 24 months across key subgroups including disease stages braf mutation status multiple myeloma juneaugust 2018 announced june 2018 fda lifted partial clinical hold placed checkmate602 randomized openlabel phase iii study evaluating addition opdivo pomalidomide dexamethasone patients relapsed refractory multiple myeloma decision follows consultation fda agreement amendments study protocol august 2018 company discontinued enrollment study following futility analysis nsclc june 2018 approval china treatment locally advanced metastatic nsclc prior platinumbased chemotherapy adult patients without egfr alk genomic tumor aberrations april 2018 announced pivotal randomized phase iii checkmate078 trial evaluating opdivo versus docetaxel predominantly chinese population previously treated advanced nsclc demonstrated superior overall survival benefit primary endpoint regardless pdl1 expression tumor histology scchn january 2019 acceptance china sbla filing patients previously treated metastatic recurrent scchn april 2018 announced twoyear overall survival data checkmate141 phase iii study evaluating opdivo compared investigator’s choice chemotherapy cetuximab docetaxel methotrexate patients recurrent metastatic scchn failure platinumbased therapy sclc october 2018 announced topline results phase iii checkmate331 study meet primary endpoint overall survival opdivo versus chemotherapy patients previously treated relapsed sclc august 2018 fda approval first io treatment option patients metastatic sclc whose cancer progressed platinumbased chemotherapy least one line therapy various august 2018 approval japan patients mpm progressed chemotherapy august 2018 approval japan every 2 week30 minute infusion dose administration schedule opdivo six indications june 2018 announced preliminary data ongoing pivot phase iii study evaluating combination opdivo nektars investigational medicine nktr214 preliminary results presented 2018 american society clinical oncology reported safety efficacy biomarker data patients enrolled phase doseescalation stage study first patients consecutively enrolled select dose expansion cohorts phase ii april 2018 ec approval every fourweek q4w opdivo dosing schedule 480 mg infused 60 minutes option patients advanced melanoma previously treated rcc well approval twoweek opdivo dosing option 240 mg infused 30 minutes replace weightbased dosing six approved monotherapy indications eu march 2018 fda approval companys sbla update opdivo dosing include 480 mg infused every four weeks majority approved indications well shorter 30 minute infusion across approved indications product indication date developments opdivoyervoy crc october 2018 announced new data cohort checkmate142 study opdivo plus lowdose yervoy demonstrated durable clinical benefit firstline treatment patients msih dmmr mcrc july 2018 fda approval opdivo plus lowdose yervoy treatment adult pediatric patients 12 years older msih dmmr mcrc progressed following treatment fluoropyrimidine oxaliplatin irinotecan mcrpc february 2019 announced results interim analysis phase ii checkmate650 trial evaluating opdivoyervoy patients mcrpc showed among 32 asymptomatic minimally symptomatic patients whose disease progressed secondgeneration hormone therapy received chemotherapy cohort 1 median followup 119 months objective response rate 25 additionally among 30 patients whose disease progressed taxanebased chemotherapy cohort 2 median followup 135 months objective response rate 10 melanoma october 2018 announced fouryear data phase iii checkmate067 clinical trial continues demonstrate durable longterm survival benefits firstline combination opdivoyervoy versus yervoy alone patients advanced melanoma may 2018 approval japan opdivoyervoy combination chemotherapynaive patients unresectable melanoma muc october 2018 announced followup data evaluating opdivo monotherapy opdivo combination yervoy patients platinumpretreated muc results phase iii checkmate032 trial showed patients received combination opdivo1 mgkg plus yervoy 3 mgkg experienced higher objective response rate compared received opdivo 3 mgkg plus yervoy 1 mgkg opdivo alone nsclc january 2019 announced voluntary withdrawal companys sbla opdivo plus lowdose yervoy treatment firstline advanced nsclc patients tmb greater equal 10 mutations per megabase data checkmate227 part 1a available within pdufa goal date may 20 2019 october 2018 announced updates regarding regulatory actions chmp eu ongoing review applications indication metastatic firstline nsclc opdivo plus lowdose yervoy patients tmb greater equal 10 mutations per megabase chmp requested additional information checkmate227 including overall survival analysis opdivoyervoy patients tmb less 10 mutations per megabase june 2018 announced results part phase iii checkmate227 trial evaluated opdivo plus lowdose yervoy opdivo plus chemotherapy versus chemotherapy patients firstline nsclc pdl1 expression 1 across squamous nonsquamous tumor histologies extended progressionfree survival may 2018 announced ema validated type ii variation application treatment adult patients firstline metastatic nsclc tmb greater equal 10 mutations per megabase rcc february 2019 announced new results phase iii checkmate214 study showing therapy opdivo plus lowdose yervoy continued demonstrate longterm survival benefits patients previously untreated advanced metastatic rcc january 2019 announced ec approval opdivo plus lowdose yervoy previously untreated patients intermediate poorrisk advanced rcc august 2018 approval japan opdivo plus lowdose yervoy treatment unresectable metastatic rcc june 2018 announced patientreported outcomes data phase iii checkmate214 trial intermediate poorrisk patients advanced rcc treated opdivo plus lowdose yervoy versus sunitinib twoyear followup period reported significant sustained healthrelated quality life improvements april 2018 fda approval opdivoyervoy combination previously untreated patients intermediate poorrisk advanced rcc sclc november 2018 announced patientreported outcomes phase iii checkmate451 study meet primary endpoint overall survival opdivoyervoy versus placebo maintenance therapy patients extensivestage sclc completion firstline platinumbased chemotherapy eliquis nvaf november 2018 announced findings largest realworld data analysis nvaf patient populations aged 80 older receiving direct oral anticoagulants showing eliquis associated lower rates stroke systemic embolism major bleeding rivaroxaban dabigatran product indication date developments orencia jia january 2019 received positive chmp opinion polyarticular jia via subcutaneous injection pediatric patients two years age empliciti rrmm november 2018 fda approval empliciti injection intravenous use combination pomalidomide dexamethasone treatment adult patients multiple myeloma received least two prior therapies including lenalidomide proteasome inhibitor september 2018 announced ema validated companys type ii variation application empliciti combination pomalidomide lowdose dexamethasone treatment adult patients multiple myeloma received least two prior therapies including lenalidomide proteasome inhibitor pi demonstrated disease progression last therapy sprycel february 2019 announced ec approval sprycel tablet powder oral suspension formulations combination chemotherapy treatment pediatric patients newly diagnosed philadelphia chromosomepositive december 2018 fda expanded indication sprycel include treatment pediatric patients one year age older newly diagnosed philadelphia chromosomepositive combination chemotherapy cml july 2018 ec expanded indication sprycel include treatment children adolescents aged 1 year 18 years chronic phase philadelphia chromosome positive cml include powder oral suspension special note regarding forwardlooking statements 2018 form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 amended section 21e exchange act identify forwardlooking statements fact use words “should” “could” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” “will” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based historical performance current expectations projections future financial results goals plans objectives involve inherent risks assumptions uncertainties including internal external factors could delay divert change next several years could cause future financial results goals plans objectives differ materially expressed implied statements likely relate among things goals plans objectives regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products pending acquisition celgene outcome contingencies legal proceedings financial results forwardlooking statement guaranteed included important factors cautionary statements included 2018 form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made additional risks may currently deem immaterial presently known us could also cause forwardlooking events discussed 2018 form 10k occur except otherwise required federal securities law undertake obligation release publicly updates revisions forwardlooking statements result new information future events changed circumstances otherwise date 2018 form 10k item 7aitem 7management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations provided supplement read conjunction consolidated financial statements related notes included elsewhere 2020 form 10k enhance understanding results operations financial condition cash flows comparison 2019 2018 results omitted form 10k referenced form 10k year ended december 31 2019“item 7 management’s discussion analysis financial condition results operations” filed february 24 2020 executive summary bristolmyers squibb company global biopharmaceutical company whose mission discover develop deliver innovative medicines help patients prevail serious diseases refer summary abbreviated terms end 2020 form 10k terms used throughout document completed celgene transaction november 20 2019 consolidated financial statements 2020 include full year celgene operations november 17 2020 completed acquisition myokardia approximately 131 billion cash expect acquisitions celgene myokardia position us leading biopharmaceutical company expanding oncology hematology immunology cardiovascular portfolios several nearterm assets additional external partnerships refer “acquisitions divestitures licensing arrangements” information covid19 pandemic resulting significant risks disruptions health welfare global population economy although pandemic significant impact results operations remains difficult reasonably assess predict full extent negative impact covid19 pandemic may business financial condition results operations cash flows impact depend future developments ultimate duration recovery pandemic government actions impact us global economies customer behavior changes timing resumption normal operations among others refer “economic market factors” information 2020 received 13 approvals new medicines additional indications formulations currently marketed medicines major markets us eu japan including multiple regulatory milestone achievements opdivo opdivoyervoy combinations 50 unique compounds clinical development investigating opdivo alone combination yervoy anticancer agents wide array tumor types continue expand field hematology leading presence inline assets revlimid pomalyst 2020 received regulatory approvals zeposia onureg received ema validation lisocel treatment large bcell lymphoma additionally pipeline shows significant added promise hematology malignancies celmod agents iberdomide cc92480 multiple modalities targeting bcell maturation antigen “bcma” next generation cell therapy agents expanding portfolio immunology near term launch opportunity deucravacitinib tyk2 inhibitor additionally cardiovascular space eliquis leading oral anticoagulant drug continue experience growth eliquis brand market also advancing factor xia inhibitor program acquisition myokardia bolstered leading cardiovascular franchise added exceptional scientific capabilities mavacamten potentially transformative new medicine significant commercial potential promising pipeline candidates 2020 revenues increased 63 result celgene acquisition contributed 157 billion revenues 60 growth higher demand eliquis gaap loss per share 399 2020 compared gaap eps 201 2019 primarily due iprd charge resulting myokardia asset acquisition charges relating celgene acquisition including amortization acquired intangible assets ii unwinding inventory fair value adjustments iii tax charges resulting internal transfer certain intangible assets otezla divestiture partially offset higher revenues fair value adjustments contingent value rights equity investments adjusting specified items nongaap eps increased 175 result celgene acquisition highlights following table summarizes financial information nongaap financial measures including nongaap earnings related eps information adjusted exclude specified items represent certain costs expenses gains losses items impacting comparability financial results detailed listing specified items information reconciliations nongaap financial measures refer “nongaap financial measures” economic market factors covid19 pandemic continues affect global healthcare systems well major economic financial markets virtually industries facing challenges associated economic conditions resulting efforts address pandemic example many entities certain industries seen sharp declines revenues due regulatory organizational mandates eg “shelter place” mandates nonessential business school closures voluntary changes consumer behavior eg “physical distancing” many entities continue experience conditions often associated sudden severe economic downturn conditions may include financial market volatility erosion market value deteriorating credit liquidity concerns increases government intervention increasing unemployment broad declines consumer discretionary spending increasing inventory levels reductions production decreased demand supply constraints layoffs furloughs restructuring activities continue monitor impact business resulting wider restrictions select states nonus countries dynamically changing environment continue react outbreaks throughout world reenforcing directives keep workforce safe order provide patients lifesustaining medicines continued escalating infection rates could negatively affect planned recovery pressuring demand less patient visits channel mix unemployment data trends remain unfavorable incurred anticipate disruptions supply medicines patients due covid19 pandemic however experiencing scarcity certain raw materials components result influx covid19 vaccine orders receiving priority treatment vendors internal manufacturing facilities key contract manufacturers operating proper measures taken help ensure employee safety increased number lab workers safe implemented number measures protect health safety workforce including needed mandatory workfromhome policy global workforce perform jobs home well restrictions business travel workplace inperson meetings depending local conditions fieldbased personnel began inperson customer interactions healthcare settings safe approved government remote engagement model continued support healthcare professionals patient care access medicines although certain fieldbased sales teams begun person engagement selected states nonus regions majority interactions remain remote situation remains dynamic challenging assess potential impact operations ability willingness patients access treatment centers obtain prescription changes prescribing patterns may potentially affect operations longterm certain changes buying patterns occurred including payers implementing policies encourage larger prescription sizes earlier refills help patients avoid trips pharmacy however fewer patient office visits resulting lower previously expected new patient starts although difficult estimate impact factors believe significant impact revenues 2020 timing specific product launches depends relevant facts circumstances situation example delayed commercialization zeposia us based best health interest patients customers workforce contrast reblozyl available mds patients following approval additional indication april 2020 onureg available patients aml september 2020 expanded us patient assistance programs provided certain covered bms medicines free eligible patients lost employment health insurance due covid19 uncertain aggregate impact factors potential changes channel mix revenues expenses 2021 restarted clinical development activities pausing opening additional sites first months onset covid19 pandemic however experienced slight slowdown clinical studies fourth quarter addition certain delays occurred due slower enrollment patient enrollment certain new clinical studies ongoing studies new sites carefully started safety study participants employees staff clinical trial sites regulatory compliance scientific integrity trial data assured expect many new studies start first quarter 2021 following completion feasibility assessments rigorous planning selected protocol simplifications previously suspended research early development activities performed laboratories recommenced major sites us although close monitoring situation continues covid19 pandemic increased volatility financial markets foreign currency exchanges interest rates although incurred downward adjustments equity investment fair values first quarter 2020 fair values subsequently recovered lower interest rates changes us dollar relative foreign currencies material impact operations carrying value intangible assets approximately 53 billion december 31 2020 significant charges might occur future periods due decline previously expected cash flows direct indirect result pandemic may occur due delays enrollment timely completion clinical programs fda site inspections interactions regulatory bodies general regulatory approvals launches newly approved products lower demand general see risk factor company’s risk factors resulting covid19 pandemic included “part iitem 1a risk factorsthe covid19 pandemic affecting business could material adverse effect us” governmental actions additional regulations us may occur future including healthcare reform initiatives changes tax laws pricing laws potential importation restrictions may reduce results operations operating cash flow liquidity financial flexibility example november 2020 us federal government issued regulations regarding us drug prices payment pharmaceutical products including regulations 1 would reduce physician reimbursement certain medicare part b drugs administered doctors’ offices hospitals “most favored nation price” drawn lowest price paid certain countries organisation economic cooperation development would apply many cancer medications 2 would authorize states private parties develop implement programs import certain prescription drugs canada sell us 3 would reform use rebates medicare part outcome regulations remains uncertain result ongoing litigation factors see risk factor company’s risk factors executive orders included “part iitem 1a risk factorsincreased pricing pressure restrictions us abroad continue negatively affect revenues profit margins” continue monitor potential impact economic conditions certain european countries related impact prescription trends pricing discounts creditworthiness customers believe economic conditions material impact liquidity cash flow financial flexibility uk departed eu january 31 2020 departure began transition period ended december 31 2020 signature trade cooperation agreement uk eu similar companies industry certain regulatory trade labor aspects business affected transition period time matters related financial effects material impact consolidated results operations financial position liquidity sales uk represent less 3 total revenues see “item 1a risk factorsadverse changes us global economic political conditions could adversely affect profitability” information impact company exit uk eu significant product pipeline approvals following summary significant approvals received 2020 productdateapproval opdivonovember 2020ec approval opdivo treatment adults unresectable advanced recurrent metastatic escc prior fluoropyrimidine platinumbased combination chemotherapy opdivoyervoynovember 2020ec approval opdivo plus yervoy two cycles platinumbased chemotherapy firstline treatment adult patients metastatic nsclc whose tumors sensitizing epidermal growth factor receptor mutation anaplastic lymphoma kinase translocation opdivoyervoyoctober 2020fda approval opdivoyervoy firstline treatment adult patients unresectable mpm onuregseptember 2020fda approval onureg azacitidine continued treatment adult patients aml achieved first complete remission complete remission incomplete blood count recovery following intensive induction chemotherapy able complete intensive curative therapy reblozyljune 2020ec approval reblozyl treatment adult patients transfusiondependent anemia due low intermediaterisk mds ring sideroblasts unsatisfactory response ineligible erythropoietinbased therapy beta thalassemia opdivojune 2020fda approval opdivo treatment patients unresectable advanced recurrent metastic escc prior fluoropyrimidine platinumbased chemotherapy zeposiamay 2020ec approval zeposia treatment adult patients rrms active disease defined clinical imaging features opdivoyervoymay 2020fda approval opdivoyervoy given two cycles platinumdoublet chemotherapy firstline treatment adult patients metastatic recurrent nsclc egfr alk genomic tumor aberrations therapy approved patients squamous nonsquamous disease regardless pdl1 expression opdivoyervoymay 2020fda approval opdivoyervoy firstline treatment adult patients metastatic nsclc whose tumors express pdl1 ≥1 egfr alk genomic tumor aberrations pomalystmay 2020fda approval pomalyst patients aidsrelated kaposi sarcoma whose disease become resistant highly active antiretroviral therapy patients kaposi sarcoma hivnegative reblozylapril 2020fda approval reblozyl treatment anemia failing erythropoiesis stimulating agent adult patients low intermediaterisk mds ring sideroblasts require rbc transfusions zeposiamarch 2020fda approval zeposia ozanimod treatment adults rms including clinically isolated syndrome relapsingremitting disease active secondary progressive disease opdivoyervoymarch 2020fda approval opdivoyervoy combination treatment hcc patients previously treated sorafenib fda indicated undertaking industrywide review indications received accelerated approval confirmatory studies meet primary endpoints specific bms two opdivo indications subject review fda thirdline treatment sclc secondline treatment hcc december 29 2020 consultation fda made decision withdraw opdivo indication thirdline treatment sclc us market secondline treatment hcc reviewed fda following summary significant approvals received 2021 •in january 2021 fda approved use opdivo combination cabometyx firstline treatment patients advanced rcc •in february 2021 fda approved breyanzi lisocabtagene maraleucel lisocel treatment adult patients relapsed refractory large bcell lymphoma two lines systemic therapy •in february 2021 ec approved inrebic treatment diseaserelated splenomegaly symptoms adult patients primary myelofibrosis postpolycythaemia vera myelofibrosis postessential thrombocythaemia myelofibrosis janus associated kinase inhibitor naïve treated ruxolitinib refer “product pipeline developments” developments marketed products latestage pipeline 2020 early 2021 strategy principal strategy combine resources scale capability pharmaceutical company speed focus innovation biotech industry focus biopharmaceutical company discovering developing delivering transformational medicines patients facing serious diseases areas believe opportunity make meaningful difference oncology solid tumors hematology immunology cardiovascular fibrosis four strategic priorities drive enterprise performance maximize value commercial portfolio ensure longterm sustainability pipeline combined internal external innovation establish new culture embed people strategy developing new medicines following core therapeutic areas oncology priority certain tumor types ii hematology opportunities broaden franchise potentially sustain leadership position multiple myeloma iii immunology priorities relapsing multiple sclerosis psoriasis lupus ra inflammatory bowel disease iv cardiovascular disease v fibrotic disease priorities lung liver continue advance next wave innovative medicines investing significantly pipeline internally business development activities expanded oncology hematology immunology portfolios several nearterm assets additional external partnerships invested oncology portfolio pursuing monotherapy combination approaches advancing next wave early assets explore new collaboration opportunities across therapeutic areas focus remain focused wellresourced cancer development programs seek broaden use opdivo earlier lines therapy expand new tumors accelerate next wave oncology mechanisms develop treatment options refractory oncology patients hematology opportunities launch several new medicines nearterm additional pipeline opportunities longer term broad effort continue address unmet medical need multiple myeloma working across multiple modalities mechanisms action cereblon modulator “celmod” tcell engager car tcell therapy beyond cancer continue advance early stage portfolio immunology cardiovascular fibrotic diseases strengthen partnerships diverse group companies academic institutions new expanded research activities believe differentiated internal external focus contributes advancing pipeline potentially transformational medicines commercial model successful revenues prioritized brands continuing grow demonstrates strong execution strategy continue drive adoption opdivo expanding additional indications tumor types monotherapy combination yervoy anticancer agents eliquis continues grow leveraging best class clinical profile extensive real world data number one novel oral anticoagulant total prescriptions globally revlimid pomalyst transformed treatment multiple myeloma leading presence continue seek opportunities leverage significant medical commercial expertise address areas high unmet medical need building continued success prioritized brands remain strongly committed orencia sprycel also optimistic future growth nearterm opportunities reblozyl firstinclass medicine inrebic zeposia onureg operating model transformation commercial infrastructure leveraged potential growth operating model continues evolve successful focusing commercial rd manufacturing resources prioritized brands markets strengthening rd capabilities tumor biology patient selection new biomarkers delivering leaner administrative functions streamlining manufacturing network reflect importance biologics current future portfolio evolution operating model focuses maintaining disciplined approach marketing selling administrative expenses enable us deliver necessary strategic financial operational flexibility invest highest priority opportunities within portfolio continue make progress towards integrating companies commercial research development area celgene acquisition restructuring activities expect realize 30 billion synergies resulting cost savings avoidance 2022 integration efforts across general administrative manufacturing rd procurement streamlining companys pricing information technology infrastructure looking ahead continue implement biopharma strategy driving growth prioritized brands executing product launches investing diverse innovative pipeline aided strategic business development focusing prioritized markets increasing investments biologics manufacturing capabilities maintaining culture continuous improvement acquisitions divestitures licensing arrangements significant acquisitions divestitures licensing arrangements 2020 summarized refer “item 8 financial statements supplementary data note 3 alliances” “note 4 acquisitions divestitures licensing arrangements” information myokardia acquired myokardia clinicalstage biopharmaceutical company pioneering precision medicine approach discover develop commercialize targeted therapies treatment serious cardiovascular diseases acquisition provides us rights myokardia’s lead asset mavacamten potential firstinclass cardiovascular medicine treatment obstructive hypertrophic cardiomyopathy completed phase iii development anticipated nda submission first quarter 2021 dragonfly obtained global exclusive license dragonfly’s interleukin12 il12 investigational immunotherapy program including extended halflife cytokine df6002 forbius acquired forbius privately held clinicalstage protein engineering company designs develops biotherapeutics treatment cancer fibrotic diseases acquisition provides us full rights forbius’s tgfbeta program including program’s lead investigational asset avid200 phase development results operations regional revenues composition changes revenues follows revenues include royalties alliancerelated revenues products sold regional commercial organizations b foreign exchange impacts derived applying prior period average currency rates current period revenues united states •us revenues 2020 impacted increase revlimid pomalystimnovid celgene products 107 billion contributed 69 growth higher demand eliquis partially offset lower demand opdivo average net selling prices increased 1 2020 europe •europe revenues 2020 impacted increase celgene products 33 billion contributed 52 growth higher demand eliquis opdivo partially offset lower demand established brands average net selling prices lower 2020 rest world •rest world revenues 2020 impacted increase celgene products 17 billion contributed approximately 43 growth higher demand eliquis partially offset lower demand established brands average net selling prices lower 2020 single country outside us contributed 10 total revenues 2020 2019 business typically seasonal gtn adjustments recognize revenue net gtn adjustments described “critical accounting policies” activities ending reserve balances significant category gtn adjustments follows reconciliation gross product sales net product sales significant category gtn adjustments follows reductions provisions product sales made prior periods resulting changes estimates 106 million 132 million 2020 2019 respectively gtn adjustments primarily function product sales volume regional payer channel mix contractual legislative discounts rebates us gtn adjustments percentage decreased primarily due addition celgene hematology brands lower gtn adjustment percentages partially offset higher us eliquis gross product sales higher us gtn adjustment percentages product revenues change excess 100 includes bms celgene products 2019 revlimid lenalidomide oral immunomodulatory drug combination dexamethasone indicated treatment patients multiple myeloma revlimid single agent also indicated maintenance therapy patients multiple myeloma following autologous hematopoietic stem cell transplant •us international revenues increased due inclusion full year celgene product revenues 2020 eliquis apixaban oral factor xa inhibitor indicated reduction risk strokesystemic embolism nvaf treatment dvtpe reduction risk recurrence following initial therapy •us revenues increased 15 2020 due higher demand partially offset lower average net selling prices approximately 10 lower average net selling price primarily due unfavorable channel mix increase medicare part coverage gap per patient 2020 lesser extent higher contractual rebates •international revenues increased 16 2020 due higher demand partially offset lower average net selling prices opdivo nivolumab fully human monoclonal antibody binds pd1 nkt cells approved several anticancer indications including bladder blood colon head neck kidney liver lung melanoma stomach opdivoyervoy regimen also approved multiple markets treatment nsclc melanoma rcc crc several ongoing potentially registrational studies opdivo across tumor types disease areas monotherapy combination yervoy various anticancer agents •us revenues decreased 9 2020 due lower demand caused declining secondline eligibility across tumor indications increased competition adjuvant melanoma lower demand covid19 primarily lower new patient starts patient visits partially offset higher demand due launch opdivoyervoy combination nsclc continued growth rcc indication •international revenues increased 7 2020 due higher demand result additional indication launches new countries orencia abatacept fusion protein indicated adult patients moderately severely active ra psa also indicated reducing signs symptoms certain pediatric patients moderately severely active polyarticular jia •us revenues increased 6 2020 due higher demand •international revenues increased 7 2020 due higher demand pomalystimnovid pomalidomide proprietary distinct small molecule administered orally modulates immune system biologically important targets pomalystimnovid indicated patients multiple myeloma received least two prior therapies including lenalidomide proteasome inhibitor demonstrated disease progression within 60 days completion last therapy •us international revenues increased due inclusion full year celgene product revenues 2020 sprycel dasatinib oral inhibitor multiple tyrosine kinase indicated firstline treatment patients philadelphia chromosomepositive cml chronic phase treatment adults chronic accelerated myeloid lymphoid blast phase cml resistance intolerance prior therapy including gleevec imatinib mesylate treatment children adolescents aged 1 year 18 years chronic phase philadelphia chromosomepositive cml •us revenues increased 9 2020 due higher demand higher average net selling prices •international revenues decreased 8 2020 due lower demand result increased generic competition yervoy ipilimumab monoclonal antibody treatment patients unresectable metastatic melanoma •us revenues increased 12 2020 due launch opdivoyervoy combination nsclc •international revenues increased 15 2020 due higher demand result approvals additional indications launches primarily europe partially offset lower average net selling prices abraxane paclitaxel albuminbound particles injectable suspension solventfree proteinbound chemotherapy product combines paclitaxel albumin using proprietary nab® technology platform used treat breast cancer nsclc pancreatic cancer among others •us international revenues increased due inclusion full year celgene product revenues 2020 reblozyl luspaterceptaamt erythroid maturation agent indicated treatment anemia adult patients beta thalassemia require regular red blood cell transfusions november 2019 fda approved reblozyl treatment anemia adult patients beta thalassemia require rbc transfusions april 2020 fda approved reblozyl treatment anemia failing erythropoiesis stimulating agent adult patients low intermediaterisk mds ring sideroblasts require rbc transfusions reblozyl launched april 2020 inrebic fedratinib oral kinase inhibitor indicated treatment adult patients intermediate2 highrisk primary secondary postpolycythemia vera postessential thrombocythemia myelofibrosis onureg azacitidine oral hypomethylating agent incorporates dna rna indicated continued treatment adult patients aml achieved first complete remission complete remission incomplete blood count recovery following intensive induction chemotherapy able complete intensive curative therapy onureg launched september 2020 zeposia ozanimod oral immunomodulatory drug used treat relapsing forms multiple sclerosis include clinically isolated syndrome relapsingremitting disease active secondary progressive disease adults zeposia launched june 2020 vidaza azacitidine injection pyrimidine nucleoside analog shown reverse effects deoxyribonucleic acid hypermethylation promote subsequent gene reexpression indicated treatment patients following myelodysplastic syndrome subtypes refractory anemia refractory anemia ringed sideroblasts accompanied neutropenia thrombocytopenia requiring transfusions refractory anemia excess blasts refractory anemia excess blasts transformation chronic myelomonocytic leukemia cmmol •international revenues increased due inclusion full year celgene product revenues 2020 baraclude entecavir oral antiviral agent treatment chronic hepatitis b •international revenues decreased 19 2020 due lower demand average net selling prices resulting generic competition brands includes brands including lost exclusivity major markets otc brands royalty revenue •us revenues include 295 million 27 million celgene products 2020 2019 respectively •international revenues decreased primarily due divestiture upsa business 2019 certain brands continued generic erosion estimated enduser demand pursuant sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception estimated levels inventory distribution channel excess one month hand following products material results operations dates indicated onureg 15 months inventory hand december 31 2020 us support product launch inventory expected worked demand increases post launch zeposia 22 months inventory hand internationally distribution channel september 30 2020 support product launch germany inventory expected worked demand increases post launch us generally determine months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 75 total gross sales us products year ended december 31 2020 factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes revlimid pomalyst distributed us primarily contracted pharmacies revlimid rems pomalyst rems programs respectively proprietary riskmanagement distribution programs tailored specifically provide safe appropriate distribution use revlimid pomalyst internationally revlimid imnovid distributed mandatory riskmanagement distribution programs tailored meet local authorities’ specifications provide products’ safe appropriate distribution use programs may vary country depending upon country design riskmanagement program product may sold hospitals retail pharmacies nonus businesses significantly direct customers information available direct customer product level inventory corresponding outmovement information reliability thirdparty demand information varies widely limit direct customer sales channel inventory reporting influence demand information exist otherwise available developed variety methodologies estimate data including using historical sales made direct customers thirdparty market research data related prescription trends enduser demand given difficulties inherent estimating thirdparty demand information evaluate methodologies estimate direct customer product level inventory calculate months hand ongoing basis make changes necessary factors may affect estimates include generic competition seasonality products price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2020 available prior filing 2020 form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q expenses excess 100 excludes amortization acquired intangible assets cost products sold cost products sold include material internal labor overhead costs owned manufacturing sites thirdparty product supply costs supply chain costs managed global manufacturing supply organization cost products sold also includes royalties profit sharing certain excise taxes foreign currency hedge settlement gains losses impairment charges cost products sold typically vary periods result product mix volume particularly royalties profit sharing lesser extent changes foreign currency price inflation costs attributed manufacturing site exits impairment charges cost products sold excludes amortization acquired intangible assets •cost products sold increased 37 billion 2020 primarily due unwinding inventory fair value adjustments 20 billion higher royalties eliquis profit sharing 650 million higher celgene product costs approximately 600 million impairment charge related inrebic marketed product rights 575 million marketing selling administrative marketing selling administrative expenses primarily include salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs advertising product promotion costs expenses managed regional commercialization organizations global enabling functions finance legal information technology human resources certain expenses shared alliance partners based upon contractual agreements •marketing selling administrative expenses increased 28 billion 2020 primarily due costs associated broader portfolio resulting celgene acquisition approximately 20 billion higher advertising promotion expenses cash settlement myokardia unvested stock awards 241 million research development research development activities include discovery research preclinical clinical development drug formulation medical support marketed products expenses include salary benefit costs thirdparty grants fees paid clinical research organizations supplies upfront contingent milestone payments licensing asset acquisitions investigational compounds iprd impairment charges proportionate allocations enterprisewide costs allocations include facilities information technology employee stock compensation costs appropriate costs certain expenses shared alliance partners based upon contractual agreements expenses typically vary periods number reasons including timing license asset acquisition charges iprd impairment charges •research development expense increased 50 billion 2020 primarily due costs associated broader portfolio resulting celgene acquisition approximately 33 billion excluding bluebird dragonfly charges license asset acquisition charges 10 billion relating dragonfly bluebird forbius cormorant nektar iprd impairment charge resulting decision discontinue development orvacel program 470 million cash settlement myokardia unvested stock awards 241 million iprd charge myokardia acquisition iprd charges represents costs iprd assets acquired transaction business combination •the myokardia acquisition accounted asset acquisition substantially fair value gross assets acquired excluding cash deferred taxes allocated single asset mavacamten iprd charge related myokardia transaction presented separately due significance charge amortization acquired intangible assets amortization intangible assets acquired result business combinations •amortization acquired intangible assets increased 86 billion 2020 due full year amortization revlimid pomalystimnovid marketed product rights obtained celgene acquisition incomeexpense net •other incomeexpense net changed 33 billion 2020 primarily due fair value adjustments contingent value rights equity investments 2020 items discussed components incomeexpense net follows •interest expense increased due 190 billion notes issued may 2019 199 billion celgene debt assumed acquisition •contingent consideration primarily includes fair value adjustments resulting change traded price contingent value rights issued celgene acquisition contractual obligation pay contingent value rights terminated january 2021 fda approve lisocel jcar017 december 31 2020 •royalties licensing income includes diabetes business royalties keytruda tecentriq royalties upfront milestone licensing fees products obtained commercial approval refer “item 8 financial statements supplementary datanote 4 acquisitions divestitures licensing arrangements” information •equity investment gains includes fair value adjustments equity investments readily determinable fair value observable price changes equity investments without readily determinable fair values refer “item 8 financial statements supplementary datanote 9 financial instruments fair value measurements” information share income equity method investments 72 million 2020 termination fee related europe asia partnership sanofi 80 million included 2019 •integration expenses include consulting fees incurred primarily connection celgene integration activities •provision restructuring includes exit costs primarily related celgene acquisition plans achieved approximately 14 billion annualized pretax cost savings 2020 related celgene acquisition plan track achieve annualized pretax cost savings approximately 30 billion 2022 detailed restructuring activities refer “item 8 financial statements supplementary datanote 6 restructuring” information •transition service fees primarily includes otezla divestiture related fees 2020 •investment income includes 197 million interest income earned net proceeds notes issued may 2019 fund portion celgene acquisition 2019 •reversion excise tax resulted transfer retiree medical plan assets back company refer “item 8 financial statements supplementary datanote 17 retirement benefits” information •divestiture gains includes 12 billion gain sale upsa business 2019 •pension postretirement includes special termination benefits charge 15 billion 2019 relating termination bristolmyers squibb retirement income plan •acquisition expenses include following items related celgene transaction 2019 1 upfront bridge facility commitment fee 2 acquisition financing hedge losses 3 financial advisory legal proxy filing regulatory fees income taxes tax impact attributed specified items primarily due unwinding inventory fair value adjustments intangible asset amortization resulting celgene acquisition nondeductible myokardia iprd charge nontaxable fair value adjustments contingent value rights current year addition 853 million deferred tax charge resulting internal transfer certain intangible assets additional 266 million gilti tax charge upon finalization otezla divestiture tax consequences tax authorities included 2020 tax impact attributed specified items including otezla divestiture pension settlement charges gain sale upsa business divestiture specified items increased effective tax rate prior year effective tax rate excluding specified items includes tax reserve release due lapse statue 81 million 2019 favorable discrete tax adjustments approximately 140 million 2020 170 million 2019 primarily resulting finalization prior year tax returns impact swiss tax reform 2019 refer “item 8 financial statements supplementary datanote 7 income taxes” information nongaap financial measures nongaap financial measures nongaap earnings related eps information adjusted exclude certain costs expenses gains losses specified items evaluated individual basis items adjusted considering quantitative qualitative aspects typically one following characteristics highly variable difficult project unusual nature significant results particular period indicative future operating results similar charges gains recognized prior periods likely reoccur future periods including amortization acquired intangible assets beginning fourth quarter 2019 including product rights generate significant portion ongoing revenue recur intangible assets fully amortized ii unwind inventory fair value adjustments iii acquisition integration expenses iv restructuring costs v accelerated depreciation impairment property plant equipment intangible assets vi rd charges income resulting upfront contingent milestone payments connection acquisition licensing thirdparty intellectual property rights vii costs acquiring priority review voucher viii iprd charge resulting myokardia acquisition ix divestiture gains losses x stock compensation resulting accelerated vesting celgene awards certain retentionrelated employee compensation charges related celgene transaction xi pension legal contractual settlement charges xii interest expense notes issued may 2019 incurred prior celgene transaction interest income earned net proceeds notes xiii equity investment contingent value rights fair value adjustments xiv amortization fair value adjustments debt acquired celgene 2019 exchange offer among items deferred current income taxes attributed items also adjusted considering individual impact overall tax expense deductibility jurisdictional tax rates certain significant tax items also excluded impact resulting internal transfer intangible assets otezla divestiture also provide international revenues priority products excluding impact foreign exchange reconciliations nongaap measures comparable gaap measures included exhibit 992 form 8k filed february 4 2021 incorporated herein reference nongaap information intended portray results baseline performance supplement enhance management analysts investors’ overall understanding underlying financial performance facilitate comparisons among current past future periods example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap may comparable similarly titled measures presented companies due possible differences method items adjusted encourage investors review financial statements publiclyfiled reports entirety rely single financial measure specified items follows includes amortization purchase price adjustments celgene debt reconciliations gaap nongaap follows financial position liquidity capital resources net debt position follows regularly assess anticipated working capital needs debt leverage levels debt maturities capital expenditure requirements dividend payouts potential share repurchases future investments acquisitions order maximize shareholder return efficiently finance ongoing operations maintain flexibility future strategic transactions also regularly evaluate capital structure ensure financial risks adequate liquidity access lower cost capital efficiently managed may lead issuance additional debt securities repurchase debt securities prior maturity common stock believe existing cash equivalents marketable debt securities together cash generated operations required issuance commercial paper sufficient satisfy anticipated cash needs least next years including dividends capital expenditures milestone payments working capital restructuring initiatives business development approximately 158 billion debt maturing 2024 well debt repurchases redemptions tender offers share repurchase program authorized board directors allowing repurchases shares specific timing number shares repurchased determined management discretion vary based market conditions securities law limitations factors share repurchase program obligate us repurchase specific number shares specific expiration date may suspended discontinued time repurchases may effected combination one open market repurchases privately negotiated transactions structured investment banking institutions derivative transactions relying rule 10b18 rule 10b51 exchange act remaining share repurchase authority authorization program 10 billion december 31 2019 board directors approved increase 50 billion share repurchase authorization common stock february 2020 increasing total outstanding share repurchase authorization approximately 60 billion 2020 asr agreements executed 2019 repurchase aggregate 7 billion common stock settled also repurchased approximately 27 million shares common stock 16 billion year ended december 31 2020 remaining share repurchase capacity share repurchase program approximately 44 billion december 31 2020 refer “item 8 financial statements supplementary datanote 16 equity” additional information january 2021 board directors approved increase 20 billion share repurchase authorization common stock dividend payments 41 billion 2020 27 billion 2019 26 billion 2018 dividend decisions made quarterly basis board directors annual capital expenditures approximately 750 million 2020 800 million 2019 10 billion 2018 expected approximately 13 billion 2021 12 billion 2022 continue make capital expenditures connection expansion manufacturing capabilities research development facilityrelated activities commercial paper program may issue maximum 5 billion unsecured notes maturities 366 days date issuance commercial paper borrowings outstanding december 31 2020 december 31 2020 four revolving credit facilities totaling 60 billion consisted 364day 20 billion facility expired january 2021 threeyear 10 billion facility expiring january 2022 two fiveyear 15 billion facilities extended january 2021 september 2024 july 2025 respectively facilities provide customary terms conditions financial covenants may used provide backup liquidity commercial paper borrowings 10 billion facility two 15 billion revolving facilities extendable annually one year anniversary date consent lenders borrowings outstanding revolving credit facilities december 31 2020 2019 january 2021 entered 364day 20 billion facility expiring january 2022 extendable annually one year anniversary date consent lenders november 2020 entered 40 billion delayed draw term loan credit agreement consisting 20 billion 364day tranche 20 billion twoyear tranche term facility provides customary terms conditions financial covenants may used general corporate purposes unused credit expires april 9 2021 borrowings outstanding term loan december 31 2020 february 2021 terminated delayed draw term loan credit agreement also november 2020 issued aggregate principal amount 70 billion fixed rate unsecured senior notes maturities ranging 3 years 30 years net proceeds used fund portion aggregate cash consideration payable myokardia shareholders connection acquisition myokardia pay related fees expenses interest payable semiannually notes rank equally right payment existing future senior unsecured indebtedness redeemable time whole part varying specified redemption prices plus accrued unpaid interest investment portfolio includes noncurrent marketable securities subject changes fair value result interest rate fluctuations market factors investment policy establishes limits amount time maturity investments institution policy also requires investments entered corporate financial institutions meet high credit quality standards refer “item 8 financial statements supplementary datanote 9 financial instruments fair value measurements” information credit ratings current longterm shortterm credit ratings assigned moody’s investors service a2 prime1 respectively stable longterm credit outlook current longterm shortterm credit ratings assigned standard poor’s a1 respectively negative longterm credit outlook longterm ratings reflect agencies’ opinion low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings reflect agencies’ opinion good extremely strong capacity timely repayment credit rating downgrade may affect interest rate debt may incur fair market value existing debt ability access capital markets generally cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts disbursements activities investing financing activities operating cash flow derived adjusting net earnings noncontrolling interest noncash operating items gains losses attributed investing financing activities changes operating assets liabilities resulting timing differences receipts payments cash transactions recognized results operations result changes cash operating activities reflect timing cash collections customers alliance partners payments suppliers alliance partners employees customer discounts rebates tax payments ordinary course business example annual employee bonuses typically paid first quarter subsequent year addition cash collections continue impacted longer payment terms certain biologic products us primarily newer oncology products including opdivo yervoy empliciti 75 days 2020 90 days 2019 longer payment terms used closely align insurance reimbursement timing physicians cancer centers following administration patients 58 billion change cash flow operating activities compared 2019 primarily due celgene acquisition including higher collection payments ordinary course business partially offset higher interest payments 12 billion income tax payments 19 billion including 11 billion attributed otezla divestiture cash settlement unvested myokardia stock awards approximately 500 million investing activities cash requirements investing activities include cash used acquisitions manufacturing facilityrelated capital expenditures purchases marketable securities original maturities greater 90 days time purchase proceeds business divestitures including royalties sale maturity marketable securities upfront contingent milestones licensing arrangements 946 million change cash flow investing activities compared 2019 primarily attributable •lower business divestiture proceeds approximately 150 billion primarily due divestitures otezla upsa consumer health business 2019 partially offset •lower net acquisition payments approximately 117 billion primarily due acquisitions celgene 2019 myokardia 2020 •changes amount marketable debt securities held 23 billion financing activities cash requirements financing activities include cash used pay dividends repurchase common stock repay longterm debt borrowings reduced proceeds exercise stock options issuance longterm debt borrowings 88 billion change cash flow financing activities compared 2019 primarily attributable •lower net borrowing activity 133 billion primarily resulting issuance notes fund acquisitions celgene 2019 myokardia 2020 lower repayments debt maturities 2020 •higher dividend payments approximately 14 billion partially offset •lower stock repurchase 58 billion primarily resulting accelerated stock repurchase cash payment 70 billion 2019 contractual obligations offbalance sheet arrangements payments due period contractual obligations december 31 2020 follows includes estimated future interest payments periodic cash settlements derivatives b refer item 8 financial statements supplementary datanote 13 leases” information regarding leases c includes shortterm uncertain tax benefits uncertainties regarding timing resolution excludes noncurrent liabilities uncertainties regarding timing resolution committed aggregate 220 billion potential future research development milestone payments third parties inlicensing asset acquisitions development programs including earlystage milestones 81 billion milestones achieved phase iii clinical studies latestage milestones 139 billion milestones achieved post phase iii clinical studies payments generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted certain agreements also provide salesbased milestones aggregating 147 billion would obligated pay alliance partners upon achievement certain sales levels addition royalties also certain manufacturing development commercialization obligations connection alliance arrangements practicable estimate amount obligations refer “item 8 financial statements supplementary datanote 3 alliances” information regarding alliances contingent value rights issued connection celgene acquisition rights measured fair value payments contingent upon achievement future regulatory milestones cvr right entitled shareholder receive onetime potential payment 900 cash upon fda approval three following milestones ozanimod december 31 2020 ii lisocel jcar017 december 31 2020 iii idecel bb2121 march 31 2021 contractual obligation pay contingent value rights terminated january 2021 fda approve lisocel jcar017 december 31 2020 offbalance sheet arrangements material reasonably likely become material financial condition results operations sec consent order fcpa settlement previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy concerning sales direct customers purpose complying consent includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain dsas us pharmaceutical wholesalers account nearly 100 gross us revenues current terms dsas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 75 gross us revenues inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast nonus business significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent recently issued accounting standards recently issued accounting standards refer “item 8 financial statements supplementary datanote 1 accounting policies recently issued accounting standards” critical accounting policies preparation financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenue expenses critical accounting policies significantly affect financial condition results operations require difficult subjective complex judgments often need make estimates effect matters inherently uncertain uncertainty actual results may vary estimates revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates revenue recognized following fivestep model identify customer contract ii identify contract’s performance obligation iii determine transaction price iv allocate transaction price performance obligation v recognize revenue performance obligation satisfied revenue also reduced gtn sales adjustments discussed involve significant estimates judgment considering legal interpretations applicable laws regulations historical experience payer channel mix eg medicare medicaid current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel estimates assessed period adjusted required revise information actual experience following categories gtn adjustments involve significant estimates judgments information obtained external sources refer “item 8 financial statements supplementary datanote 2 revenue” discussion analysis significant category gtn sales adjustments chargebacks cash discounts us business participates programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price accounts receivable reduced estimated amount unprocessed chargeback claims attributable sale typically within two four week time lag us certain countries customers offered cash discounts incentive prompt payment generally approximating 2 invoiced sales price accounts receivable reduced estimated amount cash discount time sale discount typically taken customer within one month medicaid medicare rebates us business participates state government medicaid programs qualifying federal state government programs requiring discounts rebates participating state local government entities discounts rebates provided programs included medicaid rebate accrual medicaid rebates also extended drugs used managed medicaid plans estimated amount unpaid unbilled rebates presented liability rebates discounts offered managed healthcare organizations us managing prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit also pay 70 point service discount cms medicare part beneficiaries coverage gap “donut hole” estimated amount unpaid unbilled rebates discounts presented liability rebates returns discounts adjustments gtn sales adjustments include sales returns programs based applicable laws regulations individual nonus countries well rebates offered managed healthcare organizations us lesser extent nonus programs include several different pricing schemes cost caps volume discounts outcomebased pricing schemes pricing clawbacks based sales individual companies aggregation companies participating specific market estimated amount unpaid unbilled rebates discounts presented liability estimated returns established products determined considering historical experience factors including levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products lower demand following loe estimated returns new products determined considering historical sales return experience similar products within product line similar therapeutic area andor similar distribution model estimated levels inventory distribution channel projected demand estimated amount product returns presented liability use information external sources information external sources used estimate gtn adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information longlived assets intangible assets valuations significant amount purchase price celgene acquisition allocated intangible assets including commercially marketed products iprd assets intangible assets 532 billion december 31 2020 640 billion december 31 2019 identifiable intangible assets measured respective fair values acquisition date engaged independent thirdparty valuation firm assist determining fair values assets acquisition date fair value assets estimated using discounted cash flow models required use following significant estimates assumptions among others •identification product candidates sufficient substance requiring separate recognition •estimates revenues operating profits related commercial products product candidates •eligible patients pricing market share used estimating future revenues •probability success unapproved product candidates additional indications commercial products •resources required complete development approval product candidates •timing regulatory approvals exclusivity •appropriate discount rate products •market participant income tax rates •allocation expected synergies products believe estimated preliminary fair value assigned intangible assets acquired used reasonable estimates assumptions considering facts circumstances acquisition date impairment amortization longlived assets including intangible assets longlived assets include intangible assets property plant equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable least annually iprd intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment common potential risks leading impairment include competition earlier expected loe pricing reductions adverse regulatory changes clinical study results delay failure obtain regulatory approval initial follow indications unanticipated development costs inability achieve expected synergies resulting cost savings avoidance higher operating costs changes tax laws macroeconomic changes complexity estimating fair value intangible assets connection impairment test similar initial valuation carrying value longlived assets exceeds fair value asset writtendown fair value expectations future cash flows subject change based upon near longterm production volumes margins generated asset well potential alternative future use estimated useful lives longlived assets subjective requires significant judgment regarding patent lives future plans external market factors longlived assets also periodically reviewed changes facts circumstances resulting reduction estimated useful life asset requiring acceleration depreciation 2020 575 million impairment charge recorded cost products sold resulting lower cash flow projections reflecting revised commercial forecasts inrebic resulting full impairment asset additionally 470 million impairment charge recorded research development expense resulting decision discontinue development orvacel program inrebic orvacel obtained connection acquisition celgene goodwill represents excess consideration transferred estimated fair values net assets acquired business combination goodwill 205 billion 225 billion december 31 2020 2019 respectively assess goodwill balance within single reporting unit annually whenever events changes circumstances indicate carrying value goodwill may recoverable determine whether impairment asset may exist extent impairment goodwill reviewed impairment assessing qualitative factors including comparing market capitalization carrying value assets events circumstances might require interim evaluation include unexpected adverse business conditions economic factors unanticipated technological changes competitive activities acts governments courts income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecasts future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made deferred tax assets 35 billion december 31 2020 net valuation allowances 28 billion 21 billion december 31 2019 net valuation allowances 28 billion us federal net operating loss carryforwards 15 billion december 31 2020 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 foreign state net operating loss carryforwards expire varying amounts beginning 2021 certain amounts unlimited lives prior mead johnson splitoff 2009 following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions certain assumptions representations covenants mead johnson relied upon regarding future conduct business matters could affect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account “ela” existed investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code internal revenue service could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations 2009 agreed certain tax related indemnities mead johnson set forth tax sharing agreement including certain taxes related business prior completion initial public offering created part restructuring facilitate ipo mead johnson also agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known discussions income taxes refer “item 8 financial statements supplementary datanote 1 accounting policies recently issued accounting standardsincome taxes” “note 7 income taxes” contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability contractual claims tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies refer “item 8 financial statements supplementary datanote 1 accounting policies recently issued accounting standardscontingencies” “note 7 income taxes” “note 19 legal proceedings contingencies” product pipeline developments rd programs managed portfolio basis early discovery latestage development include balance earlystage latestage programs support future growth late stage rd programs phase iii development include investigational compounds initial indications additional indications formulations marketed products spending programs represent approximately 40 annual rd expenses last three years opdivo investigational compound marketed product represented greater 10 rd expenses last three years latestage development programs could potentially impact revenue earnings within next years regulatory approvals obtained products successfully commercialized following developments marketed products latestage pipeline productindicationdatedevelopments revlimidlymphomafebruary 2020received supplemental japan nda approval revlimid relapsed refractory follicular lymphoma marginal zone lymphoma productindicationdatedevelopments opdivonsclcoctober 2020announced phase iii checkmate816 trial met primary endpoint pathologic complete response resectable nsclc august 2020ono alliance partner opdivo japan announced topline results phase iii clinical study tasuki52 evaluating opdivo combination bevacizumab chemotherapy versus placebo combination bevacizumab chemotherapy chemotherapynaive patients stage iiibiv recurrent nonsquamous nsclc opdivo combination group demonstrated statistically significant improvement primary endpoint progressionfree survival prespecified interim analysis february 2020ono alliance partner opdivo japan announced submission supplemental application japan opdivo expand use treatment unresectable advanced recurrent nsclc combination treatment platinumdoublet chemotherapy partial change approved items manufacturing marketing approval rccjanuary 2021announced fda approval opdivo combination cabometyx firstline treatment patients advanced rcc approval based phase iii checkmate9er trial october 2020ono alliance partner opdivo japan announced companies submitted supplemental application combination therapy opdivo cabometyx development commercialization japan expand use combination therapy treatment unresectable metastatic rcc partial change approved items manufacturing marketing approval april 2020announced exelixis checkmate 9er pivotal phase iii trial evaluating opdivo combination cabometyx compared sunitinib previously untreated advanced metastatic rcc met primary endpoint progressionfree survival final analysis well secondary endpoints overall survival prespecified interim analysis objective response rate february 2020announced fiveyear followup results phase iii checkmate025 study continue demonstrate treatment opdivo delivers superior overall survival objective response rates patients previously treated advanced metastatic rcc compared treated everolimus gastric esophageal cancersjanuary 2021announced fda accepted sbla opdivo treatment patients resected esophageal gastroesophageal junction cancer adjuvant setting neoadjuvant chemoradiation therapy fda granted application priority review assigned pdufa goal date may 20 2021 application based results phase iii checkmate577 trial january 2021announced ema validated maa opdivo adjuvant treatment esophageal gastroesophageal junction cancer adult patients residual pathologic disease neoadjuvant chemoradiotherapy resection application based results phase iii checkmate577 trial january 2021announced fda accepted sbla opdivo combination fluoropyrimidine platinumcontaining chemotherapy treatment patients advanced metastatic gastric cancer gastroesophageal junction cancer esophageal adenocarcinoma based results checkmate 649 trial fda granted application priority review assigned pdufa goal date may 25 2021 application based results pivotal phase iii checkmate649 trial january 2021announced ema validated type ii variation maa opdivo combination fluoropyrimidine platinumbased combination chemotherapy firstline treatment adult patients advanced metastatic gastric cancer gastroesophageal junction cancer esophageal adenocarcinoma application based results pivotal phase iii checkmate649 trial december 2020ono alliance partner opdivo japan announced submission supplemental application opdivo expand use treatment unresectable advanced recurrent gastric cancer partial change approved items manufacturing marketing approval november 2020announced ec approval opdivo treatment adults unresectable advanced recurrent metastatic esophageal squamous cell carcinoma prior fluoropyrimidine platinumbased combination chemotherapy september 2020ono alliance partner opdivo japan announced results phase iiiii clinical study evaluating opdivo combination chemotherapy versus placebo combination chemotherapy patients unresectable advanced recurrent gastric cancer negative human epidermal growth factor receptor 2 previously untreated firstline therapy japan south korea taiwan opdivo combination group demonstrated statistically significant improvement one two primary endpoints progressionfree survival show statistically significant improvement overall survival primary endpoint versus control combination group productindicationdatedevelopments opdivogastric esophageal cancersaugust 2020announced checkmate649 pivotal phase iii trial evaluating opdivo plus chemotherapy compared chemotherapy alone firstline treatment metastatic gastric cancer gastroesophageal junction cancer esophageal adenocarcinoma met primary endpoints overall survival prespecified interim analysis progressionfree survival final analysis patients whose tumors express pdl1 combined positive score ≥ 5 overall survival benefit also observed allrandomized population august 2020announced phase iii checkmate577 trial evaluating opdivo adjuvant therapy patients resected esophageal gastroesophageal junction cancer met primary endpoint diseasefree survival prespecified interim analysis june 2020announced opdivo approved fda treatment patients unresectable advanced recurrent metastatic escc prior fluoropyrimidine platinumbased chemotherapy application granted priority review designation fda opdivo first approved immunotherapy setting regardless tumor pdl1 expression level may 2020ono alliance partner opdivo japan announced submission supplemental application opdivo expand use treatment patients unresectable advanced recurrent gastric cancer previously treated partial change approved items manufacturing marketing approval march 2020received nmpa approval opdivo 3l gastric cancer china approval supported ono453812 phase iii study february 2020ono alliance partner opdivo japan announced japan’s mhlw approved opdivo treatment patients unresectable advanced recurrent escc progressed following chemotherapy approval based phase iii attraction3 trial conducted ono collaboration bms evaluated opdivo versus chemotherapy docetaxel paclitaxel treatment patients unresectable advanced recurrent escc refractory intolerant combination therapy fluoropyrimidine platinumbased drugs sclcdecember 2020announced consultation fda withdrew us indication opdivo sclc following platinumbased chemotherapy least one line therapy opdivo granted accelerated approval sclc 2018 based surrogate endpoints phase iii checkmate032 trial advanced metastatic solid tumors demonstrated encouraging response rates duration response sclc however subsequent confirmatory studies different treatment settings checkmate451 checkmate331 meet primary endpoints overall survival crcfebruary 2020ono alliance partner opdivo japan announced japans mhlw approved opdivo treatment patients msih unresectable advanced recurrent crc progressed following chemotherapy approval based result opdivo monotherapy cohort multicenter openlabel phase ii checkmate142 study conducted bms evaluating opdivo patients hsih mismatch repair deficient recurrent metastatic crc progressed intolerant prior treatment chemotherapy including fluoropyrimidine anticancer drugs glioblastomadecember 2020following routine review independent data monitoring commitee dmc bms informed phase iii checkmate548 trial evaluating opdivo plus standard care temozolomide radiation therapy newly diagnosed glioblastoma multiforme o6methylguaninedna methyltransferase promoter methylation following surgical resection tumor meet primary endpoint overall survival patients baseline corticosteroid use overall randomized population based dmc recommendation investigators unblinded treatment assignments patients currently deriving benefit opdivo permitted continue treatment agreed physician bladderfebruary 2021announced results phase iii checkmate274 trial showed opdivo significantly improved diseasefree survival adjuvant treatment across randomized patients surgically resected highrisk muscleinvasive urothelial carcinoma subgroup patients whose tumors express pdl1 ≥1 meeting study’s primary endpoints ovarian cancerjanuary 2020ono alliance partner opdivo japan announced opdivo demonstrate significant improvement overall survival primary endpoint versus chemotherapy patients platinumrefractory advanced recurrent ovarian cancer final analysis multicenter randomized openlabel phase iii clinical study ono453823 conducted japan productindicationdatedevelopments opdivoyervoynsclcnovember 2020announced ec approval opdivo plus yervoy two cycles platinumbased chemotherapy firstline treatment adult patients metastatic nsclc whose tumors sensitizing epidermal growth factor receptor mutation anaplastic lymphoma kinase translocation november 2020ono alliance partner opdivo japan announced companies received approval japan following combination therapies opdivo yervoy firstline treatment unresectable advanced recurrent nsclc partial change approved items manufacturing marketing approval japan combination therapy opdivo yervoy ii combination therapy opdivo yervoy plus chemotherapy iii combination therapy opdivo chemotherapy may 2020announced fda approval opdivoyervoy given two cycles platinumdoublet chemotherapy firstline treatment adult patients metastatic recurrent nsclc egfr alk genomic tumor aberrations therapy approved patients squamous nonsquamous disease regardless pdl1 expression may 2020announced fda approval opdivoyervoy firstline treatment adult patients metastatic nsclc whose tumors express pdl1 ≥1 determined fdaapproved test egfr alk genomic tumor aberrations may 2020announced threeyear followup results part 1 phase iii checkmate227 trial metastic nsclc demonstrating opdivoyervoy provided sustained improvements overall survival additional efficacy measures firstline treatment compared chemotherapy among patients whose tumors expressed pdl1 ≥1 january 2020announced voluntary withdrawal companys application eu combination opdivo yervoy treatment advanced nsclc based data checkmate227 application originally filed 2018 patients firstline nsclc tumor mutational burden ≥10 mutationsmegabase based final analysis progressionfree survival coprimary endpoint trial application subsequently amended include statistically significant result overall survival coprimary endpoint checkmate227 part 1a evaluating opdivoyervoy versus chemotherapy patients whose tumors expressed pdl1 ≥1 though chmp acknowledged integrity patient level data chmp determined full assessment application possible following multiple protocol changes company made response rapidly evolving science data company plans refile application eu melanomaoctober 2020announced results coprimary endpoint checkmate915 randomized phase iii study evaluating opdivo plus yervoy versus opdivo patients complete surgical removal stage iiibcd stage iv melanoma addition yervoy opdivo trial result statistically significant improvement recurrencefree survival allcomer intenttotreat population mpmoctober 2020announced fda approval opdivoyervoy firstline treatment adult patients unresectable mpm approval based prespecified interim analysis phase iii checkmate743 trial opdivoyervoy demonstrated superior overall survival versus platinumbased standard care chemotherapy october 2020ono alliance partner opdivo japan announced companies submitted supplemental applications japan opdivo yervoy combination treatment expand use firstline treatment unresectable advanced recurrent mpm partial change aprpoved items manufacturing marketing approval september 2020announced ema validated type ii variation application opdivo plus yervoy treatment patients previously untreated unresectable mpm april 2020announced checkmate743 pivotal phase iii trial evaluating opdivo combination yervoy previously untreated mpm met primary endpoint overall survival based prespecified interim analysis conducted independent data monitoring committee opdivo combination yervoy resulted statistically significant clinically meaningful improvement overall survival compared chemotherapy pemetrexed cisplatin carboplatin productindicationdatedevelopments opdivoyervoyrccseptember 2020announced half advanced rcc patients treated opdivo plus yervoy combination alive four years across entire study population phase iii checkmate214 clinical trial combination continuing show superior longterm overall survival durable responses compared sunitinib february 2020announced updated results phase iii checkmate214 study evaluating combination opdivoyervoy versus sunitinib patients previously untreated advanced metastatic rcc minimum followup 42 months combination opdivoyervoy continues show superior overall survival objective response rates duration response complete response rates safety profile opdivoyervoy consistent prior findings new safety signals drugrelated death occurred extended followup data presented american society clinical oncology 2020 genitourinary cancers symposium san francisco crcseptember 2020ono alliance partner opdivo japan announced companies received approval combination therapy opdivo yervoy japan expand combination use treatment microsatellite instability high unresectable advanced recurrent crc progressed following chemotherapy partial change approved items manufacturing marketing approval hccmarch 2020announced opdivo 1mgkg plus yervoy 3 mgkg injections intravenous use approved fda treat hcc patients previously treated sorafenib approval indication granted accelerated approval based overall response rate duration response seen opdivoyervoy cohort phase iii checkmate040 trial continued approval indication may contingent upon verification description clinical benefit confirmatory trials orenciarajune 2020announced results openlabel switch period early ample phase iv exploratory biomarker study assessing differences orencia adalimumab interfere disease progression moderatetosevere early ra patients seropositive certain autoantibodies early seropositive ra patients treated orencia demonstrated substantial clinical improvements week 48 sustaining level responses achieved week 24 compared adalimumab seropositive patients switching adalimumab orencia efficacy responses generally increased openlabel period week 48 february 2020ono alliance partner orencia japan announced companies received approval “orencia intravenous infusion 250mg” “orencia subcutaneous injection 125mg syringe 1ml” “orencia subcutaneous injection 125mg autoinjector 1ml” “orencia” include description “prevention structural damage joints” currently approved indication ra partial change approved items manufacturing marketing approval japan pomalystkaposi sarcomamay 2020announced fda approval pomalyst patients aidsrelated kaposi sarcoma whose disease become resistant highly active antiretroviral therapy patients kaposi sarcoma hivnegative pomalyst granted accelerated approval breakthrough therapy designation orphan drug designation indications empliciti revlimidmultiple myelomamarch 2020announced topline results phase iii eloquent1 trial evaluating combination empliciti plus revlimid dexamethasone versus revlimid dexamethasone alone patients newly diagnosed previously untreated multiple myeloma transplant ineligible final analysis addition empliciti show statistically significant improvement progressionfree survival study’s primary endpoint reblozylmdsjune 2020announced ec approval reblozyl treatment adult patients transfusiondependent anemia due low intermediaterisk mds ring sideroblasts unsatisfactory response ineligible erythropoietinbased therapy april 2020announced fda approval reblozyl treatment anemia failing erythropoiesis stimulating agent requiring 2 red blood cell units 8 weeks adult patients low intermediaterisk mds ring sideroblasts myelodysplasticmyeloproliferative neoplasm ring sideroblasts thrombocytosis beta thalassemiajune 2020announced ec approval reblozyl adult patients transfusiondependent anemia associated beta thalassemia productindicationdatedevelopments zeposiaucfebruary 2021announced fda accepted snda zeposia treatment adults moderately severely active uc fda granted application priority review assigned pdufa goal date may 30 2021 december 2020announced ema validated maa zeposia treatment adults moderately severely active uc june 2020announced pivotal phase iii trial true north evaluating oral zeposia induction maintenance therapy adult patients moderate severe uc met primary endpoints induction clinical remission week 10 maintenance week 52 pvalue 00001 study also met key secondary endpoints clinical response endoscopic improvement induction timepoints safety profile consistent observed previously reported trials rmsseptember 2020announced interim results phase iii openlabel extension trial daybreak demonstrating longterm efficacy safety profile zeposia patients rms trial included 2494 patients previously completed phase ii iii zeposia clinical trial average treatment time 354 months daybreak new safety concerns emerged longterm use zeposia may 2020announced ec approval zeposia treatment adult patients rrms active disease defined clinical imaging features ec marketing authorization zeposia oral medication taken daily becomes approved sphingosine1phosphate receptor modulator rrms patients active disease march 2020announced fda approved zeposia ozanimod 092 mg treatment adults rms including clinically isolated syndrome relapsingremitting disease active secondary progressive disease zeposia oral medication taken daily approved sphingosine1phosphate receptor modulator offers rms patients initiation genetic test labelbased firstdose observation required patients uptitration scheme used reach maintenance dosage zeposia transient decrease heart rate atrioventricular conduction delays may occur inrebicmyelofibrosisfebruary 2021announced ec approval inrebic treatment diseaserelated splenomegaly enlarged spleen symptoms adult patients primary myelofibrosis postpolycythaemia vera myelofibrosis postessential thrombocythaemia myelofibrosis jak inhibitor naïve treated ruxolitinib onuregamlseptember 2020announced fda approval onureg azacitidine continued treatment adult patients aml achieved first complete remission complete remission incomplete blood count recovery following intensive induction chemotherapy able complete intensive curative therapy may 2020announced ema validated maa cc486 onureg maintenance treatment adult patients aml achieved complete remission complete remission incomplete blood count recovery following induction therapy without consolidation treatment candidates choose proceed hematopoietic stem cell transplantation breyanzi lisocel lymphomafebruary 2021announced fda approved breyanzi lisocabtagene maraleucel lisocel treatment adult patients relapsed refractory large bcell lymphoma two lines systemic therapy including diffuse large bcell lymphoma otherwise specified including dlbcl arising indolent lymphoma highgrade bcell lymphoma primary mediastinal large bcell lymphoma follicular lymphoma grade 3b july 2020announced ema validated maa lisocel investigational cd19directed car cell therapy treatment adults relapsed refractory diffuse large bcell lymphoma primary mediastinal bcell lymphoma follicular lymphoma grade 3b least two prior therapies idecel bb2121multiple myelomaseptember 2020announced bluebird bio fda accepted priority review bla idecel treatment adult patients multiple myeloma received least three prior therapies including immunomodulatory agent proteasome inhibitor anticd38 antibody fda set pdufa goal date march 27 2021 may 2020announced ema validated maa idecel bb2121 treatment adult patients multiple myeloma received least three prior therapies including immunomodulatory agent proteasome inhibitor anticd38 antibody idecel granted accelerated assessment status ema march 2020 reducing maximum timeframe review application 150 days may 2020with bluebird announced updated results pivotal phase ii karmma study evaluating efficacy safety idecel bb2121 rrmm patients heavily pretreated rrmm exposed least three prior therapies refractory last regimen treated idecel across range target dose levels orr 73 across dose levels including 33 patients complete remission stringent complete remission clinically meaningful benefit consistently observed across subgroups nearly subgroups orr 50 greater including older highrisk patients deucravacitinib bms986165 plaque psoriasisfebruary 2021announced positive results poetyk pso2 second pivotal phase iii trial evaluating deucravacitinib novel oral selective tyrosine kinase 2 inhibitor treatment patients moderate severe plaque psoriasis poetyk pso2 evaluated deucravacitinib 6 mg daily met coprimary endpoints versus placebo significantly patients achieving psoriasis area severity index pasi 75 defined least 75 percent improvement baseline pasi static physicians global assessment spga score clear almost clear spga 01 16 weeks treatment deucravacitinib november 2020announced results phase iii poetyk pso1 trial evaluating deucravacitinib bms986165 novel oral selective tyrosine kinase 2 inhibitor treatment patients moderate severe plaque psoriasis poetyk pso1 met coprimary endpoints versus placebo patients achieving psoriasis area severity index pasi 75 defined least 75 percent improvement pasi static physician’s global assessment spga score clear almost clear spga 01 16 weeks treatment trial also met multiple key secondary endpoints including showing deucravacitinib superior otezla proportion patients reaching pasi 75 response spga 01 week 16 idhifaamlaugust 2020announced phase iii idhentify study evaluating idhifa plus best supportive care bsc versus conventional care regimens include bsc azacitidine plus bsc lowdose cytarabine plus bsc intermediatedose cytarabine plus bsc meet primary endpoint overall survival patients relapsed refractory aml isocitrate dehydrogenase2 mutation special note regarding forwardlooking statements 2020 form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act section 21e exchange act identify forwardlooking statements fact use words “should” “could” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” “will” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based historical performance current expectations projections future financial results goals plans objectives involve inherent risks assumptions uncertainties including internal external factors could delay divert change next several years could cause future financial results goals plans objectives differ materially expressed implied statements likely relate among things goals plans objectives regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products business development strategy generally relation ability realize projected benefits acquisitions celgene myokardia full extent impact covid19 pandemic operations development commercialization products potential laws regulations lower drug costs market actions taken private government payers manage drug utilization contain costs expiration patents data protection certain products including assumptions ability retain patent exclusivity certain products outcome contingencies legal proceedings financial results forwardlooking statement guaranteed included important factors cautionary statements included 2020 form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made additional risks may currently deem immaterial presently known us could also cause forwardlooking events discussed 2020 form 10k occur except otherwise required federal securities law undertake obligation release publicly updates revisions forwardlooking statements result new information future events changed circumstances otherwise date 2020 form 10k item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations set forth item 7 revised reflect restatement summary 2003 company reported annual global sales 209 billion sales increased 15 prior year level reflecting volume increases 9 net price increases 2 4 impact foreign exchange fluctuations us sales increased 14 partly due impact 2002 sales workdown nonconsignment wholesaler inventory international sales increased 18 including 10 favorable foreign exchange impact 2003 company two product lines sales 20 billion eachpravachol plavix pravachol sales grew 25 including 7 favorable foreign exchange impact 28 billion plavix sales grew 31 including 3 favorable foreign exchange impact 25 billion addition two products company 45 product lines 50 million annual sales including 29 product lines 100 million annual sales six annual sales excess 500 million earnings continuing operations minority interest income taxes increased 70 4694 million 2003 2761 million 2002 net earnings continuing operations 3106 million 160 159 per share basic diluted basis respectively compared 2067 million 107 106 per share basic diluted basis 2002 company expects exclusivity losses new product mix challenge margins company remains committed investing businesses maximize key growth drivers advance pipeline several items affected comparability results 2003 2002 discussed “earnings” “outlook 2004” december 31 2003 company held almost 55 billion cash equivalents marketable securities approximately 54 billion cash equivalents marketable securities held company’s foreign subsidiaries company expect repatriate foreseeable future 2004 company expects cash generated us operations together borrowings capital markets sufficiently cover cash needs working capital expenditures dividends us repatriation united states would require additional tax provisions reflected consolidated financial statements discussion matter see “critical accounting policiesincome taxes” company subsidiaries subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcome investigations litigations management continues believe previously disclosed next years aggregate impact beyond current reserves legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity additional discussion matter see “item 8 financial statementsnote 22 legal proceedings contingencies” longterm debt increased 85 billion december 31 2003 63 billion december 31 2002 primarily due 10 billion fixed rate notes 12 billion floating rate convertible debentures issued august 2003 october 2003 respectively proceeds issuances used repay shortterm borrowings fund cash needs us operations cash provided operating activities 35 billion 2003 working capital 44 billion december 31 2003 company paid dividends approximately 22 billion provided dividend yield 44 2003 consistent company’s mission extend enhance human life developing highestquality products company invested 23 billion research development 3 growth 2002 research development dedicated pharmaceutical products including milestone payments inlicensing development programs 21 billion percentage pharmaceutical sales 142 compared 165 2002 compound annualized growth pharmaceutical research development spending 9 past five years restatement previously issued financial statements company restating consolidated balance sheet december 31 2002 consolidated statements earnings cash flows comprehensive income retained earnings years ended december 31 2002 2001 financial statements first second third quarters 2003 including comparable interim periods 2002 “2003 restatement” restatement affects periods prior 2001 impact restatement prior periods reflected adjustment opening retained earnings january 1 2001 restatement reported annual report form 10k year ended december 31 2003 reported amendments quarterly reports form 10q quarterly periods ended march 31 2003 june 30 2003 september 30 2003 restatement corrects certain company’s historical accounting policies conform us generally accepted accounting principles “gaap” ii corrects certain errors made application gaap late october 2002 company determined certain sales certain wholesalers us pharmaceuticals business accounted consignment sales accounting model accordingly determined restate sales earnings sales wholesalers following determination company also determined would correct certain historical accounting policies conform accounting gaap certain known errors made application gaap previously recorded case company believed amount error material company’s consolidated financial statements addition part restatement process company investigated accounting practices certain areas involve significant judgments determined restate additional items respect company concluded errors made application gaap including certain revisions inappropriate accounting march 2003 company completed restatement financial statements items restated financial statements three years ended december 31 2001 including corresponding interim periods first second quarters 2002 including comparable prior interim periods 2001 “2002 restatement” completing 2002 restatement company continued identify implement actions improve effectiveness disclosure controls procedures internal controls financial reporting connection effort company substantially strengthened organization personnel senior financial control functions ii adopted rigorous policies procedures respect balance sheet review process iii focused internal audit function financial reporting controls iv engaged consultant assist evaluation documentation certain financial reporting disclosure processes throughout company v engaged consultant assist comprehensive detailed review certain company’s tax reporting accounting addition request company’s audit committee company’s independent auditors performed extensive procedures respect company’s interim financial information 2003 based auditors’ assessment company’s risk profile expanded scope amount field work performed certain areas connection audit company 2003 actions contributed significantly company identifying additional errors relating prior periods reflected 2002 restatement discussion individual restatement adjustments see “item 8 financial statementsnote 2 restatement previously issued financial statements years ended december 31 2002 2001” connection audits 2002 restatement company’s consolidated financial statements year ended december 31 2002 company’s independent auditors pricewaterhousecoopers llp pwc identified communicated company audit committee two “material weaknesses” defined standards established american institute certified public accountants relating company’s accounting public financial reporting significant matters initial recording management review oversight certain accounting matters addition time pwc identified communicated company audit committee “reportable condition” defined standards established american institute certified public accountants relating company’s internal controls financial reporting income taxes 2003 company dedicated substantial resources improving controls accounting financial disclosure reporting auditors identified material weaknesses connection audit 2003 financial statements addition company devoted substantial resources towards remedying reportable condition relation taxes company also retained consultant assist comprehensive detailed review certain aspects tax accounting reporting company examined financial reporting taxes significant jurisdiction company one subsidiaries subject tax result review number prior period errors identified reflected 2003 restatement addition company undertook review evaluate certain issues raised concerning manner company determined provision income taxes company determined prior 2000 certain inappropriate adjustments tax contingency reserves made improper purpose recording provision income taxes consistent company’s projected effective tax rate addition may inappropriate adjustments 2001 2002 company completed review able determine whether errors relating tax contingency reserves corrected restatement related inappropriate accounting connection audit company’s consolidated financial statements year ended december 31 2003 pwc advised company audit committee “reportable condition” income tax accounting area remains company expects complete remediation reportable condition end 2004 throughout management’s discussion analysis financial condition result operations referenced amounts prior periods prior period comparisons reflect balances amounts restated basis net sales 2003 209 billion increase 15 prior year increase sales 2003 driven volume increased 2002 levels partly due impact 2002 sales workdown nonconsignment wholesaler inventory us sales increased 14 12897 million 2003 compared decrease 4 11348 million 2002 international sales increased 18 7997 million 2003 including 10 favorable foreign exchange impact compared increase 8 6758 million 2002 significant foreign exchange impact general company’s business seasonal information us pharmaceuticals prescriber demand reference made table within business segments pharmaceuticals section sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain company’s primary care pharmaceutical products sales 2002 181 billion compared 180 billion 2001 increase 1 sales 2002 2001 included approximately 1540 million 331 million respectively sales related products acquired part dupont pharmaceuticals acquisition dupont pharmaceuticals completed october 1 2001 domestic sales 2002 decreased 4 11348 million international sales increased 8 6758 million 2002 foreign exchange significant impact composition net increase sales follows significant portion company’s us pharmaceuticals sales made wholesalers company experienced substantial buildup wholesaler inventories us pharmaceuticals business several years primarily 2000 2001 buildup primarily due sales incentives offered company wholesalers including discounts buyins anticipation price increases extended payment terms certain us pharmaceuticals wholesalers generally offered toward end quarter incentive wholesalers purchase products amount sufficient meet company’s quarterly sales projections established company’s senior management timing company’s recognition revenue sales wholesalers differs wholesaler period historically company recognized revenue sales upon shipment products customers gaap revenue recognized substantially risks rewards ownership transferred case sales made wholesalers 1 result incentives 2 excess wholesaler’s ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesaler’s cost carrying inventory excess wholesaler’s ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments situations described utilizing consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory company’s cost inventory company recognizes revenue net discounts rebates estimated sales allowances accruals returns consignment inventory longer subject incentive arrangements later inventory sold wholesalers’ customers firstin firstout fifo basis additional discussion company’s revenue recognition policy see “item 8 financial statementsnote 1 accounting policies” 2002 restatement company restated previously issued financial statements period 1999 second quarter 2002 correct timing revenue recognition certain previously recognized us pharmaceuticals sales cardinal health inc cardinal mckesson corporation mckesson two largest wholesalers company’s us pharmaceuticals business based application criteria recorded error time shipment accounted using consignment model december 31 2003 2002 company’s aggregate cost pharmaceutical products held cardinal mckesson accounted using consignment model accordingly reflected consignment inventory company’s consolidated balance sheet approximately 4 million 58 million respectively approximately 2 million 1 million december 31 2003 2002 respectively related oncology products sold oncology therapeutics network otn deferred revenue recorded gross invoice sales price related inventory pharmaceutical products accounted using consignment model approximately 76 million 470 million december 31 2003 2002 respectively approximately 64 million 39 million december 31 2003 2002 respectively related otn result restatement application consignment model approximately 1980 million sales excluding otn net discounts rebates adjustments reversed period 1999 2001 approximately 321 million 1397 million recognized 2003 2002 respectively consigned inventory held cardinal mckesson worked significant portion 2003 workdown recognized first quarter corresponding effect earnings continuing operations minority interest income taxes increase 237 million 1095 million 2003 2002 respectively sales cardinal mckesson represented approximately 66 70 60 us pharmaceuticals net sales 2003 2002 2001 respectively company estimates based data noted inventory pharmaceutical products held us pharmaceuticals wholesalers range approximately 100 million excess approximately one month supply december 31 2003 estimate subject inherent limitations estimates rely thirdparty data certain thirdparty information form estimates reflect limitations company expects account certain pharmaceutical sales relating otn using consignment model agreement mckesson expires 2006 earnings 2003 earnings continuing operations minority interest income taxes increased 70 4694 million 2761 million 2002 increase primarily result sales increase specified charges 1207 million recorded 2002 litigation settlements asset impairments writeoffs inprocess research development increase partially offset increased investment advertising promotion marketing selling administrative expenses earnings continuing operations increased 50 2003 3106 million 2067 million 2002 2003 basic diluted earnings per share continuing operations increased 50 160 159 respectively 107 106 2002 respectively 2002 earnings continuing operations minority interest income taxes increased 22 2761 million 2263 million 2001 earnings continuing operations 2002 increased 10 2067 million 1871 million 2001 2002 basic diluted earnings per share continuing operations increased 11 12 107 106 respectively 96 95 2001 respectively net earnings margins continuing operations increased 149 2003 114 2002 104 2001 years ended december 31 2003 2002 2001 company recorded several items affected comparability results periods presented herein set forth following table discussion items see “item 8 financial statementsnote 3 alliances investments” “note 4 restructuring items” “note 5 acquisitions divestitures” “note 6 discontinued operations 1 restructuring items consist following gross margin percentages 637 639 694 2003 2002 2001 respectively gross margins negatively impacted 2003 due increased sales lowermargin products otn segment 53 million accelerated depreciation charges 14 million charge asset impairment restructuring expenses largely offset increased sales higher margin products pravachol lower gross margin 2002 compared 2001 principally due impact generic competition united states glucophage ir taxol® buspar adverse change product mix due increased sales otn segment effective income tax rate earnings continuing operations minority interest income taxes 259 2003 compared 142 2002 94 2001 increase 2003 effective tax rate 2002 effective tax rate primarily due decrease effective tax rate benefit operations ireland puerto rico switzerland treatment provisions certain litigation reserves nondeductible increase estimates contingent tax matters 2003 compared 2002 increase 2002 effective tax rate 2001 effective tax rate primarily due decrease effective tax rate benefit operations ireland puerto rico switzerland provision 205 million valuation allowances comprised 112 million related certain state foreign net deferred tax assets 93 million related certain state foreign tax net operating loss tax credit carryforwards partially offset 261 million net release tax contingency reserves related primarily settlement prior year tax matters determination company expected settlement ongoing tax litigation resolved 2003 company currently believes state net deferred tax assets state net operating loss tax credit carryforwards foreign net operating loss tax credit carryforwards valuation allowances provided likely realized future lower effective income tax rate 2001 results primarily lower pretax income united states due writeoff acquired inprocess research development well proportionately greater tax benefits income earned lower tax rate jurisdictions ireland puerto rico switzerland expenses total costs expenses percentage sales 775 2003 compared 848 2002 875 2001 cost products sold percentage sales increased last three years 363 2003 compared 361 2002 306 2001 principally due increased sales lowermargin products otn largely offset increased sales higher margin products pravachol 2003 cost products sold includes 53 million accelerated depreciation assets manufacturing facilities north america expected closed end 2006 14 million charge asset impairment restructuring expenses cost products sold 2002 included 15 million reversal prior period reserves inventory writeoffs related cancelled actions 2001 included 58 million restructuring expenses marketing selling administrative expenses percentage sales decreased 223 2003 228 2002 2003 marketing selling administrative expenses increased 13 4660 million 4124 million 2002 primarily due increased sales support abilify avaproavalide higher pension costs higher charges related system infrastructure higher insurance premiums unfavorable foreign exchange impact principally related euro marketing selling administrative expenses percentage sales increased 228 2002 225 2001 2 4124 million 4058 million slight increase mainly due higher sales force expenses result addition medical imaging business acquired october 2001 advertising promotion expenses increased 1416 million 2003 1143 million 2002 primarily result promotional support abilify reyataz launches plavix united states additional support inline products unfavorable foreign exchange impact europe 2002 advertising promotion expenses decreased 1143 million 1201 million 2001 primarily result reduced spending metformin franchise vaniqa partially offset abilify product launch expenses increased support plavix avaproavalide united states percentage sales 2003 advertising promotion expenses increased 68 63 2002 67 2001 company’s investment research development totaled 2279 million 2003 increase 3 2002 increase 2002 2 2001 percentage sales decreased 109 2003 compared 122 2002 120 2001 research development costs included 102 million charges related upfront payments licensing agreements 2003 69 million accelerated depreciation research facilities 2002 2003 research development spending dedicated pharmaceutical products decreased 142 pharmaceuticals sales compared 165 155 2002 2001 respectively company focusing research development activities fully realize value research development pipeline new priorities include rebalancing drug discovery development increase support company’s full latestage development pipeline closing unnecessary facilities also include devoting greater resources ensuring successful nearterm product launches increasing company’s efforts inlicensing opportunities 2002 charges related acquired inprocess research development 169 million primarily related milestone payments imclone systems incorporated imclone erbitux 200 million milestone payment imclone 160 million expensed acquired inprocess research development first quarter 2002 remaining 40 million recorded additional equity investment eliminate income statement effect portion milestone payment company economic claim ownership interest imclone acquired inprocess research development charge 2001 2772 million including 2009 million related dupont pharmaceuticals acquisition 735 million attributable imclone equity investment addition acquired inprocess research development 2002 2001 includes charges 9 million 28 million respectively licensing payments related products yet approved marketing restructuring programs implemented downsize realign streamline operations order increase productivity reduce operating expenses rationalize company’s manufacturing network research facilities administrative functions actions 2003 restructuring program expected complete 2006 actions 2002 2001 restructuring programs substantially complete december 31 2003 result actions company expects future annual benefit earnings continuing operations minority interest income taxes approximately 64 million 150 million 400 million 2003 2002 2001 programs respectively additional information restructuring see “item 8 financial statementsnote 4 restructuring items” litigation charges net settlement income 199 million 2003 compared 659 million 2002 77 million 2001 fourth quarter 2003 company established reserves liabilities total amount 250 million comprised 150 million relation wholesaler inventory issues certain accounting matters 100 million relation pharmaceutical pricing sales marketing practices addition company recorded charges 31 million litigation matters recognized income 82 million 82 million income consists primarily 30 million income patent defense cost reimbursement 27 million litigation settlement income 21 million settlement antitrust litigation involving vitamin manufacturers 2002 charges 659 million primarily related buspar taxol® proposed settlements additional information litigation see “item 8 financial statementsnote 22 legal proceedings contingencies” equity net income affiliates 2003 151 million compared 80 million 78 million 2002 2001 respectively equity net income affiliates principally related company’s joint venture sanofi investment imclone 2003 increase equity net income affiliates primarily reflects higher net income sanofi joint venture additional information equity net income affiliates see “item 8 financial statementsnote 3 alliances investments” expenses net income 179 million 229 million 98 million 2003 2002 2001 respectively expenses include net interest expense interest income foreign exchange gains losses royalty income gains losses disposal property plant equipment decrease expenses 2003 2002 primarily due net gains interest rate swaps increase expenses 2002 compared 2001 principally due higher interest expenses related borrowings 65 billion related dupont pharmaceuticals imclone transactions 2001 business segments company operates four reportable segmentspharmaceuticals otn nutritionals healthcare 2003 otn previously included pharmaceuticals segment met quantitative thresholds reportable segment outlined sfas 131 disclosure segments enterprise related information accordingly prior periods reclassified conform current year presentations percent company’s sales segment follows pharmaceuticals 2003 worldwide pharmaceuticals sales increased 16 14925 million reflecting 2 price increase 9 volume increase 5 increase foreign exchange domestic sales 2003 increased 16 8431 million primarily due increased sales plavix pravachol franchise abilify total revenue glucovance paraplatin partly due impact 2002 sales workdown nonconsignment wholesaler inventory partially offset decreased sales glucophage ir taxol® primarily due generic competition reyataz launched july 2003 83 million domestic sales international sales 2003 increased 17 6494 million including 11 favorable foreign exchange impact primarily due increased sales pravachol taxol® plavix avaproavalide analgesic products europe partially offset price declines principally germany italy 2002 worldwide pharmaceuticals sales decreased 6 12812 million reflecting 4 price decline 2 volume decline foreign exchange impact domestic sales declined 14 7273 million primarily due generic competition united states glucophage ir taxol® buspar partially offset increased sales plavix addition products acquired dupont pharmaceuticals acquisition completed october 1 2001 addition decrease domestic pharmaceutical sales impacted buildup prior period inventory levels us wholesalers accounted consignment model subsequent workdown 2002 approximately 1395 million sales calculated net discounts rebates adjustments recognized year ended december 31 2002 reversed prior years international sales increased 9 5539 million significant foreign exchange impact primarily due increased sales pravachol plavix europe taxol® japan addition products acquired dupont pharmaceuticals acquisition key pharmaceutical products sales include following • total revenue abilify primarily domestic alliance revenue company’s 65 share net sales copromotion countries otsuka pharmaceutical co ltd otsuka 283 million schizophrenia agent introduced united states november 2002 december 2003 achieved 7 weekly new prescription share us antipsychotic market company received approval supplemental new drug application snda abilify maintaining stability patients schizophrenia announced submitted snda abilify treatment acute mania patients bipolar disorder us food drug administration fda abilify developed marketed bristolmyers squibb partner otsuka • sales pravachol franchise increased 25 including 7 favorable foreign exchange impact 2827 million 2003 domestic sales increased 22 1605 million 2003 international sales increased 28 including 17 favorable foreign exchange impact 1222 million sales pravachol franchise increased 8 2266 million 2002 2101 million 2001 sixmonth exclusivity extension granted april 2006 • sales plavix platelet aggregation inhibitor increased 31 including 3 favorable foreign exchange impact 2467 million 2003 sales avaproavalide angiotensin ii receptor blocker treatment hypertension increased 29 including 6 favorable foreign exchange impact 757 million 2003 sales plavix avaproavalide increased 61 20 1890 million 586 million respectively 2002 sales plavix avaproavalide 1171 million 487 million 2001 plavix avaproavalide cardiovascular products launched alliance bristolmyers squibb sanofi • sales taxol® paraplatin company’s leading anticancer agents increased 9 including 12 favorable foreign exchange impact 934 million 24 905 million significant foreign exchange impact respectively 2003 international sales taxol® increased 23 including 14 favorable foreign exchange impact 882 million led strong sales japan france domestic sales taxol® decreased 62 52 million due generic competition domestic sales paraplatin increased 26 769 million 2002 taxol® sales decreased 23 857 million 1112 million 2001 paraplatin sales increased 23 727 million 592 million 2001 • sales sustiva antiretroviral agent treatment human immunodeficiency virusautoimmune immunodeficiency virus hivaids increased 20 including 7 favorable foreign exchange impact 544 million 2003 455 million prior year international sales sustiva increased 31 including 18 favorable foreign exchange impact 210 million 2003 sustiva acquired dupont pharmaceuticals october 2001 recorded sales 68 million year • monopril secondgeneration angiotensin converting enzyme ace inhibitor treatment hypertension increased sales 10 including 5 favorable foreign exchange impact reaching 470 million 2003 monopril sales increased 3 426 million 2002 413 million 2001 • glucophage franchise sales increased 22 948 million 2003 compared 67 decrease 778 million 2002 2337 million 2001 glucophage ir oral medication treatment noninsulin dependent type 2 diabetes saw 2003 sales decrease 46 118 million decline glucophage ir due introduction generic metformin united states early 2002 glucophage ir sales decreased 88 220 million 2002 1838 million 2001 glucovance oral combination drug glucophage xr extended release tablets sales 2003 424 million 395 million respectively compared sales 2002 246 million 297 million respectively sales 2001 269 million 230 million respectively • sales zerit antiretroviral agent used treatment hivaids decreased 20 including 5 favorable foreign exchange impact 354 million 2003 primarily result decreased demand due potential adverse side effects zerit sales decreased 14 443 million 2002 515 million 2001 • sales videxvidex ec antiretroviral agent used treatment hivaids increased 2 including 8 favorable foreign exchange impact 267 million 2003 videxvidex ec sales increased 9 262 million 2002 240 million 2001 • sales serzone treatment depression decreased 56 98 million 2003 result loss exclusivity labeling change indicating potential serious side effect product serzone sales decreased 34 221 million 2002 334 million 2001 following table sets forth comparison reported net sales changes estimated total prescription growth retail mail order customers certain company’s us pharmaceutical prescription products estimated prescription growth amounts based thirdparty data provided ims health supplier market research pharmaceutical industry significant portion company’s domestic pharmaceutical sales made wholesalers changes reported net sales differ prescription growth change net sales may reflect underlying prescriber demand excess 200 reflects change net sales dollar terms including change average selling prices wholesaler buying patterns b reflects change total prescriptions unit terms based thirdparty data earnings minority interest income taxes 4369 million 2003 increased 3185 million 2002 primarily due increased sales partially offset increased advertising product spending new existing inline products earnings minority interest income taxes 2002 2001 3185 million 1857 million respectively increase 2002 mainly due lower earnings 2001 result writeoff 2772 million acquired inprocess research development earnings 2002 unfavorably affected higher sales lower margin products full year impact generic competition glucophage ir taxol® buspar united states oncology therapeutics network 2003 otn sales 2241 million increase 18 prior year due volume growth manufacturers’ price changes 2002 sales increased 33 1900 million 1433 million 2001 otn sales accounted 11 10 8 company’s net sales 2003 2002 2001 respectively earnings minority interest income taxes 14 million 2003 decreased slightly 15 million 2002 16 million 2001 due margin erosion investments system infrastructure nutritionals 2003 nutritionals sales 2023 million increase 11 2002 increase due 7 increase volume 5 price increase partially offset 1 decrease due foreign exchange international sales increased 9 including 2 unfavorable foreign exchange impact 938 million 862 million 2002 domestic sales increased 13 1085 million 959 million 2002 worldwide children’s nutritionals sales increased 10 including 5 unfavorable foreign exchange impact 421 million 2003 383 million 2002 result 29 increase sales enfagrow primarily throughout pacific region 156 million 2003 worldwide infant formula sales increased 10 1284 million 2003 significant foreign exchange impact primarily due increased sales enfamil company’s largestselling infant formula international sales enfamil increased 5 239 million 2003 228 million 2002 significant foreign exchange impact domestic sales enfamil increased 10 569 million 2003 518 million 2002 mead johnson nutritionals mead johnson continues leader us infant formula market 2002 nutritionals sales remained consistent 2001 sales 18 billion reflecting 2 increase due price offset 1 decrease due volume 1 decrease due foreign exchange worldwide infant formula sales decreased 4 1172 million primarily specialty infant formula business 2002 worldwide sales enfamil decreased 1 746 million 753 million 2001 worldwide children’s nutritional sales increased 24 including 2 unfavorable foreign exchange impact 383 million 2002 308 million 2001 result 53 increase sales enfagrow primarily across pacific region 121 million 2002 earnings minority interest income taxes nutritionals segment increased 542 million 2003 486 million 2002 increase primarily due increased sales enfamil united states 2002 earnings minority interest income taxes nutritionals segment decreased 486 million 517 million 2001 result increased promotional spending sales force expenses related enfamil product line healthcare segment includes convatec medical imaging business consumer medicines united states japan sales healthcare segment increased 8 1705 million 2003 1573 million 2002 2003 healthcare sales increase result 2 increase due volume 1 increase changes selling prices 5 increase due foreign exchange 2002 sales segment increased 28 1573 million including 462 million sales medical imaging purchased october 2001 part dupont pharmaceuticals acquisition healthcare sales increase 2002 result 25 increase due volume 2 increase changes selling prices 1 favorable foreign exchange impact healthcare sales business follows excess 200 2003 increase convatec sales due 13 increase including 9 favorable foreign exchange impact worldwide sales ostomy products 512 million strong growth worldwide wound care products increased 17 including 9 favorable foreign exchange impact 319 million foreign exchange 2003 9 favorable effect sales 2002 increase convatec sales due 1 increase worldwide sales ostomy products 453 million strong growth worldwide wound care products increased 10 273 million foreign exchange contributed 1 sales increase 2002 2003 increase medical imaging sales 4 increase volume 4 increase changes selling prices 2 increase due foreign exchange worldwide sales cardiolite increased 8 324 million 299 million 2002 medical imaging business purchased october 2001 part dupont pharmaceuticals acquisition steady decline sales consumer medicines 424 million 2001 377 million 2002 354 million 2003 part due distributors reducing inventory levels desirable levels consumption excedrin consumer brands remain flat earnings minority interest income taxes healthcare segment decreased 408 million 2003 427 million 2002 primarily result unfavorable product mix inventory writeoffs excedrin quicktabs consumer medicines business 2002 earnings minority interest income taxes segment increased 427 million 328 million 2001 primarily due strong growth convatec business addition medical imaging business october 2001 geographic areas company’s products available virtually every country world largest markets united states france japan germany spain italy canada sales united states increased 14 2003 primarily due increased sales plavix otn segment pravachol franchise abilify total revenue glucovance paraplatin sales increases partially offset continued impact generic competition united states glucophage ir taxol® result loss exclusivity label change indicating potential serious side effect serzone 2002 sales united states decreased 4 primarily due impact generic competition united states glucophage ir taxol® buspar lesser extent buildup prior period inventory levels us wholesalers accounted consignment model subsequent workdown 2002 decrease partially offset increase plavix sales addition products acquired dupont pharmaceuticals’ us pharmaceuticals sales 2002 603 million company’s acquisition dupont pharmaceuticals completed october 1 2001 information us pharmaceuticals prescriber demand refer table within “item 1 businessbusiness segmentspharmaceutical segment” sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain company’s primary care pharmaceutical products sales europe middle east africa increased 23 including 16 increase foreign exchange result sales growth pravachol france taxol® france germany spain italy analgesics france plavix germany spain avaproavalide italy sustiva spain favorable impact foreign exchange primarily due euro 2002 sales europe middle east africa increased 12 including 4 increase foreign exchange result strong growth pravachol france united kingdom plavix spain addition dupont pharmaceuticals products several markets region dupont pharmaceuticals’ sales region 309 million 2002 sales western hemisphere countries increased 10 including 5 decrease foreign exchange primarily due increased sales plavix canada unfavorable impact foreign exchange primarily mexico brazil venezuela 2002 sales western hemisphere countries decreased 6 including 8 decrease foreign exchange unfavorable impact foreign exchange primarily brazil argentina underlying sales growth primarily due increased sales plavix canada nutritional products mexico pacific region sales increased 12 including 6 increase foreign exchange 2003 result increased sales taxol® japan increased sales enfagrow throughout region 2002 sales pacific region increased 12 including 2 decrease foreign exchange products strong growth included taxol® paraplatin japan nutritional products china indonesia developments february 2004 fda approved biologics license application bla erbitux anticancer agent company developing partnership imclone erbitux injection use combination irinotecan treatment patients epidermal growth factor receptor egfrexpressing metastatic colorectal cancer refractory irinotecanbased chemotherapy use single agent treatment patients egfrexpressing metastatic colorectal cancer intolerant irinotecanbased chemotherapy accordance agreement company paid imclone 250 million march 2004 milestone payment approval erbitux fda january 2004 company announced agreed acquire acordis specialty fibres acordis privately held company based united kingdom licenses patent rights supplies materials convatec wound therapeutics line transaction subject regulatory approval received transaction completed company expects record inprocess research development charge 50 million 70 million december 2003 company confirmed mead johnson wholly owned subsidiary company reached agreement novartis ag sell novartis adult nutritional business brands trademarks patents intellectual property rights 385 million including 20 million contingent product conversion 22 million upfront payment supply agreement transaction closed february 2004 pretax gain approximately 290 million expected recorded first quarter 2004 2003 adult nutritional products recorded sales 200 million december 2003 company lexicon genetics incorporated lexicon formed broad alliance drug discovery development commercialization neuroscience field alliance designed accelerate discovery development breakthrough therapies address significant unmet medical needs psychiatry neurology company made expensed initial payment 36 million 2003 october 2003 company corgentech inc biotechnology company entered agreement jointly develop commercialize corgentech’s e2f decoy edifoligide treatment prevention vein graft failure following coronary artery bypass graft peripheral artery bypass graft surgery product currently phase iii clinical trials fda granted fast track status indications company made expensed initial payment 45 million 2003 potential clinical regulatory milestone payments 205 million arrangements profit sharing august 2003 pravigard™ pac buffered aspirin pravastatin sodium tablets launched united states july 2003 reyataz protease inhibitor treatment hivaids launched united states march 2 2004 company received marketing approval reyataz eu august 2003 company entered licensing commercialization agreement flamel technologies sa develop market basulin first controlled release unmodified human insulin developed oncedaily injection patients type 1 type 2 diabetes basulin entering phase ii clinical development agreement company lead assume cost future development manufacturing efforts basulin exclusive worldwide rights product company made expensed initial payment 20 million october 2003 potential additional 145 million clinical regulatory milestone payments time royalty payments product sales financial position liquidity capital resources cash equivalents marketable securities totaled approximately 55 billion december 31 2003 compared 40 billion december 31 2002 approximately 54 billion cash equivalents marketable securities held company’s foreign subsidiaries company expect repatriate foreseeable future 2004 company expects cash generated us operations together borrowings capital markets sufficiently cover cash needs working capital expenditures dividends us repatriation united states would require additional tax provisions reflected consolidated financial statements discussion matter see “critical accounting policiesincome taxes” working capital increased 44 billion december 31 2003 16 billion december 31 2002 primarily result increase marketable securities decrease commercial paper outstanding partially offset increased accrued expenses cash equivalents marketable securities conversion workingcapital items borrowings expected fund nearterm operations cash equivalents december 31 2003 primarily consisted us dollar denominated bank deposits original maturity three months less marketable securities december 31 2003 primarily consisted us dollar denominated floating rate instruments ‘aaaaaa’ credit rating due nature instruments company considers reasonable expect fair market values significantly impacted change interest rates liquidated cash short notice average interest yield cash equivalents 12 14 december 31 2003 2002 respectively interest yields marketable securities averaged 13 16 respectively longterm debt december 31 2003 denominated primarily us dollars also included japanese yen longterm debt 293 million longterm debt increased 85 billion december 31 2003 63 billion december 31 2002 primarily due 10 billion fixed rate notes 12 billion floating rate convertible debentures issued august 2003 october 2003 respectively proceeds issuances used repay shortterm borrowings fund cash needs us operations convertible debentures mature 2023 callable par time september 21 2008 issuer convertible company common stock 242248 shares per 1000 debenture 4128 per share subject increases maximum 387597 shares per 1000 debenture based increases market price stock 4128 per share plus antidilution certain adjustments interest payable quarterly annual rate equal 3month libor reset quarterly minus 050 majority company’s debt fixed rate company however entered fixed floating interest rate swaps 55 billion longterm debt interest expense 2003 2002 2001 488 million 410 million 182 million respectively us commercial paper outstanding december 31 2003 us commercial paper outstanding december 31 2002 1158 million average interest rate 140 average interest rate year ended december 31 2003 2002 international shortterm borrowings 804 958 respectively current installments longterm debt 133 256 respectively december 31 2003 company two revolving credit facilities totaling 10 billion aggregate support domestic commercial paper program facilities established september 2001 august 2003 respectively syndicate lenders extendable anniversary date consent lenders one revolving credit facilities certain financial covenants company compliance december 31 2003 borrowings outstanding revolving credit facilities december 31 2003 2002 company unused shortterm lines credit foreign banks 363 million 321 million december 31 2003 2002 respectively july 2003 standard poor’s lowered longterm credit rating company aa addition standard poor’s affirmed a1 shortterm rating april 2003 moody’s investors service lowered company’s longterm credit rating aa2 a1 march 2003 moody’s affirmed prime1 shortterm credit rating company march 10 2004 standard poor’s placed longterm shortterm ratings company watch negative implications moody’s longterm credit rating remains negative outlook net cash provided operating activities approximately 35 billion 2003 09 billion 2002 54 billion 2001 increase 2003 attributable higher net earnings income tax payments 2002 primarily related gain arising sale clairol business cash flow operations also included pension contributions 332 million 554 million 300 million 2003 2002 2001 respectively cash provided operations borrowings primarily used past three years pay dividends 65 billion repurchase 32 million shares cost 18 billion 2002 2001 company also invested 29 billion past three years capital expansion improve plant efficiency maintain superior research facilities 2003 company purchase common stock company repurchased 5 million 27 million shares common stock cost 164 million 1589 million 2002 2001 respectively bringing total shares acquired since share repurchase program’s inception 372 million shares share repurchase program authorizes company purchase common stock time open market private transactions market conditions permit program intended reduce increase shares outstanding option exercises obtain shares general corporate purposes employment levels 44000 december 2003 remained constant compared prioryear levels dividends declared per common share years 2003 2002 112 2001 111 december 2003 company declared quarterly dividend 28 per common share indicated dividend full year 2004 112 per share company’s financial condition liquidity could affected obligations make milestone onetime payments outcome pending litigations investigations including challenge plavix patent information see “item 8 financial statementsnote 3 alliances investments” “note 22 legal proceedings contingencies” contractual obligations payments due period company’s contractual obligations december 31 2003 follows 1 2004 obligations included shortterm borrowings company’s consolidated balance sheet december 31 2003 balances represent outstanding nominal longterm debt values addition company committed make potential future “milestone” payments thirdparties part inlicensing development programs payments agreements generally become due payable upon achievement certain developmental regulatory andor commercial milestones achievement milestones neither probable reasonably estimable contingencies recorded company’s consolidated balance sheet discussion contractual obligations reference made “item 8 financial statementsnote 16 shortterm borrowings longterm debt” “note 18 financial instruments” “note 20 leases” “note 21 pension postretirement benefit plans” offbalance sheet arrangements march 5 2002 company imclone revised agreement reducing total payment 900 million 10 billion pursuant agreement company paid imclone 200 million 2001 140 million 2002 60 million 2003 accordance agreement company paid imclone 250 million march 2004 milestone payment approval erbitux fda pay additional 250 million erbitux approved use second tumor type discussion company’s agreement imclone see “item 8 financial statementsnote 3 alliances investments” recently issued accounting standards january 2004 financial accounting standards board fasb issued staff position fas 1061 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 “act” act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part present detailed regulations necessary implement act including account federal subsidy issued company elected defer recognizing effects act authoritative guidance accounting federal subsidy issued december 2003 staff securities exchange commission sec issued staff accounting bulletin 104 sab 104 revenue recognition supersedes sab 101 revenue recognition financial statements sab 104’s primary purpose rescind accounting guidance contained sab 101 related multiple element revenue arrangements superseded result issuance eitf 0021 “accounting revenue arrangements multiple deliverables” additionally sab 104 rescinds sec’s revenue recognition financial statements frequently asked questions answers faq issued sab 101 codified sec topic 13 revenue recognition wording sab 104 changed reflect issuance eitf 0021 revenue recognition principles sab 101 remain largely unchanged issuance sab 104 initial adoption accounting pronouncement material effect company’s consolidated financial statements december 2003 fasb amended statement financial accounting standards sfas 132 employer’s disclosures pensions post retirement benefits amended statement revises employer’s disclosures pension plans postretirement benefit plans change measurement recognition plans required fasb statements 87 employer’s accounting pensions 88 employer’s accounting settlements curtailments defined benefit pension plans termination benefits 106 employer’s disclosures postretirements plans pensions revisions included amended statement effective financial statements fiscal years ended december 15 2003 company provided required disclosures see “item 8 financial statementsnote 21 pension postretirement benefit plans” “note 22 legal proceedings contingencies” december 2003 fasb revised interpretation 46 consolidation variable interest entities fin 46 fin 46 requires variable interest entity consolidated company subject majority risk loss variable interest entity’s activities entitled receive majority entity’s residual returns fin 46 also requires disclosures variable interest entities company required consolidate significant variable interest consolidation requirements fin 46 revised apply immediately variable interest entities created january 31 2003 existing entities first fiscal year interim period beginning march 15 2004 certain disclosure requirements apply financial statements issued january 31 2003 regardless variable interest entity established initial adoption accounting pronouncement material effect consolidated financial statements may 2003 fasb issued sfas 150 accounting certain financial instruments characteristics liabilities equity sfas 150 establishes standards issuer classifies measures certain financial instruments characteristics liabilities equity statement requires issuer classify financial instrument within scope liability initial adoption accounting pronouncement affect consolidated financial statements may 2003 emerging issues task force reached consensus issue 0021 “revenue arrangements multiple deliverables” issue addresses certain aspects accounting vendor arrangements perform multiple revenue generating activities company’s revenue recognition policies already conformed requirements consensus initial adoption affect consolidated financial statements april 2003 fasb issued sfas 149 amendment statement 133 derivative instruments hedging activities sfas 149 amends sfas 133 requiring contracts comparable characteristics accounted similarly specifically statement clarifies circumstances contract initial net investment meets characteristics derivative clarifies derivative contains financing component amends definition underlying conform interpretation 45 guarantor’s accounting disclosure requirements guarantees including indirect guarantees indebtedness others fin 45 discussed amends certain existing pronouncements initial adoption accounting pronouncement material effect consolidated financial statements december 2002 fasb issued sfas 148 accounting stockbased compensationtransition disclosure sfas 148 amends sfas 123 accounting stockbased compensation provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation addition sfas 148 amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results provisions sfas 148 effective financial statements year ended december 31 2002 sfas 148 material impact company’s consolidated financial statements adoption standard require company change company plan change fair value based method accounting stockbased compensation november 2002 fasb issued fin 45 fin 45 requires guarantor recognize liability inception guarantee fair value obligation undertaken issuing guarantee include detailed disclosure respect guarantees types contracts company enters meet scope interpretation financial performance standby letters credit behalf wholly owned subsidiaries fin 45 effective guarantees issued modified december 31 2002 initial adoption accounting pronouncement material effect company’s consolidated financial statements retirement benefits plan description company certain subsidiaries defined benefit pension plans defined contribution plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan principal defined contribution plan bristolmyers squibb savings investment program approximately 8085 total company defined benefit pension plan assets liabilities held us plans assets us plans held single trust common asset allocation unless specified otherwise references section total company plans us plans together international plans benefits company’s defined benefit pension plans based primarily years credited service participants’ compensation assets company’s defined benefit plans consist primarily equity fixedincome securities december 31 2003 fair market value plan assets company’s defined benefit plans increased 4085 million 3318 million december 31 2002 us plans assets allocated 71 equity securities compared 67 end 2002 23 fixed income securities compared 26 end 2002 6 private equity investments compared 7 end 2002 bristolmyers squibb common stock represented less 1 assets us plans end 2003 2002 company provides comprehensive medical group life benefits substantially us retirees elect participate company’s comprehensive medical group life plans asset allocation postretirement plans identical asset allocation described us defined benefit pension plans accrual accounting significant assumptions consistent requirements sfas 87 employers’ accounting pensions company accounts pension benefits using accrual method recognizing pension expense payment benefits retirees accrual method accounting pension benefits necessarily requires actuarial assumptions concerning future events determine amount timing benefit payments company’s key assumptions used calculating cost pension benefits discount rate compensation increase expected longterm rate return plan assets company consultation actuaries evaluates key actuarial assumptions used calculating cost pension benefits retirement turnover mortality rates based expectations actual experience appropriate determines assumptions december 31 year calculate liability information date pension expense following year depending assumptions used pension expense could vary within range outcomes material effect reported earnings addition assumptions materially affect accumulated benefit obligations future cash funding actual results given year may differ estimated economic factors assumed discount rate used company determining future pension obligations us plans based indices aa aaarated corporate bonds indices high quality corporate bonds selected reflect weightedaverage remaining period benefit payments assumed rate compensation increase used company determining future pension obligations reflects estimate change actual future compensation levels due general price levels productivity seniority factors 2003 net pension expense company’s defined benefit pension plans included earnings minority interest income taxes 136 million compared 34 million 2002 us plans pension expense 2003 determined using 675 assumed discount rate 325 assumed rate compensation increase present value benefit obligations december 31 2003 us plans determined using 625 assumed discount rate assumed discount rate used determining us plans pension expense 2003 reduced 05 expense would increased approximately 304 million assumed rate compensation increase used determining us plans pension expense 2003 reduced 025 expense would decreased approximately 68 million assumed discount rate used determining accumulated benefit obligation december 31 2003 reduced 05 accumulated benefit obligation would increased 2356 million us plans pension expense 2003 determined using 9 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans pension expense 2003 reduced 1 expense would increased 34 million actual rates return earned us plan assets last ten years follows discussed gaap provides differences expected actual returns recognized average future service employees december 31 2003 company lowered assumed discount rate us plans 675 625 assumed rate compensation increase raised 325 356 following review recent experience compensation assumed increase scale different rates different ages 356 rate disclosed december 31 2003 single rate used age would produce present value benefit obligations methodology disclosure used calculating 354 rate december 31 2001 325 rate december 31 2002 reduction discount rate increase assumed rate compensation increase effect increasing present value benefit obligations accordingly effect increasing pension expense 2004 addition company revised based upon review experience assumption active mortality revision effect increasing present value benefit obligations accordingly effect increasing pension expense 2004 december 31 2002 company lowered assumed discount rate us plans 725 675 reflect decline yields high quality corporate bonds assumed rate compensation decrease 354 325 reflect expectations lower inflation future consistent reduction assumed discount rate reduction assumed discount rate increased present value future benefit obligations accordingly effect increasing us plans pension expense 2003 contrast reduction assumed rate compensation increase decreased present value benefit obligations accordingly effect decreasing us plans pension expense 2003 addition company revised based change expectations future terminations retirements retirement turnover assumptions revision decreased present value benefit obligations 2003 pension expense following many years strong performance global equity market fell sharply 20002002 sp 500 declined cumulative 376 reversed 2003 sp 500 rose 287 company reduced expected rate return us plan assets december 31 2002 10 9 maintained 9 throughout 2003 2004 company expects net pension expense defined benefit pension plans included earnings minority interest income taxes approximately 120 million higher 2004 136 million 2003 reflecting among things decrease assumed discount rate increase assumed rate compensation increase decrease marketrelated value assets company’s defined benefit pension plans rise global equity markets 2003 improved funded status plans three difficult years 20002002 since investment gains losses recognized marketrelated value assets period years however negative impact 20002002 period felt 2004 following putting upward pressure pension expense company used assumed discount rates expected longterm rates return plan assets calculating cost pension benefits cost postretirement benefits except case discount rate december 31 2003 rate 625 used pension benefits versus 600 postretirement benefits reflect shorter duration postretirement liabilities us health care costs retiree population assumed increase 100 2004 trend expected increase 45 per year 2010 actual costs higher assumed likely put significant upward pressure company’s expense retiree health care december 8 2003 president bush signed law medicare prescription drug improvement modernization act 2003 following guidance fasb staff position fas 1061 company elected defer recognition effect act accumulated postretirement benefit obligation net periodic postretirement benefit cost reflect effect act plan specific authoritative guidance accounting federal subsidy pending fasb guidance issued could require change previously reported information delayed recognition actuarial gains losses december 31 2003 2002 unrecognized net actuarial losses company’s defined benefit plans 1676 million 1657 million respectively based fair market value plan assets unrecognized net actuarial losses reflect part decline fair market value plan assets reduction weightedaverage discount rate 2003 2002 sfas 87 provides delayed recognition actuarial gains losses including amounts arising changes estimated plan benefit obligations due changes assumed discount rate differences actual expected returns plan assets assumption changes sfas 87 requires unrecognized net actuarial gain loss determined based marketrelated value plan assets differs fair market value calculated value recognizes changes fair value systematic rational manner five years amortized pension income expense year extent unrecognized net actuarial loss gain exceeds 10 greater projected benefit obligation marketrelated value plan assets beginning year net gains losses recognized pension income expense prospectively period approximates average remaining service period active employees expected receive benefits plans approximately 10 years extent offset losses gains subsequent years december 31 2002 unrecognized net actuarial loss determined based marketrelated value plan assets 994 million amount exceeded 10 greater projected benefit obligation market related value plan assets 577 million december 31 2003 unrecognized net actuarial loss determined based marketrelated value plan assets 1717 million amount exceeded 10 greater projected benefit obligation market related value plan assets 1241 million unless offset future unrecognized gains higher discount rates higher expected returns plan assets amortization 1241 million unrecognized loss expected increase pension expense following ten years approximately 124 million per year amount reflected higher expense expected 2004 event fair market value pension plan assets particular plan less accumulated benefit obligation plan yearend gaap may require additional minimum liability circumstances reduction stockholders’ equity establishment intangible asset december 31 2003 fair market value company’s defined benefit pension plan assets 4085 million related accumulated benefit obligation 4154 million company recognized additional minimum liability 53 million cumulative 203 million december 31 2003 offset 53 million charge comprehensive income included stockholders’ equity december 31 2002 fair market value company’s defined benefit pension plan assets 3318 million related accumulated benefit obligation 3604 million company recognized additional minimum liability 142 million cumulative 150 million december 31 2002 offset creation 10 million intangible asset 132 million charge comprehensive income included stockholders’ equity plan funding company’s funding policy defined benefit plans contribute amounts provide current service fund past service liability company contributed defined benefit plans 332 million 554 million 2003 2002 respectively critical accounting policies company prepares financial statements conformity accounting principles generally accepted united states preparation financial statements conformity gaap requires use estimates assumptions affect reported amounts assets liabilities including disclosure contingent assets contingent liabilities date financial statements reported amounts revenue expenses reporting period company’s critical accounting policies important company’s financial condition results operations require difficult subjective complex judgments part management application often result need make estimates effect matters inherently uncertain uncertainty factors surrounding estimates judgments used preparation consolidated financial statements actual results may vary estimates company believes following represent critical accounting policies summary company’s significant accounting policies including critical accounting policies discussed see “item 8 financial statementsnote 1 accounting policies” management company’s independent accountants discussed company’s critical accounting policies audit committee board directors revenue recognition company’s accounting policy revenue recognition substantial impact reported results relies certain estimates require difficult subjective complex judgments part management company recognizes revenue sales substantially risks rewards ownership transferred customer except case certain transactions us pharmaceuticals wholesalers accounted using consignment model gaap revenue recognized substantially risks rewards ownership transferred case sales made wholesalers 1 result incentives 2 excess wholesaler’s ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesaler’s cost carrying inventory excess wholesaler’s ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory company’s cost inventory company recognizes revenue net discounts rebates sales allowances accruals returns involve significant estimates judgments consignment inventory longer subject incentive arrangements later inventory sold wholesalers’ customers fifo basis company’s estimates inventory wholesalers deferred revenue consigned inventory based projected prescription demandbased sales products well company’s analysis thirdparty information including information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data company’s internal information company’s estimates subject inherent limitations estimates rely thirdparty data certain thirdparty information form estimates reflect limitations acquired inprocess research development fair value inprocess research development acquired business combination determined independent appraisal based present value research project’s projected cash flows income approach utilized consistent guidance practice aid issued american institute certified public accountants entitled “assets acquired business combination used research development activities focus software electronic devices pharmaceutical industries” future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weighted average cost capital impairment longlived assets accordance sfas 144 accounting impairment disposal longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable longlived assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value goodwill evaluated least annually impairment accordance sfas 142 goodwill intangible assets sfas 142 requires goodwill tested impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value sfas 142 requires indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net book value exceeds estimated fair value estimates future cash flows based reasonable supportable assumptions projections require management’s judgment changes key assumptions company’s businesses prospects changes market conditions could result impairment charge equity investments company reviews equity investments impairment based determination whether decline market value investment company’s carrying value temporary making determination company considers accounting principles board opinion 18 equity method accounting investments common stock sets forth factors evaluated determining whether loss value recognized including company’s ability hold investment market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment company’s investment imclone subject accounting see “item 8 financial statementsnote 3 alliances investments” discussion company’s investment imclone retirement benefits company’s pension plans postretirement benefit plans accounted using actuarial valuations required sfas 87 employers’ accounting pensions sfas 106 employers’ accounting postretirement benefits pensions company considers accounting retirement plans critical management required make significant subjective judgments number actuarial assumptions including discount rates salary growth longterm return plan assets retirement turnover health care cost trend rates mortality rates depending assumptions estimates used pension postretirement benefit expense could vary within range outcomes material effect reported earnings addition assumptions materially affect accumulated benefit obligations future cash funding detailed discussion company’s retirement benefits see “retirement benefits” “item 8 financial statementsnote 21 pension postretirement benefit plans” restructuring downsize streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results could vary estimates resulting adjustment earnings contingencies normal course business company subject contingencies legal proceedings claims arising business cover wide range matters including government investigations shareholders suits product liability environmental liability tax matters accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated discussion contingencies see “item 8 financial statementsnote 9 income taxes” “note 22 legal proceedings contingencies” income taxes december 31 2003 taxes provided approximately 126 billion undistributed earnings foreign subsidiaries company invested expects invest undistributed earnings indefinitely future earnings repatriated united states company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided company evaluates need deferred tax asset valuation allowance assessing whether likely realize deferred tax assets future assessment whether valuation allowance required often requires significant judgment including forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowance made earnings period assessment made addition company operations tax jurisdictions located areas world subject audit jurisdictions tax audits nature often complex require several years resolve accruals tax contingencies require management make estimates judgments respect ultimate outcome tax audit actual results could vary estimates outlook 2004 company expects growth opportunities exclusivity challenges next several years 2004 estimates reductions net sales range 12 13 billion 2003 levels products lost lose exclusivity protections 2003 2004 specifically metformin franchise united states taxol® europe monopril united states canada pravastatin certain countries europe paraplatin united states serzone united states sales rose 2003 resulting higher base generic competition develop 2003 expected thereby increasing expected level exclusivity losses 2004 addition impact exclusivity losses paraplatin anticipated occur primarily 2005 accelerated 2004 anticipated sixmonth extension exclusivity protection based pediatric studies obtained april 2004 amounts sales reductions exclusivity losses realization particular periods eventual levels remaining sales revenues uncertain dependent levels sales time exclusivity protection ends timing degree development generic competition speed approvals market entry impact factors subject uncertainties company estimates incremental exclusivity losses measured net sales levels time exclusivity lost 1 billion 13 billion years 2005 2006 2007 company believes revenue loss less offset growth revenues resulting growth company’s inline products including plavix avaproavalide sustiva growth recently launched exclusive products abilify reyataz growth recently fda approved product erbitux introduction latestage pipeline products abatacept entecavir muraglitazar may approved within next thirtysix months begin contribute significantly 2007 additionally otn sales growth expected continue belief subject competitive factors including relating pravachol adverse determination may occur respect plavix patent litigation see “item 1 businesscompetition” “item 8 financial statementsnote 22 legal proceedings contingencies” addition assurance company obtain required regulatory approvals latestage pipeline products company expects resulting product mix pressure company margins products losing exclusivity protection carry higher margins products expected grow sales pravachol statin cholesterol company’s largest product net sales product beginning lose exclusivity markets loss us exclusivity 2006 expected rate decline market share could accelerated recent clinical studies company historically reviewed continue review cost base decisions may taken result reviews may result restructuring charges later year future periods time company expects invest behind inline products research development pipeline particularly latestage products reflected earnings guidance external development licensing remain important elements company’s strategy potential cost impact transactions may entered future built company’s plans guidance respect 2004 earnings company subsidiaries subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcome investigations litigations management continues believe previously disclosed next years aggregate impact beyond current reserves legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity additional discussion matter see “item 8 financial statementsnote 22 legal proceedings contingencies” company’s expectations future sales growth described include substantial expected increases sales plavix net sales approximately 25 billion 2003 composition matter patent plavix expires 2011 currently subject litigation united states similar proceedings involving plavix also instituted outside united states company continues believe patent valid infringed alliance partner patentholder sanofi vigorously pursuing cases possible time reasonably assess outcome litigations adverse determination litigations timing potential generic competition plavix however generic competition occur company believes unlikely occur sometime 2005 loss market exclusivity plavix subsequent development generic competition would material company’s sales plavix results operations cash flows could material financial condition liquidity actual results may differ materially experience described factors could affect expectations described “cautionary factors may affect future results” cautionary factors may affect future results annual report form 10k including documents incorporated reference written oral statements company makes time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “will” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things company’s goals plans projections regarding financial position results operations market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years although possible predict identify factors may include limited following • new government laws regulations health care reform initiatives united states state federal level countries ii changes fda foreign regulatory approval processes may cause delays approving preventing approval new products iii tax changes phasing tax benefits heretofore available united states certain foreign countries iv new laws regulations judicial decisions affecting pricing marketing within across jurisdictions v changes intellectual property law • competitive factors new products developed competitors lower prices superior performance features otherwise competitive bristolmyers squibb’s current products ii generic competition company’s products mature patents expire products iii technological advances patents attained competitors iv problems licensors suppliers distributors v business combinations among company’s competitors major customers • difficulties delays inherent product development manufacturing sale products may appear promising development fail reach market number reasons including efficacy safety concerns inability obtain necessary regulatory approvals difficulty excessive cost manufacture ii failure products achieve maintain commercial viability iii seizure recall products iv failure obtain imposition limitations use loss patent intellectual property rights v failure company vendors suppliers comply current good manufacturing practices application regulations quality assurance guidelines could lead temporary manufacturing shutdowns product shortages delays product manufacturing vi manufacturing distribution problems • legal difficulties including lawsuits claims proceedings investigations preclude delay commercialization products adversely affect operations profitability liquidity financial condition including intellectual property disputes ii adverse decisions litigation including product liability commercial cases iii inability obtain adequate insurance respect type liability iv recalls pharmaceutical products forced closings manufacturing plants v government investigations including relating wholesaler inventory financial restatement product pricing promotion vi claims asserting violations securities antitrust federal state pricing laws vii environmental matters viii tax liabilities assurance increase scope matters future lawsuits claims proceedings investigations material • increasing pricing pressures worldwide including rules practices managed care groups institutional governmental purchasers judicial decisions governmental laws regulations related medicare medicaid healthcare reform pharmaceutical reimbursement pricing general • fluctuations buying patterns inventory levels major distributors retail chains trade buyers may result seasonality pricing wholesaler buying decisions including effect incentives offered company’s wholesaler inventory management policies including workdown changes wholesaler inventory levels factors • greater expected costs difficulties including unanticipated effects difficulties acquisitions dispositions events including obtaining regulatory approvals connection evolving business strategies legal defense costs insurance expense settlement costs risk adverse decision related litigation • changes advertising promotional spending categories spending may affect sales • changes product mix may affect margins • changes company’s structure operations revenues costs staffing efficiency resulting acquisitions divestitures mergers alliances restructurings strategic initiatives • economic factors company control changes business economic conditions including limited changes interest rates fluctuation foreign currency exchange rates • changes business political economic conditions due political social instability military armed conflict nationalization assets debt payment moratoriums restrictions commerce actual threatened terrorist attacks united states parts world related military action • changes accounting standards promulgated fasb sec american institute certified public accountants may require adjustments financial statements • capacity efficiency reliability security potential breakdown invasion destruction interruption information systems • reliance company vendors partners third parties meet contractual regulatory obligations relation arrangements company • results clinical studies relating company’s competitor’s products although company believes prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made company undertakes obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary company bristolmyers squibb company may referred bristolmyers squibb bms company global biopharmaceutical nutritional products company whose mission extend enhance human life providing highest quality pharmaceutical nutritional products company engaged discovery development licensing manufacturing marketing distribution sale pharmaceuticals nutritional products company two reportable segmentspharmaceuticals nutritionals pharmaceuticals segment consists global pharmaceuticalbiotechnology international consumer medicines business accounted approximately 86 company’s 2008 net sales nutritionals segment consists mead johnson nutrition company mead johnson primarily infant formula children’s nutritionals business accounted approximately 14 company’s 2008 net sales 2008 financial highlights following table summary operating activity net sales company’s net sales continuing operations increased 13 plavix clopidogrel bisulfate abilify continue drive worldwide sales growth sales increases 18 30 respectively significant contributions sales growth also provided key products including orencia sprycel hiv hepatitis portfolio net earnings continued operations increases net earnings continuing operations attributed increased sales growth favorability gross margins portion attributed favorable product mix well cost savings avoidances resulting company’s productivity transformation initiative pti 582 million aftertax gain related tendering company’s shares imclone also significant impact net earnings continuing operations amongst specified items discussed “expensesgains” net earnings discontinued operations 2008 company completed divestitures medical imaging business gross purchase price 525 million resulting aftertax loss 43 million well convatec business gross purchase price approximately 41 billion resulting aftertax gain 20 billion results medical imaging convatec businesses related gains losses included discontinued operations years presented net cashdebt net cashdebt position december 31 2008 improved due proceeds 46 billion divestiture convatec medical imaging businesses proceeds 10 billion sale imclone shares cash generated operating activities 37 billion adequate fund dividend payments 25 billion well capital expenditure payments 941 million business environment company conducts business primarily within pharmaceuticalbiotechnology industry highly competitive subject numerous government regulations many competitive factors may significantly affect company’s sales products including product efficacy safety price costeffectiveness marketing effectiveness product labeling quality control quality assurance manufacturing operations research development new products successfully compete business health care industry company must demonstrate products offer medical benefits well cost advantages currently company’s new product introductions compete products already market therapeutic category addition potential competition new products competitors may introduce future company manufactures branded products priced higher generic products generic competition one company’s leading challenges globally pharmaceuticalbiotechnology industry majority innovative product’s commercial value usually realized period product market exclusivity product loses exclusivity longer protected patent subject new competing products form generic brands upon exclusivity loss company lose major portion product’s sales short period time currently generic versions biological products cannot approved united states us law however law could change future even absence new legislation us food drug administration fda taking steps toward allowing generic versions certain biologics competitors seeking approval biological products must file safety efficacy data address challenges biologics manufacturing involves complex processes costly traditional pharmaceutical operations us internationally health care industry subject various governmentimposed regulations authorizing prices price controls continue impact company’s sales us congress state legislatures considered number proposals enacted laws could result major changes current health care system either nationally state level driven part budget concerns medicaid access reimbursement restrictions implemented states proposed many others addition medicare prescription drug improvement modernization act provides outpatient prescription drug coverage senior citizens us legislation modest favorable impact company result increase number seniors drug coverage time continues potential negative impact us pharmaceutical business could result pricing pressures controls many markets outside us company operates environments governmentmandated costcontainment programs regulatory bodies groups exert downward pressure pricing freedom limited united kingdom uk instance operation profit control plan germany operation reference price system companies also face significant delays market access new products two years elapse drug approval new medicines become available countries growth managed care organizations mcos us played large role competition surrounds health care industry mcos seek reduce health care expenditures participants making volume purchases entering longterm contracts negotiate discounts various pharmaceutical providers market potential created large pool participants marketing prescription drugs mcos become important part company’s strategy companies compete inclusion mco formularies company generally successful major products included company believes developments managed care industry including continued consolidation continue generally downward pressure prices pharmaceuticalbiotechnology production processes complex highly regulated vary widely product shifting adding manufacturing capacity lengthy process requiring significant capital expenditures regulatory approvals biologics manufacturing involves complex processes traditional pharmaceutical operations biologics become important company’s product portfolio company continue make arrangements thirdparty manufacturers make substantial investments increase internal capacity produce biologics commercial scale one investment new stateoftheart manufacturing facility production biologics devens massachusetts construction began may 2007 company maintained competitive position market strives uphold position dependent success discovering developing innovative costeffective products serve unmet medical need company expanded pti activities order achieve additional savings order reduce costs streamline operations rationalize global manufacturing become productive competitive biopharmaceutical company subsidiaries subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcome investigations litigations additional discussion legal matters see “item 8 financial statementsnote 25 legal proceedings contingencies” strategy company’s multiyear strategy transformation nextgeneration biopharmaceutical company strategy encompasses aspects geographies business yield substantial cost savings cost avoidance increase company’s financial flexibility take advantage attractive market opportunities may arise managing costs one part company’s overall strategy transitions nextgeneration biopharmaceutical company focused delivering present commitments maximizing nearterm growth opportunities improving earnings base 20122013 company announced pti designed create total 25 billion annual productivity savings cost avoidance 2012 first wave announced december 2007 targets 15 billion savings cost avoidance 2010 second wave announced july 2008 targets additional 10 billion savings cost avoidance 2012 company continue focus development biopharmaceutical business maintain growth investing research development new product pipeline company continue invest key growth products including specialty biologic medicines cardiovascular metabolic drugs company seeking reallocate resources continue string pearls strategy enable strategic transactions acquisition kosan biosciences inc kosan strategic alliances global codevelopment cocommercialization agreement exelixis inc exelixis global collaboration agreement zymogenetics entered 2008 company continue pursuing partnerships expanding collaborative arrangements biopharmaceutical companies continue entering strategic alliances third parties order obtain rights develop manufacture market andor sell pharmaceutical products rights owned third parties company continue maximize value noncore businesses 2008 company completed divestiture convatec medical imaging businesses company also sold mature brands business located egypt new product pipeline developments sprycel • january 2009 company announced approval sprycel japan ixempra • december 2008 company announced new data studies ixempra ixabepilone plus capecitabine compared capecitabine alone including prespecified sub set analysis demonstrating significant increase progression free survival patients triple negative breast cancer • november 2008 committee medicinal products human use chmp europe issued negative opinion marketing authorization application ixempra treatment patients metastatic breast cancer company requested reexamination case currently consideration chmp exelixis • december 2008 company announced global collaboration exelixis covering two novel molecules cancer associated development programs exelixis’ xl184 small molecule inhibitor met vegfr2 ret currently phase iii development medullary thyroid cancer exelixis’ xl281 small molecule inhibitor raf kinase currently phase development treatment patients advanced solid tumor malignancies agreement company receives development commercialization rights programs dapagliflozin • december 2008 company astrazeneca announced expansion worldwide collaboration include development commercialization dapagliflozin japan dapagliflozin one two investigational drugs joint development companies currently studied phase iii clinical trials several countries including us assess efficacy safety oncedaily treatment type 2 diabetes erbitux • january 2009 company marketing partner imclone systems inc imclone whollyowned subsidiary eli lilly company lilly announced companies withdraw eventually resubmit application fda broaden use erbitux include firstline treatment patients advanced nonsmall cell lung cancer combination platinumbased chemotherapy cisplatinvinorelbine • october 2008 fda accepted filing priority review supplemental biologics license application sbla broaden indication erbitux include use combination platinumbased chemotherapy firstline treatment patients recurrent metastatic squamous cell carcinoma head neck • october 2008 publication study results showing metastatic colorectal cancer mcrc patients wildtype “normal” kras tumors treated erbitux plus best supportive care bsc statistically significant increase overall survival progressionfree survival compared treated bsc alone specifically patients whose tumors normal mutant negative kras gene achieved near twofold improvement overall survival progressionfree survival patients treated bsc alone patients mutated kras tumors significant difference overall progressionfree survival treated erbitux plus bsc treated bsc alone company fda discussions regarding possible label changes related study • september 2008 announcement five year data showing significant improvements overall survival patients locally regionally advanced head neck cancer extreme study published new england journal medicine showing erbitux improved survival firstline recurrent andor metastatic head neck cancer • july 2008 erbitux received marketing approval japan treatment patients advanced recurrent colorectal cancer • may 2008 annual meeting american society clinical oncology asco landmark phase iii study flex showed addition erbitux platinumbased chemotherapy significantly increased overall survival firstline treatment patients advanced nonsmall cell lung cancer compared platinumbased chemotherapy alone abilify • supplemental new drug application abilify approved fda february 2008 acute treatment manic mixed episodes associated certain pediatric patients age 1017 bipolar disorder • fda approval received may 2008 new abilify indications pediatric bipolar ages 1017 maintenance therapy pediatric schizophrenia ages 1017 maintenance therapy addon treatment lithium valproate acute treatment bipolar disorder pediatric age 1017 adult patients • european commission authorized marketing abilify march 2008 treatment moderate severe manic episodes bipolar disorder prevention new manic episode patients experienced predominantly manic episodes whose manic episodes responded abilify treatment orencia • october 2008 company announced results 10month study showed orencia compared placebo pbo significantly improved multiple aspects healthrelated quality life physical psychosocial well pain sleep quality juvenile idiopathic arthritis jia patients ages 6 17 years results part study looking safety efficacy orencia children jia failed previous treatments methotrexate mtx biologics • october 2008 company announced results phase iiib study adult patients early moderatetosevere erosive rheumatoid arthritis ra never received previous mtx treatment study showed orencia combination mtx significantly patients achieve disease activity score 28 using creactive proteindefined remission compared mtx plus pbo safety profile orencia combination mtx similar mtx plus pbo also quarter company filed sbla fda use orencia patients early ra • june 2008 new phase ii data presented european league rheumatism demonstrated orencia may delay development ra people undifferentiated inflammatory arthritis • april 2008 orencia approved fda treatment juvenile ra additionally us label orencia revised indication means orencia appropriate option patients moderatetosevere ra regardless prior treatment received reyataz • october 2008 company announced 96week data castle study 74 440 patients reyatazr arm achieved undetectable viral load defined human immunodeficiency virus hiv1 rna less 50 copiesml compared 68 443 patients lopinavirr arm difference treatment arms may related 16 discontinuation rate reyatazr arm 21 discontinuation rate lopinavirr arm • october 2008 fda approved use reyataz atazanavir sulfate 300 milligram oncedaily boosted ritonavir 100 milligram part combination therapy previously untreated treatmentnaïve hiv1 infected patients use oncedaily reyatazritonavir hiv1 infected treatmentnaïve adult patients based upon 48week results castle study demonstrated similar antiviral efficacy reyatazritonavir twicedaily lopinavirritonavir part hiv combination therapy treatmentnaïve hiv1 infected adult patients data castle study published august 23 issue lancet • june 2008 european approval received expanded indication reyataz 300 mg oncedaily boosted ritonavir 100 mg part combination therapy treatmentnaïve hiv1 infected patients • february 2008 first data comparing boosted reyataz plus ritonavir lopinavirritonavir presented congress retroviruses opportunistic infections baraclude • company announced november 2008 data two separate cohort evaluations longterm treatment baraclude associated improved liver histology including improvement fibrosis chronic hepatitis b patients histology data presented 59th annual meeting american association study liver diseases • new data march 2008 asian pacific association study liver meeting demonstrated continued low incidence resistance baraclude nucleosidenaive patients five years treatment important many chronic hepatitis b patients requiring longterm treatment apixaban • september 2008 company development partner pfizer announced phase ii study appraise1 apixaban novel anticoagulant provided encouraging trends suggesting anticoagulation apixaban top current standards care continued beyond initial hospitalization may reduce risk second heart attack stroke death • primary endpoint met phase iii study apixaban prevention venous thromboembolism vte patients undergoing total knee replacement results trial necessitate changes protocols ongoing apixaban studies companies considering studies preventing vte knee surgery submit us regulatory filing vte prevention second half 2009 previously communicated programs directed toward prevention vte including european medicines evaluation agency registration studies treatment vte acute coronary systems prevention stroke atrial fibrillation continue planned ipilimumab • favorable updated survival data announced september 2008 three phase ii studies ipilimumab saxagliptin • favorable results announced september 2008 phase iii studies onglyza saxagliptin • regulatory submissions onglyza made us europe june 30 july 1 respectively • annual scientific sessions american diabetes association phase iii study demonstrated saxagliptin produced significant reductions key measures glucose control treatmentnaïve people type 2 diabetes compared placebo elotuzumab • company entered agreement pdl biopharma inc august 2008 global development commercialization elotuzumab antics1 antibody currently phase development multiple myeloma kai9803 • may 2008 company entered agreement kai develop commercialize kai’s novel acute heart attack medicine kai9803 kosan • june 2008 bristolmyers squibb completed acquisition kosan cancer therapeutics company library novel compounds including hsp90 inhibitors cancer microtubule stabilizers may additional potential neurodegenerative diseases zymogenetics • january 2009 company zymogenetics announced global collaboration peginterferon lambda novel type 3 interferon currently phase ib development treatment hepatitis c related development program plavix • european committee medicinal products human use march 2008 issued positive opinion recommending approval 300 milligram loading dose tablet plavix positive opinion ratified european commission results operations following discussions company’s results continuing operations exclude results related medical imaging business prior divestiture january 2008 convatec business prior divestiture august 2008 medical imaging convatec previously presented component former health care operating segment renamed convatec operating segment subsequent medical imaging divestiture businesses segregated continuing operations included discontinued operations periods presented company’s results operations follows net sales composition changes net sales follows 2008 2007 increase us net sales primarily driven growth key us pharmaceutical products described detail increases international net sales 2008 2007 aided weakened us dollar relative certain foreign currencies especially euro uk pound general company’s business seasonal information us pharmaceutical prescriber demand reference made table within “pharmaceuticals” sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain company’s key pharmaceuticals products new products sold us pharmaceuticals business us nonus net sales based upon location customer company’s net sales segment follows company recognizes revenue net various sales adjustments arrive net sales reported consolidated statements earnings adjustments referred grosstonet sales adjustments described “critical accounting policies” reconciliations company’s gross sales net sales significant category grosstonet sales adjustments follows grosstonet adjustments primarily function gross sales activity typically correlated current sales trends case managed health care rebates contract discounts medicaid rebates cash discounts adjustments 2008 2007 2006 managed health care rebates contract discounts medicaid rebates also affected changes sales mix contractual legislative discount rates 2007 increases managed health care rebates contract discounts also impacted reduction reserves 2006 related tricare retail pharmacy refund program prime vendor chargebacks decreased throughout 2008 2007 result lower sales taxol attributed loss exclusivity women infant children wic rebates decrease related net impact several wic contract transactions 2008 increase sales returns primarily attributed increased provisions pravachol driven higher retail sales returns previously assumed loss exclusivity zerit 2007 variance sales returns compared prior year attributed higher provisions 2006 cardiovascular nonexclusive brands discontinued commercialization tequin gatifloxacin activities ending balances significant category grosstonet sales adjustments follows 2008 2007 company recorded grosstonet sales adjustments related sales made prior periods significant items included charges sales returns 92 million 2008 18 million 2007 primarily resulting higher expected returns certain nonexclusive products significant revisions made estimates grosstonet sales adjustments 2008 2007 pharmaceuticals composition changes pharmaceutical net sales follows 2008 key us pharmaceutical products contributed growth sales plavix abilify represented approximately 46 16 total us pharmaceuticals net sales represented approximately 53 23 total growth pharmaceuticals sales compared prior year 2007 plavix abilify represented approximately 45 15 total us pharmaceuticals net sales contributed approximately 89 16 total growth us pharmaceuticals net sales growth offsets decreases us net sales attributed generic competition pravachol 2008 2007 international pharmaceuticals sales aided weakened us dollar many foreign currencies compared previous period company’s reported international net sales include copromotion sales reported alliance partner sanofiaventis sanofi plavix avaproavalide continued show growth 2008 net sales key pharmaceutical products represent 80 76 72 total pharmaceutical net sales 2008 2007 2006 respectively following table details us international pharmaceuticals net sales key products percentage change prior year well foreign exchange impact compared prior year commentary detailing reasons significant variances key product provided negative pravachol us sales 2008 reflect higher retail sales returns previously assumed change excess 200 plavix platelet aggregation inhibitor part company’s alliance sanofi • us sales increases 2008 2007 primarily attributed increased prescription demand higher average selling prices demand negatively affected beginning third quarter 2006 second quarter 2007 launch generic clopidogrel bisulfate generic distribution channel substantially depleted june 30 2007 2008 2007 estimated total us prescription demand clopidogrel bisulfate branded generic increased approximately 4 8 respectively whereas estimated us prescription demand branded plavix increased 19 34 respectively • international net sales 2008 negatively impacted august 2008 launch clopidogrel alternative salt clopidogrel beyslate launched germany • see “item 8 financial statementsnote 25 legal proceedings contingenciesplavix litigation” discussion plavix exclusivity litigation us eu avapro avalide known eu aprovelkarvea angiotensin ii receptor blocker treatment hypertension diabetic nephropathy also part sanofi alliance • worldwide sales increases 2008 2007 primarily attributed higher average selling prices offset declines overall demand total us prescription demand avaproavalide decreased approximately 7 2008 approximately 4 2007 pravachol hmg coa reductase inhibitor treatment hypercholesterolemia reducing risk heart attack • worldwide sales decreases 2008 2007 attributed continued generic competition us key european markets market exclusivity ended us april 2006 2004 eu countries • us sales 2008 negatively impacted higher retail sales returns previously assumed reyataz protease inhibitor treatment hiv • us sales increases 2008 2007 primarily due higher prescription demand 14 13 respectively • international sales increase 2008 primarily due higher demand across markets europe key driver due june 2008 approval frontline treatment growth 2007 international revenue attributed increased demand europe latin america sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla efavirenez 600mg emtricitabine 200 mgtenofovir disoproxil fumarate 300 mg product sold joint venture gilead sciences inc • worldwide sales increases 2008 2007 primarily due higher demand attributed successful launch atripla us july 2006 eu december 2007 canada october 2007 us prescription demand sustiva franchise increased approximately 14 2008 20 2007 lesser extent higher average selling prices contributed increase net revenues baraclude oral antiviral agent treatment chronic hepatitis b • worldwide sales increases 2008 2007 primarily due continued growth across markets particularly international markets due successful launch various countries including china february 2006 uk germany july 2006 france japan september 2006 us april 2005 • continues increased awareness acceptance longterm efficacy safety resistance data evidenced american association study liver disease treatment guidelines recommended baraclude first line treatment option erbitux monoclonal antibody designed exclusively target block epidermal growth factor receptor expressed surface certain cancer cells multiple tumor types well normal cells currently indicated use colorectal cancer head neck cancer erbitux part company’s strategic alliance imclone • sold company almost exclusively us sales increases 2008 2007 primarily due increased demand recent indication usage treatment head neck cancer • sales 2007 also positively impacted transition broader distribution model resulting higher sales associated initial shipments inventory distributors taxol anticancer agent currently sold almost exclusively nonus markets • sales decreases 2008 2007 due primarily generic competition japan sprycel oral inhibitor multiple tyrosine kinases treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec imatinib meslylate • worldwide sales increases 2008 2007 primarily due higher demand associated successful launch us july 2006 european markets beginning fourth quarter 2006 higher us selling prices continued launches russia turkey 2008 ixempra microtubule inhibitor treatment patients metastatic locally advanced breast cancer • sales increase 2008 reflects launch product us october 2007 abilify antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder part company’s strategic alliance otsuka pharmaceutical co ltd otsuka • us sales increases 2008 2007 primarily attributed increased demand higher average selling prices prescription demand increased approximately 23 2008 approximately 12 2007 contributing prescription growth new indications 2008 2007 certain patients bipolar disorder major depressive disorder • international sales increases 2008 2007 also primarily attributed increased prescription demand 2008 sales growth aided new bipolar indication second quarter 2008 eu orencia fusion protein indicated adult patients moderate severe ra inadequate response one currently available treatments mtx antitumor necrosis factor therapy • us sales increases 2008 2007 primarily due continued growth since launch biologic product us february 2006 • international sales increase 2008 reflects european launch may 2007 estimated us prescription change data provided throughout form 10k includes information retail mail order channels reflect information channels hospitals institutions longterm care among others estimated prescription data based nextgeneration prescription service ngps version 20 national prescription audit provided ims health ims supplier market research pharmaceutical industry described data provided ims product ims’ recordkeeping process estimate based ims’ sampling procedures data subject inherent limitations estimates based sampling may include margin error company calculated estimated total us prescription change based ngps data weightedaverage basis reflect fact mail order prescriptions include greater volume product supplied compared retail prescriptions mail order prescriptions typically reflect 90day prescription whereas retail prescriptions typically reflect 30day prescription calculation derived multiplying ngps mail order prescription data factor approximates three adding ngps retail prescriptions company believes calculation estimated total us prescription change based weightedaverage approach respect retail mail order channels provides superior estimate total prescription demand company uses methodology internal demand forecasts company continuously seeks improve quality estimates prescription change amounts ultimate patientconsumer demand review methodologies processes calculation estimates review analysis third parties data used calculations company expects continue review refine methodologies processes calculation estimates continue review analyze third parties’ data used calculations estimated enduser demand following tables set forth company’s key pharmaceutical products sold us pharmaceuticals business years ended december 31 2008 2007 2006 total us net sales period ii change reported us net sales period iii estimated total us prescription change retail mail order channels calculated company based ngps data weightedaverage basis iv months inventory hand wholesale distribution channel reflects percentage change net sales dollar terms b derived multiplying ngps mail order prescription data factor approximates three adding ngps retail prescriptions c beginning third quarter 2006 sustiva franchise total revenue includes sales sustiva well revenue bulk efavirenz included combination therapy atripla change us total prescriptions growth sustiva franchise includes branded sustiva atripla prescription units erbitux orencia ixempra parenterally administered products prescriptionlevel data physicians write prescriptions products e sprycel launched us july 2006 f ixempra launched us october 2007 g orencia launched us february 2006 h negative net sales attributed higher retail returns previously assumed change excess 200 pursuant us securities exchange commission sec consent order described “sec consent order” company monitors level inventory hand us wholesaler distribution channel outside us direct customer distribution channel company obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception following products estimated levels inventory distribution channel excess one month hand 1 case company’s us pharmaceuticals products december 31 2008 2 case company’s international pharmaceuticals nutritionals products september 30 2008 september 30 2008 bufferin salicylatate drug approximately 11 months inventory hand direct customers compared approximately 09 months inventory hand december 31 2007 increased level inventory hand due primarily increased inventory levels china caused distributors’ preparations national holidays september 30 2008 dafalgan analgesic product sold principally europe approximately 11 months inventory hand compared 12 months inventory hand december 31 2007 previously stated level inventory hand september 30 2008 due primarily private pharmacists purchasing dafalgan approximately every eight weeks seasonality product september 30 2008 videxvidex ec antiviral product approximately 13 months inventory hand direct customers compared 13 months inventory hand december 31 2007 previously stated level inventory hand due primarily government purchasing patterns brazil company contractually obligated provide videxvidex ec brazilian government upon placement order product government terms contract company control inventory levels relating orders us products sold exclusively wholesalers distributors company determines months hand estimates using information respect inventory levels product hand amount outmovement products provided company’s three largest wholesalers accounted approximately 90 total gross sales us pharmaceuticals products 2008 provided company’s distributors factors may influence company’s estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data represent recordkeeping processes may also reflect estimates pharmaceutical products us sold exclusively wholesalers distributors company’s pharmaceuticals business outside us nutritionals business units around world company significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely cases direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available company developed variety methodologies calculate estimates data including using factors historical sales made direct customers thirdparty market research data related prescription trends enduser demand accordingly company relies variety methods estimate direct customer product level inventory calculate months hand business units factors may affect company’s estimates include generic competition seasonality products direct customer purchases light price increases new product presentation launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations nutritionals composition change nutritional net sales follows infant formulas toddlerchildren’s nutritionals representing 97 96 total nutritional net sales 2008 2007 2006 respectively follows 2008 decrease us nutritional net sales primarily due decreased sales infant formulas increase international nutritionals net sales primarily due growth infant formulas children’s nutritionals 2007 increase us nutritional net sales primarily due increased sales infant formulas international nutritional net sales increased primarily due growth infant formulas children’s nutritionals geographic areas general company’s products available countries world largest markets us france spain canada china japan italy mexico germany company’s sales geographic areas based location entity selling product follows see items previously discussed “item 1 pharmaceuticals” items impacting increase us net sales 2008 2007 europe middle east africa sales increases 2008 primarily due sales growth major european markets abilify sprycel hiv hepatitis portfolio addition favorable foreign exchange impact 6 sales 2007 essentially flat sales growth major european markets sprycel abilify hiv hepatitis portfolio favorable foreign exchange impact 8 offset generic competition pravachol taxol western hemisphere countries sales 2008 essentially flat minimum foreign exchange impact sales increases 2007 primarily due increased sales plavix canada mexico key nutritional products avaproavalide canada favorable foreign exchange impact 4 increases partially offset discontinued commercialization tequin pacific region sales increases 2008 2007 primarily due sales growth baraclude china japan korea key nutritional products throughout region addition favorable foreign exchange impacts 6 5 respectively addition sales 2007 negatively impacted increased generic competition taxol pravachol single country outside us contributed 10 company’s total revenues 2008 2007 2006 net sales france canada spain japan exceeded 500 million 2008 2007 net sales china italy exceeded 500 million 2008 mexico 500 million sales 2007 expensesgains change excess 200 costs products sold • improvement costs products sold percentage net sales 2008 primarily attributed favorable worldwide pharmaceuticals product sales mix higher us pharmaceuticals average selling prices realized manufacturing savings pti factors partially offset product material price increases 2008 costs include manufacturing rationalization charges 249 million related implementation pti 2008 12 net sales compared 179 million rationalization charges recorded 2007 10 net sales • improvement costs products sold percentage sales 2007 primarily due sales growth higher margin products including plavix marketing selling administrative • increase 2008 primarily related 104 million increased process standardization costs incurred part pti compared prior period 41 million costs incurred part initial public offering mead johnson higher selling expenses support key products unfavorable 2 foreign exchange impact • increase 2007 primarily due unfavorable impact foreign exchange higher marketing expenses partially offset lower sales force expenses • decrease marketing selling administrative expenses percentage net sales result increased sales growth outpacing expenses managed pti advertising product promotion • increase 2008 primarily related increased promotions new indications abilify us increased promotion orencia increased expenses international nutritionals business unfavorable foreign exchange impact • increase 2007 primarily related increased spending directtocustomer advertising plavix abilify orencia expenses support launch ixempra higher spending newer products europe unfavorable foreign exchange impact research development • increase 2008 primarily related increased licensing upfront milestone payments increased spending pipeline compounds unfavorable foreign exchange impact 2008 increase partially offset sharing codevelopment costs alliance partners astrazeneca pfizer • increase 2007 primarily attributed continued investment latestage compounds developing pipeline disease areas address significant unmet medical needs well increased upfront milestone payments 2007 compared 2006 detailed 2007 increase partially offset sharing codevelopment costs alliance partners astrazeneca pfizer • upfront milestone payments made 2008 expensed research development totaled 348 million paid primarily exelixis pdl biopharma inc kai 2007 charges totaled 162 million paid exelixis pfizer adnexus isis 2006 charges totaled 70 million paid exelixis solvay global • research development expenses dedicated pharmaceutical products 196 200 203 pharmaceutical net sales 2008 2007 2006 respectively acquired inprocess research development • acquired inprocess research development costs iprd consisted estimated fair value research development acquired part acquisition december 31 2008 immediately expensed acquisition date • 2008 charge related iprd acquisition kosan whereas 2007 charge related iprd obtained acquisition adnexus therapeutics inc adnexus provision restructuring net • increase provision restructuring net attributed timing implementation pti announced december 2007 expanded july 2008 • increase 2007 attributed charges primarily severance related associated announcement pti december 2007 see “item 8 financial statementsnote 3 restructuring” litigation expense net • litigation expenses 2006 related reserves settlement principle certain pricing sales investigations partially offset insurance recoveries unrelated matter positive settlement litigation matter additional information litigation matters see “item 8 financial statementsnote 25 legal proceedings contingencies” gain sale product lines businesses • gain 2008 primarily attributable sale mature brands businesses egypt • gain 2007 attributed sale bufferin excedrin brands japan asia excluding china taiwan certain oceanic countries well certain assets related us dermatology products • gain 2006 attributed sale inventory patent intellectual property rights related dovonex • additional information transactions see “item 8 financial statementsnote 4 acquisitions divestitures” equity net income affiliates • equity net income affiliates principally related company’s international joint venture sanofi increases 2008 2007 correlated increases international plavix sales additional information equity net income affiliates see “item 8 financial statementsnote 2 alliances collaborations” gain sale imclone shares • gain sale imclone shares attributed company’s receipt approximately 10 billion cash tendering investment imclone see “item 8 financial statementsnote 2 alliances collaborations” detail expense net • components expense net follows • interest expense decreases 2008 2007 primarily due decreases interest rates • interest income relates primarily interest earned cash equivalents investments marketable securities decrease interest income 2008 primarily due change mix company’s shortterm investment portfolio well decrease rate return shortterm investments including us treasury bills compared prior year • ars impairment charge attributed company’s auction rate securities ars addition 19 million loss sale ars 2008 recognized included net see “item 8 financial statementsnote 11 cash equivalents marketable securities” detail • gain debt buyback 2008 attributed repurchase certain debt monetization certain interest rate swaps due recent appreciation value see “item 8 financial statements note 18 shortterm borrowing longterm debt” information • foreign exchange transaction gains 2008 attributed strengthening us dollar impact nonqualifying foreign exchange hedges remeasurement nonfunctional currency denominated transactions compared prior year • net includes income thirdparty contract manufacturing certain royalty income expense debt retirement costs gains losses sale property plant equipment gains losses sale marketable securities insurance recoveries deferred income recognized certain litigation matters convatec medical imaging net transitional service fees amortization certain upfront payments related company’s alliances proceeds swap terminations pension curtailments see “item 8 financial statementsnote 8 expense net” information years ended december 31 2008 2007 2006 company recorded following specified expenseincome items affected comparability results periods presented herein discussion items see “item 8 financial statementsnote 2 alliances collaborations” “note 3 restructuring” “note 4 acquisitions divestitures” “note 9 income taxes” “note 11 cash equivalents marketable securities” “note 18 shortterm borrowings longterm debt” “note 25 legal proceedings contingencies” specified items presented reflected segment results follows 1 includes 895 million gain sale imclone shares earnings continuing operations income taxes minority interest pharmaceuticals earnings increased 2008 primarily due increased sales plavix abilify hiv hepatitis portfolio orencia increase segment income percentage segment net sales 2008 primarily due similar factors discussed analysis consolidated expenses favorable product sales mix higher average selling prices realized manufacturing savings pti contributed reduction costs products sold percentage net sales results pti also contributed reduction marketing selling administrative expense percentage net sales earnings increased 2007 primarily due increased plavix sales strong sales growth key products increase segment income percentage segment net sales 2007 similar reasons discussed although lesser extent pti beginning 2007 nutritionals earnings increased 2008 primarily due increased international net sales increase segment income percentage segment net sales 2008 primarily due growth rate net sales exceeding growth rate marketing selling administrative expenses research development well 2007 bad debt charge distributor insolvency factors partially offset higher dairy prices advertising promotion expenses additional legal accounting consulting expenses incurred preparation initial public offering earnings increased 2007 primarily due growth key products decrease segment income percentage segment net sales 2007 primarily due higher dairy prices unfavorable product mix bad debt charge distributor insolvency corporateother earnings continuing operations income taxes minority interest reported corporateother consists income taxes effective income tax rate earnings continuing operations income taxes minority interest 241 2008 compared 214 2007 207 2006 increase 2008 effective tax rate 2007 primarily due higher pretax income us including gain sale imclone earnings mix high tax jurisdictions 2008 partially offsetting impacts lower nondeductible charges 2008 acquired inprocess research development expenses lower ars impairment charges little tax benefit tax rate 2008 favorably impacted benefit 91 million tax related final settlement 20022003 audit internal revenue service 2007 tax rate unfavorably impacted impairment company’s investment certain ars little tax benefit nondeductible writeoff acquired inprocess research development expenses related acquisition adnexus partially offset tax benefit 105 million first quarter 2007 due favorable resolution certain tax matters internal revenue service related deductibility litigation settlement expenses us foreign tax credits claimed effective tax rate 2006 unfavorably impacted elimination tax benefits section 936 internal revenue code treatment provisions portion certain litigation reserves nondeductible partially offset favorable us tax legislation enacted 2006 related tax treatment certain intercompany transactions amongst company’s foreign subsidiaries implementation tax planning strategies related utilization certain charitable contributions company recognized significant deferred tax assets december 31 2008 related us federal foreign tax credit carryforwards approximately 451 million us federal research development tax credit carryforwards approximately 271 million us federal charitable contribution carryforwards fully utilized 2008 due gains related convatec medical imaging divestitures foreign tax credit research development tax credit carryforwards expire varying amounts beginning 2014 foreign tax credit research development tax credit carryforwards reduced due derecognition fin 48 convatec medical imaging divestitures resulted significant reduction foreign tax credit research development tax credit carryforwards 2008 realization foreign tax credit research development tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured management believes likely deferred tax assets realized minority interest minority interest primarily related company’s partnership sanofi territory covering americas related plavix sales increases minority interest correspond increased sales plavix financial position liquidity capital resources company continues maintain sufficient level working capital approximately 81 billion december 31 2008 17 billion december 31 2007 2008 future periods company expects cash generated us operations together existing cash equivalents marketable securities borrowings capital markets sufficient cover cash needs working capital expenditures company expects include investments facilities increase maintain company’s capacity provide biologics commercial scale strategic alliances acquisitions milestone payments dividends paid us cash equivalents marketable securities conversion working capital items borrowings expected fund nearterm operations outside us december 2006 company obtained 20 billion five year revolving credit facility syndicate lenders extendable anniversary date consent lenders facility contains customary terms conditions including financial covenant whereby ratio consolidated debt consolidated capital cannot exceed 50 end quarter company compliance covenant since inception new facility borrowings outstanding revolving credit facility december 31 2008 february 17 2009 mead johnson entered three year syndicated revolving credit facility agreement credit facility unsecured provides borrowings letters credit 410 million net financial assets net financial asset position december 31 follows net cashdebt net cashdebt position december 31 2008 improved due proceeds 46 billion divestiture convatec medical imaging businesses proceeds 10 billion sale imclone shares cash generated operating activities 37 billion adequate fund dividend payments 25 billion well capital expenditure payments 941 million investments following table summarizes company’s carrying value related unrealized lossgain position current noncurrent marketable securities include us dollardenominated floating rate securities frs ars accounted “available sale” debt securities see “item 8 financial statementsnote 11 cash equivalents marketable securities” discussion company frs ars portfolio including related cost basis fair value investment 2008 company received 108 million principal par primarily frs matured march 2008 temporarily reduced carrying value remaining frs 26 million 203 million unrealized loss accumulated comprehensive income oci addition 2008 company reclassified 94 million remaining frs maturity dates beyond 2009 current assets noncurrent assets due liquidity concerns continued uncertainty capital markets 2008 company received 118 million primarily connection sale ars carrying value 137 million resulting loss 19 million addition 305 million otherthantemporary impairment charge recognized including 117 million previously determined temporary december 31 2007 2008 impairment charge required analysis otherthantemporary impairment factors including severity duration decline value future prospects issuer company’s ability intent hold securities recovery ars sold securities generally backed subprime mortgages collateralized debt obligations structured credit ars remaining december 31 2008 represents interests insurance securitizations lesser extent structured credit uncertainties credit capital markets continue markets deteriorate company experiences additional ratings downgrades investments portfolio including frs ars company may incur additional impairments investment portfolio could negatively affect company’s financial condition reported earnings company believes based company’s current level cash equivalents marketable securities expected operating cash flows current lack liquidity credit capital markets material impact company’s liquidity cash flow financial flexibility ability fund operations including dividend credit ratings moody’s investors service moody’s longterm shortterm credit ratings company currently a2 prime1 respectively moody’s revised longterm credit rating outlook negative stable standard poor’s sp longterm shortterm credit ratings company currently a1 respectively sp’s longterm credit rating remains stable outlook fitch ratings fitch longterm shortterm credit ratings company currently respectively fitch’s longterm credit rating remains stable outlook working capital following discussion working capital increase working capital 63 billion december 31 2007 december 31 2008 impacted • proceeds sale convatec business 41 billion • proceeds sale imclone shares 10 billion • proceeds issuance 6125 notes due 2038 10 billion 545 notes due 2018 600 million cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts cash disbursements related activities company investing activities financing activities operating cash flow derived adjusting net earnings • noncash operating items depreciation amortization impairment charges stockbased compensation charges • gains losses attributed investing financing activities gains losses sale product lines businesses • changes operating assets liabilities reflect timing differences receipt payment cash associated transactions recognized results operations company’s operating cash flow grown consistently throughout three years ended december 31 2008 increases net income attributed reasons noted throughout mda continue directly impact operating cash flows evident net income adjusted noncash operating items well gains losses attributed investing financing activities amounted 36 billion 2008 32 billion 2007 25 billion 2006 amounts exclude changes operating assets liabilities discussed net impact changes operating assets liabilities discussed detail include impact changes receivables inventories deferred income accounts payable income taxes receivablepayable operating assets liabilities company continues maximize operating cash flows recently announced working capital initiative designed continue improve working capital items directly affected changes sales volume accounts receivable inventories accounts payable 2008 changes operating assets resulted net cash inflow 117 million impacted • cash inflows income tax payablereceivable 371 million includes impact receipt 432 million tax refund including interest related prior year foreign tax credit carryback claim • cash inflows accounts payables 253 million primarily attributed timing vendor alliance payments • cash inflows inventory 130 million primarily attributed utilization inventories built prior year new product launches strategic builds existing products launches including new indications abilify • cash inflows deferred income 61 million primarily due receipt upfront milestone payments alliance partners • cash outflows operating assets liabilities 333 million primarily due net litigation related payments made current period 190 million attributed settlement certain pricing sales litigation accrued prior periods pension funding excess current year expense 120 million increase noncurrent inventory 112 million • cash outflows accounts receivables 365 million attributed increased sales 2007 changes operating assets resulted net cash outflow 7 million impacted • cash outflows accounts receivable 519 million primarily attributed increased sales • cash outflows us foreign income taxes payable 199 million primarily attributed tax payments included settlement payments associated various tax issues 20022003 irs audit • cash inflows deferred income 454 million primarily due receipt upfront milestone payments alliance partners including pfizer astrazeneca • cash inflows operating assets liabilities 170 million primarily due increases accrued royalties attributed increased plavix sales increases accrued salaries bonuses due timing payments partially offset cash outflows primarily related litigation related payments 318 million settlement pricing sales litigation accrued prior periods • cash inflows accounts payables 141 million include impact increased purchases raw materials planned inventory buildup 2006 changes operating assets resulted net cash outflow 464 million impacted • cash outflows operating assets liabilities 573 million primarily due pay accrued rebates returns primarily resulting exclusivity loss pravachol volume erosion highly rebated paraplatin taxol lower plavix volumes reduced royalties lower plavix sales additions litigation settlement accrual related pricing sales litigation settlements primarily offset net litigation related payments related matters accrued prior years 272 million • cash outflows accounts payable 349 million primarily due lower purchases pravachol raw materials due loss pravachol exclusivity significant reduction payables early 2006 resulting lower payment invoices december 2005 • cash inflows accounts receivables 444 million primarily due lower plavix sales loss exclusivity pravachol investing activities net cash provided investing activities 51 billion 2008 included • proceeds divestiture convatec 41 billion medical imaging 483 million mature brands business egypt 209 million • proceeds tendering company’s shares imclone 10 billion • proceeds sale leaseback paris france facility 227 million • capital expenditures 941 million included expenditures associated construction company’s biologic facility devens massachusetts • acquisition kosan 191 million net cash used investing activities 202 million 2007 included • capital expenditures 843 million • acquisition adnexus 432 million • net proceeds sale marketable securities 756 million • proceeds sales bufferin excedrin brands japan asia excluding china taiwan certain oceanic countries us dermatology products 273 million net cash provided investing activities 206 million 2006 included • net proceeds sale marketable securities 762 million • proceeds disposal properties connection sale lease back administrative facilities new jersey 281 million • proceeds sale various product assets primarily sale several assets related dovonex 226 million • capital expenditures 785 million • milestone payments primarily related imclone 280 million financing activities net cash used financing activities 26 billion 2008 included • dividend payments 25 billion • redemption floating rate convertible senior debentures due 2023 12 billion • repayment 400 notes due august 2008 400 million 110 yen notes due 2008 117 million • repurchase company’s notes 228 million • net proceeds issuance 545 notes due 2018 600 million 6125 notes due 2038 10 billion • net proceeds termination interest rate swap agreements 211 million • net proceeds stock option exercises 2008 5 million reflects exercise fewer stock options 2008 due decrease average stock price compared prior periods net cash used financing activities 32 billion 2007 included • dividend payments 22 billion • repayment floating rate bank facility 13 billion • proceeds exercise stock options 333 million net cash used financing activities 34 billion 2006 included • debt payments associated early retirement 575 notes due 2011 25 billion floating rate bank facility 12 billion • dividend payments 22 billion • proceeds issuance 587 notes due 2036 13 billion euro notes 13 billion dividends declared per common share 124 2008 115 2007 112 2006 december 2008 company declared quarterly dividend 031 per common share indicated dividend full year 2009 124 per share dividend decisions made quarterly basis company’s board directors contractual obligations payments due period company’s contractual obligations december 31 2008 follows 1 current portion longterm debt obligations included shortterm borrowings company’s consolidated balance sheet december 31 2008 balances approximate outstanding nominal longterm debt values 2 includes estimated future interest payments shortterm longterm debt also includes accrued interest payable recorded consolidated balance sheets consists primarily accrual interest shortterm longterm debt well accrual periodic cash settlements derivatives netted counterparty 3 due uncertainty related timing reversal uncertain tax positions shortterm uncertain tax benefits provided table 4 include minority interest 33 million 5 table excludes future contributions company pension postretirement postemployment benefit plans required contributions contingent upon numerous factors including minimum regulatory funding requirements funded status plan due uncertainty future obligations excluded table contributions us international plans expected 690 million 2009 see “item 8 financial statementsnote 24 pension postretirement postemployment benefits” detail addition company committed make approximately 30 billion potential future research development milestone payments third parties part inlicensing development programs payments agreements generally become due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted achievement milestones neither probable reasonably estimable contingencies recorded company’s consolidated balance sheets discussion contractual obligations see “item 8 financial statementsnote 18 shortterm borrowings longterm debt” “note 21 financial instruments” “note 23 leases” “note 24 pension postretirement postemployment liabilities” sec consent order previously disclosed august 4 2004 company entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 company’s quarterly report form 10q period ended september 30 2004 terms consent company agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice company also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer company’s accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring company’s budget process gives appropriate weight inputs come bottom top bottom adequately documenting process company established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis company maintains inventory management agreements imas us pharmaceutical wholesalers account nearly 100 total gross sales us pharmaceutical products current terms imas company’s three largest wholesaler customers provide company weekly information respect months hand productlevel inventories amount outmovement products three wholesalers currently account approximately 90 total gross sales us pharmaceuticals products 2008 2007 2006 inventory information received wholesalers together company’s internal information used estimate months hand product level inventories wholesalers company estimates months hand product inventory levels us pharmaceutical business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast company’s pharmaceutical business outside us nutritionals business units around world company significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly company relies variety methods estimate months hand product level inventories business units company believes abovedescribed procedures provide reasonable basis ensure compliance consent recently issued accounting standards 2008 following new accounting pronouncements critical company’s financial statements discussed “item 8 financial statementsnote 1 accounting policiesrecently issued accounting standards” considered evaluated required application impact • eitf issue 073 accounting nonrefundable advance payments goods services received use future research development activities • sfas 159 fair value option financial assets financial liabilities • sfas 157 fair value measurements • sfas 161 disclosures derivative instruments hedging activities • eitf issue 071 accounting collaborative arrangements related development commercialization intellectual property • sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 • sfas 141r business combinations critical accounting policies company prepares financial statements conformity accounting principles generally accepted us preparation financial statements conformity us generally accepted accounting principles gaap requires use estimates assumptions affect reported amounts assets liabilities including disclosure contingent assets contingent liabilities date financial statements reported amounts revenue expenses reporting period company’s critical accounting policies important company’s financial condition results operations require difficult subjective complex judgments part management application often result need make estimates effect matters inherently uncertain uncertainty factors surrounding estimates judgments used preparation consolidated financial statements actual results may vary estimates company believes following discussion represents critical accounting policies management discussed company’s critical accounting policies audit committee board directors revenue recognition company recognizes revenue accordance staff accounting bulletin sab 101 revenue recognition financial statements amended sab 104 revenue recognition company’s accounting policy revenue recognition substantial impact reported results relies certain estimates require difficult subjective complex judgments part management company recognizes revenue net grosstonet sales adjustments discussed involve significant estimates judgments title substantially risks rewards ownership transferred customer generally occurs date shipment case new products product introduction extension existing line product company determines products similar therapeutic category company determines new product dissimilar characteristics existing products company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns discussions revenue recognition see “item 8 financial statementsnote 1 accounting policiesrevenue recognition sales rebate return accruals” grosstonet sales adjustments company following significant categories grosstonet sales adjustments prime vendor chargebacks wic rebates managed health care rebates contract discounts medicaid rebates cash discounts sales returns adjustments involve significant estimates judgments require company use information external sources company accounts grosstonet sales adjustments accordance eitf issue 019 accounting consideration given vendor customer including reseller vendor’s products sfas 48 revenue recognition right return exists applicable see “net sales” section reconciliation company’s gross sales net sales significant category grosstonet sales adjustment prime vendor chargebacks company’s us businesses participate prime vendor programs government entities significant us department defense us department veterans affairs parties whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower prime vendor price wholesalers charge difference acquisition cost lower prime vendor price back company accounts prime vendor chargebacks reducing accounts receivable amount equal company’s estimate chargeback claims attributable sale company determines estimate prime vendor chargebacks primarily based historical experience regarding prime vendor chargebacks current contract prices prime vendor programs company considers prime vendor payments levels inventory distribution channel company’s claim processing time lag adjusts reduction accounts receivable periodically throughout quarter reflect actual experience wic rebates company’s us nutritionals business participates competitive bidding basis nutrition programs sponsored states tribal governments commonwealth puerto rico us territories wic programs company reimburses entities difference wholesaler list price contract price eligible products company accounts wic rebates establishing accrual amount equal company’s estimate wic rebate claims attributable sale company determines estimate wic rebate accrual primarily based historical experience regarding wic rebates current contract prices wic programs company considers levels inventory distribution channel new wic contracts terminated wic contracts changes existing wic contracts wic participation adjusts accrual periodically throughout quarter reflect actual experience managed health care rebates contract discounts company offers rebates discounts managed health care organizations us manage prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit addition commercial plans well globally contract counterparties hospitals group purchasing organizations addition company pays rebates us department defense tricare retail pharmacy refund program company accounts managed health care rebates contract discounts establishing accrual amount equal company’s estimate managed health care rebates contract discounts attributable sale company determines estimate managed health care rebates contract discounts accrual primarily based historical experience regarding rebates discounts current contract prices company considers sales performance products subject managed health care rebates contract discounts levels inventory distribution channel adjusts accrual periodically throughout quarter reflect actual experience medicaid rebates company’s us businesses participate state governmentmanaged medicaid programs well certain qualifying federal state government programs whereby discounts rebates provided participating state local government entities discounts rebates provided latter programs included company’s medicaid rebate accrual considered medicaid rebates purposes discussion company accounts medicaid rebates establishing accrual amount equal company’s estimate medicaid rebate claims attributable sale company determines estimate medicaid rebates accrual primarily based historical experience regarding medicaid rebates well expansion prospective basis participation nonmandatory aspects qualifying federal state government programs legal interpretations applicable laws related medicaid qualifying federal state government programs new information regarding changes medicaid programs’ regulations guidelines would impact amount rebates company considers outstanding medicaid claims medicaid payments levels inventory distribution channel adjusts accrual periodically throughout quarter reflect actual experience cash discounts us certain countries company offers cash discounts approximating 2 sales price incentive prompt payment company accounts cash discounts reducing accounts receivable full amount discounts company considers payment performance adjusts accrual reflect actual experience sales returns company accounts sales returns accordance sfas 48 revenue recognition right return exists establishing accrual amount equal company’s estimate sales recorded related products expected returned provision sales returns 228 million 2008 155 million 2007 224 million 2006 approximates 1 gross sales three years returns established products company determines estimate sales return accrual primarily based historical experience regarding sales returns also considers factors could impact sales returns factors include levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products company considers factors adjusts accrual periodically throughout quarter reflect actual experience event product recall product discontinuance company considers reasons impact actions adjusts sales return accrual appropriate taking account historical experience estimated levels inventory distribution channel product discontinuances estimates continuing demand sales returns accruals new products estimated primarily based historical sales returns experience similar products within line product within similar therapeutic category limited circumstances new product extension existing line product company historical experience products similar therapeutic category company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns company also considers shelf life new products determines whether believes adjustment sales return accrual appropriate shelf life connection new products tends shorter shelf life established products company may still developing optimal manufacturing process new product would lengthen shelf life addition higher launch quantities may manufactured advance launch date ensure sufficient supply exists satisfy market demand cases company assesses reduced shelf life together estimated levels inventory distribution channel projected demand determines whether believes adjustment sales return accrual appropriate adjustments addition grosstonet sales adjustments described company makes grosstonet sales adjustments example company offers sales discounts significantly nonus businesses also offers consumer coupons rebates significantly us nutritionals pharmaceuticals businesses addition number countries outside us including certain major european countries company provides rebates government entities company generally accounts grosstonet adjustments establishing accrual amount equal company’s estimate adjustments attributable sale company generally determines estimates accruals grosstonet sales adjustments primarily based historical experience performance commitments government entities relevant factors including estimated levels inventory distribution channel adjusts accruals periodically throughout quarter reflect actual experience use information external sources company uses information external sources estimate grosstonet sales adjustments company’s estimates inventory wholesalers based projected prescription demandbased sales products historical inventory experience well company’s analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data company’s internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals company receives information ims supplier market research pharmaceutical industry uses project prescription demandbased sales many us pharmaceutical products 2007 ims refined improved ngps projection methodology fully rolled ngps version 20 national prescription audit subscribers resulted newly revised volume estimates historic time periods therefore since first quarter 2007 company used new ims standard ngps version 20 projection methodology applied ngps version 20 data reporting prescription growth market shares periods presented annual report form 10k company also continued practice combining retail mail prescription volume retailequivalent basis company uses methodology internal demand forecasts company also uses information external sources identify prescription trends patient demand average selling prices company’s estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date company receives thirdparty information retirement benefits company’s pension plans postretirement benefit plans accounted using actuarial valuations management required make significant subjective judgments number actuarial assumptions including discount rates salary growth longterm return plan assets retirement turnover health care cost trend rates mortality rates depending assumptions estimates used pension postretirement benefit expense could vary within range outcomes material effect reported earnings addition assumptions materially affect projected benefit obligations future cash funding company adopted sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r year ended december 31 2006 adoption accounting pronouncement resulted 11 billion reduction accumulated comprehensive income stockholders’ equity 767 million reduction total assets 297 million increase total liabilities adoption sfas 158 impact company’s results operations cash flows company’s key assumptions used calculating cost pension benefits discount rate compensation increase expected longterm rate return plan assets company consultation actuaries evaluates key actuarial assumptions used calculating cost pension benefits retirement turnover mortality rates based expectations actual experience appropriate determines assumptions december 31 year calculate liability information date pension expense following year depending assumptions used pension expense could vary within range outcomes material effect reported earnings addition assumptions materially affect projected benefit obligations future cash funding actual results given year may differ estimated economic factors determining discount rate company uses yield high quality corporate bonds coincides cash flows plans’ estimated payouts citigroup median yield curve used determining discount rate us plans assumed rate compensation increase used company determining future pension obligations reflects estimate change actual future compensation levels due general price levels productivity seniority factors us plans’ pension expense 2008 determined using 675 assumed discount rate 356 assumed rate compensation increase present value benefit obligations december 31 2008 us plans determined using 65 assumed discount rate 356 assumed rate compensation increase assumed discount rate used determining us plans’ pension expense 2008 reduced 025 expense would increased approximately 17 million assumed rate compensation increase used determining us plans’ pension expense 2008 reduced 025 expense would decreased approximately 9 million assumed discount rate used determining projected benefit obligation december 31 2008 reduced 025 projected benefit obligation would increased 126 million determining expected longterm rate return plan assets company estimates returns individual asset classes input external advisors company also considers longterm historical returns including actual performance compared benchmarks similar investments us plans’ pension expense 2008 determined using 875 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2008 reduced 1 expense would increased 43 million detailed discussion retirement benefits see “item 8 financial statementsnote 24 pension postretirement postemployment liabilities” acquisitions company’s consolidated financial statements results operations reflect acquired business completion acquisition acquired businesses accounted using purchase method accounting requires purchase price allocated net assets acquired respective fair values excess purchase price estimated fair values net assets acquired recorded goodwill amounts allocated acquired iprd expensed date acquisition judgments made determining estimated fair value assigned class assets acquired liabilities assumed well asset lives materially impact results operations several methods used determine fair value assets acquired liabilities assumed intangible assets including iprd typically use “income method” method starts forecast expected future net cash flows cash flows adjusted present value applying appropriate discount rate reflects risk factors associated cash flow streams significant estimates assumptions inherent income method methods include amount timing projected future cash flows amount timing projected costs develop iprd commercially viable products discount rate selected measure risks inherent future cash flows assessment asset’s life cycle competitive trends impacting asset including consideration technical legal regulatory economic barriers entry well expected changes standards practice indications addressed asset determining useful life intangible asset also requires judgment different types intangible assets different useful lives example useful life right associated pharmaceutical product’s exclusive patent finite result amortization expense recognized results operations determinable period detailed discussion acquired inprocess research development see “item 8 financial statementsnote 1 accounting policiesacquired inprocess research development” impairment longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value goodwill tested least annually impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value longlived assets tested impairment using onestep process consists comparison fair value carrying value asset assets deemed impaired net book value exceeds estimated fair value estimates future cash flows based reasonable supportable assumptions projections require management’s judgment changes key assumptions company’s businesses prospects changes market conditions could result impairment charge impairment charges longlived assets 63 million 2008 104 million 2007 120 million 2006 discussions impairment longlived assets see “item 8 financial statementsnote 1 accounting policiesimpairment longlived assets” “goodwill intangible assets” equity investments company reviews equity investments impairment based determination whether decline market value investment company’s carrying value temporary making determination company considers apb opinion 18 equity method accounting investments common stock related interpretations set forth factors evaluated determining whether loss value recognized including company’s ability hold investment market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment company’s previous investment imclone subject accounting discussion company’s investment imclone see “item 8 financial statementsnote 2 alliances collaborations” discussions equity investments see “item 8 financial statementsnote 1 accounting policiesinvestments” “note 2 alliances collaborations” marketable securities company’s marketable securities december 31 2008 consisted us treasury bills frs ars due lack availability observable market quotes company’s investment portfolio frs ars company utilizes valuation models including based expected cash flow streams collateral values including assessments counterparty credit quality default risk underlying security discount rates overall capital market liquidity valuation subject uncertainties difficult predict factors may impact company’s valuation include changes credit ratings securities well underlying assets supporting securities rates default underlying assets underlying collateral value discount rates counterparty risk ongoing strength quality market credit liquidity considerable amount judgment estimation applied valuation frs ars addition company also applies judgment determining whether marketable securities otherthantemporarily impaired company typically considers severity duration decline future prospects issuer company’s ability intent hold security recovery otherthantemporary impairment charges related ars 305 million 275 million 2008 2007 respectively carrying value ars 94 million december 31 2008 credit capital markets continued deteriorate 2009 uncertainties markets continue markets deteriorate company experiences additional ratings downgrades investments portfolio including ars company may incur additional impairment charges discussions marketable securities frs ars see “item 8 financial statementsnote 10 fair value measurement” “note 11 cash equivalents marketable securities” restructuring streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results could vary estimates adjustments reflect changes estimates restructuring actions taken prior periods resulted increase 1 million 2008 reduction 6 million 2007 14 million 2006 discussions restructuring see “item 8 financial statementsnote 1 accounting policiesrestructuring” “note 3 restructuring” contingencies normal course business company subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies see “item 8 financial statementsnote 1 accounting policiescontingencies” “note 9 income taxes” “note 25 legal proceedings contingencies” income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases company’s assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recorded reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made company net deferred tax assets 28 billion 35 billion december 31 2008 2007 respectively net valuation allowances 18 billion 20 billion company recognized significant deferred tax assets december 31 2008 related us federal foreign tax credit carryforwards 451 million us federal research development tax credit carryforwards 271 million realization tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured management believes likely deferred tax assets realized company establishes liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 9 income taxes” special note regarding forwardlooking statements annual report written oral statements company makes time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things company’s goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years company included important factors cautionary statements included annual report particularly “item 1a risk factors” company believes could cause actual results differ materially forwardlooking statement although company believes prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made company undertakes obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations executive summary bristolmyers squibb company may referred bristolmyers squibb bms company us global biopharmaceutical company consisting global pharmaceuticalbiotechnology international consumer medicines businesses whose mission discover develop deliver innovative medicines help patients prevail serious diseases license manufacture market distribute sell products global basis february 2009 mead johnson nutrition company mead johnson completed initial public offering ipo class common stock post ipo held 831 interest mead johnson december 23 2009 completed exchange offer previously held 170 million shares mead johnson 269 million outstanding shares stock mead johnson’s financial results previously reported separate segment reported discontinued operations years presented continued execute stringofpearls strategy 2009 acquisition medarex inc medarex september 2009 various collaboration agreements entered year divestiture mead johnson continued execution stringofpearls strategy allowed us become focused biopharmaceutical company meeting productivity transformation initiative pti objectives implemented culture continuous improvement 2009 financial highlights following table summary operating activity net sales net sales increased 6 8 excluding unfavorable foreign exchange impact us net sales increased 12 119 billion 2009 international net sales decreased 3 increased 3 excluding unfavorable foreign exchange impact 69 billion • sales growth 2009 led continued increases plavix clopidogrel bisulfate 10 abilify aripiprazole 20 • virology portfolio continued demonstrate strong sales growth 2009 led baraclude entecavir 36 sustiva efavirenz franchise 11 reyataz atazanavir sulfate 8 • worldwide growth orencia abatacept 37 sprycel dasatinib 36 • erbitux cetuximab net sales 9 • onglyza saxagliptin dppiv inhibitor submitted regulatory authorities 50 countries approved 36 beginning third quarter 2009 launched six countries united states us canada mexico germany united kingdom uk denmark net sales 24 million 2009 biopharmaceutical segment results increase biopharmaceutical segment results attributed • increased net sales various key products noted • favorable gross margin percentage attributed favorable foreign exchange higher average selling prices favorable product mix realized efficiencies pti • efficient reduced spending within marketing selling administrative • partially offset increased investments within research development pipeline net earnings continuing operations attributable bristolmyers squibb company increase attributed • improved segment results • partially offset unfavorable impact specified items 2009 prior year includes gain sale imclone systems incorporated imclone shares • additional taxes higher income levels however effective tax rate reduced 170 basis points 211 net earnings discontinued operations attributable bristolmyers squibb company 2009 completed splitoff mead johnson resulting aftertax gain approximately 72 billion results mead johnson business related gain included discontinued operations years presented addition results mead johnson 2008 results include 20 billion aftertax gain divestiture convatec 43 million aftertax loss divestiture medical imaging operating results prior divestitures diluted earnings per share continuing operations diluted earnings per share eps continuing operations increased 21 2009 due improved operating results driven activities discussed eps impact 269 million share reduction resulting mead johnson splitoff minimal due relatively short period lower share count outstanding nongaap financial measures including nongaap earnings continuing operations related eps information adjusted exclude certain costs expenses gains losses specified items nongaap diluted eps continuing operations increased 24 2009 adjusting specified items 428 million 2009 278 million 2008 detailed listing specified items information reconciliations nongaap financial measures see “specified items” “nongaap financial measures” cash equivalents marketable securities sources cash equivalents marketable securities included 41 billion generated operating activities net proceeds mead johnson’s issuance various notes draw credit facility 17 billion used repay intercompany loans prior splitoff net proceeds 782 million mead johnson ipo proceeds 456 million sale various mature businesses trademarks sources adequate fund dividend payments 25 billion medarex business acquisition 23 billion capital expenditures 730 million business environment conduct business primarily within pharmaceuticalbiotechnology industry highly competitive subject numerous government regulations many competitive factors may significantly affect sales products including product efficacy safety price costeffectiveness marketing effectiveness product labeling quality control quality assurance manufacturing operations research development new products successfully compete business healthcare industry must demonstrate products offer medical benefits well cost advantages currently new product introductions compete products already market therapeutic category addition potential competition new products competitors may introduce future manufacture branded products priced higher generic products generic competition one leading challenges globally pharmaceuticalbiotechnology industry majority innovative product’s commercial value usually realized period product market exclusivity product loses exclusivity longer protected patent subject new competing products form generic brands upon exclusivity loss lose major portion product’s sales short period time currently generic versions biological products cannot approved us law however law could change future even absence new legislation us food drug administration fda taking steps toward allowing generic versions certain biologics competitors seeking approval biological products must file safety efficacy data address challenges biologics manufacturing involve complex processes costly traditional pharmaceutical operations us internationally healthcare industry subject various governmentimposed regulations authorizing prices price controls continue impact net sales us congress state legislatures considered number proposals enacted laws could result major changes current healthcare system either nationally state level driven part budget concerns medicaid access reimbursement restrictions implemented states proposed many others addition medicare prescription drug improvement modernization act provides outpatient prescription drug coverage senior citizens us legislation modest favorable impact us result increase number seniors drug coverage time continues potential negative impact us biopharmaceuticals business could result pricing pressures controls many markets outside us operate environments governmentmandated costcontainment programs regulatory bodies groups exert downward pressure pricing freedom limited uk instance operation profit control plan germany operation reference price system companies also face significant delays market access new products two years elapse drug approval new medicines become available countries growth managed care organizations mcos us played large role competition surrounds healthcare industry mcos seek reduce healthcare expenditures participants making volume purchases entering longterm contracts negotiate discounts various pharmaceutical providers market potential created large pool participants marketing prescription drugs mcos become important part strategy companies compete inclusion mco formularies generally successful major products included believe developments managed care industry including continued consolidation continue generally downward pressure prices pharmaceuticalbiotechnology production processes complex highly regulated vary widely product shifting adding manufacturing capacity lengthy process requiring significant capital expenditures regulatory approvals biologics manufacturing involves complex processes traditional pharmaceutical operations biologics become larger percentage product portfolio continue make arrangements thirdparty manufacturers make substantial investments increase internal capacity produce biologics commercial scale one investment new stateoftheart manufacturing facility production biologics devens massachusetts construction substantially completed 2009 expect submit site regulatory approval 2011 maintained competitive position market strive uphold position dependent success discovering developing delivering innovative costeffective products help patients prevail serious diseases subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcomes investigations litigations additional discussion legal matters see “item 8 financial statementsnote 24 legal proceedings contingencies” strategy continue execute multiyear strategy allowed us transform nextgeneration biopharmaceutical company strategy encompasses aspects geographies business yielded continue yield substantial cost savings cost avoidance increases financial flexibility take advantage attractive market opportunities may arise completion mead johnson splitoff well prior year dispositions convatec medical imaging businesses operating within core biopharmaceutical business focus 2009 completed sale mature brands businesses related manufacturing facilities asiapacific region china pakistan egypt australia also reducing number facilities global manufacturing network also allocating resources continue stringofpearls strategy enable strategic transactions could range collaboration license agreements acquisition companies september 2009 completed acquisition medarex entered restructured collaboration agreements various companies 2009 including alder pharmaceuticals inc alder otsuka pharmaceutical co ltd otsuka zymogenetics inc zymogenetics eli lilly company lilly january 2010 managing costs another part overall strategy implemented pti initiatives resulting incurrence 13 billion costs target create total 25 billion annual productivity savings cost avoidance 2012 approximately 90 expected realized end 2010 subsequent pti implemented strategic process designed achieve culture continuous improvement enhance efficiency effectiveness competitiveness continue improve cost base continue focus development biopharmaceuticals business maintain growth investing research development well key growth products including specialty biologic medicines cardiovascular metabolic drugs onglyza submitted regulatory authorities 50 countries approved 36 beginning third quarter 2009 launched six countries us canada mexico germany uk denmark refined focus emerging markets represent significant opportunities growth identified five emerging markets focus brazil russia india china turkey emerging public health interests countries best align strategy well current portfolio pipeline product pipeline developments belatacept • september 2009 announced fda accepted filing review submission biologic license application belatacept development use kidney transplantation prescription drug user fee act pdufa goal fda action may 1 2010 january 2010 fda announced cardiovascular renal drugs advisory committee plans meet march 1 2010 provide advice regarding application • may 2009 belatacept investigational costimulation blocker studied use solid organ transplantation subject nine companysponsored clinical presentations including first phase iii data american transplant congress data suggest belatacept may represent promising therapeutic option kidney transplant patients dapagliflozin • october 2009 announced results 24week phase iii clinical study demonstrated investigational drug dapagliflozin added metformin provided significant mean reductions primary endpoint glycosylated hemoglobin level hba1c secondary endpoint fasting plasma glucose patients type 2 diabetes inadequately controlled metformin alone compared placebo plus metformin study also showed individuals receiving dapagliflozin statistically greater mean reduction body weight compared individuals taking placebo • june 2009 american diabetes association annual scientific sessions 12week study dapagliflozin presented demonstrated improved glycemic control inadequately controlled type 2 diabetes patients treated high doses insulin common oral antidiabetic medicines • march 2009 company astrazeneca plc astrazeneca published findings 12week phase iib doseranging study dapagliflozin produced clinically meaningful reductions across key glycemic measures studied treatmentnaive type 2 diabetes patients compared placebo study findings also showed patients receiving dapagliflozin experienced greater reductions body weight compared patients placebo apixaban • december 2009 company pfizer inc pfizer announced plans submit regulatory filing first half 2010 apixaban europe companies plan file regulatory approval apixaban prevention venous thromboembolism orthopedic surgery application supported advance2 advance3 two clinical trials evaluated apixaban versus european dosing regimen enoxaparin prevention vte patients undergoing orthopedic surgery apixaban novel oral highlyselective factor xa inhibitor new class agents studied potential prevent treat blood clots veins arteries • july 2009 results apixaban advance2 study presented latebreaking clinical trial session congress international society thrombosis hemostasis study’s results demonstrated apixaban superior european regimen enoxaparin standard care reducing risk venous thromboembolism patients undergoing total knee replacement surgery showed lower observed bleeding rates compared enoxaparin study also showed overall safety profile apixaban similar enoxaparin • march 2009 company pfizer initiated phase iii program treatment acute coronary syndrome ipilimumab • may 2009 company medarex announced american society clinical oncology annual meeting updated survival results followup extensions three phase ii studies show twoyear survival ranging 30 42 patients advanced metastatic melanoma stage iii iv ntc801 • march 2009 announced global collaboration nissan chemical industries ltd teijin pharma limited nissan development commercialization ntc801 selective inhibitor acetylcholineactivated potassium ion channel currently phase development japan maintenance normal sinus rhythm patients atrial fibrillation peginterferon lambda • november 2009 60th annual meeting american association study liver diseases company zymogenetics presented final phase ib results peginterferon lambda hepatitis c antiviral activity seen dose levels tested results support moving doseranging phase ii studies treatmentnaïve hepatitis c patients • january 2009 announced global collaboration zymogenetics peginterferon lambda novel type 3 interferon currently phase ib development treatment hepatitis c april 2009 company zymogenetics announced positive 4week results peginterferon lambda ribavirin treatment hepatitis c ongoing phase ib clinical trial xl184 • october 2009 company exelixis inc exelixis reported new phase ii data developmental compound xl184 patients glioblastoma multiforme gbm common aggressive form brain cancer xl184 showed promising activity gbm patients receiving daily dose 125 milligrams compound • may 2009 company exelixis reported american society clinical oncology annual meeting encouraging data ongoing phase ii trial xl184 patients previouslytreated gbm abilify • november 2009 company otsuka announced fda approved abilify treatment irritability associated autistic disorder pediatric patients ages 6 17 years • november 2009 company otsuka following discussions committee medicinal products human use chmp withdrew marketing authorization application eu new indication abilify treatment major depressive episodes adjunctive therapy patients inadequate response previous treatment antidepressants erbitux • september 2009 european cancer organisation european society medical oncology multidisciplinary congress data presented two phase iii erbitux studies firstline metastatic colorectal cancer patients retrospective analysis phase iii crystal study demonstrated erbitux added folfiri chemotherapy regimen shown increase progressionfree survival pfs median overall survival firstline metastatic colorectal cancer mcrc patients compared receiving folfiri alone subset patients mcrc tumors without kras mutations commonly referred “wildtype” kras median overall survival increased 235 months patients received erbitux plus folfiri compared 20 months taking folfiri alone another phase iii study erbitux plus chemotherapy primarily capecitabine plus oxaliplatin firstline mcrc known coin conducted uk medical research council coin study meet primary endpoint overall survival • july 2009 company lilly announced fda approved revisions us prescribing information erbitux concerning treatment patients epidermal growth factor receptor egfrexpressing mcrc labeling revisions include modification states erbitux recommended patients whose tumors kras mutations codon 12 13 estimated 40 patients mcrc tumors kras mutations approximately 60 patients mcrc tumors without kras mutations • march 2009 company lilly announced companies received complete response letter fda firstline squamous cell carcinoma head neck supplemental biologics license application sbla erbitux complete response letter fda requested additional pharmacokinetic study confirm comparability erbitux used firstline head neck submission compared erbitux currently marketed united states previously announced company lilly recently withdrew advanced nonsmall cell lung cancer sbla erbitux matter cases companies continue work fda confirm pharmacokinetic comparability ixempra • march 2009 withdrew marketing authorization application ixempra ixabepilone submitted european medicines agency september 2007 ald518 • november 2009 company alder entered global agreement development commercialization ald518 novel biologic completed phase iia development treatment rheumatoid arthritis ald518 humanized monoclonal antibody targeting il6 plavix • november 2009 us plavix label updated new warnings use prilosec omeprazole certain drugs could interfere plavix reducing effectiveness label also updated include warnings variability response attributed cyp 2c19 genetic polymorphisms company sanofi currently discussions fda regarding possible additional changes us plavix label • august 2009 oasis study group presented initial results currentoasis 7 clinical trial european society cardiology congress barcelona largescale global study provided information intensified doseregimen plavix acute coronary syndrome acs patients managed early invasive strategy intent percutaneous coronary intervention pci study showed added benefit composite primary endpoint cardiovascular death heart attack stroke 30 days higher dose entire acs study population clinically relevant subgroups prespecified preliminary analysis pci group 70 trial population potentially medically relevant differences patient outcomes observed subgroups analysis showed improvement outcome pci patients taking higher plavix dose regimen 600 mg loading150 mg days 2775 mg days 830 standard dose regimen 300 mg loading75 mg days 230 shown 15 reduction composite endpoint cardiovascular death heart attack stroke statistically significant increase primary safety endpoint major bleeding highdose compared standarddose plavix regimen overall trial population pci population • march 2009 company sanofiaventis sanofi announced new findings active trial investigational study plavix provided results demonstrated patients atrial fibrillation increased risk stroke could take oral anticoagulant taking plavix addition aspirin significantly reduced major vascular events 11 aspirin alone greatest benefit reduction stroke 28 primary goal physicians treating patients atrial fibrillation compared aspirin alone taking plavix addition aspirin significantly expected increased rate major bleeding onglyza • december 2009 company astrazeneca submitted application us food drug administration fda fixed dose combination onglyza plus metformin hcl extendedrelease tablets fda currently reviewing submission • october 2009 company astrazeneca announced european commission granted marketing authorization onglyza dipeptidyl peptidase4 inhibitor 27 countries european union treat type 2 diabetes adults either metformin sulfonylurea thiazolidinedione agents alone diet exercise provide adequate glycemic control • october 2009 company astrazeneca announced results 18week phase iiib study adults type 2 diabetes inadequate glycemic control metformin therapy alone found addition onglyza 5mg per day metformin treatment achieved primary objective demonstrating noninferiority compared addition januviasitagliptin 100mg per day metformin treatment reducing hba1c baseline • july 2009 company astrazeneca announced fda approved onglyza indicated adjunct diet exercise improve blood sugar glycemic control adults treatment type 2 diabetes mellitus onglyza daily used combination commonly prescribed oral antidiabetic medications metformin sulfonylureas thiazolidinediones monotherapy significantly reduce glycosylated hemoglobin levels • june 2009 american diabetes association annual scientific sessions interim analysis 102 weeks 42month longterm phase iii extension study presented showed onglyza added metformin patients inadequately controlled type 2 diabetes profile adverse events consistent seen 24 weeks treatment regimen produced longterm glycemic improvement orencia • january 2010 european commission approved orencia combination methotrexate treatment moderate severe active polyarticular juvenile idiopathic arthritis pediatric patients six years age older insufficient response diseasemodifying antirheumatic drugs including least one tnf inhibitor • october 2009 announced new clinical data support continued development subcutaneous administration orencia patients moderate severe rheumatoid arthritis subcutaneous program utilizes new formulation orencia specifically designed subcutaneous administration data 4month openlabel trial involving 100 patients presented american college rheumatology annual scientific meeting study showed weekly administration 125 mg subcutaneous dose orencia resulted minimal transient immunogenicity prior month 4 repeat dosing immunogenicity similar whether orencia administered combination methotrexate common treatment rheumatoid arthritis monotherapy month four patients antibody response subcutaneous orencia • october 2009 announced twoyear results study supports use orencia methotrexatenaïve patients moderate severe rheumatoid arthritis less equal two years duration data agree study compared patients treated orencia plus methotrexate versus patients treated methotrexate alone show patients taking orencia combination methotrexate achieved sustained low disease activity scores 24 months data also showed orencia plus methotrexate inhibit radiographic progression rheumatoid arthritis improve physical function addition relieving pain swelling fatigue safety profile openlabel period similar doubleblind period study • august 2009 announced clinical data added labeling orencia support use orencia patients moderate severe rheumatoid arthritis less equal two years duration efficacy safety data support use orencia newtobiologic patients moderate severe rheumatoid arthritis • june 2009 announced annual european congress rheumatology eular results two studies demonstrated consistent safety effectiveness five seven years treatment rheumatoid arthritis patients inadequate response methotrexate sprycel • december 2009 51st annual meeting american society hematology phase ii data sprycel presented suggested sprycel could provide chronic myeloid leukemia cml patients rapid improved response currentlyavailable firstline treatment imatinib results phase iii headtohead trial called dasision sprycel imatinib mesylate firstline treatment cml expected announced first half 2010 • may 2009 american society clinical oncology annual meeting presented interim results two phase ii sprycel studies demonstrate sprycel may potential treatment castrateresistant prostate cancer crpc phase iii study sprycel crpc currently ongoing • may 2009 announced fda granted full approval sprycel treatment adults phases cml chronic accelerated myeloid lymphoid blast phase resistance intolerance prior therapy including gleevec imatinib mesylate reyataz • november 2009 announced us labeling update reyataz label medicine includes longterm data castle study showed oncedaily regimen reyataz ritonavir part combination therapy previously untreated adult patients infected hiv1 led enduring virologic response 96 weeks treatment baraclude • october 2009 60th annual meeting american association study liver diseases announced 48week data baraclude chronic hepatitis b patients evidence decompensated cirrhosis patient population studied baraclude demonstrated greater viral suppression compared adefovir results operations results continuing operations exclude results related mead johnson business prior splitoff december 2009 convatec business prior divestiture august 2008 medical imaging business prior divestiture january 2008 businesses segregated continuing operations included discontinued operations years presented see “discontinued operations” results continuing operations follows net sales composition change net sales follows 2009 key us products contributed growth net sales plavix abilify represented 47 17 total us net sales contributed 49 31 total growth us net sales respectively 2008 plavix abilify represented 46 16 total us net sales contributed 53 23 total growth us net sales respectively international net sales decrease 2009 increase 2008 impacted fluctuating value us dollar many foreign currencies compared previous periods excluding foreign exchange international net sales increased 3 2009 due growth various key products including baraclude hiv portfolio sprycel abilify orencia offset decreases plavix net sales stemming increased generic competition reported international net sales include copromotion sales reported alliance partner sanofi plavix avaproavalide decreased 2009 due generic competition net sales mature brands businesses divested 2007 2009 represented approximately 1 total net sales detail domestic international key product net sales discussed general business seasonal information us pharmaceutical prescriber demand reference made table within “estimated enduser demand” sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain key pharmaceutical new products us nonus net sales categorized based upon location customer recognize revenue net various sales adjustments arrive net sales reported consolidated statements earnings adjustments referred grosstonet sales adjustments described “critical accounting policies” reconciliation gross sales net sales significant category grosstonet sales adjustments follows grosstonet sales adjustments primarily function gross sales activity typically correlated current sales trends managed healthcare rebates contract discounts medicaid rebates cash discounts adjustments managed healthcare rebates contract discounts medicaid rebates also affected changes sales mix contractual legislative discount rates 2009 grosstonet sales adjustments increased 6 managed healthcare rebates contract discounts increased 22 primarily due higher plavix medicare sales increase contractual discount rates sales returns decreased 38 primarily due lower provisions pravachol zerit partially offset increased provisions sprycel mature brands driven higher anticipated sales returns 2008 increase grosstonet sales adjustments attributed increased provisions pravachol driven higher sales returns previously estimated zerit due loss exclusivity activities ending balances significant category grosstonet sales reserve adjustments follows 2009 center medicare medicaid services policy group approved revised calculations determining medicaid rebates three year period 2002 2004 impact revised calculation net overpayment medicaid rebates 60 million 2008 increase sales returns primarily attributed increased provisions pravachol driven higher retail sales returns previously assumed loss exclusivity zerit net sales key products represent 81 total net sales 2009 77 2008 71 2007 following table details us international net sales key products percentage change prior period foreign exchange impact compared prior period commentary detailing reasons significant variances key products provided change excess 200 plavix platelet aggregation inhibitor part alliance sanofi • us net sales increased 2009 2008 primarily due higher average net selling prices increased demand estimated total us prescription demand increased 4 2009 19 2008 • international net sales decreased 2009 2008 due launch alternative salt forms clopidogrel andor generic clopidogrel bisulfate half eu countries since august 2008 additional launches expected 2010 given widespread launch alternative salt forms generics expect continued erosion sales eu impact international net sales equity net income affiliates • see “item 8 financial statementsnote 24 legal proceedings contingenciesplavix litigation” discussion plavix exclusivity litigation us eu avaproavalide known eu aprovelkarvea angiotensin ii receptor blocker treatment hypertension diabetic nephropathy also part sanofi alliance • us net sales decreased 2009 primarily due 9 decrease estimated total us prescription demand partially offset higher average net selling prices international net sales increased primarily due higher average net selling prices partially offset unfavorable foreign exchange impact • 2008 worldwide net sales increased primarily due higher average net selling prices offset decline overall demand estimated total us prescription demand decreased approximately 7 reyataz protease inhibitor treatment hiv • us net sales increased primarily due higher estimated total us prescription demand 8 2009 14 2008 higher average net selling prices • 2009 2008 international net sales increased primarily due higher demand across markets europe key driver due june 2008 approval firstline treatment sustiva franchise nonnucleoside reverse transcriptase inhibitor treatment hiv includes sustiva antiretroviral drug bulk efavirenz also included combination therapy atripla efavirenz 600mgemtricitabine 200 mgtenofovir disoproxil fumarate 300 mg product sold joint venture gilead • 2009 2008 us net sales increased primarily due higher demand well higher average net selling prices estimated total us prescription demand increased 10 2009 14 2008 • 2009 2008 international net sales increased despite unfavorable foreign exchange impact 2009 primarily due continued demand generated launch atripla canada eu fourth quarter 2007 baraclude oral antiviral agent treatment chronic hepatitis b • worldwide net sales 2009 2008 increased primarily due continued strong growth international markets • continues increased awareness acceptance longterm efficacy safety resistance data evidenced american association study liver disease treatment guidelines recommended baraclude first line treatment option erbitux monoclonal antibody designed exclusively target block epidermal growth factor receptor expressed surface certain cancer cells multiple tumor types well normal cells currently indicated use colorectal cancer head neck cancer erbitux part strategic alliance lilly • sold us almost exclusively us net sales 2009 decreased primarily due study results released 2008 regarding impact kras gene expression effectiveness patients colorectal cancer • sales increase 2008 attributable increased demand 2008 indication usage treatment head neck cancer sprycel oral inhibitor multiple tyrosine kinases treatment adults chronic accelerated myeloid lymphoid blast phase chronic myeloid leukemia resistance intolerance prior therapy including gleevec part strategic alliance otsuka • worldwide net sales increased primarily due higher demand previously launched markets growth attributed recently launched markets well higher us average net selling prices ixempra microtubule inhibitor treatment patients metastatic locally advanced breast cancer part strategic alliance otsuka • net sales increase 2008 reflects launch product us october 2007 abilify antipsychotic agent treatment schizophrenia bipolar mania disorder major depressive disorder part strategic alliance otsuka • us net sales increased primarily due increased overall demand new indications certain patients bipolar 1 disorder major depressive disorder higher average net selling prices 2009 increase partially offset 49 million amortization 400 million extension payment made otsuka april 2009 estimated total us prescription demand increased 26 2009 23 2008 • 2009 2008 international net sales increased due increased prescription demand aided new bipolar indication second quarter 2008 eu offset unfavorable foreign exchange impact 2009 orencia fusion protein indicated adult patients moderate severe rheumatoid arthritis inadequate response one currently available treatments methotrexate antitumor necrosis factor therapy • 2009 worldwide net sales increased primarily due increased demand • 2008 us net sales increase primarily due continued demand growth international net sales increase reflected may 2007 product launch europe onglyza oncedaily oral tablet treatment type 2 diabetes • onglyza submitted regulatory authorities 50 countries approved 36 beginning third quarter 2009 launched six countriesthe us canada mexico germany uk denmark estimated us prescription change data provided throughout report includes information retail mail order channels reflect information channels hospitals home healthcare clinics federal facilities including va hospitals longterm care among others first quarter 2009 changed service provider us prescription data wolters kluwer health inc wk supplier market research audit data pharmaceutical industry external reporting purposes internal demand products prior 2009 used prescription data based nextgeneration prescription service version 20 national prescription audit provided ims health ims continuously seek improve quality estimates prescription change amounts ultimate patientconsumer demand reviewing estimate calculation methodologies processes analyzing internal thirdparty data expect continue review refine methodologies processes calculation estimates continue review analyze third parties’ data used calculations estimated prescription data based source prescription audit provided suppliers product respective recordkeeping projection processes data subject inherent limitations estimates based sampling may include margin error calculated estimated total us prescription change weightedaverage basis reflect fact mail order prescriptions include greater volume product supplied compared retail prescriptions mail order prescriptions typically reflect 90day prescription whereas retail prescriptions typically reflect 30day prescription calculation derived multiplying mail order prescription data factor approximates three adding retail prescriptions believe calculation estimated total us prescription change based weightedaverage approach provides superior estimate total prescription demand respect retail mail order channels use methodology internal demand reporting estimated enduser demand following tables set forth key products sold us years ended december 31 2009 2008 2007 total us net sales year ii change reported us net sales year iii estimated total us prescription change retail mail order channels calculated us based thirdparty data weightedaverage basis iv months inventory hand wholesale distribution channel sustiva franchise total revenue includes sales sustiva well revenue bulk efavirenz included combination therapy atripla months hand relates sustiva b erbitux ixempra orencia parenterally administered products prescriptionlevel data physicians write prescriptions products c ixempra launched us october 2007 onglyza launched us august 2009 month hand ratio 37 estimated dividing estimated amount product us wholesaler distribution channel estimated amount outmovement product us wholesaler distribution channel period 31 days change excess 200 pursuant us securities exchange commission sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception disclosed us products estimated levels inventory distribution channel excess one month hand december 31 2009 international products estimated levels inventory distribution channel excess one month hand september 30 2009 following products met criteria december 31 2009 onglyza type 2 diabetes product approximately 37 months inventory hand inventory level hand due product launch august 2009 september 30 2009 dafalgan analgesic product sold principally europe approximately 11 months inventory hand direct customers compared approximately 11 months inventory hand december 31 2008 level inventory hand primarily due ordering patterns private pharmacists france september 30 2009 fervex cold flu product approximately 17 months inventory hand direct customers compared approximately 14 months inventory hand december 31 2008 increased level inventory hand primarily due ordering patterns private pharmacists france initial stocking new distributor russia us products sold exclusively wholesalers distributors determined months hand estimates using information respect inventory levels product hand amount outmovement products provided three largest wholesalers account approximately 90 total gross sales us products provided distributors factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes products us sold exclusively wholesalers distributors businesses outside us significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely cases direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available developed variety methodologies calculate estimates data including using factors historical sales made direct customers thirdparty market research data related prescription trends enduser demand accordingly rely variety methods estimate direct customer product level inventory calculate months hand business units factors may affect estimates include generic competition seasonality products direct customer purchases light price increases new product presentation launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2009 available prior filing annual report form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q geographic areas general products available countries world largest markets us france japan spain canada italy germany china mexico net sales geographic areas based location customer follows net sales us increased 2009 2008 primarily due items previously discussed “net sales” net sales europe middle east africa decreased 2009 primarily due 7 unfavorable foreign exchange impact decreased net sales certain mature brands due divestitures increased generic competition plavix partially offset sales growth major european markets hiv portfolio baraclude abilify sprycel orencia 2008 net sales increased primarily due sales growth major european markets sprycel abilify hiv hepatitis portfolio 6 favorable foreign exchange impact net sales western hemisphere countries decreased 2009 primarily due 9 unfavorable foreign exchange impact partially offset increased net sales plavix avaproavalide orencia sprycel 2008 net sales essentially flat minimum foreign exchange impact net sales pacific region decreased 2009 primarily due decreased net sales certain mature brands due divestitures partially offset increased net sales baraclude sprycel 1 favorable foreign exchange impact 2008 net sales increased primarily due sales growth baraclude china japan korea 6 favorable foreign exchange impact single country outside us contributed 10 total net sales 2009 2008 2007 combined net sales emerging markets includes brazil russia india china turkey approximated 4 total net sales 2009 2008 3 2007 expenses change excess 200 cost products sold cost products sold consist material costs internal labor overhead owned manufacturing sites thirdparty processing costs supply chain costs changes foreign currency forward contracts offset manufacturing related assets liabilities denominated foreign currencies essentially costs managed primarily global manufacturing organization referred technical operations addition discovery royalties attributed licensed products connection alliances well amortization milestone payments occur regulatory approval also included costs percentage net sales vary periods result product mix inflation costs attributed rationalization manufacturing sites resulting accelerated depreciation impairment charges stranded costs addition changes foreign currency may also provide volatility given high percentage total costs denominated foreign currencies • improvement cost products sold percentage net sales 2009 driven favorable foreign exchange higher us average net selling prices favorable product mix realized manufacturing efficiencies pti offset higher manufacturing costs attributed inflation 2009 costs include manufacturing rationalization charges 123 million primarily related implementation pti compared 249 million rationalization charges recognized 2008 • improvement costs products sold percentage net sales 2008 primarily attributed favorable product sales mix higher us average net selling prices realized manufacturing savings pti factors partially offset higher manufacturing costs attributed inflation 2008 costs include manufacturing rationalization charges 249 million primarily related implementation pti compared 179 million rationalization charges recognized 2007 marketing selling administrative marketing selling administrative expenses consist employee salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs expenses attributed product manufacturing costs research development expenses managed regional commercialization functions global functions finance law information technology human resources • decrease 2009 resulted favorable 2 foreign exchange impact efficiencies gained pti • increase 2008 primarily related 109 million process standardization costs incurred part pti higher average net selling expenses support key products unfavorable 2 foreign exchange impact advertising product promotion advertising product promotion expenses consist related media sample direct consumer programs • decrease 2009 attributed reduced spending promotion products nearing patent expirations favorable 2 foreign exchange impact partially offset increased spending onglyza launch pipeline products • increase 2008 primarily related increased promotions new indications abilify us increased promotion orencia unfavorable foreign exchange impact research development research development expenses consist internal salary benefit costs thirdparty grants fees paid clinical research organizations supplies facility costs expenses also include thirdparty licensing fees typically paid upfront well regulatory contractual milestones met certain expenses shared alliance partners based upon contractual agreements approximately 85 expenses managed global research development organization historically approximately 75 total spend attributed development activities remainder attributed preclinical research activities expenses vary periods number reasons including timing upfront licensing milestone payments • increase 2009 attributed additional spending support maturing pipeline compounds obtained stringofpearls strategy offset favorable 1 foreign exchange impact • increase 2008 primarily related increased upfront licensing milestone payments increased spending pipeline compounds unfavorable foreign exchange impact 2008 increase partially offset sharing codevelopment costs alliance partners astrazeneca pfizer • upfront licensing milestone payments expensed research development 347 million 2009 primarily attributed zymogenetics alder nissan 348 million 2008 primarily attributed exelixis pdl biopharma inc kai pharmaceuticals inc 162 million 2007 primarily attributed exelixis pfizer adnexus therapeutics inc adnexus isis pharmaceuticals • 2009 acquisition medarex resulted 40 million additional spend acquired inprocess research development charges related acquisition kosan biosciences inc kosan 2008 acquisition adnexus 2007 inprocess research development iprd projects acquired business combination january 1 2009 capitalized initially considered indefinitelived assets provision restructuring changes provision restructuring primarily attributable timing worldwide implementation pti litigation expense 2009 expense primarily due 125 million securities litigation settlement information see “item 8 financial statementsnote 24 legal proceedings contingencies” equity net income affiliates equity net income affiliates primarily related international partnership sanofi varies based international plavix net sales included within partnership • decrease 2009 attributed impact alternative salt form clopidogrel generic clopidogrel competition international plavix net sales commencing 2009 unfavorable trend earnings expected continue future periods generic products launched half eu countries since august 2008 additional launches expected future years additional information see “item 8 financial statementsnote 2 alliances collaborations” gain sale imclone shares gain sale imclone shares 2008 attributed receipt approximately 10 billion cash tendering investment imclone see “item 8 financial statementsnote 2 alliances collaborations” detail incomeexpense include • interest expense decreased primarily due lower interest rates amortization resulting termination interest rate swaps 2009 2008 • interest income decreased primarily due lower interest rates 2009 2008 partially offset higher cash equivalents marketable securities balances • auction rate securities ars impairment charges recognized 2008 2007 due severity duration decline value future prospects issuers ability intent hold securities recover value ars december 31 2009 88 million future declines fair value considered temporary therefore recognized results operations • impact foreign exchange mainly due sudden dramatic strengthening us dollar second half 2008 generated significant gains foreign currency dominated transactions recognized 2008 lesser extent earnings impacted periods foreign exchange hedges discontinued qualify cash flow hedges see “item 8 financial statementsnote 22 financial instruments” • gain sale product lines businesses assets primarily related sale mature brands including businesses within indonesia australia 2009 business egypt 2008 sale bufferin excedrin brands japan asia excluding china certain oceanic countries 2007 • net royalty alliance partners’ activity includes income earned sanofi partnership amortization certain upfront licensing milestone payments related alliances • pension settlements curtailments primarily attributed amendments eliminate crediting future benefits related service us pension plan participants effective january 1 2010 amendments resulted curtailment charge 25 million 2009 remainder charges resulted high level lump sum payments certain plans exceeded threshold sum plan interest costs service costs require settlement accounting resulting acceleration portion previously deferred actuarial losses although activity driven pti certain divestitures additional charges may recognized future particularly us pension plans due lower threshold resulting elimination service costs see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” detail • includes gains losses sale property plant equipment convatec medical imaging net transitional service fees specified items 2009 2008 2007 following specified items affected comparability results periods presented herein items excluded segment results nongaap financial measures nongaap financial measures including nongaap earnings continuing operations related eps information adjusted exclude certain costs expenses gains losses specified items information intended enhance investor’s overall understanding past financial performance prospects future example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap among items gaap measures excluded purposes determining adjusted earnings adjusted measures charges related implementation pti gains losses purchase sale businesses product lines investments discontinued operations restructuring exit costs accelerated depreciation charges asset impairments charges recoveries relating significant legal proceedings upfront licensing milestone payments inlicensing products achieved regulatory approval immediately expensed iprd charges prior 2009 special initiative funding bristolmyers squibb foundation significant tax events detailed listing items excluded nongaap earnings continuing operations see “specified items” similar charges gains items recognized prior periods reasonably possible reoccur future periods reconciliation gaap nongaap follows segment results segment results consistent financial information regularly reviewed chief operating decision maker purpose evaluating performance allocating resources setting compensation targets planning forecasting future periods segment results exclude impact specified items significant indicative current operating performance ongoing results following table reconciles segment results earnings continuing operations income taxes earnings increased primarily due increased net sales various key products 2009 2008 favorable gross margins due price increases product mix realized efficiencies previous pti initiatives efficient spending within marketing selling administrative expense partially offset increased investments within research development pipeline improved gross margin rate efficiencies mentioned resulted increase segment results expressed percentage net sales past two years income taxes effective income tax rate earnings continuing operations income taxes 211 2009 compared 228 2008 187 2007 effective income tax rate lower us statutory rate 35 due decision permanently reinvest earnings certain manufacturing operations ireland puerto rico switzerland offshore us federal research development tax credit additional information see “critical accounting policies” “item 8 financial statementsnote 10 income taxes” decrease 2009 effective tax rate 2008 primarily due unfavorable 2008 tax impact related iprd ars impairment charges lesser extent higher benefit 2009 related certain contingent matters increase 2008 effective tax rate 2007 primarily due higher pretax income us including gain sale imclone shares earnings mix high tax jurisdictions 2008 partially offsetting factors lower nondeductible charges 2008 iprd lower ars impairment charges little tax benefit tax rate 2008 favorably impacted benefit 91 million tax related final settlement 20022003 audit internal revenue service irs 2007 tax rate unfavorably impacted impairment investment certain ars little tax benefit nondeductible writeoff iprd related acquisition adnexus partially offset tax benefit 105 million first quarter 2007 due favorable resolution certain tax matters irs related deductibility litigation settlement expenses us foreign tax credits claimed discontinued operations december 23 2009 completed splitoff remaining interest mead johnson means exchange offer bms shareholders august 2008 completed divestiture convatec business cidron healthcare limited affiliate nordic capital fund vii avista capital partners lp avista january 2008 completed divestiture bristolmyers squibb medical imaging medical imaging avista see “item 8 financial statementsnote 7 discontinued operations” noncontrolling interest noncontrolling interest primarily related partnerships sanofi territory covering americas related plavix net sales see “item 8 financial statementsnote 2 alliances collaborations” increase noncontrolling interest corresponds increased net sales plavix us net earnings discontinued operations attributable noncontrolling interest primarily relates 169 mead johnson owned public prior splitoff summary noncontrolling interest follows financial position liquidity capital resources maintain significant level working capital approximately 76 billion december 31 2009 80 billion december 31 2008 2010 future periods expect cash generated us operations together existing cash equivalents marketable securities borrowings capital markets sufficient cover cash needs working capital expenditures strategic alliances acquisitions milestone payments dividends paid us cash equivalents marketable securities conversion working capital items borrowings expected fund nearterm operations outside us believe based current levels cash equivalents marketable securities financial assets expected operating cash flows current downturn global economic activity material impact liquidity cash flow financial flexibility ability fund operations including dividend 20 billion five year revolving credit facility syndicate lenders maturing december 2011 extendable consent lenders facility contains customary terms conditions including financial covenant whereby ratio consolidated net debt consolidated capital cannot exceed 50 end quarter compliance covenant since inception facility borrowings outstanding facility december 31 2009 2008 net cash position december 31 follows includes 109 million floating rate securities frs securities december 31 2008 b includes 179 million 188 million ars frs securities december 31 2009 2008 respectively beginning second quarter 2009 diversified investment portfolio acquired noncurrent marketable securities including purchases corporate debt securities investments subject changes fair value result interest rate fluctuations market factors may impact results operations investment policy places limits investments amount time maturity investments institution policy also requires investments made highly rated corporate financial institutions see “item 8 financial statementsnote 12 cash equivalents marketable securities” additional source liquidity sell trade accounts receivables principally nonus governments hospital customers third parties receivables sold nonrecourse basis approximated 660 million 350 million 2009 2008 respectively sales agreements allow recourse event uncollectibility retain interest underlying asset sold cash equivalents marketable securities held outside us approximately 53 billion december 31 2009 either utilized fund nonus operations repatriated back us taxes previously provided cash repatriations subject restrictions certain jurisdictions may subject withholding taxes credit ratings moody’s investors service moody’s longterm shortterm credit ratings currently a2 prime1 respectively moody’s revised longterm credit outlook negative stable august 2009 standard poor’s sp longterm shortterm credit ratings currently a1 respectively sp’s longterm credit rating remains stable outlook fitch ratings fitch longterm shortterm credit ratings currently respectively fitch’s longterm credit rating remains stable outlook credit ratings considered investment grade ratings designate longterm securities low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm obligations strongest capacity timely repayment cash flows following discussion cash flow activities december 31 operating activities cash flows operating activities represent cash receipts cash disbursements related activities investing activities financing activities operating cash flow derived adjusting net earnings • noncontrolling interest • noncash operating items depreciation amortization impairment charges stockbased compensation charges • gains losses attributed investing financing activities gains losses sale product lines businesses • changes operating assets liabilities reflect timing differences receipt payment cash associated transactions recognized results operations net impact changes operating assets liabilities aggregated net cash inflow 42 million 2009 cash inflow 117 million 2008 cash outflow 7 million 2007 items included impact changes receivables inventories deferred income accounts payable income taxes receivablepayable operating assets liabilities discussed detail continue maximize operating cash flows working capital initiative designed continue improve working capital items directly affected changes sales volume receivables inventories accounts payable improvements driven several actions including additional factoring nonus trade receivables revised contractual payment terms customers vendors enhanced collection processes various supply chain initiatives designed optimize inventory levels progress area monitored period component annual incentive plan following summarizes certain working capital components expressed percentage trailing twelve months’ net sales december 31 2008 amounts include mead johnson splitoff december 23 2009 changes operating assets liabilities aggregated net cash inflow 42 million including • cash inflows accounts payable 472 million primarily attributed timing payments vendors alliances well impact working capital initiative discussed • cash inflows receivables 227 million primarily attributed additional factoring nonus trade receivables japan spain • cash inflows deferred income 135 million mainly due milestone payments received pfizer 150 million astrazeneca 150 million partially offset amortization • cash outflows operating assets liabilities 932 million primarily related pension funding excess current year expense 532 million payment otsuka amortized reduction net sales extension period 400 million 2008 changes operating assets aggregated net cash inflow 117 million including • cash inflows income tax payablereceivable 371 million includes impact receipt 432 million tax refund including interest related prior year foreign tax credit carryback claim • cash inflows accounts payables 253 million primarily attributed timing vendor alliance payments • cash inflows inventory 130 million primarily attributed utilization inventories built prior year new product launches strategic builds existing products launches including new indications abilify • cash inflows deferred income 61 million primarily due receipt upfront licensing milestone payments alliance partners • cash outflows accounts receivables 360 million attributed increased sales • cash outflows operating assets liabilities 338 million primarily due net litigation related payments 190 million attributed settlement certain pricing sales litigation accrued prior periods pension funding excess current year expense 120 million increase noncurrent inventory 112 million 2007 changes operating assets aggregated net cash outflow 7 million including • cash outflows accounts receivable 458 million primarily attributed increased sales • cash outflows us foreign income taxes payable 199 million primarily attributed tax payments included settlement payments associated various tax issues 20022003 irs audit • cash inflows deferred income 454 million primarily due receipt upfront licensing milestone payments alliance partners including pfizer astrazeneca • cash inflows accounts payables 141 million included impact increased purchases raw materials planned inventory buildup • cash inflows operating assets liabilities 109 million primarily due increases accrued royalties attributed increased plavix net sales increases accrued salaries bonuses due timing payments partially offset cash outflows primarily related litigation related payments 318 million settlement pricing sales litigation accrued prior periods investing activities net cash used investing activities 44 billion 2009 including • acquisition medarex 22 billion net cash acquired 53 million • net purchases marketable securities 14 billion • capital expenditures 730 million • mead johnson cash included splitoff 561 million • proceeds sale businesses investments including businesses within asiapacific region 310 million australia 61 million proceeds sale genmab celldex securities 42 million net cash provided investing activities 51 billion 2008 including • proceeds divestiture convatec 41 billion medical imaging 483 million • proceeds tendering shares imclone 10 billion • proceeds sale leaseback paris france facility 227 million • proceeds sale businesses including mature brands business egypt 209 million • capital expenditures 941 million included expenditures associated construction biologic facility devens massachusetts • acquisition kosan 191 million net cash used investing activities 202 million 2007 including • capital expenditures 843 million • acquisition adnexus 432 million • net proceeds sale marketable securities 756 million • proceeds sales bufferin excedrin brands japan asia excluding china taiwan certain oceanic countries us dermatology products 273 million financing activities net cash used financing activities 17 million 2009 including • dividend payments 25 billion • repayment mead johnson revolving credit facility 80 million early extinguishment certain debt securities 132 million • net proceeds issuance mead johnson notes 15 billion revolving credit facility 200 million • net proceeds mead johnson ipo 782 million • net proceeds termination interest rate swap agreements 194 million • net proceeds exercise stock options 45 million net cash used financing activities 26 billion 2008 including • dividend payments 25 billion • redemption floating rate convertible senior debentures due 2023 12 billion • repayment 400 notes due august 2008 400 million 110 yen notes due 2008 117 million • repurchase notes 228 million • net proceeds issuance 545 notes due 2018 600 million 6125 notes due 2038 10 billion • net proceeds termination interest rate swap agreements 211 million • net proceeds stock option exercises 2008 5 million reflects exercise fewer stock options 2008 due decrease average stock price compared prior periods net cash used financing activities 32 billion 2007 including • dividend payments 22 billion • repayment floating rate bank facility 13 billion • proceeds exercise stock options 333 million dividends declared per common share 125 2009 124 2008 115 2007 december 2009 declared quarterly dividend 032 per common share expect pay dividend full year 2010 128 per share dividend decisions made quarterly basis board directors contractual obligations payments due period contractual obligations december 31 2009 follows current portion longterm debt obligations included shortterm borrowings balances approximate outstanding nominal longterm debt values b includes estimated future interest payments shortterm longterm debt securities also includes accrued interest payable recognized consolidated balance sheets consists primarily accrual interest shortterm longterm debt well accrual periodic cash settlements derivatives netted counterparty c due uncertainty related timing reversal uncertain tax positions shortterm uncertain tax benefits provided table see “item 8 financial statementsnote 10 income taxes” detail table excludes future contributions us pensions postretirement postemployment benefit plans required contributions contingent upon numerous factors including minimum regulatory funding requirements funded status plan due uncertainty future obligations excluded table contributions us international plans expected 430 million 2010 see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” detail addition committed approximately 50 billion aggregate potential future research development milestone payments third parties part inlicensing development programs early stage milestones defined milestones achieved phase iii clinical trials comprises 10 billion total committed amount late stage milestones defined milestones achieved post phase iii clinical trials comprises 40 billion total committed amount payments agreements generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted achievement milestones neither probable reasonably estimable contingencies recognized addition certain royalty obligations calculated percentage net sales agreements also provide salesbased milestones aggregate approximately 16 billion would obligated pay alliance partners upon achievement certain sales levels discussion contractual obligations see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” “note 21 shortterm borrowings longterm debt” “note 22 financial instruments” “note 23 leases” sec consent order previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs comes bottom top bottom adequately documenting process established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain inventory management agreements imas us pharmaceutical wholesalers account nearly 100 total gross sales us biopharmaceuticals products current terms imas three largest wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three wholesalers currently account approximately 90 total gross sales us biopharmaceuticals products inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us biopharmaceuticals business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast biopharmaceuticals business outside us significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent recently issued accounting standards following new accounting standards discussed “item 8 financial statementsnote 1 accounting policiesrecently issued accounting standards” • asu 200913 multipledeliverable revenue arrangements consensus fasb emerging issues task force amendment asc 60525 formerly emerging issues task force eitf issue 0801 revenue arrangements multiple deliverables issued october 2009 effective reporting periods beginning june 15 2010 • asu 200916 accounting transfers financial assets amendment asc 86010 formerly sfas 166 accounting transfers financial assets amendment fasb statement 140 issued june 2009 codified issued asu december 2009 adopted us january 1 2010 • asu 200917 improvements financial reporting enterprises involved variable interest entities amendment asc 81010 formerly sfas 167 amending fasb interpretation 46r issued june 2009 codified issued asu december 2009 adopted us january 1 2010 • asc 105 formerly statement financial standards sfas 168 hierarchy generally accepted accounting principles issued july 2009 effective adopted us september 15 2009 • asc 82010 fair value measurements disclosures formerly sfas 157 fair value measurements adopted us nonfinancial assets liabilities january 1 2009 • asc 81010651 noncontrolling interests consolidated financial statementsan amendment arb 51 formerly sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 adopted us january 1 2009 • asc 805 formerly sfas 141r business combinations adopted us january 1 2009 • asc 80810 collaborative arrangements formerly eitf issue 071 accounting collaborative arrangements related development commercialization intellectual property effective january 1 2009 applied retroactively critical accounting policies prepare financial statements conformity accounting principles generally accepted us preparation financial statements conformity us generally accepted accounting principles gaap requires use estimates assumptions affect reported amounts assets liabilities including disclosure contingent assets contingent liabilities date financial statements reported amounts revenue expenses reporting period critical accounting policies important financial condition results operations require difficult subjective complex judgments part management application often result need make estimates effect matters inherently uncertain uncertainty factors surrounding estimates judgments used preparation consolidated financial statements actual results may vary estimates accounting policies discussed audit committee board directors revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates require difficult subjective complex judgments part management recognize revenue title substantially risks rewards ownership transferred customer generally occurs date shipment net grosstonet sales adjustments discussed involve significant estimates judgments discussions revenue recognition see “item 8 financial statementsnote 1 accounting policiesrevenue recognition” “sales rebate return accruals” grosstonet sales adjustments following significant categories grosstonet sales adjustments prime vendor chargebacks managed healthcare rebates contractual discounts medicaid rebates cash discounts sales returns adjustments involve significant estimates judgments require us use information external sources see “net sales” reconciliation gross sales net sales significant category grosstonet sales adjustment prime vendor chargebacks us businesses participate prime vendor programs government entities significant us department defense us department veterans affairs parties whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower prime vendor price wholesalers charge us difference acquisition cost lower prime vendor price account prime vendor chargebacks reducing accounts receivable amount equal estimate chargeback claims attributable sale determine estimate prime vendor chargebacks primarily based historical experience regarding prime vendor chargebacks current contract prices prime vendor programs consider prime vendor payments levels inventory distribution channel claim processing time lag adjust reduction accounts receivable periodically throughout quarter reflect actual experience cash discounts us certain countries offer cash discounts approximating 2 sales price incentive prompt payment account cash discounts reducing accounts receivable full amount discounts consider payment performance adjust accrual reflect actual experience managed healthcare rebates contract discounts offer rebates discounts managed healthcare organizations us manage prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit addition commercial plans well globally contract counterparties hospitals group purchasing organizations addition accrue rebates us department defense tricare retail pharmacy refund program account managed healthcare rebates contract discounts establishing accrual amount equal estimate managed healthcare rebates contractual discounts attributable sale determine estimate managed healthcare rebates contractual discounts accrual primarily based historical experience regarding rebates discounts current contract prices consider sales performance products subject managed healthcare rebates contract discounts levels inventory distribution channel adjust accrual periodically throughout quarter reflect actual experience medicaid rebates us businesses participate state governmentmanaged medicaid programs well certain qualifying federal state government programs whereby discounts rebates provided participating state local government entities discounts rebates provided latter programs included medicaid rebate accrual considered medicaid rebates purposes discussion account medicaid rebates establishing accrual amount equal estimate medicaid rebate claims attributable sale determine estimate medicaid rebates accrual primarily based historical experience regarding medicaid rebates well expansion prospective basis participation nonmandatory aspects qualifying federal state government programs legal interpretations applicable laws related medicaid qualifying federal state government programs new information regarding changes medicaid programs’ regulations guidelines would impact amount rebates consider outstanding medicaid claims medicaid payments levels inventory distribution channel adjust accrual periodically throughout quarter reflect actual experience sales returns account sales returns establishing accrual amount equal estimate sales recognized related products expected returned returns established products determine estimate sales return accrual primarily based historical experience regarding sales returns also consider factors could impact sales returns factors include levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products consider factors adjust accrual periodically throughout quarter reflect actual experience event product recall product discontinuance consider reasons impact actions adjust sales return accrual appropriate taking account historical experience estimated levels inventory distribution channel product discontinuances estimates continuing demand sales returns accruals new products estimated primarily based historical sales returns experience similar products within line product within similar therapeutic category limited circumstances new product extension existing line product historical experience products similar therapeutic category cannot reliably estimate expected returns new product defer recognition revenue right return longer exists developed sufficient historical experience estimate sales returns also consider shelf life new products determine whether adjustment sales return accrual appropriate shelf life connection new products tends shorter shelf life established products may still developing optimal manufacturing process new product would lengthen shelf life addition higher launch quantities may manufactured advance launch date ensure sufficient supply exists satisfy market demand cases assess reduced shelf life together estimated levels inventory distribution channel projected demand determine whether adjustment sales return accrual appropriate adjustments addition grosstonet sales adjustments described make grosstonet sales adjustments example offer sales discounts significantly nonus businesses also offer consumer coupons rebates us business addition number countries outside us including certain major european countries provide rebates government entities generally account grosstonet sales adjustments establishing accrual amount equal estimate adjustments attributable sale generally determine estimates accruals grosstonet sales adjustments primarily based historical experience performance commitments government entities relevant factors including estimated levels inventory distribution channel adjust accruals periodically throughout quarter reflect actual experience use information external sources use information external sources estimate grosstonet sales adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals effective january 1 2009 changed service provider us prescription data wk supplier market research audit data pharmaceutical industry project prescription demandbased sales many us biopharmaceutical products prior 2009 used prescription data based nextgeneration prescription service version 20 national prescription audit provided ims also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information retirement benefits pension plans postretirement benefit plans accounted using actuarial valuations key assumptions used calculating cost pension benefits discount rate expected longterm rate return plan assets consultation actuaries evaluate select key assumptions others used calculating cost pension benefits salary growth retirement turnover healthcare trends mortality rates based expectations actual experience appropriate determine assumptions remeasurement date including december 31 year calculate liability information date pension expense following year depending assumptions used pension expense could vary within range outcomes material effect reported earnings projected benefit obligations future cash funding actual results given year may differ estimated economic factors determining discount rate use yield high quality corporate bonds coincides cash flows plans’ estimated payouts citigroup pension discount curve used determining discount rate us plans us plans’ pension expense 2009 determined using 725 weightedaverage discount rate present value benefit obligations december 31 2009 us plans determined using 575 discount rate discount rate used determining us plans’ pension expense 2009 reduced 100 expense would increased approximately 40 million assumed discount rate used determining projected benefit obligation december 31 2009 reduced 100 projected benefit obligation would increased approximately 600 million determining expected longterm rate return plan assets estimate returns individual asset classes input external advisors also consider longterm historical returns including actual performance compared benchmarks similar investments us plans’ pension expense 2009 determined using 875 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans’ pension expense 2009 reduced 1 expense would increased 40 million detailed discussion retirement benefits see “item 8 financial statementsnote 19 pension postretirement postemployment liabilities” business combinations consolidated financial statements reflect acquired business completion acquisition assets acquired liabilities assumed recognized date acquisition respective fair values excess purchase price estimated fair values net assets acquired recognized goodwill determining fair value intangible assets including iprd typically use “income method” method starts forecast expected future net cash flows cash flows adjusted present value applying appropriate discount rate reflects risk factors associated cash flow streams significant estimates assumptions inherent income method methods include amount timing projected future cash flows amount timing projected costs develop iprd commercially viable products discount rate selected measure risks inherent future cash flows assessment asset’s life cycle competitive trends impacting asset including consideration technical legal regulatory economic barriers entry well expected changes standards practice indications addressed asset january 1 2009 acquired iprd projects initially capitalized considered indefinitelived assets subject annual impairment reviews often upon occurrence certain events compounds reach commercialization assets amortized expected useful lives prior january 1 2009 amounts allocated acquired iprd expensed date acquisition determining useful life intangible asset based upon period expected contribute future cash flows pertinent matters associated asset environment operates considered including legal regulatory contractual provisions well effects obsolescence demand competition economic factors medarex inc acquisition september 1 2009 acquired remaining outstanding shares medarex already owned us approximately 23 billion providing us full rights ipilimumab increasing biologics development pipeline see “item 8 financial statementsnote 5 medarex inc acquisition” medarex biopharmaceutical company focused discovery development commercialization fully human antibodybased therapeutic products address major unmet healthcare needs areas oncology inflammation autoimmune disorders infectious diseases approximately 19 billion purchase price allocated estimated fair value identifiable intangible assets including iprd projects approximately 15 billion developed technology 435 million compounds reach commercialization assets amortized expected useful lives fair value iprd included approximately 10 billion assigned ipilimumab fully human antibody currently phase iii development treatment metastatic melanoma also ongoing ipilimumab phase ii study lung cancer well phase iii studies adjuvant melanoma hormonerefractory prostate cancer overall development effort estimated range 50 70 complete projected cost complete development efforts range 250 million 400 million acquisition date fair value ipilimumab determined market participant view considering preexisting terms collaboration arrangement bms including cost profit sharing splits project’s unit account global view significant delays obtaining marketing approval ipilimumab inability bring ipilimumab market could result iprd partially fully impaired remaining iprd assigned four projects phase ii development 13 projects various stages development generated medarex technology developed licensing partners may generate milestone payments royalties upon commercialization significant judgment applied developing projected cash flows including relative timing probability assumed regulatory approvals projected cash flows assumed initial positive cash flows commence shortly receipt expected regulatory approvals subject trial results among things approved could potentially early 2011 2012 projected cash flows discounted 12 actual cash flows attributed project likely different assumed ultimate realization iprd project depend upon successful regulatory approvals received market factors typical biopharmaceutical product developed technology attributed three separate license arrangements received regulatory approval technology platforms produce high affinity fully human antibodies use broad range therapeutic areas including immunology oncology fair value license arrangements 315 million determined based present value projected royalty streams beginning 2010 2023 fair value technology platforms 120 million determined based upon expected annual number antibodies achieving early candidate nomination status developed technology amortized expected useful lives 13 years license arrangements 10 years technology platforms impairment goodwill tested least annually impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill considered impaired carrying amount reporting unit’s goodwill exceeds estimated fair value based upon recent annual impairment test completed first quarter 2009 fair value goodwill substantially excess related carrying value discussion goodwill acquired inprocess research development intangible assets see “item 8 financial statementsnote 1 accounting policiesgoodwill acquired inprocess research development intangible assets” indefinitelived intangible assets including iprd indefinitelived intangible assets subject amortization tested impairment annually frequently events changes circumstances indicate asset might impaired consider various factors including stage development current legal regulatory environment competitive landscape considering industry’s success rate bringing developmental compounds market iprd impairment charges may occur future periods fixed assets periodically evaluate whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows report asset disposed lower carrying value estimated net realizable value estimates future cash flows based reasonable supportable assumptions projections requiring judgment changes key assumptions businesses prospects changes market conditions could result impairment charges impairment charges longlived assets 3 million 2009 63 million 2008 104 million 2007 discussion impairment longlived assets see “item 8 financial statementsnote 1 accounting policiesimpairment longlived assets” marketable securities investments companies marketable securities classified “available sale” therefore reported fair value changes fair value reported accumulated comprehensive income declines fair value considered temporary charged earnings fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity determining security otherthantemporarily impaired typically consider severity duration decline future prospects issuer ability intent hold security recovery declines fair value determined credit related charged earnings average cost method used determining realized gains losses sale “available sale” securities realized gains losses included incomeexpense level 3 investments including frs ars utilize valuation models including based expected cash flow streams collateral values including assessments counterparty credit quality default risk underlying security discount rates overall capital market liquidity valuation subject uncertainties difficult predict utilize considerable amount judgment estimation factors may impact valuation include changes credit ratings securities well underlying assets supporting securities rates default underlying assets underlying collateral value discount rates counterparty risk ongoing strength quality market credit liquidity discussions current noncurrent marketable securities frs ars see “item 8 financial statementsnote 11 fair value measurement” “note 12 cash equivalents marketable securities” account 50 less owned companies ability exercise significant influence using equity method accounting share net income losses equity investments included equity net income affiliates consolidated statements earnings investments whose fair market value falls carrying value assess decline temporary consider intent ability hold investments market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity impairment losses recognized incomeexpense decline market value deemed temporary discussions marketable securities investments companies see “item 8 financial statementsnote 1 accounting policiesmarketable securities investments companies” “note 2 alliances collaborations” restructuring charges recognized result actions streamline operations rationalize manufacturing facilities significant judgment used estimating impact restructuring plans including future termination benefits exit costs incurred actions take place actual results could vary estimates detailed discussions restructuring see “item 8 financial statementsnote 1 accounting policiesrestructuring” “note 4 restructuring” contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies see “item 8 financial statementsnote 1 accounting policiescontingencies” “note 10 income taxes” “note 24 legal proceedings contingencies” income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives judgments subject change adjustments deferred tax valuation allowances made earnings period assessments made net deferred tax assets 22 billion 28 billion december 31 2009 2008 respectively net valuation allowances 18 billion years recognized deferred tax assets december 31 2009 related us federal net operating loss carryforward 253 million us federal foreign tax credit carryforward 278 million us federal research development tax credit carryforward 266 million net operating loss carryforward acquired result acquisitions medarex kosan adnexus subject limitations section 382 internal revenue code net operating loss carryforward expires varying amounts beginning 2020 expiration foreign tax credit research development tax credit carryforwards expire varying amounts beginning 2014 realization carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured believe likely deferred tax assets realized prior mead johnson splitoff following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions relied upon certain assumptions representations covenants mead johnson regarding future conduct business matters could effect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account ela investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code irs could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations agreed certain tax related indemnities mead johnson set forth tax sharing agreement example mead johnson agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets agreed indemnify mead johnson certain taxes related business prior completion ipo created part restructuring facilitate ipo established liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 10 income taxes” special note regarding forwardlooking statements annual report form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years included important factors cautionary statements included annual report form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made undertake obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7aitem 7 management’s discussion analysis financial condition results operations management’s discussion analysis financial condition results operations provided supplement read conjunction consolidated financial statements related notes included elsewhere 2019 form 10k enhance understanding results operations financial condition cash flows comparison fiscal 2018 2017 omitted form 10k referenced form 10k fiscal year ended december 31 2018“item 7 managements discussion analysis financial condition results operations” filed february 25 2019 executive summary bristolmyers squibb company global biopharmaceutical company whose mission discover develop deliver innovative medicines help patients prevail serious diseases refer summary abbreviated terms end 2019 form 10k terms used throughout document completed celgene transaction november 20 2019 expect acquisition enable us create leading focused biopharmaceutical company well positioned address needs patients cancer inflammatory immunologic cardiovascular fibrotic diseases highvalue innovative medicines leading scientific capabilities commencing acquisition date bmss financial statements include assets liabilities operating results cash flows celgene refer “item 8 financial statementsnote 4 acquisition divestitures licensing arrangements” discussion celgene transaction 2019 received several approvals new medicines additional indications formulations currently marketed medicines major markets us eu japan including multiple regulatory milestone achievements opdivo opdivoyervoy combinations investigating opdivo alone combination yervoy anticancer agents wide array tumor types 24 io compounds clinical development continue expand field hematology leading presence inline assets revlimid pomalyst 2019 received regulatory approvals reblozyl inrebic submitted regulatory application lisocel targeting diffuse large bcell lymphoma additionally pipeline shows significant added promise hematology malignancies celmod agents multiple modalities targeting bcell maturation antigen “bcma” next generation cell therapy agents expanding portfolio immunology two near term launch opportunities tyk2 inhibitor ozanimod additionally cardiovascular space eliquis global leading oral anticoagulant drug continue experience growth eliquis brand market also advancing factor xia inhibitor program 2019 revenues increased 16 result higher demand prioritized brands including eliquis opdivo celgene acquisition contributed 19 billion revenues representing approximately one half growth 100 decrease gaap eps primarily due taxes resulting otezla divestiture amortization acquired intangible assets unwinding inventory fair value adjustments costs expenses resulting celgene acquisition partially offset higher revenues adjusting specified items nongaap eps increased 071 primarily result higher revenues highlights following table summarizes financial information nongaap financial measures including nongaap earnings related eps information adjusted exclude specified items represent certain costs expenses gains losses items impacting comparability financial results detailed listing specified items information reconciliations nongaap financial measures refer “nongaap financial measures” significant product pipeline approvals following summary significant approvals received 2019 product date approval revlimid december 2019 ec approval combination rituximab treatment adult patients previously treated fl grade 13a revlimid rituximab r2 first chemotherapyfree combination regimen approved patients fl ec opdivoyervoy march 2019 conversion accelerated fda approval full fda approval opdivoyervoy first line metastatic melanoma treatment based longer followup data checkmate067 january 2019 ec approval opdivo plus lowdose yervoy previously untreated patients intermediate poorrisk advanced rcc orencia april 2019 ec approval two new strengths 50 mg 875 mg subcutaneous administration new indication orencia injection treatment moderate severe active polyarticular juvenile idiopathic arthritis pediatric patients 2 years age older sprycel february 2019 ec approval tablet powder oral suspension formulations combination chemotherapy treatment pediatric patients newly diagnosed philadelphia chromosomepositive empliciti november 2019 approved japan combination pomalidomide dexamethasone multiple myeloma following least two prior therapies including lenalidomide proteasome inhibitor august 2019 ec approval combination pomalidomide dexamethasone adult patients rrmm received least two prior therapies including lenalidomide proteasome inhibitor demonstrated disease progression last therapy inrebica august 2019 fda approval treatment adult patients intermediate2 highrisk primary secondary postpolycythemia vera postessential thrombocythemia myelofibrosis reblozyla november 2019 fda approval treatment anemia adult patients beta thalassemia require regular red blood cell transfusions regulatory approval obtained celgene prior completion celgene transaction refer “product pipeline developments” developments marketed products latestage pipeline 2019 early 2020 strategy principal strategy combine resources scale capability pharmaceutical company speed focus innovation biotech industry focus biopharmaceutical company discovering developing delivering transformational medicines patients facing serious diseases areas believe opportunity make meaningful difference oncology solid tumors hematology immunology cardiovascular fibrosis four strategic priorities combined company drive enterprise performance maximize value commercial portfolio ensure longterm sustainability pipeline combined internal external innovation establish new culture embed people strategy developing new medicines following core therapeutic areas 1 oncology priority certain tumor types 2 hematology opportunities broaden franchise potentially sustain leadership position multiple myeloma 3 immunology priorities relapsing multiple sclerosis psoriasis lupus ra inflammatory bowel disease 4 cardiovascular disease 5 fibrotic disease priorities lung liver continue advance next wave innovative medicines investing significantly pipeline internally business development activities expect acquisition celgene position us leading biopharmaceutical company expanding oncology hematology immunology portfolios several nearterm assets additional external partnerships continue invest oncology portfolio pursuing monotherapy combination approaches advancing next wave early assets explore new collaboration opportunities across therapeutic areas focus remain focused wellresourced cancer development programs seek broaden use opdivo earlier lines therapy expand new tumors accelerate next wave oncology mechanisms develop treatment options refractory oncology patients hematology opportunities launch several new medicines nearterm additional pipeline opportunities longer term broad effort continue address unmet medical need multiple myeloma working across multiple modalities mechanisms action cereblon modulator “celmod” tcell engager car tcell therapy beyond cancer continue advance early stage portfolio immunology cardiovascular fibrotic diseases strengthen partnerships diverse group companies academic institutions new expanded research activities believe differentiated internal external focus contributes advancing pipeline potentially transformational medicines commercial model successful revenues prioritized brands continuing grow demonstrates strong execution strategy continue drive adoption opdivo expanding additional indications tumor types monotherapy combination yervoy anticancer agents eliquis continues grow leveraging best class clinical profile extensive real world data number one novel oral anticoagulant total prescriptions globally revlimid pomalyst transformed treatment multiple myeloma leading presence continue seek opportunities leverage significant medical commercial expertise address areas high unmet medical need building continued success prioritized brands remain strongly committed orencia sprycel also optimistic future growth nearterm opportunities reblozyl firstinclass medicine inrebic operating model transformation commercial infrastructure uniquely leveraged potential growth operating model continues evolve successful focusing commercial rd manufacturing resources prioritized brands markets strengthening rd capabilities tumor biology patient selection new biomarkers delivering leaner administrative functions streamlining manufacturing network reflect importance biologics current future portfolio evolution operating model focuses maintaining disciplined approach marketing selling administrative expenses enable us deliver necessary strategic financial operational flexibility invest highest priority opportunities within portfolio continue make progress towards integrating companies commercial research development area expect realize 25 billion synergies resulting cost savings avoidance 2022 integration efforts across general administrative manufacturing rd procurement streamlining companys pricing information technology infrastructure looking ahead continue implement biopharma strategy driving growth prioritized brands executing product launches investing diverse innovative pipeline aided strategic business development focusing prioritized markets increasing investments biologics manufacturing capabilities maintaining culture continuous improvement acquisitions divestitures licensing collaboration arrangements significant acquisitions divestitures licensing collaboration arrangements 2019 summarized refer “item 8 financial statements supplementary data note 3 alliances” “note 4 acquisitions divestitures licensing arrangements” information celgene bms acquired celgene integrated global biopharmaceutical company engaged primarily discovery development commercialization innovative therapies treatment cancer inflammatory diseases nextgeneration solutions protein homeostasis immunooncology epigenetics immunology neuroinflammation primary commercial stage products include revlimid pomalystimnovid abraxane reblozyl inrebic otezla bms divested otezla amgen part regulatory approval process celgene transaction upsa bms divested upsa consumer health business taisho pharmaceutical co ltd simplify realign business portfolio results operations regional revenues composition changes revenues follows revenues include royalties alliancerelated revenues products sold regional commercial organizations b foreign exchange impacts derived applying prior period average currency rates current period revenues us revenues 2019 impacted 13 billion revlimid celgene products representing 10 change revenues higher demand eliquis average net selling prices legacy bms products increase chargebacks rebates discounts 2019 europe revenues 2019 impacted 397 million celgene products representing 7 change revenues higher demand eliquis opdivo partially offset foreign exchange lower demand established brands average net selling prices legacy bms products lower chargebacks rebates discounts 2019 rest world revenues 2019 impacted 210 million celgene products representing 6 change revenues higher demand opdivo eliquis partially offset foreign exchange lower demand established brands average net selling prices legacy bms products increase chargebacks rebates discounts 2019 single country outside us contributed 10 total revenues 2019 2018 gtn adjustments recognize revenue net gtn adjustments described “critical accounting policies” activities ending reserve balances significant category gtn adjustments follows reconciliation gross product sales net product sales significant category gtn adjustments follows gtn adjustments primarily function product sales volume regional payer channel mix contractual legislative discounts rebates gtn adjustments increasing higher rate gross product sales due higher us eliquis gross product sales relatively high gtn adjustment percentage result higher medicare part coverage gap cost share competitive pressures maintain position healthcare payer formularies allowing patients continued access medical plans product revenues includes bms celgene products 2019 revlimid lenalidomide oral immunomodulatory drug combination dexamethasone indicated treatment patients multiple myeloma revlimid single agent also indicated maintenance therapy patients multiple myeloma following autologous hematopoietic stem cell transplant eliquis apixaban oral factor xa inhibitor targeted stroke prevention adult patients nvaf prevention treatment vte disorders • us revenues increased due higher demand partially offset higher medicare part coverage gap cost share 50 2018 70 2019 • international revenues increased due higher demand excluding foreign exchange impacts revenues increased 24 2019 opdivo nivolumab fully human monoclonal antibody binds pd1 nkt cells approved several anticancer indications including bladder blood colon head neck kidney liver lung melanoma stomach continues investigated across tumor types disease areas • us revenues increased due higher average net selling price decline growth rate 37 2018 2 2019 primarily due smaller previouslytreated advanced lung cancer market increased competition opdivoyervoy combination kidney cancer expect trend continue market stabilizes new indications approved launched • international revenues increased due higher demand result approvals additional indications 2018 launches europe asia excluding foreign exchange impacts revenues increased 22 2019 orencia abatacept fusion protein indicated adult patients moderate severe active ra psa also indicated reducing signs symptoms certain pediatric patients moderately severely active polyarticular jia • us revenues increased due higher demand higher average net selling price • excluding foreign exchange impacts international revenues increased 5 2019 pomalystimnovid pomalidomide proprietary distinct small molecule administered orally modulates immune system biologically important targets pomalystimnovid indicated patients multiple myeloma received least two prior therapies including lenalidomide proteasome inhibitor demonstrated disease progression within 60 days completion last therapy sprycel dasatinib oral inhibitor multiple tyrosine kinase indicated firstline treatment adults philadelphia chromosomepositive cml chronic phase treatment adults chronic accelerated myeloid lymphoid blast phase cml resistance intolerance prior therapy including gleevec imatinib mesylate • us revenues increased due higher average net selling price higher demand • international revenues unchanged 2019 may decline due generic european competition yervoy ipilimumab monoclonal antibody treatment patients unresectable metastatic melanoma • us revenues increased due higher demand higher average net selling price • international revenues increased due higher demand result approvals additional indications launches primarily europe japan 2018 excluding foreign exchange impacts revenue increased 31 2019 abraxane paclitaxel albuminbound particles injectable suspension solventfree proteinbound chemotherapy product combines paclitaxel albumin using proprietary nab® technology platform used treat breast cancer nsclc pancreatic cancer among others inrebic fedratinib oral kinase inhibitor activity wild type mutationally activated jak2 flt3 august 2019 fda approved inrebic treatment adult patients intermediate2 highrisk primary secondary postpolycythemia vera postessential thrombocythemia myelofibrosis reblozyl luspaterceptaamt erythroid maturation agent indicated treatment anemia adult patients beta thalassemia require regular red blood cell transfusions november 2019 fda approved reblozyl treatment anemia adult patients beta thalassemia require rbc transfusions baraclude entecavir oral antiviral agent treatment chronic hepatitis b • international revenues decreased due lower demand resulting increased generic competition vidaza azacitidine injection pyrimidine nucleoside analog shown reverse effects deoxyribonucleic acid hypermethylation promote subsequent gene reexpression indicated treatment patients following myelodysplastic syndrome subtypes refractory anemia refractory anemia ringed sideroblasts accompanied neutropenia thrombocytopenia requiring transfusions refractory anemia excess blasts refractory anemia excess blasts transformation cml brands includes brands including lost exclusivity major markets otc brands royalty revenue • international revenues decreased primarily due divestiture upsa business certain brands continued generic erosion estimated enduser demand pursuant sec consent order described “sec consent order” monitor level inventory hand us wholesaler distribution channel outside us direct customer distribution channel obligated disclose products levels inventory excess one month hand expected demand subject de minimis exception estimated levels inventory distribution channel excess one month hand following products material results operations dates indicated international products estimated levels inventory distribution channel excess one month hand september 30 2019 perfalgan analgesic product 26 months inventory hand internationally direct customers compared 25 months inventory hand june 30 2019 level inventory hand primarily gulf countries due inventory build mitigate risk product supply disruption markets result sale anagni manufacturing plant catalent inc december 2019 us generally determine months hand estimates using inventory levels product hand amount outmovement provided three largest wholesalers account approximately 93 total gross sales us products factors may influence estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using thirdparty data may impacted recordkeeping processes revlimid pomalyst distributed us primarily contracted pharmacies revlimid rems pomalyst rems programs respectively proprietary riskmanagement distribution programs tailored specifically provide safe appropriate distribution use revlimid pomalyst internationally revlimid imnovid distributed mandatory riskmanagement distribution programs tailored meet local authorities’ specifications provide products’ safe appropriate distribution use programs may vary country depending upon country design riskmanagement program product may sold hospitals retail pharmacies abraxane inrebic vidaza distributed wholesaler channel us direct customer distribution channel outside us nonus businesses significantly direct customers information available direct customer product level inventory corresponding outmovement information reliability thirdparty demand information varies widely limit direct customer sales channel inventory reporting influence demand information exist otherwise available developed variety methodologies estimate data including using historical sales made direct customers thirdparty market research data related prescription trends enduser demand given difficulties inherent estimating thirdparty demand information evaluate methodologies estimate direct customer product level inventory calculate months hand ongoing basis make changes necessary factors may affect estimates include generic competition seasonality products price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations information required estimate months hand direct customer distribution channel nonus business year ended december 31 2019 available prior filing 2019 form 10k disclose product levels inventory excess one month hand expected demand subject de minimis exception next quarterly report form 10q expenses excess 100 excludes amortization acquired intangible assets cost products sold cost products sold include material internal labor overhead costs owned manufacturing sites thirdparty product supply costs supply chain costs managed global manufacturing supply organization cost products sold also includes royalties profit sharing certain excise taxes foreign currency hedge settlement gains losses cost products sold typically vary periods result product mix volume particularly royalties profit sharing lesser extent changes foreign currency price inflation costs attributed manufacturing site exits cost products sold excludes amortization acquired intangible assets • cost products sold increased 16 billion due higher royalties profit sharing 702 million primarily higher eliquis sales unwinding inventory fair value adjustments 660 million impairment charge 126 million manufacturing packaging facility higher product sales marketing selling administrative marketing selling administrative expenses primarily include salary benefit costs thirdparty professional marketing fees outsourcing fees shipping handling costs advertising product promotion costs expenses managed regional commercialization organizations global enabling functions finance legal information technology human resources certain expenses shared alliance partners based upon contractual agreements • marketing selling administrative expenses increased 320 million 2019 primarily due celgene expenses approximately 400 million partially offset foreign exchange impact 2 research development research development activities include discovery research preclinical clinical development drug formulation medical support marketed products expenses include salary benefit costs thirdparty grants fees paid clinical research organizations supplies upfront contingent milestone payments licensing asset acquisitions investigational compounds iprd impairment charges proportionate allocations enterprisewide costs allocations include facilities information technology employee stock compensation costs appropriate costs certain expenses shared alliance partners based upon contractual agreements expenses typically vary periods number reasons including timing license asset acquisition charges iprd impairment charges • research development expense decreased 184 million 2019 due 11 billion nektar related charges 2018 partially offset celgene expenses approximately 500 million higher investment io immunology development programs significant charges included rd expense follows • license asset acquisition charges resulted strategic transactions acquire license certain investigational compounds options acquire license disclosed “acquisitions divestitures licensing collaboration arrangements” significant charges include upfront charge 11 billion related nektar 2018 60 million milestone cormorant pharmaceuticals 2018 25 million milestones 2019 2018 ifm therapeutics inc • iprd impairment charges includes discontinued development investigational compound previously acquired medarex • employee compensation charges resulted impact retention signon arrangements connection celgene transaction • site exit costs include 79 million 2019 2018 resulting expected exit rd sites us 85 million charge 2019 resulting purchase priority review voucher expected used ongoing development program amortization acquired intangible assets amortization intangible assets acquired result business combinations • amortization acquired intangible assets increased 10 billion 2019 result marketed product rights acquired celgene transaction incomeexpense net • incomeexpense net changed 18 billion 2019 primarily due 20 billion costs expenses resulting celgene transaction 16 billion pension settlement charge partially offset 12 billion gain sale upsa business equity investments fair value adjustments components incomeexpense net follows • interest expense includes interest incurred approximately 190 billion notes issued may 2019 including 340 million incurred prior celgene acquisition date approximately 199 billion celgene debt acquired 2019 exchange offer interest expense reduced 18 million amortization purchase price adjustment attributed celgenes debt • pension postretirement includes pension settlement charges including 16 billion primarily relating termination bristolmyers squibb retirement income plan 2019 • royalties licensing income primarily includes diabetes royalties 650 million 2019 661 million 2018 keytruda royalties 545 million 2019 343 million 2018 addition erbitux royalties 145 million 50 million fee amending royalty rate 25 million salesbased milestone included 2018 • divestiture gains resulted divestiture upsa business 2019 multiple mature global product lines 2018 • acquisition expenses include following items related celgene transaction 1 upfront bridge facility commitment term loan debt exchange fees 135 million 2 acquisition financing hedge losses 278 million 3 financial advisory legal proxy filing transaction costs 244 million • contingent value rights include fair value adjustments resulting changes traded price securities • investment income includes 197 million interest income earned net proceeds new notes issued prior celgene transaction net proceeds used fund portion celgene acquisition cash consideration pay related fees expenses • integration expenses include consulting fees incurred connection celgene integration activities • restructuring charges include exit costs primarily related employee termination benefits contract terminations restructuring charges related prior company transformation initiatives 45 million 2019 131 million 2018 restructuring charges related celgene transaction 256 million 2019 including 145 million accelerated vesting celgene equity awards refer “item 8 financial statements supplementary datanote 6 restructuring” information • equity investment gainslosses includes fair value adjustments related equity investments uniqure nv nektar equity investments obtained celgene transaction addition 80 million related termination europe asia partnership sanofi 2019 • litigation settlements include 75 million related government pricing matter 2019 70 million related intellectual property product liability settlements 2018 • intangible asset impairment includes 64 million 2018 outlicensed asset obtained acquisition zymogenetics inc meet primary endpoint phase ii clinical study • equity net lossincome affiliates primarily related partnership sanofi europe asia terminated 2019 investments limited partnerships income taxes tax impact attributed specified items including otezla divestiture certain nondeductible expenses purchase price adjustments increased effective tax rate 157 2019 taxes attributed internal cash repatriations 2018 lower state taxes 2019 swiss tax reform adjustments upon finalization 2018 tax returns accounted 23 reduction effective income tax rates compared prior period tax reserve releases due lapse statutes 81 million 2019 119 million 2018 refer “item 8 financial statements supplementary datanote 7 income taxes” information nongaap financial measures nongaap financial measures including nongaap earnings related eps information adjusted exclude certain costs expenses gains losses specified items evaluated individual basis items adjusted considering quantitative qualitative aspects typically one following characteristics highly variable difficult project unusual nature significant results particular period indicative future operating results similar charges gains recognized prior periods likely reoccur future periods including 1 amortization acquired intangible assets beginning fourth quarter 2019 including product rights generate significant portion ongoing revenue recur intangible assets fully amortized 2 unwind inventory fair value adjustments 3 acquisition integration expenses 4 restructuring costs 5 accelerated depreciation impairment property plant equipment intangible assets 6 rd charges income resulting upfront contingent milestone payments connection acquisition licensing thirdparty intellectual property rights 7 costs acquiring priority review voucher 8 divestiture gains losses 9 stock compensation resulting accelerated vesting celgene awards certain retentionrelated compensation charges related celgene transaction 10 pension legal contractual settlement charges 11 interest expense notes issued may 2019 prior celgene transaction interest income earned net proceeds notes 12 amortization fair value adjustments debt acquired celgene 2019 exchange offer among items deferred current income taxes attributed items also adjusted considering individual impact overall tax expense deductibility jurisdictional tax rates certain significant tax items also excluded impact us tax reform also provide international revenues priority products excluding impact foreign exchange reconciliations nongaap measures comparable gaap measures included exhibit 992 form 8k filed february 6 2020 incorporated herein reference nongaap information intended portray results baseline performance supplement enhance management analysts investors overall understanding underlying financial performance facilitate comparisons among current past future periods example nongaap earnings eps information indication baseline performance items considered us reflective ongoing results addition information among primary indicators use basis evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information intended considered isolation substitute net earnings diluted eps prepared accordance gaap may comparable similarly titled measures presented companies due possible differences method items adjusted encourage investors review financial statements publiclyfiled reports entirety rely single financial measure amortization acquired intangible assets previously included nongaap earnings eps information amounts become significant financial results subsequent celgene acquisition result excluded nongaap results better reflect core operating performance comparable prior period nongaap results revised include adjustment related amounts insignificant 97 million 2018 specified items follows reconciliations gaap nongaap follows financial position liquidity capital resources net debtcash position follows prior period amounts conformed current period presentation cash equivalents marketable securities held us approximately 136 billion december 31 2019 expect flexibility accessing cash future cash may generated foreign subsidiaries believe existing cash equivalents marketable securities together cash generated operations required issuance commercial paper supported credit facilities sufficient satisfy anticipated cash needs least next years including dividends capital expenditures milestone payments contingent value rights working capital restructuring initiations business development deemed repatriation transition tax 28 billion debt maturing 2020 management continuously evaluates capital structure ensure company financed efficiently may result repurchase common stock debt securities termination interest rate swap contracts prior maturity issuance debt securities may purchase cvrs issued connection celgene transaction repurchased 105 million shares common stock 59 billion 2019 including 99 million shares 56 billion accelerated share repurchase program announced november 20 2019 board directors approved increase 5 billion share repurchase authorization companys common stock february 2020 increasing total outstanding share repurchase authorization giving effect 59 billion share repurchase 2019 approximately 60 billion dividend payments 27 billion 2019 26 billion 2018 2017 dividend decisions made quarterly basis board directors annual capital expenditures approximately 800 million 2019 10 billion 2018 11 billion 2017 expected approximately 900 million 2020 13 billion 2021 continue expand biologics manufacturing capabilities facilityrelated activities example constructed new largescale biologics manufacturing facility ireland approved fda december 2019 eu january 2020 facility expected produce multiple therapies growing biologics portfolio investment portfolio includes noncurrent marketable securities subject changes fair value result interest rate fluctuations market factors investment policy establishes limits amount time maturity investments institution policy also requires investments entered corporate financial institutions meet high credit quality standards refer “item 8 financial statements supplementary datanote 9 financial instruments fair value measurements” information commercial paper program may issue maximum 5 billion unsecured notes maturities 366 days date issuance commercial paper borrowings outstanding december 31 2019 december 31 2019 four revolving credit facilities totaling 60 billion consisted 364day 20 billion facility expiring january 2021 10 billion facility expiring january 2022 two fiveyear 15 billion facilities extended september 2023 july 2024 respectively facilities provide customary terms conditions financial covenants may used provide backup liquidity commercial paper borrowings 10 billion facility two 15 billion revolving facilities extendable annually one year anniversary date consent lenders 364day 20 billion facility renewed one year anniversary date subject certain terms conditions borrowings outstanding revolving credit facility december 31 2019 2018 may 2019 issued aggregate principal amount approximately 190 billion floating rate fixed rate unsecured senior notes maturities ranging 18 months 30 years connection celgene transaction also acquired approximately 199 billion celgene debt 2019 exchange offer economic market factors additional regulations us could passed future including additional healthcare reform initiatives changes tax laws additional pricing laws potential importation restrictions may reduce results operations operating cash flow liquidity financial flexibility continue monitor potential impact economic conditions certain european countries related impact prescription trends pricing discounts creditworthiness customers believe economic conditions material impact liquidity cash flow financial flexibility uk departed eu january 31 2020 departure began transition period set end december 31 2020 uk eu negotiate future relationship similar companies industry certain regulatory trade labor aspects business likely affected transition period time however currently believe matters related financial effects material impact consolidated results operations financial position liquidity sales uk represent less 3 total revenues global health emergency concerning spread 2019 novel coronavirus currently unknown although aware material impact operations continue monitor situation closely including supply commercial clinical medicines region credit ratings november 2019 moodys sp completed ratings review acquisition celgene concluded companys credit rating would remain unchanged bmss current longterm shortterm credit ratings assigned moodys investors service confirmed a2 prime1 respectively negative longterm credit outlook bmss current longterm shortterm credit ratings assigned standard poors confirmed a1 respectively longterm ratings reflect agencies opinion low default risk somewhat susceptible adverse effects changes circumstances economic conditions shortterm ratings reflect agencies opinion good extremely strong capacity timely repayment credit rating downgrade may affect interest rate debt may incur fair market value existing debt ability access capital markets generally cash flows following discussion cash flow activities operating activities cash flow operating activities represents cash receipts disbursements activities investing financing activities operating cash flow derived adjusting net earnings noncontrolling interest noncash operating items gains losses attributed investing financing activities changes operating assets liabilities resulting timing differences receipts payments cash transactions recognized results operations result changes cash operating activities reflect timing cash collections customers alliance partners payments suppliers alliance partners employees customer discounts rebates tax payments ordinary course business example annual employee bonuses typically paid first quarter subsequent year addition cash collections continue impacted longer payment terms certain biologic products us primarily newer oncology products including opdivo yervoy empliciti 90 days 2019 90 120 days 2018 longer payment terms used closely align insurance reimbursement timing physicians cancer centers following administration patients 21 billion change cash flow operating activities compared 2018 primarily attributable • higher cash collections timing payments ordinary course business approximately 30 billion including approximately 10 billion relating celgene • lower rd licensing collaboration payments approximately 10 billion primarily due nektar transaction 2018 partially offset • higher income tax payments approximately 750 million • celgene acquisition integration related payments approximately 11 billion investing activities cash requirements investing activities include cash used acquisitions manufacturing facilityrelated capital expenditures purchases marketable securities original maturities greater 90 days time purchase reduced proceeds business divestitures including royalties sale maturity marketable securities 89 billion change cash flow investing activities compared 2018 primarily attributable higher net acquisition payments approximately 234 billion primarily due acquisition celgene partially offset higher business divestiture proceeds approximately 146 billion primarily due divestitures otezla upsa consumer health business financing activities cash requirements financing activities include cash used pay dividends repurchase common stock repay longterm debt borrowings reduced proceeds exercise stock options issuance longterm debt borrowings 112 billion change cash flow financing activities compared 2018 primarily attributable higher net borrowing activity approximately 182 billion primarily resulting issuance new notes connection acquisition celgene partially offset accelerated stock repurchase cash payment 70 billion contractual obligations offbalance sheet arrangements payments due period contractual obligations december 31 2019 follows includes estimated future interest payments periodic cash settlements derivatives b includes shortterm uncertain tax benefits uncertainties regarding timing resolution c excludes noncurrent liabilities uncertainties regarding timing resolution committed aggregate 207 billion potential future research development milestone payments third parties inlicensing asset acquisitions development programs including earlystage milestones 69 billion milestones achieved phase iii clinical studies latestage milestones 138 billion milestones achieved post phase iii clinical studies payments generally due payable upon achievement certain developmental regulatory milestones specific timing cannot predicted certain agreements also provide salesbased milestones aggregating 147 billion would obligated pay alliance partners upon achievement certain sales levels addition royalties also certain manufacturing development commercialization obligations connection alliance arrangements practicable estimate amount obligations refer “item 8 financial statements supplementary datanote 3 alliances” information regarding alliances contingent value rights issued connection celgene acquisition rights measured fair value payments contingent upon achievement future regulatory milestones cvr right entitle shareholder receive onetime potential payment 900 cash upon fda approval three following milestones 1 ozanimod december 31 2020 2 lisocel jcar017 december 31 2020 3 idecel bb2121 march 31 2021 payment made milestones achieved cvrs expire maximum potential payment cvrs approximately 68 billion payable later 20 business days date last milestone achieved offbalance sheet arrangements material reasonably likely become material financial condition results operations sec consent order fcpa settlement previously disclosed august 4 2004 entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10 quarterly report form 10q period ended september 30 2004 terms consent agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring budget process gives appropriate weight inputs come bottom top bottom adequately documenting process established companywide policy concerning sales direct customers purpose complying consent includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis maintain dsas us pharmaceutical wholesalers account nearly 100 gross us revenues current terms dsas wholesaler customers provide us weekly information respect months hand productlevel inventories amount outmovement products three largest wholesalers currently account approximately 93 gross us revenues inventory information received wholesalers together internal information used estimate months hand product level inventories wholesalers estimate months hand product inventory levels us business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers contrast nonus business significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability thirdparty demand information available varies widely accordingly rely variety methods estimate months hand product level inventories business units believe abovedescribed procedures provide reasonable basis ensure compliance consent recently issued accounting standards recently issued accounting standards refer “item 8 financial statements supplementary datanote 1 accounting policies recently issued accounting standards” critical accounting policies preparation financial statements requires use estimates assumptions affect reported amounts assets liabilities reported amounts revenue expenses critical accounting policies significantly affect financial condition results operations require difficult subjective complex judgments often need make estimates effect matters inherently uncertain uncertainty actual results may vary estimates revenue recognition accounting policy revenue recognition substantial impact reported results relies certain estimates revenue recognized following fivestep model 1 identify customer contract 2 identify contracts performance obligation 3 determine transaction price 4 allocate transaction price performance obligation 5 recognize revenue performance obligation satisfied revenue also reduced gtn sales adjustments discussed involve significant estimates judgment considering legal interpretations applicable laws regulations historical experience payer channel mix eg medicare medicaid current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel estimates assessed period adjusted required revise information actual experience following categories gtn adjustments involve significant estimates judgments information obtained external sources refer “item 8 financial statements supplementary datanote 2 revenue” discussion analysis significant category gtn sales adjustments chargebacks cash discounts us business participates programs government entities significant us department defense us department veterans affairs parties including covered entities 340b drug pricing program whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower program price wholesalers charge us difference acquisition cost lower program price accounts receivable reduced estimated amount unprocessed chargeback claims attributable sale typically within two four week time lag us certain countries cash discounts offered incentive prompt payment generally approximating 2 sales price accounts receivable reduced estimated amount unprocessed cash discounts typically within one month time lag medicaid medicare rebates us business participates state government medicaid programs qualifying federal state government programs requiring discounts rebates participating state local government entities discounts rebates provided programs included medicaid rebate accrual medicaid rebates also extended drugs used managed medicaid plans estimated amount unpaid unbilled rebates presented liability rebates discounts offered managed healthcare organizations us managing prescription drug programs medicare advantage prescription drug plans covering medicare part drug benefit also pay 70 point service discount cms medicare part beneficiaries coverage gap “donut hole” estimated amount unpaid unbilled rebates discounts presented liability rebates returns discounts adjustments gtn sales adjustments include sales returns programs based applicable laws regulations individual nonus countries well rebates offered managed healthcare organizations us lesser extent nonus programs include several different pricing schemes cost caps volume discounts outcomebased pricing schemes pricing clawbacks based sales individual companies aggregation companies participating specific market estimated amount unpaid unbilled rebates discounts presented liability estimated returns established products determined considering historical experience factors including levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products lower demand following loe estimated returns new products determined considering historical sales return experience similar products within product line similar therapeutic area andor similar distribution model estimated levels inventory distribution channel projected demand estimated amount product returns presented liability use information external sources information external sources used estimate gtn adjustments estimate inventory wholesalers based projected prescription demandbased sales products historical inventory experience well analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals also continued practice combining retail mail prescription volume retailequivalent basis use methodology internal demand forecasts also use information external sources identify prescription trends patient demand average selling prices estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date receive thirdparty information longlived assets intangible assets valuations significant amount purchase price celgene acquisition allocated intangible assets including commercially marketed products iprd assets intangible assets 640 billion december 31 2019 11 billion december 31 2018 identifiable intangible assets measured respective fair values acquisition date engaged independent thirdparty valuation firm assist determining fair values assets acquisition date fair value assets estimated using discounted cash flow models required use following significant estimates assumptions among others • identification product candidates sufficient substance requiring separate recognition • estimates revenues operating profits related commercial products product candidates • eligible patients pricing market share used estimating future revenues • probability success unapproved product candidates additional indications commercial products • resources required complete development approval product candidates • timing regulatory approvals exclusivity • appropriate discount rate products • market participant income tax rates • allocation expected synergies products believe estimated preliminary fair value assigned intangible assets acquired used reasonable estimates assumptions considering facts circumstances acquisition date impairment amortization longlived assets including intangible assets longlived assets include intangible assets property plant equipment reviewed impairment whenever events changes circumstances indicate carrying amount assets may recoverable least annually iprd intangible assets highly vulnerable impairment charges particularly newly acquired assets recently launched products iprd assets initially measured fair value therefore reduction expectations used valuations could potentially lead impairment common potential risks leading impairment include competition earlier expected loe pricing reductions adverse regulatory changes clinical study results delay failure obtain regulatory approval initial follow indications unanticipated development costs inability achieve expected synergies resulting cost savings avoidance higher operating costs changes tax laws macroeconomic changes complexity estimating fair value intangible assets connection impairment test similar initial valuation carrying value longlived assets exceeds fair value asset writtendown fair value expectations future cash flows subject change based upon near longterm production volumes margins generated asset well potential alternative future use estimated useful lives longlived assets subjective requires significant judgment regarding patent lives future plans external market factors longlived assets also periodically reviewed changes facts circumstances resulting reduction estimated useful life asset requiring acceleration depreciation goodwill represents excess consideration transferred estimated fair values net assets acquired business combination goodwill 225 billion 65 billion december 31 2019 2018 respectively assess goodwill balance within single reporting unit annually whenever events changes circumstances indicate carrying value goodwill may recoverable determine whether impairment asset may exist extent impairment goodwill reviewed impairment assessing qualitative factors including comparing market capitalization carrying value assets events circumstances might require interim evaluation include unexpected adverse business conditions economic factors unanticipated technological changes competitive activities acts governments courts assets heldforsale following criteria considered concluding assets classified heldforsale 1 management’s commitment plan sell 2 availability immediate sale present condition 3 initiation active program identify buyer 4 probability completed sale within one year 5 actively marketed sale reasonable price relation current fair value 6 likelihood significant changes plan made plan withdrawn criteria met balance sheet date assets liabilities presented separately balance sheet heldforsale lower carrying amount fair value less costs sell longer depreciated amortized classified heldforsale income taxes valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecasts future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made deferred tax assets 21 billion december 31 2019 net valuation allowances 28 billion 16 billion december 31 2018 net valuation allowances 32 billion us federal net operating loss carryforwards 216 million december 31 2019 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 foreign state net operating loss carryforwards expire varying amounts beginning 2019 certain amounts unlimited lives discussed fully “item 8 financial statements supplementary datanote 7 income taxes” provisional tax charge 26 billion attributable onetime deemed repatriation transition tax certain foreign earnings recognized fourth quarter 2017 accounting reduction deferred tax assets 21 tax rate complete december 31 2017 tax charge deemed repatriation transition tax completed december 31 2018 provisional tax charge deemed repatriation transition tax reduced 56 million 2018 prior mead johnson splitoff 2009 following transactions occurred internal spinoff mead johnson shares still owned us ii conversion mead johnson class b shares class shares iii conversion mead johnson company limited liability company transactions well splitoff mead johnson exchange offer qualify taxexempt transactions internal revenue code based upon private letter ruling received internal revenue service related conversion mead johnson class b shares class shares outside legal opinions certain assumptions representations covenants mead johnson relied upon regarding future conduct business matters could affect tax treatment exchange example current tax law generally creates presumption exchange would taxable us mead johnson shareholders engage transactions result 50 greater change stock ownership four year period beginning two years exchange offer unless established exchange offer part plan series related transactions effect change ownership internal spinoff exchange offer determined qualify tax exempt transaction could subject tax exchange taxable sale us market value addition negative basis excess loss account “ela” existed investment stock mead johnson prior transactions received opinion outside legal counsel effect likely eliminated ela part transactions taxable income respect ela tax law area complex possible even internal spinoff exchange offer tax exempt internal revenue code internal revenue service could assert additional taxable income period respect ela could exposed additional taxes occur based upon understanding internal revenue code opinion outside legal counsel tax reserve 244 million established reducing gain disposal mead johnson included discontinued operations 2009 agreed certain tax related indemnities mead johnson set forth tax sharing agreement including certain taxes related business prior completion initial public offering created part restructuring facilitate ipo mead johnson also agreed indemnify us potential tax effects resulting breach certain representations discussed well certain transactions related acquisition mead johnson’s stock assets liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known discussions income taxes refer “item 8 financial statements supplementary datanote 1 accounting policies recently issued accounting standardsincome taxes” “note 7 income taxes” contingencies normal course business subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability contractual claims tax matters recognize accruals contingencies probable liability incurred amount loss reasonably estimated estimates subject uncertainties difficult predict actual results could vary estimates discussions contingencies refer “item 8 financial statements supplementary datanote 1 accounting policies recently issued accounting standardscontingencies” “note 7 income taxes” “note 19 legal proceedings contingencies” product pipeline developments rd programs managed portfolio basis early discovery latestage development include balance earlystage latestage programs support future growth late stage rd programs phase iii development include investigational compounds initial indications additional indications formulations marketed products spending programs represent approximately 4050 annual rd expenses last three years opdivo investigational compound marketed product represented greater 10 rd expenses last three years latestage development programs could potentially impact revenue earnings within next years regulatory approvals obtained products successfully commercialized following developments marketed products latestage pipeline product indication date developments revlimid fl december 2019 announced ec approval new indication revlimid combination rituximab anticd20 antibody treatment adult patients previously treated fl grade 13a combination revlimid rituximab r2 first chemotherapyfree combination regimen approved patients fl ec eliquis nvafacs september 2019 announced findings naxos evaluation apixaban stroke systemic embolism prevention patients nonvalvular atrial fibrillation reallife setting france largest realworld data analysis oac effectiveness safety europe among patients nvaf analysis eliquis use associated lower rate major bleeding compared vitamin k antagonist rivaroxaban dabigatran data featured latebreaking oral presentation european society cardiology congress 2019 paris france march 2019 announced results phase iv augustus trial evaluating eliquis versus vitamin k antagonists “vkas” patients nvaf acs andor undergoing pci results show patients receiving p2y12 inhibitor without aspirin antiplatelet therapies proportion patients major clinically relevant nonmajor bleeding six months significantly lower treated eliquis compared treated vka vte december 2019 announced results retrospective realworld data analyses reporting outcomes safety effectiveness eliquis compared low molecular weight heparin “lmwh” warfarin treatment vte patients active cancer realworld data analyses highlighted oral presentations american society hematology annual meeting orlando florida results primary analysis showed eliquis use associated lower rates major bleeding clinicallyrelevant nonmajor “crnm” bleeding recurrent vte compared lmwh eliquis also associated lower rate recurrent vte similar rates major bleeding crnm bleeding compared warfarin outcomes defined based diagnosis codes setting care atrial fibrillation november 2019 bmspfizer alliance announced initiation new randomized controlled study guardaf determine earlier detection atrial fibrillation screening previously undiagnosed men women least 70 years age us ultimately impacts rate stroke compared usual standard medical care study also assess potential bleeding leading hospitalization therefore provide evaluation net clinical benefit harm product indication date developments opdivo crc march 2019 ono alliance partner opdivo japan announced submission supplemental application opdivo japan additional indication msih unresectable advanced recurrent crc progressed following chemotherapy partial change approved items manufacturing marketing approval mainly based result phase ii checkmate142 study evaluating opdivo patients msih dmmr recurrent metastatic crc progressed intolerant least one previous line treatment chemotherapy including fluoropyrimidine anticancer drugs escc september 2019 announced results phase iii attraction3 trial evaluating opdivo versus chemotherapy treatment patients unresectable advanced recurrent escc refractory intolerant combination therapy fluoropyrimidine platinumbased drugs primary endpoint overall survival opdivo demonstrated statistically significant improvement chemotherapy 23 reduction risk death 25month improvement median overall survival compared patients treated chemotherapy safety profile opdivo trial consistent previously reported studies escc solid tumors may 2019 ono alliance partner opdivo japan announced submission supplemental application opdivo indication unresectable advanced recurrent esophageal cancer japan partial change approved items manufacturing marketing approval gbm september 2019 announced phase iii checkmate548 trial evaluating addition opdivo current standard care temozolomide radiation therapy versus standard care alone meet one primary endpoints progressionfree survival patients newly diagnosed gbm mgmtmethylated data monitoring committee recommended trial continue planned allow primary endpoint overall survival mature company remains blinded study data may 2019 announced phase iii checkmate498 trial evaluating opdivo plus radiation versus temozolomide plus radiation patients newly diagnosed mgmtunmethylated gbm meet primary endpoint overall survival final analysis hcc june 2019 announced topline results checkmate459 randomized phase iii study evaluating opdivo versus sorafenib firstline treatment patients unresectable hcc trial achieve statistical significance primary endpoint overall survival per prespecified analysis melanoma october 2019 announced ec approval opdivo flat dosing schedule 240 mg infused 30 minutes every two weeks 480 mg infused 60 minutes every four weeks adjuvant treatment adult patients melanoma involvement lymph nodes metastatic disease undergone complete resection september 2019 announced results threeyear analysis efficacy data phase iii checkmate238 study evaluating adjuvant use opdivo 3 mgkg versus yervoy 10 mgkg patients stage iii stage iv melanoma high risk recurrence following complete surgical resection three years followup opdivo continues demonstrate superior recurrencefree survival compared yervoy active control recurrencefree survival rates 58 45 respectively august 2019 announced alliance partner nektar fda granted breakthrough therapy designation investigational agent bempegaldesleukin nktr214 combination opdivo treatment patients previously untreated unresectable metastatic melanoma breakthrough therapy designation based clinical data recently reported 2019 american society clinical oncology annual meeting cohort patients metastatic melanoma treated doublet therapy ongoing pivot02 phase iii clinical study nsclc september 2019 announced longterm pooled efficacy safety results phase iii checkmate017 checkmate057 studies patients previously treated advanced nsclc five years patients treated opdivo continued experience longterm overall survival “os” benefit versus docetaxel os rate five years 134 opdivo 26 docetaxel os benefit opdivotreated patients observed across subgroups april 2019 announced results pooled analyses survival data four studies checkmate017 057 063 003 patients previouslytreated advanced nsclc treated opdivo pooled analysis four studies 14 opdivotreated patients alive four years notably patients pdl1 greater equal 1 less 1 fouryear overall survival rate 19 11 respectively scchn september 2019 received approval china opdivo monotherapy treatment patients scchn disease progression platinumbased therapy whose tumors pdl1 positive expression defined ≥1 tumor cells expressing pdl1 january 2019 acceptance china sbla filing patients previously treated metastatic recurrent scchn product indication date developments opdivoyervoy hcc november 2019 announced fda accepted sbla granted breakthrough therapy designation opdivo combination yervoy treatment patients advanced hcc previously treated sorafenib fda granted application priority review pdufa goal date march 10 2020 june 2019 announced first results opdivoyervoy cohort phase iii checkmate040 study evaluating io combination patients advanced hcc previously treated sorafenib minimum followup 28 months blinded independent central review objective response rate 31 per response evaluation criteria solid tumors version 11 time data cutoff median duration response 175 months mcrpc february 2019 announced results interim analysis phase ii checkmate650 trial evaluating opdivoyervoy patients mcrpc showed among 32 asymptomatic minimally symptomatic patients whose disease progressed secondgeneration hormone therapy received chemotherapy cohort 1 median followup 119 months objective response rate 25 additionally among 30 patients whose disease progressed taxanebased chemotherapy cohort 2 median followup 135 months objective response rate 10 melanoma november 2019 announced results one coprimary endpoints checkmate915 randomized phase iii study evaluating opdivoyervoy versus opdivo alone adjuvant treatment patients complete surgical removal stage iiibcd stage iv evidence disease melanoma statistically significant benefit reached coprimary endpoint recurrencefree survival “rfs” patients whose tumors expressed pdl1 1 data monitoring committee recommended study continue unchanged study remains doubleblinded continue assess coprimary endpoint rfs allcomer intenttotreat population september 2019 announced fiveyear results phase iii checkmate067 clinical trial continues demonstrate improved overall survival firstline combination opdivoyervoy versus yervoy alone patients advanced metastatic melanoma minimum followup 60 months five years fiveyear overall survival rates 52 opdivoyervoy combination 44 opdivo alone 26 yervoy alone june 2019 announced fiveyear analysis phase ca209004 study longest followup opdivoyervoy combination patients previously treated untreated advanced melanoma date analysis showed median followup 431 months range 09767 patients four years longer overall survival rates stable 57 june 2019 announced analysis exploring longterm quality life “qol” symptom burden phase iii checkmate067 study found qol maintained treatmentfree interval period patient study treatment free subsequent therapy patients previously untreated unresectable metastatic melanoma following discontinuation therapy opdivo opdivoyervoy march 2019 received fda full approval opdivo combination yervoy treatment patients unresectable metastatic melanoma based additional longer term efficacy data checkmate067 4year overall survival without restrictions patient population approval fulfills two post marketing requirements verify describe clinical benefit thereby converting prior accelerated approval full approval nivolumab combination ipilimumab patients unresectable metastatic melanoma nivolumab monotherapy braf mutant subjects unresectable metastatic melanoma importantly based fda review checkmate067 4year overall survival data results exploratory analyses pdl1 tumor expression removed entirely label nsclc january 2020 announced voluntary withdrawal companys application eu combination opdivo yervoy treatment advanced nsclc based data checkmate227 application originally filed 2018 patients firstline nsclc tumor mutational burden ≥10 mutationsmegabase based final analysis progressionfree survival coprimary endpoint trial application subsequently amended include statistically significant result overall survival coprimary endpoint checkmate227 part 1a evaluating opdivoyervoy versus chemotherapy patients whose tumors expressed pdl1 ≥1 though committee medicinal products human use “chmp” acknowledged integrity patient level data chmp determined full assessment application possible following multiple protocol changes company made response rapidly evolving science data company plans refile application eu january 2020 announced fda accepted sbla opdivo combination yervoy firstline treatment patients metastatic recurrent nsclc egfr alk genomic tumor aberrations application based data part 1 phase 3 checkmate 227 trial evaluating opdivo plus yervoy versus chemotherapy patients previously untreated nsclc dual immunotherapy combination demonstrated significant improvement overall survival versus chemotherapy alone fda granted application priority review pdufa goal date may 15 2020 product indication date developments opdivoyervoy nsclc october 2019 announced results phase iii checkmate9la trial evaluating opdivo plus lowdose yervoy given concomitantly two cycles chemotherapy firstline treatment patients advanced nsclc met primary endpoint superior overall survival prespecified interim analysis comparator study chemotherapy alone four cycles followed optional maintenance therapy safety profile opdivo plus lowdose yervoy two cycles chemotherapy checkmate9la reflective known safety profiles immunotherapy chemotherapy components firstline nsclc september 2019 announced results part 1 phase iii checkmate227 trial evaluating opdivo plus lowdose yervoy firstline treatment patients advanced nsclc opdivo plus lowdose yervoy met independent coprimary endpoint overall survival demonstrating superior benefit compared chemotherapy patients whose tumors expressed pdl1 ≥1 additionally exploratory analysis results showed improved overall survival patients treated combination opdivo plus lowdose yervoy pdl1 1 twoyear survival rate patients treated combination regimen 40 patients whose tumors expressed pdl1 ≥1 patients whose tumors expressed pdl1 1 chemotherapy control arm twoyear survival rates 33 23 respectively july 2019 announced part 2 phase iii checkmate227 study evaluating opdivo plus chemotherapy versus chemotherapy meet primary endpoint overall survival firstline nonsquamous nsclc patients regardless pdl1 status january 2019 announced voluntary withdrawal companys sbla opdivo plus lowdose yervoy treatment firstline advanced nsclc patients tmb greater equal 10 mutations per megabase data checkmate227 part 1a discussions fda company believes evidence relationship tmb pdl1 required fully evaluate impact opdivo plus yervoy overall survival firstline nsclc patients analysis require availability final data checkmate227 part 1a could provided time within review cycle current application rcc february 2019 announced new results phase iii checkmate214 study showing therapy opdivo plus lowdose yervoy continued demonstrate longterm survival benefits patients previously untreated advanced metastatic rcc january 2019 announced ec approval opdivo plus lowdose yervoy previously untreated patients intermediate poorrisk advanced rcc scchn april 2019 announced topline results phase ii checkmate714 trial evaluating opdivo versus opdivoyervoy patients recurrent metastatic scchn study meet primary endpoints orencia gvhd december 2019 announced fda granted breakthrough therapy designation orencia prevention moderate severe acute gvhd hematopoietic stem cell transplants unrelated donors approved therapies prevention acute gvhd potentially lifethreatening medical complication impact patients receiving transplants treatment certain genetic diseases hematologic cancers jia april 2019 received ec notification adoption approval orencia solution subcutaneous injection prefilled syringe extension application 50 mg 875 mg strength extension indication treatment polyarticular jia pediatric patients two years age older ra june 2019 announced data phase iv mechanistic study exploring differences cellular molecular mechanisms orencia another treatment adalimumab interfere disease progression moderatetosevere early ra patients seropositive certain autoantibodies among 80 adult patients early moderatetosevere ra never treated biologic medication tested positive autoantibodies called anticitrullinated protein antibody rheumatoid factor numerically higher efficacy responses seen orencia week 24 results prospective analysis early ample headtohead trial featured latebreaking oral presentation annual european congress rheumatology march 2019 announced submission supplemental applications “orencia intravenous infusion 250mg” “orencia 125mg syringe subcutaneous injection 1ml” “orencia 125mg autoinjector subcutaneous injection 1ml” include description “inhibition structural damage joints” currently approved indication ra partial change approved items manufacturing marketing approval japan sprycel february 2019 announced ec approval sprycel tablet powder oral suspension formulations combination chemotherapy treatment pediatric patients newly diagnosed philadelphia chromosomepositive product indication date developments empliciti multiple myeloma november 2019 announced sjnda empliciti combination pomalidomide dexamethasone epd approved japan ministry health labour welfare approval based global phase ii trial eloquent3 epd treatment patients mm received least two prior therapies including lenalidomide proteasome inhibitor august 2019 announced ec approved empliciti plus pomalidomide lowdose dexamethasone epd treatment adult patients rrmm received least two prior therapies including lenalidomide proteasome inhibitor demonstrated disease progression last therapy june 2019 announced updated data eloquent3 international randomized phase ii study evaluating empliciti plus pomalidomide dexamethasone epd versus pomalidomide dexamethasone pd alone patients rrmm nonprespecified analysis conducted provide descriptive assessment overall survival extended followup least 183 months patients treated epd continued experience sustained clinically relevant overall survival progressionfree survival benefits compared patients treated pd data presented 24th congress european hematology association poster display february 2019 completed filing supplemental japanese new drug application sjnda empliciti combination pomalidomide dexamethasone treatment patients multiple myeloma received least two prior therapies including revlimid proteasome inhibitor sjnda filing submitted based results global phase ii study orphan designation already granted indication rrmm initial jnda sjnda also reviewed “priority review” reblozyl mds december 2019 announced following latecycle review meeting december 4 2019 bms acceleron pharma inc notified fda reblozyl reviewed oncology drugs advisory committee “odac” meeting scheduled december 18 2019 agency informed bms original prescription drug user fee act target action date april 4 2020 sbla reblozyl remain without requirement odac review bms seeking approval rebloyzl erythroid maturation agent representing new class therapy treatment adult patients low intermediaterisk mdsassociated anemia ring sideroblasts require red blood cell transfusions lisocel lymphoma february 2020 announced fda accepted priority review bla lisocabtagene maraleucel lisocel companys autologous anticd19 car tcell immunotherapy defined composition purified cd8 cd4 car cells treatment adult patients relapsed refractory large bcell lymphoma least two prior therapies fda set prescription drug user fee act goal date august 17 2020 lisocel granted breakthrough therapy regenerative medicine advanced therapy designations fda relapsedrefractory aggressive large bcell nonhodgkin lymphoma including diffuse large bcell lymphoma “dlbcl” otherwise specified de novo transformed indolent lymphoma primary mediastinal bcell lymphoma grade 3b follicular lymphoma priority medicines scheme ema relapsedrefractory dlbc special note regarding forwardlooking statements 2019 form 10k including documents incorporated reference written oral statements make time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 amended section 21e exchange act identify forwardlooking statements fact use words “should” “could” “expect” “anticipate” “estimate” “target” “may” “project” “guidance” “intend” “plan” “believe” “will” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based historical performance current expectations projections future financial results goals plans objectives involve inherent risks assumptions uncertainties including internal external factors could delay divert change next several years could cause future financial results goals plans objectives differ materially expressed implied statements likely relate among things goals plans objectives regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products ability realize projected benefits acquisition celgene successfully integrate celgenes operations outcome contingencies legal proceedings financial results forwardlooking statement guaranteed included important factors cautionary statements included 2019 form 10k particularly “item 1a risk factors” believe could cause actual results differ materially forwardlooking statement although believe prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made additional risks may currently deem immaterial presently known us could also cause forwardlooking events discussed 2019 form 10k occur except otherwise required federal securities law undertake obligation release publicly updates revisions forwardlooking statements result new information future events changed circumstances otherwise date 2019 form 10k item 7aitem 7 management’s discussion analysis financial condition results operations executive summary company bristolmyers squibb company bms company bristolmyers squibb worldwide pharmaceutical related health care products company whose mission extend enhance human life providing highest quality pharmaceutical related health care products company engaged discovery development licensing manufacturing marketing distribution sale pharmaceuticals related health care products company three reportable segmentspharmaceuticals nutritionals health care pharmaceuticals segment made global pharmaceutical international consumer medicines business nutritionals segment consists mead johnson nutritionals mead johnson primarily infant formula children’s nutritionals business health care segment consists convatec medical imaging consumer medicines us canada businesses third quarter 2005 company completed sale consumer medicines business nutritionals health care segments also collectively known health care group additional information segments see “item 8 financial statementsnote 17 segment information” business environment company conducts business primarily within pharmaceutical industry highly competitive subject numerous government regulations many competitive factors may significantly affect company’s sales products including product efficacy safety price costeffectiveness marketing effectiveness product labeling quality control quality assurance manufacturing operations research development new products successfully compete business health care industry company must demonstrate products offer medical benefits also cost advantages currently company’s new product introductions compete products already market therapeutic category company manufactures branded products priced higher generic products generic competition one company’s leading challenges globally pharmaceutical industry majority innovative product’s commercial value usually realized period product market exclusivity product loses exclusivity longer protected patent subject new competing products form generic brands upon exclusivity loss product company lose major portion product’s sales short period time discussion product exclusivity see “item 1 businessintellectual property product exclusivity” us internationally health care industry subject various governmentimposed regulations authorize prices price controls continue impact company’s sales us congress state legislatures considered number proposals enacted laws could effect major changes health care system either nationally state level driven part budget concerns medicaid access reimbursement restrictions implemented states proposed many others addition december 2003 medicare prescription drug improvement modernization act mma enacted provide outpatient prescription drug coverage senior citizens united states mma became effective january 2006 company cannot predict potential impact legislation business however could negative impact company’s us pharmaceutical business greater federal involvement budget constraints may increase likelihood pricing pressures controls future many markets outside united states company operates environments governmentmandated costcontainment programs regulatory regimes exert downward pressure pricing freedom limited united kingdom instance operation profit control plan germany operation reference price system companies also face significant delays market access new products two years elapse new medicines become available national markets growth managed care organizations mcos us played large role competition surrounds health care industry mcos seek reduce health care expenditures participants making volume purchases entering longterm contracts negotiate discounts various pharmaceutical providers market potential created large pool participants marketing prescription drugs mcos become important part company’s strategy companies compete inclusion mco formulary company generally successful major products included company believes developments managed care industry including continued consolidation continue generally downward pressure prices pharmaceutical production processes complex highly regulated vary widely product shifting adding manufacturing capacity lengthy process requiring significant capital expenditures regulatory approvals biologics manufacturing involves complex processes traditional pharmaceutical operations biologics become important company’s product portfolio company may continue make arrangements third party manufacturers expects make substantial investments increase internal capacity produce biologics commercial scale company maintained competitive position market strives uphold position dependent success discovering developing innovative costeffective products serve unmet medical needs company subsidiaries subject number significant pending lawsuits claims proceedings investigations possible time reasonably assess final outcome investigations litigations management continues believe previously disclosed next years aggregate impact beyond current reserves legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity additional discussion legal matters see “item 8 financial statements supplementary datanote 20 legal proceedings contingencies” strategy company continues execute strategy long term growth currently track complete strategic transition 2006 attain period sustainable sales earnings growth starting 2007 strategy consists increasing investments behind growth drivers focusing company’s research development programs products pharmaceutical pipeline disease areas address significant unmet medical needs aligning sales marketing emphasis specialists high value primary care prescribers implementing initiatives designed achieve maintain efficient cost base company process transforming pharmaceutical portfolio favor growth drivers specialty products include plavix avaproavalide abilify reyataz erbitux baraclude us net sales products accounted 35 company’s worldwide pharmaceutical net sales 2005 compared 29 2004 worldwide net sales products accounted 36 company’s worldwide net sales 2005 compared 29 2004 december 2005 us food drug administration fda approved orencia abatacept became commercially available us february 2006 orencia targeted initially adult patients moderate severe rheumatoid arthritis inadequate response certain currently available treatments marketing authorization application maa also submitted product european medicines evaluation agency emea january 2006 supplemental biologics license application sbla filed fda approval thirdparty manufacturing facility support increased production capacity orencia sbla part company’s plan engage thirdparty manufacturing arrangements meet future commercial demand expected generated approval commercialization variety biologics also december 2005 company completed submission new drug application nda fda dasatinib kinase inhibitor potential treatment chronic myelogenous leukemia cml march 7 2006 nda accepted granted priority review accelerated approval january 2006 company submitted maa dasatinib emea october 2005 fda advisory committee recommended emsam transdermal patch treatment adults major despressive disorder could safely administered without dietary modifications 6mg24 hour dose february 27 2006 fda approved emsam use without dietary modifications lowest dose 6mg24 hour keeping strategy company invested 27 billion research development representing 10 growth rate 2004 research development dedicated pharmaceutical products including milestone payments inlicensing development programs 25 billion 165 pharmaceutical sales 2005 compared 23 billion 147 pharmaceutical sales 2004 another major aspect company’s strategy relates business specifically marketing sales approaches specialists playing even greater role decisions related patient treatment care particularly 10 critical disease areas company focusing efforts company realigned us european sales forces focus specialists well primary care physicians involved treating patients disease areas part strategy company reexamining operating costs achieve maintain efficient cost base end 2005 company launched initiative identify realize productivity savings initiative company reexamine operating model focus resources high value priorities simplify streamline business processes governance decision making build capabilities sustain cost reductions long term company’s goal realize minimum 500 million productivity savings 2007 incremental 100 million 2008 implement lasting changes make company productive efficient effective results operations following discussion company’s results continuing operations excludes results related oncology therapeutics network otn business previously presented separate segment segregated continuing operations reflected discontinued operations periods presented see “discontinued operations” net sales net sales continuing operations 2005 decreased 1 192 billion compared 2004 us net sales 2005 decreased 1 105 billion compared 2004 international net sales 87 billion remained relatively constant 2005 compared 2004 including 2 favorable foreign exchange impact 2004 net sales continuing operations increased 4 194 billion 187 billion 2003 us net sales 2004 remained relatively constant 106 billion compared 2003 international net sales increased 10 88 billion 2004 including 8 favorable foreign exchange impact 80 billion 2003 composition change sales follows general company’s business seasonal information us pharmaceuticals prescriber demand reference made table within business segments pharmaceuticals section sets forth comparison changes net sales estimated total prescription growth retail mail order customers certain company’s pharmaceutical products company operates three reportable segmentspharmaceuticals nutritionals health care may 2005 company completed sale otn previously presented separate segment results operations otn presented part company’s results discontinued operations accordance statement financial standards sfas 144 “accounting impairment disposal longlived assets” accordingly otn results operations prior periods reclassified discontinued operations conform current year presentations percent company’s net sales segment follows company recognizes revenue net various sales adjustments arrive net sales reported consolidated statement earnings adjustments referred grosstonet sales adjustments described “critical accounting policies” following table sets forth reconciliation company’s gross sales net sales significant category grosstonet sales adjustments decrease prime vendor chargebacks managed health care rebates 2005 primarily due lower relative sales volume segment due product mix decrease sales returns primarily due lower returns certain products including tequin pravachol sustiva decrease adjustments due lower sales discounts government rebates international businesses 2004 increases 2003 prime vendor chargebacks medicaid rebates primarily due shift sales products higher discounts prime vendor medicaid programs decrease sales returns primarily attributable higher sales returns 2003 resulting discontinued products product conversions following table sets forth activities ending balances significant category grosstonet sales adjustments 2005 company recorded grosstonet sales adjusting charges credits related sales made prior periods significant items included charges 37 million medicaid rebates primarily result higher expected medicaid utilization various products credits 32 million adjustments primarily result lower expected rebates foreign governments credits 27 million sales returns resulting lower returns certain products including tequin avaproavalide plavix 2004 company recorded charges 55 million medicaid rebates related sales made prior periods charges include 34 million rebate claims prior years certain states primarily relation medicaid utilization oncology products previously reported company revisions resulting availability additional information addition company recorded 32 million adjustments result lower expected rebates foreign governments significant revisions made estimates grosstonet sales adjustments 2005 2004 pharmaceuticals composition change pharmaceutical sales follows 2005 worldwide pharmaceuticals sales decreased 2 15254 million us pharmaceutical sales 2005 decreased 3 8190 million compared 8446 million 2004 primarily due continued impact exclusivity losses paraplatin glucophage franchise increased competition pravachol partially offset increased sales growth drivers including plavix abilify erbitux reyataz aggregate estimated wholesaler inventory levels company’s key pharmaceutical products sold us pharmaceutical business end 2005 end 2004 approximately threetenths month approximately two half weeks decline inventory levels negatively impacted sales performance certain products 2005 international pharmaceutical sales 2005 decreased 1 including 1 favorable foreign exchange impact 7064 million primarily due increased generic competition pravachol taxol®paclitaxel partially offset increased sales newer products including reyataz ablilfy well growth plavix 2004 worldwide pharmaceuticals sales increased 4 15564 million us pharmaceutical sales 2004 remained constant 8446 million compared 8431 million 2003 us sales negatively affected increased competition pravachol exclusivity losses paraplatin glucophage franchise offset increased sales plavix newer products including abilify reyataz erbitux international pharmaceutical sales 2004 increased 8 7118 million including 9 favorable foreign exchange impact primarily due generic competition pravachol taxol®paclitaxel partially offset launches abilify reyataz continued growth plavix avaproavalide key pharmaceutical products sales representing 80 78 total pharmaceutical sales 2005 2004 2003 respectively follows change excess 200 • sales plavix platelet aggregation inhibitor sold company primarily us increased 15 including 1 favorable foreign exchange impact 3823 million 2005 2004 primarily due prescription growth approximately 13 us market rate growth 2005 reflects deceleration growth rate plavix sales compared growth rate 35 including 2 favorable foreign exchange impact 2004 2003 primarily due prescription growth 24 us 2004 company seeking enhance growth rate several measures including expansion related direct consumer dtc campaign recentlyfiled snda results commit clarity trials although assurance efforts successful sales 2004 3327 million sales 2467 million 2003 plavix cardiovascular product launched alliance company sanofiaventis sanofi market exclusivity plavix expected expire 2011 us 2013 european union eu statements exclusivity subject adverse determination may occur respect plavix patent litigation additional information plavix patent litigation see “item 8 financial statementsnote 20 legal proceedings contingencies” • sales pravachol hmg coa reductase inhibitor decreased 14 2256 million 2005 2004 us sales decreased 10 1274 million 2005 primarily due lower demand resulting increased competition related reduction wholesaler inventory levels partially offset lower managed health care rebates 2005 estimated us prescriptions declined approximately 17 compared 2004 international sales decreased 19 including 1 favorable foreign exchange impact 982 million reflecting generic competition key european markets 2004 sales pravachol decreased 7 including 4 favorable foreign exchange impact 2635 million 2827 million 2003 primarily due decrease us prescription demand approximately 10 exclusivity loss select european markets including germany uk company entered distribution agreement watson pharmaceutical watson authorizing watson distribute pravastatin sodium tablets us market exclusivity protection pravachol expected expire april 20 2006 us market exclusivity eu expired 2004 exception france sweden expiration occur august march 2006 respectively italy expiration occur january 2008 • sales avaproavalide angiotensin ii receptor blocker treatment hypertension also part sanofi alliance increased 6 including 1 favorable foreign exchange impact 982 million 2005 2004 us sales increased 2 574 million 2005 compared 2004 primarily due increased demand partially offset reduction wholesaler inventory levels 2005 estimated total us prescription demand increased approximately 11 compared 2004 international sales increased 11 including 3 favorable foreign exchange impact 408 million 368 million 2004 primarily due increased sales canada france germany 2004 sales increased 23 including 5 favorable foreign exchange impact 930 million 757 million 2003 primarily due increased sales europe strong us prescription growth approximately 15 us sales increased 19 562 million 2004 compared 474 million 2003 international sales increased 30 including 12 favorable foreign exchange impact 368 million 283 million 2003 market exclusivity avaproavalide known eu aprovelkarvea expected expire 2011 us 2012 countries eu avaproavalide currently marketed japan • sales coumadin oral anticoagulant used predominantly patients atrial fibrillation deep venous thrombosispulmonary embolism decreased 17 212 million 2005 compared 2004 sales due continued competition estimated total us prescription demand decreased approximately 19 compared 2004 sales 2004 decreased 16 255 million 303 million 2003 due increased generic competition market exclusivity coumadin expired us 1997 • sales monopril second generation angiotesin converting enzyme ace inhibitor treatment hypertension decreased 24 including 2 favorable foreign exchange impact 208 million 2005 due increased generic competition key european markets sales 2004 274 million decrease 42 including 4 favorable foreign exchange impact 470 million 2003 due impact market exclusivity loss market exclusivity protection monopril expired 2003 us expired expected expire 2001 2008 countries eu monopril currently marketed japan • sales reyataz protease inhibitor treatment human immunodeficiency virus hiv launched us third quarter 2003 europe second quarter 2004 increased 68 696 million 2005 primarily due increased demand european sales increased 174 203 million 2005 74 million 2004 reyataz achieved estimated monthly new prescription share us protease inhibitors market approximately 28 sales 2004 414 million compared 88 million 2003 market exclusivity reyataz expected expire 2017 us countries eu japan • sales sustiva nonnucleoside reverse transcriptase inhibitor treatment hiv increased 10 680 million 2005 2004 primarily due estimated total us prescription growth approximately 5 higher average selling prices lower sales returns 2004 sustiva sales increased 14 including 5 favorable foreign exchange impact 621 million 544 million 2003 primarily due increased demand 2004 higher prices market exclusivity protection sustiva expected expire 2013 us countries eu company others market sustiva japan • sales zerit antiretroviral agent used treatment hiv decreased 21 including 1 favorable foreign exchange impact 216 million 2005 primarily result decrease estimated total us prescriptions approximately 31 compared 2004 zerit sales decreased 23 including 4 favorable foreign exchange impact 272 million 354 million 2003 primarily result continued decrease demand due potential adverse side effects market exclusivity protection zerit expected expire 2008 us 2007 2011 countries eu 2008 japan • sales videxvidex ec antiretroviral agent used treatment hiv decreased 36 174 million 2005 2004 primarily due generic competition us began fourth quarter 2004 videxvidex ec sales increased 3 including 6 favorable foreign exchange impact 274 million 2004 267 million 2003 due increased sales europe partially offset sale declines us company licensing arrangement us government videxvidex ec terms became nonexclusive 2001 us government’s intellectual property protection expires 2007 us includes earned pediatric extension japan 2006 2009 countries eu license company nonexclusive allowed another company obtain license us government receive approval marketing respect videxvidex ec company patents covering reduced mass formulation videxvidex ec expire 2012 us eu japan however patents apply type reduced mass formulation specified patent reduced mass formulations may exist currently issued patent covering videx ec formulation • baraclude company’s internally developed oral antiviral agent treatment chronic hepatitis b approved fda march 2005 generated sales 12 million primarily us since us launch april 2005 baraclude received approvals international authorities including china mexico brazil indonesia argentina second half 2005 company believes primary markets baraclude outside us company composition matter patent expires us 2010 • sales cefzil antibiotic treatment mild moderately severe bacterial infections decreased 4 including 1 favorable foreign exchange impact 259 million 2005 2004 primarily due lower demand 2004 cefzil sales decreased 17 including 2 favorable foreign exchange impact 270 million 327 million 2003 primarily due decreased demand us partially offset higher international sales market exclusivity expired december 2005 us expected expire 2007 2009 eu • sales taxol® paclitaxel anticancer agent sold almost exclusively nonus markets 747 million 2005 compared 991 million 2004 sales taxol® paclitaxel decreased 25 including 1 favorable foreign exchange impact primarily result increased generic competition europe generic competition taxol® paclitaxel majority major european markets began second quarter 2004 increased second half 2004 taxol® paclitaxel sales increased 6 including 9 favorable foreign exchange impact 991 million 934 million 2003 primarily due generic competition europe market exclusivity protection taxol® paclitaxel expired 2002 us 2003 eu expected expire 2006 2013 japan • erbitux used treat refractory metastatic colorectal cancer approved fda february 2004 sales erbitux sold almost exclusively us increased 58 413 million 2005 compared 261 million 2004 erbitux marketed company distribution copromotion agreement imclone systems incorporated imclone patent relating combination therapy erbitux expires 2017 company’s right market erbitux north america japan expires september 2018 company others market erbitux countries eu • sales paraplatin anticancer agent decreased 77 157 million 2005 2004 due generic competition us began mid2004 increased entry multiple generic competitors fourth quarter 2004 us sales paraplatin decreased 95 28 million 2005 2004 paraplatin sales decreased 26 including 1 favorable foreign exchange impact 673 million 905 million 2003 primarily due generic competition us market exclusivity protection paraplatin expired october 2004 us 2000 eu 1998 japan • total revenue abilify antipsychotic agent treatment schizophrenia acute bipolar mania bipolar disorder increased 54 912 million 2005 2004 primarily due demand growth us continued growth europe achieved sales 140 million 2005 estimated us prescription demand grew approximately 42 compared 2004 partially offset reduction wholesaler inventory levels 2005 sales growth future could impacted trend involving overall decrease rate growth demand antipsychotic agents us 2004 total revenue abilify 593 million compared 283 million 2003 total revenue abilify primarily consists alliance revenue representing company’s 65 share net sales copromotion countries otsuka pharmaceutical co ltd otsuka’s market exclusivity protection abilify expected expire 2014 us including granted patent term extension company also right copromote abilify several european countries united kingdom france germany spain act exclusive distributor product rest eu market exclusivity protection abilify expected expire 2009 eu may extended 2014 pending supplemental protection certificates granted company’s contractual right market abilify expires november 2012 us puerto rico countries eu company exclusive right market abilify june 2014 statements exclusivity subject adverse determination may occur respect abilify patent reexamination additional information matter see “item 8 financial statementsnote 20 legal proceedings contingencies” additional information revenue recognition abilify see “item 8 financial statementsnote 2 alliances investments” • sales glucophage franchise decreased 49 172 million 2005 compared 65 decrease 336 million 2004 948 million 2003 decrease sales 2005 2004 primarily resulted increased generic competition market exclusivity protection expired march 2000 glucophage ir october 2003 glucophage xr january 2004 glucovance company others market products eu japan • sales efferalgan formulation acetaminophen pain relief increased 3 including 1 favorable foreign exchange impact 283 million 2005 primarily due increased sales italy spain result strong flu season 2005 2004 sales increased 12 including 12 favorable foreign exchange impact 274 million 244 million 2003 estimated us prescription us prescription growth data provided includes information retail mail order channels reflect information channels hospitals institutions longterm care among others estimated prescription growth data based national prescription audit npa data provided ims health ims supplier market research pharmaceutical industry described instances basic exclusivity loss date indicated expiration date patent claims active ingredient drug method using drug approved indication instances basic exclusivity loss date indicated expiration date data exclusivity period situations data exclusivity without patent protection competitor could seek regulatory approval prior expiration data exclusivity period submitting clinical trial data obtain marketing approval company assesses market exclusivity period products casebycase basis length market exclusivity company’s products difficult predict certainty complex interaction patent regulatory forms exclusivity factors assurance particular product enjoy market exclusivity full period time company currently anticipates estimates market exclusivities reported business planning purposes intended reflect company’s legal opinion regarding strength weakness particular patent legal position discussion market exclusivity protection including chart showing net sales key products together year basic exclusivity loss occurred expected occur us eu japan see “item 1 businessproducts” “intellectual property product exclusivity” estimated enduser demand following tables set forth company’s top 15 pharmaceutical products sold us pharmaceuticals business based 2004 annual net sales years ended december 31 2005 2004 2003 compared periods prior year changes reported us net sales period b estimated total us prescription growth retail mail order channels estimated us therapeutic category share applicable product calculated company based npa data provided ims c estimated total us prescription growth retail mail order channels estimated us therapeutic category share applicable product calculated company based nextgeneration prescription services ngps data provided ims reflects percentage change net sales dollar terms including change average selling prices wholesaler buying patterns b based simple average estimated number prescriptions retail mail order channels provided ims c based weighted average estimated number prescription units pills retail mail order channels based data provided ims erbitux paraplatin specifically parenterally administered oncology products general prescriptionlevel data physicians write prescriptions products company believes therapeutic category share information provided third parties products may reliable accordingly none presented e therapeutic categories determined company products considered direct competition company’s products listed compete following therapeutic categories abilify antipsychotics avaproavalide angiotensin receptor blockers cefzil branded oral solid liquid antibiotics coumadin warfarin dovonex antiinflamatoryantipsoriasis glucophage franchise oral antidiabetics plavix antiplatelet agents pravachol hmg coa reductase inhibitors reyataz protease inhibitors sustiva antiretrovirals third agents tequin branded oral solid antibiotics videxvidex ec nucleoside reverse transcriptase inhibitors zerit nucleoside reverse transcriptase inhibitors excess 200 data 2003 available therefore section omitted company historically reported estimated total us prescription growth estimated therapeutic category share based npa data ims makes available public subscription basis simple average estimated number prescriptions retail mail order channels third quarter 2005 company began disclosing estimated total us prescription growth estimated therapeutic category share based npa ngps data ngps data collected ims new revised methodology released ims limited basis pilot program ims publicly announced expects make ngps data available public subscription basis 2007 company believes ngps data provided ims provides superior estimate prescription data company’s products retail mail order channels company calculated estimated total us prescription growth estimated therapeutic category share based ngps data weighted average basis reflect fact mail order prescriptions include greater volume product supplied compared retail prescriptions company believes calculation estimated total us prescription growth estimated therapeutic category share based ngps data weighted average approach respect retail mail order channels provides superior estimate total prescription demand company uses methodology internal demand forecasts estimated prescription growth data estimated therapeutic category share provided include information retail mail order channels reflect information channels hospitals institutions longterm care among others data provided ims product ims’s recordkeeping processes estimates based sampling procedures subject inherent limitations estimates based sampling addition ngps data part pilot program still refined ims company continuously seeks improve quality estimates prescription growth amounts therapeutic category share percentages ultimate patientconsumer demand review methodologies processes calculation estimates review analysis third parties’ data used calculations company expects continue review refine methodologies processes calculation estimates continue review analyze third parties’ data used calculations following table sets forth company’s key pharmaceutical products sold company’s international pharmaceuticals reporting segment including top 15 pharmaceutical products sold company’s major nonus countries based 2004 net sales key products sold reporting segments listed percentage change company’s estimated ultimate patientconsumer demand month december 2005 compared month september 2005 month september 2005 compared month june 2005 month june 2005 compared month march 2005 estimated inventory months hand distribution channel following table sets forth company’s top 15 pharmaceutical products sold company’s us pharmaceuticals business based 2004 annual net sales us pharmaceuticals net sales applicable product six quarters ended september 30 2004 december 31 2005 estimated number months hand applicable product us wholesaler distribution channel end six quarters less 01 months hand december 31 2004 estimated value cefzil inventory us wholesaler distribution channel exceeded one month hand approximately 16 million prescriptions cefzil antibiotic typically higher winter months us result company’s us wholesalers built higher inventories product fourth quarter 2004 meet expected higher demand march 31 2005 company worked us wholesaler inventory levels cefzil less one month hand remained less one month hand subsequent quarters december 31 2004 estimated value glucophage franchise products inventory glucophage xr glucophage ir glucovance metaglip us wholesaler distribution channel exceeded one month hand approximately 16 million products months hand estimate glucophage franchise products average months hand stockkeeping units skus product group increase months hand glucophage franchise products end fourth quarter 2004 one month hand resulted primarily purchase wholesalers certain skus giving effect purchases increased months hand skus less one month hand however increased months hand skus averaged skus glucophage franchise products aggregate estimated months hand exceeded one month march 31 2005 estimated value glucophage franchise products inventory us wholesaler distribution channel worked approximately one month hand worked remained less one month hand subsequent quarters october 2004 us pediatric exclusivity period paraplatin carboplatin expired resulting entry multiple generic competitors paraplatin led significant decrease demand paraplatin turn led months hand product us wholesaler distribution channel exceeding one month september 30 2004 december 31 2004 september 30 2005 estimated value paraplatin inventory us wholesaler distribution channel one month hand approximately 66 million september 30 2004 60 million december 31 2004 07 million september 30 2005 time company continued monitor paraplatin sales intention working wholesaler inventory levels less one month hand december 31 2005 company worked us wholesaler inventory levels paraplatin less one month hand march 31 september 30 2005 estimated value videxvidex ec inventory us wholesaler distribution channel exceeded one month hand approximately 11 million 02 million respectively result generic competition us commencing fourth quarter 2004 demand videxvidex ec decreased significantly time company continued monitor videxvidex ec sales intention working wholesaler inventory levels less one month hand december 31 2005 company worked us wholesaler inventory levels videxvidex ec less one month hand products erbitux company determines months hand estimates dividing estimated amount product us wholesaler distribution channel estimated amount outmovement product us wholesaler distribution channel period 31 days calculated described factors may influence company’s estimates include generic competition seasonality products wholesaler purchases light increases wholesaler list prices new product launches new warehouse openings wholesalers new customer stockings wholesalers addition estimates calculated using third party data represent recordkeeping processes may also reflect estimates company maintains inventory management agreements imas us pharmaceutical wholesalers account nearly 100 total gross sales us pharmaceutical products current terms imas company’s three largest wholesaler customers provide company weekly information respect inventory levels product hand amount outmovement products three wholesalers currently account 90 total gross sales us pharmaceutical products inventory information received wholesalers excludes inventory held intermediaries sell retailers hospitals excludes goods transit wholesalers company uses information provided three wholesalers friday closest quarter end calculate amount inventory hand wholesalers applicable quarter end amount increased company’s estimate goods transit wholesalers applicable friday reflected weekly data provided wholesalers company’s revenue recognition policy sales recorded substantially risks rewards ownership transferred us pharmaceutical business generally product shipped cases goods transit wholesaler owned applicable wholesaler accordingly reflected calculation inventories wholesaler distribution channel company estimates amount goods transit using information provided wholesalers respect open orders applicable friday company’s records sales wholesalers respect open orders company determines outmovement product wholesalers period 31 days using recent four weeks outmovement product provided wholesalers extrapolating amount 31 day basis company estimates inventory levels hand outmovements us pharmaceutical business’s wholesaler customers three largest wholesalers product based assumption amounts bear relationship three largest wholesalers’ inventory levels outmovements product percentage aggregate sales products wholesalers applicable quarter bears aggregate sales products company’s three largest wholesalers quarter finally company considers whether adjustments necessary extrapolated amounts based factors historical sales individual products made wholesalers thirdparty market research data related prescription trends patient demand addition company receives inventory information wholesalers selective basis certain key products company’s us pharmaceuticals business imas discussed arrangements substantially direct wholesaler customers allow company monitor us wholesaler inventory levels require wholesalers maintain inventory levels approximately one month less demand second third quarters 2005 company negotiated amendments imas three largest wholesalers amendments extended original agreements december 31 2005 established lower limits original agreements inventory levels company pharmaceutical products held wholesalers december 2005 company reached two year imas principle three largest us wholesalers provide lower limits wholesaler inventory levels ima extensions previously negotiated help maintain product quality company’s biologic oncology product erbitux product shipped endusers intermediaries wholesalers hold later sales 2004 may 2005 one company’s wholesalers provided warehousing packing shipping services erbitux wholesaler held erbitux inventory consignment company’s revenue recognition policy company recognized revenue inventory shipped wholesaler enduser estimates months hand three months ended march 31 2005 calculated dividing inventories erbitux held wholesaler account reported wholesaler end quarter company’s net sales last calendar month quarter inventory levels reported wholesaler product wholesaler’s recordkeeping process upon divestiture otn may 2005 company discontinued consignment arrangement wholesaler thereafter erbitux consignment inventory following divestiture company sells erbitux intermediaries specialty oncology distributors ships erbitux directly end users product customers intermediaries company recognizes revenue upon shipment consistent revenue recognition policy accordingly subsequent june 30 2005 erbitux inventory held wholesalers previously disclosed company’s pharmaceuticals business outside united states nutritionals health care business units around world company significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability third party demand information available varies widely accordingly company relies variety methods estimate direct customer product level inventory calculate months hand business units following table posted company’s website furnished form 8k sets forth company’s key products sold reporting segments listed net sales applicable product four quarters ended march 31 2005 december 31 2005 estimated number months hand applicable product direct customer distribution channel reporting segment end four quarters estimates months hand key products described international pharmaceuticals reporting segment based data collected company’s significant business units outside united states also described information nonkey products amount inventory hand direct customers approximately one month impact de minimis reporting segments estimates based data collected united states significant business units outside united states months hand information represents company’s estimates aggregate product level inventory hand direct customers divided expected demand applicable product expected demand estimated ultimate patientconsumer demand calculated based estimated enduser consumption direct customer outmovement data recent 31 day period reasonable period factors may affect company’s estimates include generic competition seasonality products direct customer purchases light price increases new product launches new warehouse openings direct customers new customer stockings direct customers expected direct customer purchases governmental bidding situations company relies variety methods calculate months hand reporting segments available company relies information provided third parties determine estimates aggregate product level inventory hand direct customers expected demand reporting segments listed however company limited information direct customer product level inventory enduser consumption direct customer outmovement data quality third party information available varies widely circumstances case new products seasonal products historical enduser consumption outmovement information may available applicable cases company uses estimated prospective demand cases direct customer product level inventory ultimate patientconsumer demand outmovement data exist otherwise available company developed variety methodologies calculate estimates data including using factors historical sales made direct customers third party market research data related prescription trends enduser demand december 31 2005 september 30 2005 march 31 2005 dafalgan analgesic product sold principally europe approximately 12 13 months inventory hand respectively direct customers level inventory hand due primarily private pharmacists purchasing dafalgan approximately every eight weeks seasonality product september 30 2005 efferalgan analgesic product sold principally europe approximately 11 months inventory hand direct customers level inventory hand due primarily private pharmacists purchasing efferalgan approximately every eight weeks seasonality product december 31 2005 september 30 2005 nutramigen prosobee infant nutritional products sold principally united states approximately 11 months inventory hand direct customers level inventory hand end december 2005 due primarily holiday stocking retailers end september 2005 due primarily impact retailers holding higher levels inventory response hurricane katrina company plans continue monitor sales nutramigen prosobee intention working wholesaler inventory levels less one month hand june 30 2005 march 31 2005 excedrin analgesic product sold principally us approximately 15 months 16 months respectively inventory hand direct customers level inventory hand due customary practice direct customers holding within warehouses stores one onehalf two months product hand inventory hand percentage change demand data month september 30 2005 respectively available excedrin included third quarter 2005 sale company’s consumer medicines business company continuously seeks improve quality estimates months hand inventories held direct customers including thorough review methodologies processes calculation estimates review analysis third parties’ data used calculations company expects continue review refine methodologies processes calculation estimates continue review analyze third parties’ data calculations company also continue take steps expedite receipt processing data nonus pharmaceuticals business health care group nutritionals composition change nutritional sales follows key nutritional product lines sales representing 95 94 84 total nutritional sales 2005 2004 2003 respectively follows worldwide nutritional sales increased 10 including 1 favorable foreign exchange impact 2 unfavorable impact divestiture adult nutritional business 2205 million 2005 2004 worldwide nutritional sales 2001 million decrease 1 including 10 unfavorable impact divestiture adult nutritional business 2023 million 2003 first quarter 2004 company divested adult nutritional business international sales increased 12 including 2 favorable foreign exchange impact 1 unfavorable impact divestiture adult nutritional business 1135 million 2005 2004 primarily due increased sales enfamil enfagrow toddler children’s nutritional products 2004 international sales increased 11 including 4 unfavorable impact divestiture adult nutritional business 1010 million 910 million 2003 primarily due increased sales infant formula children’s nutritional products us sales increased 8 including 3 unfavorable impact divestiture adult nutritional business 1070 million 2005 2004 primarily due increased sales enfamil 2004 us sales decreased 11 including 14 unfavorable impact divestiture adult nutritional business 991 million 1113 million 2003 sales enfamil company’s bestselling infant formula increased 15 including 1 favorable foreign exchange impact 992 million 2005 2004 primarily due strong sales growth launch enfamil gentlease lipil infant formula august 2005 2004 enfamil sales increased 6 including 1 favorable foreign exchange impact 859 million 808 million 2003 primarily due increase international sales health care health care segment includes convatec medical imaging business composition change health care segment sales follows health care sales business key products years ended december 31 follows • worldwide convatec sales increased 4 including 1 favorable foreign exchange impact 992 million 2005 2004 primarily due increase worldwide sales wound therapeutic products sales wound therapeutic products increased 6 including 1 favorable foreign exchange impact 416 million 2005 391 million 2004 primarily due increased sales aquacel ostomy sales remained constant 550 million 2005 including 1 favorable foreign exchange impact 2004 convatec sales increased 13 including 8 favorable foreign exchange impact 954 million 843 million 2003 primarily due 23 increase worldwide sales wound therapeutic products • worldwide medical imaging sales increased 2 602 million 2005 2004 sales cardiolite kit preparation technetium tc99m sestamibi injection increased 2 416 million 2005 406 million 2004 primarily due increased demand 2004 medical imaging sales increased 16 including 1 favorable foreign exchange impact 589 million 508 million driven increased sales cardiolite increase partially due change timing revenue recognition result new distribution agreements entered january 2004 geographic areas general company’s products available countries world largest markets united states france japan spain canada italy germany mexico company’s sales geographic areas follows sales united states decreased 1 2005 result lower sales paraplatin glucophage franchise due continuing impact earlier exclusivity losses pravachol due lower demand resulting increased competition decrease sales mostly offset increased sales growth drivers including plavix abilify erbitux reyataz strong sales growth enfamil 2004 sales united states remained constant growth prescription demand key brands including plavix avaproavalide sustiva newer products including abilify reyataz erbitux offset lower sales products result exclusivity losses monopril paraplatin glucophage franchise sales europe middle east africa decreased 6 including 1 favorable foreign exchange impact result sales decline taxol® paclitaxel due increased generic competition pravachol due exclusivity loss select markets including uk netherlands decrease sales partially offset increased sales major european markets reyataz abilify launched europe second quarter 2004 sales increased 10 including 11 favorable foreign exchange impact result sales decline pravachol due exclusivity loss select markets including germany uk taxol® paclitaxel generic competition majority major european markets began second quarter 2004 decrease sales mostly offset increased sales plavix germany spain avaproavalide italy spain sustiva majority major markets sales western hemisphere countries increased 12 including 7 favorable foreign exchange impact primarily due increased sales plavix canada mexico reyataz brazil canada avaproavalide canada 2004 sales increased 7 including 2 favorable foreign exchange impact primarily due increased sales plavix avaproavalide canada sales pacific region increased 8 result increased sales taxol® paclitaxel japan enfagrow enfamil china 2004 sales increased 11 including 5 favorable foreign exchange impact result increased sales taxol® paclitaxel paraplatin japan plavix avaproavalide australia expenses change excess 200 • cost products sold percentage sales 309 2005 2004 290 2003 2005 unfavorable impact gross margins resulting change us pharmaceutical sales mix offset 76 million net litigation charges recorded 2004 increase 2003 due unfavorable impact us pharmaceutical sales mix due impact generic competition us gluchophage franchise paraplatin launch lower margin erbitux partially offset sales growth abilify reyataz plavix gross margins 2004 also negatively impacted 76 million net litigation charges higher accelerated depreciation charges compared 2003 • marketing selling administrative expenses percentage sales 266 2005 259 2004 247 2003 2005 marketing selling administrative expenses increased 2 5106 million 2004 primarily due higher legal costs higher pension expenses reflecting increased amortization unrecognized net losses well change actuarial assumptions partially offset lower sales force expenses resulting focus specialists high value primary care physicians marketing selling administrative expenses increased 9 5016 million 2004 4620 million 2003 primarily due increased sales marketing support newer products including additional sales representatives supporting abilify addition increase also related costs associated compliance sarbanesoxley act 2002 unfavorable foreign exchange driven strengthening euro • advertising product promotion expenditures increased 5 1476 million compared 2004 primarily due increased investments directtoconsumer marketing campaigns plavix abilify increased costs associated prelaunch activities orencia launch baraclude partially offset lower spending mature products 2004 advertising promotion expenses remained relatively constant 1411 million compared 1415 million 2003 increased investments abilify reyataz plavix offset lower spending inline nonexclusive products • company’s investment research development totaled 2746 million 2005 increase 10 2004 increase 2004 10 2003 percentage sales research development expenses 143 2005 compared 129 2004 122 2003 2005 increase research development expenses reflects continued investments latestage compounds research development costs also included 72 million charges primarily related milestone payments licensing agreements 2005 58 million charges consisting primarily upfront milestone payments 2004 102 million charges related upfront payments licensing agreements 2003 2005 research development spending dedicated pharmaceutical products increased 165 pharmaceuticals sales compared 147 2004 140 2003 • acquired inprocess research development 63 million 2004 related purchase acordis ukbased company expected strengthen company’s leadership position wound therapeutics additional information acquisition see “item 8 financial statementsnote 4 acquisitions divestitures” • restructuring programs implemented downsize realign streamline operations order increase productivity reduce operating expenses rationalize company’s manufacturing network research facilities sales marketing organizations actions 2005 restructuring program expected complete 2006 actions 2004 2003 restructuring programs substantially completed december 31 2005 result actions company expects future annual benefit earnings continuing operations minority interest income taxes approximately 77 million 186 million 64 million 2005 2004 2003 programs respectively additional information restructuring see “item 8 financial statementsnote 3 restructuring” • litigation charges net settlement income 269 million 2005 compared 420 million 2004 199 million 2003 269 million charge 2005 consisted increases reserves 590 million liabilities primarily related private litigations governmental investigations partially offset insurance recoveries 321 million 420 million 2004 consisted 336 million related private litigation governmental investigations related wholesaler inventory issues accounting matters 50 million related platinol litigation settlement 34 million related pharmaceutical pricing sales practices 2003 company established reserves liabilities total amount 250 million comprised 150 million relation wholesaler inventory issues certain accounting matters 100 million relation pharmaceutical pricing sales marketing practices addition company recorded charges 31 million litigation matters recognized income 82 million 82 million income consists primarily 30 million income patent defense cost reimbursement 27 million litigation settlement income 21 million settlement antitrust litigation involving vitamin manufacturers additional information litigation see “item 8 financial statementsnote 20 legal proceedings contingencies” • gain sale business 569 million 370 million net tax 2005 related sale us canadian consumer medicines business related assets gain sale business 320 million 198 million net tax 2004 related sale adult nutritional business additional information transactions see “item 8 financial statementsnote 4 acquisitions divestitures” • equity net income affiliates 2005 334 million compared 273 million 151 million 2004 2003 respectively equity net income affiliates principally related company’s joint venture sanofi investment imclone 2005 61 million increase equity net income affiliates 2004 primarily reflects increase net income sanofi joint venture partially offset net loss investment imclone 122 million increase 2004 2003 primarily reflects increase net income sanofi joint venture additional information equity net income affiliates see “item 8 financial statementsnote 2 alliances investments” • expenses net income 37 million 52 million 179 million 2005 2004 2003 respectively expenses include net interest expense foreign exchange gains losses income thirdparty contract manufacturing royalty income expense deferred income debt retirement costs 15 million decrease expenses 2005 2004 primarily due deferred income recognized termination collaborative agreement muraglitazar partially offset debt retirement costs connection repurchase 25 billion notes due 2006 higher net foreign exchange losses favorability 2004 compared 2003 primarily due higher income thirdparty contract manufacturing lower net interest expense lower net foreign exchange losses additional information see “item 8 financial statementsnote 7 expense net” years ended december 31 2005 2004 2003 company recorded several incomeexpense items affected comparability results periods presented herein set forth following table discussion items see “item 8 financial statementsnote 2 alliances investments” “note 3 restructuring items” “note 4 acquisitions divestitures” “note 5 discontinued operations” “note 20 legal proceedings contingencies” year ended december 31 year ended december 31 2004 year ended december 31 2003 earnings minority interest income taxes 2005 earnings continuing operations minority interest income taxes increased 2 4516 million 4418 million 2004 increase primarily result growth nutritionals segment net impact items affected comparability results discussed partially offset lower sales gross margin pharmaceutical products primarily due exclusivity losses increased spending research development primarily latestage pharmaceutical compounds 2004 earnings continuing operations minority interest income taxes decreased 6 4418 million 4680 million 2003 contributing decrease 2004 increases costs products sold result change product mix products losing exclusivity increased investment research development net impact items affected comparability results discussed partially offset growth health care segment higher international sales pharmaceuticals earnings minority interest income taxes 2005 3698 million decrease 2005 2004 primarily due lower sales gross margin primarily due exclusivity losses higher advertising product promotion investments behind growth drivers increased spending research development earnings minority interest income taxes 4301 million 2004 decreased 4414 million 2003 primarily driven gross margin erosion due generic competition product mix additional sales representatives supporting abilify increased spending research development higher nonclinical grants litigation settlement income 2003 partially offset higher sales health care group nutritionals earnings minority interest income taxes 2005 648 million increase 2005 2004 primarily due increased worldwide sales infant formula products international sales toddler children’s nutritional products partially offset increased investments advertising product promotion research development programs earnings minority interest income taxes increased 586 million 2004 542 million 2003 primarily due increased global infant formula sales price increase infant formula line favorable manufacturing variances tight operating expense management health care earnings minority interest income taxes 2005 492 million decrease 2005 2004 primarily due sale us canadian consumer medicines business related assets third quarter 2005 higher spending research development partially offset sales growth convatec medical imaging businesses earnings minority interest income taxes health care segment increased 529 million 2004 363 million 2003 primarily due sales growth convatec medical imaging businesses addition favorable pricing product mix corporateother earningsloss minority interest income taxes 2005 loss 322 million decrease 2005 2004 primarily due increase gain sales businessesproduct lines deferred income recognized termination collaborative agreement muraglitazar reduction litigation charges net earningsloss minority interest income taxes increased 998 million 2004 639 million 2003 primarily due increase litigation charges net unfavorable foreign exchange driven strengthening euro higher pension expenses reflecting increased amortization unrecognized net losses well change actuarial assumptions increase downsizing streamlining worldwide operations acquired inprocess research development charge 2004 increases partially offset increase gain sale businessesproduct lines income taxes effective income tax rate earnings continuing operations minority interest income taxes 206 2005 compared 344 2004 258 2003 lower effective tax rate 2005 due primarily 2004 charge approximately 575 million estimated deferred income taxes related repatriation approximately 9 billion special dividends company’s nonus subsidiaries pursuant american jobs creation act 2004 ajca 2004 charge related establishment valuation allowance certain charitable contributions tax benefit 2005 associated release certain tax contingency reserves resulting settlement examinations internal revenue service irs years 1998 2001 change estimate 2005 related reduction aforementioned 2004 ajca deferred income tax charge partially offset lower estimated foreign tax credits 2005 increase 2004 effective tax rate 2003 effective tax rate primarily attributable aforementioned 2004 ajca deferred tax charge 575 million aforementioned establishment valuation allowance certain charitable contributions 2004 increase estimates contingent tax matters partially offset favorable resolution certain tax refund claims increased foreign tax credits 2003 effect certain litigation reserves nondeductible fourth quarter 2004 company disclosed anticipated repatriating approximately 9 billion special dividends 2005 recorded 575 million provision deferred income taxes pursuant ajca enacted pending matters company repatriated approximately 62 billion foreign subsidiaries first quarter 2005 repatriated remaining balance approximately 28 billion fourth quarter 2005 company expects approximately 9 billion repatriated 2005 qualify special dividends subject finalization 2005 us federal income tax return related tax examinations irs company used expects continue use special dividends accordance requirements established ajca us treasury department second quarter 2005 us treasury department issued ajca related guidance clarifying “grossup” foreign taxes associated special dividends also qualifies 525 tax rate established ajca result guidance company reduced 575 million provision recording benefit approximately 135 million tax provision 2005 except earnings associated special dividends discussed us income taxes provided balance unremitted earnings nonus subsidiaries since company invested expects invest earnings permanently offshore company recorded significant deferred tax assets related us foreign tax credit carryforwards approximately 975 million us research tax credit carryforwards approximately 120 million expire varying amounts beginning 2012 realization foreign tax credit research tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions increasing biologics manufacturing capacity us increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit carryforwards amount foreign tax credit research tax credit carryforwards considered realizable however could reduced near term outcome plavix litigation us unfavorable andor timing generic competition plavix accelerated events occur company may need record significant additional valuation allowances deferred tax assets additional information plavix litigation see “item 1a risk factors” “item 8 financial statementsnote 20 legal proceedings contingencies” discontinued operations may 2005 company completed sale otn one equity partners llc cash proceeds 197 million including impact preliminary working capital adjustment company recorded pretax gain 63 million 13 million net tax presented gain sale discontinued operations consolidated statement earnings otn previously presented separate segment discussions otn see “item 8 financial statementsnote 5 discontinued operations” following amounts related otn business segregated continuing operations reflected discontinued operations periods presented developments march 1 2006 fda approved erbitux use treatment squamous cell carcinoma head neck result fda approval company pay 250 million milestone payment imclone march 31 2006 february 27 2006 fda approved emsam transdermal patch treatment adults major depressive disorder use without dietary modifications lowest dose 6mg24 hour january 2006 fda accepted review supplemental new drug application snda plavix treatment patients acute stsegment elevation myocardial infarction stemi fda designated filing priority review sanofiaventis company also submitted filing emea stemi indication european union january 2006 company gilead sciences inc gilead announced obtained data supporting bioequivalence new formulation fixeddose combination company’s sustiva gilead’s truvada emtricitabine tenofovir disoproxil fumarate components make new combination new fixeddose regimen intended treatment hiv1 infection adults gilead company anticipate submitting nda fda second quarter 2006 december 2005 company completed submission fda nda dasatinib treat chronic myelogenous leukemia cml chronic accelerated blast phases well philadelphia chromosomepositive ph acute lymphoblastic leukemia nda seeks approval dasatinib investigational multitargeted kinase inhibitor treat adult chronic myelogenous leukemia march 7 2006 nda accepted granted priority review accelerated approval january 2006 company also submitted maa dasatinib emea december 2005 fda approved orencia became commercially available us february 2006 january 2006 company completed submission sbla fda licensure thirdparty manufacturing facility support increased production capacity orencia december 2005 exelixis inc exelixis company entered collaboration agreement discover develop commercialize novel therapies targeted liver x receptor lxr nuclear hormone receptor implicated variety cardiovascular metabolic disorders collaboration companies jointly identify drug candidates ready investigational new drug applicationenabling studies company undertake preclinical development would responsible clinical development regulatory manufacturing salesmarketing activities compounds terms agreement include upfront payment company approximately 18 million exelixis provide research development funding approximately 10 million per year initial period two years exelixis also may receive prespecified development regulatory milestones totaling approximately 140 million per product two products collaboration well sales milestones royalties sales products commercialized collaboration agreement received statutory clearance became effective january 31 2006 october 2005 fda issued approvable letter muraglitazar requesting additional information ongoing clinical trials fully address cardiovascular safety profile product company continuing discussions fda determined likely initiate additional new trials gain regulatory approval considering range options including conducting additional studies terminating developments muraglitazar additional studies could take approximately five years complete december 2005 company merck terminated collaboration agreement muraglitazar rights returning company december 21 2005 result termination agreement company recognized 143 million deferred income fourth quarter 2005 recorded “other expense net” company composition matter patent expires united states 2020 third quarter 2005 company completed sale us canadian consumer medicines business related assets consumer medicines novartis ag novartis terms agreement novartis acquired trademarks patents intellectual property rights consumer medicines 661 million cash 15 million attributable postclosing supply arrangement company novartis related assets include rights us consumer medicines brands latin america europe middle east africa result transaction company recorded pretax gain 569 million 370 million net tax third quarter 2005 subject certain postclosing adjustments june 2005 company completed manufacturing agreement celltrion inc manufacture biologic products developed company april 2005 manufacturers atypical antipsychotics including company received request fda add boxed warning us drug labeling noting increased risk death elderly patients dementiarelated psychosis compared placebo patients dementiarelated psychosis company changed us drug labeling abilify response fda request abilify approved treatment elderly patients dementiarelated psychosis march 2005 fda approved abilify tablets oral solution maintaining efficacy patients bipolar disorder recent manic mixed episode stabilized maintained least six weeks latest fda approval based positive results trial designed compare maintenance efficacy abilify versus placebo measured time relapse march 2005 company received approval fda baraclude oral antiviral agent treatment chronic hepatitis b drug became available us april 2005 composition matter patent covering baraclude expires us october 2010 may eligible statutory patent term extension beyond date second half 2005 company received approvals baraclude international authorities including china mexico brazil indonesia argentina financial position liquidity capital resources cash equivalents marketable securities totaled approximately 58 billion december 31 2005 compared 75 billion december 31 2004 company continues maintain sufficient level working capital approximately 54 billion december 31 2005 increasing 50 billion december 31 2004 2006 future periods company expects cash generated us operations together existing cash borrowings capital markets sufficiently cover cash needs working capital expenditures company expects include substantial investments facilities increase maintain company’s capacity provide biologics commercial scale milestone payments dividends paid united states cash equivalents marketable securities conversion workingcapital items borrowings expected fund nearterm operations fourth quarter 2004 company disclosed anticipated repatriating approximately 9 billion special dividends 2005 recorded 575 million provision deferred income taxes pursuant ajca enacted pending matters company repatriated approximately 62 billion foreign subsidiaries first quarter 2005 repatriated remaining balance approximately 28 billion fourth quarter 2005 company expects approximately 9 billion repatriated 2005 qualify special dividends subject finalization 2005 us federal income tax return related tax examinations irs company used expects continue use special dividends accordance requirements established ajca us treasury department second quarter 2005 us treasury department issued ajca related guidance clarifying “grossup” foreign taxes associated special dividends also qualifies 525 tax rate established ajca result guidance company reduced 575 million provision recording benefit approximately 135 million tax provision 2005 except earnings associated special dividends discussed us income taxes provided balance unremitted earnings nonus subsidiaries since company invested expects invest earnings permanently offshore cash equivalents december 31 2005 primarily consisted us dollar denominated bank deposits original maturity three months less marketable securities december 31 2005 primarily consisted us dollar denominated floating rate instruments ‘aaaaaa’ credit rating due nature instruments company considers reasonable expect fair market values significantly impacted change interest rates liquidated cash short notice average interest yield cash equivalents 41 23 december 31 2005 2004 respectively interest yields marketable securities averaged 44 25 respectively shortterm borrowings end 2005 2004 231 million 1883 million respectively reduction borrowings due primarily retirement commercial paper company maintains cash balances shortterm investments excess shortterm borrowings longterm debt december 31 2005 denominated primarily us dollars also included japanese yen debt 166 million longterm debt 84 billion december 31 2005 compared 85 billion december 31 2004 august 2005 whollyowned subsidiary company entered new 25 billion term loan facility syndicate lenders borrowings facility guaranteed company subsidiaries borrower certain european subsidiaries company facility contains fiveyear tranche 20 billion twoyear tranche 500 million company subject substantially covenants included december 2004 revolving credit facility company also subject restrictions including certain financial covenants prior borrowing proceeds facility company obtained waiver lenders covenant default facility due onetime intercompany distribution december 31 2005 facility fully drawn company full compliance covenants second quarter 2005 company repurchased outstanding 25 billion aggregate principal amount 475 notes due 2006 incurred aggregate pretax loss approximately 69 million connection early redemption notes termination related interest rate swaps december 2004 company replaced prior 1 billion revolving credit facilities new 2 billion five year revolving credit facility syndicate lenders extendable anniversary date consent lenders availability facility subject company’s ability time borrowing meet certain conditions including financial covenant net debt capital cannot exceed 50 facility contain material adverse change representation company’s business condition borrowing borrowings outstanding revolving credit facility december 31 2005 2004 company compliance covenant since inception new facility december 31 2005 company ratio consolidated net debt consolidated capital 14 changes public credit ratings affect availability credit facility company also unused shortterm lines credit foreign banks 198 million 158 million december 31 2005 2004 respectively majority company’s debt fixed rate company however entered fixed floating interest rate swaps 34 billion longterm debt interest expense net interest swap gains 349 million 310 million 277 million 2005 2004 2003 respectively increase interest expense 2005 2004 primarily due higher interest rates increase 2004 2003 primarily due increased shortterm borrowings higher interest rates moody’s investors service moody’s longterm shortterm credit ratings company currently a1 prime1 respectively company’s longterm debt rating review downgrade moody’s february 15 2006 moody’s affirmed a1 longterm rating company’s prime1 shortterm rating review longterm rating retains negative outlook standard poor’s sp longterm shortterm credit ratings company currently a1 respectively sp’s longterm credit rating remains negative outlook fitch ratings fitch longterm shortterm credit rating company currently respectively september 2005 fitch’s longterm credit rating company changed negative stable outlook following discussion working capital cash flow activities • increase working capital 435 million 2004 primarily due reduction income taxes payable resulting payments related repatriation special dividends ajca lower unrealized losses derivatives resulting weakening euro lower accrued liability product liability rebates returns partially offset lower receivables resulting collection foreign withholding taxes lower sales volume higher reserves litigation matters higher inventories due increased demand newer products existing key brands • net cash provided operating activities 18 billion 2005 32 billion 2004 35 billion 2003 decreases 2005 2004 mainly attributable lower earnings higher usage working capital significant changes operating assets liabilities 2005 2004 762 million decrease income tax payable primarily related settlement examinations internal revenue service years 1998 2001 benefits arising resolution certain tax contingencies 626 million decrease accounts payable accrued expenses primarily due vendor payments prior sale otn business lower accrued rebates returns 204 million decrease litigation settlement payments compared 2004 307 million insurance recoveries 2005 237 million increase inventories due growth newer products anticipation new product launches 231 million decrease liabilities primarily due milestone receipts muraglitazar compound 2004 1095 million decrease receivables primarily due lower sales volume foreign withholding taxes significant changes operating assets liabilities 2004 2003 350 million decrease deferred revenue due workdown consignment inventory 2003 260 million increase inventory primarily due introduction new products including reyataz erbitux higher demand key brands including plavix avaproavalide sustiva 146 million decrease accounts payable accrued expenses including advertising promotion deferred revenue abilifyand milestone payments • net cash provided investing activities 12 billion 2005 compared net cash used 16 billion 2004 24 billion 2003 2813 million increase 2005 attributable sale marketable securities 2005 proceeds sale consumer medicines business 646 million 2005 one time 250 million milestone payment imclone 2004 decrease net cash used investing activities 2004 mainly attributable lower purchases marketable securities 364 million cash proceeds sale company’s adult nutritional business 261 million lower capital spending partially offset milestone payment 250 million imclone 150 million payment acordis acquisition increased purchases trademarks patents licenses • net cash used financing activities 36 billion 2005 05 billion 2004 10 billion 2003 3174 million increase 2005 mainly attributable retirement commercial paper repurchase company’s outstanding 25 billion aggregate principal amount 475 notes due 2006 partially offset 25 billion borrowings new term loan facility decrease 2004 2003 mainly attributable increase shortterm borrowings 2004 partially offset proceeds received issuance convertible debt 2003 cash provided operations borrowings primarily used past three years pay dividends approximately 65 billion company also invested approximately 24 billion past three years capital expansion improve plant efficiency maintain superior research facilities past three years company repurchase common stock total shares acquired since share repurchase program’s inception 372 million shares share repurchase program authorizes company purchase common stock time open market private transactions market conditions permit program intended reduce increase shares outstanding option exercises obtain shares general corporate purposes dividends declared per common share 112 2005 2004 2003 december 2005 company declared quarterly dividend 28 per common share indicated dividend full year 2006 112 per share dividend decisions made quarterly basis company’s board directors company’s financial condition liquidity could affected obligations make milestone onetime payments outcome pending litigations investigations including challenge plavix patent information see “item 1 businessstrategic alliances arrangements” “item 8 financial statementsnote 2 alliances investments” “note 20 legal proceedings contingencies” contractual obligations payments due period company’s contractual obligations december 31 2005 follows 1 2006 longterm debt obligations included shortterm borrowings company’s consolidated balance sheet december 31 2005 balances approximate outstanding nominal longterm debt values contractual obligations table excludes interest payment obligations company’s convertible debenture included due payment 2008 contains 2008 put call feature addition company committed make potential future “milestone” payments thirdparties part inlicensing development programs payments agreements generally become due payable upon achievement certain developmental regulatory andor commercial milestones achievement milestones neither probable reasonably estimable contingencies recorded company’s consolidated balance sheet discussion contractual obligations reference made “item 8 financial statementsnote 14 shortterm borrowings longterm debt” “note 16 financial instruments” “note 18 leases” “note 19 pension postretirement benefit plans” sec consent order deferred prosecution agreement previously disclosed august 4 2004 company entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent order consent copy attached exhibit 10 company’s quarterly report form 10q period ended september 30 2004 terms consent company agreed subject certain defined exceptions limit sales products sold direct customers including wholesalers distributors hospitals retail outlets pharmacies government purchasers based expected demand amounts exceed approximately one month inventory hand without making timely public disclosure change practice company also agreed consent certain measures implemented including establishing formal review certification process annual quarterly reports filed sec b establishing business risk disclosure group c retaining outside consultant comprehensively study help reengineer company’s accounting financial reporting processes publicly disclosing sales incentives offered direct customers purpose inducing purchase products excess expected demand e ensuring company’s budget process gives appropriate weight inputs come bottom top come top bottom adequately documenting process company agreed consent retain “independent adviser” date company’s form 10k year ended 2005 filed sec independent adviser continues serve independent monitor deferred prosecution agreement dpa discussed consent defines certain powers responsibilities independent adviser consent includes process independent adviser make recommendations regarding company’s compliance applicable federal securities laws corporate obligations company agreed consent adopt independent adviser’s recommendations regarding compliance applicable federal securities laws corporate obligations previously disclosed june 15 2005 company entered dpa united states attorney’s office usao district new jersey resolving investigation usao company relating wholesaler inventory various accounting matters covered company’s settlement sec pursuant dpa usao filed criminal complaint company alleging conspiracy commit securities fraud defer prosecution company dismiss complaint two years company satisfies requirements dpa copy dpa filed exhibit 992 form 8k filed company june 16 2005 incorporated reference hereto exhibit 10w dpa among things company agreed include forms 10q 10k filed sec annual report shareholders following information estimated wholesalerdirect customer inventory levels top fifteen 15 products sold us pharmaceuticals business b major nonus countries estimated aggregate wholesalerdirectcustomer inventory levels top fifteen 15 pharmaceutical products sold countries taken whole measured aggregate annual sales countries c arrangements policies concerning wholesalerdirect customers distributors products including efforts company control monitor wholesalerdistributor inventory levels data concerning prescriptions measures enduser demand products pursuant dpa company also include filings reports information acquisition divestiture restructuring reserve policies activity rebate accrual policies activity company also agreed implement remedial measures already undertaken mandated consent settlements derivative litigation federal securities class action relating wholesaler inventory various accounting matters addition company agreed undertake additional remedial actions corporate reforms actions including appointing additional nonexecutive director acceptable usao b establishing maintaining training education program topics include corporate citizenship financial reporting obligations c making additional 300 million payment shareholder compensation fund established connection consent engaging attempting engage criminal conduct term defined dpa e continuing cooperate usao including respect ongoing investigation regarding individual current former employees company f retaining irdependent monitor also part dpa board directors separated roles chairman chief executive officer company june 15 2005 elected nonexecutive chairman independent monitor also serves independent adviser pursuant consent defined powers responsibilities dpa including responsibility oversee least april 2007 company’s compliance terms dpa consent settlements derivative action federal securities class action monitor authority require company take steps believes necessary comply terms dpa company required adopt recommendations made monitor unless company objects recommendation usao agrees adoption recommendation required addition independent monitor report usao least quarterly basis company’s compliance dpa implementation effectiveness internal controls financial reporting disclosure processes related compliance functions company established companywide policy limit sales direct customers purpose complying consent policy includes adoption various procedures monitor limit sales direct customers accordance terms consent procedures include governance process escalate appropriate management levels potential questions concerns regarding compliance policy timely resolution questions concerns addition compliance policy monitored regular basis company maintains inventory management agreements imas us pharmaceutical wholesalers account nearly 100 total gross sales us pharmaceutical products current terms imas company’s three largest wholesaler customers provide company weekly information respect months hand product level inventories amount outmovement products three wholesalers currently account 90 total gross sales us pharmaceutical products inventory information received wholesalers together company’s internal information used estimate months hand product level inventories wholesalers company estimates months hand product inventory levels us pharmaceutical business’s wholesaler customers three largest wholesalers extrapolating months hand calculated three largest wholesalers company considers whether adjustments necessary extrapolated amounts based factors historical sales individual products made wholesalers thirdparty market research data related prescription trends patient demand contrast company’s pharmaceutical business outside united states nutritionals health care business units around world company significantly direct customers limited information direct customer product level inventory corresponding outmovement information reliability third party demand information available varies widely accordingly company relies variety methods estimate months hand product level inventories business units company discloses top fifteen 15 pharmaceutical products sold us pharmaceutical business based 2004 net sales amount net sales estimated number months hand us wholesaler distribution channel end immediately preceding quarter end applicable quarter quarterly annual reports forms 10q 10k company discloses corresponding information top fifteen 15 pharmaceutical products sold within major nonus countries described business units company continue disclose quarterly basis key product level inventories information required estimate months hand product level inventories direct customer distribution nonus pharmaceutical businesses available prior filing quarterly report form 10q applicable quarter accordingly company discloses information website approximately 60 days end applicable quarter company’s form 10q following quarter addition foregoing quarterly disclosure company includes foregoing information business units quarter annual report form 10k nonkey products inventory direct customers exceeds approximately one month hand company disclose estimated months hand products except impact company de minimis company enhanced continue enhance methods estimate months hand product inventory levels us pharmaceutical business nonus pharmaceutical businesses around world taking account complexities described company also taken continue take steps expedite receipt processing data nonus pharmaceutical businesses company believes abovedescribed procedures provide reasonable basis ensure compliance consent order dpa provides sufficient information comply disclosure requirements recently issued accounting standards may 2005 financial accounting standards board fasb issued statement financial accounting standards sfas 154 accounting changes error corrections replaces accounting principles board apb opinion 20 accounting changes sfas 3 reporting accounting changes interim financial statements pronouncement applies voluntary changes accounting principle revises requirements accounting reporting change accounting principle sfas 154 requires retrospective application prior periods’ financial statements voluntary change accounting principle unless impracticable pronouncement also requires change method depreciation amortization depletion longlived nonfinancial assets accounted change accounting estimate effected change accounting principle sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 statement change transition provisions existing accounting pronouncements including transition phase effective date sfas 154 adoption accounting pronouncement expected material effect consolidated financial statements march 2005 fasb issued fasb interpretation 47 accounting conditional asset retirement obligations fin 47 fin 47 clarifies entity must record liability conditional asset retirement obligation fair value obligation reasonably estimated asset retirement obligations covered fin 47 entity legal obligation perform asset retirement activity even timing method settling obligation conditional future event may within control entity fin 47 also clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation fin 47 effective later end fiscal years ending december 15 2005 adoption accounting pronouncement material effect consolidated financial statements december 2004 fasb issued revised sfas 123 sfas 123r sharebased payment standard eliminates ability account sharebased compensation transactions using intrinsic valuebased method apb opinion 25 accounting stock issued employees requires instead transactions accounted using fairvaluebased method april 2005 sec delayed effective date sfas 123r financial statements issued first annual period beginning june 15 2005 company adopt sfas 123r january 1 2006 using prospective transition method result provisions sfas 123r staff accounting bulletin sab 107 company estimates compensation charges related sharebased compensation 2006 pretax basis 135 million 145 million includes 80 million 85 million stock option expense due adoption standard tax basis compensation charges related sharebased compensation 2006 estimated 85 million 91 million stock option expense due adoption standard included tax amounts 50 million 54 million however assessment estimated compensation charges affected company’s stock price well number complex subjective variables related tax impacts variables include limited volatility company’s stock price employee stock exercise behaviors see “item 8 financial statementsnote 1 accounting policies stock compensation plans” december 2004 fasb issued final staff position fsp 1091 application sfas 109 accounting income taxes tax deduction qualified production activities provided american jobs creation act 2004 fsp provides deduction qualified production activities treated “special deduction” described sfas 109 accounting income taxes accordingly tax effect deduction reported component company’s current tax provision effect deferred tax assets liabilities department treasury recently issued proposed tax regulations respect deduction qualified production activities company evaluating impact proposed tax regulations fsp income tax provision results operations see “item 8 financial statementsnote 1 accounting policiesincome taxes” december 2004 fasb issued sfas 153 exchanges nonmonetary assets provisions statement effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 applied prospectively statement eliminates exception fair value measurement nonmonetary exchanges similar productive assets paragraph 21b apb opinion 29 accounting nonmonetary transactions replaces exception exchanges commercial substance adoption accounting pronouncement material effect consolidated financial statements november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 standard requires abnormal amounts idle facility related expenses recognized current period charges also requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective inventory costs incurred fiscal years beginning june 15 2005 adoption accounting pronouncement expected material effect consolidated financial statements june 2004 fasb issued fsp 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 medicare act medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part fsp 1062 requires effects new law accounted sfas 106 employers’ accounting postretirement benefits pensions company adopted fsp 1062 third quarter 2004 retroactive january 1 2004 reduction net periodic benefit cost benefits 8 million 2004 based remeasurement accumulated postretirement benefit obligation january 1 2004 effect adoption fsp 1062 material company’s consolidated financial statements see “item 8 financial statementsnote 19 pension postretirement benefit plans” march 2004 emerging issues task force eitf reached consensus issue 0306 participating securities twoclass method fas 128 requires use twoclass method computing earnings per share enterprises participating securities multiple classes common stock consensus effective fiscal periods beginning march 31 2004 adoption eitf 0306 material effect consolidated financial statements december 2003 fasb revised interpretation 46 consolidation variable interest entities fin 46 fin 46 requires variable interest entity consolidated company subject majority risk loss variable interest entity’s activities entitled receive majority entity’s residual returns fin 46 also requires disclosures variable interest entities company required consolidate significant variable interest consolidation requirements fin 46 revised apply immediately variable interest entities created january 31 2003 existing entities first fiscal year interim period ending march 15 2004 certain disclosure requirements apply financial statements issued january 31 2003 regardless variable interest entity established adoption accounting pronouncement material effect consolidated financial statements critical accounting policies company prepares financial statements conformity accounting principles generally accepted united states preparation financial statements conformity us generally accepted accounting principles gaap requires use estimates assumptions affect reported amounts assets liabilities including disclosure contingent assets contingent liabilities date financial statements reported amounts revenue expenses reporting period company’s critical accounting policies important company’s financial condition results operations require difficult subjective complex judgments part management application often result need make estimates effect matters inherently uncertain uncertainty factors surrounding estimates judgments used preparation consolidated financial statements actual results may vary estimates company believes following discussion represents critical accounting policies management company’s independent registered public accounting firm discussed company’s critical accounting policies audit committee board directors revenue recognition company recognizes revenue accordance sab 101 revenue recognition financial statements amended sab 104 revenue recognition company’s accounting policy revenue recognition substantial impact reported results relies certain estimates require difficult subjective complex judgments part management company recognizes revenue substantially risks rewards ownership transferred customer generally occurs date shipment exceptions described previous years certain transactions company’s us pharmaceutical wholesalers accounted using consignment model case sales made wholesalers 1 result incentives 2 excess wholesaler’s ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesaler’s cost carrying inventory excess wholesaler’s ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory company’s cost inventory company recognizes revenue net gross net sales adjustments discussed involve significant estimates judgments consignment inventory longer subject incentive arrangements later inventory sold wholesalers’ customers firstin firstout fifo basis case new products product introduction extension existing line product company determines products similar therapeutic category company determines new product dissimilar characteristics existing products company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns discussions revenue recognition see “item 8 financial statementsnote 1 accounting policiesrevenue recognition” “sales rebate return accruals” gross net sales adjustments company following significant categories gross net sales adjustments impact company’s three reportable segments prime vendor chargebacks wic rebates managed health care rebates contract discounts medicaid rebates cash discounts sales returns adjustments involve significant estimates judgments require company use information external sources company accounts gross net sales adjustments accordance eitf issue 019 accounting consideration given vendor customer including reseller vendor’s products sfas 48 revenue recognition right return exists applicable see “net sales” section reconciliations company’s gross sales net sales significant category grosstonet sales adjustments prime vendor chargebacks company’s us businesses participate prime vendor programs government entities significant us department defense us department veterans affairs parties whereby pricing products extended wholesaler list price participating entities purchase products wholesalers lower prime vendor price wholesalers charge difference acquisition cost lower prime vendor price back company accounts prime vendor chargebacks reducing accounts receivable amount equal company’s estimate chargeback claims attributable sale company determines estimate prime vendor chargebacks primarily based historical experience regarding prime vendor chargebacks current contract prices prime vendor programs company considers prime vendor payments levels inventory distribution channel company’s claim processing time lag adjusts reduction accounts receivable periodically throughout quarter reflect actual experience wic rebates company’s us nutritionals business participates competitive bidding basis nutrition programs sponsored states tribal governments commonwealth puerto rico us territories women infants children wic programs company reimburses entities difference wholesaler list price contract price eligible products company accounts wic rebates establishing accrual amount equal company’s estimate wic rebate claims attributable sale company determines estimate wic rebate accrual primarily based historical experience regarding wic rebates current contract prices wic programs company considers levels inventory distribution channel new wic contracts terminated wic contracts changes existing wic contracts wic participation adjusts accrual periodically throughout quarter reflect actual experience managed health care rebates contract discounts company offers rebates discounts managed health care organizations us globally contract counterparties hospitals group purchasing organizations company accounts managed health care rebates contract discounts establishing accrual amount equal company’s estimate managed health care rebates contract discounts attributable sale company determines estimate managed health care rebates contract discounts accrual primarily based historical experience regarding rebates discounts current contract prices company considers sales performance products subject managed health care rebates contract discounts levels inventory distribution channel adjusts accrual periodically throughout quarter reflect actual experience medicaid rebates company’s us businesses participate state governmentmanaged medicaid programs well certain qualifying federal state government programs whereby discounts rebates provided participating state local government entities discounts rebates provided latter programs included company’s medicaid rebate accrual considered medicaid rebates purposes discussion company accounts medicaid rebates establishing accrual amount equal company’s estimate medicaid rebate claims attributable sale company determines estimate medicaid rebates accrual primarily based historical experience regarding medicaid rebates well expansion prospective basis participation nonmandatory aspects qualifying federal state government programs legal interpretations applicable laws related medicaid qualifying federal state government programs new information regarding changes medicaid programs’ regulations guidelines would impact amount rebates company considers outstanding medicaid claims medicaid payments levels inventory distribution channel adjusts accrual periodically throughout quarter reflect actual experience cash discounts us certain countries company offers cash discounts generally approximately 2 sales price incentive prompt payment company accounts cash discounts reducing accounts receivable full amount discounts company considers payment performance adjusts accrual reflect actual experience sales returns company accounts sales returns accordance sfas 48 establishing accrual amount equal company’s estimate sales recorded related products expected returned 2005 2004 2003 provision sales returns 164 million 276 million 348 million respectively 1 2 respectively gross sales returns established products company determines estimate sales return accrual primarily based historical experience regarding sales returns also considers factors could impact sales returns factors include levels inventory distribution channel estimated shelf life product recalls product discontinuances price changes competitive products introductions generic products introductions competitive new products company considers factors adjusts accrual periodically throughout quarter reflect actual experience company considers level inventory distribution channel determines whether believes adjustment sales return accrual appropriate example levels inventory distribution channel increase company analyzes reasons increase reasons indicate sales returns larger expected company adjusts sales return accrual taking account historical experience company’s returned goods policy shelf life company’s products ranges average approximately 12 48 months situations company aware products distribution channel nearing expiration date company analyzes situation analysis indicates sales returns larger expected company adjusts sales return accrual taking account historical experience company’s returned goods policy levels inventory distribution channel event product recall product discontinuance company considers reasons impact actions adjusts sales return accrual appropriate taking account historical experience levels inventory distribution channel product discontinuances estimates continuing demand although company considers price changes competitive products introductions generic products introductions competitive new products company generally believe factors impact sales returns based historical experience company’s returned goods policy returns new products significantly difficult company assess company determines estimate sales return accrual primarily based historical sales returns experience similar products within line product within similar therapeutic category limited circumstances new product extension existing line product company historical experience products similar therapeutic category company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns company also considers shelf life new products determines whether believes adjustment sales return accrual appropriate shelf life connection new products tends shorter shelf life established products company may still developing optimal manufacturing process new product would lengthen shelf life amount launch quantities may manufactured advance launch date ensure sufficient supply exists satisfy market demand cases company assesses reduced shelf life together levels inventory distribution channel projected demand determines whether believes adjustment sales return accrual appropriate adjustments addition significant gross net sales adjustments described company makes gross net sales adjustments example company offers sales discounts significantly nonus businesses also offers consumer coupons rebates significantly us nutritionals pharmaceuticals businesses addition number countries outside us including major european countries company provides rebates government entities company generally accounts gross net adjustments establishing accrual amount equal company’s estimate adjustments attributable sale company generally determines estimates accruals gross net sales adjustments primarily based historical experience performance commitments government entities relevant factors including levels inventory distribution channel cases adjusts accruals periodically throughout quarter reflect actual experience use information external sources company uses information external sources estimate significant gross net sales adjustments company’s estimates inventory wholesalers deferred revenue consigned inventory based projected prescription demandbased sales products historical inventory experience well company’s analysis thirdparty information including written oral information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data company’s internal information inventory information received wholesalers product recordkeeping process excludes inventory held intermediaries sell retailers hospitals company receives information ims health ims supplier market research pharmaceutical industry uses project prescription demandbased sales many us pharmaceutical products company historically reported estimated total us prescription growth estimated therapeutic category share based national prescription audit npa data ims makes available public subscription basis simple average estimated number prescriptions retail mail order channels third quarter 2005 company began disclosing estimated total us prescription growth estimated therapeutic category share based npa nextgeneration prescription services ngps data ngps data collected ims new revised methodology released ims limited basis pilot program ims publicly announced expects make ngps data available public subscription basis 2007 company believes ngps data provided ims provide superior estimate prescription data company’s products retail mail order channels company calculated estimated total us prescription growth estimated therapeutic category share based ngps data weighted average basis reflect fact mail order prescriptions include greater volume product supplied compared retail prescriptions company believes calculation estimated total us prescription growth estimated therapeutic category share based ngps data weighted average approach respect retail mail order channels provide superior estimate total prescription demand company uses methodology internal demand forecasts company also uses information external sources identify prescription trends patient demand average selling prices company’s estimates subject inherent limitations estimates rely thirdparty information certain thirdparty information form estimates reflect limitations including lags date thirdparty information generated date company receives thirdparty information retirement benefits company’s pension plans postretirement benefit plans accounted using actuarial valuations required sfas 87 employers’ accounting pensions sfas 106 employers’ accounting postretirement benefits pensions company considers accounting retirement plans critical management required make significant subjective judgments number actuarial assumptions including discount rates salary growth longterm return plan assets retirement turnover health care cost trend rates mortality rates depending assumptions estimates used pension postretirement benefit expense could vary within range outcomes material effect reported earnings addition assumptions materially affect accumulated benefit obligations future cash funding plan description company certain subsidiaries defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan principal defined contribution plan bristolmyers squibb savings investment program approximately 80 total company defined benefit pension plan assets liabilities held us plans assets us plans held single trust common asset allocation unless specified otherwise references section total company plans ie us plans together international plans benefits company’s defined benefit pension plans based primarily years credited service participants’ compensation assets company’s defined benefit plans consist primarily equity fixedincome securities december 31 2005 fair market value plan assets company’s defined benefit plans increased 5017 million 4602 million december 31 2004 us plans assets allocated 68 equity securities compared 70 end 2004 25 fixed income securities compared 23 end 2004 7 private equity investments compared 7 end 2004 bristolmyers squibb common stock represented less 1 assets us plans end 2005 2004 company provides comprehensive medical group life benefits substantially us retirees elect participate company’s comprehensive medical group life plans asset allocation postretirement plans identical asset allocation described us defined benefit pension plans accrual accounting significant assumptions consistent requirements sfas 87 employers’ accounting pensions company accounts pension benefits using accrual method recognizing pension expense payment benefits retirees accrual method accounting pension benefits necessarily requires actuarial assumptions concerning future events determine amount timing benefit payments company’s key assumptions used calculating cost pension benefits discount rate compensation increase expected longterm rate return plan assets company consultation actuaries evaluates key actuarial assumptions used calculating cost pension benefits retirement turnover mortality rates based expectations actual experience appropriate determines assumptions december 31 year calculate liability information date pension expense following year depending assumptions used pension expense could vary within range outcomes material effect reported earnings addition assumptions materially affect accumulated benefit obligations future cash funding actual results given year may differ estimated economic factors determining discount rate company uses yield high quality corporate bonds coincides cash flows plans’ estimated payouts citigroup median yield curve used determining discount rate us plans assumed rate compensation increase used company determining future pension obligations reflects estimate change actual future compensation levels due general price levels productivity seniority factors 2005 net pension expense company’s defined benefit pension plans included earnings minority interest income taxes 392 million compared 276 million 2004 us plans pension expense 2005 determined using 575 assumed discount rate 356 assumed rate compensation increase present value benefit obligations december 31 2005 us plans determined using rates assumed discount rate used determining us plans pension expense 2005 reduced 025 expense would increased approximately 18 million assumed rate compensation increase used determining us plans pension expense 2005 reduced 025 expense would decreased approximately 9 million assumed discount rate used determining accumulated benefit obligation december 31 2005 reduced 025 accumulated benefit obligation would increased 128 million us plans pension expense 2005 determined using 875 expected longterm rate return plan assets expected longterm rate return plan assets used determining us plans pension expense 2005 reduced 1 expense would increased 34 million actual rates return earned us plan assets last 10 years follows discussed gaap provides differences expected actual returns recognized average future service employees december 31 2005 company maintained assumed discount rate us plans 575 maintained assumed rate compensation increase 356 compensation assumed increase scale different rates different ages 356 rate disclosed december 31 2005 single rate used age would produce present value benefit obligations company reduced expected rate return us plan assets 9 2004 875 2005 2006 company expects net pension expense defined benefit pension plans included earnings minority interest income taxes approximately 30 million lower 2006 392 million 2005 reflecting primarily positive delayed impact favorable 20032005 investment returns company used assumed discount rates expected longterm rates return plan assets calculating cost pension benefits cost postretirement benefits us plans except case discount rates december 31 2005 2004 rate 575 used pension benefits versus 550 postretirement benefits reflect shorter duration postretirement liabilities us health care costs retiree population assumed increase 80 2006 trend expected increase 45 per year 2012 actual costs higher assumed likely put significant upward pressure company’s expense retiree health care december 8 2003 president bush signed law medicare prescription drug improvement modernization act 2003 effects medicare act reflected 2005 net periodic postretirement benefit cost reduction 11 million accumulated postretirement benefit obligation december 31 2005 reduction 85 million delayed recognition actuarial gains losses december 31 2005 2004 unrecognized net actuarial losses company’s defined benefit plans 2067 million 2017 million respectively based fair market value plan assets unrecognized net actuarial losses reflect large part steady reduction weightedaverage discount rate years sfas 87 provides delayed recognition actuarial gains losses including amounts arising changes estimated plan benefit obligations due changes assumed discount rate differences actual expected returns plan assets assumption changes sfas 87 requires unrecognized net actuarial gain loss determined based marketrelated value plan assets differs fair market value calculated value recognizes changes fair value systematic rational manner five years amortized pension income expense year extent unrecognized net actuarial loss gain exceeds 10 greater projected benefit obligation marketrelated value plan assets beginning year net gains losses recognized pension income expense prospectively period approximates average remaining service period active employees expected receive benefits plans approximately 10 years extent offset losses gains subsequent years december 31 2005 unrecognized net actuarial loss determined based marketrelated value plan assets 2107 million amount exceeded 10 greater projected benefit obligation market related value plan assets 1515 million unless offset future unrecognized gains higher discount rates higher expected returns plan assets amortization unrecognized loss expected increase pension expense following 10 years approximately 152 million per year december 31 2004 unrecognized net actuarial loss determined based marketrelated value plan assets 2278 million amount exceeded 10 greater projected benefit obligation market related value plan assets 1730 million event fair market value pension plan assets particular plan less accumulated benefit obligation plan yearend gaap may require additional minimum liability circumstances reduction stockholders’ equity establishment intangible asset december 31 2005 fair market value company’s defined benefit pension plan assets 5017 million related accumulated benefit obligation 5209 million company recognized reduction 21 million additional minimum liability cumulatively 328 million december 31 2005 offset 20 million increase comprehensive income included stockholders’ equity 1 million reduction intangible asset december 31 2004 fair market value company’s defined benefit pension plan assets 4602 million related accumulated benefit obligation 4828 million company recognized additional minimum liability 146 million cumulatively 349 million december 31 2004 offset 153 million charge comprehensive income included stockholders’ equity 7 million reduction intangible asset plan funding company’s funding policy defined benefit plans contribute amounts provide current service fund past service liability company contributed 423 million 367 million defined benefit plans 2005 2004 respectively discussions retirement benefits see “item 8 financial statementsnote 19 pension postretirement benefit plans” acquired inprocess research development fair value inprocess research development acquired business combination determined independent appraisal based present value research project’s projected cash flows income approach utilized consistent guidance practice aid issued american institute certified public accountants assets acquired business combination used research development activities focus software electronic devices pharmaceutical industries future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weighted average cost capital acquired inprocess research development expensed incurred underlying product received regulatory approval future alternative use addition costs nonrefundable related acquisition licensing products yet received regulatory approval marketed alternative future use charged earnings incurred discussions acquired inprocess research development see “item 8 financial statementsnote 1 accounting policiesacquired inprocess research development” impairment longlived assets accordance sfas 144 accounting impairment disposal longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value accordance sfas 142 goodwill intangible assets goodwill tested least annually impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value sfas 142 requires indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net book value exceeds estimated fair value intangible assets evaluated impairment accordance sfas 144 described estimates future cash flows based reasonable supportable assumptions projections require management’s judgment changes key assumptions company’s businesses prospects changes market conditions could result impairment charge discussions impairment longlived assets see “item 8 financial statementsnote 1 accounting policiesimpairment longlived assets” “goodwill intangible assets” equity investments company reviews equity investments impairment based determination whether decline market value investment company’s carrying value temporary making determination company considers apb opinion 18 equity method accounting investments common stock related interpretations set forth factors evaluated determining whether loss value recognized including company’s ability hold investment market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment company’s investment imclone subject accounting see “item 8 financial statementsnote 2 alliances investments” discussion company’s investment imclone discussions equity investments see “item 8 financial statementsnote 1 accounting policiesinvestments” “note 2 alliances investments” restructuring downsize streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results could vary estimates resulting adjustment earnings discussions restructuring see “item 8 financial statementsnote 1 accounting policiesrestructuring” “note 3 restructuring items” contingencies normal course business company subject contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability tax matters accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated discussions contingencies see “item 8 financial statementsnote 1 accounting policiesincome taxes” “contingencies” “note 8 income taxes” “note 20 legal proceedings contingencies” income taxes deferred taxes company evaluates need deferred tax asset valuation allowance assessing whether likely realize deferred tax assets future assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning strategies adjustments deferred tax valuation allowances made earnings period assessments made company recorded deferred tax assets related us foreign tax credit carryforwards approximately 975 million us research tax credit carryforwards approximately 120 million expire varying amounts beginning 2012 realization foreign tax credit research tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions increasing biologics manufacturing capacity us increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit carryforwards amount foreign tax credit research tax credit carryforwards considered realizable however could reduced near term outcome plavix litigation us unfavorable andor timing generic competition plavix accelerated events occur company may need record significant additional valuation allowances deferred tax assets additional information plavix litigation see “item 1a risk factors” “item 8 financial statementsnote 20 legal proceedings contingencies” tax contingencies company conducts business various countries throughout world subject tax numerous jurisdictions result business activities company files significant number tax returns subject examination various tax authorities tax examinations often complex tax authorities may disagree treatment items reported company may require several years resolve company establishes liabilities possible assessments tax authorities amounts represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known undistributed earnings foreign subsidiaries december 31 2005 company approximately 84 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated united states company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided discussions income taxes see “item 8 financial statementsnote 1 accounting policiesincome taxes” “note 8 income taxes” outlook previously disclosed anticipated sales declines 2006 due continued exclusivity losses expected less offset growth net sales company’s growth drivers potential new products period additionally gross margin expected stabilize 2006 relatively high margins realized sale growth drivers certain new products less offset lost margins older products lost expected lose exclusivity however earnings adversely affected company’s investments support introduction new products loss revenues related sale product asset impact adoption expensing stock options new accounting guidelines development additional new compounds addition previously disclosed company experienced substantial revenue losses last years due expiration market exclusivity protection certain products 2006 company estimates reductions net sales range 14 15 billion 2005 levels representing continuing declines revenues products well declines revenues certain additional products lost continue lose market exclusivity protection 2003 2006 products years lost lose exclusivity protection include glucophageirglucovanceglucophagexr united states 2000 2004 taxol® paclitaxel europe 2003 japan 2006 2013 pravachol united states 2006 europe 2002 2007 cefzil united states 2005 2007 revenue reductions due exclusivity losses anticipated begin moderate 2006 levels major new exclusivity losses expected timing amounts sales reductions exclusivity losses realization particular periods eventual levels remaining sales revenues uncertain dependent levels sales time exclusivity protection ends timing degree development generic competition speed approvals market entry impact factors company’s expectations future sales growth include substantial expected increases sales plavix net sales 38 billion 2005 currently company’s largest product ranked net sales composition matter patent plavix expires 2011 currently subject litigation united states trial scheduled begin june 2006 similar proceedings involving plavix ongoing canada enforcement proceedings outside us canada company continues believe patent valid infringed alliance partner patentholder sanofi vigorously pursuing cases possible time reasonably assess outcome litigations adverse determination litigations timing potential generic competition plavix apotex inc apotex corporation apotex announced january 2006 received final approval anda clopidogrel bisulfate fda accordingly apotex could decide launch generic product risk time generic competition would likely result substantial decreases sales plavix united states company adds product line realigns focus next several years company expects devote substantial resources excess historical levels meet heightened processing standards may required sterile newly introduced products biologics become important company’s product portfolio company may continue make arrangements third party manufacturers expects make substantial investments increase internal capacity produce biologics commercial scale march 2006 example board directors approved capital expenditure amount 660 million construction expandable largescale multiproduct bulk biologics manufacturing facility us facility modular design order accomodate future expansion 2006 future periods company expects cash generated us operations together existing cash borrowings capital markets sufficiently cover cach needs working capital expenditures including substantial investments facilities increase maintain company’s capacity provide biologics commercial scale noted milestone payments dividends paid united states company subsidiaries subject number significant pending lawsuits claims proceedings investigations assurance increase scope matters future lawsuits claims proceedings material company addition increasing trend foreign governments scrutinize sales marketing activities pharmaceutical companies assurance investigation material possible time reasonably assess final outcome investigations litigations management continues believe previously disclosed next years aggregate impact beyond current reserves legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity company’s expectations next several years described reflect potential impact litigation company’s results operations special note regarding forwardlooking statements annual report form 10k including documents incorporated reference written oral statements company makes time contain certain “forwardlooking” statements within meaning section 27a securities act 1933 section 21e securities exchange act 1934 identify forwardlooking statements fact use words “should” “expect” “anticipate” “estimate” “target” “may” “will” “project” “guidance” “intend” “plan” “believe” words terms similar meaning expression connection discussion future operating financial performance one also identify forwardlooking statements fact relate strictly historical current facts forwardlooking statements based current expectations involve inherent risks uncertainties including factors could delay divert change could cause actual outcomes differ materially current expectations statements likely relate among things company’s goals plans projections regarding financial position results operations cash flows market position product development product approvals sales efforts expenses performance results current anticipated products outcome contingencies legal proceedings financial results based current expectations involve inherent risks uncertainties including internal external factors could delay divert change next several years company included important factors cautionary statements included annual report particularly “item 1a risk factors” company believes could cause actual results differ materially forwardlooking statement although company believes prudent plans assumptions assurance given goal plan set forth forwardlooking statements achieved readers cautioned place undue reliance statements speak date made company undertakes obligation release publicly revisions forwardlooking statements result new information future events otherwise item 7a nannannannannannannannannanitem 7a quantitative qualitative disclosures market risk company exposed market risk due changes currency exchange rates interest rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments also managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used trading purposes gains losses hedging transactions offset gains losses underlying exposures hedged foreign exchange option contracts forward contracts used hedge anticipated transactions companys primary foreign currency exposures relation us dollar euro canadian dollar japanese yen mexican peso table summarizes companys outstanding foreign exchange contracts december 31 2002 fair value foreign exchange option contracts estimated using blackscholes model based yearend currency rates fair value option contracts forward contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates december 31 2001 company held option contracts aggregate notional amount fair value 485 million 24 million respectively contracts primarily related right buy japanese yen right sell canadian australian dollars company also held foreign exchange forward contracts aggregate notional amount 902 million fair value 1 million contracts primarily related exposures euro mexican peso japanese yen british pound company uses derivative instruments part interest rate risk management policy derivative instruments used include interest rate swaps subject fairvalue hedge accounting treatment 2002 company executed five financial institutions several fixed floating interest rate swaps convert 30 billion companys fixed rate debt paid 2006 2011 variable rate debt year ended december 31 2002 company recognized reduction interest expense 23 million reflects benefit lower floating rate obtained swap agreement sfas 133 requires revaluation fair value swap contracts well underlying debt hedged swap contracts underlying debt revalued resulting increase current assets longterm debt 133 million swap contracts generally held maturity used trading speculative purposes following table summarizes interest rate swaps executed 2002 company also outstanding several interest rate foreign currency swaps related japanese yen notes due 2005 aggregate fair value instruments december 31 2002 2001 1 million 3 million respectively company 6261 million 6237 million longterm debt outstanding december 31 2002 2001 respectively see note 15 shortterm borrowings longterm debt note 17 financial instruments consolidated financial statements additional information company maintains cash equivalents time deposits marketable securities various financial institutions order limit exposure one financial institution financial institutions located primarily us europe item 8item 7a quantitative qualitative disclosures market risk company exposed market risk due changes currency exchange rates interest rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used speculative purposes gains losses hedging transactions offset gains losses underlying exposures hedged ineffective portion hedges reported earnings occurs foreign exchange option contracts forward contracts used hedge anticipated transactions company’s primary foreign currency exposures relation us dollar euro japanese yen canadian dollar mexican peso table summarizes company’s outstanding foreign exchange contracts december 31 2004 fair value foreign exchange contracts based yearend currency rates blackscholes model case option contracts fair value option contracts forward contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates december 31 2004 company held option forward exchange contracts maturity dates 2005 2007 notional amounts fair values maturity dates expressed table december 31 2004 company held option contracts aggregate notional amount fair value 51 million 5 million respectively options give company right buy japanese yen specified rates company also held forward contracts aggregate notional amount 3410 million fair value forward contracts 367 million recorded current liability contracts primarily related exposures euro canadian dollar australian dollar company obligated settle forward contracts based specified contract rates december 31 2004 balance deferred net aftertax losses option forward contracts included accumulated comprehensive income 267 million 168 million estimated reclassified earnings within next 12 months year ended december 31 2004 impact hedge ineffectiveness earnings loss 4 million additionally company uses forward contracts offset exposure certain currency assets liabilities forward contracts designated hedges therefore changes fair value derivatives recognized earnings occur december 31 2004 company recorded loss 7 million related forward exchange contracts qualify hedge accounting treatment december 31 2003 company held option forward exchange contracts aggregate notional amount fair value 2488 million 265 million respectively contracts primarily related exposures euro japanese yen canadian dollar australian dollar addition foreign exchange hedge contracts noted company also uses foreign exchange forward contracts hedge foreign currency denominated monetary assets liabilities primary objective foreign exchange forward contracts protect us dollar value foreign currency denominated monetary assets liabilities effects volatility foreign exchange might occur prior receipt settlement us dollars foreign currency denominated monetary assets liabilities primarily denominated japanese yen euro forward contracts designated hedges marked market incomeexpense notional fair value amount foreign exchange forward contracts december 31 2004 325 million 6 million respectively company uses derivative instruments part interest rate risk management policy derivative instruments used include interest rate swaps subject fairvalue hedge accounting treatment 2004 2003 2002 company executed several fixed floating interest rate swaps convert 62 billion company’s fixed rate debt paid 2006 2008 2011 2013 2023 2026 variable rate debt year ended december 31 2004 company recognized net reduction interest expense 151 million reflects benefit lower floating rate obtained swap agreement sfas 133 requires revaluation fair value swap contracts well underlying debt hedged swap contracts underlying debt revalued resulting increase noncurrent assets 76 million shortterm liabilities 1 million longterm debt 75 million increase noncurrent assets longterm debt 40 million december 31 2004 2003 respectively swap contracts generally held maturity used speculative purposes following table summarizes interest rate swaps outstanding december 31 2004 december 31 2003 company held interest rate swap contracts notional value 5500 million fair value 40 million estimated 10 change interest rate structure would material impact company’s consolidated financial position results operations cash flows company 8463 million 8522 million longterm debt outstanding december 31 2004 2003 respectively see “item 8item 7a quantitative qualitative disclosures market risk company exposed market risk due changes currency exchange rates interest rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used speculative purposes gains losses hedging transactions offset gains losses underlying exposures hedged ineffective portion hedges reported earnings occurs company’s primary net foreign currency translation exposures euro japanese yen mexican peso chinese renminbi canadian dollar company utilizes foreign currency contracts hedge anticipated transactions primarily intercompany transactions certain foreign currencies designates derivative instruments foreign currency cash flow hedges appropriate table summarizes company’s outstanding foreign exchange forward contracts december 31 2006 fair value foreign exchange forward contracts based yearend currency rates fair value foreign exchange forward contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates december 31 2006 company held foreign exchange forward contracts maturity dates 2007 2008 december 31 2006 company hold foreign exchange option contracts notional amounts fair values foreign exchange forward contract maturity dates expressed table dollars millions december 31 2006 fair value company’s foreign exchange forward contracts net liability 33 million 18 million recorded noncurrent asset 51 million recorded current liability company estimates 10 appreciation depreciation underlying currencies hedged levels dollar december 31 2006 variables held constant would decrease increase respectively 159 million fair value foreign exchange forward contracts held december 31 2006 company obligated settle foreign exchange forward contracts based specified contract rates december 31 2006 balance deferred net aftertax losses foreign exchange forward contracts included accumulated comprehensive income 22 million net aftertax loss 25 million estimated reclassified earnings within next 12 months december 31 2005 company held foreign exchange forward contracts aggregate notional amount 2296 million fair value foreign exchange forward contracts net asset 53 million 94 million recorded noncurrent asset 41 million recorded current liability contracts primarily related exposures euro canadian dollar australian dollar company estimates 10 appreciation depreciation underlying currencies hedged levels dollar december 31 2005 variables held constant would decrease increase respectively 230 million fair value foreign exchange forward contracts held december 31 2005 years ended december 31 2006 2005 2004 impact hedge ineffectiveness earnings significant additionally years ended december 31 2006 2005 2004 impact discontinued hedges loss 10 million gain 2 million gain 1 million respectively furthermore company uses foreign exchange forward contracts offset exposure certain currency assets liabilities foreign exchange forward contracts designated hedges therefore changes fair value derivatives recognized earnings occur 2006 2005 2004 amounts recognized earnings related foreign exchange forward contracts qualify hedge accounting treatment significant company also uses foreign exchange forward contracts hedge foreign currency denominated monetary assets liabilities primary objective foreign exchange forward contracts protect us dollar value foreign currency denominated monetary assets liabilities effects volatility foreign exchange rates might occur prior receipt settlement us dollars foreign currency denominated monetary assets liabilities primarily denominated euro foreign exchange forward contracts designated hedges marked market incomeexpense notional fair value amounts purchased foreign exchange forward contracts 24 million 1 million asset respectively december 31 2006 142 million 2 million liability respectively december 31 2005 notional fair value amounts sold foreign exchange forward contracts 22 million 1 million liability respectively december 31 2006 47 million 1 million asset respectively december 31 2005 addition foreign exchange forward contracts noted company uses non us dollar borrowings lesser extent foreign exchange forward contracts hedge foreign currency exposures company’s net investment certain foreign affiliates non us dollar borrowings foreign exchange forward contracts designated hedges net investments effective portion foreign exchange gains losses hedges recorded part foreign currency translation component comprehensive income december 31 2006 2005 17 million tax losses 12 million tax gains respectively recorded foreign currency translation component accumulated comprehensive income company uses derivative instruments part interest rate risk management strategy derivative instruments used comprised principally fixed floating rate interest rate swaps subject fairvalue hedge accounting treatment november 2006 connection funding retirement 2011 fixed rate debt company executed several fixed floating interest rate swaps convert 13 billion 1 billion euro 13 billion company’s newly issued fixed rate debt paid 2016 2021 2036 variable rate debt 2004 company executed several fixed floating interest rate swaps convert 700 million company’s fixed rate debt paid 2023 2026 variable rate debt total notional amount outstanding interest rate swaps 26 billion 1 billion euros 13 billion december 31 2006 34 billion december 31 2005 respectively accordance sfas 133 accounting derivative instruments hedging activities company recognized net increase interest expense 18 million 2006 net reduction interest expense 54 million 151 million 2005 2004 respectively impact interest rate swaps sfas 133 requires revaluation fair value swap contracts well underlying debt hedged swap contracts underlying debt revalued resulting increase noncurrent assets 7 million current liabilities 57 million reduction longterm debt 50 million december 31 2006 increase noncurrent assets 21 million current liabilities 51 million reduction longterm debt 30 million december 31 2005 swap contracts generally held maturity intended create appropriate balance fixed floating rate debt company swap contracts qualify fair value hedges terminated prior maturity dates reported part carrying value underlying debt amortized earnings remaining life debt swap contracts qualify cash flow hedges terminated reported accumulated comprehensive income amortized earnings remaining life debt following tables summarize interest rate swaps outstanding december 31 2006 terminated interest rate swaps 2006 2005 terminated swap contracts 1 underlying 2011 2006 notes extinguished 2006 2005 respectively december 31 2006 company held interest rate swap contracts notional value 26 billion 10 billion euro 13 billion fair value net liability 50 million estimated increase decrease 50 basis points shortterm longterm interest rates would material impact company’s consolidated financial position results operations cash flows company 7248 million 8364 million longterm debt outstanding december 31 2006 2005 respectively additional information see “item 8item 7a quantitative qualitative disclosures market risk company exposed market risk due changes currency exchange rates interest rates deterioration credit capital markets reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used speculative purposes gains losses hedging transactions offset gains losses underlying exposures hedged ineffective portion hedges reported earnings occurs company’s primary net foreign currency translation exposures euro canadian dollar japanese yen mexican peso chinese renminbi company utilizes foreign currency contracts hedge anticipated transactions primarily intercompany transactions certain foreign currencies designates derivative instruments foreign currency cash flow hedges appropriate table summarizes company’s outstanding foreign exchange forward contracts december 31 2007 fair value foreign exchange forward contracts based yearend currency rates fair value foreign exchange forward contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates 1 nonqualifying hedges qualify hedge accounting treatment prescribed sfas 133 accounting derivative instruments hedging activities december 31 2007 company held foreign exchange option contracts buy sell japanese yen total notional fair market value buy contracts 145 million 1 million respectively fully offset total notional fair market value sell contracts 145 million 1 million respectively december 31 2007 company held foreign exchange forward contracts maturity dates 2008 notional amounts fair values expressed table dollars millions december 31 2007 fair value company’s foreign exchange forward contracts net liability 47 million 16 million recorded noncurrent asset 63 million recorded current liability company estimates 10 appreciation depreciation underlying currencies hedged levels dollar december 31 2007 variables held constant would decrease 170 million increase 155 million respectively fair value foreign exchange forward contracts held december 31 2007 company obligated settle foreign exchange forward contracts based specified contract rates december 31 2007 balance deferred losses foreign exchange forward contracts included accumulated comprehensive income oci pretax basis 54 million 37 million net tax expected reclassified earnings within next 12 months december 31 2006 fair value company’s foreign exchange forward contracts net liability 33 million 18 million recorded noncurrent asset 51 million recorded current liability years ended december 31 2007 2006 2005 impact hedge ineffectiveness earnings significant additionally years ended december 31 2007 2006 2005 impact discontinued hedges pretax loss 12 million pretax loss 10 million pretax gain 2 million respectively furthermore company uses foreign exchange forward contracts offset exposure certain assets liabilities earnings denominated foreign currencies foreign exchange forward contracts designated hedges therefore changes fair value derivatives recognized earnings occur notional fair value amounts foreign exchange forward contracts december 31 2007 described table foreign exchange forward contracts type outstanding december 31 2006 2007 impact foreign exchange forward contracts designated hedges pretax gain 4 million 2006 2005 amounts recognized earnings related foreign exchange forward contracts qualify hedge accounting treatment significant addition foreign exchange hedge contracts noted company utilizes forward contracts hedge foreign currencydenominated monetary assets liabilities primary objective forward contracts protect us dollar value foreign currencydenominated monetary assets liabilities effects volatility foreign exchange rates might occur prior receipt settlement us dollars foreign currencydenominated monetary assets liabilities primarily denominated euro forward contracts designated hedges marked market expense net notional fair value amounts purchased foreign exchange forward contracts material december 31 2007 24 million 1 million asset respectively december 31 2006 notional fair value amounts sold foreign exchange forward contracts december 31 2007 22 million 1 million liability respectively december 31 2006 company uses nonus dollar borrowings primarily €500 million notes due 2016 €500 million notes due 2021 hedge foreign currency exposures company’s net investment certain foreign affiliates nonus dollar borrowings designated hedges net investments effective portion foreign exchange gains losses hedges recorded part foreign currency translation component accumulated oci december 31 2007 2006 168 million 27 million losses respectively recorded foreign currency translation component accumulated oci company uses derivative instruments part interest rate risk management strategy derivative instruments used comprised principally fixed floating rate interest rate swaps subject fairvalue hedge accounting treatment november 2006 connection funding retirement 2011 fixed rate debt company executed several fixed floating interest rate swaps convert 13 billion 1 billion 13 billion inception company’s newly issued fixed rate debt paid 2016 2021 2036 variable rate debt total notional amount outstanding interest rate swaps 26 billion 1 billion 15 billion december 31 2007 26 billion 1 billion 13 billion december 31 2006 accordance sfas 133 accounting derivative instruments hedging activities company recognized net increase interest expense 13 million 18 million 2007 2006 respectively net reduction interest expense 54 million 2005 impact interest rate swaps sfas 133 requires revaluation fair value swap contracts well underlying debt hedged swap contracts underlying debt revalued resulting increase noncurrent assets 72 million current liabilities 96 million reduction longterm debt 24 million december 31 2007 increase noncurrent assets 7 million current liabilities 57 million reduction longterm debt 50 million december 31 2006 swap contracts generally held maturity intended create appropriate balance fixed floating rate debt company swap contracts qualify fair value hedges terminated prior maturity dates reported part carrying value underlying debt amortized earnings remaining life debt swap contracts qualify cash flow hedges terminated reported accumulated oci amortized earnings remaining life debt following tables summarize interest rate swaps outstanding december 31 2007 earnings impact terminated interest rate swap contracts 2007 2006 2005 interest rate swaps outstanding earnings impact terminated interest rate swap contracts 1 underlying 2011 notes extinguished 2006 2 underlying 2006 notes extinguished 2005 3 underlying 2026 notes extinguished december 31 2007 company held interest rate swap contracts notional value 26 billion 10 billion 15 billion fair value net liability 24 million estimated increase decrease 100 200 basis points shortterm longterm interest rates would material impact company’s consolidated financial position results operations cash flows company 4381 million 7248 million longterm debt outstanding december 31 2007 2006 respectively additional information see “item 8item 7a quantitative qualitative disclosures market risk exposed market risk due changes currency exchange rates interest rates result certain derivative financial instruments used available costeffective basis hedge underlying economic exposure primary net foreign currency translation exposures euro japanese yen canadian dollar british pound australian dollar mexican peso chinese renminbi foreign currency forward contracts used manage exposures instruments generally qualify cash flow hedge accounting treatment managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative instruments also used part interest rate risk management strategy derivative instruments used principally comprised fixedtofloating interest rate swaps generally qualify fairvalue hedge accounting treatment addition financial instruments including derivatives subject counterparty credit risk consider part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant portion revenues earnings cash flow exposed changes foreign currency rates use foreign currency forward contracts manage foreign exchange risk primarily arises certain intercompany transactions designate derivative instruments foreign currency cash flow hedges appropriate addition exposed foreign exchange transaction risk arises nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies order manage risks use foreign currency forward contracts offset exposures certain assets liabilities earnings denominated certain foreign currencies foreign currency forward contracts designated hedges therefore changes fair value derivatives recognized earnings incomeexpense occur estimate 10 appreciation underlying currencies hedged levels us dollar december 31 2010 variables held constant would decrease fair value foreign exchange forward contracts held december 31 2010 145 million realized would effect earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets order manage risk use nonus dollar borrowings hedge foreign currency exposures net investment certain foreign affiliates nonus dollar borrowings designated hedges net investments effective portion foreign exchange gains losses hedges recognized part foreign currency translation component accumulated oci additional information see “item 8item 7a quantitative qualitative disclosures market risk exposed market risk due changes currency exchange rates interest rates result certain derivative financial instruments used available costeffective basis hedge underlying economic exposure financial instruments including derivatives subject counterparty credit risk consider part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant portion revenues earnings cash flow exposed changes foreign currency rates primary net foreign currency translation exposures euro japanese yen canadian dollar chinese renminbi australian dollar foreign currency forward contracts used manage foreign exchange risk primarily arises certain intercompany purchase transactions designate derivative instruments foreign currency cash flow hedges appropriate addition exposed foreign exchange transaction risk arises nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies foreign currency forward contracts used offset portion exposures designated hedges changes fair value derivatives recognized earnings incurred estimate 10 appreciation underlying currencies hedged levels us dollar december 31 2011 variables held constant would decrease fair value foreign exchange forward contracts held december 31 2011 177 million realized would negatively affect earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets nonus dollar borrowings used hedge foreign currency exposures net investment certain foreign affiliates designated hedges net investments effective portion foreign exchange gains losses hedges recognized part foreign currency translation component accumulated oci net investment fall equivalent value euro debt borrowings change remeasurement basis debt would subject recognition income changes occur additional information see “item 8item 7a quantitative qualitative disclosures market risk exposed market risk resulting changes currency exchange rates interest rates certain derivative financial instruments used available costeffective basis hedge underlying economic exposure financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant amounts revenues earnings cash flow exposed changes foreign currency rates primary net foreign currency translation exposures euro japanese yen chinese renminbi canadian dollar british pound foreign currency forward contracts used manage foreign exchange risk primarily arises certain intercompany purchase transactions designated foreign currency cash flow hedges appropriate addition exposed foreign exchange transaction risk arises nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies foreign currency forward contracts used offset portion exposures designated hedges changes fair value derivatives recognized earnings incurred estimate 10 appreciation underlying currencies hedged levels us dollar variables held constant would decrease fair value foreign exchange forward contracts 162 million december 31 2012 realized appreciation would negatively affect earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets nonus dollar borrowings used hedge foreign currency exposures net investment certain foreign affiliates designated hedges net investments effective portion foreign exchange gains losses hedges recognized part foreign currency translation component accumulated oci net investment fall equivalent value nonus debt borrowings change remeasurement basis debt would subject recognition income changes occur additional information see “item 8item 7a quantitative qualitative disclosures market risk exposed market risk resulting changes currency exchange rates interest rates certain derivative financial instruments used available costeffective basis hedge underlying economic exposure financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant amounts revenues earnings cash flow exposed changes foreign currency rates primary net foreign currency translation exposures euro japanese yen chinese renminbi canadian dollar south korean foreign currency forward contracts used manage foreign exchange risk primarily arises certain intercompany purchase transactions designated foreign currency cash flow hedges appropriate addition exposed foreign exchange transaction risk arises nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies foreign currency forward contracts used offset portion exposures designated hedges changes fair value derivatives recognized earnings incurred estimate 10 appreciation underlying currencies hedged levels us dollar variables held constant would decrease fair value foreign exchange forward contracts 135 million december 31 2013 realized appreciation would negatively affect earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets nonus dollar borrowings used hedge foreign currency exposures net investment certain foreign affiliates designated hedges net investments effective portion foreign exchange gains losses hedges recognized part foreign currency translation component accumulated comprehensive incomeloss net investment fall equivalent value nonus debt borrowings change remeasurement basis debt would subject recognition income changes occur additional information see “item 8item 7a quantitative qualitative disclosures market risk exposed market risk resulting changes currency exchange rates interest rates certain derivative financial instruments used available costeffective basis hedge underlying economic exposure financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant amounts revenues earnings cash flow exposed changes foreign currency rates primary net foreign currency translation exposures euro japanese yen chinese renminbi canadian dollar south korean foreign currency forward contracts used manage risk primarily arises certain intercompany purchase transactions designated foreign currency cash flow hedges appropriate addition exposed foreign exchange transaction risk arising nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies foreign currency forward contracts used offset exposures designated hedges estimate 10 appreciation underlying currencies hedged levels us dollar variables held constant would decrease fair value foreign exchange forward contracts 130 million december 31 2014 reducing earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets nonus dollar borrowings used hedge foreign currency exposures net investment certain foreign affiliates designated hedges net investments effective portion foreign exchange gains losses hedges included foreign currency translation component accumulated comprehensive incomeloss net investment decreases equivalent value nonus debt borrowings change remeasurement basis debt would subject recognition income changes occur additional information see “item 8item 7a quantitative qualitative disclosures market risk exposed market risk resulting changes currency exchange rates interest rates certain derivative financial instruments used available costeffective basis hedge underlying economic exposure financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant amounts revenues earnings cash flow exposed changes foreign currency rates primary net foreign currency translation exposures euro japanese yen chinese renminbi canadian dollar south korean foreign currency forward contracts used manage risk primarily arises certain intercompany purchase transactions designated foreign currency cash flow hedges appropriate addition exposed foreign exchange transaction risk arising nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies foreign currency forward contracts used offset exposures designated hedges estimate 10 appreciation underlying currencies hedged levels us dollar variables held constant would decrease fair value foreign exchange forward contracts 144 million december 31 2015 reducing earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets nonus dollar borrowings used hedge foreign currency exposures net investment certain foreign affiliates designated hedges net investments effective portion foreign exchange gains losses hedges included foreign currency translation component accumulated comprehensive incomeloss net investment decreases equivalent value nonus debt borrowings change remeasurement basis debt would subject recognition income changes occur additional information refer “item 8item 7a quantitative qualitative disclosures market risk exposed market risk resulting changes currency exchange rates interest rates certain derivative financial instruments used available costeffective basis hedge underlying economic exposure financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant amounts revenues earnings cash flow exposed changes foreign currency rates primary net foreign currency translation exposures euro japanese yen chinese renminbi foreign currency forward contracts used manage risk primarily arises certain intercompany purchase transactions designated foreign currency cash flow hedges appropriate addition exposed foreign exchange transaction risk arising nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies foreign currency forward contracts used offset exposures designated hedges estimate 10 appreciation underlying currencies hedged levels us dollar variables held constant would decrease fair value foreign exchange forward contracts 86 million december 31 2016 reducing earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets nonus dollar borrowings used hedge foreign currency exposures net investment certain foreign affiliates designated hedges net investments effective portion foreign exchange gains losses hedges included foreign currency translation component accumulated comprehensive incomeloss net investment decreases equivalent value nonus debt borrowings change remeasurement basis debt would subject recognition income changes occur additional information refer “item 8item 7a quantitative qualitative disclosures market risk exposed market risk resulting changes currency exchange rates interest rates certain derivative financial instruments used available costeffective basis hedge underlying economic exposure financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant amounts revenues earnings cash flow exposed changes foreign currency rates primary net foreign currency translation exposures euro japanese yen foreign currency forward contracts used manage risk primarily arising certain intercompany purchase transactions also exposed foreign exchange transaction risk arising nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies foreign currency forward contracts used offset exposures designated hedges estimate 10 appreciation underlying currencies hedged levels us dollar variables held constant would decrease fair value foreign exchange forward contracts 175 million december 31 2017 reducing earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets nonus dollar borrowings used hedge foreign currency exposures net investment certain foreign affiliates designated hedges net investments effective portion foreign exchange gains losses hedges included foreign currency translation component accumulated comprehensive incomeloss net investment decreases equivalent value nonus debt borrowings change remeasurement basis debt would subject recognition income changes occur additional information refer “item 8item 7a quantitative qualitative disclosures market risk exposed market risk resulting changes currency exchange rates interest rates certain derivative financial instruments used available costeffective basis hedge underlying economic exposure financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant amounts revenues earnings cash flow exposed changes foreign currency rates primary net foreign currency translation exposures euro japanese yen foreign currency forward contracts used manage risk primarily arising certain intercompany purchases sales transactions also exposed foreign exchange transaction risk arising nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies foreign currency forward contracts used offset exposures designated hedges estimate 10 appreciation underlying currencies hedged levels us dollar variables held constant would decrease fair value foreign exchange forward contracts 231 million 175 million december 31 2018 december 31 2017 respectively reducing earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets nonus dollar borrowings used hedge foreign currency exposures net investment certain foreign affiliates designated hedges net investments effective portion foreign exchange gains losses hedges included foreign currency translation component accumulated comprehensive loss net investment decreases equivalent value nonus debt borrowings change remeasurement basis debt would subject recognition income changes occur additional information refer “item 8item 7aquantitative qualitative disclosures market risk exposed market risk resulting changes currency exchange rates interest rates certain derivative financial instruments used available costeffective basis hedge underlying economic exposure financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant amounts revenues earnings cash flow exposed changes foreign currency rates primary net foreign currency translation exposures euro japanese yen foreign currency forward contracts used manage risk primarily arising certain intercompany sales purchases transactions also exposed foreign exchange transaction risk arising nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies foreign currency forward contracts used offset exposures designated hedges estimate 10 appreciation underlying currencies hedged levels us dollar variables held constant would decrease fair value foreign exchange forward contracts 742 million 358 million december 31 2020 december 31 2019 respectively reducing earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets nonus dollar borrowings used hedge foreign currency exposures net investment certain foreign affiliates designated hedges net investments effective portion foreign exchange gains losses hedges included foreign currency translation component accumulated comprehensive loss net investment decreases equivalent value nonus debt borrowings change remeasurement basis debt would subject recognition income changes occur additional information refer “item 8item 7a quantitative qualitative disclosures market risk company exposed market risk due changes currency exchange rates interest rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used speculative purposes gains losses hedging transactions offset gains losses underlying exposures hedged ineffective portion hedges reported earnings occurs foreign exchange option contracts forward contracts used hedge anticipated transactions company’s primary foreign currency exposures relation us dollar euro japanese yen canadian dollar mexican peso table summarizes company’s outstanding foreign exchange contracts december 31 2003 fair value foreign exchange contracts based yearend currency rates blackscholes model case option contracts fair value option contracts forward contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates december 31 2002 company held option contracts aggregate notional amount fair value 754 million 12 million respectively contracts granted right sell euros canadian australian dollars company also held forward contracts aggregate notional amount 1021 million fair value liability 37 million contracts primarily related exposures euro company uses derivative instruments part interest rate risk management policy derivative instruments used include interest rate swaps subject fairvalue hedge accounting treatment 2003 2002 company executed several fixed floating interest rate swaps convert 55 billion company’s fixed rate debt paid 2006 2008 2011 2013 variable rate debt year ended december 31 2003 company recognized net reduction interest expense 116 million reflects benefit lower floating rate obtained swap agreement sfas 133 requires revaluation fair value swap contracts well underlying debt hedged swap contracts underlying debt revalued resulting increase current assets longterm debt 40 million swap contracts generally held maturity used speculative purposes following table summarizes interest rate swaps outstanding december 31 2003 dollars millions following table summarizes interest rate swaps outstanding december 31 2002 dollars millions estimated 10 change interest rate structure would material impact company’s consolidated financial position results operations cash flows company also outstanding several interest rate foreign currency swaps related japanese yen notes due 2005 aggregate fair value instruments december 31 2003 2002 02 million 1 million respectively company 8522 million 6261 million longterm debt outstanding december 31 2003 2002 respectively see “item 8item 7a quantitative qualitative disclosures market risk company exposed market risk due changes currency exchange rates interest rates lesser extent natural gas pricing reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure company’s primary net foreign currency translation exposures euro japanese yen canadian dollar chinese renminbi mexican peso manage exposures company utilizes foreign currency contracts subject cash flow hedge accounting treatment instruments managed consolidated basis efficiently net exposures thus take advantage natural offsets company also uses derivative instruments part interest rate risk management strategy derivative instruments used comprised principally fixedtofloating rate interest swaps subject fairvalue hedge accounting treatment addition company’s financial instruments including derivatives subject counterparty credit risk company considers part overall fair value measurement derivative financial instruments used speculative purposes foreign exchange risk significant portion company’s revenues earnings exposed changes foreign currency rates addition company exposed foreign exchange transaction risk arises nonfunctional currency denominated assets liabilities order manage risk company uses foreign exchange forward contracts offset exposure certain assets liabilities earnings denominated certain foreign currencies foreign exchange forward contracts designated hedges therefore changes fair value derivatives recognized earnings expense net occur addition company utilizes foreign currency contracts manage foreign exchange risk primarily arises certain intercompany transactions designates derivative instruments foreign currency cash flow hedges appropriate notional amounts company’s foreign exchange derivative contracts 12 billion 17 billion december 31 2008 2007 respectively derivatives majority qualify hedges future anticipated cash flows effective portion changes fair value temporarily deferred accumulated oci recognized earnings hedged item affects earnings company estimates 10 appreciation depreciation underlying currencies hedged levels us dollar december 31 2008 variables held constant would decrease 119 million increase 109 million respectively fair value foreign exchange forward contracts held december 31 2008 company also exposed translation risk nonus dollardenominated net assets order manage risk company uses nonus dollar borrowings primarily 500 million notes due 2016 500 million notes due 2021 hedge foreign currency exposures company’s net investment certain foreign affiliates nonus dollar borrowings designated hedges net investments effective portion foreign exchange gains losses hedges recorded part foreign currency translation component accumulated oci additional information see “item 8item 7a quantitative qualitative disclosures market risk exposed market risk due changes currency exchange rates interest rates result certain derivative financial instruments used available costeffective basis hedge underlying economic exposure primary net foreign currency translation exposures euro japanese yen canadian dollar british pound australian dollar mexican peso chinese renminbi foreign currency forward contracts used manage exposures instruments generally qualify cash flow hedge accounting treatment managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative instruments also used part interest rate risk management strategy derivative instruments used principally comprised fixedtofloating interest rate swaps generally qualify fairvalue hedge accounting treatment addition financial instruments including derivatives subject counterparty credit risk consider part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant portion revenues earnings cash flow exposed changes foreign currency rates use foreign currency forward contracts manage foreign exchange risk primarily arises certain intercompany transactions designate derivative instruments foreign currency cash flow hedges appropriate addition exposed foreign exchange transaction risk arises nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies order manage risks use foreign currency forward contracts offset exposures certain assets liabilities earnings denominated certain foreign currencies foreign currency forward contracts designated hedges therefore changes fair value derivatives recognized earnings incomeexpense occur estimate 10 appreciation depreciation underlying currencies hedged levels us dollar december 31 2009 variables held constant would increase decrease 152 million fair value foreign exchange forward contracts held december 31 2009 realized would effect earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets order manage risk use nonus dollar borrowings hedge foreign currency exposures net investment certain foreign affiliates nonus dollar borrowings designated hedges net investments effective portion foreign exchange gains losses hedges recognized part foreign currency translation component accumulated oci additional information see “item 8item 7a quantitative qualitative disclosures market risk exposed market risk resulting changes currency exchange rates interest rates certain derivative financial instruments used available costeffective basis hedge underlying economic exposure financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes foreign exchange risk significant amounts revenues earnings cash flow exposed changes foreign currency rates primary net foreign currency translation exposures euro japanese yen foreign currency forward contracts used manage risk primarily arising certain intercompany sales purchases transactions also exposed foreign exchange transaction risk arising nonfunctional currency denominated assets liabilities earnings denominated nonus dollar currencies foreign currency forward contracts used offset exposures designated hedges estimate 10 appreciation underlying currencies hedged levels us dollar variables held constant would decrease fair value foreign exchange forward contracts 358 million 231 million december 31 2019 december 31 2018 respectively reducing earnings remaining life contracts also exposed translation risk nonus dollardenominated net assets nonus dollar borrowings used hedge foreign currency exposures net investment certain foreign affiliates designated hedges net investments effective portion foreign exchange gains losses hedges included foreign currency translation component accumulated comprehensive loss net investment decreases equivalent value nonus debt borrowings change remeasurement basis debt would subject recognition income changes occur additional information refer “item 8item 7a quantitative qualitative disclosures market risk company exposed market risk due changes currency exchange rates interest rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used speculative purposes gains losses hedging transactions offset gains losses underlying exposures hedged ineffective portion hedges reported earnings occurs company’s primary foreign currency exposures anticipated transactions primarily intercompany inventory purchases expected occur within next two years euro canadian dollar japanese yen mexican peso chinese yuan company utilizes foreign currency forward contracts hedge exposures certain foreign currencies designates derivative instruments cash flow hedges table summarizes company’s outstanding foreign exchange forward contracts december 31 2005 fair value foreign exchange forward contracts based yearend currency rates fair value foreign exchange forward contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates december 31 2005 company held foreign exchange forward contracts maturity dates 2006 2007 december 31 2005 company hold option contracts notional amounts fair values foreign exchange forward contract maturity dates expressed table december 31 2005 company held foreign exchange forward contracts aggregate notional amount 2296 million fair value foreign exchange forward contracts 53 million 94 million recorded noncurrent asset 41 million recorded current liability contracts primarily related exposures euro canadian dollar australian dollar company estimates 10 appreciation depreciation underlying currencies hedged levels dollar december 31 2005 variables held constant would decrease increase respectively 230 million fair value foreign exchange forward contracts held december 31 2005 company obligated settle foreign exchange forward contracts based specified contract rates december 31 2005 balance deferred net aftertax gains foreign exchange forward contracts included accumulated comprehensive income 40 million 26 million estimated reclassified earnings within next 12 months december 31 2004 company held option foreign exchange forward contracts aggregate notional amount fair value 3461 million 362 million liability respectively contracts primarily related exposures euro canadian dollar australian dollar swiss franc british pound 2005 company reclassified deferred losses 130 million comprehensive income earnings majority classified cost products sold years ended december 31 2005 2004 impact hedge ineffectiveness earnings significant additionally company uses foreign exchange forward contracts offset exposure certain currency assets liabilities foreign exchange forward contracts designated hedges therefore changes fair value derivatives recognized earnings occur 2005 2004 amounts recognized earnings related foreign exchange forward contracts qualify hedge accounting treatment significant company also uses foreign exchange forward contracts hedge foreign currency denominated monetary assets liabilities primary objective foreign exchange forward contracts protect us dollar value foreign currency denominated monetary assets liabilities effects volatility foreign exchange rates might occur prior receipt settlement us dollars foreign currency denominated monetary assets liabilities primarily denominated japanese yen euro foreign exchange forward contracts designated hedges marked market incomeexpense notional fair value amount purchased foreign exchange forward contracts 142 million 2 million liability respectively december 31 2005 229 million 10 million liability respectively december 31 2004 notional fair value amount sold foreign exchange forward contracts 47 million 1 million asset respectively december 31 2005 96 million 4 million asset respectively december 31 2004 addition foreign exchange forward contracts noted company uses non us dollar borrowings lesser extent foreign exchange forward contracts hedge foreign currency exposures company’s net investment certain foreign affiliates non us dollar borrowings foreign exchange forward contracts designated hedges net investments effective portion foreign exchange gains losses hedges recorded part foreign currency translation component comprehensive income december 31 2005 2004 12 million tax gains 6 million tax losses respectively recorded foreign currency translation component comprehensive income company uses derivative instruments part interest rate risk management stratergy derivative instruments used include interest rate swaps subject fairvalue hedge accounting treatment 2004 2003 2002 company executed several fixed floating interest rate swaps convert 62 billion company’s fixed rate debt paid 2006 2008 2011 2013 2023 2026 variable rate debt year ended december 31 2005 company recognized net reduction interest expense 54 million reflects benefit lower floating rate obtained swap agreement april 2005 connection early redemption 25 billion notes due 2006 company terminated 2 billion notional amount 2006 fixedtofloating interest rate swap agreements incurred pretax loss 28 million june 2005 company terminated 500 million notional amount 2011 fixedtofloating interest rate swap agreements related 25 billion notes due 2011 incurred pretax loss 23 million loss amortized interest expense remaining life notes due 2011 2 million recognized 2005 september 2005 company terminated 350 million notional amount 2026 fixedtofloating interest rate swap agreements related 350 million debentures due 2026 resulted gain 39 million gain recognized interest expense remaining life debentures due 2026 approximately 1 million recognized 2005 sfas 133 requires revaluation fair value swap contracts well underlying debt hedged swap contracts underlying debt revalued resulting increase noncurrent assets 21 million current liabilities 51 million reduction longterm debt 30 million increase noncurrent assets 76 million current liabilities 1 million longterm debt 75 million december 31 2005 2004 respectively swap contracts generally held maturity used speculative purposes following table summarizes interest rate swaps outstanding december 31 2005 december 31 2004 company held interest rate swap contracts notional value 6200 million fair value 75 million estimated increase decrease 50 basis points shortterm longterm interest rates would material impact company’s consolidated financial position results operations cash flows company 8364 million 8463 million longterm debt outstanding december 31 2005 2004 respectively see “item 8 item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings millions dollars except per share amounts year ended december 31 1993 1992 1991 net sales 11413 11156 10571 expenses cost products sold 3029 2857 2717 marketing selling administrative 3098 3075 2946 advertising product promotion 1255 1291 1263 research development 1128 1083 983 special charge 500 provision restructuring 890 168 27 122 8842 9169 7787 earnings continuing operations income taxes 2571 1987 2784 provision income taxes 612 449 793 earnings continuing operations 1959 1538 1991 discontinued operations net 670 65 earnings cumulative effect accounting change 1959 2208 2056 cumulative effect accounting change net income tax benefit 144 246 net earnings 1959 1962 2056 per common share earnings continuing operations 380 297 382 discontinued operations 129 13 earnings cumulative effect accounting change 380 426 395 cumulative effect accounting change 47 net earnings 380 379 395 accompanying notes integral part financial statements 25 bristolmyers squibb company consolidated balance sheet assets millions dollars december 31 1993 1992 1991 current assets cash equivalents 2421 2137 1435 time deposits marketable securities 308 248 148 receivables net allowances 1859 1984 1971 inventories 1322 1490 1451 prepaid expenses 660 762 562 total current assets 6570 6621 5567 property plant equipment net 3374 3141 2936 insurance recoverable 1000 assets 966 889 743 excess cost net tangible assets received business acquisitions 191 153 170 12101 10804 9416 accompanying notes integral part financial statements 26 bristolmyers squibb company consolidated balance sheet liabilities stockholders equity millions dollars december 31 1993 1992 1991 liabilities current liabilities shortterm borrowings 177 375 553 accounts payable 649 562 537 accrued expenses 1550 1422 1167 us foreign income taxes payable 689 941 495 total current liabilities 3065 3300 2752 product liability 1370 63 65 liabilities 1138 1245 669 longterm debt 588 176 135 total liabilities 6161 4784 3621 stockholders equity preferred stock 2 convertible series authorized 10 million shares issued outstanding 25798 1993 28517 1992 30980 1991 liquidation value 50 per share common stock par value 10 per share authorized 15 billion shares issued 532688458 1993 532673413 1992 532659944 1991 53 capital excess par value stock 353 435 485 cumulative translation adjustments 332 208 90 retained earnings 7243 6769 6235 7317 7049 6683 less cost treasury stock 20782281 common shares 1993 14689052 1992 13142575 1991 1377 1029 888 total stockholders equity 5940 6020 5795 12101 10804 9416 accompanying notes integral part financial statements 27 bristolmyers squibb company consolidated statement retained earnings millions dollars year ended december 31 1993 1992 1991 retained earnings january 1 6769 6235 5428 net earnings 1959 1962 2056 8728 8197 7484 less dividends 1485 1428 1249 retained earnings december 31 7243 6769 6235 accompanying notes integral part financial statements 28 bristolmyers squibb company consolidated statement cash flows millions dollars year ended december 31 1993 1992 1991 cash flows operating activities earnings continuing operations 1959 1538 1991 depreciation amortization 308 295 246 special charge 500 provision restructuring 890 operating items 49 50 103 receivables 41 125 269 inventories 129 163 114 prepaid expenses 92 121 4 accounts payable 134 75 40 accrued expenses income taxes 276 150 194 deferred income taxes 27 196 31 liabilities 329 65 59 net cash provided operating activities 2580 2028 1835 cash flows investing activities proceeds sales time deposits marketable securities 993 169 4090 purchases time deposits marketable securities 1049 269 2865 additions fixed assets 570 647 628 proceeds sales businesses 98 1150 net 69 27 26 net cash used provided investing activities 597 430 571 cash flows financing activities shortterm borrowings 228 169 longterm debt 394 40 96 issuances common stock plans 38 37 46 purchases treasury stock 419 228 447 dividends paid 1485 1428 1249 net cash used financing activities 1700 1748 1577 effect exchange rates cash 1 8 10 increase cash equivalents 284 702 839 cash equivalents beginning year 2137 1435 596 cash equivalents end year 2421 2137 1435 accompanying notes integral part financial statements 29 bristolmyers squibb company notes consolidated financial statements millions dollars note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company subsidiaries cash equivalents cash equivalents primarily include securities maturity three months less time purchase recorded cost approximates market time deposits marketable securities time deposits marketable securities available sale recorded fair value approximates cost inventory valuation inventories generally stated average cost excess market property depreciation expenditures additions renewals betterments capitalized cost depreciation generally computed straightline method based estimated useful lives related assets excess cost net tangible assets excess cost net tangible assets received business acquisitions subsequent october 31 1970 amortized straightline basis periods exceeding forty years earnings per share earnings per common share computed using weighted average number shares outstanding year effect shares issuable stock plans significant note 2 special charge fourth quarter 1993 company recorded special charge 500 million taxes 310 million taxes 60 per share connection pending future breast implant product liability claims company subsidiary medical engineering corporation certain subsidiaries special charge consists 15 billion potential liabilities expenses related breast implant claims 14 billion recorded longterm liability product liability 1 billion recorded current liability accrued expenses offset 1 billion expected insurance proceeds recorded insurance recoverable although company currently engaged coverage litigation certain insurers expected insurance proceeds represent amount insurance company considers appropriate record recoverable time company believes ultimately obtain substantial additional amounts insurance proceeds see note 18 30 bristolmyers squibb company notes consolidated financial statements millions dollars note 3 discontinued operations december 31 1992 company completed sale drackett company household products business sc johnson son inc 115 billion cash sale resulted gain 952 million taxes 605 million taxes 117 per share drackett reported discontinued operation summary results dracketts operations 1992 1991 year ended december 31 1992 1991 net sales 571 588 earnings income taxes 103 provision income taxes 38 net earnings 65 note 4 provision restructuring fourth quarter 1992 charge 890 million taxes recorded connection various restructuring actions taken company strengthen four core businesses recognition changing worldwide health care trends charge primarily covered costs reducing employment levels including voluntary retirement program companys us employees streamlining worldwide production distribution operations aftertax effect charge 570 million 110 per share note 5 foreign currency translation cumulative translation adjustments represent effect translating assets liabilities companys nonus entities except highly inflationary economies 1993 1992 1991 balance january 1 208 90 61 effect balance sheet translations amount 141 151 38 tax effect 17 33 9 balance december 31 332 208 90 31 bristolmyers squibb company notes consolidated financial statements millions dollars gains losses reflected earnings continuing operations 1993 1992 1991 21 million 63 million 44 million respectively net applicable income taxes resulted foreign currency transactions translation adjustments related nonus entities operating highly inflationary economies 1993 gain reflected 86 million included income expenses foreign currency transactions translation adjustments offset 52 million reductions gross margin charging cost products sold inventory historic rates 1992 1991 losses primarily reflected reductions gross margins note 6 income expenses year ended december 31 1993 1992 1991 interest income 96 78 139 interest expense 57 49 55 net note 5 129 2 38 168 27 122 interest expense reduced 14 million 1993 13 million 1992 12 million 1991 due interest capitalized major property plant equipment projects cash payments interest net amounts capitalized 51 million 46 million 47 million 1993 1992 1991 respectively note 7 provision income taxes components earnings continuing operations income taxes year ended december 31 1993 1992 1991 us 1561 1248 2029 nonus 1010 739 755 2571 1987 2784 32 bristolmyers squibb company notes consolidated financial statements millions dollars provision income taxes consisted year ended december 31 1993 1992 1991 current us federal 257 341 399 nonus 307 310 253 state local 42 60 67 606 711 719 deferred us 35 178 33 nonus 41 84 41 6 262a 74 612 449 793 primarily resulted provision restructuring income taxes paid year 783 million 606 million 795 million 1993 1992 1991 respectively companys provision income taxes 1993 1992 1991 different amount computed applying statutory united states federal income tax rate earnings continuing operations income taxes result following earnings continuing operations income taxes 1993 1992 1991 us statutory rate 350 340 tax exemptions operations puerto rico 101 87 79 state local taxes 11 2 16 nonus operations 2 18 13 20 11 5 238 226 285 prepaid taxes december 31 1993 1992 1991 377 million 405 million 268 million respectively deferred income tax asset included assets december 31 1993 1992 230 million 160 million respectively deferred income tax liability included liabilities december 31 1991 112 million 33 bristolmyers squibb company notes consolidated financial statements millions dollars components prepaid deferred income taxes consisted december 31 1993 1992 1991 postretirement pension benefits 275 144 10 product liability 183 30 40 restructuring integrating businesses 149 356 144 depreciation 198 166 158 198 201 140 607 565 156 company settled united states federal income tax returns 1987 internal revenue service united states federal income taxes provided substantially unremitted earnings nonus subsidiaries since managements practice intent reinvest earnings operations subsidiaries total amount net unremitted earnings nonus subsidiaries approximately 1562 million december 31 1993 note 8 inventories december 31 1993 1992 1991 finished goods 741 846 836 work process 239 272 245 raw packaging materials 342 372 370 1322 1490 1451 note 9 property plant equipment december 31 1993 1992 1991 land 148 145 144 buildings 1814 1741 1568 machinery equipment fixtures 2779 2763 2565 construction progress 495 383 441 5236 5032 4718 less accumulated depreciation 1862 1891 1782 3374 3141 2936 34 bristolmyers squibb company notes consolidated financial statements millions dollars note 10 accrued expenses liabilities components accrued expenses december 31 1993 1992 1991 restructuring integrating businesses 288 326 66 medicaid rebates 173 98 79 salaries wages 111 146 153 978 852 869 1550 1422 1167 components liabilities december 31 1993 1992 1991 postretirement benefits 452 402 pension benefits 305 73 75 restructuring integrating businesses 82 460 175 deferred income taxes 112 299 310 307 1138 1245 669 note 11 shortterm borrowings longterm debt shortterm borrowings included amounts due banks current installments longterm debt totaling 14 million 61 million 102 million december 31 1993 1992 1991 respectively company shortterm lines credit domestic foreign banks december 31 1993 unused portions lines credit approximately 200 million 491 million respectively 35 bristolmyers squibb company notes consolidated financial statements millions dollars components longterm debt december 31 1993 1992 1991 715 debentures due 2023 343 50 term loan due 2000 64 618 term loan due 1997 60 53 term loan due 1996 55 49 6 38 6 12 notes due annually 1995 2004 30 5906 term loan paid 1993 47 capitalized lease obligations due varying amounts 2008 18 15 16 due varying amounts 2008 18 29 42 588 176 135 longterm debt december 31 1993 payable years ending december 31 1995 12 1996 65 1997 68 1998 7 1999 6 2000 later 430 588 note 12 financial instruments company entered certain financial instruments reduce exposure fluctuations foreign currencies interest rates financial instruments included foreign exchange contracts 372 million 392 million 705 million outstanding december 31 1993 1992 1991 respectively interest rate protection agreements 100 million outstanding december 31 1991 foreign exchange contracts outstanding december 31 1993 mature various times 1996 36 bristolmyers squibb company notes consolidated financial statements millions dollars note 13 retirement benefit plans company certain subsidiaries defined benefit pension plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan companys funding policy contribute amounts provide current service fund past service liability cost companys defined benefit plans included following components year ended december 31 1993 1992 1991 service cost benefits earned year 104 94 79 interest cost projected benefit obligation 152 144 131 actual earnings plan assets 232 119 328 net amortization deferral 54 73 172 net pension expense 78 46 54 weighted average actuarial assumptions companys pension plans follows december 31 1993 1992 1991 discount rate 70 82 86 compensation increase 45 50 longterm rate return 110 120 funded status plans follows december 31 1993 1992 1991 actuarial present value accumulated benefit obligation vested 1758 1354 1226 nonvested 201 155 147 1959 1509 1373 37 bristolmyers squibb company notes consolidated financial statements millions dollars december 31 1993 1992 1991 total projected benefit obligation 2339 1892 1730 plan assets fair value 1702 1681 1694 plan assets less projected benefit obligation 637 211 36 unamortized net assets adoption 103 129 145 unrecognized prior service cost 96 105 112 unrecognized net losses 510 313 137 adjustment required recognize minimum pension liability 171 accrued prepaid pension expense 305 78 68 1993 increase actuarial present value accumulated benefit obligation plan assets less projected benefit obligation primarily due lower discount rate effect voluntary retirement program offered companys us employees 1993 112 million adjustment required recognize minimum pension liability recorded assets 59 million recorded reduction stockholders equity plan benefits primarily based years credited service participants compensation plan assets principally consist equity securities fixed income securities note 14 postretirement benefit plans pensions company provides comprehensive medical group life benefits substantially us retirees elect participate companys comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory effective january 1 1992 company adopted provisions statement financial accounting standards 106 employers accounting postretirement benefits pensions fas 106 statement requires costs postretirement benefits primarily health care benefits accrued employees active working career prior years costs expensed paid company recorded discounted value expected future benefits attributed employees service rendered prior 1992 cumulative effect accounting change onetime noncash accounting change 390 million taxes 246 million taxes 47 per share 38 bristolmyers squibb company notes consolidated financial statements millions dollars cost companys postretirement benefit plans included following components year ended december 31 1993 1992 service cost benefits earned year 8 interest cost accumulated postretirement benefit obligation 32 30 actual earnings plan assets 2 postretirement benefit expense 38 status plans follows december 31 1993 1992 accumulated postretirement benefit obligation retirees 380 251 fully eligible active plan participants 17 27 active plan participants 124 131 521 409 plan assets fair value 28 7 accumulated postretirement benefit obligation excess plan assets 493 402 unrecognized prior service cost 1 unrecognized net losses 42 accrued postretirement benefit expense 452 402 1993 increase accumulated postretirement benefit obligation primarily due lower discount rate effect voluntary retirement program offered companys us employees measurement purposes annual rate increase per capita cost covered health care benefits 123 participants age 65 102 participants age 65 assumed 1994 rate assumed decrease gradually 52 2007 remain level thereafter increasing assumed medical care cost trend rates 1 percentage point year would increase accumulated postretirement benefit obligation december 31 1993 28 million aggregate service interest cost components net postretirement benefit expense year ended 2 million weightedaverage discount rate used determining accumulated postretirement benefit obligation 70 1993 82 1992 39 bristolmyers squibb company notes consolidated financial statements millions dollars plan assets principally consist equity securities fixed income securities expected longterm rate return plan assets 110 1993 120 1992 cost postretirement benefits expensed paid prior adoption fas 106 totaled 18 million 1991 note 15 stockholders equity changes capital shares capital excess par value stock capital excess par value shares common stock millions issued treasury dollars balance december 31 1990 532603203 8784350 504 issued pursuant stock plans options rights warrants 27570 1415607 19 conversions preferred stock 29171 purchases 5773832 balance december 31 1991 532659944 13142575 485 issued pursuant stock plans options rights warrants 3052 1464223 50 conversions preferred stock 10417 purchases 3010700 balance december 31 1992 532673413 14689052 435 issued pursuant stock plans options rights warrants 3530 1183365 23 conversions preferred stock 11515 purchases 7276594 adjustment required recognize minimum pension liability 59 balance december 31 1993 532688458 20782281 353 share companys preferred stock convertible 424 shares common stock callable companys option reductions number issued shares preferred stock 1993 1992 1991 due conversions common stock 40 bristolmyers squibb company notes consolidated financial statements millions dollars dividends per common share 288 1993 276 1992 240 1991 companys stock option plans officers directors key employees may granted options purchase companys common stock 100 market price day option granted additionally plans provide granting stock appreciation rights whereby grantee may surrender exercisable options receive common stock andor cash measured excess market price common stock option exercise price may 4 1993 stockholders approved amendments 1983 stock option plan extending term 10 years authorizing additional shares amount 09 outstanding shares per year additional 10 years incorporating companys existing longterm performance award plan providing payment longterm performance awards shares common stock valued 100 market price date payment companys restricted stock award plan provides granting 3000000 shares common stock key employees subject restrictions continuous employment except case death normal retirement restrictions generally expire fiveyear period date grant december 31 1993 total 834500 shares outstanding plan stock option longterm performance award transactions shares common stock available option award plan balance december 31 1990 10401171 12837201 granted 3303166 exercised 1730540 lapsed 287727 307096 balance december 31 1991 7385732 14102731 granted 3593775 exercised 2258396 surrendered 7243 lapsed 467773 475107 balance december 31 1992 4259730 14955760 shares authorized 4661859 granted 5464022 exercised 1264638 lapsed 787946 790981 balance december 31 1993 4245513 18364163 41 bristolmyers squibb company notes consolidated financial statements millions dollars december 31 1993 exercisable options outstanding purchase 9921640 shares common stock prices ranging 1094 8731 per share shares common stock option exercised prices ranging 944 5613 1993 934 7638 1992 643 6550 1991 17644 warrants december 31 1993 acquire shares companys common stock exercise price 1883 per share expiring december 31 1994 december 31 1993 29372266 shares common stock reserved issuance pursuant stock plans options warrants conversions preferred stock attached outstanding share companys common stock one right rights exercisable person group acquires beneficial interest 15 companys outstanding common stock commences tender exchange offer 15 companys outstanding common stock right entitle stockholders buy one onethousandth share new series participating preferred stock company exercise price 200 rights expire december 18 1997 event certain merger sale assets selfdealing transactions right entitle holder acquire shares value twice rights exercise price company may redeem rights 01 per right time 15th day following public announcement 15 position acquired note 16 leases minimum rental commitments noncancellable operating leases primarily real estate effect december 31 1993 years ending december 31 1994 120 1995 100 1996 80 1997 65 1998 56 later years 322 total minimum payments 743 less total minimum sublease rentals 195 net minimum rental commitments 548 operating lease rental expense net sublease rental income 21 million 1993 20 million 1992 21 million 1991 142 million 1993 141 million 1992 142 million 1991 42 bristolmyers squibb company notes consolidated financial statements millions dollars note 17 segment information companys products reported four industry segments follows pharmaceutical products prescription medicines mainly cardiovascular drugs antiinfectives comprise forty percent twentyfive percent respectively segments sales anticancer central nervous system drugs diagnostic agents pharmaceutical products medical devices orthopaedic implants comprise forty percent segments sales ostomy wound care products surgical instruments medical devices nonprescription health products infant formulas nutritional products comprise sixtyfive percent segments sales analgesics coughcold remedies skin care products toiletries beauty aids haircoloring hair care preparations comprise sixtyfive percent segments sales deodorants antiperspirants beauty appliances unallocated expenses principally consist general administrative expenses net interest income 1992 include portion charge restructuring assets principally cash equivalents time deposits marketable securities interarea sales geographic area three years ended december 31 1993 1992 1991 respectively united states 918 million 915 million 807 million europe mideast africa 504 million 382 million 448 million western hemisphere 41 million 36 million 28 million pacific 43 million 26 million 30 million sales usually billed manufacturing costs net assets relating operations outside united states amounted approximately 1511 million 1369 million 1323 million december 31 1993 1992 1991 respectively 43 bristolmyers squibb company notes consolidated financial statements millions dollars industry segments net sales profit 1993 1992 1991 1993a 1992b 1991 pharmaceutical products 6524 6313 5908 2133 1584 1844 medical devices 1693 1665 1559 24 305 354 nonprescription health products 1964 1959 1901 463 268 435 toiletries beauty aids 1232 1219 1203 163 10 203 net sales operating profit 11413 11156 10571 2735 2167 2836 geographic areas net sales profit 1993 1992 1991 1993c 1992d 1991 united states 7645 7362 7172 1777 1467 2016 europe mideast africa 3062 3163 2905 591 534 641 western hemisphere 987 939 862 197 138 171 pacific 1225 1051 945 194 86 97 interarea eliminations 1506 1359 1313 24 58 89 net sales operating profit 11413 11156 10571 2735 2167 2836 unallocated expenses 164 180 52 earnings continuing operations income taxes 2571 1987 2784 1993 operating profit medical devices segment included special charge pending future product liability claims 500 million b 1992 operating profit companys industry segments included charge restructuring follows pharmaceutical products 371 million medical devices 155 million nonprescription health products 150 million toiletries beauty aids 150 million c 1993 operating profit united states included special charge pending future product liability claims 500 million 1992 earnings continuing operations income taxes included charge restructuring follows united states 595 million europe mideast africa 134 million western hemisphere 51 million pacific 46 million unallocated expenses 64 million 44 bristolmyers squibb company notes consolidated financial statements millions dollars industry segments yearend assets 1993 1992 1991 pharmaceutical products 4628 4622 4215 medical devices 2030 1063 1033 nonprescription health products 872 839 827 toiletries beauty aids 548 547 745 identifiable segment assets 8078 7071 6820 geographic areas yearend assets 1993 1992 1991 united states 5591 4587 4430 europe mideast africa 1708 1813 1858 western hemisphere 443 426 424 pacific 829 717 689 interarea eliminations 493 472 581 identifiable geographic assets 8078 7071 6820 assets 4023 3733 2596 total assets 12101 10804 9416 industry segments capital expenditures depreciation 1993 1992 1991 1993 1992 1991 pharmaceutical products 379 426 402 194 186 145 medical devices 55 84 81 35 34 30 nonprescription health products 81 70 54 34 28 30 toiletries beauty aids 23 34 37 24 28 26 identifiable industry totals 538 614 574 287 276 231 42 40 59 21 19 15 consolidated totals 580 654 633 308 295 246 45 bristolmyers squibb company notes consolidated financial statements millions dollars note 18 contingencies various lawsuits claims proceedings nature considered normal businesses pending company certain subsidiaries significant described december 31 1993 approximately 10000 plaintiffs filed suit company subsidiary medical engineering corporation certain subsidiaries federal state courts certain canadian provincial courts alleging damages personal injuries various types resulting polyurethane covered breast implants smooth walled breast implants certain cases class actions seek allege claims behalf breast implant recipients federal court actions consolidated pretrial proceedings federal district court birmingham alabama see note 2 relating special charge recorded connection litigation company defendant number actions brought pharmaceutical companies federal state courts children grandchildren women ingested diethylstilbestrol des product longer manufactured sold affiliate company defendant several state antitrust actions one removed federal court filed behalf purported classes individual purchasers infant formula products one state attorney general alleging conspiracy regarding pricing infant formula products violations state antitrust deceptive trade practice laws seeking treble damages statutory civil penalties injunctive relief six state attorneys general canadian bureau competitive policy commenced stated intention commence investigations pricing practices marketing activities infant formula industry company also defendant two federal court actions one filed state louisiana behalf indirect purchasers infant formula alleging conspiracy regarding pricing infant formula products seeking treble damages civil penalties injunctive relief filed nestle food company alleging anticompetitive practices violation federal state antitrust laws seeking treble damages civil penalties injunctive relief december 31 1993 company defendant major pharmaceutical manufacturers drug wholesalers 25 actions brought various federal courts retail pharmacies individually representatives purported class actions allege anticompetitive unfair practices pricing distribution pharmaceuticals violation federal state laws seek treble damages injunctive relief december 31 1993 company also codefendant four state court actions california brought retail pharmacies individually representatives purported class actions allege discrimination pricing pharmaceuticals violation california laws seek treble damages injunctive relief company defendant purported class action filed june 1992 46 bristolmyers squibb company notes consolidated financial statements millions dollars us district court southern district new york alleging violations federal securities laws regulations connection among things earnings projections company together others party otherwise involved number proceedings brought environmental protection agency comprehensive environmental response compensation liability act cercla superfund directed cleanup superfund sites possible predict certainty outcome cases opinion management lawsuits claims proceedings pending company without merit material adverse effect companys consolidated financial position 47 bristolmyers squibb company notes consolidated financial statements millions dollars note 19 supplementary income statement information year ended december 31 1993 1992 1991 maintenance repairs 117 115 117 advertising 401 440 491 product promotion 854 851 772 1255 1291 1263 royalties 143 144 127 48 bristolmyers squibb company notes consolidated financial statements millions dollars note 20 selected quarterly financial data unaudited first second third fourth quarter year 1993 net sales 2755 2802 2862 2994 11413 gross profit 2014 2085 2099 2186 8384 net earnings 575 521 608 255 1959 earnings per common share 111 101 118 50 380 1992 net sales 2641 2743 2948 2824 11156 gross profit 1983 2044 2180 2092 8299 earnings continuing operations b 534 475 572 43 1538 net earnings cd 302 488 589 583 1962 per common share continuing operations b 103 92 110 08 297 net earnings cd 59 94 114 113 379 included fourth quarter 1993 special charge 500 million taxes 310 million taxes 60 per share pending future product liability claims b included fourth quarter 1992 charge restructuring 890 million taxes 570 million taxes 110 per share c first quarter 1992 results earnings per share reflect cumulative effect adopting effective january 1 1992 new accounting standard postretirement benefits 390 million taxes 246 million taxes 47 per share included 1992 results drackett company 65 million taxes 12 per share year fourth quarter gain sale 605 million taxes 117 per share 49 report independent accountants board directors stockholders bristolmyers squibb company opinion consolidated financial statements listed index appearing item 14a1 2 page 52 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 1993 1992 1991 results operations cash flows years ended conformity generally accepted accounting principles financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits statements accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion expressed discussed note 14 financial statements effective january 1 1992 company adopted statement financial accounting standards 106 employers accounting postretirement benefits pensions price waterhouse 1177 avenue americas new york new york 10036 january 20 1994 50 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings dollars millions except per share amounts year ended december 31 1994 1993 1992 net sales 11984 11413 11156 expenses cost products sold 3122 3029 2857 marketing selling administrative 3166 3098 3075 advertising product promotion 1367 1255 1291 research development 1108 1128 1083 special charge 750 500 provision restructuring 890 84 168 27 9429 8842 9169 earnings continuing operations income taxes 2555 2571 1987 provision income taxes 713 612 449 earnings continuing operations 1842 1959 1538 discontinued operations net 670 earnings cumulative effect accounting change 1842 1959 2208 cumulative effect accounting change net income tax benefit 144 246 net earnings 1842 1959 1962 per common share earnings continuing operations 362 380 297 discontinued operations 129 earnings cumulative effect accounting change 362 380 426 cumulative effect accounting change 47 net earnings 362 380 379 average common shares outstanding millions 509 515 518 accompanying notes integral part financial statements bristolmyers squibb company consolidated statement retained earnings dollars millions year ended december 31 1994 1993 1992 retained earnings january 1 7243 6769 6235 net earnings 1842 1959 1962 9085 8728 8197 less dividends 1485 1428 retained earnings december 31 7600 7243 6769 accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet assets dollars millions december 31 1994 1993 1992 assets current assets cash equivalents 1642 2421 2137 time deposits marketable securities 781 308 248 receivables net allowances 2043 1859 1984 inventories 1397 1322 1490 prepaid expenses 847 660 762 total current assets 6710 6570 6621 property plant equipment 3666 3374 3141 insurance recoverable 968 1000 excess cost net tangible assets received business acquisitions 939 191 153 assets 627 966 889 12910 12101 10804 accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet liabilities stockholders equity dollars millions december 31 1994 1993 1992 liabilities current liabilities shortterm borrowings 725 177 375 accounts payable 693 649 562 accrued expenses 2116 1550 1422 us foreign income taxes payable 740 689 941 total current liabilities 4274 3065 3300 product liability 1201 1370 63 liabilities 1087 1138 1245 longterm debt 644 588 176 total liabilities 7206 6161 4784 stockholders equity preferred stock 2 convertible series authorized 10 million shares issued outstanding 21857 1994 25798 1993 28517 1992 liquidation value 50 per share common stock par value 10 per share authorized 15 billion shares issued 540173669 1994 532688458 1993 532673413 1992 54 53 capital excess par value stock 397 353 435 cumulative translation adjustments 301 332 208 retained earnings 7600 7243 6769 7750 7317 7049 less cost treasury stock 32887848 common shares 1994 20782281 1993 14689052 1992 2046 1377 1029 total stockholders equity 5704 5940 6020 12910 12101 10804 accompanying notes integral part financial statements bristolmyers squibb company consolidated statement cash flows dollars millions year ended december 31 1994 1993 1992 cash flows operating activities earnings continuing operations 1842 1959 1538 depreciation amortization 328 308 295 special charge 750 500 provision restructuring 890 operating items 18 49 50 receivables 63 41 125 inventories 36 129 163 prepaid expenses 27 63 14 accounts payable 20 134 75 accrued expenses 73 77 268 income taxes 8 197 213 product liability 384 93 2 liabilities 80 236 63 net cash provided operating activities 2301 2580 2028 cash flows investing activities proceeds sales time deposits marketable securities 35 993 169 purchases time deposits marketable securities 482 1049 269 additions fixed assets 573 570 647 proceeds sales businesses 285 98 1150 purchases businesses investments 667 63 4 net 22 6 31 net cash used provided investing activities 1424 597 430 cash flows financing activities shortterm borrowings 496 228 169 longterm debt 27 394 40 issuances common stock plans 24 38 37 purchases treasury stock 701 419 228 dividends paid 1485 1428 net cash used financing activities 1639 1700 1748 effect exchange rates cash 17 1 8 decrease increase cash equivalents 779 284 702 cash equivalents beginning year 2421 2137 1435 cash equivalents end year 1642 2421 2137 accompanying notes integral part financial statements bristolmyers squibb company notes consolidated financial statements dollars millions note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company subsidiaries cash equivalents cash equivalents primarily include securities maturity three months less time purchase recorded cost approximates market time deposits marketable securities time deposits marketable securities available sale recorded fair value approximates cost inventory valuation inventories generally stated average cost excess market property depreciation expenditures additions renewals betterments capitalized cost depreciation generally computed straightline method based estimated useful lives related assets range annual rates used computing provisions depreciation 2 20 buildings 5 33 equipment excess cost net tangible assets excess cost net tangible assets received business acquisitions subsequent october 31 1970 amortized straightline basis periods exceeding 40 years earnings per share earnings per common share computed using weighted average number shares outstanding year effect shares issuable stock plans significant note 2 special charge described note 18 company party settlement concerning pending future breast implant product liability claims related previously discontinued business subsidiary brought medical engineering corporation subsidiary certain subsidiaries fourth quarter 1993 company recorded special charge 500 million taxes 310 million taxes 60 per share charge consisted 15 billion anticipation share pending settlement costs litigation 14 billion recorded longterm liability product liability 100 million recorded current liability accrued expenses offset 1 billion expected insurance proceeds recorded insurance recoverable although company currently engaged coverage litigation certain insurers expected insurance proceeds represent amount insurance company considers appropriate record recoverable time company believes ultimately obtain substantial additional amounts insurance proceeds bristolmyers squibb company notes consolidated financial statements dollars millions various events occurred 1994 including number claimants opting settlement based upon preliminary analyses number opt outs issues fourth quarter 1994 company recorded special charge earnings 750 million taxes 488 million taxes 96 per share 320 million recorded current liability accrued expenses note 3 acquisitions divestitures august 1994 company acquired matrix essentials inc leading manufacturer north america professional hair care beauty products sold exclusively beauty salons connection acquisition company issued 7452818 shares common stock september 1994 company completed acquisition remaining ownership interest upsa group develops markets wide range nonprescription health pharmaceutical products including analgesics cardiovascular gastrointestinal specialties company held minority stake upsa since 1990 january 1995 company completed acquisition calgon vestal laboratories skin care infection control products business april 1994 company completed sale xomedtreace inc manufacturer specialty surgical products merocel corporation july 1994 company sold squibb diagnostics diagnostic contrast media radiopharmaceuticals businesses bracco spa company continue manufacturing certain diagnostic products including prohance isovue nuclear medicine products company also act braccos distributor canada 1993 company sold certain assets edward weck incorporated completed sale beauty appliance division clairol 1992 company completed sale drackett company household products business sc johnson son inc 115 billion cash sale resulted gain 952 million taxes 605 million taxes drackett reported discontinued operation 1992 prior years note 4 provision restructuring fourth quarter 1992 charge 890 million taxes recorded connection various restructuring actions taken company strengthen four core businesses recognition changing worldwide health care trends charge primarily covered costs reducing employment levels including voluntary retirement program companys us employees streamlining worldwide production distribution operations aftertax effect charge 570 million bristolmyers squibb company notes consolidated financial statements dollars millions note 5 foreign currency translation cumulative translation adjustments represent effect translating assets liabilities companys nonus entities except highly inflationary economies 1994 1993 1992 balance january 1 332 208 90 effect balance sheet translations amount 43 141 151 tax effect 12 17 33 balance december 31 301 332 208 included net earnings losses gains resulting foreign currency transactions translation adjustments related nonus entities operating highly inflationary economies 44 million 21 million 63 million 1994 1993 1992 respectively note 6 income expenses year ended december 31 1994 1993 1992 interest income 124 96 78 interest expense 68 57 49 net 28 129 2 84 168 27 interest expense reduced 15 million 1994 14 million 1993 13 million 1992 due interest capitalized major property plant equipment projects cash payments interest net amounts capitalized 62 million 51 million 46 million 1994 1993 1992 respectively bristolmyers squibb company notes consolidated financial statements dollars millions note 7 provision income taxes components earnings income taxes year ended december 31 1994 1993 1992 us 1328 1561 1248 nonus 1227 1010 739 2555 2571 1987 provision income taxes consisted year ended december 31 1994 1993 1992 current us federal 369 257 341 nonus 377 307 310 state local 54 42 60 800 606 711 deferred us 92 35 178 nonus 5 41 84 87 6 262 713 612 449 primarily resulted provision restructuring income taxes paid year 718 million 783 million 606 million 1994 1993 1992 respectively companys provision income taxes 1994 1993 1992 different amount computed applying statutory united states federal income tax rate earnings income taxes result following bristolmyers squibb company notes consolidated financial statements dollars millions earnings income taxes 1994 1993 1992 us statutory rate 350 340 tax exemptions operations puerto rico 73 101 87 state local taxes 14 11 2 nonus operations 19 2 18 7 20 11 279 238 226 prepaid taxes december 31 1994 1993 1992 591 million 377 million 405 million respectively deferred income tax asset included assets december 31 1994 1993 1992 65 million 230 million 160 million respectively components prepaid deferred income taxes consisted december 31 1994 1993 1992 product liability 304 183 30 postretirement pension benefits 247 275 144 restructuring integrating businesses 38 149 356 depreciation 205 198 166 272 198 201 656 607 565 company settled united states federal income tax returns 1989 internal revenue service united states federal income taxes provided substantially unremitted earnings nonus subsidiaries since managements practice intent reinvest earnings operations subsidiaries total amount net unremitted earnings nonus subsidiaries approximately 2004 million december 31 1994 note 8 inventories december 31 1994 1993 1992 finished goods 781 741 846 work process 233 239 272 raw packaging materials 383 342 372 1397 1322 1490 bristolmyers squibb company notes consolidated financial statements dollars millions note 9 property plant equipment december 31 1994 1993 1992 land 159 148 145 buildings 2103 1814 1741 machinery equipment fixtures 3061 2779 2763 construction progress 513 495 383 5836 5236 5032 less accumulated depreciation 2170 1862 1891 3666 3374 3141 note 10 accrued expenses liabilities components accrued expenses december 31 1994 1993 1992 product liability 635 100 medicaid rebates 207 173 98 restructuring integrating businesses 92 288 326 1182 989 998 2116 1550 1422 components liabilities december 31 1994 1993 1992 postretirement benefits 465 452 402 pension benefits 148 305 73 restructuring integrating businesses 82 460 474 299 310 1087 1138 1245 bristolmyers squibb company notes consolidated financial statements dollars millions note 11 shortterm borrowings longterm debt december 31 1994 shortterm borrowings included amounts due banks 438 million current installments longterm debt 21 million deferred payment 266 million december 31 1993 1992 shortterm borrowings included amounts due banks 163 million 314 million respectively current installments longterm debt 14 million 61 million respectively increase amounts due banks deferred payment 266 million december 31 1994 primarily resulted acquisition remaining ownership interest upsa weighted average interest rates companys shortterm borrowings 70 80 90 december 31 1994 1993 1992 respectively company shortterm lines credit domestic foreign banks december 31 1994 unused portions lines credit approximately 200 million 686 million respectively components longterm debt december 31 1994 1993 1992 715 debentures due 2023 343 50 term loan due 2000 71 64 618 term loan due 1997 65 60 53 term loan due 1996 60 55 49 575 industrial revenue bonds due 2024 34 6 38 6 12 notes due annually 1995 2004 27 30 due varying amounts 2008 44 36 44 644 588 176 longterm debt december 31 1994 payable years ending december 31 1996 75 1997 79 1998 9 1999 7 2000 76 2001 later 398 644 bristolmyers squibb company notes consolidated financial statements dollars millions note 12 financial instruments company enters foreign exchange option forward contracts manage exposure currency fluctuations company exposures net foreign currency denominated assets liabilities approximated 1117 million 1210 million 1081 million december 31 1994 1993 1992 respectively primarily deutsche marks french francs italian lira japanese yen company mitigates effect exposures third party borrowings foreign exchange forward contracts foreign exchange option contracts typically expire within one year used hedge intercompany shipments expected occur next year gains contracts deferred recognized period hedged transactions certain foreign exchange forward contracts used minimize exposure foreign currency transactions firm commitments fluctuating exchange rates gains losses contracts recognized basis transaction hedged notional amounts companys foreign exchange option forward contracts december 31 1994 1993 1992 1200 million 790 million 1454 million respectively company anticipate material adverse effect financial position resulting involvement instruments anticipate nonperformance counterparties december 31 1994 1993 1992 carrying value financial instruments short longterm approximated fair values note 13 retirement benefit plans company certain subsidiaries defined benefit pension plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan companys funding policy contribute amounts provide current service fund past service liability cost companys defined benefit plans included following components year ended december 31 1994 1993 1992 service cost benefits earned year 114 104 94 interest cost projected benefit obligation 166 152 144 actual losses earnings plan assets 11 232 119 net amortization deferral 158 54 73 net pension expense 133 78 46 bristolmyers squibb company notes consolidated financial statements dollars millions weighted average actuarial assumptions companys pension plans follows december 31 1994 1993 1992 discount rate 88 70 82 compensation increase 53 45 50 longterm rate return 100 110 120 funded status plans follows december 31 1994 1993 1992 actuarial present value accumulated benefit obligation vested 1624 1758 1354 nonvested 178 201 155 1802 1959 1509 total projected benefit obligation 2138 2339 1892 plan assets fair value 1836 1702 1681 plan assets less projected benefit obligation 302 637 211 unamortized net assets adoption 90 103 129 unrecognized prior service cost 89 96 105 unrecognized net losses 309 510 313 adjustment required recognize minimum pension liability 23 171 accrued prepaid pension expense 17 305 78 1994 decrease plan assets less projected benefit obligation adjustment required recognize minimum pension liability primarily due higher discount rate 1993 increase actuarial present value accumulated benefit obligation plan assets less projected benefit obligation primarily due lower discount rate effect voluntary retirement program offered companys us employees bristolmyers squibb company notes consolidated financial statements dollars millions 1994 adjustment required recognize minimum pension liability recorded assets 1993 112 million adjustment required recognize minimum pension liability recorded assets 59 million recorded reduction stockholders equity plan assets less projected benefit obligation included 120 million 113 million 73 million unfunded benefit equalization plan december 31 1994 1993 1992 respectively plan benefits primarily based years credited service participants compensation plan assets principally consist equity securities fixed income securities note 14 postretirement benefit plans pensions company provides comprehensive medical group life benefits substantially us retirees elect participate companys comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory effective january 1 1992 company adopted provisions statement financial accounting standards 106 employers accounting postretirement benefits pensions statement requires costs postretirement benefits primarily health care benefits accrued employees active working career prior years costs expensed paid company recorded discounted value expected future benefits attributed employees service rendered prior 1992 cumulative effect accounting change onetime noncash accounting change 390 million taxes 246 million taxes 47 per share cost companys postretirement benefit plans included following components year ended december 31 1994 1993 1992 service cost benefits earned year 9 8 interest cost accumulated postretirement benefit obligation 37 32 30 actual earnings plan assets 2 net amortization deferral 2 net postretirement benefit expense 44 38 bristolmyers squibb company notes consolidated financial statements dollars millions status plans follows december 31 1994 1993 1992 accumulated postretirement benefit obligation retirees 386 380 251 fully eligible active plan participants 13 17 27 active plan participants 118 124 131 517 521 409 plan assets fair value 41 28 7 accumulated postretirement benefit obligation excess plan assets 476 493 402 unrecognized prior service cost 1 unrecognized net losses 10 42 accrued postretirement benefit expense 465 452 402 1993 increase accumulated postretirement benefit obligation primarily due lower discount rate effect voluntary retirement program offered companys us employees measurement purposes annual rate increase per capita cost covered health care benefits 98 participants age 65 84 participants age 65 assumed 1995 rate assumed decrease gradually 60 2007 remain level thereafter increasing assumed medical care cost trend rates 1 percentage point year would increase accumulated postretirement benefit obligation december 31 1994 29 million aggregate service interest cost components net postretirement benefit expense year ended 2 million weightedaverage discount rate used determining accumulated postretirement benefit obligation 88 1994 70 1993 82 1992 plan assets principally consist equity securities fixed income securities expected longterm rate return plan assets 100 1994 110 1993 120 1992 bristolmyers squibb company notes consolidated financial statements dollars millions note 15 stockholders equity changes capital shares capital excess par value stock capital shares common stock excess par value issued treasury stock balance december 31 1991 532659944 13142575 485 issued pursuant stock plans options rights warrants 3052 1464223 50 conversions preferred stock 10417 purchases 3010700 balance december 31 1992 532673413 14689052 435 issued pursuant stock plans options rights warrants 3530 1183365 23 conversions preferred stock 11515 purchases 7276594 59 balance december 31 1993 532688458 20782281 353 issued pursuant stock plans options rights warrants 15747 518733 15 conversions preferred stock 16646 purchases 12624300 7452818 59 balance december 31 1994 540173669 32887848 397 share companys preferred stock convertible 424 shares common stock callable companys option reductions number issued shares preferred stock 1994 1993 1992 due conversions common stock dividends per common share 292 1994 288 1993 276 1992 companys stock option plans officers directors key employees may granted options purchase companys common stock 100 market price day option granted additionally plans provide granting stock appreciation rights whereby grantee may surrender exercisable options receive common stock andor cash measured excess market price common stock option exercise price bristolmyers squibb company notes consolidated financial statements dollars millions may 4 1993 stockholders approved amendments 1983 stock option plan extending term 10 years authorizing additional shares amount 09 outstanding shares per year additional 10 years incorporating companys existing longterm performance award plan providing payment longterm performance awards shares common stock valued 100 market price date payment companys restricted stock award plan provides granting 3000000 shares common stock key employees subject restrictions continuous employment except case death normal retirement restrictions generally expire fiveyear period date grant december 31 1994 total 565668 shares outstanding plan stock option longterm performance award transactions shares common stock available optionaward plan balance december 31 1991 7385732 14102731 granted 3593775 exercised 2258396 surrendered 7243 lapsed 467773 475107 balance december 31 1992 4259730 14955760 authorized 4661859 granted 5464022 exercised 1264638 lapsed 787946 790981 balance december 31 1993 4245513 18364163 authorized 4607156 granted 5296982 exercised 686507 lapsed 1012237 1027651 balance december 31 1994 4567924 21946987 december 31 1994 exercisable options outstanding purchase 12450900 shares common stock prices ranging 1645 8731 per share shares common stock option exercised prices ranging 1094 5656 1994 944 5613 1993 934 7638 1992 december 31 1994 33428296 shares common stock reserved issuance pursuant stock plans options conversions preferred stock bristolmyers squibb company notes consolidated financial statements dollars millions attached outstanding share companys common stock one right rights exercisable person group acquires beneficial interest 15 companys outstanding common stock commences tender exchange offer 15 companys outstanding common stock right entitle stockholders buy one onethousandth share new series participating preferred stock company exercise price 200 rights expire december 18 1997 event certain merger sale assets selfdealing transactions right entitle holder acquire shares value twice rights exercise price company may redeem rights 01 per right time 15th day following public announcement 15 position acquired note 16 leases minimum rental commitments noncancelable operating leases primarily real estate effect december 31 1994 years ending december 31 1995 122 1996 98 1997 76 1998 63 1999 50 later years 299 total minimum payments 708 less total minimum sublease rentals 198 net minimum rental commitments 510 operating lease rental expense net sublease rental income 23 million 1994 21 million 1993 20 million 1992 136 million 1994 142 million 1993 141 million 1992 note 17 segment information companys products reported four industry segments follows pharmaceutical products includes prescription medicines mainly cardiovascular antiinfective anticancer drugs comprise 40 25 20 respectively segments sales central nervous system drugs pharmaceutical products medical devices includes orthopaedic implants comprise 40 segments sales ostomy wound care products surgical instruments medical devices bristolmyers squibb company notes consolidated financial statements dollars millions nonprescription health products includes infant formulas nutritional products comprise 65 segments sales analgesics coughcold remedies skin care products toiletries beauty aids includes haircoloring hair care preparations comprise 75 segments sales 1994 65 1993 1992 deodorants antiperspirants toiletries beauty aids unallocated expenses principally consist general administrative expenses net interest income 1992 include portion charge restructuring assets principally cash equivalents time deposits marketable securities interarea sales geographic area years ended december 31 1994 1993 1992 respectively united states 867 million 859 million 915 million europe mideast africa 428 million 504 million 382 million western hemisphere 37 million 41 million 36 million pacific 28 million 43 million 26 million sales usually billed manufacturing costs net assets relating operations outside united states amounted 2286 million 1511 million 1369 million december 31 1994 1993 1992 respectively industry segments net sales profit 1994 1993 1992 1994a 1993a 1992b pharmaceutical products 6970 6524 6313 2270 2133 1584 medical devices 1685 1693 1665 253 24 305 nonprescription health products 2043 1964 1959 456 463 268 toiletries beauty aids 1286 1232 1219 168 163 10 net sales operating profit 11984 11413 11156 2641 2735 2167 geographic areas net sales profit 1994 1993 1992 1994a 1993a 1992c united states 7846 7586 7362 1610 1777 1467 europe mideast africa 3139 3062 3163 675 591 534 western hemisphere 1039 987 939 213 197 138 pacific 1320 1225 1051 179 194 86 interarea eliminations 1360 1447 1359 36 24 58 net sales operating profit 11984 11413 11156 2641 2735 2167 unallocated expenses 86 164 180 earnings income 2555 2571 1987 taxes bristolmyers squibb company notes consolidated financial statements dollars millions operating profit medical devices segment united states included special charge pending future product liability claims 750 million 1994 500 million 1993 b 1992 operating profit companys industry segments included charge restructuring follows pharmaceutical products 371 million medical devices 155 million nonprescription health products 150 million toiletries beauty aids 150 million c 1992 earnings income taxes included charge restructuring follows united states 595 million europe mideast africa 134 million western hemisphere 51 million pacific 46 million unallocated expenses 64 million industry segments yearend assets 1994 1993 1992 pharmaceutical products 5180 4628 4622 medical devices 2001 2030 1063 nonprescription health products 1635 872 839 toiletries beauty aids 663 548 547 identifiable segment assets 9479 8078 7071 geographic areas yearend assets 1994 1993 1992 united states 5637 5591 4587 europe mideast africa 2894 1708 1813 western hemisphere 416 443 426 pacific 949 829 717 interarea eliminations 417 493 472 identifiable geographic assets 9479 8078 7071 assets 3431 4023 3733 total assets 12910 12101 10804 bristolmyers squibb company notes consolidated financial statements dollars millions capital industry segments expenditures depreciation 1994 1993 1992 1994 1993 1992 pharmaceutical products 379 426 205 194 186 medical devices 37 55 84 38 35 34 nonprescription health products 112 81 70 38 34 28 toiletries beauty aids 26 23 34 23 24 28 identifiable industry totals 554 538 614 304 287 276 23 42 40 24 21 19 consolidated totals 577 580 654 328 308 295 note 18 contingencies various lawsuits claims proceedings nature considered normal businesses pending company certain subsidiaries significant described breast implant litigation december 31 1994 approximately 20000 plaintiffs filed suit company subsidiary medical engineering corporation mec certain subsidiaries federal state courts certain canadian provincial courts alleging damages personal injuries various types resulting polyurethane covered breast implants smooth walled breast implants plaintiffs participants class action settlement approved federal district court birmingham alabama settlement subject appeals chosen opt settlement company estimates approximately 3000 united states claimants may assert claims based upon mec implants settlement company would make payments totaling 1154 billion period 30 years note 2 sets forth special charges recorded connection litigation value approved current disease claims settlement exceeds certain limits payments claimants would reduced claimants would another opportunity opt settlement occur company defendants could renegotiate terms settlement withdraw company unable predict events may occur based information available time seem likely late 1995 dependent future developments company would record additional charge may required amount charge cannot estimated actions company defendant number actions brought pharmaceutical companies federal state courts children grandchildren women ingested diethylstilbestrol des product longer manufactured sold affiliate company bristolmyers squibb company notes consolidated financial statements dollars millions company defendant several state antitrust actions removed federal court filed behalf purported classes individual purchasers infant formula products three state attorneys general alleging conspiracy regarding pricing infant formula products violations state antitrust deceptive trade practice laws seeking treble damages statutory civil penalties injunctive relief five state attorneys general commenced civil investigations pricing practices marketing activities infant formula industry canadian bureau competition policy commenced civil criminal investigation canadian infant formula market company also defendant one federal court action filed state louisiana behalf indirect purchasers infant formula alleging conspiracy regarding pricing infant formula products seeking treble damages civil penalties injunctive relief december 31 1994 company defendant 60 separate actions commenced company pharmaceutical manufacturers wholesalers others various federal district courts behalf certain chain pharmacies supermarket chains independent drug stores plaintiffs actions brought drug retailers either individual basis representatives nationwide classes retail pharmacies cases seek treble damages yet unspecified amount injunctive relief account alleged antitrust violations pricing marketing brandname prescription drugs class retail pharmacists certified multidistrict litigation individual claims coordinated purposes pretrial proceedings state court cases brought state law alleging similar grounds proceeding california alabama wisconsin generally actions less advanced coordinated federal cases company entered settlement class action filed united states district court southern district new york alleging violations federal securities laws regulations connection among things earnings projections settlement subject approval court company together others party otherwise involved number proceedings brought environmental protection agency comparable state agencies comprehensive environmental response compensation liability act cercla superfund comparable state laws directed cleanup hazardous waste sites possible predict certainty outcome cases opinion management lawsuits claims proceedings pending company without merit material adverse effect companys operating results liquidity consolidated financial position bristolmyers squibb company notes consolidated financial statements dollars millions except per share amounts note 19 selected quarterly financial data unaudited first second third fourth quarter year 1994 net sales 2834 2970 2932 3248 11984 gross profit 2089 2228 2172 2373 8862 net earnings 581 542 621 98 1842 earnings per common share 114 107 122 19 362 1993 net sales 2755 2802 2862 2994 11413 gross profit 2014 2085 2099 2186 8384 net earnings 575 521 608 255 1959 earnings per common share 111 101 118 50 380 fourth quarter annual results included special charge 750 million 488 million taxes 96 per share 1994 500 million 310 million taxes 60 per share 1993 pending future product liability claims report independent accountants board directors stockholders bristolmyers squibb company opinion consolidated financial statements listed index appearing item 14a1 2 page 52 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 1994 1993 1992 results operations cash flows years ended conformity generally accepted accounting principles financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits statements accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion expressed discussed note 14 financial statements effective january 1 1992 company adopted statement financial accounting standards 106 employers accounting postretirement benefits pensions price waterhouse llp 1177 avenue americas new york new york 10036 january 19 1995 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings dollars millions except per share amounts year ended december 31 1995 1994 1993 net sales 13767 11984 11413 expenses cost products sold 3637 3122 3029 marketing selling administrative 3670 3166 3098 advertising product promotion 1646 1367 1255 research development 1199 1108 1128 special charge 950 750 500 provision restructuring 310 47 84 168 11365 9429 8842 earnings income taxes 2402 2555 2571 provision income taxes 590 713 612 net earnings 1812 1842 1959 earnings per common share 358 362 380 average common shares outstanding millions 506 509 515 year ended december 31 1995 1994 1993 retained earnings january 1 7600 7243 6769 net earnings 1812 1842 1959 9412 9085 8728 less dividends 1495 1485 retained earnings december 31 7917 7600 7243 accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet assets dollars millions december 31 1995 1994 1993 assets current assets cash equivalents 1645 1642 2421 time deposits marketable securities 533 781 308 receivables net allowances 2356 2043 1859 inventories 1451 1397 1322 prepaid expenses 1033 847 660 total current assets 7018 6710 6570 property plant equipment 3760 3666 3374 insurance recoverable 959 968 1000 excess cost net tangible assets received business acquisitions 1219 939 191 assets 973 627 966 13929 12910 12101 accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet liabilities stockholders equity dollars millions december 31 1995 1994 1993 liabilities current liabilities shortterm borrowings 575 725 177 accounts payable 848 693 649 accrued expenses 1939 1481 1450 us foreign income taxes payable 744 740 689 product liability 700 635 100 total current liabilities 4806 4274 3065 product liability 1645 1201 1370 liabilities 1021 1087 1138 longterm debt 635 644 588 total liabilities 8107 7206 6161 stockholders equity preferred stock 2 convertible series authorized 10 million shares issued outstanding 19023 1995 21857 1994 25798 1993 liquidation value 50 per share common stock par value 10 per share authorized 15 billion shares issued 540185639 1995 540173669 1994 532688458 1993 54 53 capital excess par value stock 375 397 353 cumulative translation adjustments 327 301 332 retained earnings 7917 7600 7243 8019 7750 7317 less cost treasury stock 34953311 common shares 1995 32887848 1994 20782281 1993 2197 2046 1377 total stockholders equity 5822 5704 5940 13929 12910 12101 accompanying notes integral part financial statements bristolmyers squibb company consolidated statement cash flows dollars millions year ended december 31 1995 1994 1993 cash flows operating activities net earnings 1812 1842 1959 depreciation amortization 448 328 308 special charge 950 750 500 provision restructuring 310 operating items 34 18 49 receivables 319 63 41 inventories 50 36 129 accounts payable 155 20 134 accrued expenses 166 73 77 income taxes 252 8 197 product liability 441 384 93 assets liabilities 246 53 173 net cash provided operating activities 2499 2301 2580 cash flows investing activities proceeds sales time deposits marketable securities 349 35 993 purchases time deposits marketable securities 80 482 1049 additions fixed assets 513 573 570 proceeds sales businesses 285 98 business acquisitions 350 667 63 net 37 22 6 net cash used investing activities 631 1424 597 cash flows financing activities shortterm borrowings 181 496 228 longterm debt 10 27 394 issuances common stock plans 71 24 38 purchases treasury stock 244 701 419 dividends paid 1495 1485 net cash used financing activities 1859 1639 1700 effect exchange rates cash 6 17 1 increase decrease cash equivalents 3 779 284 cash equivalents beginning year 1642 2421 2137 cash equivalents end year 1645 1642 2421 accompanying notes integral part financial statements bristolmyers squibb company notes consolidated financial statements dollars millions note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company subsidiaries cash equivalents cash equivalents primarily include securities maturity three months less time purchase recorded cost approximates market time deposits marketable securities time deposits marketable securities available sale recorded fair value approximates cost inventory valuation inventories generally stated average cost excess market property depreciation expenditures additions renewals betterments capitalized cost depreciation generally computed straightline method based estimated useful lives related assets range annual rates used computing provisions depreciation 2 20 buildings 5 33 equipment excess cost net tangible assets excess cost net tangible assets received business acquisitions subsequent october 31 1970 amortized straightline basis periods exceeding 40 years earnings per share earnings per common share computed using weighted average number shares outstanding year effect shares issuable stock plans significant note 2 special charge described note 17 company party revised settlement concerning pending future breast implant product liability claims related previously discontinued business subsidiary brought medical engineering corporation subsidiary certain subsidiaries fourth quarter 1993 company recorded special charge 500 million taxes 310 million taxes 60 per share charge consisted 15 billion anticipation share pending settlement cost litigation recorded product liability offset 10 billion expected insurance proceeds recorded insurance recoverable although company currently engaged coverage litigation certain insurers expected insurance proceeds represent amount insurance company considers appropriate record recoverable time bristolmyers squibb company notes consolidated financial statements dollars millions various events occurred 1994 including number claimants opting settlement based upon preliminary analyses number opt outs issues fourth quarter 1994 company recorded special charge earnings 750 million taxes 488 million taxes 96 per share fourth quarter 1995 company certain defendants entered revised settlement breast implant product liability litigation actual cost company breast implant litigation may dependant upon number factors become known time including number class members participate revised settlement kinds claims approved dollar value thereof disposition claims nonparticipants however based current estimates company recorded charge earnings respect breast implant litigation 950 million taxes 590 million taxes 117 per share note 3 acquisitions divestitures january 1996 company acquired control pharmavit gyogyszeres elelmiszeripari reszvenytarsasag one hungarys leading manufacturers overthecounter medicines nutritional products generic pharmaceuticals september 1995 company acquired gea farmaceutisk fabrik leading manufacturer marketer branded generic pharmaceuticals scandinavian market january 1995 company completed acquisition calgon vestal laboratories wound skin care infection control products business 1994 company acquired matrix essentials inc leading manufacturer north america professional hair care beauty products sold exclusively beauty salons completed acquisition remaining interest upsa group develops markets wide range nonprescription health pharmaceutical products company sold squibb diagnostics completed sale xomedtreace inc note 4 restructuring company recorded 310 million restructuring charge 198 million taxes fourth quarter 1995 restructuring charge relates consolidation plants facilities related employee terminations restructuring charge consists employeerelated costs 190 million 100 million asset writedowns 20 million related expenses bristolmyers squibb company notes consolidated financial statements dollars millions note 5 foreign currency translation cumulative translation adjustments represent effect translating assets liabilities companys nonus entities except highly inflationary economies 1995 1994 1993 balance january 1 301 332 208 effect balance sheet translations amount 21 43 141 tax effect 5 12 17 balance december 31 327 301 332 included net earnings losses 33 million 1995 44 million 1994 gain 21 million 1993 resulting foreign currency transactions translation adjustments note 6 income expenses year ended december 31 1995 1994 1993 interest income 139 124 96 interest expense 97 68 57 net 5 28 129 47 84 168 interest expense reduced 15 million 1995 15 million 1994 14 million 1993 due interest capitalized major property plant equipment projects cash payments interest net amounts capitalized 78 million 62 million 51 million 1995 1994 1993 respectively bristolmyers squibb company notes consolidated financial statements dollars millions note 7 provision income taxes components earnings income taxes year ended december 31 1995 1994 1993 us 1195 1328 1561 nonus 1207 1227 1010 2402 2555 2571 provision income taxes consisted year ended december 31 1995 1994 1993 current us 466 423 299 nonus 356 377 307 822 800 606 deferred us 200 92 35 nonus 32 5 41 232 87 6 590 713 612 income taxes paid year 856 million 718 million 783 million 1995 1994 1993 respectively companys provision income taxes 1995 1994 1993 different amount computed applying statutory united states federal income tax rate earnings income taxes result following bristolmyers squibb company notes consolidated financial statements dollars millions earnings income taxes 1995 1994 1993 us statutory rate 350 effect operations puerto rico ireland 97 94 115 state local taxes 8 14 11 15 9 8 246 279 238 prepaid taxes december 31 1995 1994 1993 786 million 591 million 377 million respectively deferred income tax asset included assets december 31 1995 1994 1993 130 million 65 million 230 million respectively components prepaid deferred income taxes consisted december 31 1995 1994 1993 product liability 527 304 183 postretirement pension benefits 163 247 275 restructuring integrating businesses 130 38 149 depreciation 210 205 198 306 272 198 916 656 607 company settled united states federal income tax returns 1989 internal revenue service united states federal income taxes provided substantially unremitted earnings nonus subsidiaries since managements practice intent reinvest earnings operations subsidiaries total amount net unremitted earnings nonus subsidiaries approximately 2254 million december 31 1995 note 8 inventories december 31 1995 1994 1993 finished goods 892 781 741 work process 180 233 239 raw packaging materials 379 383 342 1451 1397 1322 bristolmyers squibb company notes consolidated financial statements dollars millions note 9 property plant equipment december 31 1995 1994 1993 land 160 159 148 buildings 2296 2103 1814 machinery equipment fixtures 3403 3061 2779 construction progress 405 513 495 6264 5836 5236 less accumulated depreciation 2504 2170 1862 3760 3666 3374 note 10 shortterm borrowings longterm debt shortterm borrowings included amounts due banks 558 million 438 million 163 million december 31 1995 1994 1993 respectively current installments longterm debt 17 million 21 million 14 million december 31 1995 1994 1993 respectively december 31 1994 shortterm borrowings included deferred payment 266 million primarily resulting acquisition remaining ownership interest upsa group company shortterm lines credit domestic foreign banks december 31 1995 unused portions lines credit approximately 200 million 597 million respectively components longterm debt december 31 1995 1994 1993 715 debentures due 2023 343 50 term loan due 2000 69 71 64 618 term loan due 1997 64 65 60 351 term loan due 2005 59 575 industrial revenue bonds due 2024 34 6 38 6 12 notes due annually 1995 2004 24 27 30 53 term loan paid 1995 60 55 due varying amounts 2016 42 44 36 635 644 588 bristolmyers squibb company notes consolidated financial statements dollars millions longterm debt december 31 1995 payable years ending december 31 1997 81 1998 11 1999 9 2000 74 2001 5 2002 later 455 635 note 11 financial instruments company enters foreign exchange option forward contracts manage exposure currency fluctuations company exposures net foreign currency denominated assets liabilities approximated 1385 million 1117 million 1210 million december 31 1995 1994 1993 respectively primarily deutsche marks french francs italian lira japanese yen company mitigates effect exposures third party borrowings foreign exchange forward contracts foreign exchange option contracts typically expire within one year used hedge intercompany shipments expected occur next year gains contracts deferred recognized period hedged transactions certain foreign exchange forward contracts used minimize exposure foreign currency transactions firm commitments fluctuating exchange rates gains losses contracts recognized basis transaction hedged notional amounts companys foreign exchange option forward contracts december 31 1995 1994 1993 1377 million 1200 million 790 million respectively company anticipate material adverse effect financial position resulting involvement instruments anticipate nonperformance counterparties december 31 1995 1994 1993 carrying value financial instruments short longterm approximated fair values bristolmyers squibb company notes consolidated financial statements dollars millions note 12 retirement benefit plans company certain subsidiaries defined benefit pension plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan companys funding policy contribute amounts provide current service fund past service liability cost companys defined benefit plans included following components year ended december 31 1995 1994 1993 service cost benefits earned year 101 114 104 interest cost projected benefit obligation 183 166 152 actual earnings losses plan assets 406 11 232 net amortization deferral 213 158 54 net pension expense 91 133 78 weighted average actuarial assumptions companys pension plans follows december 31 1995 1994 1993 discount rate 73 88 70 compensation increase 45 53 45 longterm rate return 100 110 bristolmyers squibb company notes consolidated financial statements dollars millions funded status plans follows december 31 1995 1994 1993 actuarial present value accumulated benefit obligation vested 2059 1624 1758 nonvested 217 178 201 2276 1802 1959 total projected benefit obligation 2689 2138 2339 plan assets fair value 2307 1836 1702 plan assets less projected benefit obligation 382 302 637 unamortized net assets adoption 76 90 103 unrecognized prior service cost 78 89 96 unrecognized net losses 516 309 510 adjustment required recognize minimum pension liability 48 23 171 prepaid accrued pension expense 88 17 305 1995 increase total projected benefit obligation due lower discount rate increase plan assets due significantly higher earnings cash contributions 1994 decrease plan assets less projected benefit obligation adjustment required recognize minimum pension liability primarily due higher discount rate 1995 1994 adjustment required recognize minimum pension liability recorded assets 1993 112 million adjustment required recognize minimum pension liability recorded assets 59 million recorded reduction stockholders equity plan assets less projected benefit obligation included 150 million 120 million 113 million unfunded benefit equalization plan december 31 1995 1994 1993 respectively plan benefits primarily based years credited service participants compensation plan assets principally consist equity securities fixed income securities bristolmyers squibb company notes consolidated financial statements dollars millions note 13 stockholders equity changes capital shares capital excess par value stock capital shares common stock excess par value issued treasury stock balance december 31 1992 532673413 14689052 435 issued pursuant stock plans options rights warrants 3530 1183365 23 conversions preferred stock 11515 purchases 7276594 59 balance december 31 1993 532688458 20782281 353 issued pursuant stock plans options rights warrants 15747 518733 15 conversions preferred stock 16646 purchases 12624300 7452818 59 balance december 31 1994 540173669 32887848 397 issued pursuant stock plans options rights 1602537 22 conversions preferred stock 11970 purchases 3668000 balance december 31 1995 540185639 34953311 375 share companys preferred stock convertible 424 shares common stock callable companys option reductions number issued shares preferred stock 1995 1994 1993 due conversions shares common stock dividends per common share 296 1995 292 1994 288 1993 stock compensation plans companys stock option plans officers directors key employees may granted options purchase companys common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term ten years additionally plans provide granting stock appreciation rights whereby grantee may surrender exercisable options receive common stock andor cash measured excess market price common stock option exercise price plans also provide granting performancebased stock options certain key executives bristolmyers squibb company notes consolidated financial statements dollars millions may 4 1993 stockholders approved amendments 1983 stock option plan extending term 10 years authorizing additional shares amount 09 outstanding shares per year additional 10 years incorporating companys existing longterm performance award plan providing payment longterm performance awards shares common stock teamshare stock option plan fulltime employees excluding key executives meeting certain years service requirements granted options purchase companys common stock market price date options granted company authorized 15000000 shares issuance plan total 7673600 options granted 1995 plan 200 options granted eligible employee individual grants generally become exercisable third anniversary grant date companys restricted stock award plan provides granting 3000000 shares common stock key employees subject restrictions continuous employment except case death normal retirement restrictions generally expire fiveyear period date grant compensation expense recognized restricted period december 31 1995 total 653335 shares outstanding plan company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting plans accordingly compensation expense recognized stockbased compensation plans restricted stock performancebased awards compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 35 million 07 per share fair value options granted 1995 estimated 1294 date grant using blackscholes optionpricing model following assumptions dividend yield 42 volatility 182 riskfree interest rate 69 assumed forfeiture rate 3 expected life 7 years bristolmyers squibb company notes consolidated financial statements dollars millions stock option longterm performance award transactions weighted average shares common stock exercise price available shares optionaward plan balance december 31 1992 4259730 14955760 6157 authorized 4661859 granted 5464022 5658 exercised 1264638 3265 lapsed 787946 790981 7052 balance december 31 1993 4245513 18364163 6080 authorized 4607156 granted 5296982 5193 exercised 686507 3297 lapsed 1012237 1027651 6248 balance december 31 1994 4567924 21946987 5699 authorized 19565572 granted 13449952 6179 exercised 2012827 4096 lapsed 1129560 1129574 6192 balance december 31 1995 11813104 32254538 5976 following table summarizes information concerning currently outstanding exercisable options outstanding options exercisable weighted average weighted remaining average range number contractual exercise number exercise prices outstanding life price exercisable price 20 40 782226 193 2834 782226 2834 40 50 1103858 268 4344 1103858 4344 50 60 11811741 622 5364 7370348 5382 60 70 12928294 915 6211 80325 6437 70 90 5628419 580 7723 4897199 7731 32254538 14233956 december 31 1995 51379361 shares common stock reserved issuance pursuant stock plans options conversions preferred stock bristolmyers squibb company notes consolidated financial statements dollars millions attached outstanding share companys common stock one right rights exercisable person group acquires beneficial interest 15 companys outstanding common stock commences tender exchange offer 15 companys outstanding common stock right entitle stockholders buy one onethousandth share new series participating preferred stock company exercise price 200 rights expire december 18 1997 event certain merger sale assets selfdealing transactions right entitle holder acquire shares value twice rights exercise price company may redeem rights 01 per right time 15th day following public announcement 15 position acquired note 14 leases minimum rental commitments noncancelable operating leases primarily real estate effect december 31 1995 years ending december 31 1996 118 1997 99 1998 85 1999 72 2000 66 later years 282 total minimum payments 722 less total minimum sublease rentals 169 net minimum rental commitments 553 operating lease rental expense net sublease rental income 25 million 1995 23 million 1994 21 million 1993 135 million 1995 136 million 1994 142 million 1993 note 15 postretirement benefit plans pensions company provides comprehensive medical group life benefits substantially us retirees elect participate companys comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory bristolmyers squibb company notes consolidated financial statements dollars millions cost companys postretirement benefit plans included following components year ended december 31 1995 1994 1993 service cost benefits earned year 8 9 8 interest cost accumulated postretirement benefit obligation 41 37 32 actual earnings plan assets 11 2 net amortization deferral 7 2 net postretirement benefit expense 45 44 38 status plans follows december 31 1995 1994 1993 accumulated postretirement benefit obligation retirees 403 386 380 fully eligible active plan participants 17 13 17 active plan participants 159 118 124 579 517 521 plan assets fair value 74 41 28 accumulated postretirement benefit obligation excess plan assets 505 476 493 unrecognized prior service cost 3 1 unrecognized net losses 38 10 42 accrued postretirement benefit expense 464 465 452 measurement purposes annual rate increase per capita cost covered health care benefits 91 participants age 65 79 participants age 65 assumed 1996 rate assumed decrease gradually 48 2007 remain level thereafter increasing assumed medical care cost trend rates 1 percentage point year would increase accumulated postretirement benefit obligation december 31 1995 29 million aggregate service interest cost components net postretirement benefit expense year ended 2 million weightedaverage discount rate used determining accumulated postretirement benefit obligation 73 1995 88 1994 70 1993 plan assets principally consist equity securities fixed income securities expected longterm rate return plan assets 100 1995 1994 110 1993 bristolmyers squibb company notes consolidated financial statements dollars millions note 16 segment information companys products reported four industry segments follows pharmaceutical products includes prescription medicines mainly cardiovascular antiinfective anticancer drugs comprise 40 20 respectively segments sales central nervous system drugs pharmaceutical products medical devices includes orthopaedic implants comprise 40 segments sales ostomy wound care products surgical instruments medical devices nonprescription health products includes infant formulas nutritional products comprise 65 segments sales analgesics coughcold remedies skin care products toiletries beauty aids includes haircoloring hair care preparations comprise 75 segments sales 1995 1994 65 1993 deodorants antiperspirants toiletries beauty aids unallocated expenses principally consist general administrative expenses net interest income assets principally cash equivalents time deposits marketable securities interarea sales geographic area years ended december 31 1995 1994 1993 respectively united states 977 million 867 million 859 million europe mideast africa 542 million 428 million 504 million western hemisphere 49 million 37 million 41 million pacific 21 million 28 million 43 million sales usually billed manufacturing costs net assets relating operations outside united states amounted 2609 million 2286 million 1511 million december 31 1995 1994 1993 respectively bristolmyers squibb company notes consolidated financial statements dollars millions industry segments net sales profita 1995 1994 1993 1995 1994 1993 pharmaceutical products 7810 6970 6524 2300 2270 2133 medical devices 1906 1685 1693 493 497 476 nonprescription health products 2495 2043 1964 454 456 463 toiletries beauty aids 1556 1286 1232 128 168 163 net sales operating profit 13767 11984 11413 3375 3391 3235 geographic areas net sales profitb 1995 1994 1993 1995 1994 1993 united states 8662 7846 7586 2299 2360 2277 europe mideast africa 4074 3139 3062 833 675 591 western hemisphere 1097 1039 987 152 213 197 pacific 1523 1320 1225 147 179 194 interarea eliminations 1589 1360 1447 56 36 24 net sales operating profit 13767 11984 11413 3375 3391 3235 unallocated expensesc 973 836 664 earnings income taxes 2402 2555 2571 1995 operating profit companys industry segments included provision restructuring follows pharmaceutical products 252 million medical devices 22 million nonprescription health products 6 million toiletries beauty aids 30 million b earnings income taxes included 1995 provision restructuring follows united states 66 million europe mideast africa 211 million western hemisphere 15 million pacific 18 million c unallocated expenses included special charge pending future product liability claims 950 million 750 million 500 million 1995 1994 1993 respectively bristolmyers squibb company notes consolidated financial statements dollars millions industry segments yearend assets 1995 1994 1993 pharmaceutical products 5497 5180 4628 medical devices 1414 1033 1030 nonprescription health products 1800 1635 872 toiletries beauty aids 669 663 548 identifiable segment assets 9380 8511 7078 geographic areas yearend assets 1995 1994 1993 united states 5254 4669 4591 europe mideast africa 3157 2894 1708 western hemisphere 462 416 443 pacific 1032 949 829 interarea eliminations 525 417 493 identifiable geographic assets 9380 8511 7078 assetsd 4549 4399 5023 total assets 13929 12910 12101 capital industry segments expenditures depreciation 1995 1994 1993 1995 1994 1993 pharmaceutical products 327 379 218 205 194 medical devices 56 37 55 52 38 35 nonprescription health products 78 112 81 46 38 34 toiletries beauty aids 33 26 23 26 23 24 identifiable industry totals 494 554 538 342 304 287 23 42 23 24 21 consolidated totals 517 577 580 365 328 308 assets included insurance recoverable related 1993 special charge 959 million 968 million 1000 million 1995 1994 1993 respectively bristolmyers squibb company notes consolidated financial statements dollars millions note 17 contingencies various lawsuits claims proceedings nature considered normal businesses pending company certain subsidiaries significant described breast implant litigation december 31 1995 approximately 20000 plaintiffs filed suit company subsidiary medical engineering corporation mec certain subsidiaries federal state courts certain canadian provincial courts alleging damages personal injuries various types resulting polyurethane covered breast implants smooth walled breast implants plaintiffs participants 1994 class action settlement approved federal district court birmingham alabama settlement subject appeals revision settlement known revised settlement includes company mec certain defendants approved december 22 1995 order approving settlement appealed revised settlement applicable domestic claimants currently include approximately 2600 claimants may assert claims based upon mec implants opted original settlement separate class action settlements eligible claimants approved provincial courts quebec ontario january 1996 notice revised settlement mailed approximately 450000 persons class members wish may opt revised settlement although court cautioned class members receive additional information status claims possible reliable basis estimate many class members participate opt settlement cost settlement dependent upon complex varying factors including number class members participate settlement kinds claims approved dollar value cost company resolving opt claims also subject number complex uncertainties addition unknown quantity quality claims light uncertainties attendant factors difficult time estimate precision cost breast implant product liability claims company note 2 sets forth special charges recorded connection litigation additional charge earnings may required additional information relating revised settlement litigation becomes known actions company one subsidiaries others defendants number antitrust actions various states filed behalf purported statewide classes indirect purchasers infant formula products attorneys general louisiana minnesota mississippi alleging price fixing conspiracy violations state antitrust deceptive trade practice laws seeking penalties relief december 6 1995 trial state court wichita kansas company abbott laboratories defendants concluded jury verdict favor bristolmyers squibb company notes consolidated financial statements dollars millions defendants first infant formula indirect purchaser case go trial courts colorado florida kentucky nevada north carolina tennessee dismissed similar complaints plaintiffs expected appeal dismissals june 29 1995 texas supreme court handed decision companys favor holding plaintiffs indirect purchasers barred proceeding texas deceptive trade practicesconsumer protection act company subsequently settled separate action brought texas attorney general motions certify classes indirect purchasers infant formula denied minnesota michigan two courts alabama granted courts wisconsin south dakota december 31 1995 company defendant 100 actions brought company 30 pharmaceutical manufacturers drug wholesalers pharmacy benefit managers various federal district courts certain chain drugstores supermarket chains independent drugstores suing either individually representatives nationwide class retail pharmacies certified cases coordinated pretrial purposes seek treble damages injunctive relief account alleged antitrust violations pricing marketing brand name prescription drugs none plaintiffs specified amount damages claimed plaintiffs class action indicated intend claim damages trebling ranging 5 approximately 20 value purchases brand name prescription drugs defendants since october 15 1989 estimated class represents approximately twothirds retail pharmacy purchases brand name prescription drugs alleged damages period class action case scheduled go trial april 11 1996 company without admitting wrongdoing reached agreement january 31 1996 settle class action settlement subject approval court federal cases brought retail pharmacies opted class remain pending cases brought retail pharmacies state court state law alleging similar grounds proceeding california alabama wisconsin minnesota cases brought consumers state court state law alleging similar grounds brought california washington colorado new york arizona maine alabama michigan company together others party otherwise involved number proceedings brought environmental protection agency comparable state agencies comprehensive environmental response compensation liability act cercla superfund comparable state laws directed cleanup hazardous waste sites possible predict certainty outcome cases opinion management lawsuits claims proceedings pending company without merit material adverse effect companys operating results liquidity consolidated financial position bristolmyers squibb company notes consolidated financial statements dollars millions except per share amounts note 18 selected quarterly financial data unaudited first second third fourth quarter year 1995 net sales 3301 3445 3413 3608 13767 gross profit 2424 2536 2483 2687 10130 net earningsloss 657 608 689 142 1812 earningsloss per common share 129 120 136 28 358 1994 net sales 2834 2970 2932 3248 11984 gross profit 2089 2228 2172 2373 8862 net earnings 581 542 621 98 1842 earnings per common share 114 107 122 19 362 1995 fourth quarter annual results included charge 950 million 590 million taxes 117 per share pending future product liability claims provision restructuring 310 million 198 million taxes 1994 fourth quarter annual results included charge 750 million 488 million taxes 96 per share pending future product liability claims report independent accountants board directors stockholders bristolmyers squibb company opinion accompanying consolidated balance sheet related consolidated statements earnings retained earnings cash flows present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 1995 1994 1993 results operations cash flows years ended conformity generally accepted accounting principles financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits statements accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion expressed price waterhouse llp 1177 avenue americas new york new york 10036 january 23 1996 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings retained earnings dollars millions except per share amounts year ended december 31 earnings 1996 1995 1994 net sales 15065 13767 11984 expenses cost products sold 3965 3637 3122 marketing selling administrative 3925 3670 3166 advertising product promotion 1946 1646 1367 research development 1276 1199 1108 special charge 950 750 provision restructuring 310 60 47 84 11052 11365 9429 earnings income taxes 4013 2402 2555 provision income taxes 1163 590 713 net earnings 2850 1812 1842 earnings per common share 284 179 181 average common shares outstanding millions 1004 1012 1017 year ended december 31 retained earnings 1996 1995 1994 retained earnings january 1 7917 7600 7243 net earnings 2850 1812 1842 10767 9412 9085 less dividends 1507 1495 1485 retained earnings december 31 9260 7917 7600 accompanying notes integral part financial statements 28 bristolmyers squibb company consolidated balance sheet assets dollars millions december 31 1996 1995 1994 assets current assets cash equivalents 1681 1645 1642 time deposits marketable securities 504 533 781 receivables net allowances 2651 2356 2043 inventories 1669 1451 1397 prepaid expenses 1023 1033 847 total current assets 7528 7018 6710 property plant equipment 3964 3760 3666 insurance recoverable 853 959 968 excess cost net tangible assets received business acquisitions 1508 1219 939 assets 832 973 627 14685 13929 12910 accompanying notes integral part financial statements 29 bristolmyers squibb company consolidated balance sheet liabilities stockholders equity dollars millions december 31 1996 1995 1994 liabilities current liabilities shortterm borrowings 513 575 725 accounts payable 1064 848 693 accrued expenses 1962 1939 1481 product liability 800 700 635 us foreign income taxes payable 711 744 740 total current liabilities 5050 4806 4274 product liability 1031 1645 1201 liabilities 1068 1021 1087 longterm debt 966 635 644 total liabilities 8115 8107 7206 stockholders equity preferred stock 2 convertible series authorized 10 million shares issued outstanding 15245 1996 19023 1995 21857 1994 liquidation value 50 per share common stock par value 10 per share authorized 15 billion shares issued 1082496016 1996 540185639 1995 540173669 1994 108 54 capital excess par value stock 382 375 397 cumulative translation adjustments 361 327 301 retained earnings 9260 7917 7600 9389 8019 7750 less cost treasury stock 81806550 common shares 1996 34953311 1995 32887848 1994 2819 2197 2046 total stockholders equity 6570 5822 5704 14685 13929 12910 accompanying notes integral part financial statements 30 bristolmyers squibb company consolidated statement cash flows dollars millions year ended december 31 1996 1995 1994 cash flows operating activities net earnings 2850 1812 1842 depreciation amortization 519 448 328 special charge 950 750 provision restructuring 310 operating items 52 34 18 receivables 262 319 63 inventories 227 50 36 accounts payable 177 155 20 accrued expenses 42 166 73 income taxes 250 252 8 product liability 514 441 384 assets liabilities 142 246 53 net cash provided operating activities 2641 2499 2301 cash flows investing activities proceeds sales time deposits marketable securities 406 349 35 purchases time deposits marketable securities 379 80 482 additions fixed assets 601 513 573 proceeds sales businesses 213 285 business acquisitions 316 350 667 net 40 37 22 net cash used investing activities 717 631 1424 cash flows financing activities shortterm borrowings 78 181 496 longterm debt 346 10 27 issuances common stock plans 206 71 24 purchases treasury stock 852 244 701 dividends paid 1507 1495 1485 net cash used financing activities 1885 1859 1639 effect exchange rates cash 3 6 17 increase decrease cash equivalents 36 3 779 cash equivalents beginning year 1645 1642 2421 cash equivalents end year 1681 1645 1642 accompanying notes integral part financial statements 31 bristolmyers squibb company notes consolidated financial statements dollars millions note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company subsidiaries cash equivalents cash equivalents primarily include securities maturity three months less time purchase recorded cost approximates market time deposits marketable securities time deposits marketable securities available sale recorded fair value approximates cost inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals betterments capitalized cost depreciation generally computed straightline method based estimated useful lives related assets range annual rates used computing provisions depreciation 2 20 buildings 5 33 equipment excess cost net tangible assets excess cost net tangible assets received business acquisitions amortized straightline basis periods exceeding 40 years earnings per share earnings per common share computed using weighted average number shares outstanding year effect shares issuable stock plans significant note 2 acquisitions divestitures january 1996 company acquired pharmavit gyogyszeres elelmiszeripari reszvenytarsasag one hungarys leading manufacturers overthecounter medicines nutritional products generic pharmaceuticals march 1996 company acquired argentia sa one argentinas largest manufacturers marketers ethical pharmaceuticals october 1996 company completed acquisition oncology therapeutics network specialty distributor anticancer medicines related products 1995 company acquired gea farmaceutisk fabrik leading manufacturer marketer branded generic pharmaceuticals scandinavian market completed acquisition calgon vestal laboratories wound skin care infection control products business 32 bristolmyers squibb company notes consolidated financial statements dollars millions 1994 company acquired matrix essentials inc leading manufacturer north america professional hair care beauty products sold exclusively beauty salons completed acquisition remaining interest upsa group develops markets wide range nonprescription health pharmaceutical products company sold squibb diagnostics completed sale xomedtreace inc note 3 income expenses year ended december 31 1996 1995 1994 interest income 95 139 124 interest expense 78 97 68 net 43 5 28 60 47 84 interest expense reduced 15 million 1996 1995 1994 due interest capitalized major property plant equipment projects cash payments interest net amounts capitalized 61 million 78 million 62 million 1996 1995 1994 respectively note 4 foreign currency translation cumulative translation adjustments represent effect translating assets liabilities companys nonus entities except highly inflationary economies 1996 1995 1994 balance january 1 327 301 332 effect balance sheet translations amount 38 21 43 tax effect 4 5 12 balance december 31 361 327 301 included net earnings losses 19 million 1996 33 million 1995 44 million 1994 resulting foreign currency transactions translation adjustments 33 bristolmyers squibb company notes consolidated financial statements dollars millions note 5 provision income taxes components earnings income taxes year ended december 31 1996 1995 1994 us 2332 1195 1328 nonus 1681 1207 1227 4013 2402 2555 provision income taxes consisted year ended december 31 1996 1995 1994 current us 462 466 423 nonus 442 356 377 904 822 800 deferred us 232 200 92 nonus 27 32 5 259 232 87 1163 590 713 income taxes paid year 861 million 856 million 718 million 1996 1995 1994 respectively 34 bristolmyers squibb company notes consolidated financial statements dollars millions companys provision income taxes 1996 1995 1994 different amount computed applying statutory united states federal income tax rate earnings income taxes result following earnings income taxes 1996 1995 1994 us statutory rate 350 effect operations puerto rico ireland 55 97 94 state local taxes 6 8 14 11 15 9 290 246 279 prepaid taxes december 31 1996 1995 1994 757 million 786 million 591 million respectively deferred income tax liability included liabilities december 31 1996 124 million deferred income tax asset included assets december 31 1995 1994 130 million 65 million respectively components prepaid deferred income taxes consisted december 31 1996 1995 1994 product liability 383 527 304 postretirement pension benefits 129 163 247 restructuring integrating businesses 88 130 38 depreciation 245 210 205 278 306 272 633 916 656 company settled united states federal income tax returns internal revenue service 1991 united states federal income taxes provided substantially unremitted earnings nonus subsidiaries since managements practice intent reinvest earnings operations subsidiaries total amount net unremitted earnings nonus subsidiaries approximately 2506 million december 31 1996 35 bristolmyers squibb company notes consolidated financial statements dollars millions note 6 inventories december 31 1996 1995 1994 finished goods 994 892 781 work process 223 180 233 raw packaging materials 452 379 383 1669 1451 1397 note 7 property plant equipment december 31 1996 1995 1994 land 160 159 buildings 2427 2296 2103 machinery equipment fixtures 3626 3403 3061 construction progress 433 405 513 6646 6264 5836 less accumulated depreciation 2682 2504 2170 3964 3760 3666 company recorded 310 million restructuring charge 198 million taxes fourth quarter 1995 restructuring charge related consolidation plants facilities related employee terminations restructuring charge consisted employeerelated costs 190 million 100 million asset writedowns 20 million related expenses note 8 shortterm borrowings longterm debt shortterm borrowings included amounts primarily due banks 440 million 558 million 704 million december 31 1996 1995 1994 respectively current installments longterm debt 73 million 17 million 21 million december 31 1996 1995 1994 respectively company shortterm lines credit domestic foreign banks december 31 1996 unused portions lines credit approximately 200 million 578 million respectively 36 bristolmyers squibb company notes consolidated financial statements dollars millions components longterm debt december 31 1996 1995 1994 680 debentures due 2026 344 715 debentures due 2023 343 351 term loan due 2005 53 59 575 industrial revenue bonds due 2024 34 618 term loan due 1997 64 65 283 650 due varying amounts 2016 192 135 202 966 635 644 longterm debt december 31 1996 payable years ending december 31 1998 18 1999 10 2000 38 2001 6 2002 32 2003 later 862 966 note 9 stockholders equity december 3 1996 companys board directors authorized twoforone split common stock effective february 1997 per common share amounts accompanying consolidated financial statements give effect stock split board directors also recommended amendment considered stockholder approval annual meeting stockholders increase number authorized shares common stock 15 billion shares 225 billion shares 37 bristolmyers squibb company notes consolidated financial statements dollars millions changes capital shares capital excess par value stock capital shares common stock excess par value issued treasury stock balance december 31 1993 532688458 20782281 353 issued pursuant stock plans options rights warrants 15747 518733 15 conversions preferred stock 16646 purchases 12624300 7452818 59 balance december 31 1994 540173669 32887848 397 issued pursuant stock plans options rights 1602537 22 conversions preferred stock 11970 purchases 3668000 balance december 31 1995 540185639 34953311 375 effect twoforone stock split 540185639 34953311 54 issued pursuant stock plans options rights 221032 6623272 25 conversions preferred stock 31960 purchases 18523200 1871746 86 balance december 31 1996 1082496016 81806550 382 share companys preferred stock convertible 848 shares common stock callable companys option reductions number issued shares preferred stock 1996 1995 1994 due conversions shares common stock dividends per common share 150 1996 148 1995 146 1994 stock compensation plans companys stock option plans officers directors key employees may granted options purchase companys common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plans provide granting stock appreciation rights whereby grantee may surrender exercisable options receive common stock andor cash measured excess market price common stock option exercise price plans also provide granting performancebased stock options certain key executives 38 bristolmyers squibb company notes consolidated financial statements dollars millions terms 1983 stock option plan amended additional shares authorized amount 09 outstanding shares per year 2003 incorporates companys longterm performance award plan teamshare stock option plan fulltime employees excluding key executives meeting certain years service requirements granted options purchase companys common stock market price date options granted company authorized 30000000 shares issuance plan december 31 1996 total 20250800 options granted plan 400 options granted eligible employee individual grants generally become exercisable third anniversary grant date companys restricted stock award plan provides granting 6000000 shares common stock key employees subject restrictions continuous employment except case death normal retirement restrictions generally expire fiveyear period date grant compensation expense recognized restricted period december 31 1996 total 1261112 shares outstanding plan company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting plans accordingly compensation expense recognized stockbased compensation plans restricted stock performancebased awards compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 55 million 05 per share 1996 35 million 03 per share 1995 fair value options granted 1996 1995 estimated 851 per share 647 per share respectively date grant using blackscholes optionpricing model following assumptions 1996 1995 dividend yield 43 42 volatility 170 182 riskfree interest rate 65 69 assumed forfeiture rate 30 expected life years 7 39 bristolmyers squibb company notes consolidated financial statements dollars millions stock option longterm performance award transactions weighted average shares common stock exercise price available shares optionaward plan balance december 31 1993 4245513 18364163 6080 authorized 4607156 granted 5296982 5193 exercised 686507 3297 lapsed 1012237 1027651 6248 balance december 31 1994 4567924 21946987 5699 authorized 19565572 granted 13449952 6179 exercised 2012827 4096 lapsed 1129560 1129574 6192 balance december 31 1995 11813104 32254538 5976 effect twoforone stock split 11813104 32254538 authorized 9094182 granted 16179560 4692 exercised 8863078 2762 lapsed 1788528 1796826 3300 balance december 31 1996 18329358 70028732 3427 following table summarizes information concerning currently outstanding exercisable optionsawards outstanding options exercisable weighted average weighted remaining average range number contractual exercise number exercise prices outstanding life price exercisable price 10 20 781054 160 1361 781054 1361 20 30 19915520 576 2656 14770870 2657 30 40 33445632 724 3320 12712644 3660 40 50 11876650 917 4371 102000 4241 50 60 4009876 929 5755 70028732 28366568 40 bristolmyers squibb company notes consolidated financial statements dollars millions december 31 1996 104976640 shares common stock reserved issuance pursuant stock plans options conversions preferred stock attached outstanding share companys common stock one half right rights exercisable person group acquires beneficial interest 15 companys outstanding common stock commences tender exchange offer 15 companys outstanding common stock one half right entitle stockholders buy one onethousandth share new series participating preferred stock company exercise price 200 rights expire december 18 1997 event certain merger sale assets selfdealing transactions one half right entitle holder acquire shares value twice rights exercise price company may redeem rights 01 per one half right time 15th day following public announcement 15 position acquired note 10 financial instruments company enters foreign exchange option forward contracts manage exposure currency fluctuations company exposures net foreign currency denominated assets liabilities approximated 1640 million 1385 million 1117 million december 31 1996 1995 1994 respectively primarily deutsche marks french francs italian lira japanese yen company mitigates effect exposures third party borrowings foreign exchange forward contracts foreign exchange option contracts typically expire within one year used hedge intercompany shipments expected occur next year gains contracts deferred recognized period hedged transactions certain foreign exchange forward contracts used minimize exposure foreign currency transactions firm commitments fluctuating exchange rates gains losses contracts recognized basis transaction hedged notional amounts companys foreign exchange option forward contracts december 31 1996 1995 1994 1331 million 1377 million 1200 million respectively company anticipate material adverse effect financial position resulting involvement instruments anticipate nonperformance counterparties december 31 1996 1995 1994 carrying value financial instruments short longterm approximated fair values 41 bristolmyers squibb company notes consolidated financial statements dollars millions note 11 leases minimum rental commitments noncancelable operating leases primarily real estate effect december 31 1996 years ending december 31 1997 121 1998 101 1999 80 2000 65 2001 61 later years 212 total minimum payments 640 less total minimum sublease rentals 152 net minimum rental commitments 488 operating lease rental expense net sublease rental income 27 million 1996 25 million 1995 23 million 1994 129 million 1996 135 million 1995 136 million 1994 note 12 segment information companys products reported four industry segments follows pharmaceutical products includes prescription medicines mainly cardiovascular anticancer antiinfective drugs comprise 30 25 20 respectively 1996 40 20 respectively 1995 1994 segments sales central nervous system drugs pharmaceutical products nonprescription health products includes infant formulas nutritional products comprise 65 segments sales analgesics coughcold remedies skin care products 42 bristolmyers squibb company notes consolidated financial statements dollars millions medical devices includes orthopaedic implants comprise 40 segments sales ostomy wound care products surgical instruments medical devices toiletries beauty aids includes haircoloring hair care preparations comprise 80 segments sales 1996 75 1995 1994 deodorants antiperspirants toiletries beauty aids unallocated expenses principally consist general administrative expenses net interest income assets principally cash equivalents time deposits marketable securities insurance recoverable interarea sales geographic area years ended december 31 1996 1995 1994 respectively united states 1210 million 977 million 867 million europe mideast africa 692 million 542 million 428 million western hemisphere 59 million 49 million 37 million pacific 25 million 21 million 28 million sales usually billed manufacturing costs net assets relating operations outside united states amounted 3057 million 2609 million 2286 million december 31 1996 1995 1994 respectively 43 bristolmyers squibb company notes consolidated financial statements dollars millions industry segments net sales profita 1996 1995 1994 1996 1995 1994 pharmaceutical products 8702 7810 6970 2871 2351 2270 nonprescription health products 2750 2495 2043 548 471 456 medical devices 1860 1906 1685 562 510 497 toiletries beauty aids 1753 1556 1286 241 136 168 net sales operating profit 15065 13767 11984 4222 3468 3391 geographic areas net sales profitb 1996 1995 1994 1996 1995 1994 united states 9661 8662 7846 2688 2392 2360 europe mideast africa 4520 4074 3139 1147 833 675 western hemisphere 1307 1097 1039 193 152 213 pacific 1563 1523 1320 135 147 179 interarea eliminations 1986 1589 1360 59 56 36 net sales operating profit 15065 13767 11984 4222 3468 3391 unallocated expensesc 209 1066 836 earnings income taxes 4013 2402 2555 1995 operating profit companys industry segments included provision restructuring follows pharmaceutical products 252 million nonprescription health products million medical devices 22 million toiletries beauty aids 30 million b earnings income taxes included 1995 provision restructuring follows united states 66 million europe mideast africa 211 million western hemisphere 15 million pacific 18 million c unallocated expenses included special charge pending future product liability claims 950 million 750 million 1995 1994 respectively 44 bristolmyers squibb company notes consolidated financial statements dollars millions industry segments yearend assets 1996 1995 1994 pharmaceutical products 6319 5497 5180 nonprescription health products 1992 1800 1635 medical devices 1382 1414 1033 toiletries beauty aids 786 669 663 identifiable segment assets 10479 9380 8511 geographic areas yearend assets 1996 1995 1994 united states 5948 5254 4669 europe mideast africa 3344 3157 2894 western hemisphere 740 462 416 pacific 1026 1032 949 interarea eliminations 579 525 417 identifiable geographic assets 10479 9380 8511 assetsd 4206 4549 4399 total assets 14685 13929 12910 capital industry segments expenditures depreciation 1996 1995 1994 1996 1995 1994 pharmaceutical products 408 336 379 235 228 205 nonprescription health products 72 78 112 61 46 38 medical devices 36 47 37 43 42 38 toiletries beauty aids 70 33 26 27 26 23 identifiable industry totals 586 494 554 366 342 304 21 23 21 23 24 consolidated totals 607 517 577 387 365 328 assets included insurance recoverable related 1993 special charge 853 million 959 million 968 million 1996 1995 1994 respectively 45 bristolmyers squibb company notes consolidated financial statements dollars millions note 13 retirement benefit plans company certain subsidiaries defined benefit pension plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan companys funding policy contribute amounts provide current service fund past service liability plan benefits primarily based years credited service participants compensation plan assets principally consist equity securities fixed income securities cost companys defined benefit plans included following components year ended december 31 1996 1995 1994 service cost benefits earned year 127 101 114 interest cost projected benefit obligation 191 183 166 actual earnings losses plan assets 359 406 11 net amortization deferral 171 213 158 net pension expense 130 91 133 weighted average actuarial assumptions companys pension plans follows december 31 1996 1995 1994 discount rate 78 73 88 compensation increase 48 45 53 longterm rate return 100 46 bristolmyers squibb company notes consolidated financial statements dollars millions funded status plans follows december 31 1996 1995 1994 actuarial present value accumulated benefit obligation vested 2044 2059 1624 nonvested 252 217 178 2296 2276 1802 total projected benefit obligation 2734 2689 2138 plan assets fair value 2596 2307 1836 plan assets less projected benefit obligation 138 382 302 unamortized net assets adoption 62 76 90 unrecognized prior service cost 67 78 89 unrecognized net losses 235 516 309 adjustment required recognize minimum pension liability assets 26 48 23 prepaid accrued pension expense 76 88 17 plan assets less projected benefit obligation included 184 million 150 million 120 million unfunded benefit equalization plan december 31 1996 1995 1994 respectively 1995 increase total projected benefit obligation due lower discount rate increase plan assets due significantly higher earnings cash contributions 47 bristolmyers squibb company notes consolidated financial statements dollars millions note 14 postretirement benefit plans pensions company provides comprehensive medical group life benefits substantially us retirees elect participate companys comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory cost companys postretirement benefit plans included following components year ended december 31 1996 1995 1994 service cost benefits earned year 9 8 9 interest cost accumulated postretirement benefit obligation 34 41 37 actual earnings plan assets 13 11 net amortization deferral 6 7 2 net postretirement benefit expense 36 45 44 status plans follows december 31 1996 1995 1994 accumulated postretirement benefit obligation retirees 347 403 386 fully eligible active plan participants 17 13 active plan participants 147 159 118 511 579 517 plan assets fair value 89 74 41 accumulated postretirement benefit obligation excess plan assets 422 505 476 unrecognized prior service cost 5 3 1 unrecognized net gain losses 56 38 10 accrued postretirement benefit expense 473 464 465 48 bristolmyers squibb company notes consolidated financial statements dollars millions measurement purposes annual rate increase per capita cost covered health care benefits 84 participants age 65 74 participants age 65 assumed 1997 rate assumed decrease gradually 50 2007 remain level thereafter increasing assumed medical care cost trend rates 1 percentage point year would increase accumulated postretirement benefit obligation december 31 1996 25 million aggregate service interest cost components net postretirement benefit expense year ended 2 million weightedaverage discount rate used determining accumulated postretirement benefit obligation 78 1996 73 1995 88 1994 plan assets principally consist equity securities fixed income securities expected longterm rate return plan assets 100 1996 1995 1994 note 15 contingencies various lawsuits claims proceedings nature considered normal businesses pending company certain subsidiaries significant described breast implant litigation december 31 1996 approximately 22000 plaintiffs filed suit company subsidiary medical engineering corporation mec certain subsidiaries federal state courts certain canadian provincial courts alleging damages personal injuries various types resulting polyurethane covered breast implants smooth walled breast implants company mec certain defendants participants settlement program originally approved september 1 1994 revised december 22 1995 federal district court birmingham alabama number yet unknown plaintiffs participated expected participate revised settlement thereby discontinue lawsuits separate class action settlements approved provincial courts ontario quebec agreement reached foreign breast implant recipients may settle claims approximately 7100 domestic class members implants manufacturers including manufacturers participating revised settlement opted class action settlement approved 1994 group company identified approximately 2300 domestic optouts active claims based upon alleged mec implants connection revised settlement claims office reports december 16 1996 122000 registered class members submitted proof manufacturer documentation claims office also reports december 16 1996 52000 registrants sent notification status letters advising status settlement recipients letters 35000 proved implant one three settling defendants subsidiaries predecessor companies chosen participate settlement approximately 3300 opted decisions 49 bristolmyers squibb company notes consolidated financial statements dollars millions remaining recipients notification status letters reported december 31 1996 claims office also reports approximately 8000 domestic class members implants manufacturers opted receiving initial notice revised settlement early 1996 optout period expired class members information incomplete possible time estimate reasonable precision total number women opt revised settlement cost settlement dependent upon complex varying factors including number class members participate settlement kinds claims approved dollar value cost company resolving optout claims also subject number complex uncertainties addition unknown quantity quality claims connection breast implant product liability claims company recorded special charges 1993 500 million taxes 310 million taxes 30 per share 1994 750 million taxes 488 million taxes 48 per share 1995 950 million taxes 590 million taxes 58 per share 1993 special charge consisted 15 billion recorded product liability offset 10 billion expected insurance proceeds recorded insurance recoverable light continuing uncertainties attendant factors including insurance recoveries difficult time estimate precision cost breast implant product liability claims company additional future charge earnings might required additional information relating revised settlement litigation becomes known actions company one subsidiaries others defendants number antitrust actions various states filed behalf purported statewide classes indirect purchasers infant formula products attorneys general louisiana minnesota mississippi alleging price fixing conspiracy violations state antitrust deceptive trade practice laws seeking penalties relief june 7 1996 company reached settlement covering pending infant formula indirect purchaser cases except case massachusetts case brought louisiana attorney general september 29 1996 federal district court tallahassee florida entered order favor defendants effectively dismissing louisiana attorney general action appeal taken decision december 1996 company entered agreement principle settle massachusetts action final court approval settlements granted every case except pending louisiana massachusetts michigan nevada louisiana january 21 1997 court entered order disapproving settlement jurisdictions joint motions final approval settlement either yet filed massachusetts yet ruled upon michigan nevada 50 bristolmyers squibb company notes consolidated financial statements dollars millions december 31 1996 company defendant 100 actions brought company 30 pharmaceutical manufacturers drug wholesalers pharmacy benefit managers various federal district courts certain chain drugstores supermarket chains independent drugstores suing either individually representatives nationwide class retail pharmacies certified cases coordinated pretrial purposes seek treble damages injunctive relief account alleged antitrust violations pricing marketing brand name prescription drugs plaintiffs class action indicated intend claim damages trebling ranging 5 approximately 20 value purchases brand name prescription drugs defendants since october 15 1989 estimated class represents approximately twothirds retail pharmacy purchases brand name prescription drugs alleged damages period company without admitting wrongdoing reached amended agreement may 1 1996 settle class action settlement amended approved court purported appeals approval pending federal cases brought retail pharmacies opted class remain pending largest optout retailer plaintiffs purported quantify conspiracy damage claims defendants including company asserting damages aggregating approximately 24 billion trebling cases brought retail pharmacies state court state law alleging similar grounds proceeding california alabama wisconsin minnesota cases brought consumers state court state law alleging similar grounds brought california washington colorado new york arizona maine alabama michigan minnesota wisconsin district columbia kansas florida company together others party otherwise involved number proceedings brought environmental protection agency comparable state agencies comprehensive environmental response compensation liability act cercla superfund comparable state laws directed cleanup hazardous waste sites possible predict certainty outcome cases opinion management lawsuits claims proceedings pending company without merit material adverse effect companys operating results liquidity consolidated financial position 51 bristolmyers squibb company notes consolidated financial statements dollars millions except per share amounts note 18 selected quarterly financial data unaudited first second third fourth quarter year 1996 net sales 3669 3696 3745 3955 15065 gross profit 2734 2742 2890 11100 net earnings 726 655 753 716 2850 earnings per common share 72 65 75 71 284 1995 net sales 3301 3445 3413 3608 13767 gross profit 2424 2536 2483 2687 10130 net earningsloss 657 608 689 142 1812 earningsloss per common share 65 60 68 14 179 1995 fourth quarter annual results included charge 950 million 590 million taxes 58 per share pending future product liability claims provision restructuring 310 million 198 million taxes 52 report independent accountants board directors stockholders bristolmyers squibb company opinion consolidated financial statements listed index appearing item 14a1 2 page 55 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 1996 1995 1994 results operations cash flows years ended conformity generally accepted accounting principles financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits statements accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion expressed price waterhouse llp 1177 avenue americas new york new york 10036 january 22 1997 53 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings comprehensive income retained earnings millions except per share amounts year ended december 31 earnings 1997 1996 1995 net sales 16701 15065 13767 expenses cost products sold 4464 3965 3637 marketing selling administrative 4173 3925 3670 advertising product promotion 2241 1946 1646 research development 1385 1276 1199 provision restructuring 225 310 gain sale business 225 special charge 950 44 60 47 12219 11052 11365 earnings income taxes 4482 4013 2402 provision income taxes 1277 1163 590 net earnings 3205 2850 1812 earnings per common share basic 322 284 179 diluted 314 280 178 average common shares outstanding basic 996 1004 1012 diluted 1021 1018 1016 comprehensive income net earnings 3205 2850 1812 comprehensive income foreign currency translation 195 38 21 tax effect 23 4 5 total comprehensive income 172 34 26 comprehensive income 3033 2816 1786 accompanying notes integral part financial statements bristolmyers squibb company consolidated statement earnings comprehensive income retained earnings millions except per share amounts year ended december 31 1997 1996 1995 retained earnings retained earnings january 1 9260 7917 7600 net earnings 3205 2850 1812 12465 10767 9412 less dividends 1515 1507 1495 retained earnings december 31 10950 9260 7917 accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet assets dollars millions december 31 1997 1996 1995 assets current assets cash equivalents 1456 1681 1645 time deposits marketable securities 338 504 533 receivables net allowances 2973 2651 2356 inventories 1799 1669 1451 prepaid expenses 1170 1023 1033 total current assets 7736 7528 7018 property plant equipment 4156 3964 3760 insurance recoverable 619 853 959 excess cost net tangible assets received business acquisitions 1625 1508 1219 assets 841 832 973 14977 14685 13929 accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet liabilities stockholders equity dollars millions december 31 1997 1996 1995 liabilities current liabilities shortterm borrowings 543 513 575 accounts payable 1017 1064 848 accrued expenses 1939 1962 1939 product liability 865 800 700 us foreign income taxes payable 668 711 744 total current liabilities 5032 5050 4806 product liability 171 1031 1645 liabilities 1276 1068 1021 longterm debt 1279 966 635 total liabilities 7758 8115 8107 stockholders equity preferred stock 2 convertible series authorized 10 million shares issued outstanding 12936 1997 15245 1996 19023 1995 liquidation value 50 per share common stock par value 10 per share authorized 225 billion shares issued 1083253703 1997 1082496016 1996 540185639 1995 108 54 capital excess par value stock 544 382 375 cumulative translation adjustments 533 361 327 retained earnings 10950 9260 7917 11069 9389 8019 less cost treasury stock 90069383 common shares 1997 81806550 1996 34953311 1995 3850 2819 2197 total stockholders equity 7219 6570 5822 14977 14685 13929 accompanying notes integral part financial statements bristolmyers squibb company consolidated statement cash flows dollars millions year ended december 31 1997 1996 1995 cash flows operating activities net earnings 3205 2850 1812 depreciation amortization 591 519 448 provision restructuring 225 310 gain sale business 225 special charge 950 operating items 33 52 34 receivables 479 262 319 inventories 288 227 50 accounts payable 2 177 155 accrued expenses 181 42 166 income taxes 318 250 252 product liability 795 514 441 insurance recoverable 234 106 9 assets liabilities 164 248 255 net cash provided operating activities 2476 2641 2499 cash flows investing activities proceeds sales time deposits marketable securities 530 406 349 purchases time deposits marketable securities 363 379 80 additions fixed assets 767 601 513 proceeds sales businesses 370 213 business acquisitions 254 316 350 net 48 40 37 net cash used investing activities 532 717 631 cash flows financing activities shortterm borrowings 81 78 181 longterm debt 328 346 10 issuances common stock plans 117 206 71 purchases treasury stock 1162 852 244 dividends paid 1515 1507 1495 net cash used financing activities 2151 1885 1859 effect exchange rates cash 18 3 6 decrease increase cash equivalents 225 36 3 cash equivalents beginning year 1681 1645 1642 cash equivalents end year 1456 1681 1645 accompanying notes integral part financial statements bristolmyers squibb company notes consolidated financial statements dollars millions note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company subsidiaries cash equivalents cash equivalents primarily include securities maturity three months less time purchase recorded cost approximates market time deposits marketable securities time deposits marketable securities available sale recorded fair value approximates cost inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals betterments capitalized cost depreciation generally computed straightline method based estimated useful lives related assets excess cost net tangible assets excess cost net tangible assets received business acquisitions amortized straightline basis periods exceeding 40 years earnings per share basic earnings per common share computed using weighted average number shares outstanding year diluted earnings per common share computed using weighted average number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options note 2 acquisitions divestitures january 1998 company acquired redmond products inc leading hair care manufacturer united states december 31 1997 company completed sale linvatec corporation arthroscopy surgical powered instrument business 370 million cash sale resulted gain 225 million taxes 140 million taxes november 1997 company acquired abeefe sa perus largest pharmaceutical manufacturer marketer broad range prescription nonprescription antiinfective respiratory anti inflammatory dermatological products bristolmyers squibb company notes consolidated financial statements dollars millions july 1997 company acquired choco milk mexicos leading milkbased nutritional supplement march 1997 company acquired sal de uvas picot leading effervescent antacid product mexico 1996 company acquired pharmavit gyogyszeres elelmiszeripari reszvenytarsasag one hungarys leading manufacturers overthecounter medicines nutritional products generic pharmaceuticals company also acquired argentia sa one argentinas largest manufacturers marketers ethical pharmaceuticals completed acquisition oncology therapeutics network specialty distributor anticancer medicines related products 1995 company acquired gea farmaceutisk fabrik leading manufacturer marketer branded generic pharmaceuticals scandinavian market completed acquisition calgon vestal laboratories wound skin care infection control products business note 3 restructuring company recorded 225 million restructuring charge 140 million taxes fourth quarter 1997 restructuring charge primarily relates consolidation plants facilities related employee terminations restructuring charge consists employeerelated costs 93 million 74 million asset writedowns 58 million related expenses company recorded 310 million restructuring charge 198 million taxes fourth quarter 1995 restructuring charge related consolidation plants facilities related employee terminations restructuring charge consisted employee related costs 190 million 100 million asset writedowns 20 million related expenses note 4 income expenses year ended december 31 1997 1996 1995 interest income 106 95 139 interest expense 118 78 97 net 56 43 5 44 60 47 bristolmyers squibb company notes consolidated financial statements dollars millions cash payments interest 110 million 76 million 93 million 1997 1996 1995 respectively note 5 foreign currency translation cumulative translation adjustments represent effect translating assets liabilities companys nonus entities except highly inflationary economies 1997 1996 1995 balance january 1 361 327 301 effect balance sheet translations amount 195 38 21 tax effect 23 4 5 balance december 31 533 361 327 note 6 provision income taxes components earnings income taxes year ended december 31 1997 1996 1995 us 2858 2332 1195 nonus 1624 1681 1207 4482 4013 2402 provision income taxes consisted year ended december 31 1997 1996 1995 current us 633 462 466 nonus 471 442 356 1104 904 822 bristolmyers squibb company notes consolidated financial statements dollars millions year ended december 31 1997 1996 1995 deferred us 220 232 200 nonus 47 27 32 173 259 232 1277 1163 590 income taxes paid year 898 million 861 million 856 million 1997 1996 1995 respectively companys provision income taxes 1997 1996 1995 different amount computed applying statutory united states federal income tax rate earnings income taxes result following earnings income taxes 1997 1996 1995 us statutory rate 350 effect operations puerto rico ireland 55 97 state local taxes 6 8 16 11 15 285 290 246 prepaid taxes december 31 1997 1996 1995 818 million 757 million 786 million respectively deferred income tax liability included liabilities december 31 1997 1996 352 124 million respectively deferred income tax asset included assets december 31 1995 130 million components prepaid deferred income taxes consisted bristolmyers squibb company notes consolidated financial statements dollars millions december 31 1997 1996 1995 product liability 154 383 527 postretirement pension benefits 191 129 163 restructuring 77 88 130 depreciation 278 245 210 322 278 306 466 633 916 company settled united states federal income tax returns internal revenue service 1991 united states federal income taxes provided substantially unremitted earnings nonus subsidiaries since managements practice intent reinvest earnings operations subsidiaries total amount net unremitted earnings nonus subsidiaries approximately 26 billion december 31 1997 note 7 inventories december 31 1997 1996 1995 finished goods 1153 994 892 work process 197 223 180 raw packaging materials 449 452 379 1799 1669 1451 note 8 property plant equipment december 31 1997 1996 1995 land 180 160 buildings 2631 2427 2296 machinery equipment fixtures 3646 3626 3403 construction progress 544 433 405 7001 6646 6264 less accumulated depreciation 2845 2682 2504 4156 3964 3760 bristolmyers squibb company notes consolidated financial statements dollars millions note 9 shortterm borrowings longterm debt shortterm borrowings included amounts primarily due foreign banks 524 million 440 million 558 million december 31 1997 1996 1995 respectively current installments longterm debt 19 million 73 million 17 million december 31 1997 1996 1995 respectively average interest rate shortterm borrowings 139 december 31 1997 76 current installments longterm debt company shortterm lines credit domestic foreign banks december 31 1997 unused portions lines credit approximately 200 million 593 million respectively components longterm debt december 31 1997 1996 1995 680 debentures due 2026 344 715 debentures due 2023 343 6875 debentures due 2097 296 various rate yen term loans due 2003 70 76 351 deutsche mark interest yen principal term loan due 2005 49 53 59 575 industrial revenue bonds due 2024 34 500 yen term loan due 2000 29 31 69 various rate turkish lira term loans due 1999 26 283 yen term loan due 2002 24 27 capitalized leases 26 19 618 yen term loan paid 1997 64 430 1025due varying amounts 2014 38 39 47 1279 966 635 subsequent year end company entered two revolving credit facility agreements totaling 500 million available use needed general corporate purposes bristolmyers squibb company notes consolidated financial statements dollars millions note 10 stockholders equity changes capital shares capital excess par value stock capital excess shares common stock par value stock issued treasury millions balance december 31 1994 540173669 32887848 397 issued pursuant stock plans options rights 1602537 22 conversions preferred stock 11970 purchases 3668000 balance december 31 1995 540185639 34953311 375 effect twoforone stock split 540185639 34953311 54 issued pursuant stock plans options rights 221032 6623272 25 conversions preferred stock 31960 purchases 18523200 1871746 86 balance december 31 1996 1082496016 81806550 382 issued pursuant stock plans options 738151 8514867 162 conversions preferred stock 19536 purchases 16777700 balance december 31 1997 1083253703 90069383 544 share companys preferred stock convertible 848 shares common stock callable companys option reductions number issued shares preferred stock 1997 1996 1995 due conversions shares common stock dividends per common share 152 1997 150 1996 148 1995 stock compensation plans companys stock option plans officers directors key employees may granted options purchase companys common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plans provide bristolmyers squibb company notes consolidated financial statements dollars millions granting stock appreciation rights whereby grantee may surrender exercisable options receive common stock andor cash measured excess market price common stock option exercise price plans also provide granting performancebased stock options certain key executives terms 1983 stock option plan amended additional shares authorized amount 09 outstanding shares per year 2003 incorporates companys longterm performance award plan teamshare stock option plan fulltime employees excluding key executives meeting certain years service requirements granted options purchase companys common stock market price date options granted company authorized 30000000 shares issuance plan december 31 1997 total 21984200 options granted plan generally 400 options granted eligible employee individual grants generally become exercisable third anniversary grant date companys restricted stock award plan provides granting 6000000 shares common stock key employees subject restrictions continuous employment except case death normal retirement restrictions generally expire fiveyear period date grant compensation expense recognized restricted period december 31 1997 total 1253352 shares outstanding plan company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting plans accordingly compensation expense recognized stockbased compensation plans restricted stock performancebased awards compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards 123 accounting stockbased compensation companys net income basic earnings per share would reduced approximately 85 million 09 per common share basic 08 per common share diluted 1997 55 million 05 per common share basic diluted 1996 35 million 03 per common share basic diluted 1995 fair value options granted 1997 1996 1995 estimated 1282 per common share 851 per share 647 per share respectively date grant using blackscholes option pricing model following assumptions bristolmyers squibb company notes consolidated financial statements dollars millions 1997 1996 1995 dividend yield 43 42 volatility 193 170 182 riskfree interest rate 65 69 assumed forfeiture rate 30 expected life years 7 stock option transactions weighted average shares common stock exercise price available shares option plan balance december 31 1994 4567924 21946987 5699 authorized 19565572 granted 13449952 6179 exercised 2012827 4096 lapsed 1129560 1129574 6192 balance december 31 1995 11813104 32254538 5976 effect twoforone stock split 11813104 32254538 authorized 9094182 granted 16179560 4692 exercised 8863078 2762 lapsed 1788528 1796826 3300 balance december 31 1996 18329358 70028732 3427 authorized 9006205 granted 11347801 6577 exercised 12787811 3034 lapsed 2284788 2287820 4563 balance december 31 1997 18272550 66300902 4008 following table summarizes information concerning currently outstanding exercisable options bristolmyers squibb company notes consolidated financial statements dollars millions options outstanding options exercisable weighted average weighted range remaining average exercise number contractual exercise number exercise prices outstanding life price exercisable price 0 20 325808 094 1407 325808 1407 20 40 40931295 602 3088 22779341 3110 40 60 16621274 845 4874 3007105 4368 60 80 7620950 918 6736 80 100 801575 955 8210 66300902 26112254 december 31 1997 104710291 shares common stock reserved issuance pursuant stock plans options conversions preferred stock note 11 financial instruments foreign exchange option contracts lesser extent forward contracts used hedge anticipated transactions company exposures net foreign currency denominated assets liabilities approximated 2070 million 1640 million 1385 million december 31 1997 1996 1995 respectively primarily deutsche marks french francs italian lire japanese yen company mitigates effect exposures thirdparty borrowings foreign exchange forward contracts risk loss associated types foreign exchange option contracts entered company limited premium amounts paid option contracts premiums deferred prepaid expenses amortized consolidated statement earnings caption time frame underlying hedged transaction gains losses related option contracts qualify hedges foreign currency anticipated transactions recognized earnings hedged transactions recognized gains losses foreign exchange forward contracts recognized basis underlying transaction hedged notional amounts companys foreign exchange option contracts december 31 1997 1996 1995 1279 million 1172 million 1126 million respectively bristolmyers squibb company notes consolidated financial statements dollars millions company anticipate material adverse effect financial position resulting involvement instruments anticipate nonperformance counterparties december 31 1997 1996 1995 carrying value financial instruments short longterm approximated fair values note 12 leases minimum rental commitments noncancelable operating leases primarily real estate effect december 31 1997 years ending december 31 1998 116 1999 88 2000 71 2001 59 2002 45 later years 159 total minimum payments 538 less total minimum sublease rentals 152 net minimum rental commitments 386 operating lease rental expense net sublease rental income 26 million 1997 27 million 1996 25 million 1995 124 million 1997 129 million 1996 135 million 1995 note 13 segment information major product categories business segment follows year ended december 31 1997 1996 1995 pharmaceuticals cardiovascular 2905 2816 2911 anticancer 2420 1971 1600 antiinfective 2235 1856 1701 central nervous system 955 760 601 consumer medicines bristolmyers squibb company notes consolidated financial statements dollars millions analgesics 739 718 669 nutritionals infant formulas 1219 1201 1086 medical devices orthopaedic implants 615 644 657 ostomy 451 452 472 beauty care haircolor 841 812 714 hair care 794 586 487 interarea sales usually billed manufacturing costs geographic area year ended december 31 1997 1996 1995 united states 1370 1210 977 europe mideast africa 762 692 542 western hemisphere 32 59 49 pacific 24 25 21 total interarea eliminations 2188 1986 1589 included earnings taxes segment cost capital charge offset cost capital share included addition principally consists interest income interest expense certain administrative expenses 1996 cost certain companys productivity programs 1997 includes gain sale business 225 million provision restructuring 225 million 1995 includes provision restructuring 310 million special charge 950 million pending future product liability claims assets principally consist cash equivalents time deposits marketable securities certain assets business segments net sales earnings taxes 1997 1996 1995 1997 1996 1995 pharmaceuticals 9932 8666 7745 2945 2634 2290 consumer medicines 1351 1279 1220 125 99 71 nutritionals 1911 1793 1592 403 371 317 medical devices 1802 1860 1906 361 419 435 beauty care 1705 1467 1304 292 250 200 net sales earnings taxes 16701 15065 13767 4126 3773 3313 bristolmyers squibb company notes consolidated financial statements dollars millions geographic areas net sales earnings taxes 1997 1996 1995 1997 1996 1995 united states 11014 9661 8662 2700 2512 2220 europe mideast africa 4653 4520 4074 1109 988 925 western hemisphere 1586 1307 1097 225 145 134 pacific 1636 1563 1523 52 69 89 interarea eliminations 2188 1986 1589 40 59 55 net sales earnings taxes 16701 15065 13767 4126 3773 3313 356 240 911 earnings taxes 4482 4013 2402 business segments yearend assets 1997 1996 1995 pharmaceuticals 6705 6098 5221 consumer medicines 1573 1450 1474 nutritionals 1021 910 797 medical devices 1225 1376 1407 beauty care 743 652 537 identifiable segment assets 11267 10486 9436 geographic areas yearend assets 1997 1996 1995 united states 6545 5925 5239 europe mideast africa 3430 3376 3230 western hemisphere 1063 741 462 pacific 989 1023 1030 interarea eliminations 760 579 525 identifiable geographic assets 11267 10486 9436 assets 3710 4199 4493 total assets 14977 14685 13929 bristolmyers squibb company notes consolidated financial statements dollars millions capital business segments expenditures depreciation 1997 1996 1995 1997 1996 1995 pharmaceuticals 525 402 333 241 232 225 consumer medicines 48 32 17 24 20 19 nutritionals 55 43 60 43 45 30 medical devices 24 36 47 46 43 42 beauty care 53 67 33 20 26 business segment total 705 580 490 374 366 342 62 21 23 21 23 total 767 601 513 397 387 365 note 14 retirement benefit plans company certain subsidiaries defined benefit pension plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan companys funding policy contribute amounts provide current service fund past service liability plan benefits primarily based years credited service participants compensation plan assets principally consist equity securities fixed income securities cost companys defined benefit plans included following components year ended december 31 1997 1996 1995 service cost benefits earned year 135 127 101 interest cost projected benefit obligation 203 191 183 actual earnings plan assets 504 359 406 net amortization deferral 283 171 213 net pension expense 117 130 91 weighted average actuarial assumptions companys pension plans follows december 31 1997 1996 1995 discount rate 75 78 73 compensation increase 45 48 45 longterm rate return 100 bristolmyers squibb company notes consolidated financial statements dollars millions funded status plans follows december 31 1997 1996 1995 actuarial present value accumulated benefit obligation vested 2174 2044 2059 nonvested 257 252 217 2431 2296 2276 total projected benefit obligation 2928 2734 2689 plan assets fair value 2949 2596 2307 plan assets excess less projected benefit obligation 21 138 382 unamortized net assets adoption 47 62 76 unrecognized prior service cost 56 67 78 unrecognized net losses 13 235 516 adjustment required recognize minimum pension liability recorded assets 22 26 48 prepaid pension expense 21 76 88 plan assets excess less projected benefit obligation included 188 million 184 million 150 million unfunded benefit equalization plan december 31 1997 1996 1995 respectively note 15 postretirement benefit plans pensions company provides comprehensive medical group life benefits substantially us retirees elect participate companys comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory cost companys postretirement benefit plans included following components bristolmyers squibb company notes consolidated financial statements dollars millions year ended december 31 1997 1996 1995 service cost benefits earned year 9 8 interest cost accumulated postretirement benefit obligation 36 34 41 actual earnings plan assets 20 13 11 net amortization deferral 9 6 7 net postretirement benefit expense 34 36 45 status plans follows december 31 1997 1996 1995 accumulated postretirement benefit obligation retirees 338 347 403 fully eligible active plan participants 19 17 active plan participants 171 147 159 528 511 579 plan assets fair value 113 89 74 accumulated postretirement benefit obligation excess plan assets 415 422 505 unrecognized prior service cost 4 5 3 unrecognized net earnings losses 65 56 38 accrued postretirement benefit expense 476 473 464 measurement purposes annual rate increase per capita cost covered health care benefits 78 participants age 65 70 participants age 65 assumed 1998 rate assumed decrease gradually 50 2007 remain level thereafter increasing assumed medical care cost trend rates 1 percentage point year would increase accumulated postretirement benefit obligation december 31 1997 23 million aggregate service interest cost components net postretirement benefit expense year ended 2 million weightedaverage discount rate used determining accumulated postretirement benefit obligation 75 1997 78 1996 73 1995 plan assets principally consist equity securities fixed income securities expected longterm rate return plan assets 100 1997 1996 1995 bristolmyers squibb company notes consolidated financial statements dollars millions note 16 contingencies various lawsuits claims proceedings nature considered normal businesses pending company certain subsidiaries significant described reference made item 3 legal proceedings part 1 form 10k annual report breast implant litigation december 31 1997 approximately 24000 persons plaintiffs suits company subsidiary medical engineering corporation mec certain subsidiaries federal state courts united states certain courts canada australia alleging damages personal injuries various types resulting polyurethanecovered breast implants smoothwalled breast implants company mec certain defendants participants settlement program originally approved september 1 1994 revised december 22 1995 federal district court birmingham alabama 11000 plaintiffs participating revised settlement expected discontinue lawsuits separate class action settlements approved provincial courts ontario quebec agreement reached foreign breast implant recipients may settle claims approximately 380000 domestic class members implants manufacturers mec baxter 3m originally registered revised settlement around 88000 class members indicated received least one breast implant manufactured mec related company 88000 registrants 14300 opted revised settlement 6300 proved satisfaction claims office received breast implant mec related company remaining 8000 optouts indicated belief proved received mec breast implant 14300 optouts claim mec implants among 44800 domestic registrants implants manufacturers opted revised settlement company identified approximately 10800 persons among 44800 optouts implants defendants mec plaintiffs lawsuits yet undetermined number 10800 plaintiffs mec implants claims company expected dismissed additional 1570 claims based upon mec implants remain among domestic class members previously opted settlement originally approved 1994 optout period essentially number optouts expected increase materially however continuing uncertainties still possible predict precise basis total number women mec implants pursue lawsuits company cost settlement dependent upon complex varying factors including number class members participate kinds claims approved dollar value cost company bristolmyers squibb company notes consolidated financial statements dollars millions resolving optout claims also subject number complex uncertain ties addition unknown quantity quality claims set forth consolidated statement cash flows 1995 1996 1997 company paid substantial sums settle litigation optout claims litigation expenses well revised settlement connection breast implant product liability claims company recorded special charges 1993 500 million taxes 310 million taxes 30 per common share basic diluted 1994 750 million taxes 488 million taxes 48 per common share basic diluted 1995 950 million taxes 590 million taxes 58 per common share basic diluted 1993 special charge consisted 15 billion recorded product liability offset 10 billion expected insurance proceeds recorded insurance recoverable light continuing uncertainties including additional insurance recoveries cost revised settlement ongoing litigation cannot present predicted reasonable degree precision however company based information set forth related estimates continues believe previously established reserves adequate address claims actions company one subsidiaries others defendants number antitrust actions various states filed behalf purported statewide classes indirect purchasers infant formula products attorneys general louisiana minnesota mississippi alleging price fixing conspiracy violations state antitrust deceptive trade practice laws seeking penalties relief company previously reported reaching settlements receiving final court approval majority cases open cases louisiana missouri november 6 1997 court louisiana dismissed plaintiffs case plaintiffs appealing dismissal missouri company motion dismiss pending december 31 1997 company defendant 100 actions brought company 30 pharmaceutical manufacturers drug wholesalers pharmacy benefit managers various federal district courts certain chain drugstores supermarket chains independent drugstores suing either individually representatives nationwide class retail pharmacies certified cases coordinated pretrial purposes seek treble damages injunctive relief account alleged antitrust violations pricing marketing brand name prescription drugs company without admitting wrongdoing reached amended agreement may 1 1996 settle class action settlement become final largest optout retailer plaintiffs purported quantify damage claims defendants including company asserting damages aggregating approximately 24 billion trebling cases brought retail pharmacies state court state law alleging similar grounds proceeding california alabama mississippi wisconsin minnesota wisconsin minnesota cases subject settlements purported class actions brought consumers state court state law alleging similar grounds brought california washington new york arizona maine alabama michigan minnesota wisconsin district columbia kansas florida tennessee north carolina possible predict certainty outcome cases opinion management lawsuits claims proceedings pending company without merit material adverse effect companys operating results liquidity consolidated financial position note 17 selected quarterly financial data unaudited first second third fourth quarter year 1997 net sales 4045 4064 4151 4441 16701 gross profit 2967 3041 3262 12237 net earnings 810 738 855 802 3205 earnings per common share basic 81 74 86 81 322 diluted 79 73 84 78 314 1996 net sales 3669 3696 3745 3955 15065 gross profit 2734 2742 2890 11100 net earnings 726 655 753 716 2850 earnings per common share basic 72 65 75 71 284 diluted 71 64 74 70 280 1997 fourth quarter annual results included gain sale business 225 million 140 million taxes provision restructuring 225 million 140 million taxes report independent accountants board directors stockholders bristolmyers squibb company opinion consolidated financial statements listed index appearing item 14a1 2 page 59 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 1997 1996 1995 results operations cash flows years ended conformity generally accepted accounting principles financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits statements accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion expressed price waterhouse llp 1177 avenue americas new york new york 10036 january 22 1998 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings comprehensive income retained earnings millions except per share amounts year ended december 31 earnings 1998 1997 1996 net sales 18284 16701 15065 expenses cost products sold 4856 4464 3965 marketing selling administrative 4418 4173 3925 advertising product promotion 2312 2241 1946 research development 1577 1385 1276 special charge 800 provision restructuring 201 225 gain sale business 201 225 53 44 60 14016 12219 11052 earnings income taxes 4268 4482 4013 provision income taxes 1127 1277 1163 net earnings 3141 3205 2850 earnings per common share basic 158 161 142 diluted 155 157 140 average common shares outstanding basic 1987 1992 2007 diluted 2031 2042 2035 comprehensive income net earnings 3141 3205 2850 comprehensive income foreign currency translation 86 195 38 tax effect 3 23 4 comprehensive income 3052 3033 2816 accompanying notes integral part financial statements bristolmyers squibb company consolidated statement earnings comprehensive income retained earnings millions except per share amounts year ended december 31 1998 1997 1996 retained earnings retained earnings january 1 10950 9260 7917 net earnings 3141 3205 2850 14091 12465 10767 less dividends 1551 1515 1507 retained earnings december 31 12540 10950 9260 accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet assets dollars millions december 31 1998 1997 1996 assets current assets cash equivalents 2244 1456 1681 time deposits marketable securities 285 338 504 receivables net allowances 3190 2973 2651 inventories 1873 1799 1669 prepaid expenses 1190 1170 1023 total current assets 8782 7736 7528 property plant equipment 4429 4156 3964 insurance recoverable 523 619 853 excess cost net tangible assets received business acquisitions 1587 1625 1508 assets 951 841 832 total assets 16272 14977 14685 accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet liabilities stockholders equity dollars millions december 31 1998 1997 1996 liabilities current liabilities shortterm borrowings 482 543 513 accounts payable 1380 1017 1064 accrued expenses 2302 1939 1962 product liability 877 865 800 us foreign income taxes payable 750 668 711 total current liabilities 5791 5032 5050 liabilities 1541 1447 2099 longterm debt 1364 1279 966 total liabilities 8696 7758 8115 stockholders equity preferred stock 2 convertible series authorized 10 million shares issued outstanding 11684 1998 12936 1997 15245 1996 liquidation value 50 per share common stock par value 10 per share authorized 225 billion shares issued 2188316808 1998 1083253703 1997 1082496016 1996 219 108 capital excess par value stock 1075 544 382 cumulative translation adjustments 622 533 361 retained earnings 12540 10950 9260 13212 11069 9389 less cost treasury stock 199550532 common shares 1998 90069383 1997 81806550 1996 5636 3850 2819 total stockholders equity 7576 7219 6570 total liabilities stockholders equity 16272 14977 14685 accompanying notes integral part financial statements bristolmyers squibb company consolidated statement cash flows dollars millions year ended december 31 1998 1997 1996 cash flows operating activities net earnings 3141 3205 2850 depreciation amortization 625 591 519 special charge 800 provision restructuring 201 225 gain sale business 201 225 operating items 1 33 52 receivables 253 479 262 inventories 139 288 227 accounts payable 376 2 177 accrued expenses 134 181 42 income taxes 414 318 250 product liability 715 795 514 insurance recoverable 196 234 106 assets liabilities 190 164 248 net cash provided operating activities 4120 2476 2641 cash flows investing activities proceeds sales time deposits marketable securities 309 530 406 purchases time deposits marketable securities 256 363 379 additions fixed assets 788 767 601 proceeds sales businesses 417 370 213 business acquisitions 93 254 316 net 65 48 40 net cash used investing activities 346 532 717 cash flows financing activities shortterm borrowings 81 78 longterm debt 73 328 346 issuances common stock plans 140 117 206 purchases treasury stock 1561 1162 852 dividends paid 1551 1515 1507 net cash used financing activities 2980 2151 1885 effect exchange rates cash 6 18 3 increasedecrease cash equivalents 788 225 36 cash equivalents beginning year 1456 1681 1645 cash equivalents end year 2244 1456 1681 accompanying notes integral part financial statements 37 bristolmyers squibb company notes consolidated financial statements dollars millions note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company subsidiaries cash equivalents cash equivalents primarily include securities maturity three months less time purchase recorded cost approximates market time deposits marketable securities time deposits marketable securities available sale recorded fair value approximates cost inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals betterments capitalized cost depreciation generally computed straightline method based estimated useful lives related assets excess cost net tangible assets excess cost net tangible assets received business acquisitions amortized straightline basis periods exceeding 40 years earnings per share basic earnings per common share computed using weighted average number shares outstanding year diluted earnings per common share computed using weighted average number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options note 2 special charge described note 16 company determined final cost breast implant product liability related previously discontinued business subsidiary cost litigation prescription drug pricing cases accordingly fourth quarter 1998 company recorded special charge 800 million taxes 495 million taxes 24 per diluted share augment reserve breast implant liability prescription drug pricing litigation offset expected insurance recoveries breast implant component charge 700 million taxes 800 million liability offset insurance receivables 100 million prescription drug pricing component 100 million taxes bristolmyers squibb company notes consolidated financial statements dollars millions note 3 restructuring company recorded restructuring charge 201 million 1998 225 million 1997 restructuring charges consist primarily asset writedowns employeerelated costs related consolidation closure plants facilities restructuring reserve december 31 1998 approximately 150 million note 4 acquisitions divestitures january 1998 company acquired redmond products inc leading hair care manufacturer united states march 1998 company divested ban brand antiperspirants deodorants june 1998 company divested gea denmarkbased generic drug business hexachimie specialty chemical manufacturer based france resulting combined pretax gain 201 million may 1998 company acquired phytoervas line premium retail shampoos conditioners brazil december 1998 company acquired dongabiotech co ltd marketer distributor pharmaceutical products south korea 1997 company completed sale linvatec corporation arthroscopy surgical powered instrument business resulting pretax gain 225 million company acquired abeefe sa perus largest pharmaceutical manufacturer marketer broad range prescription nonprescription antiinfective respiratory antiinflammatory dermatological products company also acquired choco milk mexicos leading milkbased nutritional supplement sal de uvas picot leading effervescent antacid product mexico 1996 company acquired pharmavit gyogyszeres elelmiszeripari reszvenytarsasag one hungarys leading manufacturers overthecounter medicines nutritional products generic pharmaceuticals company also acquired argentia sa one argentinas largest manufacturers marketers ethical pharmaceuticals completed acquisition oncology therapeutics network specialty distributor anticancer medicines related products bristolmyers squibb company notes consolidated financial statements dollars millions note 5 income expenses year ended december 31 1998 1997 1996 interest income 87 106 95 interest expense 154 118 78 net 14 56 43 53 44 60 cash payments interest 157 million 110 million 76 million 1998 1997 1996 respectively note 6 provision income taxes components earnings income taxes year ended december 31 1998 1997 1996 us 2623 2858 2332 nonus 1645 1624 1681 4268 4482 4013 provision income taxes consisted year ended december 31 1998 1997 1996 current us 827 633 462 nonus 346 471 442 1173 1104 904 bristolmyers squibb company notes consolidated financial statements dollars millions year ended december 31 1998 1997 1996 deferred us 64 220 232 nonus 18 47 27 46 173 259 1127 1277 1163 income taxes paid year 654 million 898 million 861 million 1998 1997 1996 respectively companys provision income taxes 1998 1997 1996 different amount computed applying statutory united states federal income tax rate earnings income taxes result following earnings income taxes 1998 1997 1996 us statutory rate 350 effect operations puerto rico 25 29 34 foreign 44 26 21 special charge 6 state local taxes 6 17 16 11 264 285 290 prepaid taxes december 31 1998 1997 1996 809 million 818 million 757 million respectively deferred income tax liability included liabilities december 31 1998 1997 1996 277 million 352 million 124 million respectively bristolmyers squibb company notes consolidated financial statements dollars millions components prepaid deferred income taxes consisted december 31 1998 1997 1996 product liability 248 154 383 postretirement pension benefits 195 191 129 restructuring 55 77 88 depreciation 278 245 312 322 278 532 466 633 company settled united states federal income tax returns internal revenue service 1991 united states federal income taxes provided substantially unremitted earnings nonus subsidiaries since managements practice intent reinvest earnings operations subsidiaries total amount net unremitted earnings nonus subsidiaries approximately 32 billion december 31 1998 note 7 inventories december 31 1998 1997 1996 finished goods 1209 1153 994 work process 236 197 223 raw packaging materials 428 449 452 1873 1799 1669 bristolmyers squibb company notes consolidated financial statements dollars millions note 8 property plant equipment december 31 1998 1997 1996 land 176 180 160 buildings 2875 2631 2427 machinery equipment fixtures 3885 3646 3626 construction progress 572 544 433 7508 7001 6646 less accumulated depreciation 3079 2845 2682 4429 4156 3964 note 9 shortterm borrowings longterm debt included shortterm borrowings amounts due banks primarily foreign banks 272 million 524 million 440 million december 31 1998 1997 1996 respectively current installments longterm debt 43 million 19 million 73 million december 31 1998 1997 1996 respectively also included shortterm borrowings december 31 1998 167 million commercial paper outstanding issued subsidiary company commercial paper original maturities exceeding 270 days denominated ecus euros us dollars average interest rate shortterm borrowings 884 current installments longterm debt 656 december 31 1998 company entered two credit facilities aggregating 500 million syndicate lenders support commercial paper program credit facilities consist 250 million 364day credit facility may renewed annually consent lenders additional 364day period 250 million 5year credit facility extendible anniversary date consent lenders borrowings outstanding credit facilities december 31 1998 addition company unused shortterm lines credit foreign banks 494 million bristolmyers squibb company notes consolidated financial statements dollars millions components longterm debt december 31 1998 1997 1996 680 debentures due 2026 345 344 715 debentures due 2023 344 343 6875 debentures due 2097 296 173 214 yen notes due 2003 2005 109 various rate yen term loans due 2003 71 70 76 351 deutsche mark interest yen principal term loan due 2005 50 49 53 575 industrial revenue bonds due 2024 34 500 yen term loan due 2000 29 31 various rate term loans due 1999 26 283 yen term loan due 2002 25 24 27 capitalized leases 29 26 19 569 1025due varying amounts 2014 32 38 39 1364 1279 966 note 10 stockholders equity december 1 1998 companys board directors authorized twoforone split common stock effective february 1999 per common share amounts accompanying consolidated financial statements give effect stock split board directors also recommended amendment considered stockholder approval annual meeting stockholders increase number authorized shares common stock 225 billion shares 45 billion shares bristolmyers squibb company notes consolidated financial statements dollars millions changes capital shares capital excess par value stock capital excess par shares common stock value stock dollars issued treasury millions balance december 31 1995 540185639 34953311 375 effect twoforone stock split 540185639 34953311 54 issued pursuant stock plans options rights 221032 6623272 25 conversions preferred stock 31960 purchases 18523200 1871746 86 balance december 31 1996 1082496016 81806550 382 issued pursuant stock plans options 738151 8514867 162 conversions preferred stock 19536 purchases 16777700 balance december 31 1997 1083253703 90069383 544 effect twoforone stock split 1083253703 90069383 108 issued pursuant stock plans options 16931302 11189998 700 conversions preferred stock 21230 purchases 30601764 4856870 61 balance december 31 1998 2188316808 199550532 1075 share companys preferred stock convertible 1696 shares common stock callable companys option reductions number issued shares preferred stock 1998 1997 1996 due conversions shares common stock dividends per common share 78 1998 76 1997 75 1996 bristolmyers squibb company notes consolidated financial statements dollars millions stock compensation plans companys 1997 stock incentive plan officers directors key employees may granted options purchase companys common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable options receive common stock andor cash measured excess market price common stock option exercise price plan also provides granting performancebased stock options certain key executives terms 1997 stock incentive plan amended additional shares authorized amount 09 outstanding shares per year 2002 plan incorporates companys longterm performance awards addition 1997 stock incentive plan provides granting 20000000 shares common stock key employees subject restrictions continuous employment except case death normal retirement restrictions generally expire fiveyear period date grant compensation expense recognized restricted period december 31 1998 total 2536364 restricted shares outstanding plan teamshare stock option plan fulltime employees excluding key executives meeting certain years service requirements granted options purchase companys common stock market price date options granted company authorized 60000000 shares issuance plan december 31 1998 total 59482400 options granted plan generally 800 options granted eligible employee individual grants generally become exercisable third anniversary grant date december 31 1998 18841100 shares exercised plan company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting plans accordingly compensation expense recognized stockbased compensation plans restricted stock performancebased awards compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 136 million 07 per common share basic diluted 1998 85 million 04 per common share basic diluted 1997 55 million 03 per common share basic diluted 1996 fair value options granted 1998 1997 1996 estimated 1180 per common share 641 per common share 426 per common share respectively date grant using blackscholes optionpricing model following assumptions bristolmyers squibb company notes consolidated financial statements dollars millions 1998 1997 1996 dividend yield 31 43 volatility 182 193 170 riskfree interest rate 63 65 assumed forfeiture rate 30 expected life years 7 stock option transactions weighted shares common stock average exercise price available shares option plan balance december 31 1995 11813104 32254538 5976 effect twoforone stock split 11813104 32254538 authorized 9094182 granted 16179560 4692 exercised 8863078 2762 lapsed 1788528 1796826 3300 balance december 31 1996 18329358 70028732 3427 authorized 9006205 granted 11347801 6577 exercised 12787811 3034 lapsed 2284788 2287820 4563 balance december 31 1997 18272550 66300902 4008 effect twoforone stock split 18272550 66300902 authorized 17877318 granted 35498350 5140 exercised 36697942 1630 lapsed 2382746 3427 balance december 31 1998 21306814 129019466 2947 bristolmyers squibb company notes consolidated financial statements dollars millions following table summarizes information concerning currently outstanding exercisable options outstanding options exercisable weighted average weighted range remaining average exercise number contractual exercise number exercise prices outstanding life price exercisable price 10 20 49284336 496 1551 45862418 1551 20 30 29702906 726 2439 11330106 2310 30 40 13915674 818 3368 3938994 3367 40 50 3709050 889 4465 79080 4345 50 32407500 918 5182 129019466 61210598 december 31 1998 199155370 shares common stock reserved issuance pursuant stock plans options conversions preferred stock note 11 financial instruments foreign exchange option contracts lesser extent forward contracts used hedge anticipated transactions company exposures net foreign currency denominated assets liabilities approximated 2310 million 2070 million 1640 million december 31 1998 1997 1996 respectively primarily deutsche marks french francs italian lire japanese yen company mitigates effect exposures thirdparty borrowings risk loss associated types foreign exchange option contracts entered company limited premium amounts paid option contracts premiums deferred prepaid expenses amortized consolidated statement earnings caption time frame underlying hedged transaction gains losses related option contracts qualify hedges foreign currency anticipated transactions recognized earnings hedged transactions recognized gains losses foreign exchange forward contracts recognized basis underlying transaction hedged bristolmyers squibb company notes consolidated financial statements dollars millions notional amounts companys foreign exchange option contracts december 31 1998 1997 1996 1307 million 1279 million 1172 million respectively company anticipate material adverse effect financial position resulting involvement instruments anticipate nonperformance counterparties december 31 1998 1997 1996 carrying value financial instruments short longterm approximated fair values note 12 leases minimum rental commitments noncancelable operating leases primarily real estate effect december 31 1998 years ending december 31 1999 119 2000 89 2001 74 2002 50 2003 37 later years 154 total minimum payments 523 less total minimum sublease rentals 126 net minimum rental commitments 397 operating lease rental expense net sublease rental income 27 million 1998 26 million 1997 27 million 1996 105 million 1998 124 million 1997 129 million 1996 bristolmyers squibb company notes consolidated financial statements dollars millions note 13 segment information major product categories business segment follows year ended december 31 1998 1997 1996 medicines cardiovascular 3210 2905 2816 anticancer 2925 2420 1971 antiinfective 2412 2235 1856 central nervous system 1099 955 760 analgesics 722 739 718 beauty care hair care 1179 794 586 haircolor 894 841 812 nutritionals infant formulas 1203 1219 1201 medical devices orthopaedic implants 596 615 644 ostomy 464 451 452 interarea sales usually billed manufacturing costs geographic area year ended december 31 1998 1997 1996 united states 1434 1370 1210 europe mideast africa 843 762 692 western hemisphere 29 32 59 pacific 16 24 25 total interarea eliminations 2322 2188 1986 medicines segment represents pharmaceuticals consumer medicines businesses addition segment information reflects certain internal organizational changes made 1998 prior year data restated accordingly bristolmyers squibb company notes consolidated financial statements dollars millions included earnings taxes segment cost capital charge offset cost capital charge included addition principally consists interest income interest expense certain administrative expenses 1996 cost certain companys productivity programs 1998 includes gain sale businesses 201 million provision restructuring 201 million 1997 includes gain sale business 225 million provision restructuring 225 million assets principally consist cash equivalents time deposits marketable securities certain assets business segments net sales earnings taxes 1998 1997 1996 1998 1997 1996 medicines 12573 11211 9848 3491 3124 2758 beauty care 2305 1895 1663 361 280 240 nutritionals 1759 1793 1694 376 370 357 medical devices 1647 1802 1860 338 352 418 net sales earnings taxes 18284 16701 15065 4566 4126 3773 geographic areas net sales earnings taxes 1998 1997 1996 1998 1997 1996 united states 12527 11014 9661 3278 2700 2512 europe mideast africa 4873 4653 4520 1139 1109 988 western hemisphere 1749 1586 1307 223 225 145 pacific 1457 1636 1563 2 52 69 interarea eliminations 2322 2188 1986 76 40 59 net sales earnings taxes 18284 16701 15065 4566 4126 3773 special charge 800 502 356 240 earnings taxes 4268 4482 4013 bristolmyers squibb company notes consolidated financial statements dollars millions business segments yearend assets 1998 1997 1996 medicines 8545 8278 7548 beauty care 1058 743 652 nutritionals 1094 1021 910 medical devices 1174 1225 1376 identifiable segment assets 11871 11267 10486 geographic areas yearend assets 1998 1997 1996 united states 6897 6545 5925 europe mideast africa 3540 3430 3376 western hemisphere 1238 1063 741 pacific 944 989 1023 interarea eliminations 748 760 579 identifiable geographic assets 11871 11267 10486 assets 4401 3710 4199 total assets 16272 14977 14685 capital business segments expenditures depreciation 1998 1997 1996 1998 1997 1996 medicines 575 573 434 290 265 252 beauty care 71 53 67 29 20 26 nutritionals 59 55 43 38 43 45 medical devices 33 24 36 46 43 business segment total 738 705 580 393 374 366 50 62 21 20 23 21 total 788 767 601 413 397 387 bristolmyers squibb company notes consolidated financial statements dollars millions note 14 retirement plans company certain subsidiaries defined benefit pension plans defines contribution plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan companys funding policy contribute amounts provide current service fund past service liability plan benefits primarily based years credited service participants compensation plan assets principally consist equity fixed income securities cost companys defined benefit plans included following components year ended december 31 1998 1997 1996 service cost benefits earned year 132 135 127 interest cost projected benefit obligation 207 203 191 expected earnings plan assets 258 231 213 net amortization deferral 1 10 25 net pension expense 80 117 130 weighted average actuarial assumptions companys pension plans follows december 31 1998 1997 1996 discount rate 70 75 78 compensation increase 43 45 48 longterm rate return 100 bristolmyers squibb company notes consolidated financial statements dollars millions changes benefit obligation plan assets year ended december 31 1998 1997 1996 benefit obligation beginning year 2928 2734 2689 service cost benefits earned year 132 135 127 interest cost projected benefit obligation 207 203 191 actuarial gains losses 160 45 118 benefits paid 211 189 155 benefit obligation end year 3216 2928 2734 fair value plan assets beginning year 2949 2596 2307 actual earnings plan assets 359 504 359 employer contribution 40 38 85 benefits paid 211 189 155 fair value plan assets end year 3137 2949 2596 december 31 1998 1997 1996 plan assets excess less projected benefit obligation 79 21 138 unamortized net assets adoption 33 47 62 unrecognized prior service cost 48 56 67 unrecognized net losses 87 13 235 net amount recognized 23 43 102 amounts recognized consolidated balance sheet consist prepaid benefit cost 187 194 241 accrued benefit liability 190 173 165 asset 26 22 26 net amount recognized 23 43 102 bristolmyers squibb company notes consolidated financial statements dollars millions projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 288 million 230 million 40 million respectively december 31 1998 271 million 208 million 37 million respectively december 31 1997 272 million 202 million 38 million respectively december 31 1996 primarily attributable unfunded benefit equalization plan 1998 increase total projected benefit obligation due lower discount rate principal defined contribution plan bristolmyers squibb savings investment program companys contribution based employee contributions level company match company contributions plan 45 million 1998 40 million 1997 39 million 1996 note 15 postretirement benefit plans pensions company provides comprehensive medical group life benefits substantially us retirees elect participate companys comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets principally consist equity securities fixed income securities cost companys postretirement benefit plans included following components year ended december 31 1998 1997 1996 service cost benefits earned year 8 9 interest cost accumulated postretirement benefit obligation 35 36 34 expected earnings plan assets 11 9 8 net amortization deferral 3 2 1 net postretirement benefit expense 29 34 36 bristolmyers squibb company notes consolidated financial statements dollars millions weighted average actuarial assumptions companys postretirement benefit plans follows december 31 1998 1997 1996 discount rate 70 75 78 longterm rate return 100 changes benefit obligation plan assets year ended december 31 1998 1997 1996 benefit obligation beginning year 495 482 554 service cost benefits earned year 8 9 interest cost accumulated postretirement benefit obligation 35 36 34 plan participants contributions 2 plan amendments 1 acquisition 2 actuarial gains losses 6 2 87 benefits paid 38 32 benefit obligation end year 507 495 482 fair value plan assets beginning year 113 89 74 actual earnings plan assets 15 20 13 employer contribution 36 34 32 plan participants contributions 2 benefits paid 38 32 fair value plan assets end year 128 113 89 bristolmyers squibb company notes consolidated financial statements dollars millions december 31 1998 1997 1996 accumulated portretirement benefit obligation excess plan assets 379 382 393 unrecognized prior service cost 3 4 5 unrecognized net earnings 60 65 56 accrued postretirement benefit expense 436 443 444 measurement purposes annual rate increase per capita cost covered health care benefits 72 participants age 65 67 participants age 65 assumed 1999 rate assumed decrease gradually 475 2007 remain level thereafter onepercentagepoint change assumed health care cost trend rates would following effects 1percentage point increase point decrease effect aggregate service interest cost components net postretirement benefit expense 1 effect accumulated postretirement benefit obligation 22 20 1998 increase total benefit obligation due lower discount rate note 16 contingencies various lawsuits claims proceedings nature considered normal businesses pending company certain subsidiaries significant described reference made item 3 legal proceedings part 1 form 10k annual report breast implant litigation company together subsidiary medical engineering corporation mec certain companies named defendant number claims lawsuits alleging damages personal injuries various types resulting polyurethanecovered breast implants smoothwalled breast implants formerly manufactured mec related company 90000 claims potential claims company direct bristolmyers squibb company notes consolidated financial statements dollars millions lawsuits registration nationwide class action settlement approved federal district court birmingham alabama revised settlement dealt revised settlement settlements trial expected january 1 1999 companys contingent liability respect breast implant claims limited residual unpaid revised settlement obligations roughly 6000 remaining optouts pursued may pursue claims court december 31 1998 approximately 15000 united states 1300 foreign breast implant recipients plaintiffs lawsuits pending federal state courts united states certain courts canada australia figures include claims plaintiffs process settled andor dismissed lawsuits 10200 us 400 foreign plaintiffs opted revised settlement lawsuits 4800 us plaintiffs opt expected dismissed since plaintiffs among estimated 74000 women mec implants chose participate nationwide settlement remaining optout plaintiffs claims based upon products manufactured sold mec many others claims process settled terms revised settlement additional optouts expected minimal since deadline us class members opt passed addition companys remaining obligations revised settlement program limited payments current claimants already made additional current claims may filed without court approval payments claims socalled registrants late registrants limited terms revised settlement separate class action settlements approved provincial courts ontario quebec agreement reached foreign breast implant recipients may settle claims company believes able address remaining optout claims well expected remaining obligations revised settlement program within reserves described fourth quarter 1993 company recorded charge 500 million taxes 310 million taxes respect breast implant cases charge consisted 15 billion potential liabilities expenses offset 10 billion expected insurance proceeds fourth quarters 1994 1995 company recorded additional special charges 750 million taxes 488 million taxes 950 million taxes 590 million taxes respectively related breast implant product liability claims fourth quarter 1998 company recorded additional special charge earnings amount 800 million taxes increased insurance receivable amount 100 million resulting net charge earnings 433 million taxes respect breast implant product liability claims december 31 1998 1997 1996 amount insurance recoverable 523 million 619 million 853 million respectively included current liabilities product liability claims 1121 million 1036 million 1831 million respectively prescription drug litigation december 31 1998 company defendant 100 actions brought company 30 pharmaceutical manufacturers drug wholesalers pharmacy benefit managers various federal district courts certain chain drugstores supermarket chains independent drug stores opted nationwide class previously settled company suing individually cases coordinated pretrial purposes seek treble damages injunctive relief account alleged antitrust violations pricing marketing brand name prescription drugs cases brought retail pharmacies state court state law alleging similar grounds pending california alabama mississippi purported class actions bristolmyers squibb company notes consolidated financial statements dollars millions purportedly multistate reach brought consumers state court state law alleging similar grounds settled subject court approval california remain pending alabama tennessee fourth quarter 1998 company recorded special charge earnings amount 100 million taxes 62 million taxes respect prescription drug litigation possible predict certainty outcome cases opinion management material adverse effect companys operating results liquidity consolidated financial position note 17 selected quarterly financial data unaudited first second third fourth quarter year 1998 net sales 4446 4430 4523 4885 18284 gross profit 3294 3224 3332 3578 13428 net earnings 927 835 966 413 3141 earnings per common share basic 47 42 49 21 158 diluted 46 41 47 20 155 1997 net sales 4045 4064 4151 4441 16701 gross profit 2967 3041 3262 12237 net earnings 810 738 855 802 3205 earnings per common share basic 41 37 43 40 161 diluted 40 36 42 39 157 1998 first quarter results included gain sale business 125 million 78 million taxes provision restructuring 125 million 78 million taxes second quarter results included gain sale businesses 76 million 47 million taxes provision restructuring 76 million 47 million taxes fourth quarter results included charge 800 million 495 million taxes 25 per common share basic 24 per common share diluted litigation breast implant prescription drug pricing cases offset expected insurance recoveries 1997 fourth quarter results included gain sale business 225 million 140 million taxes provision restructuring 225 million 140 million taxes report independent accountants board directors stockholders bristolmyers squibb company opinion consolidated financial statements listed index appearing item 14a1 2 page 63 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 1998 1997 1996 results operations cash flows years ended conformity generally accepted accounting principles financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits statements accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion expressed pricewaterhousecoopers llp 11 madison avenue new york new york 10010 january 20 1999 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings comprehensive income millions except per share amounts year ended december 31 earnings 1999 1998 1997 net sales 20222 18284 16701 expenses cost products sold 5539 4856 4464 marketing selling administrative 4578 4418 4173 advertising product promotion 2409 2312 2241 research development 1843 1577 1385 special charge 800 provision restructuring 201 225 gain sale businesses 201 225 86 53 44 14455 14016 12219 earnings income taxes 5767 4268 4482 provision income taxes 1600 1127 1277 net earnings 4167 3141 3205 earnings per common share basic 210 158 161 diluted 206 155 157 average common shares outstanding basic 1984 1987 1992 diluted 2027 2031 2042 dividends per common share 86 78 76 comprehensive income net earnings 4167 3141 3205 comprehensive income foreign currency translation 212 86 195 tax effect 18 3 23 total comprehensive income 194 89 172 comprehensive income 3973 3052 3033 accompanying notes integral part financial statements bristolmyers squibb company consolidated statement retained earnings millions year ended december 31 1999 1998 1997 retained earnings january 1 12540 10950 9260 net earnings 4167 3141 3205 16707 14091 12465 less dividends 1707 1551 1515 retained earnings december 31 15000 12540 10950 accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet assets dollars millions december 31 1999 1998 1997 current assets cash equivalents 2720 2244 1456 time deposits marketable securities 237 285 338 receivables net allowances 3272 3190 2973 inventories 2126 1873 1799 prepaid expenses 912 1190 1170 total current assets 9267 8782 7736 property plant equipment net 4621 4429 4156 insurance recoverable 468 523 619 excess cost net tangible assets received business acquisitions 1502 1587 1625 assets 1256 951 841 total assets 17114 16272 14977 accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet liabilities stockholders equity dollars millions december 31 1999 1998 1997 liabilities current liabilities shortterm borrowings 432 482 543 accounts payable 1657 1380 1017 accrued expenses 2367 2302 1939 product liability 287 877 865 us foreign income taxes payable 794 750 668 total current liabilities 5537 5791 5032 liabilities 1590 1541 1447 longterm debt 1342 1364 1279 total liabilities 8469 8696 7758 stockholders equity preferred stock 2 convertible series authorized 10 million shares issued outstanding 10977 1999 11684 1998 12936 1997 liquidation value 50 per share common stock par value 10 per share authorized 45 billion shares issued 2192970504 1999 2188316808 219 108 1998 1083253703 1997 capital excess par value stock 1533 1075 544 comprehensive income 816 622 533 retained earnings 15000 12540 10950 15936 13212 11069 less cost treasury stock 212164851 common shares 1999 199550532 1998 7291 5636 3850 90069383 1997 total stockholders equity 8645 7576 7219 total liabilities stockholders equity 17114 16272 14977 accompanying notes integral part financial statements bristolmyers squibb company consolidated statement cash flows dollars millions year ended december 31 1999 1998 1997 cash flows operating activities net earnings 4167 3141 3205 depreciation amortization 678 625 591 special charge 800 provision restructuring 201 225 gain sale businesses 201 225 operating items 79 1 33 receivables 176 253 479 inventories 317 139 288 accounts payable accrued expenses 243 242 179 income taxes 738 414 318 product liability 726 715 795 insurance recoverable 59 196 234 assets liabilities 117 190 164 net cash provided operating activities 4470 4120 2476 cash flows investing activities proceeds sales time deposits 51 309 530 marketable securities purchases time deposits marketable 4 256 363 securities additions fixed assets 709 788 767 proceeds sale business 134 417 370 acquisition businesses 266 93 254 net 35 65 48 net cash used investing activities 759 346 532 cash flows financing activities shortterm borrowings 26 81 longterm debt 54 73 328 issuances common stock plans 8 140 117 purchases treasury stock 1419 1561 1162 dividends paid 1707 1551 1515 net cash used financing activities 3198 2980 2151 effect exchange rates cash 37 6 18 increase decrease cash 476 788 225 equivalents cash equivalents beginning 2244 1456 1681 period cash equivalents end period 2720 2244 1456 accompanying notes integral part financial statements bristolmyers squibb company notes consolidated financial statements dollars millions note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company subsidiaries cash equivalents cash equivalents primarily include securities maturity three months less time purchase recorded cost approximates market time deposits marketable securities time deposits marketable securities available sale recorded fair value approximates cost inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals betterments capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets 50 years buildings 3 40 years machinery equipment fixtures excess cost net tangible assets excess cost net tangible assets received business acquisitions amortized straightline basis periods exceeding 40 years excess cost net tangible assets periodically reviewed impairment based assessment future operations including cash flows ensure excess cost net tangible assets appropriately valued product liability accruals product liability recorded undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance third party recoveries product liabilities recorded undiscounted basis probable recovery realized insurance recoverable recorded balance sheet general payment terms three years less revenue recognition revenue product sales recognized upon shipment customers earnings per share basic earnings per common share computed using weighted average number shares outstanding year diluted earnings per common share computed using weighted average number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options bristolmyers squibb company notes consolidated financial statements dollars millions note 2 acquisitions divestitures june 1999 company acquired calctose nutritional milk modifier september 1999 company entered development commercialization agreement aripiprazole novel drug study phase iii trials treatment schizophrenia otsuka pharmaceutical co ltd december 1999 company completed sale laboratori guieu gynecological pediatric dermatological products business headquartered milan italy gain sale material 1998 company acquired redmond products inc leading hair care manufacturer united states phytoervas line premium retail shampoos conditioners brazil company also 1998 acquired dongabiotech co ltd marketer distributor pharmaceutical products south korea 1998 company divested ban brand antiperspirants deodorants gea denmarkbased generic drug business hexachimie specialty chemical manufacturer based france resulting combined pretax gain 201 million 1997 company completed sale linvatec corporation arthroscopy surgical powered instrument business resulting pretax gain 225 million company acquired abeefe sa perus largest pharmaceutical manufacturer marketer broad range prescription nonprescription antiinfective respiratory antiinflammatory dermatological products company also acquired choco milk mexicos leading milkbased nutritional supplement sal de uvas picot leading effervescent antacid product mexico note 3 earnings per share computations basic earnings per common share diluted earnings per common share follows earnings per common share basic year ended december 31 dollars millions except per share 1999 1998 1997 amounts net earnings 4167 3141 3205 average common shares outstanding 1984 1987 1992 earnings per common share basic 210 158 161 bristolmyers squibb company notes consolidated financial statements dollars millions earnings per common share diluted year ended december 31 dollars millions except per share 1999 1998 1997 amounts net earnings 4167 3141 3205 average common shares outstanding 1984 1987 1992 incremental shares outstanding assuming exercise dilutive stock options 43 44 50 average common shares outstanding 2027 2031 2042 earnings per common share diluted 206 155 157 note 4 income expenses year ended december 31 1999 1998 1997 interest income 107 87 106 interest expense 130 154 118 net 63 14 56 86 53 44 cash payments interest 119 million 157 million 110 million 1999 1998 1997 respectively bristolmyers squibb company notes consolidated financial statements dollars millions note 5 provision income taxes components earnings income taxes december 31 1999 1998 1997 us 3644 2623 2858 nonus 2123 1645 1624 5767 4268 4482 provision income taxes consisted december 31 1999 1998 1997 current us 780 827 633 nonus 405 346 471 1185 1173 1104 components prepaid deferred income taxes consisted december 31 1999 1998 1997 deferred us 365 64 220 nonus 50 18 47 415 46 173 1600 1127 1277 bristolmyers squibb company notes consolidated financial statements dollars millions income taxes paid year 805 million 654 million 898 million 1999 1998 1997 respectively companys provision income taxes 1999 1998 1997 different amount computed applying statutory united states federal income tax rate earnings income taxes result following earnings income taxes 1999 1998 1997 us statutory rate 350 foreign 50 44 26 effect operations puerto rico 18 25 29 special charge 6 state local taxes 6 11 17 16 277 264 285 prepaid taxes december 31 1999 1998 1997 567 million 809 million 818 million respectively deferred income tax liability included liabilities december 31 1999 1998 1997 445 million 277 million 352 million respectively components prepaid deferred income taxes consisted december 31 1999 1998 1997 depreciation 278 postretirement pension benefits 120 195 191 product liability 13 248 154 restructuring 25 55 77 268 312 322 122 532 466 bristolmyers squibb company notes consolidated financial statements dollars millions company settled united states federal income tax returns internal revenue service 1991 united states federal income taxes provided substantially unremitted earnings nonus subsidiaries since managements practice intent reinvest earnings operations subsidiaries total amount net unremitted earnings nonus subsidiaries approximately 44 billion december 31 1999 note 6 inventories december 31 1999 1998 1997 finished goods 1472 1209 1153 work process 302 236 197 raw packaging materials 352 428 449 2126 1873 1799 note 7 property plant equipment december 31 1999 1998 1997 land 170 176 180 buildings 3096 2875 2631 machinery equipment fixtures 4093 3885 3646 construction progress 482 572 544 7841 7508 7001 less accumulated depreciation 3220 3079 2845 4621 4429 4156 bristolmyers squibb company notes consolidated financial statements dollars millions note 8 shortterm borrowings longterm debt included shortterm borrowings amounts due banks primarily foreign banks 245 million 272 million 524 million december 31 1999 1998 1997 respectively current installments longterm debt 10 million 43 million 19 million december 31 1999 1998 1997 respectively also included shortterm borrowings december 31 1999 1998 177 million 167 million respectively commercial paper outstanding commercial paper original maturities exceeding 270 days denominated euros us dollars average interest rate shortterm borrowings 676 current installments longterm debt 681 december 31 1999 company renewed two credit facilities aggregating 500 million syndicate lenders support commercial paper program credit facilities consist 250 million 364day credit facility may renewed annually consent lenders additional 364day period 250 million four fiveyear credit facility extendible anniversary date consent lenders borrowings outstanding credit facilities december 31 1999 addition company unused shortterm lines credit foreign banks 420 million components longterm debt december 31 1999 1998 1997 680 debentures due 2026 345 344 715 debentures due 2023 344 343 6875 debentures due 2097 296 various rate yen term loans due 2003 71 70 214 yen notes due 2005 62 55 173 yen notes due 2003 62 54 351 deutsche mark interest yen principal term loan due 2005 57 50 49 575 industrial revenue bonds due 2024 34 500 yen term loan paid 1999 29 various rate term loans paid 1999 26 283 yen term loan due 2002 28 25 24 capitalized leases 22 29 26 430 1025due varying amounts 2014 21 32 38 1342 1364 1279 bristolmyers squibb company notes consolidated financial statements dollars millions note 9 stockholders equity changes capital shares capital excess par value stock shares common stock capital excess par value stock dollars millions issued treasury balance december 31 1996 1082496016 81806550 382 issued pursuant stock plans options 738151 8514867 162 conversions preferred stock 19536 purchases 16777700 balance december 31 1997 1083253703 90069383 544 effect twoforone stock split 1083253703 90069383 108 issued pursuant stock plans options 16931302 11189998 700 conversions preferred stock 21230 purchases 30601764 4856870 61 balance december 31 1998 2188316808 199550532 1075 issued pursuant stock plans options 4641700 9694871 458 conversions preferred stock 11996 purchases 22309190 balance december 31 1999 2192970504 212164851 1533 share companys preferred stock convertible 1696 shares common stock callable companys option reductions number issued shares preferred stock 1999 1998 1997 due conversions shares common stock dividends per common share 86 1999 78 1998 76 1997 bristolmyers squibb company notes consolidated financial statements dollars millions stock compensation plans companys 1997 stock incentive plan officers directors key employees may granted options purchase companys common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable options receive common stock andor cash measured excess market price common stock option exercise price plan also provides granting performancebased stock options certain key executives terms 1997 stock incentive plan amended additional shares authorized amount 09 outstanding shares per year 2002 plan incorporates companys longterm performance awards addition 1997 stock incentive plan provides granting 20000000 shares common stock key employees subject restrictions continuous employment except case death normal retirement restrictions generally expire fiveyear period date grant compensation expense recognized restricted period december 31 1999 total 2135524 restricted shares outstanding plan teamshare stock option plan fulltime employees excluding key executives meeting certain years service requirements granted options purchase companys common stock market price date options granted company authorized 62000000 shares issuance plan december 31 1999 total 23579400 shares exercised plan company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting plans accordingly compensation expense recognized stockbased compensation plans restricted stock performancebased awards compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 198 million 10 per common share basic diluted 1999 136 million 07 per common share basic diluted 1998 85 million 04 per common share basic diluted 1997 fair value options granted 1999 1998 1997 estimated 1737 per common share 1180 per common share 641 per common share respectively date grant using blackscholes optionpricing model following assumptions bristolmyers squibb company notes consolidated financial statements dollars millions 1999 1998 1997 dividend yield 24 31 43 volatility 218 182 193 riskfree interest rate 55 63 65 assumed forfeiture rate 30 expected life years 7 stock option transactions weighted average shares common stock exercise price shares plan available option plan balance december 31 1996 18329358 70028732 3427 authorized 9006205 granted 11347801 6577 exercised 12787811 3034 lapsed 2284788 2287820 4563 balance december 31 1997 18272550 66300902 4008 effect twoforone stock split 18272550 66300902 authorized 17877318 granted 35498350 5140 exercised 36697942 1630 lapsed 2382746 3427 balance december 31 1998 21306814 129019466 2947 authorized 19898896 granted 24221950 6539 exercised 20425070 2041 lapsed 3552037 4251 balance december 31 1999 20535797 129264309 3727 bristolmyers squibb company notes consolidated financial statements dollars millions following table summarizes information concerning currently outstanding exercisable options outstanding options exercisable range number weighted number weighted exercise outstanding average exercisable average prices remaining exercise contractual price life 10 20 36055360 410 1561 36050360 1561 20 30 23777750 629 2432 19415975 2457 30 40 12441697 719 3368 6530637 3368 40 50 4319338 809 4570 158263 4410 50 60 29924664 818 5173 5012685 5100 60 22745500 919 6649 152319 6110 129264309 67320239 december 31 1999 204705699 shares common stock reserved issuance pursuant stock plans options conversions preferred stock note 10 financial instruments foreign exchange option contracts lesser extent forward contracts used hedge anticipated foreign currency transactions primarily intercompany inventory purchases expected occur within next year company exposures net foreign currency denominated assets liabilities approximated 2179 million 2310 million 2070 million december 31 1999 1998 1997 respectively primarily europe japan canada company mitigates effect exposures thirdparty borrowings risk loss associated types foreign exchange option contracts entered company limited premium amounts paid option contracts premiums deferred prepaid expenses amortized consolidated statement earnings caption time frame underlying hedged transaction gains related option contracts qualify hedges foreign currency anticipated transactions recognized earnings hedged transactions recognized gains losses foreign exchange forward contracts recognized basis underlying transaction hedged bristolmyers squibb company notes consolidated financial statements dollars millions notional amounts companys foreign exchange option contracts december 31 1999 1998 1997 1762 million 1307 million 1279 million respectively company anticipate material adverse effect financial position resulting involvement instruments anticipate nonperformance counterparties december 31 1999 1998 1997 carrying value financial instruments short longterm approximated fair values note 11 leases minimum rental commitments noncancelable operating leases primarily real estate effect december 31 1999 years ending december 31 2000 109 2001 97 2002 80 2003 60 2004 46 later years 141 total minimum payments 533 less total minimum sublease rentals 111 net minimum rental commitments 422 operating lease rental expense net sublease rental income 24 million 1999 27 million 1998 26 million 1997 90 million 1999 105 million 1998 124 million 1997 bristolmyers squibb company notes consolidated financial statements dollars millions note 12 segment information major product categories business segment follows year ended december 31 1999 1998 1997 medicines pravachol 1704 1643 1437 taxol 1481 1206 941 glucophage 1317 862 579 oncology therapeutics network 894 657 480 buspar 605 531 443 zerit 605 551 398 paraplatin 600 525 437 plavix 547 144 beauty care hair care 1250 1179 794 haircolor 905 894 841 nutritionals infant formulas 1233 1203 1219 medical devices orthopaedic implants 665 596 615 ostomy 449 464 451 interarea sales usually billed manufacturing costs geographic area december 31 1999 1998 1997 united states 1647 1434 1370 europe mideast africa 937 843 762 western hemisphere 46 29 32 pacific 25 16 24 total interarea eliminations 2655 2322 2188 medicines segment represents pharmaceuticals consumer medicines businesses addition segment information reflects certain internal organizational changes made 1999 prior year data restated accordingly bristolmyers squibb company notes consolidated financial statements dollars millions included earnings taxes segment cost capital charge offset cost capital charge included addition principally consists interest income interest expense certain administrative expenses allocations industry segments certain corporate programs 1998 includes gain sale businesses 201 million provision restructuring 201 million 1997 includes gain sale business 225 million provision restructuring 225 million assets principally consist cash equivalents time deposits marketable securities certain assets business segments net sales earnings taxes 1999 1998 1997 1999 1998 1997 medicines 14309 12573 11211 4018 3402 3033 beauty care 2381 2305 1895 247 343 269 nutritionals 1850 1759 1793 375 371 360 medical devices 1682 1647 1802 365 336 345 net sales earnings taxes 20222 18284 16701 5005 4452 4007 geographic areas net sales earnings taxes 1999 1998 1997 1999 1998 1997 united states 14445 12527 11014 3491 3164 2581 europe mideast africa 5040 4873 4653 1268 1139 1109 western hemisphere 1681 1749 1586 110 223 225 pacific 1711 1457 1636 83 2 52 interarea eliminations 2655 2322 2188 53 76 40 net sales earnings taxes 20222 18284 16701 5005 4452 4007 special charge 800 762 616 475 5767 4268 4482 bristolmyers squibb company notes consolidated financial statements dollars millions business segments yearend assets 1999 1998 1997 medicines 8769 8296 7964 beauty care 1121 1058 833 nutritionals 1190 1094 1113 medical devices 1185 1174 1225 identifiable segment assets 12265 11622 11135 geographic areas yearend assets 1999 1998 1997 united states 6989 6657 6417 europe mideast africa 3622 3533 3426 western hemisphere 1425 1238 1063 pacific 943 942 989 interarea eliminations 714 748 760 identifiable geographic assets 12265 11622 11135 assets 4849 4650 3842 17114 16272 14977 business segments capital expenditures depreciation 1999 1998 1997 1999 1998 1997 medicines 457 535 524 279 272 244 beauty care 58 71 58 35 29 22 nutritionals 56 59 61 43 38 42 medical devices 44 33 24 32 36 46 business segment total 615 698 667 389 375 354 94 90 100 49 38 43 709 788 767 438 413 397 bristolmyers squibb company notes consolidated financial statements dollars millions note 13 retirement plans company certain subsidiaries defined benefit pension plans defines contribution plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan companys funding policy contribute amounts provide current service fund past service liability plan benefits primarily based years credited service participants compensation plan assets principally consist equity fixed income securities cost companys defined benefit plans included following components year ended december 31 1999 1998 1997 service cost benefits earned year 161 132 135 interest cost projected benefit obligation 217 207 203 obligation expected earnings plan assets 285 258 231 net amortization deferral 4 1 10 net pension expense 97 80 117 weighted average actuarial assumptions companys pension plans follows december 31 1999 1998 1997 discount rate 78 70 75 compensation increase 48 43 45 longterm rate return 100 bristolmyers squibb company notes consolidated financial statements dollars millions changes benefit obligation plan assets year ended december 31 1999 1998 1997 benefit obligation beginning year 3216 2928 2734 service cost benefits earned year 161 132 135 year interest cost projected benefit obligation 217 207 203 actuarial gains losses 203 160 45 benefits paid 254 211 189 benefit obligation end year 3137 3216 2928 december 31 1999 1998 1997 fair value plan assets beginning year 3137 2949 2596 actual earnings plan assets 561 359 504 employer contribution 46 40 38 benefits paid 254 211 189 fair value plan assets end year 3490 3137 2949 december 31 1999 1998 1997 plan assets excess less projected benefit obligation 353 79 21 unamortized net assets adoption 2 33 47 unrecognized prior service cost 37 48 56 unrecognized net gains losses 385 87 13 net amount recognized 3 23 43 amounts recognized consolidated balance sheet consist prepaid benefit cost 181 187 194 accrued benefit liability 190 173 asset 12 26 22 net amount recognized 3 23 43 bristolmyers squibb company notes consolidated financial statements dollars millions projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 319 million 245 million 56 million respectively december 31 1999 288 million 230 million 40 million respectively december 31 1998 271 million 208 million 37 million respectively december 31 1997 primarily attributable unfunded benefit equalization plan principal defined contribution plan bristolmyers squibb savings investment program companys contribution based employee contributions level company match company contributions plan 49 million 1999 45 million 1998 40 million 1997 note 14 postretirement benefit plans pensions company provides comprehensive medical group life benefits substantially us retirees elect participate companys comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets principally consist equity securities fixed income securities cost companys postretirement benefit plans included following components year ended december 31 1999 1998 1997 service cost benefits earned year 10 8 9 interest cost accumulated postretirement 36 35 36 benefit obligation expected earnings plan assets 13 11 9 net amortization deferral 1 3 2 net postretirement benefit expense 34 29 34 bristolmyers squibb company notes consolidated financial statements dollars millions weighted average actuarial assumptions companys postretirement benefit plans follows december 31 1999 1998 1997 discount rate 78 70 75 longterm rate return 100 changes benefit obligation plan assets year ended december 31 1999 1998 1997 benefit obligation beginning year 507 495 482 service cost benefits earned year 10 8 9 interest cost accumulated post retirement benefit obligation 36 35 36 plan participants contributions 2 plan amendments 9 1 actuarial gains losses 16 6 2 benefits paid 41 38 32 benefit obligation end year 521 507 495 december 31 1999 1998 1997 fair value plan assets beginning year 128 113 89 actual earnings plan assets 24 15 20 employer contribution 39 36 34 plan participants contributions 2 benefits paid 41 38 32 fair value plan assets end year 152 128 113 bristolmyers squibb company notes consolidated financial statements dollars millions december 31 1999 1998 1997 accumulated postretirement benefit obligation excess plan assets 369 379 382 unrecognized prior service cost 6 3 4 unrecognized net earnings 55 60 65 accrued postretirement benefit expense 430 436 443 measurement purposes annual rate increase per capita cost covered health care benefits 7 participants assumed 2000 rate assumed decrease gradually 5 2007 remain level thereafter onepercentagepoint change assumed health care cost trend rates would following effects 1percentage point increase decrease effect aggregate service interest cost components net postretirement benefit expense 1 effect accumulated postretirement benefit obligation 21 19 note 15 litigation various lawsuits claims proceedings nature considered normal businesses pending company certain subsidiaries significant described reference made item 3 legal proceedings part 1 form 10k annual report breast implant company together subsidiary medical engineering corporation mec certain companies named defendant number claims lawsuits alleging damages personal injuries various types resulting polyurethanecovered breast implants smoothwalled breast implants formerly manufactured mec related company 90000 claims potential claims company direct lawsuits registration nationwide class action settlement approved federal district court birmingham alabama revised settlement dealt revised settlement settlements trial bristolmyers squibb company notes consolidated financial statements dollars millions december 31 1999 companys contingent liability respect breast implant claims limited residual unpaid revised settlement obligations roughly 1700 remaining optouts pursued may pursue claims court december 31 1999 approximately 6700 united states 200 foreign breast implant recipients plaintiffs lawsuits pending federal state courts united states certain courts canada australia figures include claims plaintiffs process settled andor dismissedin lawsuits 3660 us 49 foreign plaintiffs opted revised settlement lawsuits 3040 us plaintiffs opt expected dismissed since plaintiffs among estimated 74000 women mec implants chose participate nationwide settlement 3660 optout plaintiffs estimated 1960 claims based upon products manufactured sold mec process settled andor dismissed accordingly number remaining plaintiffs pursued may pursue claims court company roughly 1700 stated preceding paragraph terms revised settlement additional optouts expected minimal since deadline us class members opt passed addition companys remaining obligations revised settlement program limited payments current claimants already made additional current claims may filed without court approval payments claims socalled registrants late registrants limited terms revised settlement separate class action settlements approved provincial courts ontario quebec agreement reached foreign breast implant recipients may settle claims company believes able address remaining optout claims well expected remaining obligations revised settlement program within reserves described fourth quarter 1993 company recorded charge 500 million taxes 310 million taxes respect breast implant cases charge consisted 15 billion potential liabilities expenses offset 10 billion expected insurance proceeds fourth quarters 1994 1995 company recorded additional special charges 750 million taxes 488 million taxes 950 million taxes 590 million taxes respectively related breast implant product liability claims fourth quarter 1998 company recorded additional special charge earnings amount 800 million taxes increased insurance receivable amount 100 million resulting net charge earnings 433 million taxes respect breast implant product liability claims 1999 1998 1997 cash payments net insurance receipts 631 million 551 million 549 million respectively made related breast implant product liability claims december 31 1999 354 million included current liabilities breast implant product liability claims prescription drug december 31 1999 company remains defendant several actions challenging pricing brand name prescription drugs actions include several currently consolidated antitrust actions brought company 30 pharmaceutical manufacturers drug wholesalers pharmacy benefit managers certain chain drugstores supermarket chains independent drugstores state pharmaceutical actions purported class actions behalf consumers fourth quarter 1998 company recorded special bristolmyers squibb company notes consolidated financial statements dollars millions charge earnings amount 100 million taxes 62 million taxes respect prescription drug litigation company continue defend vigorously position ongoing litigation believes able address remaining claims within reserves 1999 cash payments 59 million made related pricing litigation claims taxol composition matter patent paclitaxel active ingredient taxol united states company presently manufacturer marketer product containing paclitaxel 1997 1998 company filed several lawsuits alleging number generic drug companies infringed patents covering certain methods administering paclitaxel filed abbreviated new drug applications seeking regulatory approval sell paclitaxel actions consolidated discovery united states district court district new jersey company assert monetary claim defendants seeks prevent defendants marketing paclitaxel manner violates companys patents defendants asserted infringe companys patents invalid unenforceable defendants also asserted counterclaims seeking damages alleged antitrust unfair competition violations january 4 2000 district court granted companys motion dismiss certain antitrust unfair competition counterclaims companys motion summary judgment remaining antitrust unfair competition counterclaims denied march 17 2000 february 29 2000 district court granted part generic companies summary judgment motions invalidity finding claims companys patents dispute invalid except claims limited treatment ovarian cancer result ruling generic companies may obtain us food drug administration approval market paclitaxel solely treatment metastatic breast cancer failure combination chemotherapy district courts opinion left determination trial validity claims companys patents directed low dose threehour administration paclitaxel ovarian cancer denied generic companies summary judgment motion arguing noninfringement companys patents company may pursue appeal rights future claims remaining lawsuits currently scheduled trial may 2000 possible time make reasonable assessment outcome remaining claims actions reasonably estimate impact taxol sales amount damages company prevail possible predict certainty outcome cases opinion management material adverse effect companys operating results liquidity consolidated financial position note 16 selected quarterly financial data unaudited millions except per share amounts first second third fourth quarter year 1999 net sales 4854 4920 5040 5408 20222 gross profit 3549 3559 3638 3937 14683 net earnings 1066 952 1097 1052 4167 earnings per common share basic 54 48 55 53 210 diluted 53 47 54 52 206 1998 net sales 4446 4430 4523 4885 18284 gross profit 3294 3224 3332 3578 13428 net earnings 927 835 966 413 3141 earnings per common share basic 47 42 49 21 158 diluted 46 41 47 20 155 1998 first quarter results included gain sale business 125 million 78 million taxes provision restructuring 125 million 78 million taxes second quarter results included gain sale businesses 76 million 47 million taxes provision restructuring 76 million 47 million taxes fourth quarter results included charge 800 million 495 million taxes 25 per common share basic 24 per common share diluted litigation breast implant prescription drug pricing cases offset expected insurance recoveries report independent accountants board directors stockholders bristolmyers squibb company opinion consolidated financial statements listed index appearing item 14a1 page 61 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 1999 1998 1997 results operations cash flows years ended conformity accounting principles generally accepted united states addition opinion financial statement schedule listed index appearing item 14a2 page 61 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance auditing standards generally accepted united states require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion expressed pricewaterhousecoopers llp pricewaterhousecoopers llp new york new york january 24 2000 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings millions except per share amounts accompanying notes integral part financial statements bristolmyers squibb company consolidated statement comprehensive income retained earnings millions except per share amounts accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet assets dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet liabilities stockholders equity dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated statement cash flows dollars millions accompanying notes integral part financial statements bristolmyers squibb company notes consolidated financial statements dollars millions note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company subsidiaries cash equivalents cash equivalents primarily include securities maturity three months less time purchase recorded cost approximates market value time deposits marketable securities time deposits marketable securities available sale recorded fair value approximates cost inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals betterments capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets 50 years buildings 3 40 years machinery equipment fixtures excess cost net tangible assets excess cost net tangible assets received business acquisitions amortized straightline basis periods exceeding 40 years excess cost net tangible assets periodically reviewed impairment based assessment future operations including cash flows ensure excess cost net tangible assets appropriately valued product liability accruals product liability recorded undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recorded undiscounted basis probable recovery realized insurance recoverable recorded balance sheet general payment terms two years less revenue recognition revenue product sales recognized upon shipment customers earnings per share basic earnings per common share computed using weighted average number shares outstanding year diluted earnings per common share computed using weighted average number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options reclassifications certain reclassifications made prior year amounts conform current year presentation bristolmyers squibb company notes consolidated financial statements dollars millions note 2 discontinued operations september 28 2000 company announced planned divestitures clairol zimmer businesses company expects businesses divested 2001 accordingly operations clairol includes matrix essentials inc matrix affiliate zimmer reflected discontinued operations accompanying consolidated statement earnings 2000 company completed sale matrix cosmair inc wholly owned us subsidiary loreal sa resulting pretax gain 402 million 240 million taxes gain included gain disposal discontinued operations net sales earnings discontinued operations follows earnings income taxes years ended december 31 2000 1998 include restructuring charges 34 million 44 million respectively consolidated balance sheet consolidated statement cash flows include clairol zimmer businesses net assets discontinued operations expected disposed december 31 2000 1999 1998 follows company uses centralized approach cash management financing operations accordingly company allocate debt businesses cash flows operating investing activities discontinued operations years ended december 31 2000 1999 1998 988 million including 438 million net proceeds sale matrix 261 million 289 million respectively bristolmyers squibb company notes consolidated financial statements dollars millions note 3 acquisitions divestitures 2000 company completed sale three pharmaceutical products estrace cream ovcon 35 ovcon 50 well sea breeze brand japan resulting pretax gain 160 million recorded continuing operations june 1999 company acquired calctose nutritional milk modifier september 1999 company entered development commercialization agreement aripiprazole novel drug study phase iii trials treatment schizophrenia otsuka pharmaceutical co ltd december 1999 company completed sale laboratori guieu gynecological pediatric dermatological products business headquartered milan italy gain sale material 1998 company acquired donga biotech co ltd marketer distributor pharmaceutical products south korea 1998 company divested ban brand antiperspirants deodorants gea denmarkbased generic drug business hexachimie specialty chemical manufacturer based france resulting combined pretax gain 201 million note 4 restructuring 2000 company recorded pretax charges 508 million continuing operations charges primarily restructuring activities related workforce reductions downsizing streamlining operations certain international markets convatec business reorganization companys global business services 508 million restructuring charges consisted 298 million employee termination benefits approximately 5200 employees 136 million asset writedowns related closure manufacturing research facilities 74 million expenses 398 million liability originally recorded accrued expenses reduced 247 million december 31 2000 company expects substantially complete restructuring activities mid2001 1998 company recorded pretax charges 157 million continuing operations restructuring charges consisted primarily asset writedowns employeerelated costs related consolidation closure plants facilities bristolmyers squibb company notes consolidated financial statements dollars millions note 5 earnings per share computations basic earnings per common share diluted earnings per common share follows bristolmyers squibb company notes consolidated financial statements dollars millions note 6 income expenses cash payments interest 112 million 119 million 157 million 2000 1999 1998 respectively note 7 provision income taxes components earnings continuing operations income taxes amounts categorized based location taxing authorities 2000 company continued convert domestic puerto rico operations nonus operations provision income taxes attributable continuing operations consisted bristolmyers squibb company notes consolidated financial statements dollars millions companys provision income taxes 2000 1999 1998 different amount computed applying statutory united states federal income tax rate earnings income taxes result following prepaid taxes december 31 2000 1999 1998 537 million 567 million 809 million respectively deferred income tax liability included liabilities december 31 2000 1999 1998 425 million 445 million 277 million respectively components prepaid deferred income taxes consisted income taxes paid year 1620 million 805 million 654 million 2000 1999 1998 respectively company settled united states federal income tax returns internal revenue service 1991 united states federal income taxes provided substantially unremitted earnings nonus subsidiaries since managements practice intent reinvest earnings operations subsidiaries total amount net unremitted earnings nonus subsidiaries approximately 60 billion december 31 2000 bristolmyers squibb company notes consolidated financial statements dollars millions note 8 inventories discontinued operations constituted approximately 18 total company inventory year ended december 31 2000 23 total company inventory years ended december 31 1999 1998 note 9 property plant equipment depreciation expense years ended december 31 2000 1999 1998 408 million 384 million 359 million respectively property plant equipment discontinued operations constituted approximately 8 total company property plant equipment years ended december 31 2000 1999 1998 note 10 shortterm borrowings longterm debt included shortterm borrowings amounts due banks primarily foreign banks 152 million 245 million 272 million december 31 2000 1999 1998 respectively current installments longterm debt 10 million december 31 2000 1999 43 million december 31 1998 also included shortterm borrowings december 31 1999 1998 177 million 167 million respectively commercial paper outstanding average interest rate shortterm borrowings 797 current installments longterm debt 638 december 31 2000 company renewed two credit facilities aggregating 500 million syndicate lenders support commercial paper program credit facilities consist 250 million 364day credit facility may renewed annually consent lenders additional 364day period 250 million fiveyear credit facility extendible anniversary date consent lenders borrowings outstanding credit facilities december 31 2000 addition company unused shortterm lines credit foreign banks 337 million bristolmyers squibb company notes consolidated financial statements dollars millions components longterm debt note 11 stockholders equity changes capital shares capital excess par value stock bristolmyers squibb company notes consolidated financial statements dollars millions share companys preferred stock convertible 1696 shares common stock callable companys option reductions number issued shares preferred stock 2000 1999 1998 due conversions shares common stock dividends per common share 98 2000 86 1999 78 1998 stock compensation plans companys 1997 stock incentive plan officers directors key employees may granted options purchase companys common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable options receive common stock andor cash measured excess market price common stock option exercise price plan also provides granting performancebased stock options certain key executives terms 1997 stock incentive plan amended additional shares authorized amount 09 outstanding shares per year 2002 plan incorporates companys longterm performance awards addition 1997 stock incentive plan provides granting 20000000 shares common stock key employees subject restrictions continuous employment except case death normal retirement restrictions generally expire fiveyear period date grant compensation expense recognized restricted period december 31 2000 total 1821194 restricted shares outstanding plan teamshare stock option plan fulltime employees excluding key executives meeting certain years service requirements granted options purchase companys common stock market price date options granted company authorized 62000000 shares issuance plan december 31 2000 total 28455134 shares exercised plan company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting plans accordingly compensation expense recognized stockbased compensation plans restricted stock performancebased awards compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed statement financial accounting standards 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 218 million 11 per common share basic diluted 2000 198 million 10 per common share basic diluted 1999 136 million 07 per common share basic diluted 1998 fair value options granted 2000 1999 1998 estimated 1717 per common share 1737 per common share 1180 per common share respectively date grant using blackscholes optionpricing model following assumptions bristolmyers squibb company notes consolidated financial statements dollars millions stock option transactions bristolmyers squibb company notes consolidated financial statements dollars millions following table summarizes information concerning currently outstanding exercisable options december 31 2000 209405290 shares common stock reserved issuance pursuant stock plans options conversions preferred stock options related discontinued operations included amounts material note 12 financial instruments foreign exchange option contracts lesser extent forward contracts used hedge anticipated foreign currency transactions primarily intercompany inventory purchases expected occur within next year company exposures net foreign currency denominated assets liabilities approximated 1781 million 2179 million 2310 million december 31 2000 1999 1998 respectively primarily europe japan mexico company mitigates effect exposures thirdparty borrowings exposures net foreign currency denominated assets liabilities related discontinued operations included amounts material risk loss associated types foreign exchange option contracts entered company limited premium amounts paid option contracts premiums deferred prepaid expenses amortized consolidated statement earnings caption time frame underlying hedged transaction gains related option contracts qualify hedges foreign currency anticipated transactions recognized earnings hedged transactions recognized gains losses foreign exchange forward contracts recognized basis underlying transaction hedged notional amounts companys foreign exchange option contracts december 31 2000 1999 1998 1395 million 1762 million 1307 million respectively notional amounts foreign exchange contracts related discontinued operations included amounts material bristolmyers squibb company notes consolidated financial statements dollars millions company anticipate material adverse effect financial position resulting involvement instruments anticipate nonperformance counterparties december 31 2000 1999 1998 carrying value financial instruments short longterm approximated fair values note 13 leases minimum rental commitments noncancelable operating leases primarily real estate effect december 31 2000 minimum rental commitments operating lease rental expense related discontinued operations included amounts material operating lease rental expense net sublease rental income 21 million 2000 24 million 1999 27 million 1998 85 million 2000 87 million 1999 102 million 1998 bristolmyers squibb company notes consolidated financial statements dollars millions note 14 segment information company operates one significant business segment medicines operations nutritional convatec businesses material share many economic operating characteristics medicines business pharmaceutical products distributed wholesalers two wholesalers accounted approximately 13 12 net sales continuing operations 2000 sales selected products product categories follows geographic areas bristolmyers squibb company notes consolidated financial statements dollars millions note 15 retirement plans company certain subsidiaries defined benefit pension plans defined contribution plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan companys funding policy contribute amounts provide current service fund past service liability plan benefits primarily based years credited service participants compensation plan assets principally consist equity fixed income securities companys share components total net pension expense pension assets obligation related continuing operations well curtailment gain loss yet determined therefore following information relates companys pension plan including discontinued operations amounts related discontinued operations estimated represent approximately 10 total pension obligations assets companys retirement plans cost companys defined benefit plans included following components weighted average actuarial assumptions companys pension plans follows changes benefit obligation plan assets bristolmyers squibb company notes consolidated financial statements dollars millions amounts recognized consolidated balance sheet consist projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 332 million 254 million 47 million respectively december 31 2000 319 million 245 million 56 million respectively december 31 1999 288 million 230 million 40 million respectively december 31 1998 primarily attributable unfunded benefit equalization plan principal defined contribution plan bristolmyers squibb savings investment program companys contribution based employee contributions level company match company contributions plan 53 million 2000 49 million 1999 45 million 1998 bristolmyers squibb company notes consolidated financial statements dollars millions note 16 postretirement benefit plans pensions company provides comprehensive medical group life benefits substantially us retirees elect participate companys comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets principally consist equity securities fixed income securities companys share components total postretirement benefit expense postretirement benefit assets obligation related continuing operations well curtailment gain loss yet determined therefore following information relates companys postretirement benefit plans including discontinued operations cost companys postretirement benefit plans included following components weighted average actuarial assumptions companys postretirement benefit plans follows changes benefit obligation plan assets bristolmyers squibb company notes consolidated financial statements dollars millions measurement purposes annual rate increase per capita cost covered health care benefits 9 participants assumed 2001 rate assumed decrease gradually 5 2007 remain level thereafter onepercentagepoint change assumed health care cost trend rates would following effects note 17 litigation various lawsuits claims proceedings nature considered normal businesses pending company certain subsidiaries significant described breast implant company together subsidiary medical engineering corporation mec certain companies named defendant number claims lawsuits alleging damages personal injuries various types resulting polyurethanecovered breast implants smoothwalled breast implants formerly manufactured mec related company 90000 claims potential claims company direct lawsuits registration nationwide class action settlement approved federal district court birmingham alabama revised settlement dealt revised settlement settlements trial december 31 2000 companys contingent liability respect breast implant claims limited residual unpaid revised settlement obligations roughly 850 remaining optouts pursued may pursue claims court bristolmyers squibb company notes consolidated financial statements dollars millions december 31 2000 approximately 4790 us 310 foreign breast implant recipients plaintiffs lawsuits pending federal state courts united states certain courts canada australia figures include claims plaintiffs process settled andor dismissed lawsuits 2140 us 68 foreign plaintiffs opted revised settlement lawsuits 2650 us plaintiffs opt expected dismissed since plaintiffs among estimated 74000 women mec implants chose participate nationwide settlement 2140 optout plaintiffs estimated 1290 claims based upon products manufactured sold mec process settled andor dismissed accordingly number remaining plaintiffs pursued may pursue claims court company roughly 850 stated preceding paragraph terms revised settlement additional optouts expected minimal since deadline us class members opt passed addition companys remaining obligations revised settlement program limited payments current claimants already made additional current claims may filed without court approval payments claims socalled registrants late registrants limited terms revised settlement separate class action settlements approved provincial courts ontario quebec agreement reached foreign breast implant recipients may settle claims company believes able address remaining optout claims well expected remaining obligations revised settlement program within reserves described fourth quarter 1993 company recorded charge 500 million taxes 310 million taxes respect breast implant cases charge consisted 15 billion potential liabilities expenses offset 10 billion expected insurance proceeds fourth quarters 1994 1995 company recorded additional special charges 750 million taxes 488 million taxes 950 million taxes 590 million taxes respectively related breast implant product liability claims fourth quarter 1998 company recorded additional special charge earnings amount 800 million taxes increased insurance receivable amount 100 million resulting net charge earnings 433 million taxes respect breast implant product liability claims 2000 1999 1998 cash payments net insurance receipts 68 million 631 million 551 million respectively made related breast implant product liability claims december 31 2000 186 million included current liabilities breast implant product liability claims taxol 1997 1998 company filed several lawsuits alleging number generic drug companies infringed patents covering methods administering paclitaxel filed abbreviated new drug applications seeking regulatory approval sell paclitaxel actions consolidated discovery us district court district new jersey company assert monetary claim defendants seeks prevent defendants marketing paclitaxel manner violates companys patents defendants asserted infringe companys patents invalid unenforceable defendants also asserted counterclaims seeking damages alleged antitrust unfair competition violations company believes patents valid counterclaims asserted without merit bristolmyers squibb company notes consolidated financial statements dollars millions january 4 2000 district court granted companys motion dismiss certain antitrust unfair competition counterclaims companys motion summary judgment remaining antitrust unfair competition counterclaims denied march 17 2000 february 29 2000 district court granted part generic companies summary judgment motions invalidity finding claims companys patents invalid except claims limited treatment ovarian cancer district courts opinion left determination trial validity claims companys patents directed low dose threehour administration paclitaxel ovarian cancer denied generic companies summary judgment motion arguing noninfringement companys patents order pursue immediate appellate review district courts invalidity findings company voluntarily relinquished rights remaining ovarian tumorspecific claims patents april 7 2000 district court granted companys request entry judgment companys appeal district courts judgment pending federal circuit court appeals company successful appeal trial would follow successful appeal company believes remaining patent rights would apply tumor types september 2000 one defendants received final approval us food drug administration abbreviated new drug application paclitaxel marketing product two additional tentative approvals announced united states food drug administration one issued company corporate family defendant received final approval tentative approval issued unrelated defendant possible time make reasonable assessment outcome appeal remaining claims actions reasonably estimate impact taxol sales amount damages company prevail vanlev company chairman board chief executive officer charles heimbold jr chief scientific officer president pharmaceutical research institute peter ringrose phd defendants number purported class actions filed us district court district new jersey april may june alleging violations federal securities laws regulations plaintiffs claim defendants disseminated materially false misleading statements failed disclose information concerning safety expected availability product vanlev period november 8 1999 april 19 2000 plaintiffs seek compensatory damages costs expenses possible time make reasonable assessment outcome matter amount damages company prevail possible predict certainty outcome cases opinion management material adverse effect companys operating results consolidated financial position bristolmyers squibb company notes consolidated financial statements dollars millions note 18 selected quarterly financial data unaudited 2000 first quarter results included gain sale business 120 million 87 million taxes provision restructuring 102 million 74 million taxes second quarter results included gain sale businesses 40 million 29 million taxes provision restructuring 20 million 15 million taxes third quarter results included provision restructuring 386 million 240 million taxes 2000 first quarter results included provision restructuring 18 million 11 million taxes third quarter results included gain sale businesses 402 million 240 million taxes provision restructuring 16 million 11 million taxes report independent accountants board directors stockholders bristolmyers squibb company opinion consolidated financial statements listed index appearing item 14a1 page 56 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2000 1999 1998 results operations cash flows years ended conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed index appearing item 14a2 page 56 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp pricewaterhousecoopers llp new york new york january 24 2001 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings millions except per share amounts accompanying notes integral part financial statements bristolmyers squibb company consolidated statement comprehensive income retained earnings millions except per share amounts accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet assets dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet liabilities stockholders equity dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated statement cash flows dollars millions accompanying notes integral part financial statements bristolmyers squibb company notes consolidated financial statements dollars millions note 1 accounting policies basis consolidationthe consolidated financial statements include accounts bristolmyers squibb company subsidiaries cash equivalentscash cash equivalents primarily include securities maturities three months less time purchase recorded cost approximates market value time deposits marketable securitiestime deposits marketable securities available sale recorded fair value approximates cost inventory valuationinventories generally stated average cost excess market capital assets depreciationexpenditures additions renewals betterments capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets 50 years buildings 3 40 years machinery equipment fixtures company periodically evaluates whether current events circumstances indicate carrying value depreciable assets may recoverable estimate undiscounted future cash flows produced asset appropriate group assets compared carrying value determine whether impairment exists investmentsthe company consolidates majority 50 percent owned subsidiaries company accounts 50 percent less owned companies ability exercise significant influence using equity method accounting companys share net income losses investments included consolidated statement earnings company periodically reviews investments impairment adjusts investments fair value decline market value deemed temporary acquisitionsthe company adopted statement financial accounting standards sfas 141 business combinations statement requires companies use purchase method accounting business combinations initiated andor consummated june 30 2001 goodwillin june 2001 financial accounting standards board fasb issued sfas 142 goodwill intangible assets effective fiscal years beginning december 15 2001 sfas 142 addresses initial recognition measurement intangible assets acquired outside business combination recognition measurement goodwill intangible assets subsequent acquisition new rules goodwill longer amortized subject annual impairment tests connection accounting change goodwill resulting companys dupont pharmaceuticals acquisition imclone investment amortized goodwill arising business acquisitions prior june 30 2001 amortized straightline basis periods ranging 15 40 years goodwill amortized december 31 2001 application nonamortization provisions material effect companys financial statements intangible assetsintangible assets consist patents technology licenses amortized straightline basis periods ranging 3 17 years accumulated amortization intangible assets 631 million 2001 495 million 2000 intangible assets periodically reviewed impairment based assessment future operations including cash flows acquired inprocess research developmentthe fair value acquired inprocess research development determined independent appraisal based present value research projects projected cash flows utilizing income approach future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research projects underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating companys weighted average cost capital 13 2001 product liabilityaccruals product liability recorded undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recorded undiscounted basis probable recovery realized insurance recoverable recorded balance sheet general payment terms two years less derivative financial instrumentsderivative financial instruments used company principally management interest rate foreign currency exposures company hold issue derivative financial instruments trading purposes company records derivative instruments balance sheet fair value changes derivatives fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized charge credit earnings derivative designated cash flow hedge effective portions changes fair value derivative recorded comprehensive income loss recognized consolidated statement earnings hedged item affects earnings ineffective portions changes fair value cash flow hedges recognized charge credit earnings company designates assigns derivatives hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer expected occur company recognizes gain loss designated hedging financial instruments revenue recognitionrevenue product sales recognized upon shipment customers earnings per sharebasic earnings per common share computed using weighted average number shares outstanding year diluted earnings per common share computed using weighted average number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options note 2 discontinued operations 2000 company announced planned divestitures clairol zimmer businesses accordingly operations clairol includes matrix essentials inc matrix affiliate zimmer reflected discontinued operations accompanying consolidated statement earnings november 15 2001 company completed sale clairol procter gamble cash proceeds approximately 50 billion sale resulted pretax gain 42 billion 25 billion taxes included gain disposal discontinued operations august 6 2001 company spun zimmer holdings inc taxfree distribution resulting common stock dividend 203 million 2000 company completed sale matrix cosmair inc wholly owned us subsidiary loreal sa resulting pretax gain 402 million 240 million taxes gain included gain disposal discontinued operations net sales earnings discontinued operations follows 1earnings income taxes year ended december 31 2000 include restructuring charges 34 million consolidated balance sheet consolidated statement cash flows include clairol zimmer businesses date disposition net assets discontinued operations december 31 2000 924 million consisting current assets 866 million longterm assets 616 million less liabilities principally current 558 million company uses centralized approach cash management financing operations accordingly company allocate debt businesses cash flows operating investing activities discontinued operations years ended december 31 2001 2000 1999 53 billion including approximately 50 billion proceeds sale clairol 998 million including 438 million proceeds sale matrix 261 million respectively note 3 acquisitions divestitures dupont pharmaceuticals acquisition october 1 2001 company acquired dupont pharmaceuticals business dupont e dupont de nemours company cash 78 billion results dupont included consolidated financial statements date acquisition dupont primarily domestic pharmaceutical imagery product business focused research development acquisition financed proceeds issuance 15 billion commercial paper issuance 50 billion mediumterm notes internal cash flows purchase price allocation prepared preliminary basis reasonable changes expected additional information becomes available following summary estimated fair values assets acquired liabilities assumed date acquisition total intangible assets 1976 million amortized weightedaverage useful lives include core developed technology 1783 million 15 11 years weightedaverage useful life respectively patents 193 million 11 year weightedaverage useful life goodwill 3884 million assigned pharmaceuticals reporting unit total amount 2418 million expected deductible tax purposes 15 year period preliminary value 2009 million assigned acquired inprocess research development charged earnings fourth quarter 2001 charge associated five research projects cardiovascular central nervous system oncology antiinfective therapeutic areas ranging preclinical phase ii development stage amount determined identifying research projects technological feasibility established alternative future use projected fda approval dates years 2005 2008 time company expects projects begin generate cash flows cost complete research projects estimated 12 billion research development projects considered valuation subject normal risks uncertainties associated demonstrating safety efficacy required obtain fda approval connection acquisition company incurred 640 million restructuring costs result severance relocation workforce elimination duplicate facilities contract terminations costs recognized company liability assumed acquisition date resulting additional goodwill restructuring costs consisted 350 million employee termination benefits approximately 1800 employees 110 million related closure facilities 180 million contract terminations 640 million originally recorded accrued expenses reduced 523 million december 31 2001 company also incurred 61 million purchase accounting adjustments costs connection acquisition expensed fourth quarter 2001 following unaudited pro forma financial information presents results acquisition occurred beginning respective periods pro forma results prepared comparative purposes include certain adjustments additional amortization expense result identifiable intangible assets arising acquisition increased interest expense acquisition debt pro forma results necessarily indicative either results operations actually would resulted acquisition effect beginning respective periods future results 2001 company completed sale three pharmaceutical productscorzide delestrogen florinef licensing rights corgard us estrace tablets apothecon commodity business solage product line resulted pretax gain 392 million 2000 company completed sale three pharmaceutical productsestrace cream ovcon 35 ovcon 50as well sea breeze brand japan resulting pretax gain 160 million recorded continuing operations june 1999 company acquired calctose nutritional milk modifier september 1999 company entered development commercialization agreement aripiprazole novel drug study phase iii trials treatment schizophrenia otsuka pharmaceutical co ltd december 1999 company completed sale laboratori guieu gynecologic pediatric dermatologic products business headquartered milan italy gain sale material note 4 restructuring 2001 company recorded pretax charges 739 million continuing operations charges primarily restructuring activities related workforce reductions contract sales force termination exiting product lines downsizing streamlining business operations consisted 272 million employee termination benefits approximately 3900 employees 128 million asset writedowns related closure manufacturing research facilities 95 million contract sales force termination 150 million costs exit certain product lines 94 million expenses 739 million charges reported balance sheet reduction current assets 150 million property plant equipment 128 million increase accrued expenses 461 million 461 million liability originally recorded accrued expenses reduced 308 million december 31 2001 company expects substantially complete restructuring activities end 2002 also 2001 company recorded pretax charge 42 million settlement litigation promotional claims brought distributor storebrand infant formula mead johnson 2000 company recorded pretax charges 508 million continuing operations restructuring charges consisted primarily workforce reductions downsizing streamlining operations certain international markets convatec business well reorganization companys global business services december 31 2001 actions substantially complete remaining liability 40 million note 5 earnings per share computations basic earnings per common share diluted earnings per common share follows weightedaverage shares issuable upon exercise stock options included diluted earnings per share calculation antidilutive 43 million 2001 3 million 2000 1 million 1999 note 6 income expenses cash payments interest 100 million 112 million 119 million 2001 2000 1999 respectively note 7 alliances investments november 2001 company purchased 144 million shares imclone systems inc imclone 70 per share 1007 million represented approximately 199 imclone shares outstanding prior commencement public tender offer transaction accounted using equity method accounting completion public tender offer part strategic agreement company imclone also includes arrangement codevelop copromote investigational cancer drug erbitux series payments totaling 1 billion 200 million paid 2001 march 5 2002 agreement imclone revised reduce total payments 900 million 1 billion new agreement company paid imclone 140 million first quarter 2002 pay imclone 60 million march 2003 aggregate 500 million upon achievement two milestones also agreement company pay imclone distribution fee based flat rate 39 product revenues north america fourth quarter 2001 transactions resulted pretax charge approximately 735 million comprised 575 million writeoff acquired inprocess research development related equity investment 160 million writeoff milestone payments 140 million paid upon signing revised agreement expensed inprocess research development first quarter 2002 acquired inprocess research development charge related three oncology research projects phase later stage development one research project erbitux late phase iii development amount determined identifying research projects areas technological feasibility established alternative future use projected us food drug administration fda approval dates used years 2002 2008 time company expects projects begin generate cash flows cost complete projects estimated 323 million research development projects considered valuation subject normal risks uncertainties associated demonstrating safety efficacy required obtain fda approval purchase price allocation resulted 66 million patent technology intangible assets amortized weightedaverage useful lives 17 years approximately 375 million goodwill amortized december 28 2001 imclone announced fda refused accept filing biologics license application bla submitted imclone erbitux bla submitted gain marketing approval treat irinotecanrefractory colorectal carcinoma company imclone met fda february 2002 currently evaluating next steps january 18 2002 subcommittee oversight investigations house energy commerce committee announced investigating questions conduct imclone development erbitux january 25 2002 imclone announced received informal inquiry securities exchange commission well inquiries justice department aforementioned subcommittee company cooperate investigations 1207 million paid equity investment 1007 million milestone payment 200 million 735 million expensed acquired inprocess research development remaining 472 million recorded equity investment additional 9 million recorded investment primarily acquisition costs resulting carrying value 481 million december 31 2001 pershare basis carrying value companys imclone investment closing market value imclone shares december 31 2001 3340 4646 respectively given fdas december 28 2001 action market value imclone shares since december 31 2001 1958 per share january 24 2002 possible company could recognize charge impairment investment imclone future periods based upon evaluation status erbitux market value imclone 1997 company sanofisynthelabo sanofi entered codevelopment comarketing agreement two products avapro irbesartan angiotensin ii receptor antagonist indicated treatment hypertension plavix clopidogrel platelet inhibitor worldwide alliance operates framework two geographic territories one americas australia europe asia two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place company acts operating partner territories covering americas principally us canada puerto rico latin america countries australia owns majority controlling interest territory company consolidates country partnership results records sanofis share results minority interest expense included incomeexpense company recorded sales territory comarketing countries 1859 million 1284 million 802 million 2001 2000 1999 respectively sanofi acts operating partner territories covering europe asia company accounts investment partnership entities territories equity investment records share results incomeexpense income taxes partnership entities years ended december 31 2001 2000 1999 82 million 57 million 14 million respectively note 8 provision income taxes components earnings continuing operations income taxes amounts categorized based location taxing authorities provision income taxes attributable continuing operations consisted companys provision income taxes 2001 2000 1999 different amount computed applying statutory us federal income tax rate earnings continuing operations income taxes result following effective tax rate continuing operations declined 154 2001 252 2000 due primarily lower pretax income us resulting writeoff acquired inprocess research development nonrecurring items 2001 prepaid taxes december 31 2001 2000 890 million 537 million respectively deferred income taxes included assetsliabilities december 31 2001 2000 630 million 425 million respectively components prepaid deferred income taxes consisted increase net prepaid deferred tax assets 1520 million december 31 2001 112 million december 31 2000 relates primarily acquired inprocess research development restructuring charges 2001 give rise tax deductions future years income taxes paid year 1021 million 1620 million 805 million 2001 2000 1999 respectively company settled us federal income tax returns internal revenue service 1994 us federal income taxes provided substantially unremitted earnings nonus subsidiaries since managements practice intent reinvest earnings operations subsidiaries total amount net unremitted earnings nonus subsidiaries approximately 88 billion december 31 2001 note 9 property plant equipment property plant equipment discontinued operations constituted approximately 8 total company property plant equipment year ended december 31 2000 note 10 inventories discontinued operations constituted approximately 18 total company inventory year ended december 31 2000 note 11 shortterm borrowings longterm debt included shortterm borrowings amounts due banks primarily foreign 140 million 152 million december 31 2001 2000 respectively current installments longterm debt 34 million december 31 2001 10 million december 31 2000 average interest rate shortterm borrowings 741 current installments longterm debt 403 december 31 2001 company consolidated two credit facilities aggregating 500 million syndicate lenders support commercial paper program new credit facility consists 500 million fiveyear revolving credit facility extendable anniversary date consent lenders borrowings outstanding credit facility december 31 2001 addition company unused shortterm lines credit foreign banks 290 million components longterm debt longterm debt december 31 2001 increased 6237 million 1336 million december 31 2000 largely result financing dupont imclone transactions 2001 company issued 50 billion debt notes 25 billion matures 2006 remaining 25 billion matures 2011 note 12 stockholders equity changes capital shares capital excess par value stock share companys preferred stock convertible 1696 shares common stock callable companys option reductions number issued shares preferred stock 2001 2000 1999 due conversions shares common stock dividends per common share 110 2001 098 2000 086 1999 stock compensation plans companys 1997 stock incentive plan officers directors key employees may granted options purchase companys common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable options receive common stock andor cash measured excess market price common stock option exercise price plan also provides granting performancebased stock options certain key executives terms 1997 stock incentive plan amended additional shares authorized amount 09 outstanding shares per year 2002 plan incorporates companys longterm performance awards addition 1997 stock incentive plan provides granting 20000000 shares common stock key employees subject restrictions continuous employment except case death normal retirement restrictions generally expire fiveyear period date grant compensation expense recognized restricted period december 31 2001 total 1286771 restricted shares outstanding plan teamshare stock option plan fulltime employees excluding key executives meeting certain years service requirements granted options purchase companys common stock market price date options granted company authorized 62000000 shares issuance plan individual grants generally became exercisable third anniversary grant date december 31 2001 30430045 shares exercised plan company applies accounting principles board opinion 25 accounting stock issued employees related interpretations accounting plans accordingly compensation expense recognized stockbased compensation plans restricted stock performancebased awards compensation cost companys stock option plans determined based upon fair value grant date awards plans consistent methodology prescribed sfas 123 accounting stockbased compensation companys net income earnings per share would reduced approximately 246 million 13 per common share basic diluted 2001 218 million 11 per common share basic diluted 2000 198 million 10 per common share basic diluted 1999 fair value options granted 2001 2000 1999 estimated 2259 per common share 1717 per common share 1737 per common share respectively date grant using blackscholes optionpricing model following assumptions stock option transactions 1effective spinoff zimmer august 6 2001 unexercised bristolmyers squibb stock options held zimmer employees converted zimmer stock options remaining unexercised bristolmyers squibb stock options number stock options exercise price adjusted preserve intrinsic value stock options existed prior spinoff following table summarizes information concerning currently outstanding exercisable options bristolmyers squibb company notes consolidated financial statements dollars millions december 31 2001 217702408 shares common stock reserved issuance pursuant stock plans options conversions preferred stock options related discontinued operations included amounts material note 13 financial instruments company exposed market risk due changes currency exchange rates interest rates result company utilizes foreign exchange option forward contracts offset effect exchange rate fluctuations anticipated foreign currency transactions primarily intercompany inventory purchases expected occur within next year company exposures net foreign currency denominated assets liabilities approximated 2079 million 1781 million december 31 2001 2000 respectively primarily europe japan mexico canada company mitigates effect exposures thirdparty borrowings exposures net foreign currency denominated assets liabilities related discontinued operations included amounts material foreign exchange option contracts forward contracts used hedge anticipated transactions companys primary foreign currency exposures relation us dollar japanese yen euro mexican peso canadian dollar notional amounts companys foreign exchange derivative contracts december 31 2001 2000 1387 million 1395 million respectively derivatives qualify hedges future cash flows effective portion changes fair value temporarily recorded comprehensive income recognized earnings hedged item affects earnings ineffective portion hedges reported earnings occurs notional amounts foreign exchange derivative contracts related discontinued operations included amounts material manage interest rate risk company utilizes interest rate swap contracts company enters interest rate swaps hedge effects adverse changes interest rates future cash outflows interest gains losses changes fair value interest rate swap contracts designated cash flow hedges initially deferred recorded comprehensive income amounts transferred comprehensive income recognized earnings interest expense period hedged item recognized earnings 2001 company entered interest rate hedge contracts notional amount 2 billion manage exposure changes interest rates longterm fixedrate debt issues connection dupont imclone transactions see notes 3 7 contracts designated hedges variability cash flows due changes longterm benchmark interest rates third quarter 2001 company settled existing interest rate hedge contracts coincided issuance longterm fixedrate debt company recorded contract settlements fair value resulting 69 million deferred loss net taxes accumulated comprehensive incomeloss recognized yield adjustment terms related borrowings fair value derivative instruments recorded prepaid expenses december 31 2001 27 million fair values companys derivative instruments based relevant market information including current forward currency exchange rates current interest rates fair value option contracts estimated using blackscholes model based yearend currency rates fair value foreign exchange forward contracts based yearend forward currency rates carrying amount companys financial instruments include cash equivalents marketable securities accounts receivable longterm debt accounts payable approximates fair value december 31 2001 2000 accordance sfas 133 company recorded transition adjustment january 1 2001 26 million net taxes comprehensive incomeloss record derivative instruments fair value reconciliation current period changes net taxes included comprehensive incomeloss follows note 14 segment information company operates one significant business segment medicines operations nutritional convatec businesses material share economic operating characteristics medicines business companys products sold principally wholesale retail trade nationally internationally certain products also sold drug manufacturers hospitals medical profession three wholesalers accounted approximately 45 net sales continuing operations 2001 two wholesalers accounted 24 2000 sales selected products product categories follows geographic areas note 15 leases minimum rental commitments noncancelable operating leases primarily real estate effect december 31 2001 operating lease rental expense net sublease rental income 25 million 2001 21 million 2000 24 million 1999 80 million 2001 85 million 2000 87 million 1999 note 16 retirement plans company certain subsidiaries defined benefit pension plans defined contribution plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan companys funding policy contribute amounts provide current service fund past service liability plan benefits based primarily years credited service participants compensation plan assets consist principally equity fixedincome securities 2001 company domestic curtailmentsettlement loss approximately 25 million resulting reductions employment levels primarily connection restructuring activities clairol divestiture cost companys defined benefit plans included following components weightedaverage actuarial assumptions companys pension plans follows changes benefit obligation plan assets projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 665 million 562 million 306 million respectively december 31 2001 332 million 254 million 47 million respectively december 31 2000 319 million 245 million 56 million respectively december 31 1999 attributable primarily unfunded benefit equalization plan december 31 2001 dupont pharmaceuticals company us pension plan note 16 retirement plans continued principal defined contribution plan bristolmyers squibb savings investment program companys contribution based employee contributions level company match company contributions plan 54 million 2001 53 million 2000 49 million 1999 note 17 postretirement benefit plans pensions company provides comprehensive medical group life benefits substantially us retirees elect participate companys comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets consist principally equity securities fixedincome securities cost companys postretirement benefit plans included following components weightedaverage actuarial assumptions companys postretirement benefit plans follows changes benefit obligation plan assets reported curtailments relate companys restructuring divestiture activities measurement purposes annual rate increase per capita cost covered health care benefits 8 participants assumed 2002 rate assumed decrease gradually 48 2007 remain level thereafter onepercentagepoint change assumed health care cost trend rates would following effects note 18 litigation various lawsuits claims proceedings nature considered normal businesses pending company certain subsidiaries significant described breast implant litigation company together subsidiary medical engineering corporation mec certain companies remains defendant number claims lawsuits alleging damages personal injuries various types resulting polyurethanecovered breast implants smoothwalled breast implants formerly manufactured mec related company vast majority claims company direct lawsuits resolved settlements trial likewise claims potential claims company registered nationwide class action settlement approved federal district court birmingham alabama revised settlement resolved revised settlement company expects able address remaining claims potential claims product liability reserves taxol litigation 1997 1998 company filed several lawsuits alleging number generic drug companies infringed patents covering methods administering paclitaxel filed abbreviated new drug applications seeking regulatory approval sell paclitaxel actions consolidated discovery us district court district new jersey district court company assert monetary claim defendants sought prevent defendants marketing paclitaxel manner violates companys patents defendants asserted infringe companys patents invalid unenforceable early 2000 district court invalidated claims companys patents april 20 2001 us court appeals federal circuit affirmed district courts summary judgment invalidity two claims patents issue two claims relate lowdose threehour administration paclitaxel patient given specified regimen premedicants administration paclitaxel appellate court remanded two claims district court proceedings 2001 company filed additional patent infringement suit another company seeking market generic paclitaxel september 2000 one defendants received final approval us food drug administration fda abbreviated new drug application paclitaxel marketing product additional final approvals since announced fda sales additional generic products begun defendants asserted counterclaims seeking damages alleged antitrust unfair competition violations company believed patents valid filed suits counterclaims asserted believed without merit since filing suits six private actions filed parties alleging antitrust consumer protection similar claims relating companys actions obtain enforce patent rights plaintiffs seek declaratory judgment damages treble andor punitive allowed disgorgement injunctive relief september 2000 federal trade commission initiated investigation relating paclitaxel various state attorneys general also initiated investigations regarding paclitaxel time none federal state agencies brought claims company relating paclitaxel indicated whether claims brought company cooperating investigations lawsuits four defendants settled defendants agreeing drop claims company relating paclitaxel company granting licenses four defendants certain paclitaxel patent rights company considering options respect two remaining patent infringement defendants possible time make reasonable assessment final outcome lawsuits investigations possible reasonably estimate impact litigations investigations might company prevail buspar litigation november 21 2000 company obtained patent us patent 6150365 365 patent relating method using buspar buspirone company submitted timely information relating 365 patent fda listing fda publication commonly known orange book fda thereafter listed patent orange book delisting suits genericdrug manufacturers sued fda company compel delisting 365 patent orange book although one district court declined order delisting 365 patent another ordered company cause delisting patent orange book company complied courts order appealed decision united states court appeals federal circuit federal circuit reversed district court ordered delisting patent suits company seeking enforce 365 patent actions two generic drug manufacturers antitrust suits following delisting 365 patent orange book number purchasers buspirone several generic drug makers filed lawsuits company alleging improperly triggered statutory marketing exclusivity attorneys general 29 states puerto rico also filed suit company parallel allegations private plaintiffs amended allegations include charges 1994 agreement company generic company improperly blocked entry generic buspirone market central issues raised cases whether company improperly caused listing 365 patent orange book whether 1994 agreement improper plaintiffs seek declaratory judgment damages treble andor punitive allowed disgorgement injunctive relief multidistrict litigation mdl proceedings judicial panel mdl granted companys motions patent antitrust cases consolidated single forum court buspirone litigations pending issued two opinions dated february 14 2002 first opinion court found 365 patent cover uses buspirone therefore infringed second opinion court denied companys motion dismiss federal antitrust state law claims company second opinion allows claims company proceed except federal antitrust claims damages accrued four years filing complaints government investigations federal trade commission number state attorneys general initiated investigations concerning listing 365 patent orange book company cooperating investigations number attorneys general filed action company noted earlier possible time make reasonable assessment final outcome lawsuits investigations company prevail final nonappealable determinations litigations investigations impact company could material vanlev litigations april may june 2000 company former chairman board chief executive officer charles heimbold jr chief scientific officer peter ringrose phd named defendants number class action lawsuits alleging violations federal securities laws regulations actions consolidated one action pretrial proceedings us district court district new jersey plaintiff claims defendants disseminated materially false misleading statements failed disclose information concerning safety expected availability product vanlev period november 8 1999 april 19 2000 plaintiff seeks compensatory damages costs expenses march 2002 company chairman chief executive officer peter r dolan named defendants purported securities class action lawsuit alleging violations federal securities laws regulations action pending us district court southern district new york plaintiffs allege defendants disseminated materially false misleading statements failed disclose safety data product vanlev period september 25 2001 march 19 2002 plaintiffs seek compensatory damages costs expenses possible time make reasonable assessment final outcome matters amount damages company prevail possible predict certainty outcome cases opinion management material adverse effect companys operating results consolidated financial position note 19 selected quarterly financial data unaudited 1in 2001 fourth quarter includes sales dupont 336 million 2in 2001 third quarter results included gain sale three pharmaceutical products licensing rights 240 million well provision restructuringother 240 million fourth quarter results included gain sale dermatologic product 75 million provision restructuringother 541 million acquired inprocess research development writeoffs 2744 million expenses related dupont imclone transactions including loss operations amortization interest expenses onetime costs 246 million 2000 first quarter results included gain sale business 120 million provision restructuring 102 million second quarter results included gain sale business 40 million provision restructuring 20 million third quarter results included provision restructuring 386 million 3in 2001 fourth quarter results included gain sale business 4152 million 2000 first quarter results included provision restructuring 18 million third quarter results included gain sale business 402 million provision restructuring 16 million 4common equivalent shares excluded computation diluted loss per share fourth quarter 2001 effect would antidilutive report management responsible accompanying consolidated financial statements prepared accordance generally accepted accounting principles managements opinion consolidated financial statements present fairly companys financial position results operations cash flows addition information representations included companys annual report consistent financial statements company maintains system internal accounting policies procedures controls intended provide reasonable assurance given inherent limitations internal control systems appropriate costs transactions executed accordance company authorization properly recorded reported financial statements assets adequately safeguarded companys internal auditors continually evaluate adequacy effectiveness system internal accounting policies procedures controls actions taken correct deficiencies identified audit committee board directors composed solely nonemployee directors responsible overseeing monitoring quality companys accounting auditing practices audit committee meets several times year management internal auditors independent accountants discuss audit activities internal controls financial reporting matters internal auditors independent accountants full free access audit committee appointment pricewaterhousecoopers llp companys independent accountants board directors ratified stockholders pricewaterhousecoopers llps report board directors stockholders bristolmyers squibb company appears form 10k annual report peter r dolan chairman board chief executive officer frederick schiff senior vice president chief financial officer report independent accountants board directors stockholders bristolmyers squibb company opinion consolidated financial statements listed index appearing item 14a1 page 58 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2001 2000 results operations cash flows three years period ended december 31 2001 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed index appearing item 14a2 page 58 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion described note 1 company changed method accounting business combinations goodwill transactions consummated subsequent june 30 2001 pursuant new standards issued financial accounting standards board pricewaterhousecoopers llp pricewaterhousecoopers llp new york new york january 24 2002 except fifth paragraph buspar litigation discussion note 18 february 14 2002 second paragraph note 7 march 5 2002 second paragraph vanlev litigation discussion note 18 march 25 2002 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings millions except per share data 1includes minority interest expense net income loss unconsolidated affiliates accompanying notes integral part financial statements bristolmyers squibb company consolidated statement comprehensive income retained earnings dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated statement cash flows dollars millions accompanying notes integral part financial statements bristolmyers squibb company notes consolidated financial statements note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company controlled majority owned subsidiaries intercompany balances transactions eliminated use estimates preparation financial statements conformity gaap requires use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets contingent liabilities date financial statements reported amounts revenues expenses reporting period significant assumptions employed estimates used determining values intangible assets restructuring charges accruals sales rebate return accruals legal contingencies tax assets tax liabilities well estimates used applying revenue recognition policy accounting retirement postretirement benefits including actuarial assumptions actual results could differ estimated results revenue recognition company recognizes revenue sales upon shipment product customers except case certain transactions us pharmaceuticals wholesalers accounted using consignment model gaap revenue recognized substantially risks rewards ownership transferred case sales made wholesalers 1 result incentives 2 excess wholesalers ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesalers cost carrying inventory excess wholesalers ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory companys cost inventory company recognizes revenue consignment inventory longer subject incentive arrangements later inventory sold wholesalers customers firstin firstout fifo basis companys estimates inventory wholesalers deferred revenue consigned inventory based projected prescription demandbased sales products well companys analysis thirdparty information including information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data companys internal information companys estimates subject inherent limitations estimates rely thirdparty data certain thirdparty information form estimates reflect limitations revenues reduced time sale reflect expected returns estimated based historical experience additionally provision made time sale discounts rebates estimated sales allowances based historical experience updated changes facts circumstances appropriate provision recorded reduction revenue company adopted emerging issues task force eitf 019 january 1 2002 presents cost certain vendor considerations eg cooperative advertising payments shelving allowances manufacturers coupons reductions revenue instead advertising promotion expenses financial information prior periods presented reclassified comply income statement classification requirements new guidance 2002 104 million promotional expenses recorded reduction net sales certain promotional expenses reclassified primarily advertising promotion expenses reduction net sales 2001 2000 amount 152 million 157 million respectively sales rebate return accruals medicaid managed healthcare sales rebate return accruals established period related revenue recognized resulting reduction sales establishment liability included accrued liabilities accrual recorded based estimate proportion recorded revenue result rebate return prime vendor chargebacks established similar manner recorded reduction accounts receivable 126 million 159 million december 31 2002 2001 respectively income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases companys assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recorded reduce deferred tax assets likely tax benefit realized company record provision income taxes undistributed earnings foreign subsidiaries expect repatriate foreseeable future cash equivalents cash equivalents primarily include securities maturities three months less time purchase recorded cost approximates market value time deposits marketable securities time deposits marketable securities available sale recorded fair value approximates cost inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals improvements capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets 50 years buildings 3 40 years machinery equipment fixtures company periodically evaluates whether current events circumstances indicate carrying value depreciable assets may recoverable impairment longlived assets effective january 1 2002 company adopted provisions sfas 144 accounting impairment longlived assets adoption sfas 144 material effect consolidated financial statements company sfas 144 establishes accounting impairment longlived tangible intangible assets goodwill disposal segment business pursuant sfas 144 company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value capitalized software certain costs obtain internal use software significant systems projects capitalized amortized estimated useful life software ranges four ten years costs obtain software projects significant expensed incurred capitalized software net accumulated amortization december 31 2002 2001 370 million 333 million respectively acquisitions company adopted sfas 141 business combinations 2001 sfas 141 requires companies use purchase method accounting business combinations initiated june 30 2001 investments company consolidates majority 50 owned subsidiaries ability exercise control company accounts 50 less owned companies ability exercise significant influence using equity method accounting companys share net income losses equity investments included minority interest consolidated statement earnings company periodically reviews equity investments impairment adjusts investments fair value decline market value deemed temporary 2002 company recorded asset impairment charge 379 million temporary decline market value imclone systems incorporated imclone longterm investments securities comprises marketable equity securities investments market values readily available included assets marketable equity securities classified availableforsale reported fair value fair value based quoted market prices end reporting period securities investments market values readily available carried cost unrealized gains losses reported net related tax effects component accumulated comprehensive income loss stockholders equity sold time sale gains losses calculated specific identification method recognized incomeexpense losses also recognized income decline market value deemed temporary goodwill company adopted sfas 142 goodwill intangible assets january 1 2002 certain provisions adopted july 1 2001 respect amortization goodwill arising acquisitions made june 30 2001 sfas 142 addresses initial recognition measurement intangible assets acquired outside business combination recognition measurement goodwill intangible assets subsequent acquisition new rules goodwill longer amortized subject annual impairment tests connection accounting change goodwill resulting companys acquisition dupont pharmaceuticals business investment imclone amortized goodwill arising business acquisitions prior july 1 2001 amortized straightline basis periods ranging 15 40 years goodwill amortized effective january 1 2002 2001 2000 goodwill amortization expense 75 million accordance sfas 142 goodwill tested impairment upon adoption new standard annually thereafter sfas 142 requires goodwill tested impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting units goodwill exceeds estimated fair value company completed goodwill impairment assessment indicated impairment goodwill intangible assets intangible assets consisting patents technology licenses amortized straightline basis periods ranging 3 17 years representing remaining life assets sfas 142 requires indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net book value exceeds estimated fair value intangible assets evaluated impairment accordance sfas 144 described product liability accruals product liability recorded undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recorded undiscounted basis probable recovery realized insurance recoverable recorded balance sheet general payment terms two years less amounts receivables recognized excess related liabilities december 31 2002 2001 1 million 158 million respectively contingencies normal course business company subject contingencies legal proceedings claims arising business cover wide range matters including among others product liability environmental liability tax matters accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated discussion contingencies reference made note 8 income taxes note 22 litigation matters consolidated financial statements derivative financial instruments derivative financial instruments used company principally management interest rate foreign currency exposures company hold issue derivative financial instruments trading purposes company records derivative instruments balance sheet fair value changes derivatives fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized charge credit earnings derivative designated cash flow hedge effective portions changes fair value derivative recorded comprehensive income loss recognized consolidated statement earnings hedged item affects earnings cash flows classified consistent underlying hedged item purchased foreign currency options entire change fair value included measurement hedge effectiveness cash flow hedges ineffective portions changes fair value cash flow hedges recognized charge credit earnings company designates assigns derivatives hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer expected occur company recognizes gain loss designated hedging financial instruments shipping handling costs company typically charge customers shipping handling costs shipping handling costs included marketing selling administrative expenses 2002 2001 2000 248 million 258 million 262 million respectively advertising costs advertising costs expensed incurred advertising expense 393 million 401 million 483 million 2002 2001 2000 respectively acquired inprocess research development fair value inprocess research development acquired business combination determined independent appraisal based present value research projects projected cash flows utilizing income approach consistent aicpa practice aid assets acquired business combinations used research development activities focus software electronic devices pharmaceutical industries future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research projects underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating companys weighted average cost capital 13 2001 acquired inprocess research development expensed incurred underlying product received regulatory approval future alternative use addition costs nonrefundable related acquisition licensing products yet received regulatory approval marketed alternative future use charged earnings incurred earnings per share basic earnings per common share computed using weightedaverage number shares outstanding year diluted earnings per common share computed using weightedaverage number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options stock compensation plans company applies accounting principles board apb opinion 25 accounting stock issued employees related interpretations accounting stockbased compensation plans company recognize compensation expense stock options granted plans exercise price option date grant equal fair market value date grants restricted stock company recognizes compensation expense straightline basis period restrictions expire following table summarizes companys results pro forma basis recorded compensation expense based upon fair value grant date awards plans consistent methodology prescribed sfas 123 accounting stockbased compensation 2002 2001 2000 see note 16 stockholders equity consolidated financial statements additional information december 2002 fasb issued sfas 148 accounting stockbased compensationtransition disclosure sfas 148 amends sfas 123 accounting stockbased compensation provide alternative methods transition voluntary change fair value based method accounting stockbased employee compensation addition sfas 148 amends disclosure requirements sfas 123 require prominent disclosures annual interim financial statements method accounting stockbased employee compensation effect method used reported results provisions sfas 148 effective financial statements year ended december 31 2002 sfas 148 material impact companys consolidated financial statements adoption standard require company change company plan change fair value based method accounting stockbased compensation reclassifications certain prior year amounts reclassified conform current year presentation accounting policies implemented variable interest entities january 2003 fasb issued interpretation 46 consolidation variable interest entities fin 46 fin 46 requires variable interest entity consolidated company subject majority risk loss variable interest entitys activities entitled receive majority entitys residual returns fin 46 also requires disclosures variable interest entities company required consolidate significant variable interest consolidation requirements fin 46 apply immediately variable interest entities created january 31 2003 existing entities first fiscal year interim period beginning june 15 2003 certain disclosure requirements apply financial statements issued january 31 2003 regardless variable interest entity established company process assessing impact pronouncement consolidated financial statements based preliminary analysis impact fin 46 company believes reasonably possible imclone could meet criteria considered variable interest entity relation company accordingly company included required transitional disclosures fin 46 note 2 alliances investments consolidated financial statements guarantees november 2002 fasb issued interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others fin 45 fin 45 requires guarantor recognize liability inception guarantee fair value obligation undertaken issuing guarantee include detailed disclosure respect guarantees types contracts company enters meet scope interpretation financial performance standby letters credit behalf whollyowned subsidiaries fin 45 effective guarantees issued modified december 31 2002 initial adoption accounting pronouncement expected material effect companys consolidated financial statements note 2 alliances investments sanofisynthelabo 1997 company entered codevelopment comarketing agreement sanofisynthelabo sanofi two products avaproavalide irbesartan angiotensin ii receptor antagonist indicated treatment hypertension plavix clopidogrel platelet inhibitor worldwide alliance operates framework two geographic territories one americas australia europe asia two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place company acts operating partner territory covering americas principally us canada puerto rico latin american countries australia owns majority controlling interest territory company consolidates country partnership results territory records sanofis share results minority interest expense net taxes 258 million 2002 158 million 2001 128 million 2000 company recorded sales territory comarketing countries 2476 million 2002 1658 million 2001 1249 million 2000 sanofi acts operating partner territory covering europe asia owns majority controlling interest territory company accounts investment partnership entities territory equity method records share results net income unconsolidated affiliates included minority interest net taxes companys share net income partnership entities 87 million 2002 51 million 2001 36 million 2000 fourth quarter 2001 company sanofi modified codevelopment arrangement irbesartan form alliance part company contributed irbesartan intellectual property sanofi agreed pay company 200 million 150 million fourth quarters 2001 2002 respectively company accounts transaction sale interest license defers amortizes 350 million income expected useful life license approximately eleven years company amortized income 31 million 8 million respectively 2002 2001 otsuka 1999 company entered worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote abilify aripiprazole treatment schizophrenia total milestone payments made otsuka 1999 december 2002 207 million 157 million expensed acquired inprocess research development 1999 remaining 50 million capitalized 30 million refundable abilify granted approval us food drug administration fda 20 million paid upon fda approval product november 2002 50 million capitalized payments amortized remaining patent life product approximately 10 years company began copromoting product otsuka us puerto rico november 2002 revenue earned otsuka ships product title passes customer company records alliance revenue 65 share net sales copromotion countries records expenses related product introductory sales copromotion countries 25 million 2002 imclone november 2001 company purchased 144 million shares imclone 70 per share 1007 million represented approximately 199 imclone shares outstanding prior companys commencement public tender offer imclone shares transaction accounted using equity method accounting imclone biopharmaceutical company focused developing targeted cancer treatments include growth factor blockers cancer vaccines antiangiogenesis therapeutics equity investment imclone part strategic agreement company imclone also included arrangement codevelop copromote investigational cancer drug erbitux series payments originally totaling 1 billion company paid imclone milestone payment 200 million 2001 march 5 2002 agreement imclone revised reduce total payments 900 million 1 billion revised agreement company paid imclone 140 million march 2002 60 million march 2003 pay aggregate 500 million upon achievement two milestones 200 million paid imclone march 2002 2003 160 million expensed inprocess research development first quarter 2002 remaining 40 million recorded additional equity investment eliminate income statement effect portion milestone payment company economic claim 199 ownership interest imclone also revised agreement company pay imclone distribution fee based flat rate 39 product revenues north america terms revised agreement continue 2018 fourth quarter 2001 company recorded pretax charge approximately 735 million comprised 575 million writeoff acquired inprocess research development related equity investment 160 million writeoff portion 200 million milestone payment made 2001 remaining 40 million 200 million milestone payment recorded additional equity investment eliminate income statement effect portion milestone payment company economic claim 199 ownership interest imclone acquired inprocess research development charge related three oncology research projects phase later stage development one research project erbitux late phase iii development amount determined identifying research projects areas technological feasibility established alternative future use projected fda approval dates used years 2002 2008 time company expected projects begin generate cash flows cost complete projects estimated 323 million research development projects considered valuation subject normal risks uncertainties associated demonstrating safety efficacy required obtain fda approval purchase price allocation resulted 66 million patent technology intangible assets amortized weightedaverage useful lives 17 years approximately 375 million goodwill amortized december 28 2001 imclone announced fda refused accept filing biologics license application bla submitted imclone erbitux bla submitted gain marketing approval treat irinotecanrefractory colorectal carcinoma january 18 2002 subcommittee oversight investigations house energy commerce committee announced investigating questions conduct imclone development erbitux january 25 2002 imclone announced received informal inquiry securities exchange commission well inquiries department justice aforementioned subcommittee company cooperating investigations 1207 million paid 2001 equity investment 1007 million milestone payment 200 million 735 million expensed acquired inprocess research development 2001 remaining 472 million recorded equity investment additional 9 million recorded investment primarily acquisition costs resulting carrying value 481 million december 31 2001 third quarter 2002 company recorded pretax charge earnings 379 million temporary decline market value imclone based decline value imclones shares 2002 fair value equity investment imclone used record impairment determined based market value imclone shares september 30 2002 total equity investment imclone december 31 2002 102 million per share basis carrying value imclone investment closing market price imclone shares december 31 2002 709 1062 respectively compared 3340 4646 respectively december 31 2001 closing market price imclone shares february 28 2003 1333 per share 2002 company recorded 23 million net loss share imclones losses company process assessing impact fin 46 consolidation variable interest entities could consolidated financial statements based preliminary assessment impact fin 46 company believes reasonably possible imclone could considered variable interest entity relation company september 30 2002 imclone total assets 501 million total stockholders deficit 118 million accumulated deficit 461 million nine months ended september 30 2002 imclone 115 million net loss summary financial information following presents summarized financial information companys equity investments imclone sanofi europe asia summarized financial information includes imclone data date investment november 2001 imclone public company yet filed sec audited financial statements otherwise made public disclosure audited financial results year ended december 31 2002 summarized financial information 2002 respect imclone based estimated preliminary unaudited financial information provided company imclone company recorded share imclones losses 2002 based preliminary unaudited information year ended december 31 2002 although company believes preliminary unaudited information reliable imclones financial information responsibility imclones management event imclones reported financial information year ended december 31 2002 differs significantly preliminary unaudited information company record adjustment equity earnings disclose impact difference results provide revised summarized financial information quarterly report form 10q quarterly period ended march 31 2003 public filings note 3 restructuring items 2002 activities 2002 company recorded pretax restructuring charges 160 million relating reduction elimination nonstrategic research efforts well consolidation research facilities workforce reductions downsizing streamlining worldwide operations charge 71 million relates employee termination benefits approximately 1040 employees including research manufacturing administrative personnel remaining 89 million 65 million represents asset write downs exit costs closure facilities related expenses 24 million impairment charge companys investment deltagen addition 69 million accelerated depreciation relating planned shutdown research facilities us included research development expense 2 million inventory writeoffs associated projects included cost products sold charges offset adjustment prior period restructuring reserves 146 million 65 million due lower expected separation costs 59 million due higher anticipated proceeds disposal assets previously written restructuring 22 million projects cancelled addition 17 million adjustment cost products sold made reflect reversal inventory reserves associated cancelled projects company expects substantially complete restructuring activities late 2003 following table presents detail charges operating segment type company allocate restructuring charges business segments 2001 activities 2001 company recorded pretax restructuring charges 569 million restructuring programs included termination benefits asset writedowns costs implemented 2001 downsize streamline operations rationalize manufacturing facilities terminate certain sales force research contract obligations time recorded actions expected completed within twelve months expected substantially complete early 2003 additional costs associated restructuring projects 2001 include 74 million sales deductions customer charge backs relating abandonment nonstrategic pharmaceutical product lines included reduction sales 58 million related inventory writeoffs included cost products sold restructuring charges offset reversal 63 million result change estimate relating separation costs cancellation projects previously provided 2001 charge consisted 229 million employee termination benefits 3400 employees severance actions result companywide restructuring effort downsize streamline operations impacted virtually areas including sales force manufacturing administrative research personnel addition 95 million accrued termination contract sales force 65 million accrued exit costs primarily related costs associated closure certain manufacturing operations charge also included 104 million fixed asset writedowns 15 million asset writedowns primarily related exit nutritionals business eastern europe closure pharmaceutical production facility us closure research facility france following table presents detail charges operating segment type company allocate restructuring charges business segments items recorded 2001 include pretax charge 30 million contribution bms foundation 20 million establish additional reserves future breast implant claims 11 million costs associated product recall 2000 activities 2000 company recorded pretax restructuring charges 443 million restructuring programs included termination benefits asset writedowns costs implemented 2000 consolidate us sales force rationalize manufacturing facilities downsize streamline operations additional costs associated restructuring projects year 2000 include 40 million related inventory writeoffs included cost products sold actions substantially complete 2000 charge consisted 291 million employee termination benefits approximately 5200 employees severance actions focused sales force manufacturing administrative personnel addition 24 million costs recorded consisting mainly certain contract termination facility remediation expenses charge also included 79 million asset writedowns primarily related exit research facility japan manufacturing operations us certain international operations convatec addition assets 10 million written consisted primarily capitalized software longer used result sales force actions described following table presents detail charges operating segment type company allocate restructuring charges business segments items recorded 2000 include pretax charge 32 million contribution bms foundation 7 million costs associated product recall restructuring charges spending liabilities associated prior current actions follows liabilities reflected accrued expenses consolidated balance sheet note 4 acquisitions divestitures dupont pharmaceuticals acquisition october 1 2001 company acquired dupont pharmaceuticals business dupont e du pont de nemours company 78 billion cash results dupont included consolidated financial statements date acquisition dupont primarily domestic pharmaceutical imaging product business focused research development acquisition financed proceeds issuance 15 billion commercial paper issuance 50 billion mediumterm notes internal cash flows following summary final allocation estimated fair values assets acquired liabilities assumed dollars millions total intangible assets 1976 million amortized weightedaverage useful lives include core developed technology 1783 million 15 11 years weightedaverage useful life respectively patents 193 million 11 year weightedaverage useful life goodwill 3780 million assigned pharmaceuticals segment total amount 2418 million expected deductible tax purposes 15 year period time acquisition 20 billion purchase price allocated acquired inprocess research development charged earnings fourth quarter 2001 charge associated five research projects cardiovascular central nervous system oncology antiinfective therapeutic areas ranging preclinical phase ii development stage amount determined identifying research projects technological feasibility established alternative future use projected fda approval dates years 2005 2008 time company expected projects begin generate cash flows cost complete research projects estimated 12 billion research development projects considered valuation subject normal risks uncertainties associated demonstrating safety efficacy required obtain fda approval 2002 company terminated one projects antiinfective therapeutic area termination project expected material impact companys future earnings cash flow remaining four projects currently proceeding consistent original assumptions used valuation research development projects considered valuation subject normal risks uncertainties associated demonstrating safety efficiency required fda approval connection acquisition company recorded 575 million restructuring liabilities result severance relocation workforce elimination duplicate facilities contract terminations costs recognized company liability assumed acquisition date resulting additional goodwill liabilities consisted 325 million employee termination benefits approximately 1800 employees 80 million related closure facilities 170 million contract terminations 575 million originally recorded accrued expenses reduced 458 million december 31 2001 13 million december 31 2002 reduction balance 2002 due cash payments 284 million adjustment reverse previously recorded liabilities 161 million corresponding reduction goodwill adjustment primarily due lower expected separation costs contract termination expenses facilities exit costs related acquisition following unaudited pro forma financial information presents results acquisition occurred beginning respective periods unaudited pro forma results prepared comparative purposes include certain adjustments additional amortization expense result identifiable intangible assets arising acquisition increased interest expense acquisition debt exclude acquired inprocess research development charge related dupont acquisition pro forma net earnings per share amounts 2001 include 26 billion gain sale clairol pro forma results necessarily indicative either results operations actually would resulted acquisition effect beginning respective periods future results 2002 company completed sale two branded products moisturel duricef resulted pretax gain 30 million 2001 company completed sale three pharmaceutical products corzide delestrogen florinef licensing rights corgard us estrace tablets apothecon commodity business solage viactiv product lines resulted pretax gain 475 million 2000 company completed sale three pharmaceutical products estrace cream ovcon 35 ovcon 50 well sea breeze brand japan resulting pretax gain 216 million note 5 discontinued operations 2001 company completed sale clairol procter gamble cash proceeds approximately 50 billion sale resulted pretax gain 43 billion 26 billion taxes included gain disposal discontinued operations addition 2001 company spun zimmer holdings inc taxfree distribution resulting common stock dividend 156 million 2002 company resolved several postclosing matters associated previously discontinued businesses resulting increase 38 million gain disposal 2002 company recorded 4 million credit retained earnings related adjustment zimmer pension liability affecting spinoff zimmer 2000 company completed sale matrix cosmair inc wholly owned us subsidiary loreal sa resulting pretax gain 444 million 266 million taxes gain included gain disposal discontinued operations net sales earnings discontinued operations follows 1earnings income taxes 2000 include restructuring charges 34 million net loss 6 million 2002 reflected statement earnings reflects settlement litigation related business included discontinued operations consolidated statement cash flows includes clairol zimmer businesses date disposition net assets discontinued operations december 31 2000 924 million consisting current assets 866 million longterm assets 616 million less liabilities principally current 558 million company uses centralized approach cash management financing operations accordingly company allocate debt businesses cash flows operating investing activities principally investing discontinued operations years ended december 31 2002 2001 2000 17 million 53 billion including approximately 50 billion proceeds sale clairol 998 million including 438 million proceeds sale matrix respectively note 6 earnings per share computations basic earnings per common share diluted earnings per common share follows weightedaverage shares issuable upon exercise stock options included diluted earnings per share calculation dilutive 121 million 2002 43 million 2001 3 million 2000 note 7 incomeexpense components incomeexpense note 8 income taxes components earnings loss continuing operations minority interest income taxes amounts categorized based location taxing authorities provision income taxes attributable continuing operations consisted companys provision income taxes 2002 2001 2000 different amount computed applying statutory us federal income tax rate earnings continuing operations minority interest income taxes result following effective tax rate continuing operations increased 164 2002 33 2001 due primarily decrease effective tax rate benefit operations ireland puerto rico switzerland 187 2002 327 2001 reflecting lesser percentage total pretax income generated jurisdictions 2002 well current year us tax cost associated dividend switzerland prepaid taxes december 31 2002 2001 927 million 1524 million respectively deferred income taxes included assets december 31 2002 2001 942 million 630 million respectively components prepaid deferred income taxes consisted decrease net prepaid deferred tax assets 1869 december 31 2002 2154 december 31 2001 relates primarily consignment inventory items well restructuring acquisition divestiture reserve reductions valuation allowance 192 million december 31 2002 relates 112 million state net deferred tax assets 45 million state net operating loss carryforwards 35 million foreign tax credit carryforwards company currently believe likely realized future income taxes paid year 2491 million 1021 million 1620 million 2002 2001 2000 respectively current tax benefit realized upon exercise stock options charged capital excess par amounted 45 million 157 million 184 million 2002 2001 2000 respectively company settled us federal income tax returns internal revenue service 1997 us federal income taxes provided substantially unremitted earnings nonus subsidiaries since managements practice intent indefinitely postpone remittance total amount net unremitted earnings nonus subsidiaries approximately 90 billion december 31 2002 certain tax contingencies exist probable reasonably estimable amounts recognized december 31 2002 certain tax contingencies either considered probable reasonably estimable company time although company cannot reasonably estimate possible amount contingency possible contingencies could material effect changes estimates related contingent tax matters included rate reconciliation year ended december 31 2002 company recognized income tax benefit 235 million due settlement certain prior year tax matters determination company expected settlement ongoing tax litigation also 2002 company reorganized structure ownership many nonus subsidiaries principal purpose reorganization facilitate companys ability efficiently deploy financial resources outside us company believes reorganization transactions generally taxfree inside outside us possible however taxing authorities particular jurisdictions could assert tax liabilities arising reorganization transactions operations reorganized subsidiaries reasonably possible predict whether taxing authority assert tax liability reasonably estimate possible loss range loss respect asserted tax liability company would vigorously challenge assertion believes would prevail assurance result company prevail final nonappealable determinations possible impact could material note 9 accounts receivable 1reflects allowances bad debts note 10 inventories major categories inventory follow note 11 consignment significant portion companys us pharmaceuticals sales made wholesalers company experienced substantial buildup wholesaler inventories us pharmaceuticals business several years primarily 2000 2001 buildup primarily due sales incentives offered company wholesalers company accounts certain sales pharmaceutical products cardinal health inc cardinal mckesson corporation mckesson using consignment model based part relationship amount incentives offered wholesales amount inventory held wholesalers company determined shipments product cardinal shipments product mckesson met consignment model criteria set forth revenue recognition note 1 accounting policies consolidated financial statements july 1 1999 july 1 2000 respectively case continuing end 2002 period thereafter accordingly consignment model required applied shipments prior respective periods company recognized revenue respect sales cardinal mckesson upon shipment product although company generally views approximately one month supply desirable level wholesaler inventory goingforward basis level wholesaler inventory representative industry average applying consignment model sales cardinal mckesson company defined inventory excess wholesalers ordinary course business inventory level inventory two weeks three weeks supply respectively based levels inventory cardinal mckesson required used basis negotiation incentives granted march 2001 company entered distribution agreement mckesson provision warehousing order fulfillment services companys oncology therapeutics network otn specialty distributor anticancer medicines related products terms agreement mckesson purchases oncology products service otns fulfillment needs number vendors including company subsequent shipment product mckesson company significant continuing involvement transaction including marketing product enduser invoicing customer collecting receivables customer behalf mckesson addition otn keeps credit risk responsible shipping costs customer company accounts sales using consignment model defers recognition revenue products sold mckesson transactions resulted deferred revenue 470 million 2026 million december 31 2002 2001 respectively company recognized approximately 1395 million previously recorded deferred revenue net sales 2002 company projects approximately 422 million deferred revenue recognized net sales 2003 significant portion expected recognized first quarter 2003 note 12 property plant equipment major categories property plant equipment follow capitalized interest included categories property plant equipment shown company capitalized 16 million interest years ended december 31 2002 2001 note 13 goodwill changes carrying amount goodwill years ended december 31 2002 2001 follows 1excludes 55 million goodwill related discontinued operations note 14 intangible assets intangible assets major asset class follows amortization expense intangible assets majority included costs products sold years ended december 31 2002 2001 2000 269 million 116 million 80 million respectively expected amortization expense next five years related current balance intangible assets follows note 15 shortterm borrowings longterm debt included shortterm borrowings amounts due foreign banks 89 million 140 million current installments longterm debt 132 million 34 million december 31 2002 2001 respectively us commercial paper outstanding december 31 2002 1158 million average interest rate 140 commercial paper outstanding december 31 2001 proceeds commercial paper issuances 2002 used general corporate purposes average interest rate shortterm borrowings 958 741 277 403 current installments longterm debt december 31 2002 2001 respectively 2001 company consolidated two credit facilities aggregating 500 million syndicate lenders support commercial paper program credit facility consists 500 million fiveyear revolving credit facility extendable anniversary date consent lenders borrowings outstanding credit facility december 31 2002 company unused shortterm lines credit foreign banks 392 million december 31 2002 components longterm debt 2001 company issued 50 billion debt notes 25 billion matures 2006 remaining 25 billion matures 2011 company option redeem time portion notes redemption price equal sum 1 principal amount notes redeemed plus accrued interest redemption date 2 premium face value paid redeem notes effective interest rates series notes 526 605 respectively effective interest rates issuances approximated stated interest rate company entered fixed floating interest rate swaps 30 billion longterm debt cash payments interest 375 million 100 million 112 million 2002 2001 2000 respectively 12003 payments included shortterm borrowings companys consolidated balance sheet result previously disclosed restatement previously issued financial statements company delayed filing quarterly report form 10q quarterly period ended september 30 2002 third quarter 2002 form 10q previously disclosed delay resulted breach company delivery sec filing obligations 1993 indenture company jpmorgan chase bank formerly chase manhattan bank company approximately 61 billion longterm debt outstanding certain credit agreements gave certain rights trustee indenture respective lenders credit agreements accelerate maturity companys indebtedness neither trustee respective lenders exercised right accelerate company filed third quarter 2002 form 10q sec cured noncompliance abovementioned obligations indenture credit agreements accordingly debt outstanding indenture credit agreements longer accelerated therefore classified longterm debt companys consolidated balance sheet december 31 2002 company provided financial guarantees form standby letters credit performance bonds majority standby letters credit us nuclear regulatory commission massachusetts department public health relating companys medical imaging manufacturing operations insurance companies support third party liability programs performance bonds relate sale company product various foreign ministries health middle east company believes significant majority guarantees expire without funded amounts obligations presented following table note 16 stockholders equity changes capital shares treasury stock capital excess par value stock share companys preferred stock convertible 1696 shares common stock callable companys option reductions number issued shares preferred stock 2002 2001 2000 due conversions shares common stock dividends declared per common share 112 2002 111 2001 101 2000 accumulated balances related component comprehensive income loss follows company expects recognize 8 million deferred hedging gains earnings next twelve months stock compensation plans companys 2002 stock incentive plan officers directors key employees may granted options purchase companys common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price plan also provides granting performancebased stock options certain key executives terms 2002 stock incentive plan authorized shares include 09 outstanding shares per year 2007 well number shares tendered prior year pay purchase price options number shares previously utilized satisfy withholding tax obligations upon exercise shares available grant prior year granted year shares cancelled forfeited expired also available future grant plan incorporates companys longterm performance awards addition 2002 stock incentive plan provides granting 20000000 shares common stock key employees subject restrictions continuous employment restrictions generally expire fiveyear period date grant compensation expense recognized restricted period december 31 2002 2001 1705503 1286771 restricted shares outstanding plan respectively teamshare stock option plan fulltime employees excluding key executives granted options purchase companys common stock market price date options granted company authorized 66000000 shares issuance plan individual grants generally become exercisable evenly third fourth fifth anniversary grant date maximum term 10 years december 31 2002 31334729 shares exercised plan fair value options granted 2002 2001 2000 estimated 1112 per common share 2259 per common share 1717 per common share respectively date grant using blackscholes optionpricing model following assumptions stock option transactions 1effective spinoff zimmer august 6 2001 unexercised bristolmyers squibb stock options held zimmer employees converted zimmer stock options remaining unexercised bristolmyers squibb stock options number stock options exercise price adjusted preserve intrinsic value stock options ratio exercise price fair value existed prior spinoff following tables summarize information concerning companys stock compensation plans currently outstanding exercisable options december 31 2002 233046550 shares common stock reserved issuance pursuant stock plans options conversions preferred stock options related discontinued operations included amounts material note 17 financial instruments company exposed market risk due changes currency exchange rates interest rates result company utilizes foreign exchange option forward contracts offset effect exchange rate fluctuations anticipated foreign currency transactions primarily intercompany inventory purchases expected occur within next year company exposures net foreign currency denominated assets liabilities approximated 2093 million 2079 million december 31 2002 2001 respectively primarily europe japan mexico canada company mitigates effect exposures thirdparty borrowings exposures net foreign currency denominated assets liabilities related discontinued operations included amounts material foreign exchange option contracts forward contracts used hedge anticipated transactions companys primary foreign currency exposures relation us dollar euro canadian dollar japanese yen mexican peso notional amounts companys foreign exchange derivative contracts december 31 2002 2001 1775 million 1387 million respectively derivatives qualify hedges future cash flows effective portion changes fair value temporarily recorded comprehensive income recognized earnings hedged item affects earnings ineffective portion hedges reported earnings occurs notional amounts foreign exchange derivative contracts related discontinued operations included amounts material fair value option forward contracts recorded prepaid expenses december 31 2002 2001 41 million 27 million respectively fair values companys derivative instruments based relevant market information including current forward currency exchange rates current interest rates fair value option contracts estimated using blackscholes model based yearend currency rates fair value foreign exchange forward contracts based yearend forward currency rates company uses derivative instruments part interest rate risk management policy derivative instruments used include fixed floating rate interest rate swaps subject fairvalue hedge accounting treatment 2002 company entered several fixed floating interest rate swap contracts five financial institutions notional amount transactions 30 billion period ended december 31 2002 accordance sfas 133 company recognized reduction interest expense 23 million reflects benefit lower floating rate obtained swap compared fixed rate underlying debt swap contracts well underlying debt hedged recorded fair value resulted increase current assets longterm debt 133 million swap contracts generally held maturity company use derivative financial instruments trading speculative purposes 2001 company entered interest rate hedge contracts notional amount 20 billion manage exposure changes interest rates longterm fixedrate debt issues connection dupont imclone transactions see note 2 alliances investments note 4 acquisitions divestitures consolidated financial statements contracts designated hedges variability cash flows due changes longterm benchmark interest rates also 2001 company settled existing interest rate hedge contracts recorded contract settlements fair value resulting 69 million deferred loss net taxes accumulated comprehensive loss recognized yield adjustment terms related borrowings carrying amount companys financial instruments include cash equivalents marketable securities accounts receivable accounts payable approximates fair value december 31 2002 2001 longterm debt noted difference fair value carrying value material note 18 segment information effective first quarter 2002 company reorganized three groups support pharmaceutical company related healthcare businesses result reorganization three reportable segmentspharmaceuticals nutritionals healthcare pharmaceuticals segment comprised global pharmaceutical international excluding japan consumer medicines businesses nutritionals segment consists mead johnson nutritionals primarily infant formula business healthcare segment consists convatec medical imaging consumer medicines us japan businesses companys products sold principally wholesale retail trade nationally internationally certain products also sold drug manufacturers hospitals medical profession three wholesalers accounted approximately 14 companys net sales 2002 2001 2000 two wholesalers accounted 12 10 respectively companys net sales concentrated pharmaceuticals segment sales selected products product categories follows business segments included earnings minority interest income taxes operating segments cost capital charge elimination cost capital charge included corporateother addition corporateother principally consists interest income interest expense certain administrative expenses allocations business segments certain corporate programs corporateother also includes gain sales businessesproduct lines 30 million 475 million 216 million 2002 2001 2000 respectively provision restructuring items 68 million 564 million 483 million 2002 2001 2000 respectively litigation settlement provision 659 million 77 million 2002 2001 respectively pharmaceuticals segment includes charge acquired inprocess research development 169 million 2772 million 38 million 2002 2001 2000 respectively addition pharmaceuticals includes 74 million deductions customer chargebacks related abandoned product lines included reduction net sales 2001 corporateother assets consist cash equivalents time deposits marketable securities goodwill certain assets 1capital expenditures depreciation expense consolidated statement cash flows includes capital expenditures related discontinued operations 17 million 58 million 2001 2000 respectively 31 million 53 million depreciation expense related discontinued operations 2001 2000 respectively geographic areas note 19 leases minimum rental commitments noncancelable operating leases primarily real estate effect december 31 2002 operating lease rental expense net sublease rental income 25 million 2002 2001 21 million 2000 95 million 2002 80 million 2001 85 million 2000 note 20 retirement plans company certain subsidiaries defined benefit pension plans defined contribution plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan funding policy contribute amounts provide current service fund past service liability plan benefits based primarily years credited service participants compensation plan assets consist principally equity fixedincome securities 2001 company domestic curtailmentsettlement loss approximately 25 million resulting reductions employment levels primarily connection restructuring activities clairol divestiture cost companys defined benefit plans included following components weightedaverage actuarial assumptions companys pension plans follows changes projected benefit obligation plan assets projected benefit obligation accumulated benefit obligation fair value plan assets pension plans accumulated benefit obligations excess plan assets 669 million 577 million 289 million respectively december 31 2002 665 million 562 million 306 million respectively december 31 2001 332 million 254 million 47 million respectively december 31 2000 attributable primarily us unfunded benefit equalization plan several plans international markets december 31 2001 dupont pharmaceuticals company us pension plan december 31 2002 unrecognized net actuarial loss determined based market related value plan assets 971 million amount exceeded 10 greater projected benefit obligation market related value plan assets 565 million unless offset future unrecognized gains higher discount rates higher expected returns plan assets amortization 565 million unrecognized loss expected increase pension expense 2003 following nine years approximately 57 million per year several plans underfunded accrued benefit obligations exceeded accrued benefit liabilities december 31 2002 additional minimum liabilities established increase accrued benefit liabilities values underfunded accrued benefit obligations totaled 138 million us unfunded benefit equalization plan plans uk japan canada belgium additional minimum liability offset creation 10 million intangible asset 128 million charge comprehensive income included stockholders equity recent decline global equity markets resulted decrease value assets companys pension plans decline expected adversely affect companys related accounting results future periods higher pension expense increased cash funding requirements 2002 company contributed defined benefit plans total 547 million including contribution 325 million fourth quarter 2002 company reduced assumed discount rate major pension plans response decline corporate bond yields company also reduced 2003 expected longterm rate return us plan assets 10 9 following reassessment longterm outlook addition company revised based change expectations future terminations retirements retirement turnover assumptions pension expense companys defined benefit pension plans expected increase 2003 approximately 120 million compared 2002 reflecting among things lower assumed discount rate expected longterm rate return us plan assets negative asset returns 2001 2002 principal defined contribution plan bristolmyers squibb savings investment program companys contribution based employee contributions level company match companys contributions plan 50 million 2002 54 million 2001 53 million 2000 note 21 postretirement benefit plans pensions company provides comprehensive medical group life benefits substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets consist principally equity securities fixedincome securities cost companys postretirement benefit plans included following components weightedaverage actuarial assumptions companys postretirement benefit plans follows changes benefit obligation plan assets reported curtailments relate companys restructuring divestiture activities measurement purposes annual rate increase per capita cost covered health care benefits 11 participants assumed 2003 rate assumed decrease gradually 45 2010 remain level thereafter onepercentagepoint change assumed health care cost trend rates would following effects bristolmyers squibb company notes consolidated financial statements note 22 litigation matters various lawsuits claims proceedings pending company certain subsidiaries accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated years ended december 31 2002 2001 company recognized 669 million includes 10 million discontinued operations 77 million respectively related litigation matters significant companys litigation matters described taxol® litigation 1997 1998 company filed several lawsuits asserting number generic drug companies infringed patents covering methods administering paclitaxel filed abbreviated new drug applications seeking regulatory approval sell paclitaxel actions consolidated discovery us district court district new jersey district court company assert monetary claim defendants sought prevent defendants marketing paclitaxel manner violates patents defendants asserted infringe companys patents invalid unenforceable early 2000 district court invalidated claims companys patents issue april 20 2001 us court appeals federal circuit affirmed district courts summary judgment invalidity two claims patents issue two claims relate lowdose threehour administration paclitaxel patient given specified regimen premedicants administration paclitaxel appellate court remanded two claims district court proceedings 2001 company filed additional patent infringement suit another company seeking market generic paclitaxel september 2000 one defendants received final approval fda abbreviated new drug application paclitaxel marketing product fda since announced additional final approvals sales additional generic products begun defendants asserted counterclaims seeking damages alleged antitrust unfair competition violations company believed patents valid filed suits counterclaims asserted believed without merit lawsuits defendants asserted counterclaims settled defendants agreeing drop claims relating paclitaxel company granting licenses certain paclitaxel patent rights since filing initial patent infringement suits six private actions filed parties alleging antitrust consumer protection similar claims relating companys actions obtain enforce patent rights plaintiffs seek declaratory judgment damages including treble andor punitive damages allowed disgorgement injunctive relief june 2002 group 32 state attorneys general district colombia puerto rico virgin islands brought similar claims september 2000 federal trade commission ftc initiated investigation relating paclitaxel january 7 2003 company announced reached agreements principle would settle substantially antitrust litigation surrounding taxol® amount taxol® antitrust settlements expected 135 million full amount accrued third quarter 2002 certain important terms conditions settlements remain finalized certain settlements require court approval final approval state attorneys general taxol® litigation contingent upon agreements relating terms injunctive relief among provisions remaining negotiated terms incorporating certain claimants including number health insurers existing settlement framework company discussions number insurers whether ultimately join proposed settlement cannot predicted certainty time company also reached agreement ftc staff terms consent order would resolve ftcs investigation proposed consent order subject review approval ftc commissioners respect abovementioned proposed settlements possible time reasonably assess final outcome lawsuits reasonably estimate possible loss range loss respect lawsuits proposed settlements become final resolve taxol®related antitrust consumer protection similar claims company prevail final nonappealable determinations ensuing litigation impact could material buspar litigation november 21 2000 company obtained patent us patent 6150365 365 patent relating method using buspar buspirone company timely submitted information relating 365 patent fda listing fda publication commonly known orange book fda thereafter listed patent orange book delisting patent suits genericdrug manufacturers sued fda company compel delisting 365 patent orange book although one district court declined order delisting 365 patent another ordered company cause delisting patent orange book company complied courts order appealed decision united states court appeals federal circuit appellate court reversed district court ordered delisting concurrently company sought enforce 365 patent actions two generic drug manufacturers antitrust suits following delisting 365 patent orange book number purchasers buspirone several generic drug makers filed lawsuits company alleging improperly triggered statutory marketing exclusivity plaintiffs claimed violation antitrust consumer protection similar laws attorneys general 36 states puerto rico also filed suit company parallel allegations plaintiffs amended allegations include charges 1994 agreement company generic company improperly blocked entry generic buspirone market plaintiffs seek declaratory judgment damages including treble andor punitive damages allowed disgorgement injunctive relief multidistrict litigation mdl proceedings judicial panel mdl granted companys motions patent antitrust cases consolidated single forum court buspirone litigations pending issued two opinions dated february 14 2002 first opinion court found 365 patent cover uses buspirone therefore infringed second opinion court denied companys motion dismiss federal antitrust various state law claims second opinion allows claims company proceed except federal antitrust claims damages accrued four years filing complaints government investigations ftc number state attorneys general initiated investigations concerning matters alleged antitrust suits discussed company cooperated investigations number attorneys general filed action company noted proposed settlements january 7 2003 company announced reached agreements principle would settle substantially antitrust litigation surrounding buspar amount buspar settlements expected 535 million 35 million accrued fourth quarter 2001 90 million accrued first quarter 2002 410 million accrued third quarter 2002 written settlement agreements number parties signed certain settlements require court approval number health insurers agreed proposed settlement framework whether cases ultimately settled cannot predicted certainty time company also reached agreement ftc staff terms consent order would resolve ftcs investigation proposed consent order subject review approval ftc commissioners respect abovementioned proposed settlements buspar antitrust litigation possible time reasonably assess final outcome lawsuits reasonably estimate possible loss range loss respect lawsuits proposed settlements become final resolve busparrelated antitrust consumer protection similar claims company prevail final nonappealable determinations ensuing litigation impact could material vanlev litigation april may june 2000 company former chairman board chief executive officer charles heimbold jr former chief scientific officer peter ringrose phd named defendants number class action lawsuits alleging violations federal securities laws regulations actions consolidated one action us district court district new jersey plaintiff claims defendants disseminated materially false misleading statements andor failed disclose material information concerning safety efficacy commercial viability product vanlev period november 8 1999 april 19 2000 may 2002 plaintiff submitted amended complaint adding allegations company present chairman board chief executive officer peter r dolan former chairman board chief executive officer charles heimbold jr former chief scientific officer peter ringrose phd disseminated materially false misleading statements andor failed disclose material information concerning safety efficacy commercial viability vanlev period april 19 2000 march 20 2002 number related class actions making essentially allegations also filed us district court southern district new york actions transferred us district court district new jersey plaintiff purports seek compensatory damages costs expenses behalf shareholders possible time reasonably assess final outcome litigation reasonably estimate possible loss range loss respect litigation company prevail final nonappealable determinations litigation impact could material plavix litigation company part entity plaintiff two pending patent infringement lawsuits united states district court southern district new york entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v apotex inc apotex corp 02cv2255 rws sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v dr reddys laboratories ltd dr reddys laboratories inc 02cv3672 rws suits based us patent 4847265 discloses claims among things hydrogen sulfate salt clopidogrel marketed plavix us patent 5576328 discloses claims among things use clopidogrel prevent secondary ischemic event plaintiffs infringement position based defendants filing abbreviated new drug applications fda seeking approval sell generic clopidogrel prior expiration patents suit possible time reasonably assess final outcome lawsuits reasonably estimate possible loss range loss respect lawsuits patent protection plavix lost impact companys operations could material securities matters period march may 2002 company number current former officers named defendants number securities class action lawsuits alleging violations federal securities laws regulations plaintiffs variously alleged defendants disseminated materially false misleading statements failed disclose material information concerning three different matters 1 safety efficacy commercial viability vanlev discussed 2 companys sales incentives certain wholesalers inventory levels wholesalers 3 companys investment relations imclone imclones product erbitux discussed allegations concerning vanlev transferred us district court district new jersey consolidated action pending remaining actions consolidated pending us district court southern district new york allegations remaining actions cover period january 2001 april 2002 plaintiffs seek compensatory damages costs expenses october 2002 number companys officers directors former directors named defendants shareholder derivative suit pending us district court southern district new york company nominal defendant suit alleges among things violations federal securities laws breaches contract fiduciary duty connection companys sales incentives certain wholesalers inventory levels wholesalers investment imclone imclones product erbitux two similar actions pending new york state court plaintiffs seek damages costs attorneys fees april 2002 sec initiated inquiry wholesaler inventory issues referenced became formal investigation august 2002 december 2002 investigation expanded include certain accounting issues including issues related establishment reserves accounting certain asset sales october 2002 united states attorneys office district new jersey announced investigation wholesaler inventory issues referenced since expanded cover subject matter sec investigation company cooperating investigations companys investigation also continuing possible time reasonably assess final outcome litigations investigations reasonably estimate possible loss range loss respect litigations investigations company producing documents actively cooperating investigations could result assertion criminal andor civil claims company prevail final nonappealable determinations litigations investigations impact could material erisa litigation december 2002 first quarter 2003 company others named defendants number class actions brought federal employee retirement income security act erisa cases pending us district courts southern district new york district new jersey plaintiffs allege defendants breached various fiduciary duties imposed erisa owed participants bristolmyers squibb company savings investment program including duty disseminate material information concerning 1 safety data companys product vanlev 2 companys sales incentives certain wholesalers inventory levels wholesalers 3 companys investment relations imclone imclones product erbitux connection allegations plaintiffs assert defendants breached fiduciary duties diversify program assets monitor investment alternatives avoid conflicts interest remedy alleged fiduciary breaches cofiduciaries case pending district new jersey plaintiffs additionally allege violation defendants duty disseminate material information concerning alleged anticompetitive activities related companys products buspar taxol® pravachol plaintiffs seek recover losses caused defendants alleged violations erisa attorneys fees possible time reasonably assess final outcome matters reasonably estimate possible loss range loss respect lawsuits company prevail final nonappealable determinations matters impact could material average wholesale pricing litigation company together number pharmaceutical manufacturers defendant series state federal actions private plaintiffs brought purported class actions complaints filed attorneys general two states one county alleging manufacturers reporting prices certain products resulted false overstated average wholesale price awp turn improperly inflated reimbursement paid medicare beneficiaries insurers state medicaid programs medical plans others health care providers prescribed administered products federal cases many state cases including attorney general cases removed federal courts consolidated pretrial purposes transferred united states district court district massachusetts pharmaceutical industry average wholesale price litigation awp multidistrict litigation september 6 2002 several private plaintiffs awp multidistrict litigation filed master consolidated complaint master complaint superseded complaints preconsolidated constituent cases master complaint asserts claims federal rico statute state consumer protection fair trade statutes company defendants moved dismiss master complaint motions heard january 13 2003 nevada montana attorneys general moved respective cases remanded state court argument motion held march 7 2003 company also defendant related state court proceedings new york new jersey california arizona tennessee one federal court proceeding new york commenced county suffolk new york new jersey state court proceedings currently stayed company defendants removed intend remove state court cases federal court seek transferred awp multidistrict litigation company anticipates county suffolk case also transferred plaintiffs seek damages well injunctive relief aimed manufacturer price reporting practices cases preliminary stage company unable assess outcome possible effect business profitability reasonably estimate possible loss range loss respect cases company together number pharmaceutical manufacturers also received subpoenas document requests various government agencies seeking records relating pricing marketing practices drugs covered medicare andor medicaid requests records come united states attorneys office district massachusetts office inspector general department health human services conjunction civil division department justice several states company producing documents actively cooperating investigations could result assertion criminal andor civil claims company unable assess outcome reasonably estimate possible loss range loss respect investigations could include imposition fines penalties administrative remedies breast implant litigation company together subsidiary medical engineering corporation mec certain companies remains defendant number claims lawsuits alleging damages personal injuries various types resulting polyurethanecovered breast implants smoothwalled breast implants formerly manufactured mec related company vast majority claims company direct lawsuits resolved settlements trial likewise claims potential claims company registered nationwide class action settlement approved federal district court birmingham alabama revised settlement resolved revised settlement company established accruals respect breast implant product liability litigation company believes possible loss addition amounts accrued material note 23 selected quarterly financial data unaudited note earnings per share quarters may add amounts year period computed discrete basis 12002 includes gain sale product lines 30 million first quarter first third fourth quarters include writeoffs acquired inprocess research development 160 million 7 million 2 million respectively second fourth quarters include provisions restructuring items 4 million 93 million respectively first third quarters include reversals prior period restructuring items 1 million 28 million respectively litigation settlement charges 90 million 569 million included first third quarters respectively also third quarter includes 379 million asset impairment charge imclone 2001 first second third fourth quarters include gain sales businessesproduct lines 32 million 67 million 287 million 89 million respectively first third fourth quarters include writeoffs acquired inprocess research development 3 million 23 million 2746 million respectively second quarter includes reversal prior period restructuring liabilities 9 million third fourth quarters include provisions restructuring items 177 million 470 million respectively third fourth quarters include litigation settlement charges 42 million 35 million respectively 2in 2002 first quarter discontinued operations results included purchase price adjustment related clairol transaction 24 million third quarter discontinued operations results included litigation provision 10 million gain adjustment relating clairol transaction 41 million 2001 fourth quarter discontinued operations results included gain sale business related clairol transaction 43 billion 3common equivalent shares excluded computation diluted earnings per share effect would antidilutive follows millions report independent accountants board directors stockholders bristolmyers squibb company opinion consolidated financial statements listed index appearing item 15a1 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2002 2001 results operations cash flows three years period ended december 31 2002 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed index appearing item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility companys management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion described note 1 accounting policies company 2001 changed method accounting business combinations goodwill arising transactions consummated subsequent june 30 2001 2002 changed method accounting goodwill arising transactions consummated prior july 1 2001 impairment longlived assets pricewaterhousecoopers llp pricewaterhousecoopers llp new york new york march 26 2003 item 9item 8 financial statements supplementary data accompanying notes integral part financial statements bristolmyers squibb company consolidated statement comprehensive income retained earnings dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated statement cash flows dollars millions accompanying notes integral part financial statements bristolmyers squibb company notes consolidated financial statements note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company bms company bristolmyers squibb controlled majority owned subsidiaries intercompany balances transactions eliminated certain prior year amounts reclassified conform current year presentation use estimates preparation financial statements conformity us generally accepted accounting principles gaap requires use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets contingent liabilities date financial statements reported amounts revenues expenses reporting period significant assumptions employed estimates used determining values intangible assets restructuring charges accruals sales rebate return accruals legal contingencies tax assets tax liabilities well estimates used applying revenue recognition policy accounting retirement postretirement benefits including actuarial assumptions actual results could differ estimated results revenue recognition company recognizes revenue substantially risks rewards ownership transferred customer case certain sales made nutritionals healthcare segments certain nonus businesses within pharmaceuticals segment revenue recognized date receipt purchaser revenues reduced time sale reflect expected returns estimated based historical experience additionally provisions made time sale discounts rebates estimated sales allowances based historical experience updated changes facts circumstances appropriate provisions recorded reduction revenue case sales made wholesalers 1 result incentives 2 excess wholesaler’s ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesaler’s cost carrying inventory excess wholesaler’s ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory company’s cost inventory company recognizes revenue consignment inventory longer subject incentive arrangements later inventory sold wholesalers’ customers firstin firstout fifo basis sales rebate return accruals medicaid rebate accruals 372 million 233 million december 31 2004 2003 respectively women infants children wic rebate accruals 234 million 208 million respectively managed healthcare rebate contractual discount accruals 198 million 249 million december 31 2004 2003 respectively rebate accruals established period related revenue recognized resulting reduction sales establishment liability included accrued liabilities accrual recorded based estimate proportion recorded revenue result rebate return prime vendor chargeback accruals established similar manner recorded reduction accounts receivable 106 million 101 million december 31 2004 2003 respectively income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases company’s assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recorded reduce deferred tax assets likely tax benefit realized december 31 2004 company approximately 169 billion undistributed earnings foreign subsidiaries company accrued provision 575 million estimated deferred taxes fourth quarter 2004 anticipation repatriating approximately 9 billion earnings 2005 pursuant american jobs creation act 2004 ajca taxes bristolmyers squibb company notes consolidated financial statements continued note 1 accounting policies continued provided balance undistributed earnings approximately 79 billion company invested expects invest undistributed earnings permanently offshore future earnings repatriated united states company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided ajca provides temporary 85 percent dividends received deduction certain cash distributions earnings foreign subsidiaries deduction would result federal tax rate approximately 525 repatriated earnings assuming marginal federal tax rate 35 earnings qualify deduction repatriated earnings must reinvested united states pursuant domestic reinvestment plan approved company’s chief executive officer board directors january 2005 department treasury issued guidelines permitted investments plan company expects meet requirements criteria qualify deduction however several provisions ajca require clarification may addressed coming months treasury congress company’s estimate tax cost related repatriation december 31 2004 based tax laws effect extent tax laws guidance changes estimate revised company’s estimate may also revised result changes company’s factual assumptions may occur guidance financial accounting standards board fasb staff position fsp 1091 application fasb statement 109 “accounting income taxes” tax deduction qualified production activities provided american jobs creation act 2004 deduction treated “special deduction” described statement financial accounting standards sfas 109 special deduction affect deferred tax assets liabilities existing enactment date rather impact deduction reported period deduction claimed company’s tax return company establishes liabilities possible assessments tax authorities resulting known tax exposures amounts represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known cash equivalents cash equivalents primarily highly liquid investments original maturities three months less time purchase recorded cost approximates fair value marketable securities company accounts marketable securities accordance sfas 115 accounting certain investments debt equity securities company determined appropriate classification marketable securities “availableforsale” time purchase december 31 2004 2003 company’s investments marketable securities reported fair value unrealized gains losses reported component accumulated comprehensive income loss stockholders’ equity amortized cost debt securities adjusted amortization premiums accretion discounts date purchase maturity amortization included interest income addition deduction coupon interest earned investments company follows investment managers’ method determining cost basis computing realized gains losses sale availableforsale securities average cost method realized gains losses included income expense inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals improvements capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets 50 years buildings 3 40 years machinery equipment fixtures company periodically evaluates whether current events circumstances indicate carrying value depreciable assets may recoverable bristolmyers squibb company notes consolidated financial statements continued note 1 accounting policies continued impairment longlived assets effective january 1 2002 company adopted provisions sfas 144 accounting impairment longlived assets adoption sfas 144 material effect consolidated financial statements company sfas 144 establishes accounting impairment longlived tangible intangible assets goodwill disposal segment business pursuant sfas 144 company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value capitalized software certain costs obtain internal use software significant systems projects capitalized amortized estimated useful life software ranges three ten years costs obtain software projects significant expensed incurred capitalized software net accumulated amortization included assets 394 million 407 million december 31 2004 2003 respectively amortization expense 90 million 71 million 39 million years ended december 31 2004 2003 2002 respectively investments january 2003 company adopted fasb interpretation 46 fin 46 interpretation consolidation variable interest entities interpretation arb 51 fin 46 clarifies application accounting research bulletin arb 51 consolidated financial statements certain entities equity investors characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support parties entities known variable interest entities vies fasb issued revision fin 46 fin 46r december 2003 fin 46r effective interim period ending march 31 2004 new existing vies adoption fin 46 effect company’s financial statements entity meet definition vie fin 46 company accounts entity provisions accounting research bulletin arb 51 consolidated financial statements amended sfas 94 consolidation majorityowned subsidiaries requires company consolidates majority 50 owned subsidiaries ability exercise control company accounts 50 less owned companies ability exercise significant influence using equity method accounting company’s share net income losses equity investments included equity net income affiliates consolidated statement earnings company periodically reviews equity investments impairment adjusts investments fair value decline market value deemed temporary 2002 company recorded asset impairment charge 379 million otherthantemporary decline market value imclone systems incorporated imclone longterm investments securities comprise marketable equity securities investments market values readily available included assets marketable equity securities classified availableforsale reported fair value fair value based quoted market prices end reporting period securities investments market values readily available carried cost unrealized gains losses reported net related tax effects component accumulated comprehensive income loss stockholders’ equity sold time sale gains losses calculated specific identification method recognized incomeexpense losses also recognized income decline market value deemed temporary goodwill intangible assets company adopted sfas 142 goodwill intangible assets january 1 2002 certain provisions adopted july 1 2001 respect amortization goodwill arising acquisitions made june 30 2001 sfas 142 addresses initial recognition measurement intangible assets acquired outside business combination recognition measurement goodwill intangible assets subsequent acquisition sfas 142 goodwill longer amortized subject annual impairment tests bristolmyers squibb company notes consolidated financial statements continued note 1 accounting policies continued accordance sfas 142 goodwill tested impairment upon adoption new standard annually thereafter sfas 142 requires goodwill tested impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value company completed goodwill impairment assessment indicated impairment goodwill intangible assets consisting patents trademarks technology licenses amortized straightline basis useful lives ranging 3 17 years sfas 142 requires indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net book value exceeds estimated fair value intangible assets evaluated impairment accordance sfas 144 described “impairment longlived assets” restructuring downsize streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs approved incurred actual results could vary estimates resulting adjustment earnings product liability accruals product liability recorded undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recorded undiscounted basis probable recovery realized classified reduction litigation charges consolidated statement earnings contingencies normal course business company subject contingencies legal proceedings claims arising business cover wide range matters including among others product liability environmental liability tax matters accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated discussion contingencies reference made “note 8 income taxes” “note 21 legal proceedings contingencies” derivative financial instruments derivative financial instruments used company principally management interest rate foreign currency exposures company hold issue derivative financial instruments speculative purposes company records derivative instruments balance sheet fair value changes derivative’s fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized consolidated statement earnings derivative designated cash flow hedge effective portions changes fair value derivative recorded comprehensive income loss subsequently recognized consolidated statement earnings hedged item affects earnings cash flows classified consistent underlying hedged item purchased foreign currency options entire change fair value included measurement hedge effectiveness cash flow hedges ineffective portions changes fair value cash flow hedges recognized charge credit earnings company designates assigns derivatives hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer expected occur company immediately recognizes gain loss designated hedging financial instruments consolidated statement earnings shipping handling costs company typically charge customers shipping handling costs shipping handling costs charged included marketing selling administrative expenses 2004 2003 2002 245 million 243 million 231 million respectively bristolmyers squibb company notes consolidated financial statements continued note 1 accounting policies continued advertising costs advertising costs expensed incurred advertising expense 479 million 448 million 393 million 2004 2003 2002 respectively milestone payments company time enter strategic alliances third parties give company rights develop manufacture market andor sell pharmaceutical products rights owned third parties result alliances company may obligated make payments alliance partners contingent upon achievement certain predetermined criteria milestones achieved prior marketing approval product payments expensed research development product approval additional milestones capitalized amortized cost products sold remaining useful life asset capitalized milestone payments tested recoverability whenever events changes circumstances indicate carrying amounts may recoverable acquired inprocess research development fair value inprocess research development acquired business combination determined independent appraisal based present value research project’s projected cash flows income approach utilized consistent guidance practice aid assets acquired business combinations used research development activities focus software electronic devices pharmaceutical industries issued american institute certified public accountants future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weighted average cost capital acquired inprocess research development expensed incurred underlying product received regulatory approval future alternative use addition costs nonrefundable related acquisition licensing products yet received regulatory approval marketed alternative future use charged earnings incurred earnings per share basic earnings per common share computed using weightedaverage number shares outstanding year diluted earnings per common share computed using weightedaverage number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options restricted stock convertible instruments foreign currency translation net assets company’s foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included comprehensive income stock compensation plans currently company applies accounting principles board apb opinion 25 accounting stock issued employees related interpretations accounting stockbased compensation plans discloses pro forma net income related pro forma income per share information accordance sfas 123 accounting stockbased compensation sfas 148 accounting stockbased compensation coststransition disclosure company recognize compensation expense stock options granted plans exercise price option date grant equal fair market value date grants restricted stock company recognizes compensation expense straightline basis period restrictions expire bristolmyers squibb company notes consolidated financial statements continued note 1 accounting policies continued following table summarizes company’s results pro forma basis recorded compensation expense based upon fair value grant date awards plans consistent methodology prescribed sfas 123 2004 2003 2002 options related discontinued operations impact basic diluted earnings per share see “note 16 stockholders’ equity” additional information recently issued accounting standards december 2004 fasb issued revised sfas 123 sfas 123r sharebased payment standard eliminates ability account sharebased compensation transactions using intrinsic valuebased method accounting principles board opinion 25 accounting stock issued employees requires instead transactions accounted using fairvaluebased method sfas 123r effective financial statements issued first interim period beginning june 15 2005 currently company discloses pro forma net income related pro forma income per share information accordance sfas 123 accounting stockbased compensation sfas 148 accounting stockbased compensation coststransition disclosure company evaluating impact statement could material impact results operations december 2004 fasb issued fsp 1091application sfas 109 accounting income taxes tax deduction qualified production activities provided american jobs creation act 2004 effect adoption fsp 1091 material company’s consolidated financial statements see “income taxes” december 2004 fasb issued fas 153 exchanges nonmonetary assets provisions statement effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 provisions statement applied prospectively eliminates exception fair value measurement nonmonetary exchanges similar productive assets paragraph 21b apb opinion 29 accounting nonmonetary transactions replaces exception exchanges commercial substance adoption accounting pronouncement expected material effect consolidated financial statements november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 standard requires abnormal amounts idle facility related expenses recognized current period charges also requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective inventory costs incurred fiscal years beginning june 15 2005 company evaluating impact statement financial position results operations bristolmyers squibb company notes consolidated financial statements continued note 1 accounting policies continued june 2004 fasb issued fsp 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 medicare act medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part fsp 1062 requires effects new law accounted sfas 106 employers’ accounting postretirement benefits pensions company adopted fsp 1062 third quarter 2004 retroactive january 1 2004 reduction net periodic benefit cost benefits 8 million 2004 based remeasurement accumulated postretirement benefit obligation january 1 2004 effect adoption fsp 1062 material company’s consolidated financial statements see “item 8 financial statementsnote 20 pension postretirement benefit plans” march 2004 emerging issues task force eitf reached consensus issue 0306 participating securities twoclass method fas 128 requires use twoclass method computing earnings per share enterprises participating securities multiple classes common stock consensus effective fiscal periods beginning march 31 2004 adoption eitf 0306 affect company’s consolidated financial statements december 2003 fasb revised fin 46 consolidation variable interest entities fin 46 requires variable interest entity consolidated company subject majority risk loss variable interest entity’s activities entitled receive majority entity’s residual returns fin 46 also requires disclosures variable interest entities company required consolidate significant variable interest consolidation requirements fin 46 revised apply immediately variable interest entities created january 31 2003 existing entities first fiscal year interim period ending march 15 2004 certain disclosure requirements apply financial statements issued january 31 2003 regardless variable interest entity established accounting pronouncement material effect consolidated financial statements note 2 alliances investments sanofiaventis company agreements sanofiaventis sanofi codevelopment cocommercialization avaproavalide irbesartan angiotensin ii receptor antagonist indicated treatment hypertension plavix clopidogrel platelet inhibitor worldwide alliance operates framework two geographic territories one americas principally united states canada puerto rico latin american countries australia europe asia accordingly two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries general country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place agreements expire later respect plavix 2013 respect avaproavalide 2012 americas australia 2013 europe asia ii expiration patents exclusivity rights applicable territory company acts operating partner territory covering americas australia owns 501 majority controlling interest territory sanofi’s ownership interest territory 499 company consolidates country partnership results territory records sanofi’s share results minority interest net taxes 502 million 2004 351 million 2003 292 million 2002 company recorded sales territory comarketing countries germany italy spain greece 4257 million 2004 3224 million 2003 2476 million 2002 sanofi acts operating partner territory covering europe asia owns 501 majority financial controlling interest territory company’s ownership interest territory 499 company accounts investment partnership entities territory equity method records share results equity net income affiliates consolidated statement earnings company’s share net income partnership entities taxes 269 million 2004 187 million 2003 120 million 2002 bristolmyers squibb company notes consolidated financial statements continued note 2 alliances investments continued 2001 company sanofi formed alliance copromotion irbesartan part company contributed irbesartan distribution rights united states sanofi paid company total 350 million 2002 2001 company accounted transaction sale interest license deferred amortized 350 million income expected useful life license approximately eleven years company recognized income 32 million 31 million 31 million 2004 2003 2002 respectively unamortized portion deferred income recorded liabilities section consolidated balance sheet 248 million 280 million december 31 2004 2003 respectively otsuka company worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote abilify aripiprazole treatment schizophrenia related psychotic disorders except japan china taiwan north korea south korea philippines thailand indonesia pakistan egypt company began copromoting product otsuka us puerto rico november 2002 june 2004 company received marketing approval european commission product currently copromoted otsuka united kingdom germany also copromoted france spain company records alliance revenue contractual share net sales copromotion countries excluding united kingdom records expenses related product alliance revenue recorded company net sales based upon 65 otsuka’s net sales copromotion countries company recognizes alliance revenue abilify shipped risks rewards ownership transferred otsuka’s customers uk company records 100 net sales related cost products sold company also exclusive right sell abilify number countries europe americas asia countries sales commence company record 100 net sales related cost products sold terms agreement company purchases product otsuka performs finish manufacturing sale company customers agreement expires november 2012 us puerto rico countries european union company exclusive right sell abilify agreement expires tenth anniversary first commercial sale country company exclusive right sell abilify agreement expires later tenth anniversary first commercial sale country expiration applicable patent country company recorded revenue abilify 593 million 2004 283 million 2003 25 million 2002 total milestone payments made otsuka agreement december 2004 217 million 157 million expensed acquired inprocess research development remaining 60 million capitalized intangible assets amortized cost products sold remaining life agreement us ranging eight eleven years included 60 million capitalized payments 10 million payment made july 2004 attainment marketing approval european union company amortized cost products sold 5 million 2004 5 million 2003 3 million 2002 unamortized capitalized payment balance 47 million 52 million december 31 2004 2003 respectively imclone company commercialization agreement expiring september 2018 imclone biopharmaceutical company focused developing targeted cancer treatments codevelopment copromotion erbitux united states february 2004 us food drug administration fda approved biologics license application bla erbitux use combination irinotecan treatment patients epidermal growth factor receptor egfrexpressing metastatic colorectal cancer refractory irinotecanbased chemotherapy use single agent treatment patients egfrexpressing metastatic colorectal cancer intolerant irinotecanbased chemotherapy accordance terms agreement company paid imclone 200 million 140 million paid march 2002 60 million paid march 2003 company paid 250 million march 2004 milestone payment initial approval erbitux additional 250 million payable upon fda approval use treating additional tumor type agreement imclone receives distribution fee based flat rate 39 product revenues north america addition company also codevelopment copromotion rights canada japan extent product commercialized countries bristolmyers squibb company notes consolidated financial statements continued note 2 alliances investments continued respect 200 million milestone payments company paid imclone 2002 2003 160 million expensed first quarter 2002 acquired inprocess research development 40 million recorded additional equity investment eliminate income statement effect portion milestone payment company economic claim ownership interest imclone company accounts 250 million approval milestone paid march 2004 license acquisition amortizes payment cost products sold expected useful life license approximately fourteen years 2004 amortization expense 14 million unamortized portion approval payment recorded intangibles net 236 million december 31 2004 company accounts investment imclone equity method records share results equity net income affiliates consolidated statement earnings 2002 company recorded pretax charge 379 million temporary decline market value imclone based decline value imclone’s share 2002 company’s recorded investment imclone common stock december 31 2004 2003 72 million 63 million respectively representing approximately 17 19 imclone shares outstanding respectively per share basis carrying value imclone investment closing market price imclone shares december 31 2004 503 4608 respectively compared 441 3966 respectively december 31 2003 company determines equity share imclone’s net income loss eliminating imclone’s results milestone revenue imclone recognizes preapproval milestone payments recorded company additional equity investment share imclone’s results operations company recorded net income 9 million 2004 net losses 36 million 40 million 2003 2002 respectively company recorded net sales erbitux 261 million 2004 merck april 2004 company entered collaboration agreement merck co inc merck worldwide codevelopment copromotion muraglitazar company’s dual ppar peroxisome proliferator activated receptor agonist currently phase iii clinical development use treating type 2 diabetes december 2004 company submitted new drug application nda fda regulatory approval murgalitazar terms agreement company received 100 million upfront payment may 2004 entitled receive additional 55 million milestone payment december 2004 subsequently received january 2005 company entitled receive 220 million additional payments upon achievement certain regulatory milestones company merck jointly develop clinical marketing strategy muraglitazar share equally future development commercialization costs copromote product physicians global basis merck receive payments based net sales levels upfront payment 100 million received may 2004 deferred amortized income expected remaining useful life agreement approximately sixteen years 2004 company recognized 4 million payments income 55 million milestone payment deferred recorded receivable december 2004 amortized income beginning january 2005 remaining useful life agreement addition company records merck’s share codevelopment costs reduction research development expense merck’s share copromotion costs reduction advertising product promotion expense summary financial information following summarized financial information company’s equity investments imclone joint venture sanofi europe asia bristolmyers squibb company notes consolidated financial statements continued note 3 restructuring items 2004 activities 2004 company recorded pretax restructuring charges 116 million relating downsizing streamlining worldwide operations rationalization worldwide manufacturing operations charge 102 million relates primarily employee termination benefits approximately 2000 employees including manufacturing administrative sales personnel europe north america asia latin america exit costs 5 million relate primarily lease termination costs items 9 million relate primarily relocation expenses result consolidation research facilities charges partially offset adjustment due changes estimates prior period reserves 8 million principally due reduced separation costs also 4 million gain sale research facility previously written restructuring company expects complete restructuring activities 2006 following table presents detail provision restructuring items operating segment type company allocate restructuring charges business segments addition company recorded 107 million asset impairments accelerated depreciation relating rationalization manufacturing operations primarily cost products sold 55 million research development related upfront payments 4 licensing agreements allocated business segments 2003 activities 2003 company recorded pretax restructuring charges 65 million relating downsizing streamlining worldwide operations rationalization worldwide manufacturing operations charge 50 million relates primarily termination benefits approximately 950 employees including manufacturing administrative sales personnel europe north america asia latin america items 15 million relate primarily relocation expenses result consolidation research facilities charges partially offset adjustment due changes estimates prior period reserves 39 million principally due higher anticipated proceeds disposal assets reduced separation costs company expects complete restructuring activities 2006 following table presents detail provision restructuring items operating segment type company allocate restructuring charges business segments addition company recorded 67 million asset impairments accelerated depreciation relating rationalization manufacturing operations cost products sold 102 million research development related upfront payments four licensing agreements allocated business segments bristolmyers squibb company notes consolidated financial statements continued note 3 restructuring items continued 2002 activities 2002 company recorded pretax restructuring charges 160 million relating reduction elimination nonstrategic research efforts well consolidation research facilities workforce reductions downsizing streamlining worldwide operations charge 71 million relates employee termination benefits approximately 1040 employees including research manufacturing sales administrative personnel 51 million represents asset writedowns including 24 million impairment charge company’s investment deltagen 38 million exit costs closure facilities related expenses charges offset adjustment prior period restructuring reserves 146 million 65 million due lower expected separation costs 59 million due higher anticipated proceeds disposal assets previously written restructuring 22 million projects cancelled addition 17 million adjustment cost products sold made reflect reversal inventory reserves associated cancelled projects company completed restructuring activities following table presents detail provision restructuring items operating segment type company allocate restructuring charges business segments addition 69 million accelerated depreciation relating planned shutdown research facilities united states included research development expense 2 million inventory writeoffs associated projects included cost products sold third quarter 2002 company recorded pretax restructuring charge 79 million severance exit costs associated consolidation research development efforts closure two leased facilities result action impairment assessment performed long lived assets used sites accordance sfas 144 company concluded although 69 million assets recoverable remaining useful life assets mainly laboratory equipment leasehold improvements alternate use residual value accelerated 4 years 3 months reflect date abandonment facilities fourth quarter 2002 bristolmyers squibb company notes consolidated financial statements continued note 3 restructuring items continued rollforward restructuring charges spending liabilities associated prior current actions follows liabilities included accrued expenses consolidated balance sheet note 4 acquisitions divestitures february 2004 company completed divestiture adult nutritional business novartis ag novartis 386 million included 20 million contingent achievement contractual requirements satisfied 22 million upfront payment supply agreement company recorded pretax gain 320 million 198 million net tax included 20 million contingent payment 5 million reduction company goodwill associated mead johnson product lines 2003 adult nutritional products recorded sales 200 million april 2004 company completed acquisition acordis speciality fibres acordis headquartered united kingdom supplies materials convatec wound therapeutics line acquisition expected strengthen company’s leadership position wound therapies company purchased stock acordis 150 million incurred 8 million acquisition costs connection transaction additional 10 million payment contingent achievement future sales volumes purchase price acquisition allocated tangible identifiable intangible assets acquired liabilities assumed based estimated fair values acquisition date 158 million 63 million allocated inprocess research development represents estimated fair value acquired inprocess projects consisting primarily medicel wound therapeutics product yet reached technological feasibility alternative future use therefore expensed estimated fair value projects determined employment discounted cash flow model 22 million assigned identifiable intangible assets predominantly patents excess purchase price estimated fair values net assets acquired approximately 73 million recorded goodwill acquisition accounted purchase method accordingly results operations included accompanying consolidated financial statements date acquisition 2002 company completed sale two branded products moisturel duricef resulted pretax gain 30 million note 5 discontinued operations december 2004 committed plan sell otn entered definitive sale agreement one equity partners llc otn leading specialty distributor pharmaceutical products officebased oncologists united states formerly reported distinct operating segment transaction expected completed first half 2005 sale price equal 210 million plus sale price adjustment sale price adjustment based excess current assets current bristolmyers squibb company notes consolidated financial statements continued note 5 discontinued operations continued liabilities working capital closing date sale price shall increased decreased amount working capital exceeds less 50 million closing date sale result pretax gain approximately 40 50 million subject sale price adjustment postclosing matters gain sale otn recognized closing date following amounts related otn business segregated continuing operations reported discontinued operations reflect costs certain services provided otn company costs allocated company otn services include legal counsel insurance external audit fees payroll processing certain human resource services information technology systems support net earnings discontinued operations also includes 32 million 2002 statement earnings primarily related reduction tax contingency reserve related spinoff zimmer holdings inc 2001 following summary assets liabilities discontinued operations expected sold amounts presented derived historical financial information otn adjusted exclude cash intercompany receivables payables otn company excluded divestiture addition goodwill related otn december 31 2004 80 million excluded following summary net assets disposed considered determining gain sale date transaction consummated accounts payable balance primarily includes payables mckesson corporation mckesson december 31 2004 usually paid within first five days month goods shipped preceding month result timing accounts payable balances otn net liability balance december 31 2004 consolidated statement cash flows includes otn business periods presented company uses centralized approach cash management financing operations accordingly debt allocated business cash inflows operating investing activities discontinued operations 132 million 95 million years ended december 31 2004 2003 respectively cash outflows 127 million year ended december 31 2002 bristolmyers squibb company notes consolidated financial statements continued note 6 earnings per share numerator basic earnings per share net earnings available common stockholders numerator diluted earnings per share net earnings available common stockholders interest expense added back assumed conversion convertible debt common shares denominator basic earnings per share weighted average number common shares outstanding period denominator diluted earnings per share weighted average shares outstanding adjusted effect dilutive stock options computations basic earnings per common share diluted earnings per common share follows weightedaverage shares issuable upon exercise stock options included diluted earnings per share calculation dilutive 126 million 2004 114 million 2003 121 million 2002 1 net earnings 2004 2003 include interest expense 7 million 1 million respectively added back assumed conversion convertible debt common shares bristolmyers squibb company notes consolidated financial statements continued note 7 expense net components expense net 2004 2003 2002 interest expense reduced net interest swap gains 151 million 116 million 23 million respectively interest income relates primarily cash equivalents investments marketable securities income includes income thirdparty contract manufacturing royalty income gains losses disposal property plant equipment note 8 income taxes components earnings loss continuing operations minority interest income taxes amounts categorized based location taxing authorities provisionbenefit income taxes attributable continuing operations consisted bristolmyers squibb company notes consolidated financial statements continued note 8 income taxes continued company’s provision income taxes 2004 2003 2002 different amount computed applying statutory us federal income tax rate earnings continuing operations minority interest income taxes result following effective income tax rate earnings continuing operations minority interest income taxes 344 2004 compared 258 2003 140 2002 higher effective tax rate 2004 attributable primarily 575 million charge estimated deferred taxes taken fourth quarter anticipation repatriating 2005 approximately 9 billion special dividends company’s nonus subsidiaries pursuant ajca increase estimates contingent tax matters 2004 compared 2003 charge related establishment valuation allowance certain charitable contribution carryforwards partially offset favorable resolution certain tax refund claims increased foreign tax credits 2003 effect certain litigation reserves nondeductible increase 2003 effective tax rate 2002 effective tax rate primarily due decrease effective tax rate benefit operations ireland puerto rico switzerland treatment provisions certain litigation reserves nondeductible increase estimates contingent tax matters 2003 compared 2002 components current noncurrent deferred income tax assets liabilities bristolmyers squibb company notes consolidated financial statements continued note 8 income taxes continued valuation allowance 507 million december 31 2004 relates 56 million foreign state net deferred tax assets 334 million foreign state net operating loss tax credit carryforwards 117 million charitable contribution carryforwards company currently believes likely realized income taxes paid year 822 million 869 million 2491 million 2004 2003 2002 respectively current tax benefit realized upon exercise stock options charged capital excess par value stock amounted 26 million 10 million 45 million 2004 2003 2002 respectively december 31 2004 company approximately 169 billion undistributed earnings foreign subsidiaries company accrued provision 575 million estimated deferred taxes fourth quarter 2004 anticipation repatriating approximately 9 billion earnings 2005 pursuant ajca company’s estimate tax cost related repatriation may revised result additional guidance clarifying language may issued congress andor department treasury changes company’s factual assumptions may occur taxes provided balance undistributed earnings approximately 79 billion company invested expects invest undistributed earnings permanently offshore future earnings repatriated united states company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided company settled us federal income tax returns internal revenue service irs 1997 company establishes liabilities possible assessments taxing authorities resulting known tax exposures including limited transfer pricing certain tax credits various state foreign tax matters amounts represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known december 31 2004 certain tax contingencies liabilities established although company cannot reasonably estimate possible amount contingency possible contingencies could material effect changes estimates related contingent tax matters included rate reconciliation year ended december 31 2002 company recognized income tax benefit 261 million due settlement certain prior year tax matters determination company expected settlement tax litigation 2002 company reorganized structure ownership many nonus subsidiaries principal purpose reorganization facilitate company’s ability efficiently deploy financial resources outside united states company believes reorganization transactions generally taxfree inside outside united states possible however taxing authorities particular jurisdictions could assert tax liabilities arising reorganization transactions operations reorganized subsidiaries reasonably possible predict whether taxing authority assert tax liability reasonably estimate possible loss range loss respect asserted tax liability company would vigorously challenge assertion believes would prevail assurance result company prevail final nonappealable determinations possible impact could material note 9 receivables major categories receivables follow bristolmyers squibb company notes consolidated financial statements continued note 10 inventories major categories inventories follow note 11 consignment 2002 company experienced substantial buildup wholesaler inventories us pharmaceuticals business resulting sales incentives offered company wholesalers october 2002 company determined required restate sales earnings correct errors timing revenue recognition certain sales made two largest wholesalers us pharmaceuticals business company determined sales accounted consignment model described “note 1 accounting policiesrevenue recognition” based part relationship amount nature incentives offered wholesalers amount inventory held wholesalers consignment model transactions resulted deferred revenue 12 million december 31 2003 deferred revenue december 31 2004 inventory accounted using consignment model fully worked company recognized approximately 10 million 321 million 1397 million deferred revenue net sales 2004 2003 2002 respectively net rebates returns adjustments note 12 property plant equipment major categories property plant equipment follow capitalized interest included categories property plant equipment shown company capitalized interest 10 million 35 million 16 million years ended december 31 2004 2003 2002 respectively note 13 goodwill changes carrying amount goodwill years ended december 31 2004 2003 follows bristolmyers squibb company notes consolidated financial statements continued note 14 intangible assets intangible assets major asset class follows amortization expense intangible assets majority included costs products sold years ended december 31 2004 2003 2002 226 million 227 million 269 million respectively expected amortization expense related current net carrying amount intangible assets follows note 15 shortterm borrowings longterm debt included shortterm borrowings amounts due foreign banks 92 million 114 million current installments longterm debt 126 million 13 million december 31 2004 2003 respectively us shortterm borrowings primarily consist commercial paper 1665 million december 31 2004 average interest rate 23 us commercial paper outstanding december 31 2003 proceeds commercial paper issuance 2004 used general corporate purposes average interest rates international shortterm borrowings current installments longterm debt outstanding december 31 2004 93 28 respectively compared 80 13 respectively december 31 2003 december 2004 company replaced prior 1 billion revolving credit facilities new 2 billion five year revolving credit facility syndicate lenders extendable anniversary date consent lenders facility contains financial covenant whereby ratio consolidated debt consolidated capital cannot exceed 50 company compliance covenant since inception new facility borrowings outstanding revolving credit facilities december 31 2004 2003 company unused shortterm lines credit foreign banks 158 million 363 million december 31 2004 2003 respectively bristolmyers squibb company notes consolidated financial statements continued note 15 shortterm borrowings longterm debt continued components longterm debt follows 1 company’s outstanding 12 billion convertible debentures pay interest quarterly annual rate equal 3month libor reset quarterly minus 050 yield never less zero final maturity september 15 2023 debentures callable par time september 21 2008 issuer holders also redeem debentures par september 15 2008 2013 2018 fundamental change ownership company occurs bond initial conversion price 4128 conversion rate 242248 shares adjustable depending average closing prices applicable period maximum conversion rate 387597 shares company entered fixed floating interest rate swaps 62 billion longterm debt cash payments interest 354 million 290 million 375 million 2004 2003 2002 respectively 2 2005 obligations included shortterm borrowings company’s consolidated balance sheet balances represent outstanding nominal longterm debt values company’s convertible debenture included due payment 2008 contains 2008 put call feature described december 31 2004 company provided financial guarantees form standby letters credit performance bonds majority standby letters credit insurance companies support thirdparty liability programs performance bonds relate sale company product various foreign ministries health middle east company believes significant majority guarantees expire without funded amounts obligations presented following table bristolmyers squibb company notes consolidated financial statements continued note 16 stockholders’ equity changes common shares treasury stock capital excess par value stock restricted stock share company’s preferred stock convertible 1696 shares common stock callable company’s option reductions number issued shares preferred stock 2004 2003 2002 due conversions shares common stock dividends declared per common share 112 2004 112 2003 112 2002 accumulated balances related component comprehensive income loss follows stock compensation plans company’s 2002 stock incentive plan executive officers key employees may granted options purchase company’s common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price terms 2002 stock incentive plan authorized shares include 09 outstanding shares per year 2007 well number shares tendered prior year pay purchase price options number shares previously utilized satisfy withholding tax obligations upon exercise shares available grant prior year granted year shares cancelled forfeited expired also available future grant 2002 stock incentive plan provides granting common stock key employees subject restrictions continuous employment restrictions generally expire fiveyear period date grant compensation expense bristolmyers squibb company notes consolidated financial statements continued note 16 stockholders’ equity continued recognized restricted period december 31 2004 2003 29 million 23 million shares restricted stock outstanding plan respectively 2004 12 million shares restricted stock granted fair value 2764 2002 stock incentive plan also incorporates company’s longterm performance awards delivered form target number performance shares threeyear cycle 2004 2006 awards based 50 eps growth 50 sales growth ultimate payout modified company’s total stockholder return versus eleven companies proxy peer group threshold targets met performance period payment made longterm performance award plan maximum performance three measures result maximum payout 253 target december 31 2004 2003 09 million 06 million performance shares outstanding plan respectively 2004 05 million performance shares granted fair value 2811 teamshare stock option plan fulltime employees excluding key executives granted options purchase company’s common stock market price date options granted company authorized 66 million shares issuance plan individual grants generally become exercisable evenly third fourth fifth anniversary grant date maximum term 10 years options 329 million shares exercised plan december 31 2004 fair value options granted 2004 2003 2002 estimated 591 per common share 515 per common share 1112 per common share respectively date grant using blackscholes optionpricing model following assumptions stock option transactions bristolmyers squibb company notes consolidated financial statements continued note 16 stockholders’ equity continued following tables summarize information concerning company’s stock compensation plans currently outstanding exercisable options december 31 2004 288 million shares common stock reserved issuance pursuant stock plans options conversions preferred stock options related discontinued operations included amounts material note 17 financial instruments company exposed market risk due changes currency exchange rates interest rates accordingly company utilizes foreign exchange option forward contracts offset effect exchange rate fluctuations anticipated foreign currency transactions primarily intercompany inventory purchases expected occur within next two years company exposures net foreign currency denominated assets liabilities approximated 2264 million 1932 million december 31 2004 2003 respectively primarily europe japan mexico canada foreign exchange option contracts forward contracts used hedge anticipated transactions company’s primary foreign currency exposures relation us dollar euro canadian dollar australian dollar japanese yen notional amounts company’s foreign exchange derivative contracts december 31 2004 2003 3461 million 2488 million respectively derivatives majority qualify hedges future anticipated cash flows effective portion changes fair value temporarily deferred comprehensive income oci recognized earnings hedged item affects earnings sfas 133 requires company perform periodic assessments hedge effectiveness assessments determine whether derivatives designated qualifying hedges continue highly effective offsetting changes cash flows hedged items ineffective portion fair value longer deferred oci included current period earnings year ended december 31 2004 company recognized loss due ineffective contracts 4 million fair value option forward contracts liabilities 362 million 265 million december 31 2004 2003 respectively recorded assets accrued liabilities december 31 2004 2003 fair value foreign exchange contracts based yearend currency rates blackscholes model case option contracts addition foreign exchange hedge contracts noted company also uses foreign exchange forward contracts hedge foreign currency denominated monetary assets liabilities primary objective foreign exchange forward contracts protect us dollar value foreign currency denominated monetary assets liabilities effects bristolmyers squibb company notes consolidated financial statements continued note 17 financial instruments continued volatility foreign exchange might occur prior receipt settlement us dollars foreign currency denominated monetary assets liabilities primarily denominated japanese yen euro forward contracts designated hedges marked market incomeexpense notional fair value amount foreign exchange forward contracts december 31 2004 325 million 6 million respectively company uses derivative instruments part interest rate risk management policy derivative instruments used comprised principally fixed floating rate interest rate swaps subject fairvalue hedge accounting treatment 2004 2003 company entered several fixed floating interest rate swap contracts several financial institutions notional amounts swaps 62 billion 55 billion december 31 2004 2003 respectively accordance sfas 133 accounting derivative instruments hedging activities company recognized net reduction interest expense 151 million 116 million 23 million 2004 2003 2002 respectively reflects benefit lower floating rate obtained swap compared fixed rate underlying debt swap contracts well underlying debt hedged recorded fair value resulted increase noncurrent assets 76 million shortterm liabilities 1 million longterm debt 75 million increase noncurrent assets longterm debt 40 million december 31 2004 2003 respectively swap contracts generally held maturity company use derivative financial instruments speculative purposes 2004 2003 2002 company reclassified deferred losses 234 million 223 million 71 million respectively comprehensive income earnings majority classified cost products sold carrying amount company’s financial instruments includes cash equivalents marketable securities accounts receivable accounts payable approximates fair value december 31 2004 2003 longterm debt noted difference fair value carrying value material note 18 segment information company organized pharmaceutical company related healthcare businesses three reportable segmentspharmaceuticals nutritionals healthcare pharmaceuticals segment comprised global pharmaceutical international excluding japan consumer medicines businesses nutritionals segment consists mead johnson primarily infant formula business healthcare segment consists convatec medical imaging consumer medicines united states japan businesses company’s products sold principally wholesale retail trade nationally internationally certain products also sold drug manufacturers hospitals clinics government agencies medical profession three wholesalers accounted approximately 19 17 10 respectively company’s total net sales 2004 2003 sales wholesalers accounted 17 15 13 respectively company’s total net sales 2002 three wholesalers accounted approximately 16 15 16 respectively company’s total net sales concentrated pharmaceuticals segment business segments bristolmyers squibb company notes consolidated financial statements continued note 18 segment information continued corporateother consists principally interest income interest expense certain administrative expenses allocations business segments certain corporate programs corporateother also includes gain sales businessesproduct lines 320 million 30 million 2004 2002 respectively accelerated depreciation 69 million 2002 termination benefits exit costs 97 million 50 million 109 million 2004 2003 2002 respectively asset writedown impairment charges 3 million 53 million 2003 2002 respectively upfront milestone payments licensing agreements 55 million 66 million 2004 2003 respectively litigation charges net 507 million 220 million 659 million 2004 2003 2002 respectively acquired inprocess research development charge 63 million 2004 2002 also includes 379 million asset impairment charge imclone pharmaceuticals segment 2004 includes accelerated depreciation 107 million certain manufacturing facilities north america expected closed 2006 relocation 7 million retention 1 million 2003 pharmaceuticals includes litigation settlement income 21 million upfront payment licensing agreement 36 million 53 million accelerated depreciation assets manufacturing facilities north america expected closed end 2006 11 million charge asset impairment 13 million charge relocation expenses 2 million charge retention bonus benefits additionally 2002 pharmaceuticals segment includes charge acquired inprocess research development 169 million corporateother assets include cash equivalents marketable securities goodwill assets otn held available sale certain assets geographic areas bristolmyers squibb company notes consolidated financial statements continued note 19 leases minimum rental commitments noncancelable operating leases primarily real estate motor vehicles effect december 31 2004 operating lease rental expense net sublease rental income 13 million 2004 11 million 2003 25 million 2002 149 million 2004 137 million 2003 95 million 2002 note 20 pension postretirement benefit plans company certain subsidiaries defined benefit pension plans defined contribution plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan funding policy contribute amounts provide current service fund past service liability plan benefits based primarily years credited service participant’s compensation plan assets consist principally equity fixedincome securities company also provides comprehensive medical group life benefits substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside united states cost company’s deferred benefits postretirement benefit plans included following components company recognized impact medicare prescription drug improvement modernization act 2003 2004 accordance fsp 1062 recorded 8 million reduction net periodic benefit cost changes benefit obligations plan assets december 31 2004 2003 company’s defined benefit postretirement benefit plans bristolmyers squibb company notes consolidated financial statements continued note 20 pension postretirement benefit plans continued several plans underfunded accrued benefit obligations exceeded accrued benefit liabilities december 31 2004 2003 additional minimum liabilities established increase accrued benefit liabilities values underfunded accrued benefit obligations liabilities totaled 349 million 203 million december 31 2004 2003 respectively us unfunded benefit equalization plan several international plans additional minimum liability offset intangible assets 3 million 10 million charges comprehensive income included stockholder’s equity 346 million 193 million december 31 2004 2003 respectively accumulated benefit obligation defined benefit pension plans 4828 million 4154 million december 31 2004 2003 respectively information pension plans accumulated benefit obligations excess plan assets bristolmyers squibb company notes consolidated financial statements continued note 20 pension postretirement benefit plans continued attributable primarily unfunded us benefit equalization plan several plans international markets unfunded us benefit equalization plan provides pension benefits employees compensation irs limits cannot funded taxadvantaged manner additional information pertaining company’s pension postretirement plans weightedaverage assumptions used determine benefit obligations december 31 weightedaverage actuarial assumptions used determine net periodic benefit cost years ended december 31 december 31 2004 company’s expected longterm rate return us pension plan assets 9 target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income 9 approximated applying expected returns 9 public equity 15 private equity 6 fixed income target allocation actual historical returns also relevant annualized returns periods ended december 31 2004 108 10 years 100 15 years 112 20 years us pension plan assets represented approximately 83 total company pension plan assets december 31 2003 873 disclosed total company expected return assets 2004 90 us pension plans due impact international pension plans typically employ less aggressive asset allocation 9 expected return disclosed benefits 2004 relevant assets invested manner us pension plan assets international plan assets assumed health care cost trend rates december 31 bristolmyers squibb company notes consolidated financial statements continued note 20 pension postretirement benefit plans continued assumed health care cost trend rates effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects company’s asset allocation pension postretirement benefits december 31 2004 2003 company’s investment strategy emphasizes equities order achieve high expected returns long run low expense low required cash contributions us pension plans target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income maintained cash flow ie cash contributions benefit payments used rebalance back targets necessary investments well diversified within three major asset categories 40 us equity passively managed otherwise investments actively managed investment strategies international pension plans typically similar although asset allocations usually conservative bristolmyers squibb company common stock represents less 1 plan assets december 31 2004 2003 assets postretirement benefits commingled us pension plan assets therefore investment strategy identical described us pension plans contributions although minimum contributions required company plans make cash contributions us pension plans 2005 contributions made us pension plans company may make taxdeductible contributions 401h account retiree medical benefits equal portion pension normal cost contributions international pension plans expected 70 90 million range estimated future benefit payments following benefit payments reflect expected future service appropriate expected paid bristolmyers squibb company notes consolidated financial statements continued note 20 pension postretirement benefit plans continued savings plan principal defined contribution plan bristolmyers squibb savings investment program company’s contribution based employee contributions level company match company’s contributions plan 53 million 2004 51 million 2003 50 million 2002 note 21 legal proceedings contingencies legal proceedings contingencies various lawsuits claims proceedings investigations pending company certain subsidiaries accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated matters involve antitrust securities patent infringement employee retirement income security act 1974 amended erisa pricing sales marketing practices environmental health safety matters product liability insurance coverage significant matters described assurance increase scope matters future lawsuits claims proceedings investigations material management continues believe previously disclosed next years aggregate impact beyond current reserves legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity company’s decision obtain insurance coverage dependent market conditions including cost availability existing time decisions made result external factors availability insurance become restrictive cost increased significantly company evaluated risks determined cost obtaining insurance outweighs benefits coverage protection losses selfinsured product liabilities effective july 1 2004 company continue evaluate risks benefits determine insurance needs future plavix litigation united states company’s us territory partnership alliance sanofi plaintiff three pending patent infringement lawsuits instituted us district court southern district new york entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v apotex inc apotex corp 02cv2255 shs sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v dr reddy’s laboratories ltd dr reddy’s laboratories inc 02cv3672 shs sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership vs teva pharmaceuticals usa inc teva pharmaceuticals industries ltd 04cv7458 teva pharmaceuticals industries ltd since dismissed case proceedings involving plavix also instituted outside united states significant proceedings pending canada described us suits filed march 21 2002 may 14 2002 september 23 2004 respectively based us patent 4847265 composition matter patent discloses claims among things hydrogen sulfate salt clopidogrel marketed plavix first two suits also based us patent 5576328 discloses claims among things use clopidogrel prevent secondary ischemic event plaintiffs later withdrew patent 5576328 two lawsuits plaintiffs’ infringement position based defendants’ filing abbreviated new drug applications anda fda seeking approval sell generic clopidogrel bisulfate prior expiration composition matter patent 2011 defendants responded alleging patent invalid andor unenforceable apotex added antitrust counterclaims first two cases consolidated discovery fact discovery closed october 15 2003 expert discovery completed november 2004 trial could occur early second quarter 2005 although may occur later discovery yet commenced third action company’s us territory partnership alliance sanofi plaintiff another pending patent infringement lawsuit instituted us district court district new jersey entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v watson pharmaceuticals inc watson laboratories inc 204cv4926 suit filed october 7 2004 based us patent 6429210 discloses claims particular crystalline polymorph form hydrogen sulfate salt clopidogrel marketed plavix case early stages discovery yet begun bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued plavix currently company’s largest product ranked net sales net sales plavix approximately 33 billion 25 billion years ended december 31 2004 2003 respectively currently company expects plavix market exclusivity united states 2011 composition matter patent plavix found infringed invalid andor unenforceable district court level fda could approve defendants’ andas sell generic clopidogrel generic competition plavix could begin company exhausted appeals generic competition would likely result substantial decreases sales plavix united states although plaintiffs intend vigorously pursue enforcement patent rights plavix possible time reasonably assess outcome lawsuits company prevail lawsuits timing potential generic competition plavix however generic competition us occur company believes unlikely occur second half 2005 also possible reasonably estimate impact lawsuits company however loss market exclusivity plavix subsequent development generic competition would material company’s sales plavix results operations cash flows could material financial condition liquidity canada sanofisynthelabo canada inc instituted prohibition action federal court canada apotex inc apotex minister health response notice allegation apotex directed canadian patent 1336777 covering clopidogrel bisulfate apotex’s notice allegation noa indicated filed abbreviated new drug submission ands clopidogrel bisulfate tablets sought approval notice compliance ands expiration canadian patent 1336777 expires august 12 2012 apotex’s noa alleged ‘777 patent invalid infringed hearing held february 21 february 25 2005 decision expected april 28 2005 date statutory 24 month stay imposed approval apotex’s ands expires decision favorable apotex could result generic product market canada second quarter 2005 company believes outcome canada predictive outcome us light different procedural substantive rules two jurisdictions sanofiaventis sanofisynthelabo canada inc also instituted prohibition action federal court canada novopharm limited novopharm minister health response notice allegation novopharm directed canadian patent 1336777 covering clopidogrel bisulfate novopharm’s notice allegation noa indicated filed abbreviated new drug submission ands clopidogrel bisulfate tablets sought approval notice compliance ands expiration canadian patent 1336777 expires august 12 2012 novopharm’s noa alleged ‘777 patent invalid action early stages hearing date set united kingdom december 2004 aircoat limited aircoat filed nullity petition court session glasgow scotland nullity petition aircoat seeks revocation european patent 0 281 459 registered united kingdom european patent 0 281 459 covers inter alia clopidogrel bisulfate active ingredient plavix aircoat specifically alleges claims european patent 0 281 459 invalid revoked grounds lack novelty andor lack inventive step patent litigation tequin company kyorin pharmaceuticals co ltd kyorin commenced patent infringement action march 23 2004 teva usa teva industries united states district court southern district new york relating antibiotic gatifloxacin kyorin holds composition matter patent company sells tequin teva industries since dismissed case action relates teva’s filing anda generic version gatifloxacin tablets certification composition matter patent expires december 2007 invalid bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued infringed filing suit places stay approval teva’s generic product june 2007 unless court decision adverse company kyorin date erbitux october 28 2003 complaint filed yeda research development company ltd yeda imclone aventis pharmaceuticals inc us district court southern district new york action alleges seeks three individuals associated yeda also named coinventors us patent 6217866 covers therapeutic combination egfrspecific monoclonal antibody antineoplastic agents chemotherapeutic agents use treatment cancer yeda’s action successful yeda could position practice license others practice invention could result product competition erbitux might otherwise occur company party action unable predict outcome stage proceedings may 5 2004 repligen corporation repligen massachusetts institute technology mit filed lawsuit united states district court district massachusetts imclone claiming imclone’s manufacture sale erbitux infringes patent generally covers process protein production mammalian cells repligen mit seek damages based sales erbitux commenced february 2004 patent expired may 5 2004 although repligen mit seeking extension patent company party action unable predict outcome stage proceedings abilify august 11 2004 otsuka filed united states patent trademark office uspto request reexamination us composition matter patent covering abilify antipsychotic agent used treatment schizophrenia us patent number 5006528 “528 patent” expires 2009 may extended 2014 pending supplemental protection extensions granted otsuka determined original ‘528 patent application contained error description prior art reference identified wrong patent number addition otsuka taken opportunity bring citations attention uspto granted request reexamination proceeding ongoing reexamination proceeding allow uspto consider patentability patent claims light corrected patent number newly cited documents uspto expected make final decision reexamination within next ten fifteen months company otsuka believe invention claimed ‘528 patent patentable prior art expect uspto reconfirm reexamination however guarantee outcome patentability ‘528 patent reconfirmed following reexamination may sooner expected loss market exclusivity abilify subsequent development generic competition would material company avalide ranbaxy laboratories limited ranbaxy served notice filed anda piv certification directed us patent 5994348 formulation patent expires june 2015 ranbaxy’s piv notice asserts proposed generic formulation infringe patent 5993348 ranbaxy’s piv notice include challenge composition matter patent currently expires september 2011 company partner sanofi currently evaluating ranbaxy’s piv notice avapro ranbaxy served notice filed anda piv certification directed us patent 6342247 formulation patent expires june 2015 ranbaxy’s piv notice asserts proposed generic formulation infringe patent 6342247 ranbaxy’s piv notice include challenge composition matter patent currently expires september 2011 company partner sanofi currently evaluating ranbaxy’s piv notice tequin injectable form apotex corp apotex sicor pharmaceuticals inc sicor american pharmaceutical partners inc app served notice filed abbreviated ndas piv certifications directed us patent 5880283 apotex sicor also submitted piv certifications us patent 4980470 patent 4980470 composition matter patent expires december 2007 patent term extension applied december 2009 us patent 5880283 covers specific form gatifloxacin used tequin apotex sicor allege piv notices us patent 4980470 invalid apotex sicor app allege proposed generic formulations would infringe us patent 5880283 company currently evaluating piv notices vanlev litigation april may june 2000 company former chairman board chief executive officer charles heimbold jr former chief scientific officer peter ringrose phd named defendants number class action lawsuits alleging violations federal securities laws regulations actions consolidated one action us district bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued court district new jersey plaintiff claims defendants disseminated materially false misleading statements andor failed disclose material information concerning safety efficacy commercial viability product vanlev period november 8 1999 april 19 2000 may 2002 plaintiff submitted amended complaint adding allegations company present chairman board chief executive officer peter r dolan former chairman board chief executive officer charles heimbold jr former chief scientific officer peter ringrose phd disseminated materially false misleading statements andor failed disclose material information concerning safety efficacy commercial viability vanlev period april 19 2000 march 20 2002 number related class actions making essentially allegations also filed us district court southern district new york actions transferred us district court district new jersey company filed motion partial judgment favor based upon pleadings plaintiff opposed motion part seeking amend complaint court granted part denied part company’s motion ruled plaintiff may amend complaint challenge certain alleged misstatements court certified two separate classes class relating period november 8 1999 april 19 2000 class relating period march 22 2001 march 20 2002 class certification proposed class certification without prejudice defendants’ rights fully contest merits plaintiff’s claims plaintiff purports seek compensatory damages costs expense behalf shareholders respect class period proposed class period december 17 2004 company defendants made motion summary judgment plaintiff’s claims final pretrial conference matter commenced december 15 2004 scheduled completed may 4 2005 trial date set january 2005 plaintiff moved leave file third amended complaint seeking combine two class periods one expanded class period october 19 1999 march 19 2002 add allegations company peter r dolan charles heimbold jr peter ringrose phd disseminated materially false misleading statements failed disclose material information concerning safety efficacy commercial viability vanlev defendants opposed plaintiff’s motion court scheduled hear oral argument motion april 4 2005 possible time reasonably assess final outcome litigation reasonably estimate possible loss range loss respect litigation company prevail final nonappealable determinations litigation impact could material securities matters period march may 2002 company number current former officers named defendants number securities class action suits variously alleged violations federal securities laws regulations connection three different matters 1 vanlev discussed 2 sales incentives wholesaler inventory levels 3 imclone’s product erbitux discussed allegations concerning vanlev transferred us district court district new jersey consolidated action pending remaining actions consolidated pending us district court southern district new york plaintiffs filed consolidated class action complaint april 11 2003 company certain current former officers alleging class period october 19 1999 march 10 2003 consolidated class action complaint alleges violations federal securities laws connection among things company’s investment relationship imclone’s product erbitux certain accounting issues including issues related wholesaler inventory sales incentives establishment reserves accounting certain asset sales plaintiffs seek compensatory damages costs expenses march 29 2004 us district court granted company’s motion dismiss consolidated class action complaint dismissed case prejudice plaintiffs appealed dismissal second circuit court appeals court appeals appeal pending parties reached agreement principle settle action july 26 2004 court appeals stayed appeal remanded action district court district court could consider settlement july 30 2004 district court vacated clerk’s judgment order consider settlement also day district court entered order preliminarily approving settlement certifying class settlement purposes pursuant terms proposed settlement claims action dismissed litigation terminated defendants receive releases company pay 300 million fund class members november 9 2004 fairness hearing district court approved settlement judgment dismissing case prejudice settlement become final company discussing recovery insurance policies reflected financial statements portion 300 million settlement approximately 58 million shares excluded settlement pursuant requests exclusion approximately 51 million shares held plaintiffs four pending actions discussed company established reserves liabilities possible time reasonably assess final outcome lawsuits accordance gaap company determined amounts represent minimum expected probable losses respect lawsuits eventual losses related bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued lawsuits may exceed reserves impact could material company believe topend range losses estimated addition action filed early october 2003 new york state supreme court making similar factual allegations asserting variety claims including among others common law fraud negligent misrepresentation discovery taken matter january 9 2004 company moved dismiss complaint plaintiffs filed amended complaint december 16 2004 making similar allegations also adding allegations sec complaint issued august 2004 company filed motion dismiss amended complaint february 11 2005 plaintiffs’ opposition motion dismiss due march 15 2005 company’s reply due april 8 2005 three related actions filed one september 2004 one november 2004 one december 2004 making similar factual allegations asserting claims similar made amended complaint new york state supreme court action filed october 2003 company intends file motion dismiss related actions briefing schedule identical action filed october 2003 possible time reasonably assess final outcome litigation reasonably estimate possible loss range loss respect litigation company prevail final nonapplicable determinations litigation impact could material company number company’s current former officers named defendants purported class action filed october 6 2004 state court cook county illinois complaint makes factual allegations similar made settled federal class action southern district new york asserts common law fraud breach fiduciary duty claims complaint purports assert claims behalf stockholders purchased company’s stock october 19 1999 held onto stock march 10 2003 company removed action northern district illinois february 10 2005 plaintiffs’ motion remand due march 17 2005 company’s opposition due april 18 2005 plaintiffs’ reply due may 18 2005 possible time reasonably assess final outcome litigation reasonably estimate possible loss range loss respect litigation company prevail final nonapplicable determinations litigation impact could material november 18 2004 class action complaint filed united states district court eastern district missouri company k healthcare resources inc k several current former k directors officers behalf purchasers k stock august 10 2000 september 16 2002 class action complaint alleges company participated fraudulently inflating value k stock allegedly engaging improper “channelstuffing” agreements k bms filed motion dismiss case january 28 2005 plaintiff’s opposition motion dismiss due march 21 2005 company’s reply due april 11 2005 private securities litigation reform act discovery automatically stayed pending outcome motion dismiss plaintiff filed motion partially lift automatic discovery stay february 22 2005 company’s opposition motion due march 4 2005 plaintiff’s reply due march 16 2005 impact expected material beginning october 2002 number company’s current former officers directors named defendants three shareholder derivative suits pending us district court southern district new york number company’s current former officers directors named defendants three shareholder derivative suits filed period march 2003 may 2003 us district court district new jersey july 2003 us district court district new jersey ordered three shareholder derivative lawsuits filed court transferred us district court southern district new york subsequently us district court southern district new york ordered six federal shareholder derivative suits consolidated plaintiffs filed consolidated amended verified shareholder complaint certain members board directors current former officers pricewaterhousecoopers pwc independent registered public accounting firm customary derivative suits company named defendant action nominal defendant company liable damages suit specific relief sought company consolidated amended complaint alleges among things violations federal securities laws breaches fiduciary duty certain individual defendants connection company’s conduct concerning among things safety efficacy commercial viability vanlev discussed company’s sales incentives certain wholesalers inventory levels wholesalers company’s investment relations imclone’s product erbitux alleged anticompetitive behavior connection buspar taxol lawsuit also alleges malpractice negligent misrepresentation negligence pwc plaintiffs seek restitution rescission certain officers’ directors’ compensation alleged improper insider trading proceeds injunctive relief fees costs expenses contribution certain officers alleged liability consolidated securities class action pending us district court southern district new york discussed contribution indemnification pwc discovery taken matter december 19 2003 company moved dismiss consolidated amended complaint motion dismiss administratively withdrawn without prejudice party right reinstated upon request two similar actions pending new york state court plaintiffs seek equitable relief damages costs attorneys’ fees parties currently engaged discussions regarding potential settlement action previously disclosed august 4 2004 company entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters settlement reached consent copy attached exhibit 10s company’s quarterly report form 10q period ended september 30 2004 consent company agreed without admitting denying liability violate certain provisions securities laws company also agreed establish 150 million fund class shareholders distributed court’s supervision 150 million fund included 100 million civil penalty distributed certain company shareholders plan distribution established sec bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued settlement resolve ongoing investigation sec activities certain current former members company’s management connection wholesaler inventory issues accounting matters investigation ongoing addition investigation us attorney’s office district new jersey concerning inventory accounting matters covered company’s settlement sec continuing company continuing cooperate investigations erisa litigation december 2002 first quarter 2003 company others named defendants five class actions brought erisa us district courts southern district new york district new jersey actions consolidated southern district new york caption bristolmyers squibb co erisa litigation 02 cv 10129 lap amended consolidated complaint alleging class period january 1 1999 march 10 2003 served august 18 2003 amended consolidated complaint brought behalf four named plaintiffs putative class consisting participants bristolmyers squibb company savings investment program savings plan beneficiaries whose benefit savings plan held andor acquired company stock time class period excluding defendants heirs predecessors successors assigns named defendants company bristolmyers squibb company savings plan committee thirteen individuals presently serve committee served committee recent past charles heimbold jr peter r dolan past present chief executive officers respectively company amended consolidated complaint generally alleges defendants breached fiduciary duties erisa class period among things continuing offer company stock fund company stock investment alternatives savings plan continuing invest company matching contributions company stock fund company stock failing disclose investments company stock allegedly imprudent savings plan’s purchases company stock january 1 1999 alleged transactions prohibited erisa finally defendants heimbold dolan alleged breached fiduciary duties erisa failing monitor actions committee erisa claims predicated upon factual allegations similar raised “other securities matters” concerning among things safety efficacy commercial viability vanlev company’s sales incentives certain wholesalers inventory levels wholesalers company’s investment relations imclone’s product erbitux alleged anticompetitive behavior connection buspar taxol significant discovery date discovery currently stayed october 2 2003 company defendants moved dismiss amended consolidated complaint plaintiffs opposed motion dismiss defendants replied motions dismiss administratively withdrawn without prejudice plaintiffs requested premotion conference intend ask court leave file second amendment complaint second quarter 2004 company established reserves liabilities litigation 20 million possible time reasonably assess final outcome litigation accordance gaap company determined reserves established represent minimum expected probable losses respect litigation eventual losses related litigation may exceed reserves impact could material company believe topend range losses estimated company prevail final nonappealable determination matter impact could material results operations pricing sales promotional practices litigation investigations company together number pharmaceutical manufacturers defendant several private class actions brought nevada montana pennsylvania wisconsin kentucky illinois alabama attorneys general city new york four new york counties pending federal state courts relating pricing certain company products federal cases related state court cases removed federal courts consolidated pretrial purposes caption pharmaceutical industry average wholesale price litigation mdl 1456 civ action 01cv12257pbs united states district court judge patti b saris united states district court district massachusetts awp multidistrict litigation june 18 2003 private plaintiffs awp multidistrict litigation filed amended master consolidated complaint amended master complaint amended master complaint contains two sets allegations company first alleges company’s many pharmaceutical manufacturers’ reporting prices certain drug products 20 listed drugs company’s case effect falsely overstating average wholesale price awp published industry compendia turn improperly inflated reimbursement paid medical providers pharmacists others prescribed administered sold products consumers second alleges company certain defendant pharmaceutical manufacturers conspired one another program called “together rx card program” fix awps certain drugs made available consumers program amended master complaint asserts claims federal rico antitrust statutes state consumer protection fair trade statutes bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued amended master complaint brought behalf two main proposed classes whose definitions subject amendment case progressed december 17 2004 proposed classes may summarized 1 persons entities 1991 forward paid reimbursed part listed drug medicare part b private contract expressly used awp pricing standard 2 persons entities 2002 forward paid reimbursed portion purchase price drug covered together rx card program based whole part awp first class divided several proposed subclasses depending whether listed drug question physicianadministered selfadministered sold pharmacy benefits manager specialty pharmacy brandname generic drug september 3 2004 plaintiffs awp multidistrict litigation moved certification proposed plaintiff class parties briefed motion related amended proposed definition first main class subclasses discussed motion heard court february 10 2005 company defendants moved dismiss amended master complaint grounds fails state claims applicable statutes february 24 2004 court denied motion large part although court dismissed one plaintiffs’ claims failure plead cognizable rico “enterprise” accordingly court required company defendants answer amended master complaint court subsequently ordered five defendants including company engage accelerated discovery respect remaining allegations amended master complaint allegations related together rx extended discovery schedule accelerated discovery closed five defendants january 30 2005 addition company defendants obtained discovery named plaintiffs several nonparties benefits consultants federal government health insurers current schedule calls expert reports expert depositions summary judgment briefing liability issues first half 2005 cases commenced nevada montana pennsylvania wisconsin illinois alabama kentucky attorneys general attorneys general awp cases commenced new york city four new york counties new york city county awp cases include fraud consumer protection claims similar amended master complaint certain states city counties also made additional allegations defendants including company violated state medicaid statutes among things failing provide states adequate rebates required federal law attorneys’ general awp cases montana action proceeding respective state courts series decisions june september october 2004 affecting montana attorney general’s case new york city county awp cases proceeding awp multidistrict litigation coordination private class actions court declined find medicaid rebate claims preempted federal law nevertheless dismissed many claims relating “rebate” payments made several drug manufacturers including claims relating company insufficiently pled court allowed proceed state law claims allege company misreported awps company filed answer claims remaining montana attorney general’s complaint company also joined defendants motion dismiss pennsylvania attorney general’s action decision filed february 1 2005 pennsylvania commonwealth court granted motion dismiss ground plaintiff failed plead complaint requisite particularity court gave attorney general 30 days replead july 16 2004 nevada court denied company’s defendants’ motions dismiss complaint except state rico claim granted attorney general leave replead opinion based prior rulings awp multidistrict litigation court company defendants also made may soon make motions dismiss attorneys general awp cases company also one number defendants private class action making awpbased claims remanded awp multidistrict litigation arizona state court individual robert j swanston asserts claims arizona state law behalf alleged class persons entities arizona paid prescription drugs based awp swanston action claims generally allege defendant drug manufacturers conspired inflate awps order dated august 5 2004 arizona court denied defendants’ motions dismiss stay proceedings parties currently briefing plaintiff’s motion class certification defendants’ papers due february 11 2005 court swanston action ordered discovery matter coordinated discovery awp multidistrict litigation october 8 2004 company added defendant putative class action previously commenced drug manufacturers federal court alabama case brought two health care providers allegedly entitled federal statute section 340b public health service act discounted prices prescription drugs dispensed poor providers’ local areas plaintiff health care providers contend alleged class providers authorized obtain discounted prices statute may fact received level discounts entitled amended complaint company manufacturers asserts claims directly federal statute well bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued state law unjust enrichment accounting company joined motion dismiss complaint filed original manufacturer defendants court’s approval made applicable amended complaint finally company defendant related state court proceedings commenced new york new jersey california tennessee proceedings transferred awp multidistrict litigation pretrial purposes plaintiffs california new jersey actions sought remand cases state courts california remand motions denied new jersey remand motion remains pending cases preliminary stage company unable assess outcome possible effects business profitability reasonably estimate possible loss range loss respect cases company prevail final nonappealable determinations litigations investigations impact could material company together number pharmaceutical manufacturers also received subpoenas document requests various government agencies seeking records relating pricing sales marketing practices “best price” reporting drugs covered medicare andor medicaid requests records come us attorneys’ offices district massachusetts eastern district pennsylvania northern district texas civil division department justice offices inspector general department health human services office personnel management conjunction civil division department justice several states addition requests information come house committee energy commerce senate finance committee connection investigations committees currently conducting medicaid best price issues previously disclosed mid2003 company initiated internal review certain sales marketing practices focusing whether practices comply applicable antikickback laws analyzing practices respect compliance 1 best price reporting rebate requirements medicaid program certain us governmental programs reference medicaid rebate program 2 applicable fda requirements company met representatives us attorney’s office district massachusetts discuss review received related subpoenas us attorney’s office company’s internal review expected continue resolution pending governmental investigations related matters company producing documents actively cooperating investigations could result assertion civil andor criminal claims second quarter 2004 company increased reserves liabilities relation pharmaceutical pricing sales marketing practices described section 34 million bringing total reserves liabilities matters 134 million possible time reasonably assess final outcome matters accordance gaap company determined amount represents minimum expected probable losses respect matters losses could include imposition fines penalties administrative remedies andor liability additional rebate amounts eventual losses related matters may exceed reserves impact could material company believe topend range losses estimated company prevail final nonappealable determinations litigations investigations impact could material previously disclosed 2004 company undertook analysis methods processes calculating prices reporting governmental rebate pricing programs related us pharmaceuticals business analysis completed early 2005 based analysis company identified need revisions methodology processes used calculating reported pricing related rebate amounts expects implement revised methodologies processes beginning reporting federal government agency primary responsibility rebate price reporting obligations centers medicare medicaid services cms first quarter 2005 addition using revised methodologies processes company also recalculated “best price “average manufacturer’s price” required reported company’s federal medicaid rebate agreement certain state agreements corresponding revised rebate liability amounts programs threeyear period 2002 2004 third quarter 2004 based results company’s analysis time company recorded additional liability equal estimated additional rebate liability resulting proposed revisions material upon completion analysis early 2005 company finally determined estimated rebate liability programs threeyear period 2002 2004 actually less rebates paid company period accordingly fourth quarter 2004 company reversed additional rebate liability recorded third quarter 2003 recorded additional reduction rebate liability amount estimated overpayment company’s proposed revisions updated estimate submitted review cms company anticipates submission cms also likely reviewed department justice doj conjunction previously disclosed subpoena received company doj relating among things “best price” reporting drugs covered medicaid discussed detail agencies may take position bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued revisions company’s methodologies calculations required upon completion governmental review company determine whether recalculation liability company identified programs period similar programs necessary appropriate company believes based current information recalculation likely result material rebate liability however due uncertainty surrounding recoverability company’s estimated overpayment arising review process described company also recorded reserve amount equal estimated overpayment company remediated internal controls processes procedures company believes resulted proposed revisions continue strengthen internal controls company received civil investigative demand attorney general state missouri relating directtoconsumer advertising pravachol period 20012003 company received written confirmation attorney general july 2004 concluding investigation action taken company also received notice putative class action lawsuit involving issues related directtoconsumer advertising filed february 23 2004 circuit court jackson county missouri kansas city caption richard summers v bristolmyers squibb company served complaint march 23 2004 removed action federal court action remanded state court impact expected material company together number pharmaceutical manufacturers named defendant action filed california state superior court oakland james clayworth et al v bristolmyers squibb company et al alleging defendants conspired fix prices pharmaceuticals preventing importation foreign drugs united states asserting claims california’s cartwright act unfair competition law plaintiffs seek treble damages sustained restitution profit obtained defendants charging artificially higher prices plaintiffs injunction barring defendants charging plaintiffs higher prices offered customers award reasonable attorneys’ fees costs relief court deems proper plaintiffs propounded interrogatories defendants served objections responses january 10 2005 parties process meeting conferring resolve disputes defendants’ responses objections plaintiffs also propounded form interrogatories requests admission request production documents company preparing responses objections discovery requests november 22 2004 company filed demurrer action plaintiffs filed opposition brief december 20 2004 company filed reply brief january 20 2005 oral argument demurrer held february 1 2005 order dated february 4 2005 court sustained demurrer court also granted plaintiffs leave file second amended complaint already done defendants’ response second amended complaint filed march 15 2005 case preliminary stage company unable assess outcome possible effect business profitability reasonably estimate possible loss range loss respect case company prevail final nonappealable determination litigation impact could material product liability litigation company party product liability lawsuits involving allegations injury caused company’s pharmaceutical overthecounter medications majority lawsuits involve certain overthecounter medications containing phenylpropanolamine ppa company’s serzone stadol ns prescription drugs addition lawsuits company also faces unfiled claims involving products ppa may 2000 yale university published results hemorrhagic stroke project concluded evidence suggestion ppa may increase risk hemorrhagic stroke limited population november 2000 fda issued public health advisory requested manufacturers ppacontaining products voluntarily cease manufacturing marketing time ppacontaining products manufactured sold company comtrex liquigel formulations naldecon november 6 2000 company well manufacturers ppa containing products discontinued manufacture marketing ppacontaining products allowed customers return unused product possession january 2001 company served first ppa lawsuit company currently defendant approximately 50 personal injury lawsuits filed behalf approximately 50 plaintiffs federal state courts throughout united states many lawsuits involve multiple defendants among claims plaintiffs allege ppa causes hemorrhagic ischemic strokes defendants aware risk failed warn consumers failed remove ppa products plaintiffs seek compensatory punitive damages federal cases transferred us district court western district washington phenylpropanolamine ppa products liability litigation mdl 1407 district court denied motions class certification class action lawsuits pending company litigation bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued june 18 2003 district court issued ruling effectively limiting plaintiffs’ claims hemorrhagic ischemic strokes rulings favorable defendants included inadmissibility expert testimony cases alleging injuries occurring three days ingestion ppacontaining product cases involving psychoses seizures cardiac injuries company expects dismissed additional cases products never used plaintiffs’ alleged injury occurred three days ingestion ppacontaining product plaintiff suffered cardiac injuries psychoses serzone nefazodone hydrochloride antidepressant launched company may 1994 canada march 1995 united states december 2001 company added black box warning serzone label warning potential risk severe hepatic events including possible liver failure need transplantation risk death within several months black box warning added package insert serzone number lawsuits including several class actions filed company plaintiffs allege company knew known hepatic risks posed serzone failed adequately warn physicians users risks seek compensatory punitive damages medical monitoring refunds costs purchasing serzone may 2004 company announced following evaluation commercial potential product generic entry marketplace rapidly declining brand sales decided discontinue manufacture sale product effective june 14 2004 present company approximately 213 lawsuits behalf approximately 2114 plaintiffs pending federal state courts throughout united states twentyseven cases pending new york state court consolidated pretrial discovery addition approximately 761 alleged unfiled claims injury associated serzone august 2002 federal cases transferred us district court southern district west virginia serzone products liability litigation mdl 1477 although discovery still early stage appears cases involve liver failure june 2003 district court dismissed class claims two class action complaints purported class action also filed illinois although number class action complaints filed company sought certification one personal injury classes remaining class action complaints seek certification personal injury classes addition cases filed united states four national class actions filed canada without admitting wrongdoing liability around october 15 2004 company entered settlement agreement respect claims united states territories regarding serzone settlement agreement embodies schedule payments dependent upon whether class member developed qualifying medical condition whether demonstrate purchased took serzone whether certain criteria apply settlement subject final approval district court appeals therefrom pursuant settlement agreement plaintiffs’ class counsel filed class action complaint seeing relief settlement class november 18 2004 district court conditionally certified temporary settlement class preliminarily approved settlement optout period ends april 8 2005 fairness hearing scheduled june 30 2005 pursuant terms proposed settlement claims dismissed litigation terminated defendants receive releases company commits paying least 70 million funds class members class counsel right petition court award reasonable attorneys’ fees expenses fees paid company reduce amount money paid class members part settlement company may terminate settlement based upon number claims submitted number purported class members opt participate settlement instead pursue individual claims second quarter 2004 company established reserves liabilities lawsuits 75 million possible time reasonably assess final outcome lawsuits accordance gaap company determined amounts represent minimum expected probable losses respect lawsuits eventual losses related lawsuits may exceed reserves impact could material company believe topend range losses estimated stadol ns stadol ns approved 1992 fda unscheduled opioid analgesic nasal spray february 1995 company asked fda schedule stadol ns schedule iv low potential abuse drug due postmarketing reports suggestive inappropriate use product october 31 1997 became schedule iv drug since 1997 company received number lawsuits involving stadol late 2002 number filed suits increased due newly passed tort reform legislation became effective january 1 2003 plaintiffs new suits previously asserted claims company alleged injuries may 2004 company announced following evaluation commercial potential product generic entry marketplace rapidly declining brand sales decided discontinue manufacture sale product effective june 14 2004 company party approximately 32 cases pending behalf total approximately 565 plaintiffs federal state courts throughout united states plaintiffs claim company committed fraud fda wrongfully promoted bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued stadol ns nonaddictive plaintiffs allege company failed adequately warn addiction dependency risk associated use stadol ns company reached agreement principle settle 31 lawsuits involving approximately 564 plaintiffs addition lawsuits approximately 25 active alleged unfiled claims majority cases claims pending mississippi second quarter 2004 company recovered insurance proceeds 25 million respect stadol ns case breast implant litigation company together subsidiary medical engineering corporation mec certain companies remains defendant number claims lawsuits alleging damages personal injuries various types resulting polyurethanecovered breast implants smoothwalled breast implants formerly manufactured mec related company vast majority claims company direct lawsuits resolved settlements trial likewise claims potential claims company registered nationwide class action settlement approved federal district court birmingham alabama revised settlement resolved revised settlement company established accruals respect breast implant product liability litigation company believes possible loss addition amounts accrued material hormone replacement therapy hrt litigation 1991 national institute health began clinical trials involving prempro estrogen progestin premarin estrogen manufactured wyeth july 2002 jama article reported among prempro subjects increased risks breast cancer heart attacks blood clots strokes prempro phase study stopped july 9 2002 july 2003 company served first hrt lawsuit company products involved litigation estrace® estrogenonly tablet estradiol generic estrogenonly tablet delestrogen® injectable estrogen ovcon® oral contraceptive containing estrogen progestin products sold companies january 2000 august 2001 company maintains estrace® anda company currently defendant approximately 846 lawsuits including abovementioned products filed behalf approximately 1182 plaintiffs federal state courts throughout united states majority lawsuits involve multiple defendants company expects dismissed many cases products never used plaintiffs allege among things products cause breast cancer stroke blood clots cardiac injuries women defendants aware risks failed warn consumers federal cases transferred us district court eastern district arkansas prempro wyeth products liability litigation mdl 1507 company vigorously defending product liability lawsuits believes majority cases claims without merit possible time reasonably assess final outcome company’s pending product liability lawsuits unfiled claims certainty management opinion ultimate disposition matters material adverse effect company’s financial position except otherwise indicated company believes adequate selfinsurance reserves commercially available excess insurance cover potential material losses related product liability cases claims environmental proceedings following discussion describes 1 environmental proceedings governmental authority may involve potential monetary sanctions 100000 threshold prescribed specific sec rule 2 civil action environmental claim could result significant liabilities 3 updates ongoing matters resolution matters disclosed recent public filings 4 summary environmental remediation costs results internal audit performed company’s facility hopewell nj indicate operations site’s wastewater treatment plant related discharges always compliance new jersey water pollution control act implementing regulations terms company’s discharge permits company reported findings new jersey department environmental protection njdep february 2004 entered settlement agreement njdep november 16 2004 paid penalty 44500 none results audit suggest adverse impact public health company taken continue take corrective actions address identified deficiencies prevent future occurrences us environmental protection agency epa investigating industrial commercial facilities throughout us use refrigeration equipment containing ozonedepleting substances ods enforcing compliance regulations governing prevention service repair leaks ods requirements recently company performed voluntary corporatewide audit bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued facilities us puerto rico use odscontaining refrigeration equipment company submitted audit report epa november 2004 identifying potential violations ods requirements several facilities currently discussions epa resolve matters addition matters covered company’s audit report letter epa previously sent company’s wholly owned subsidiary mead johnson request information regarding compliance ods requirements facility evansville indiana company responded request june 2004 epa currently process reviewing information company provided epa determines evansville facility facilities violation applicable ods requirements company could subject penalties andor required convert replace refrigeration equipment use nonods approved substitutes january 2004 njdep sent company approximately five companies information request letter relating site north brunswick township nj waste materials er squibb sons squibb wholly owned subsidiary company may disposed 1940s 1960s fill material containing industrial waste heavy metals excess residential standards discovered fall 2003 expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas school board township current owners site conducting jointly financing soil remediation work plan approved njdep asked company contribute cost remediation company discussions njdep site owners potentially responsible parties regarding scope costs work required address known conditions concern recently offered negotiate school board township terms cooperative funding agreement allocation process company also actively investigating historic use site including company’s possible connection date claims asserted company september 2003 njdep issued administrative enforcement directive notice new jersey spill compensation control act requiring company approximately 65 companies perform assessment natural resource damages implement unspecified interim remedial measures restore conditions lower passaic river directive alleges company liable historically sent bulk waste former inland chemical company facility newark nj reprocessing releases hazardous substances facility migrated newark bay continue adverse impact lower passaic river watershed subsequently epa also issued notice letter comprehensive environmental response compensation liability act cercla numerous partiesbut including companyseeking cooperation study conditions substantially stretch passaic river subject njdep’s directive group parties entered consent agreement epa 2004 finance portion study epa estimates study cost 20 million roughly half financed private party group study may also lead cleanup actions directed epa army corps engineers company working cooperatively group parties received njdep directive andor epa notice explore potential resolutions directive address risk collateral claims although company believe caused contributed contamination lower passaic river watershed company informed njdep willing discuss allegations company directive recent communications cooperating group njdep stated responsible parties cooperate njdep may perform damage assessment restoration take civil action recover remedial costs treble damages administrative costs penalties late 2004 group federal agencies designated trustees natural resources affected contamination passaic river watershed approached cooperating group solicit interest funding cooperative study possible natural resources damages “nrd” area study presumably would dovetail ongoing epa study ideally would joined njdep coordinate actions njdep may seek directive discussions federal trustees ongoing extent liability company may face either directive epa’s notice letter respect future nrd actions claims federal trustees contribution responsible parties cannot yet determined october 16 2003 michigan department environmental quality mdeq sent company letter violation lov alleging unspecified period time emissions certain digestion tanks mead johnson’s zeeland michigan facility exceeded applicable limit facility’s renewable operating air permit lov requires company take corrective action submit compliance program report although mdeq demanded fines penalties enforcement action could result penalties injunctive relief company contesting allegations lov company mdeq also working revisions company’s air use permit although predict ultimate outcome certainty permit revisions may resolve matter without additional enforcement action need continue contesting lov december 1 2003 company njdep entered administrative consent order aco concerning alleged violations new jersey air pollution control act implementing regulations company’s new brunswick facility pursuant aco company agreed submit permit application creating facilitywide emissions cap pay administrative fine approximately 28000 obligations satisfied early 2004 subsequently february 15 2005 aco amended provide company would install new cogeneration turbine new brunswick facility december 31 2006 would obtain air permits including required cogeneration turbine december 31 2005 estimated cost new cogeneration turbine approximately 35 million company one several defendants class action suit filed superior court puerto rico february 2000 residents three wards municipality barceloneta alleging air emissions government owned operated bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued wastewater treatment facility said municipality caused respiratory ailments violated local air rules company believes wastewater discharges treatment facility material compliance terms company’s permit company believes litigation resolved immaterial amount however although suit five years old still initial stage even issue class certification still pending event adverse judgment company’s ultimate financial liability could greater anticipated company also responsible various state federal foreign laws including cercla certain costs investigating remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties company typically estimates costs based information obtained epa counterpart state agency andor studies prepared independent consultants including total estimated costs site expected costsharing potentially responsible parties prp company accrues liabilities probable reasonably estimable december 31 2004 2003 company estimated share total future costs sites approximately 60 million 58 million respectively recorded liabilities represents sum best estimates simple estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties currently expected company paid less 4 million excluding legal fees last five years investigation remediation matters including liabilities cercla onsite remedial obligations although possible predict certainty outcome environmental proceedings ultimate costs remediation company believe reasonably possible expenditures company may incur excess existing reserves material adverse effect business financial position results operations matters october 25 2004 sec notified company conducting informal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents company believes sec’s informal inquiry may encompass matters currently investigation staatsanwaltin prosecutor munich german although uncertain time company believes inquiry investigation may concern potential violations foreign corrupt practices act andor german law company cooperating sec german authorities possible time reasonably assess final outcome matters reasonably estimate possible loss range loss company conducting internal review pharmaceutical operations mexico total sales 422 million twelve months ended december 31 2004 broad review includes areas compliance legal financial regulatory requirements company’s standards business conduct ethics reviews ongoing time company unable assess impact results investigations may company indemnification officers directors company’s corporate bylaws require extent permitted law company shall indemnify officers directors judgments fines penalties amounts paid settlement including legal fees appeals incurred connection civil criminal actions proceedings relates services company subsidiaries bylaws provide limit amount indemnification permitted case willful misconduct knowing violation criminal law improper personal benefit permitted laws state delaware company many years purchased directors officers insurance coverage cover claims made directors officers amounts types coverage varied period dictated market conditions various excess policies provide additional coverage litigation matters regulatory actions described involve certain company’s current former directors officers covered aforementioned indemnity applicable certain prior period insurance policies however certain indemnification payments may covered company’s directors officers insurance coverage company cannot predict certainty extent company recover insurers indemnification payments made connection litigation matters regulatory actions described july 31 2003 one company’s insurers federal insurance company federal filed lawsuit new york supreme court company several current former officers members board directors seeking rescission alternative declarations allowing federal avoid payment certain directors officers insurance policies certain fiduciary liability insurance policies respect potential liability arising connection matters described “vanlev litigation” “other securities matters” “erisa litigation” sections discovery taken matter parties currently engaged discussions regarding potential settlement action october 3 2003 another company’s insurers sr international business insurance co ltd sri informed bristolmyers squibb company notes consolidated financial statements continued note 21 legal proceedings contingencies continued company intended try avoid certain insurance policies issued company grounds alleged material misrepresentation nondisclosure initiated arbitration proceedings london england sri indicated intends rely upon allegations similar described “other securities matters” section support avoidance action note 22 subsequent events january 2005 company announced plans divest us canadian consumer medicines business year ended december 31 2004 sales consumer medicines brands us canada totaled approximately 270 million company’s consumer medicines businesses japan asia pacific latin america europe middle east africa included planned divestiture november 2004 company medarex inc medarex entered worldwide collaboration develop commercialize mdx010 fully human antibody investigational product targeting ctla4 receptor mdx010 developed medarex currently phase iii clinical development treatment metastatic melanoma collaboration agreement became effective january 2005 time company made cash payment 25 million medarex expensed research development additional 25 million equity investment medarex note 23 selected quarterly financial data unaudited bristolmyers squibb company notes consolidated financial statements continued note earnings per share quarters may add amounts year period computed discrete basis 1 2004 includes litigation charges 480 million 36 million 16 million second third fourth quarters respectively second quarter includes litigation settlement income 25 million first second third fourth quarters include gain sale mead johnson adult nutritional business 295 million 18 million 3 million 4 million respectively first second third fourth quarters include provisions restructuring items 29 million 17 million 105 million 61 million respectively first second third fourth quarters include upfront payments licensing agreements 5 million 25 million 10 million 15 million respectively second third quarters include writeoffs acquired inprocess research development 62 million 1 million respectively 2 2003 includes litigation settlement charges 16 million 265 million second fourth quarters respectively first second third quarters include litigation settlement income 21 million 57 million 4 million respectively first second third fourth quarters include provisions restructuring items 26 million 29 million 37 million 39 million respectively second third fourth quarters include reversals prior period restructuring items 25 million 3 million 10 million respectively third fourth quarters include upfront payments licensing agreements 21 million 81 million respectively 3 common equivalent shares excluded computation diluted earnings per share effect would antidilutive follows millions report independent registered public accounting firm board directors stockholders bristolmyers squibb company completed integrated audit bristolmyers squibb company’s company 2004 consolidated financial statements internal control financial reporting december 31 2004 audits 2003 2002 consolidated financial statements accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements financial statement schedule opinion consolidated financial statements listed accompanying index present fairly material respects financial position company subsidiaries december 31 2004 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed accompanying index presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion management’s assessment included management’s report internal control financial reporting appearing item 9a company maintained effective internal control financial reporting december 31 2004 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 31 2004 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp philadelphia pa march 3 item 9item 8 financial statements supplementary data accompanying notes integral part financial statements bristolmyers squibb company consolidated statements comprehensive income retained earnings dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheets dollars millions except per share data accompanying notes integral part financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part financial statements note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company bms company bristolmyers squibb controlled majorityowned subsidiaries intercompany balances transactions eliminated certain prior year amounts reclassified conform current year presentation use estimates preparation financial statements conformity united states us generally accepted accounting principles gaap requires use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets contingent liabilities date financial statements reported amounts revenues expenses reporting period significant assumptions employed estimates used determining values intangible assets restructuring charges accruals sales rebate return accruals legal contingencies tax assets tax liabilities well estimates used applying revenue recognition policy accounting stockbased compensation costs retirement postretirement benefits including actuarial assumptions actual results may differ estimated results revenue recognition company recognizes revenue accordance staff accounting bulletin sab 101 revenue recognition financial statements amended sab 104 revenue recognition substantially risks rewards ownership transferred customer generally revenue recognized time shipment however case certain sales made nutritionals health care segments certain nonus businesses within pharmaceuticals segment revenue recognized date receipt purchaser revenues reduced time recognition reflect expected returns estimated based historical experience business trends additionally provisions made time revenue recognition discounts rebates estimated sales allowances based historical experience updated changes facts circumstances appropriate provisions recorded reduction revenue case sales made wholesalers 1 result incentives 2 excess wholesaler’s ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesaler’s cost carrying inventory excess wholesaler’s ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory company’s cost inventory company recognizes revenue consignment inventory longer subject incentive arrangements later inventory sold wholesalers’ customers firstin firstout basis fifo case new products product introduction extension existing line product company determines products similar therapeutic category company determines new product dissimilar characteristics existing products company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns sales rebate return accruals medicaid rebate accruals 137 million 326 million december 31 2006 2005 respectively women infants children wic rebate accruals 230 million 252 million december 31 2006 2005 respectively sales return accruals 221 million 185 million december 31 2006 2005 respectively managed health care rebate contractual discount accruals 111 million 167 million december 31 2006 2005 respectively rebate accruals established period related revenue recognized resulting reduction sales establishment liability included accrued liabilities accrual recorded based estimate proportion recorded revenue result rebate return prime vendor chargeback accruals established similar manner recorded reduction accounts receivable 63 million 107 million december 31 2006 2005 respectively note 1 accounting policies continued income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases company’s assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recorded reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made december 31 2006 2005 company net deferred tax assets 3154 million 2380 million respectively net valuation allowances 625 million 559 million respectively company recorded significant deferred tax assets related us foreign tax credit carryforwards approximately 1071 million us research tax credit carryforwards approximately 259 million expire varying amounts beginning 2012 realization foreign tax credit research tax credit carryforwards dependent generating sufficient domestic taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions increasing biologics manufacturing capacity us implementing tax planning strategies increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit carryforwards amount foreign tax credit research tax credit carryforwards considered realizable however could reduced near term plavix subject either renewed additional generic competition events occur company may need record significant valuation allowances us federal deferred tax assets discussion plavix related matters see “note 21 legal proceedings contingencies” december 31 2006 company approximately 113 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated us company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided company conducts business various countries throughout world subject tax numerous jurisdictions result business activities company files significant number tax returns subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported company may require several years resolve company establishes liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known cash equivalents cash equivalents primarily highly liquid investments original maturities three months less time purchase recorded cost approximates fair value marketable securities company accounts marketable securities accordance statement financial accounting standard sfas 115 accounting certain investments debt equity securities company determined appropriate classification marketable securities “availableforsale” time purchase december 31 2006 2005 company’s investments marketable securities reported fair value unrealized gains losses reported component accumulated comprehensive income loss stockholders’ equity company follows investment managers’ method determining cost basis computing realized gains losses sale availableforsale securities average cost method realized gains losses included income expense note 1 accounting policies continued inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals improvements capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets 50 years buildings 3 40 years machinery equipment fixtures company periodically evaluates whether current events circumstances indicate carrying value depreciable assets may recoverable impairment longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value capitalized software certain costs obtain internal use software significant systems projects capitalized amortized estimated useful life software ranges 3 10 years costs obtain software projects significant expensed incurred capitalized software net accumulated amortization included intangible assets 291 million 336 million december 31 2006 2005 respectively amortization expense 124 million 116 million 90 million years ended december 31 2006 2005 2004 respectively investments company accounts 50 less owned companies ability exercise significant influence using equity method accounting otherwise cost method used company’s share net income losses equity investments included equity net income affiliates consolidated statement earnings losses recognized income expense decline market value deemed temporary company reviews equity investments impairment based determination whether decline market value investment company’s carrying value temporary making determination company considers accounting principles board apb opinion 18 equity method accounting investments common stock related interpretations set forth factors evaluated determining whether loss value recognized including company’s ability hold investment market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment goodwill intangible assets goodwill tested impairment annually using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value company completed goodwill impairment assessment indicated impairment goodwill intangible assets consisting patents trademarks technology licenses capitalized software amortized straightline basis useful lives ranging 3 17 years indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net carrying value exceeds estimated fair value intangible assets evaluated impairment described “impairment longlived assets” note 1 accounting policies continued restructuring streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results may vary estimates product liability accruals product liability including associated legal costs recorded undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recorded undiscounted basis probable recovery realized classified reduction litigation charges consolidated statement earnings contingencies normal course business company subject loss contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability tax matters accordance sfas 5 accounting contingencies company records accruals loss contingencies probable liability incurred amount loss reasonably estimated company accordance sfas 5 recognize gain contingencies realized discussion contingencies see “note 8 income taxes” “note 21 legal proceedings contingencies” derivative financial instruments derivative financial instruments used company principally management interest rate foreign currency exposures company hold issue derivative financial instruments speculative purposes company records derivative instruments balance sheet fair value changes derivative’s fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized consolidated statement earnings derivative designated cash flow hedge effective portions changes fair value derivative recorded comprehensive income loss subsequently recognized consolidated statement earnings hedged item affects earnings cash flows classified consistent underlying hedged item purchased foreign currency options entire change fair value included measurement hedge effectiveness cash flow hedges ineffective portions changes fair value cash flow hedges recognized charge credit earnings company designates assigns derivatives hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer expected occur company immediately recognizes gain loss designated hedging financial instruments consolidated statement earnings shipping handling costs company typically charge customers shipping handling costs therefore shipping handling costs included marketing selling administrative expenses 269 million 2006 245 million 2005 2004 advertising costs advertising costs expensed incurred advertising expense 481 million 509 million 479 million 2006 2005 2004 respectively research development research development costs expensed incurred company time enter strategic alliances third parties give company rights develop manufacture market andor sell pharmaceutical products rights owned third parties result alliances company may obligated make payments alliance partners connection research development contingent upon achievement certain predetermined criteria milestones achieved prior regulatory approval product payments expensed research development milestone note 1 accounting policies continued payments made connection regulatory approvals including nonus regulatory approvals additional indications capitalized amortized cost products sold remaining useful life asset capitalized milestone payments tested recoverability periodically whenever events changes circumstances indicate carrying amounts may recoverable acquired inprocess research development fair value inprocess research development acquired business combination determined independent appraisal based present value research project’s projected cash flows income approach utilized consistent guidance practice aid issued american institute certified public accountants assets acquired business combinations used research development activities focus software electronic devices pharmaceutical industries future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weighted average cost capital acquired inprocess research development expensed incurred underlying product received regulatory approval future alternative use addition costs nonrefundable related acquisition licensing products yet received regulatory approval marketed alternative future use charged earnings incurred earnings per share basic earnings per common share computed using weightedaverage number shares outstanding year diluted earnings per common share computed using weightedaverage number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options restricted stock convertible instruments foreign currency translation statements earnings company’s foreign subsidiaries translated us dollars using average exchange rates net assets company’s foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included accumulated comprehensive income oci recently issued accounting standards company adopted sfas 123 revised 2004 sharebased payment sfas 123r requires measurement recognition compensation expense stockbased payment awards made employees directors based estimated fair values sfas 123r supersedes company’s previous accounting apb 25 accounting stock issued employees periods beginning january 1 2006 march 2005 us securities exchange commission sec issued sab 107 sharebased payment relating sfas 123r company applied provisions sab 107 adoption sfas 123r company adopted sfas 123r using modified prospective transition method requires application accounting standard january 1 2006 elected alternative method provided fasb staff position fsp 123r3 transition election related accounting tax effects sharebased payment awards determining company’s pool excess tax benefits company’s consolidated financial statements year ended december 31 2006 reflect impact sfas 123r accordance modified prospective transition method company’s consolidated financial statements prior periods restated reflect include impact sfas 123r stockbased compensation expense recognized sfas 123r year ended december 31 2006 112 million 73 million net tax 004 per share corresponding amount recorded additional paidin capital within stockholders’ equity additionally 10 million related performance awards reclassified liabilities stockholders’ equity connection adoption sfas 123r february 2007 financial accounting standards board fasb issued sfas 159 fair value option financial assets financial liabilities permits entity measure certain financial assets financial liabilities fair value objective sfas 159 improve financial reporting allowing entities mitigate volatility reported earnings caused measurement related assets liabilities using different attributes without apply complex hedge accounting provisions sfas 159 entities elect fair value option instrument report unrealized gains losses earnings subsequent reporting date fair value option election irrevocable unless new election date occurs sfas 159 establishes presentation disclosure requirements help financial statement users understand effect entity’s election earnings eliminate disclosure requirements accounting standards assets liabilities measured fair value must displayed face balance sheet statement effective fiscal year beginning november 15 2007 company evaluating pronouncement september 2006 fasb issued statement sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r pronouncement requires employer recognize overfunded underfunded status defined benefit postretirement plan multiemployer plan asset liability statement financial position recognize changes funded status year changes occur comprehensive income business entity pronouncement also requires employer measure funded status plan date yearend statement financial position limited exceptions pronouncement require prior periods restated reflect impact sfas 158 company adopted sfas 158 fiscal year ended december 31 2006 adoption accounting pronouncement resulted 1064 million reduction accumulated oci stockholders’ equity 767 million reduction total assets 297 million increase total liabilities adoption sfas 158 impact company’s results operations cash flows note 1 accounting policies continued september 2006 fasb issued sfas 157 fair value measurements pronouncement defines fair value establishes framework measuring fair value expands disclosures fair value measurements statement effective fiscal years beginning november 15 2007 adoption accounting pronouncement expected material effect company’s consolidated financial statements september 2006 sec issued sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements expresses staff’s views regarding process quantifying financial statement misstatements bulletin effective interim period first fiscal year ending november 15 2006 sab 108 requires companies utilize “dual approach” assess quantitative effects financial statement misstatements dual approach includes income statement focus balance sheet focus assessment adoption bulletin effect company’s consolidated financial statements july 2006 fasb issued fasb interpretation number fin 48 accounting uncertainty income taxesan interpretation fasb statement 109 case company effective january 1 2007 fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 accounting income taxes fin 48 requires tax positions evaluated using recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return differences tax positions taken tax return amounts recognized financial statements recorded adjustments income taxes payable receivable adjustments deferred taxes fin 48 also requires expanded disclosure end annual reporting period including tabular reconciliation unrecognized tax benefits accordance fin 48 company report difference net amount assets liabilities recognized statement financial position prior application fin 48 cumulative effect adjustment opening balance retained earnings adoption accounting pronouncement expected material effect company’s consolidated financial statements march 2006 fasb issued sfas 156 accounting servicing financial assetsan amendment fasb statement 140 pronouncement relates accounting separately recognized servicing assets servicing liabilities statement effective fiscal years beginning september 15 2006 adoption accounting pronouncement expected material effect company’s consolidated financial statements february 2006 fasb issued sfas 155 accounting certain hybrid financial instruments amendment fasb statements 133 140 pronouncement primarily resolves certain issues addressed implementation sfas 133 accounting derivative instruments hedging activities concerning beneficial interests securitized financial assets statement effective financial instruments acquired issued subject remeasurement event occurring beginning 2007 fiscal year adoption accounting pronouncement expected material effect company’s consolidated financial statements may 2005 fasb issued sfas 154 accounting changes error corrections replaces apb opinion 20 accounting changes sfas 3 reporting accounting changes interim financial statements pronouncement applies voluntary changes accounting principle revises requirements accounting reporting change accounting principle sfas 154 requires retrospective application prior periods’ financial statements voluntary change accounting principle unless impracticable pronouncement also requires change method depreciation amortization depletion longlived nonfinancial assets accounted change accounting estimate affected change accounting principle sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 statement change transition provisions existing accounting pronouncements including transition phase effective date sfas 154 adoption accounting pronouncement material effect company’s consolidated financial statements march 2005 fasb issued fin 47 accounting conditional asset retirement obligations fin 47 clarifies entity must record liability conditional asset retirement obligation fair value obligation reasonably estimated asset retirement obligations covered fin 47 entity legal obligation perform asset retirement activity even timing method settling obligation conditional future event may within control entity fin 47 also clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation company adopted provisions fin 47 fiscal year ended december 31 2005 adoption accounting pronouncement material effect company’s consolidated financial statements note 1 accounting policies continued december 2004 fasb issued fsp 1091application sfas 109 accounting income taxes tax deduction qualified production activities provided american jobs creation act 2004 fsp 1091 provides deduction qualified production activities treated “special deduction” described sfas 109 accounting income taxes accordingly tax effect deduction reported component company’s tax provision effect deferred tax assets liabilities may 24 2006 internal revenue service irs issued final tax regulations ftr respect deduction qualified production activities section 199 internal revenue code final regulations effective taxable years beginning june 1 2006 taxable years beginning prior effective date final regulations taxpayer may apply either 1 final regulations provided taxpayer applies provisions final regulations 2 subject certain limitations rules provided notice 200524 well proposed regulations issuance ftr adoption fsp 1091 material impact company’s consolidated financial statements december 2004 fasb issued sfas 153 exchanges nonmonetary assets provisions statement effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 provisions statement applied prospectively eliminates exception fair value measurement nonmonetary exchanges similar productive assets paragraph 21b apb 29 accounting nonmonetary transactions replaces exception exchanges commercial substance adoption accounting pronouncement material effect company’s consolidated financial statements november 2004 fasb issued sfas 151 inventory costsan amendment arb 43 chapter 4 standard requires abnormal amounts idle facility related expenses recognized current period charges also requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective inventory costs incurred fiscal years beginning june 15 2005 adoption accounting pronouncement material effect company’s consolidated financial statements note 2 alliances investments sanofiaventis company agreements sanofiaventis sanofi codevelopment cocommercialization avaproavalide irbesartan angiotensin ii receptor antagonist indicated treatment hypertension diabetic nephropathy plavix clopidogrel platelet aggregation inhibitor worldwide alliance operates framework two geographic territories one americas principally us canada puerto rico latin american countries australia europe asia accordingly two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries general country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place agreements expire later respect plavix 2013 respect avaproavalide 2012 americas australia 2013 europe asia ii expiration patents exclusivity rights applicable territory company acts operating partner territory covering americas australia owns 501 majority controlling interest territory sanofi’s ownership interest territory 499 company consolidates country partnership results territory records sanofi’s share results minority interest net taxes 428 million 2006 578 million 2005 502 million 2004 company recorded sales territory comarketing countries outside territory germany italy spain greece 4355 million 2006 4805 million 2005 4257 million 2004 cash flows operating activities partnerships territory covering americas australia recorded operating activities within company’s consolidated statement cash flows distributions partnership profits sanofi’s funding ongoing partnership operations occur routine basis also recorded within operating activities company’s consolidated statement cash flows sanofi acts operating partner territory covering europe asia owns 501 majority financial controlling interest within territory company’s ownership interest partnerships within territory 499 company accounts investment partnership entities territory equity method records share results equity net income affiliates consolidated statement earnings company’s share net income partnership entities taxes 439 million 2006 345 million 2005 269 million 2004 note 2 alliances investments continued company routinely receives distributions profits provides funding ongoing operations partnerships territory covering europe asia transactions recorded operating activities within company’s consolidated statement cash flows 2001 company sanofi companies formed alliance copromotion irbesartan part company contributed irbesartan distribution rights us sanofi paid company total 350 million two years ended december 31 2002 company accounted transaction sale interest license deferred amortizing 350 million income expected useful life license approximately 11 years formation irbesartan copromotion alliance company recognized income 31 million 31 million 32 million 2006 2005 2004 respectively unamortized portion deferred income recorded liabilities section consolidated balance sheet 186 million 217 million december 31 2006 2005 respectively otsuka company worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote otsuka abilify aripiprazole treatment schizophrenia related psychiatric disorders except japan china taiwan north korea south korea philippines thailand indonesia pakistan egypt product currently copromoted otsuka united kingdom uk germany france spain us germany spain product sold otsuka affiliate distributor company records alliance revenue 65 contractual share otsuka’s net sales records expenses related product company recognizes alliance revenue abilify shipped risks rewards ownership transferred otsuka’s customers uk france italy company presently exclusive distributor product company records 100 net sales related cost products sold expenses company also exclusive right sell abilify countries europe americas number countries asia countries company records 100 net sales related cost products sold terms agreement company purchases product otsuka performs finish manufacturing sale company customers agreement expires november 2012 us puerto rico entire european union eu agreement expires june 2014 country company exclusive right sell abilify agreement expires later tenth anniversary first commercial sale country expiration applicable patent country company recorded total revenue abilify 1282 million 2006 912 million 2005 593 million 2004 total milestone payments made otsuka agreement december 2006 217 million 157 million expensed acquired inprocess research development 1999 remaining 60 million capitalized intangible assets amortized cost products sold remaining life agreement us ranging 8 11 years company amortized cost products sold 6 million 2006 6 million 2005 5 million 2004 unamortized capitalized payment balance 35 million 41 million december 31 2006 2005 respectively imclone company commercialization agreement expiring september 2018 imclone systems incorporated imclone biopharmaceutical company focused developing targeted cancer treatments codevelopment copromotion erbitux us 2004 us food drug administration fda approved biologics license application bla erbitux use combination irinotecan treatment patients epidermal growth factor receptor egfrexpressing metastatic colorectal cancer refractory irinotecanbased chemotherapy use single agent treatment patients egfrexpressing metastatic colorectal cancer intolerant irinotecanbased chemotherapy also 2004 fda approved imclone’s chemistry manufacturing controls supplemental bla licensure bb36 manufacturing facility march 2006 fda approved erbitux use treatment squamous cell carcinoma head neck combination radiation monotherapy company paid 250 million milestone payment imclone fda approvals 2004 2006 agreement imclone receives distribution fee based flat rate 39 net sales north america addition company coexclusive right commercialize erbitux japan imclone previously granted coexclusive right merck kgaa japan december 2004 company japanese affiliate bmkk merck kgaa merck ltd imclone executed joint development agreement erbitux japan erbitux yet marketed japan although application submitted japanese pharmaceuticals medical devices agency use erbitux treating patients advanced colorectal cancer note 2 alliances investments continued company accounts 500 million approval milestones paid 2004 2006 license acquisitions capitalized amortized cost products sold remaining term agreement ends 2018 2006 2005 2004 company amortized cost products sold 34 million 17 million 14 million respectively unamortized portion approval payments recorded intangible assets 435 million 219 million december 31 2006 2005 respectively company accounts investment imclone equity method records share results equity net income affiliates consolidated statement earnings company’s recorded investment market value holdings imclone common stock 109 million approximately 385 million december 31 2006 respectively 66 million approximately 493 million december 31 2005 respectively company holds 144 million shares imclone stock representing approximately 17 imclone’s shares outstanding december 31 2006 2005 per share basis carrying value imclone investment closing market price imclone shares december 31 2006 759 2676 respectively compared 455 3424 respectively december 31 2005 company determines equity share imclone’s net income loss eliminating imclone’s results milestone revenue imclone recognizes 400 million preapproval milestone payments made company 2001 2003 company recorded 80 million preapproval milestone payments equity investment expensed remaining 320 million acquired inprocess research development period milestone revenue recognized imclone excess 400 million eliminated company determining equity share imclone’s results share imclone’s results operations company recorded net income 43 million 2006 net loss 5 million 2005 net income 9 million 2004 company recorded net sales erbitux 652 million 2006 413 million 2005 261 million 2004 gilead 2004 company gilead sciences inc gilead entered joint venture develop commercialize fixeddose combination company’s sustiva efavirenz gilead’s truvada emtricitabine tenofovir disoproxil fumarate us canada july 2006 fda granted approval atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg treatment human immunodeficiency virus hiv infection adults atripla firstever oncedaily single tablet regimen hiv intended standalone therapy combination antiretrovirals gilead records 100 atripla revenues consolidates results joint venture operating results company records revenue bulk efavirenz component atripla upon sales product gilead joint venture third party customers company’s revenue efavirenz component determined applying percentage atripla revenue approximates revenue sustiva brand 2006 company recorded efavirenz revenues 76 million related atripla sales company accounts participation joint venture equity method accounting records share joint venture results equity net income affiliates consolidated statement earnings company recorded equity loss joint venture gilead 6 million 4 million year ended december 31 2006 2005 respectively summary financial information following summarized financial information company’s equity investments joint venture sanofi europe asia note 3 restructuring 2006 activities 2006 company recorded pretax charges 73 million related termination benefits related costs workforce reductions approximately 1080 selling operating administrative personnel charges decreased 14 million adjustments reflecting changes estimates restructuring actions taken prior periods following table presents detail charges segment type company expects substantially complete activities 2008 2005 activities 2005 company recorded pretax charges 33 million related termination benefits related costs workforce reductions streamlining worldwide operations charges 31 million related employee termination benefits related expenses approximately 640 selling administrative personnel includes restructuring us cardiovascularmetabolics primary care sales organization workforce headcount reduction 1 million related retention bonuses 1 million related asset impairments charges decreased 1 million adjustments reflecting changes estimates restructuring actions taken prior periods following table presents detail charges segment type company substantially completed restructuring activities late 2006 2004 activities 2004 company recorded pretax charges 116 million relating termination benefits related costs workforce reduction streamlining worldwide operations charges 107 million primarily related employee termination benefits related expenses approximately 2000 selling administrative manufacturing personnel 1 million related primarily asset impairments 6 million related consolidation certain research facilities 2 million retention bonuses charges partially offset 8 million adjustment reflecting changes estimates restructuring actions taken prior periods 4 million gain sale research facility previously written restructuring following table presents detail charges segment type company substantially completed restructuring activities note 3 restructuring continued rollforward restructuring charges spending liabilities associated prior current actions follows liabilities 32 million 60 million december 31 2006 2005 respectively included accrued expenses consolidated balance sheet longterm liability 43 million included liabilities december 31 2006 note 4 acquisitions divestitures january 2006 company completed sale inventory trademark patent intellectual property rights us related dovonex treatment psoriasis warner chilcott company inc 200 million cash addition company receive royalty based 5 net sales dovonex end 2007 result transaction company recognized pretax gain 200 million 130 million net tax first quarter 2006 third quarter 2005 company completed sale us canadian consumer medicines consumer medicines business related assets novartis ag novartis terms agreement novartis acquired trademarks patents intellectual property rights consumer medicines 661 million cash including impact working capital adjustment 15 million attributable postclosing supply arrangement company novartis related assets include rights us consumer medicines brands latin america europe middle east africa results operations consumer medicines included company’s consolidated statement earnings date disposal result transaction company recorded pretax gain 569 million 370 million net tax third quarter 2005 april 2004 company completed acquisition acordis speciality fibres acordis company purchased stock acordis 150 million incurred 8 million acquisition costs connection transaction december 2006 company accrued 9 million liability based achievement production volumes recorded additional goodwill purchase price acquisition allocated tangible identifiable intangible assets acquired liabilities assumed based estimated fair values acquisition date 158 million 63 million allocated inprocess research development immediately expensed 22 million assigned identifiable intangible assets predominantly patents excess purchase price estimated fair values net assets acquired recorded goodwill acquisition accounted purchase method accordingly results operations included accompanying consolidated financial statements date acquisition february 2004 company completed divestiture adult nutritional business novartis 386 million including 20 million contingent achievement contractual requirements satisfied 22 million upfront payment supply agreement company recorded total pretax gain 320 million 198 million net tax included 20 million contingent payment 5 million reduction company goodwill associated mead johnson product lines note 5 discontinued operations may 2005 company completed sale oncology therapeutics network otn one equity partners llc cash proceeds 197 million including impact preliminary working capital adjustment company recorded pretax gain 63 million 13 million net tax presented gain sale discontinued operations consolidated statement earnings otn previously presented separate segment following amounts related otn business segregated continuing operations reported discontinued operations date disposition reflect costs certain services provided otn company costs allocated company otn services included legal counsel insurance external audit fees payroll processing certain human resource services information technology systems support consolidated statement cash flows includes otn business date disposition company uses centralized approach cash management financing operations accordingly debt allocated business cash flows operating activities discontinued operations consist outflows 265 million year ended december 31 2005 cash inflows 134 million year ended december 31 2004 cash flows used investing activities discontinued operations 2 million year ended december 31 2004 investing activities year ended december 31 2005 note 6 earnings per share numerator basic earnings per share net earnings available common stockholders numerator diluted earnings per share net earnings available common stockholders interest expense added back assumed conversion convertible debt common stock denominator basic earnings per share weighted average number common stock outstanding period denominator diluted earnings per share weighted average shares outstanding adjusted effect dilutive stock options assumed conversion convertible debt common stock computations basic diluted earnings per common share follows weightedaverage shares issuable upon exercise stock options included diluted earnings per share calculation dilutive 164 million 2006 156 million 2005 126 million 2004 respectively 2006 29 million weightedaverage shares issuable well 35 million interest expense net tax assumed conversion convertible debt included diluted earnings per share calculation dilutive note 7 expense net components expense net 2006 interest expense increased net interest swap losses 18 million 2005 2004 interest expense reduced net interest swap gains 54 million 151 million respectively interest income relates primarily cash equivalents investments marketable securities net includes income thirdparty contract manufacturing royalty income expenses debt retirement costs certain litigation matters gains losses disposal property plant equipment gains losses sale marketable securities deferred income recognized change net 2006 compared 2005 primarily due debt retirement costs deferred income recognized note 8 income taxes components earnings loss continuing operations minority interest income taxes amounts categorized based location taxing authorities provisionbenefit income taxes attributable continuing operations consisted note 8 income taxes continued effective tax rate company’s provision income taxes 2006 2005 2004 different amount computed applying statutory us federal income tax rate earnings continuing operations minority interest income taxes result following effective income tax rate earnings continuing operations minority interest income taxes 232 2006 compared 206 2005 344 2004 increase effective tax rate 2006 compared 2005 resulted elimination 2006 tax benefits section 936 internal revenue code treatment provisions portion certain litigation reserves nondeductible 2006 tax benefits 2005 associated settlement irs examination favorable adjustment 2005 taxes special dividends american jobs creation act 2004 ajca partially offset favorable us tax legislation enacted 2006 related tax treatment certain intercompany transactions amongst company’s foreign subsidiaries implementation tax planning strategies 2006 related utilization certain charitable contributions decrease effective tax rate 2005 due primarily charge 2004 approximately 575 million taxes special dividends ajca 2004 charge related establishment valuation allowance certain charitable contributions tax benefits 2005 discussed partially offset lower estimated foreign tax credits 2005 note 8 income taxes continued deferred taxes valuation allowance components current noncurrent deferred income tax assets liabilities includes impact 567 million increase deferred tax benefits 2006 adoption sfas 158 see “note 20 pension postretirement benefit plans” valuation allowance 625 million december 31 2006 relates 62 million state deferred tax assets 187 million foreign net operating loss tax credit carryforwards 376 million state net operating loss tax credit carryforwards company currently believes likely realized company recorded significant deferred tax assets related us foreign tax credit carryforwards approximately 1071 million us research tax credit carryforwards approximately 259 million expire varying amounts beginning 2012 realization foreign tax credit research tax credit carryforwards dependent generating sufficient domestic taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions increasing biologics manufacturing capacity us implementing tax planning strategies increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit carryforwards amount foreign tax credit research tax credit carryforwards considered realizable however could reduced near term plavix subject either renewed additional generic competition events occur company may need record significant valuation allowances us federal deferred tax assets discussion plavix related matters see “note 21 legal proceedings contingencies” income taxes paid year 741 million 1556 million 822 million 2006 2005 2004 respectively current tax benefit realized upon exercise stock options charged capital excess par value stock amounted 10 million 19 million 26 million 2006 2005 2004 respectively note 8 income taxes continued december 31 2006 company approximately 113 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated us company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided company conducts business various countries throughout world subject tax numerous jurisdictions result business activities company files significant number tax returns subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported company may require several years resolve company establishes liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation 2005 company recognized income tax benefit approximately 159 million due settlement company’s us federal income tax returns years 1998 2001 company’s us federal income tax returns 2002 2003 currently examination irs proposed 1 significant disallowance certain litigation settlement expenses 2 significant reduction us foreign tax credits claimed following company’s previously disclosed 2002 international restructuring irs’ position latter matter also affects us foreign tax credits claimed company 2004 although year currently examination company believes strong positions respect issues intends contest irs’ positions possible predict outcome issues company established tax contingency reserves reflect best estimate probable tax liability matters company prevail final nonappealable determination matters amount loss excess established reserves could material adverse effect company’s results operations however company believe determination would material adverse effect cash flows note 9 receivables major categories receivables follow miscellaneous receivables 2006 2005 includes 647 million net allowances 9 million 415 million net allowances 5 million respectively related receivables alliance partners additional information company’s alliance partners see “note 2 alliances investments” note 10 inventories major categories inventories follow note 11 property plant equipment major categories property plant equipment follow capitalized interest 18 million 9 million 10 million years ended december 31 2006 2005 2004 respectively included categories property plant equipment shown note 12 goodwill changes carrying amount goodwill years ended december 31 2006 2005 follows note 13 intangible assets december 31 2006 2005 intangible assets consisted following note 13 intangible assets continued first quarter 2006 year 2005 company recorded impairment charges licenses 32 million 42 million respectively resulting actual estimated future sales declines tequin charges recorded cost products sold company’s consolidated statement earnings march 2006 result fda approval erbitux use treatment head neck cancer company made 250 million milestone payment imclone capitalized licenses third quarter 2006 company recorded impairment charge licenses 27 million resulting lower expected sales emsam charge recorded cost products sold company’s consolidated statement earnings amortization expense intangible assets years ended december 31 2006 2005 2004 363 million 352 million 316 million respectively expected amortization expense related current net carrying amount intangible assets follows note 14 shortterm borrowings longterm debt shortterm borrowings end 2006 2005 187 million 231 million respectively longterm debt 72 billion december 31 2006 compared 84 billion december 31 2005 fourth quarter 2006 company restructured longterm debt retiring outstanding 25 billion 575 notes due 2011 cash tender offer subsequent redemption issuing 500 million 641 million aggregate principal amount 4375 notes due 2016 500 million 641 million aggregate principal amount 4625 notes due 2021 well 125 billion aggregate principal amount 5875 notes due 2036 resulted 220 million pretax expense comprised items discussed premium paid debt tender make whole 72 million 24 million respectively addition company recognized earnings 12 million unamortized discount debt issuance costs associated 2011 debt incurred pretax loss 62 million related termination remaining 20 billion notional amount 2011 fixedtofloating interest rate swap agreements recognized earnings pretax unamortized portion 18 million aforementioned loss incurred termination 500 million notional amount 2011 fixedtofloating interest rate swaps occurred june 2005 furthermore november 2006 company recognized earnings accumulated comprehensive income pretax unamortized portion 32 million loss incurred 2011 settlement interest rate lock contracts used manage exposure changes interest rates anticipated issuance 2011 longterm fixed rate debt december 2006 company replaced prior 2 billion revolving credit facility new 2 billion five year revolving credit facility syndicate lenders extendable anniversary date consent lenders facility contains customary terms conditions substantially similar prior facility including financial covenant whereby ratio consolidated debt consolidated capital cannot exceed 50 end quarter company compliance covenant since inception new facility borrowings outstanding revolving credit facility december 31 2006 company unused shortterm lines credit available trade finance facilities foreign banks 402 million 394 million december 31 2006 2005 respectively august 2005 whollyowned subsidiary company entered 25 billion term facility syndicate bank lenders borrowings facility guaranteed company subsidiaries borrower certain european subsidiaries company facility contained fiveyear tranche 20 billion twoyear tranche 500 million fully drawn december 31 2005 interest paid periodic basis agreed lenders annual rate equal applicable london interbank offered rate libor plus 025 company subject substantially covenants included december 2004 revolving credit facility company also subject restrictions including certain financial covenants prior borrowing proceeds facility 2005 company obtained waiver lenders covenant default facility due onetime intercompany distribution december 31 2006 company fully repaid twoyear tranche 13 billion outstanding fiveyear tranche full compliance covenants note 14 shortterm borrowings longterm debt continued second quarter 2005 company retired outstanding 25 billion 475 notes due 2006 incurred aggregate pretax expense approximately 69 million connection early redemption notes termination related interest rate swaps components longterm debt follows 1 company’s outstanding 12 billion convertible debentures pay interest quarterly annual rate equal 3month libor reset quarterly minus 050 yield never less zero final maturity september 15 2023 debentures callable par time september 21 2008 issuer holders also redeem debentures par september 15 2008 2013 2018 fundamental change ownership company occurs bond initial conversion price 4128 conversion rate 242248 shares adjustable depending average closing prices applicable period maximum conversion rate 387597 shares company entered fixed floating interest rate swaps 39 billion longterm debt 2006 conjunction new issuance 125 billion 587 notes due 2036 10 billion euro notes 13 billion company executed several fixed floating interest rate swaps convert new fixed rate debt paid 2016 2021 2036 variable rate debt 2004 company executed several fixed floating interest rate swaps convert 700 million company’s fixed rate debt paid 2023 2026 variable rate debt year ended december 31 2006 company realized net increase interest expense 18 million result higher floating rates obtained swap agreements year ended december 31 2005 company recognized net reduction interest expense 54 million reflects benefit lower floating rates obtained swap agreements november 2006 connection early retirement outstanding 25 billion 575 notes due 2011 company terminated remaining 20 billion notional amount 2011 fixed floating interest rate swap agreements incurred pretax loss 62 million april 2005 connection early redemption 25 billion notes due 2006 company terminated 2 billion notional amount 2006 fixedtofloating interest rate swap agreements incurred pretax loss 28 million june 2005 company terminated 500 million notional amount 2011 fixedtofloating interest rate swap agreements related 25 billion notes due 2011 incurred pretax loss 23 million loss amortized interest expense 3 million 2 million recognized 2006 2005 respectively remaining loss 18 million together 62 million loss incurred unwind 20 billion swap fully recognized 2006 september 2005 company terminated 350 million notional amount 2026 fixedtofloating interest rate swap agreements related 350 million debentures due 2026 gain 39 million gain recognized interest expense remaining life debentures due 2026 approximately 1 million recognized 2006 2005 note 14 shortterm borrowings longterm debt continued cash payments interest including payments due interest rate swaps 682 million 598 million 354 million 2006 2005 2004 respectively company’s cash receipts interest rate swaps 205 million 275 million 298 million 2006 2005 2004 respectively excluded cash payments interest 2 2007 obligations included shortterm borrowings company’s consolidated balance sheet december 31 2006 balances approximate outstanding nominal longterm debt values company’s convertible debenture included due payment 2008 contains 2008 put call feature described december 31 2006 company provided total 165 million financial guarantees form standby letters credit performance bonds standby letters credit insurance companies support thirdparty liability programs performance bonds issued support range ongoing operating activities including sale company products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority company’s outstanding financial guarantees expire within year expected funded note 15 stockholders’ equity changes common shares treasury stock capital excess par value stock restricted stock share company’s preferred stock convertible 1696 shares common stock callable company’s option reductions number issued shares preferred stock 2006 2005 2004 due conversions shares common stock dividends declared per common share 112 2006 112 2005 112 2004 note 15 stockholders’ equity continued accumulated balances related component comprehensive incomeloss net taxes follows note 16 employee stock benefit plans employee stock plans company’s 2002 stock incentive plan executive officers key employees may granted options purchase company’s common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years generally company issues shares stock option exercise treasury stock additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price terms 2002 stock incentive plan authorized shares include 09 outstanding shares per year 2007 well number shares tendered prior year pay purchase price options number shares previously utilized satisfy withholding tax obligations upon exercise shares available grant prior year granted year shares cancelled forfeited expired also available future grant 2002 stock incentive plan provides granting common stock key employees subject restrictions continuous employment restrictions generally expire fouryear period date grant compensation expense recognized restricted period december 31 2006 2005 69 million 42 million shares restricted stock restricted stock units outstanding plan respectively years ended december 31 2006 2005 2004 approximately 43 million 18 million 12 million shares respectively restricted stock restricted stock units granted weighted average fair value 2345 2461 2764 per common share respectively 2002 stock incentive plan also incorporates company’s longterm performance awards delivered form target number performance shares threeyear cycle 2006 2008 awards based 50 cumulative earnings per share 50 cumulative sales ultimate payout modified company’s total stockholder return versus 11 companies proxy peer group threshold targets met performance period payment made longterm performance award plan maximum performance three measures result maximum payout 253 target december 31 2006 2005 18 million 18 million performance shares outstanding plan respectively 2006 2005 2004 06 million 11 million 05 million performance shares granted respectively fair value 2000 2545 2811 per common share respectively teamshare stock option plan terminated january 3 2005 fulltime employees excluding key executives granted options purchase company’s common stock market price date options granted company authorized 66 million shares issuance plan individual grants generally became exercisable evenly third fourth fifth anniversary grant date maximum term 10 years options 355 million shares exercised plan december 31 2006 note 16 employee stock benefit plans continued company’s results operations year ended december 31 2006 reflect impact sfas 123r includes impact expensing stock options company elected alternative method provided fsp 123r3 determining company’s pool excess tax benefits results operations years ended december 31 2005 2004 restated reflect impact expensing stock options prepared accordance apb 25 following table summarizes stockbased compensation expense net tax related employee stock options restricted stock longterm performance awards years ended december 31 2006 2005 2004 table reflects pro forma net income diluted net income per share years ended december 31 2005 2004 costs related stockbased compensation capitalized period summary option activity follows note 16 employee stock benefit plans continued weightedaverage grantdate fair value options granted company twelve months ended december 31 2006 2005 2004 474 549 591 respectively total intrinsic value options exercised twelve month periods ended december 31 2006 2005 2004 17 million 69 million 71 million respectively twelve months ended december 31 2006 2005 2004 company received 167 million 137 million 89 million cash proceeds exercise stock options december 31 2006 91 million total unrecognized compensation cost related stock options expected recognized weightedaverage period 27 years following tables summarize information concerning company’s stock compensation plans currently outstanding exercisable options 1 shares plan longer issued following table summarizes significant ranges outstanding exercisable options december 31 2006 shares millions aggregate intrinsic value preceding table represents total pretax intrinsic value based company’s average stock price 2627 december 29 2006 would received option holders option holders exercised options date total number inthemoney options exercisable december 31 2006 20 million december 31 2005 113 million outstanding options exercisable weightedaverage exercise price 4223 december 31 2006 306 million shares common stock reserved issuance pursuant stock plans options conversions preferred stock option valuation fair value employee stock options granted 2006 estimated date grant prior january 1 2006 estimated using weightedaverage estimated per option value granted using blackscholes option pricing model following assumptions note 16 employee stock benefit plans continued company derived expected volatility assumption required blackscholes model calculating 10year historical volatility weighting equally derived implied volatility consistent sfas 123r sab 107 prior 2006 company used historical stock price volatility accordance sfas 123 purposes pro forma information selection blended historical implied volatility approach based company’s assessment calculation expected volatility representative future stock price trends using historical volatility riskfree interest rate assumption based upon us treasury yield curve effect time grant dividend yield assumption based company’s history expectation dividend payouts expected life employee stock options represents weightedaverage period stock options expected remain outstanding derived output latticebinomial model expected life employee stock options impacted underlying assumptions calibration company’s model latticebinomial model assumes employees’ exercise behavior function option’s remaining vested life extent option inthemoney latticebinomial model estimates probability exercise function two variables based entire history exercises cancellations past option grants made company prior 2006 company used optionpricing model indirectly estimate expected life stock options expected life expected volatility stock options based upon historical economic data trended future forfeitures employee stock options accounted asincurred basis stockbased compensation expense recognized consolidated statement earnings twelve months ended december 31 2006 based awards ultimately expected vest reduced estimated forfeitures sfas 123r requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience company’s pro forma information required sfas 123 periods prior 2006 company accounted forfeitures occurred restricted stock fair value nonvested shares company’s common stock determined based average trading price company’s common stock grant date summary restricted share activity follows december 31 2006 2005 126 million 75 million respectively total unrecognized compensation cost related nonvested restricted stock restricted stock units cost expected recognized weightedaverage period 275 years balance december 31 2006 35 years balance december 31 2005 total fair value shares share units vested twelve months ended december 31 2006 2005 2004 21 million 14 million 17 million respectively note 16 employee stock benefit plans continued longterm performance awards prior adoption sfas 123r compensation expense related longterm performance awards determined based market price company’s stock time award applied expected number shares contingently issuable 100 amortized threeyear performance cycle upon adoption sfas 123r fair value longterm performance award estimated date grant using monte carlo simulation model instead grant date market price used previously company changed valuation technique based clarification provided sfas 123r fact longterm performance awards contain market condition performance conditions affect factors vesting ie variable number shares awarded reflected grant date fair value award monte carlo simulation model utilizes multiple input variables determine probability satisfying market condition stipulated award grant calculates fair market value longterm performance awards valuation model used following assumptions weightedaverage expected volatility based three year historical volatility levels company’s common stock expected dividend yield based historical dividend payments risk free interest rate reflects yield 5year zero coupon us treasury bonds based performance shares’ contractual term fair value 2006 longterm performance awards amortized performance period award december 31 2006 2005 2 million 8 million respectively total unrecognized compensation cost related performance share plan expected recognized weightedaverage period 20 years 17 years respectively accuracy fair value estimates company’s determination fair value stockbased payment awards date grant using optionpricing model affected company’s stock price well assumptions regarding number highly complex subjective variables include limited company’s expected stock price volatility term awards actual projected employee stock option exercise behaviors optionpricing models developed use estimating value traded options vesting hedging restrictions fully transferable company’s employee stock options certain characteristics significantly different traded options changes subjective assumptions materially affect estimated value management’s opinion existing valuation models may provide accurate measure fair value company’s employee stock options although fair value employee stock options determined accordance sfas 123r sab 107 using optionpricing model value may indicative fair value observed willing buyerwilling seller market transaction company adopted sfas 123r requires measurement recognition compensation expense stockbased payment awards made employees directors based estimated fair values sfas 123r supersedes company’s previous accounting apb 25 periods beginning january 1 2006 march 2005 sec issued sab 107 relating sfas 123r company applied provisions sab 107 adoption sfas 123r company adopted sfas 123r using modified prospective transition method requires application accounting standard january 1 2006 elected alternative method provided fsp 123r3 determining company’s pool excess tax benefits company’s consolidated financial statements year ended december 31 2006 reflect impact sfas 123r accordance modified prospective transition method note 16 employee stock benefit plans continued company’s consolidated financial statements prior periods restated reflect include impact sfas 123r stockbased compensation expense recognized sfas 123r year ended december 31 2006 112 million 73 million net tax 004 per share corresponding amount recorded additional paidin capital within stockholders’ equity additionally 10 million related performance awards reclassified liabilities stockholders’ equity connection adoption sfas 123r note 17 financial instruments company exposed market risk due changes currency exchange rates interest rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used speculative purposes company’s primary net foreign currency translation exposures euro japanese yen mexican peso chinese renminbi canadian dollar company utilizes foreign currency contracts hedge anticipated transactions primarily intercompany transactions certain foreign currencies designates derivative instruments foreign currency cash flow hedges appropriate notional amounts company’s foreign exchange derivative contracts december 31 2006 2005 1585 million 2296 million respectively derivatives majority qualify hedges future anticipated cash flows effective portion changes fair value temporarily deferred accumulated oci recognized earnings hedged item affects earnings 2006 2005 2004 company reclassified deferred losses 18 million 130 million 234 million respectively accumulated oci earnings majority classified cost products sold december 31 2006 balance deferred net aftertax losses foreign exchange forward contracts included accumulated oci 22 million net aftertax loss 25 million estimated reclassified earnings within next 12 months sfas 133 requires company perform periodic assessments hedge effectiveness assessments determine whether derivatives designated qualifying hedges continue highly effective offsetting changes cash flows hedged items ineffective portion fair value longer deferred accumulated oci included current period earnings years ended december 31 2006 2005 impact hedge ineffectiveness earnings significant additionally years ended december 31 2006 2005 impact discontinued hedges loss 10 million gain 2 million respectively furthermore company uses foreign exchange forward contracts offset exposure certain currency assets liabilities foreign exchange forward contracts designated hedges therefore changes fair value derivatives recognized earnings occur 2006 2005 amounts recognized earnings related foreign exchange forward contracts qualify hedge accounting treatment significant fair value forward contracts net liability 33 million december 31 2006 18 million recorded noncurrent asset 51 million recorded current liability fair value forward contracts net asset 53 million december 31 2005 94 million recorded noncurrent asset 41 million recorded current liability fair value foreign exchange contracts based yearend currency rates blackscholes model case option contracts company exposures net foreign currency denominated assets liabilities approximately 16 billion 25 billion december 31 2006 2005 respectively primarily mexico japan uk china australia canada reduction net exposure primarily due issuance 1 billion euro 13 billion notes 2006 additional information see “note 14 shortterm borrowing longterm debt” addition foreign exchange hedge contracts noted company utilizes forward contracts hedge foreign currency denominated monetary assets liabilities primary objective forward contracts protect us dollar value foreign currency denominated monetary assets liabilities effects volatility foreign exchange rates might occur prior receipt settlement us dollars foreign currency denominated monetary assets liabilities primarily denominated euro forward contracts designated hedges marked market incomeexpense notional fair value amount purchased foreign exchange forward contracts 24 million 1 million asset respectively december 31 2006 142 million 2 million liability respectively december 31 2005 notional fair value amount sold foreign exchange forward contracts 22 million 1 million liability respectively december 31 2006 47 million 1 million asset respectively december 31 2005 note 17 financial instruments continued company also uses non us dollar borrowings lesser extent forward contracts hedge foreign currency exposures company’s net investment certain foreign affiliates non us dollar borrowings forward contracts designated hedges net investments effective portion foreign exchange gains losses hedges recorded part foreign currency translation component oci december 31 2006 2005 17 million tax losses 12 million tax gains respectively recorded foreign currency translation component oci company uses derivative instruments part interest rate risk management strategy derivative instruments used comprised principally fixed floating rate interest rate swaps subject fairvalue hedge accounting treatment november 2006 connection funding retirement 2011 fixed rate debt company executed several fixed floating interest rate swaps convert 13 billion 1 billion euro 13 billion company’s newly issued fixed rate debt paid 2016 2021 2036 variable rate debt 2004 company executed several fixed floating interest rate swaps convert 700 million company’s fixed rate debt paid 2023 2026 variable rate debt total notional amount outstanding interest rate swaps 26 billion 1 billion euro 13 billion december 31 2006 34 billion december 31 2005 accordance sfas 133 accounting derivative instruments hedging activities company recognized net increase interest expense 18 million 2006 net reduction interest expense 54 million 151 million 2005 2004 respectively impact interest rate swaps swap contracts well underlying debt hedged recorded fair value resulted increase noncurrent assets 7 million current liabilities 57 million reduction longterm debt 50 million december 31 2006 increase noncurrent assets 21 million current liabilities 51 million reduction longterm debt 30 million december 31 2005 swap contracts generally held maturity intended create appropriate balance fixed floating rate debt company swap contracts qualify fair value hedges terminated prior maturity dates reported part carrying value underlying debt amortized earnings remaining life debt swap contracts qualify cash flow hedges terminated reported accumulated oci amortized earnings remaining life debt following tables summarize new terminated interest rate swaps 2006 2005 terminated swap contracts 1 underlying 2011 2006 notes extinguished 2006 2005 respectively carrying amount company’s financial instruments includes cash equivalents marketable securities accounts receivable accounts payable approximates fair value december 31 2006 2005 longterm debt difference fair value carrying value material note 18 segment information company organized three reportable segmentspharmaceuticals nutritionals health care pharmaceuticals segment comprised global pharmaceutical international consumer medicines businesses nutritionals segment consists mead johnson primarily infant formula business children’s nutritional business health care segment consists convatec medical imaging consumer medicines businesses third quarter 2005 company completed sale consumer medicines business additional information sale consumer medicines see “note 4 acquisitions divestitures” company’s products sold principally wholesale retail trade nationally internationally certain products also sold drug manufacturers hospitals clinics government agencies medical profession three wholesalers accounted approximately 18 17 10 respectively company’s total net sales 2006 2005 sales wholesalers accounted 20 19 11 respectively company’s total net sales 2004 three wholesalers accounted approximately 19 17 10 respectively company’s total net sales concentrated pharmaceuticals segment corporateother consists principally interest income interest expense certain administrative expenses allocations business segments certain corporate programs litigation expense debt retirement costs gain sale businesses product asset deferred income recognized collaboration agreement restructuring charges corporateother assets include cash equivalents marketable securities goodwill assets otn held available sale december 31 2004 sold 2005 certain assets note 18 segment information continued geographic areas change yearend assets us 2006 2005 primarily due decrease cash equivalents marketable securities resulting reinvestment 2006 foreign dividends received 2005 pursuant repatriation earnings us ajca note 19 leases minimum rental commitments noncancelable operating leases primarily real estate motor vehicles effect december 31 2006 operating lease rental expense net sublease rental income 21 million 2006 15 million 2005 13 million 2004 149 million 2006 150 million 2005 149 million 2004 december 2006 company completed sale leaseback several administrative facilities new jersey 283 million resulting pretax gain transaction 154 million deferred reduce future lease rental costs lease periods ranging 8 12 years note 20 pension postretirement benefit plans company certain subsidiaries defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan us funding policy contribute amounts provide current service fund past service liability plan benefits based primarily participant’s years credited service compensation plan assets consist principally equity fixedincome securities company also provides comprehensive medical group life benefits substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside us note 20 pension postretirement benefit plans continued company adopted sfas 158 fiscal year ended december 31 2006 resulting 1064 million reduction accumulated oci stockholders’ equity 767 million reduction total assets 297 million increase total liabilities impact adoption summarized follows cost company’s deferred benefits postretirement benefit plans included following components company recognized impact medicare prescription drug improvement modernization act 2003 2006 2005 2004 accordance fsp 1062 recorded 11 million 11 million 8 million 2006 2005 2004 respectively reduction net periodic benefit costs estimated net actuarial loss prior service cost amortized accumulated oci net periodic benefit cost 2007 note 20 pension postretirement benefit plans continued changes benefit obligations plan assets funded status amounts recognized balance sheet years ended december 31 2006 2005 company’s defined benefit postretirement benefit plans several plans underfunded accrued benefit obligations exceeded accrued benefit liabilities december 31 2006 2005 additional minimum liabilities established increase accrued benefit liabilities values underfunded accrued benefit obligations additional minimum liabilities totaled 232 million december 31 2006 prior adoption sfas 158 us unfunded benefit equalization plan several international plans liabilities reversed upon adoption sfas 158 additional minimum liabilities totaled 328 million december 31 2005 offset intangible assets 2 million charges accumulated oci included stockholders’ equity 326 million accumulated benefit obligation defined benefit pension plans 5422 million 5209 million december 31 2006 2005 respectively note 20 pension postretirement benefit plans continued information pension plans accumulated benefit obligations excess plan assets attributable primarily unfunded us benefit equalization plan several plans international markets unfunded us benefit equalization plan provides pension benefits employees compensation irs limits cannot funded taxadvantaged manner additional information pertaining company’s pension postretirement plans weightedaverage assumptions used determine benefit obligations december 31 weightedaverage actuarial assumptions used determine net periodic benefit cost years ended december 31 december 31 2006 company’s expected longterm rate return us pension plan assets 875 target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income 875 approximated applying expected returns 9 public equity 15 private equity 6 fixed income target allocation actual historical returns also relevant annualized returns periods ended december 31 2006 93 10 years 101 15 years 105 20 years us pension plan assets represented approximately 80 total company pension plan assets december 31 2005 839 disclosed total company expected return assets 2006 875 us pension plans due impact international pension plans typically employ less aggressive asset allocation 875 expected return disclosed benefits 2006 relevant assets invested manner us pension plan assets international plan assets assumed health care cost trend rates december 31 note 20 pension postretirement benefit plans continued assumed health care cost trend rates effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects company’s asset allocation pension postretirement benefits december 31 2006 2005 company’s investment strategy emphasizes equities order achieve high expected returns long run low expense low required cash contributions us pension plans target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income maintained cash flow ie cash contributions benefit payments used rebalance back targets necessary investments well diversified within three major asset categories 40 us equity passively managed otherwise investments actively managed investment strategies international pension plans typically similar although asset allocations usually conservative bristolmyers squibb company common stock represents less 1 plan assets december 31 2006 2005 assets postretirement benefits commingled us pension plan assets therefore investment strategy identical described us pension plans contributions although minimum contributions required company made cash contributions us pension plans 235 million 318 million 225 million 2006 2005 2004 respectively company also plans make cash contribution us pension plans 2007 contributions made us pension plans company may make taxdeductible contributions 401h account retiree medical benefits equal portion pension normal cost contributions international pension plans 90 million 105 million 142 million 2006 2005 2004 respectively contributions international plans expected 70 90 million 2007 estimated future benefit payments following benefit payments mainly us pension plans reflect expected future service appropriate expected paid note 20 pension postretirement benefit plans continued savings plan principal defined contribution plan bristolmyers squibb savings investment program company’s contribution based employee contributions level company match company’s contributions plan 56 million 2006 51 million 2005 53 million 2004 termination indemnity plans company operates certain jurisdictions primarily europe require recording statutory termination obligations assessed accordance emerging issues task force issue 881 determination vested benefit obligation defined benefit pension plan total pension liability recorded obligations 75 million december 31 2006 68 million december 31 2005 note 21 legal proceedings contingencies various lawsuits claims proceedings investigations pending involving company certain subsidiaries accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated matters involve antitrust securities patent infringement pricing sales marketing practices environmental health safety matters consumer fraud product liability insurance coverage significant matters described assurance increase scope matters future lawsuits claims proceedings investigations material management continues believe previously disclosed next years aggregate impact beyond current reserves legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity intellectual property plavix litigation plavix currently company’s largest product ranked net sales net sales plavix approximately 33 billion year ended december 31 2006 38 billion year ended december 31 2005 33 billion 2004 us net sales plavix 27 billion 2006 32 billion 2005 28 billion 2004 plavix patents subject number challenges us less significant markets product possible reasonably estimate impact lawsuits company however loss market exclusivity plavix sustained generic competition would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity company sanofi companies intend vigorously pursue enforcement patent rights plavix litigation united states patent infringement litigation company’s us territory partnership alliance sanofi plaintiff pending patent infringement lawsuit instituted us district court southern district new york entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v apotex inc apotex corp apotex suit filed march 2002 based us patent 4847265 ‘265 patent composition matter patent discloses claims among things hydrogen sulfate salt clopidogrel medicine made available us companies plavix plaintiffs’ infringement position based defendants’ filing abbreviated new drug applications anda fda seeking approval sell generic clopidogrel bisulfate prior expiration composition matter patent 2011 defendants responded alleging patent invalid andor unenforceable march 2006 companies announced executed proposed settlement agreement march agreement apotex settle patent infringement lawsuit pending parties us district court southern district new york response concerns expressed federal trade commission state attorneys general parties modified march agreement modified agreement july 2006 companies announced modified agreement failed receive required antitrust clearance state attorneys general august 8 2006 apotex launched generic version clopidogrel bisulfate august 14 2006 companies filed motion preliminary injunction august 31 2006 trial court issued preliminary injunction ordered apotex halt sales generic clopidogrel bisulfate court order apotex recall product customers companies also required post bond amount 400 million provide security apotex court conclude end patent litigation injunction wrongly imposed september 1 2006 companies posted 200 million bond satisfy requirement company pledged issuer bond collateral 200 million bond consisting shortterm high quality securities collateral reported marketable securities consolidated balance sheet december 31 2006 terms pledge agreement company entitled receive income generated marketable securities make certain investment decisions restricted using 200 million pledged securities purpose time bond cancelled note 21 legal proceedings contingencies continued september 1 2006 court denied apotex’s motion stay preliminary injunction apotex filed appeal preliminary injunction us court appeals federal circuit september 5 2006 filed motion stay injunction pending appeal september 6 2006 federal circuit denied september 21 2006 december 8 2006 federal circuit affirmed trial court’s issuance injunction apotex subsequently filed motion reconsideration andor rehearing denied january 19 2007 september 2006 apotex filed motion supplement answer counterclaims add claims breach contract antitrust counterclaims additional equitable defenses trial court permitted apotex add additional antitrust counterclaims stayed pending outcome trial court permit apotex add breach contract claim trial commenced january 22 2007 ended february 15 2007 court ordered posttrial briefing expected rule thereafter company’s us territory partnership alliance sanofi also plaintiff three additional pending patent infringement lawsuits instituted us district court southern district new york dr reddy’s laboratories inc dr reddy’s laboratories ltd dr reddy’s teva pharmaceuticals usa inc teva cobalt pharmaceuticals inc cobalt related ‘265 patent trial date action dr reddy’s set patent infringement actions teva cobalt stayed pending resolution apotex litigation parties actions agreed bound outcome litigation apotex although teva cobalt appeal outcome litigation dr reddy’s teva filed anda fda exclusivity periods statutory stay periods hatchwaxman act expired exception 30month stay applies teva expires february 27 2007 accordingly final approval fda would provide company authorization distribute generic clopidogrel bisulfate product us subject various legal remedies companies may apply including injunctive relief damages company’s us territory partnership alliance sanofi plaintiff another pending patent infringement lawsuit instituted us district court district new jersey entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v watson pharmaceuticals inc watson laboratories inc suit filed october 2004 based us patent 6429210 discloses claims particular crystalline polymorph form hydrogen sulfate salt clopidogrel marketed plavix case discovery phase december 2005 court permitted watson pursue declaratory judgment counterclaim respect us patent 6504030 january 2006 court approved parties’ stipulation stay case pending outcome trial apotex matter possible time reasonably assess patent litigation apotex plavix patent litigation timing renewed generic competition plavix apotex additional generic competition plavix thirdparty generic pharmaceutical companies however apotex prevail patent litigation company would expect face renewed generic competition plavix apotex promptly thereafter noted loss market exclusivity plavix andor sustained generic competition would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity full impact apotex’s launch generic clopidogrel bisulfate product company cannot reasonably estimated time depend number factors including among others amount generic product sold apotex whether companies prevail underlying patent litigation even companies prevail pending patent case extent launch apotex permanently adversely impact pricing prescription demand plavix amount damages would sought andor recovered companies apotex’s ability pay damages loss market exclusivity plavix andor sustained generic competition would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity launch generic clopidogrel bisulfate product apotex august 2006 significant adverse effect sales 2006 company estimates range 12 billion 14 billion particular launch adverse impact sales third fourth quarters 2006 company estimates range 525 million 600 million third quarter 700 750 million fourth quarter first second third fourth quarters 2006 us net sales plavix 850 million 988 million 474 million 343 million respectively sales generic clopidogrel note 21 legal proceedings contingencies continued bisulfate expected residual impact plavix sales 2007 company cannot certainty estimate 2007 impact point time also previously disclosed antitrust division us department justice doj conducting criminal investigation regarding proposed settlement company cooperating fully investigation possible time reasonably assess outcome investigation impact company previously disclosed company entered deferred prosecution agreement dpa us attorney’s office district new jersey usao june 15 2005 pursuant dpa usao filed criminal complaint company alleging conspiracy commit securities fraud deferred prosecution company dismiss complaint two years company satisfies requirements dpa terms dpa usao discretion may prosecute company matters subject criminal complaint filed usao company connection dpa usao make determination company committed criminal conduct dpa “criminal conduct” defined crime related company’s business activities committed one executive officers directors securities fraud accounting fraud financial fraud business fraud materially affecting books records publicly filed reports company obstruction justice possible time reasonably assess impact pending criminal investigation doj may company’s compliance dpa additional information respect dpa included “item 7 management’s discussion analysissec consent order deferred prosecution agreement” september 2006 board directors board announced company’s current chief executive officer ceo general counsel would leaving respective positions effective immediately announcement took place board received considered reports company’s outside counsel issues relating plavix patent litigation apotex preliminary recommendation monitor dpa monitor terminate employment individuals monitor’s recommendation followed investigation initiated usao conducted monitor usao corporate governance issues relating company’s negotiations proposed settlement apotex company advised monitor usao investigation involve matters subject ongoing investigation antitrust division doj plavix settlement agreement time monitor made preliminary recommendation monitor usao also advised company found violation dpa unlawful conduct company employees investigation included review whether violation federal securities laws connection proposed settlement apotex terms sec consent monitor completed investigation submitted report investigation usao monitor’s report find violation sec consent federal securities laws connection proposed settlement monitor concluded company violated certain paragraphs dpa related governance matters violations cited monitor report relate among things communication failures including insufficient communications company’s former ceo former general counsel board members senior management well failure comply certain internal company policies procedures monitor make findings respect whether company knowingly materially breached dpa make recommendations usao advised company believes matters cited monitor’s report fully remediated accordingly intend take action dpa respect monitor’s report antitrust litigation eighteen lawsuits comprised individual suits purported class actions filed company us district court southern district ohio western division various plaintiffs including pharmacy chains individually assignees whole part certain wholesalers various health welfare benefit plansfunds individual residents various states since announcement march agreement apotex march 2006 lawsuits allege among things apotex settlement violates sherman act related laws plaintiffs seeking among things permanent injunctive relief barring apotex settlement andor monetary damages class actions filed behalf direct purchasers consolidated caption plavix direct purchaser antitrust litigation class actions filed behalf indirect purchasers consolidated caption plavix indirect purchaser antitrust litigation amended complaints filed consolidated class actions individual actions since july 2006 announcement modified agreement failed receive required antitrust clearance state attorneys general amended complaints include allegations regarding criminal investigation antitrust division doj november 2 2006 companies filed motion transfer eighteen lawsuits us district court southern district new york apotex matter similar plavixrelated patent infringement cases pending motion pending court also considering whether stay litigation pending outcome patent infringement litigation possible time reasonably assess outcome lawsuits impact company note 21 legal proceedings contingencies continued shareholder derivative lawsuits september 2006 certain members board current former officers company named derivative complaint steven w sampson v peter r dolan et al filed new york state supreme court also september 2006 certain members board current former officers company named derivative complaint americo marchese v peter r dolan et al filed us district court southern district new york complaints allege among things breaches fiduciary duty claims contribution indemnification relation negotiations apotex regarding plavix patent litigation among things complaints seek money damages injunctive remedies forms equitable relief possible time reasonably assess outcome lawsuits impact company plaintiff marchese voluntarily dismissed without prejudice named plaintiff sold bristolmyers squibb stock consumer fraud november 3 2006 companies served purported class action complaint subsequently amended include various sanofi entities captioned skilstaf inc v bristolmyers squibb company et al 306 cv 04965 filed us district court district new jersey complaint alleges defendants misrepresented safety effectiveness plavix alone combination aspirin thirdparty payors misled causing pay plavix prescriptions insureds compared lower cost alternatives plaintiffs assert among things violations new jersey consumer fraud act plaintiffs seek compensatory punitive damages possible time reasonably assess outcome lawsuit impact company plavix litigationinternational sanofisynthelabo canada inc instituted prohibition action federal court canada apotex inc minister health response notice allegation noa apotex inc directed canadian patent 1336777 ‘777 patent covering clopidogrel bisulfate apotex’s noa indicated filed abbreviated new drug submission ands clopidogrel bisulfate tablets sought approval notice compliance ands expiration ‘777 patent scheduled august 12 2012 apotex’s noa alleged ‘777 patent invalid infringed march 2005 canadian federal court ottawa rejected apotex’s challenge canadian plavix patent held asserted claims novel obvious infringed granted sanofi’s application order prohibition minister health apotex inc order prohibition precludes approval apotex’s ands patent expires 2012 unless federal court’s decision reversed appeal apotex filed appeal canadian federal court appeal heard december 1213 2006 december 22 2006 federal court appeal dismissed apotex’s appeal upheld federal court’s issuance order prohibition february 20 2007 apotex filed leave appeal decision supreme court canada sanofi sanofisynthelabo canada instituted prohibition action federal court canada cobalt minister health response noa cobalt directed ‘777 patent canadian patent 2334870 ‘870 patent cobalt’s noa indicated filed ands clopidogrel bisulfate tablets sought notice compliance ands expiration ‘777 ‘870 patents cobalt alleged ‘777 patent invalid ‘870 patent invalid infringed case stayed pending outcome apotex appeal june 2006 korean intellectual property tribunal invalidated claims sanofi’s korean patent 103094 including claims directed clopidogrel pharmaceutically acceptable salts clopidogrel bisulfate sanofi appealed sanofi also commenced infringement actions generic pharmaceutical companies several launched generic clopidogrel bisulfate product korea possible time reasonably assess outcome lawsuits impact company intellectual property litigation tequin injectable form company kyorin pharmaceuticals co ltd kyorin commenced patent infringement actions march 2005 apotex sicor pharmaceuticals inc sicor inc sicor pharmaceuticals sales inc teva pharmaceutical industries ltd us district court southern district new york relating injectable forms antibiotic gatifloxacin kyorin holds composition matter patent company sells tequin action related apotex’s sicor’s filing andas generic versions injectable gatifloxacin piv certifications composition matter patent expires december 2007 granted patent term extension december 2009 invalid note 21 legal proceedings contingencies continued filing lawsuits placed stays approvals apotex’s sicor’s generic products julyaugust 2007 unless court decision adverse company kyorin date sicor case consolidated proceeding stipulation approved us district court southern district new york august 2005 parties agreed apotex case stayed pending resolution teva sicor cases parties bound outcome litigation august 2006 court approved stipulation dismissal jointly submitted parties stipulation plaintiffs’ claims teva sicor dismissed without prejudice teva sicor’s counterclaims concerning claim 4 us patent 4980470 dismissed prejudice teva sicor’s remaining counterclaims dismissed without prejudice apotex case remains pending possible time reasonably assess outcome apotex lawsuit however result company’s decision discontinue manufacture distribution sale tequin expected outcome apotex lawsuit material impact company erbitux yeda litigation october 2003 yeda research development company ltd yeda filed suit imclone aventis pharmaceuticals inc federal court claiming three individuals associated yeda named inventors us patent 6217866 ‘866 patent covers therapeutic combination egfrspecific monoclonal antibody antineoplastic agents chemotherapeutic agents use treatment cancer september 2006 following trial court issued opinion order held three researchers yeda sole inventors subject matter ‘866 patent giving complete ownership patent yeda imclone appealed imclone also filed declaratory judgment action us district court southern district new york complaint alleges yeda researchers remain sole inventors ‘866 patent invalid company party action unable predict outcome proceedings result court’s decision yeda may seek damages infringement respect past erbitux sales royalties future erbitux sales yeda also right license patent others yeda’s license patent third parties could result product competition erbitux might otherwise occur early assess whether extent competitive impact occur quantify impact however yeda announced licensed patent amgen inc amgen received fda approval market egfr product competes erbitux commercial agreement imclone company pays royalty imclone sales erbitux impacted court’s decision agreement imclone company also includes provisions pursuant certain financial consequences company resulting decision would responsibility imclone addition company owns 144 million shares imclone common stock company accounts equity method accounting carrying value 759 per share december 31 2006 closing market price imclone common stock december 31 2006 2676 assurance company able realize fully benefits contractual protections commercial agreement imclone financial consequences company result court’s decision repligen litigation 2004 repligen corporation repligen massachusetts institute technology mit filed lawsuit us district court district massachusetts imclone claiming imclone’s manufacture sale erbitux infringes patent generally covers process protein production mammalian cells july 2006 court granted summary judgment favor repligen mit rejecting one imclone’s defenses relating patent exhaustion trial proceed issue patent infringement company party action possible time reasonably assess outcome lawsuit impact company abbott laboratories litigation february 5 2007 abbott laboratories filed suit imclone us district court district massachusetts case 107cv10216rgs complaint alleges imclone’s manufacture sale erbitux infringe us patent 5665578 seeks damages alleged infringement company party action possible time reasonably assess outcome lawsuit impact company note 21 legal proceedings contingencies continued orencia january 2006 repligen regents university michigan filed complaint company us district court eastern district texas marshall division orencia launched february 2006 complaint alleges company’s thenanticipated sales orencia infringe us patent 6685541 repligen since amended complaint include ongoing future sales orencia august 2006 zymogenetics inc filed complaint company us district court district delaware complaint alleges company’s manufacture sales orencia infringe us patents nos 5843725 6018026 trial scheduled commence april 2008 possible time reasonably assess outcome lawsuits impact company general commercial litigation clayworth litigation company together number pharmaceutical manufacturers named defendant action filed california state superior court oakland james clayworth et al v bristolmyers squibb company et al alleging defendants conspired fix prices pharmaceuticals agreeing charge drugs us charge outside us particularly canada asserting claims california’s cartwright act unfair competition law plaintiffs sought trebled monetary damages injunctive relief december 19 2006 court granted company manufacturers’ motion summary judgment based passon defense judgment entered favor defendants january 2007 notice appeal respect judgment filed remains pending possible time reasonably assess outcome lawsuit impact company event plaintiffs successful appeal weisz stephenson litigations company named defendant along many pharmaceutical companies action originally brought utility consumers action network consumer advocacy organization focuses privacy issues lawsuit entitled utility consumers action network behalf privacy rights clearinghouse et al v bristolmyers squibb co et al filed california state superior court san diego county july 2004 another substantially similar lawsuit rowan klein representative action behalf similarly situated persons consuming public v walgreens et al filed february 2005 court retail pharmacies company pharmaceutical companies two complaints seek equitable relief monetary damages attorneys’ fees based upon allegedly unfair business practices untrue misleading advertising various california statutes including california confidentiality medical information act based allegations retail stores selling consumers’ confidential medical information companies using consumers’ medical information direct marketing designed increase sale targeted drugs january 2005 company pharmaceutical defendants sought dismiss utility consumers action network case grounds california’s proposition 64 requires plaintiff must injured party order standing bring suit utility consumers action network personally injured october 2005 court entered stay utility consumers action network klein cases pending california supreme court’s decision review several intermediate appellate decisions discuss applicability proposition 64 pending cases july 2006 california supreme court entered decisions two appeals held proposition 64 applies pending cases complaints may amended add plaintiff standing court granted plaintiffs lawsuits leave amend amended complaints containing substantially similar allegations earlier complaints filed behalf new plaintiffs purports allege personal injury lawsuit filed utility consumers action network behalf privacy rights clearinghouse entitled kimberly weisz et al v bristolmyers squibb co et al lawsuit filed rowan klein entitled roseanna stephenson behalf others similarly situated v bristolmyers squibb co et al cases preliminary stage possible time reasonably assess outcome lawsuits impact company rxusa wholesale litigation july 2006 complaint filed drug wholesaler rxusa wholesale inc us district court eastern district new york company fifteen drug manufacturers five drug wholesalers two officers defendant mckesson wholesale distribution industry trade group rxusa wholesale inc v alcon labs inc et al complaint alleges violations federal new york antitrust laws well various laws plaintiff claims defendants allegedly engaged anticompetitive acts resulted exclusion plaintiff relevant market seeks 586 million damages trebling relief company together manufacturer defendants filed motion dismiss case november 13 2006 motion pending court possible time reasonably estimate outcome lawsuit impact company note 21 legal proceedings contingencies continued securities litigation investigations sec investigation wholesaler inventory accounting matters august 2004 company entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters company agreed without admitting denying liability violate certain provisions securities laws company also established 150 million fund distributed certain company shareholders plan distribution established sec settlement resolve ongoing investigation sec activities certain former members company’s management connection wholesaler inventory issues accounting matters company continuing cooperate investigation dk health care resources litigation november 2004 class action complaint filed us district court eastern district missouri company dk health care resources inc dk several current former dk directors officers complaint alleges company participated fraudulently inflating value dk stock allegedly engaging improper “channelstuffing” agreement dk june 2006 court granted company’s motion dismiss complaint plaintiff’s time appeal decision appeal lodged begin run litigation dk officers directors finally resolved possible time reasonably assess outcome lawsuit impact company starkman litigation september 2005 certain company’s current former officers named purported class action starkman v bristolmyers squibb et al filed new york state supreme court alleging factual claims similar resolved federal class action us southern district new york related alleged violations federal securities laws regulations connection sales incentives wholesaler inventory levels asserting common law fraud breach fiduciary duty claims behalf certain company’s stockholders october 2005 company removed case us district court southern district new york november 2005 plaintiff moved remand matter state court matter stayed supreme court march 2006 entered decision another case held holder class actions asserting securities fraud claims state law like starkman preempted federal law following oral argument court denied plaintiff’s motion remand september 2006 november 8 2006 company plaintiff submitted stipulation dismissal without prejudice approved court pricing sales promotional practices litigation investigations company together number defendants defendant number private civil matters relating pricing practices addition company together number pharmaceutical manufacturers received subpoenas document requests various government agencies seeking records relating pricing sales marketing practices best price reporting investigations company us doj office us attorney district massachusetts reached agreement principle subject approval doj settle several investigations involving company’s drug pricing sales marketing activities agreement principle provides civil resolution expected payment 499 million agreement principle involves matters actively investigated discussed us doj us attorney district massachusetts number years including matters relating 1 pricing certain products sold several years ago subsidiary reimbursed governmental health care programs 2 financial relationships subsidiary noted certain customers entities 3 certain consulting programs 4 promotion abilify unapproved indications 5 calculation certain medicaid rebates serzone nefazodone hydrochloride 6 pricing certain company’s products reimbursed governmental health care programs agreement contemplates states choose participate settlement would criminal charges company respect matters agreement principle also provides company enter corporate integrity agreement office inspector general us department health human services settlement contingent upon parties’ agreement terms final settlement agreement including terms corporate integrity agreement approval doj assurance settlement finalized states choose participate agreement principle covers matters outlined us doj us attorney district massachusetts states indicated may pursue matters outside scope expected settlement event matters could result assertion civil andor criminal claims note 21 legal proceedings contingencies continued result agreement principle company increased reserves related investigations 353 million bringing aggregate reserves matters 499 million increased reserve recorded fourth quarter 2006 accordance gaap aggregate reserves reflect company’s estimate expected probable loss respect matters assuming settlement finalized settlement finalized andor certain states choose participate amount reserved may reflect eventual losses furthermore open investigations issues conducted various federal state agencies well certain congressional committees company producing documents actively cooperating investigations could result assertion civil andor criminal claims possible time reasonably assess outcome investigations described additional matters us doj office us attorney district massachusetts may pursue potential impact company previously disclosed 2004 company undertook analysis methods processes calculating prices reporting governmental rebate pricing programs related us pharmaceuticals business analysis completed early 2005 based analysis company identified need revisions methodology processes used calculating reported pricing related rebate amounts implemented revised methodologies processes beginning reporting federal government agency primary responsibility rebate price reporting obligations centers medicare medicaid services cms first quarter 2005 addition using revised methodologies processes company also recalculated “best price” “average manufacturer’s price” required reported company’s federal medicaid rebate agreement certain state agreements corresponding revised rebate liability amounts programs threeyear period 2002 2004 upon completion analysis early 2005 company determined estimated rebate liability programs threeyear period 2002 2004 actually less rebates paid company period accordingly fourth quarter 2004 company recorded reduction rebate liability amount estimated overpayment company submitted proposed revisions updated estimate cms review cms may take position revisions company’s methodologies calculations required company believes however based current information recalculation 2002 2004 period likely result material rebate liability however due uncertainty surrounding recoverability company’s estimated overpayment arising review process described company recorded reserve amount equal estimated overpayment litigation respect private civil matters company together number pharmaceutical manufacturers defendant private class actions well suits brought attorneys general several states numerous new york counties city new york pending federal state courts actions plaintiffs allege defendants caused average wholesale prices awps products inflated thereby injuring government programs entities persons reimbursed prescription drugs based awps federal cases several state attorneys general actions suits new york counties city new york consolidated pretrial purposes us district court district massachusetts awp mdl court awp mdl certified three classes persons entities paid reimbursed seven company’s physicianadministered drugs nonjury trial classes 2 3 insurance companies health welfare funds massachusetts commenced november 2006 currently ongoing trial date claims class 1 medicare part b beneficiaries nationwide yet set company also one many defendants putative class action filed california allegedly behalf entities entitled discounted pricing pursuant section 340b public health services act requires prescription drug manufacturers offer discounts qualified medical providersgenerally disproportionately service poor people july 2006 order entered dismissing california case prejudice plaintiff appealed dismissal california action possible time reasonably assess outcome litigation matters described potential impact company note 21 legal proceedings contingencies continued product liability litigation company party various product liability lawsuits involve among things hormone replacement therapy hrt products company’s serzone prescription drug addition lawsuits company also faces unfiled claims involving products company’s decision obtain insurance coverage dependent market conditions including cost availability existing time decisions made result external factors availability insurance continues restrictive cost increased significantly company evaluated risks determined cost obtaining insurance product liability losses outweighs benefits coverage protection losses became selfinsured product liability losses effective july 1 2004 company continue evaluate risks benefits determine insurance needs future serzone antidepressant launched company may 1994 canada march 1995 us december 2001 company added black box warning serzone label warning potential risk severe hepatic events including possible liver failure need transplantation risk death within several months black box warning added package insert serzone number lawsuits including several class actions filed company plaintiffs masstort litigation allege among things company knew known hepatic risks posed serzone failed adequately warn physicians users risks addition cases filed us class actions filed canada without admitting wrongdoing liability october 2004 company entered settlement agreement respect claims us territories regarding serzone november 2004 district court conditionally certified temporary settlement class preliminarily approved settlement september 2005 court issued opinion granting final approval settlement august 2006 company agreed proceed settlement exercise backend optout right without admitting wrongdoing liability september 2006 company reached agreement principle respect claims canada regarding serzone pursuant terms proposed settlement claims dismissed litigation terminated defendants receive releases company committed paying least 1 million funds class members may 2004 company announced following evaluation commercial potential product generic entry marketplace rapidly declining brand sales decided discontinue manufacture sale product us effective june 14 2004 hormone replacement therapy plaintiffs masstort litigation allege among things various hormone therapy products including hormone therapy products formerly manufactured company estrace estradiol delestrogen ovcon cause breast cancer stroke blood clots cardiac injuries women defendants aware risks failed warn consumers december 31 2006 company defendant 333 lawsuits filed behalf approximately 1261 plaintiffs federal state courts throughout us company expects dismissed many cases products never used initial trials hrt litigation involving primary defendant wyeth commenced federal court july 2006 pennsylvania november 2006 initial trials involve breast cancer claims company defendant cases company’s hormone therapy products sold companies january 2000 august 2001 company maintains estrace anda continues manufacture products supply agreement possible time reasonably assess outcome lawsuits company party impact company environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including comprehensive environmental response compensation liability act cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency epa counterpart state agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable note 21 legal proceedings contingencies continued reasonably estimable december 31 2006 company estimated share total future costs sites approximately 67 million recorded liabilities represents sum best estimates simple estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties currently expected company paid less 6 million excluding legal fees last five years investigation remediation matters including liabilities cercla onsite remedial obligations puerto rico air emissions civil litigation previously reported company one several defendants including many major us pharmaceutical companies purported class action suit filed superior court puerto rico february 2000 relating air emissions government owned operated wastewater treatment facility april 2006 company executed individual settlement plaintiffs amount 460000 subject certain conditions including court would decide certify case class action court deferred decision class certification pending review expert reports facility’s operations court considered expert reports hearing october 2006 thereafter facilitated settlement discussions parties claims discussions ongoing consequently class certification hearing scheduled december 2006 postponed may 2007 passaic river nj remediation natural resource damages claims september 2003 new jersey department environmental protection njdep issued administrative enforcement directive notice new jersey spill compensation control act requiring company approximately 65 companies perform assessment natural resource damages implement unspecified interim remedial measures restore conditions lower passaic river directive alleges company liable historically sent bulk waste former inland chemical company facility newark nj owned mckesson corp reprocessing releases hazardous substances facility migrated newark bay continue adverse impact lower passaic river watershed subsequently epa also issued notice letter cercla numerous partiesbut including companyseeking cooperation study conditions substantially portion passaic river subject njdep’s directive group parties entered consent agreement epa 2004 finance portion study epa yet determined estimated cost study consent agreement private party group committed pay roughly half 20 million estimate subject revision future negotiation study may also lead cleanup actions directed epa army corps engineers group actively negotiating epa successful negotiations result amended consent agreement anticipation agreement company reached agreement principle mckesson corp share costs anticipated agreed portion epa study tasks company also working cooperatively group parties received njdep directive andor epa notice explore potential resolutions directive address risk collateral claims although company believe caused contributed contamination lower passaic river watershed company informed njdep willing discuss njdep’s allegations company also private party group continues discuss federal agencies designated trustees natural resources affected contamination passaic river watershed possibility funding cooperative nrd study presumably would dovetail ongoing epa study ideally would joined njdep coordinate actions njdep may seek directive late 2005 njdep issued supplemental directive filed suit one site parties seeking compel implementation interim measures unclear whether njdep take additional actions site parties andor whether litigation arise response new claims extent liability company may face either njdep epa respect future claims federal trustees mckesson corp responsible parties cannot yet determined north brunswick nj board education remediation claims october 2003 company contacted north brunswick nj board education boe regarding discovery industrial waste materials allegedly including materials er squibb sons expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 njdep sent company others information request letter possible waste disposal site company responded march 2004 boe township current owners school property park conducting jointly financing soil remediation work plan approved njdep evaluating need conduct response actions remediate contain potentially impacted ground water due financial constraints late 2004 boe asked company contribute funds interim basis assure uninterrupted performance necessary site work company actively monitoring cleanup project including costs discussing boe township terms cooperative funding agreement allocation process municipal records indicate township operated landfill site 1940’s 1960’s company investigating historic use site including activities company may responsible date neither boe township asserted claims company note 21 legal proceedings contingencies continued njdep air permitnew brunswick nj facility december 2003 company njdep entered administrative consent order aco concerning alleged violations new jersey air pollution control act implementing regulations company’s new brunswick facility pursuant aco company agreed submit permit application creating facilitywide emissions cap pay small administrative fine obligations satisfied early 2004 subsequently february 2005 aco amended provide company would install new cogeneration turbine new brunswick facility december 31 2006 would obtain applicable air permits december 31 2005 company obtained required operating permit september 2006 purchased new cogeneration turbine cost approximately 5 million installed turbine december 31 2006 compliance aco company fulfilled terms conditions aco february 2007 received notice termination aco njdep concludes matter mead johnson facilitynsps issue october 2005 company commenced voluntary environmental audit mead johnson facility mt vernon indiana determine compliance epa’s new source performance standards nsps applicable operation incinerator december 2005 company disclosed possible violations nsps requirement currently process modifying operations fall within exemption requirements date neither epa indiana department environmental management pursued penalties potential violations however company could potentially subject civil penalties past noncompliance nsps december 2006 epa responded selfdisclosure stated intend pursue enforcement action issues time possible however indiana department environmental management could future pursue civil penalties past noncompliance nsps ods regulatory compliance epa investigating industrial commercial facilities throughout us use refrigeration equipment containing ozonedepleting substances ods enforcing compliance regulations governing prevention service repair leaks ods requirements 2004 company performed voluntary corporatewide audit facilities us puerto rico use odscontaining refrigeration equipment company submitted audit report epa november 2004 identifying potential violations ods requirements several facilities addition matters covered company’s audit report letter epa previously sent company’s wholly owned subsidiary mead johnson request information regarding compliance ods requirements facility evansville indiana company responded request june 2004 result identified potential violations evansville facility company currently discussions epa resolve potential violations discovered audit identified result epa request information evansville facility epa determines evansville facility facilities violation applicable ods requirements company could subject penalties andor required convert replace refrigeration equipment use nonods approved substitutes mact compliancepuerto rico facilities barceloneta humacao march 2005 company commenced voluntary environmental audit barceloneta humacao puerto rico facilities determine compliance epa’s regulations regarding maximum achievable control technology requirements emissions hazardous air pollutants pharmaceuticals production pharmaceutical mact company submitted epa audit report humacao facility june 2005 barceloneta facility july 2005 disclosed potential violations pharmaceutical mact requirements facilities company epa currently discussions regarding resolution matter note 21 legal proceedings contingencies continued proceedings sec germany investigation october 2004 sec notified company conducting informal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents october 4 2006 sec informed company inquiry formal sec’s inquiry encompasses matters currently investigation german prosecutor munich germany company understands inquiry investigation concern potential violations foreign corrupt practices act german law respectively company cooperating sec german authorities company established accrual represents minimum expected probable losses respect investigation german prosecutor possible time reasonably assess outcome investigations impact company bari italy investigation previously disclosed january 2006 company notified prosecutor bari region italy bari prosecutor company investigation result activities two employees region investigation involves company well number doctors pharmacists pharmaceutical companies sales representatives main allegation parties engaged plan defraud national health service bari prosecutor also alleges companies lacked appropriate compliance controls andor processes procedures control activities sales representatives bari prosecutor requested suspend operations pharmaceutical companies investigation appoint judicial administrator preliminary measures pending february 2007 company bari prosecutor reached agreement principle settle matter agreement yet finalized company would pay administrative fine amount material company note 22 subsequent events january 11 2007 company entered two worldwide except japan codevelopment cocommercialization agreements astrazeneca plc astrazeneca develop commercialize two investigational compounds studied treatment type 2 diabetes company received upfront payments 100 million astrazeneca addition company receive milestone payments astrazeneca upon successful achievement various regulatory sales related stages companies agreed upon initial development plans two compounds 2007 2009 majority development costs paid astrazeneca subsequent development costs generally shared equally note 23 selected quarterly financial data unaudited 1 2006 includes net litigation charges 40 million 353 million first fourth quarters respectively net litigation income 14 million 29 million second third quarters respectively first third fourth quarters include litigation insurance recoveries 21 million 9 million 7 million respectively first second third fourth quarters include restructuring 1 million 3 million 2 million 53 million respectively first third fourth quarters include upfront milestone payments 18 million 17 million 35 million respectively first quarter includes 200 million gain sale product asset first second third fourth quarters include 50 million 21 million 72 million 43 million respectively accelerated depreciation asset impairment contract termination fourth quarter includes debt retirement costs 220 million fourth quarter includes 13 million claim damages 2 earnings per share quarters may add amounts year period computed discrete basis 3 2005 includes litigation charges 124 million 269 million 197 million first second fourth quarters respectively second third quarters include litigation insurance recoveries 295 million 26 million respectively first second third fourth quarters include restructuring items 17 million 24 million 30 million 86 million respectively first fourth quarters include upfront payments licensing agreements 35 million 9 million respectively first second quarters include 18 million 9 million respectively gain sale equity investments first second third quarters include 16 million 1 million 1 million respectively loss sale fixed assets second quarter includes debt retirement costs 69 million fourth quarter includes 138 million deferred income net costs resulting termination collaborative agreement merck muraglitazar third quarter includes gain sale consumer medicines business 569 million note 23 selected quarterly financial data unaudited continued 4 common equivalent shares excluded computation diluted earnings per share effect would antidilutive follows millions 5 three months ended december 31 2006 result net loss basic diluted loss per share equal 6 2006 29 million weightedaverage shares issuable well 35 million interest expense net tax conversion convertible debt included diluted earnings per share calculation dilutive report independent registered public accounting firm board directors stockholders bristolmyers squibb company audited accompanying consolidated balance sheet bristolmyers squibb company subsidiaries “company” december 31 2006 related consolidated statements earnings comprehensive income retained earnings cash flows year ended audit also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion 2006 consolidated financial statements present fairly material respects financial position company december 31 2006 results operations cash flows year ended conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed notes 1 16 20 consolidated financial statements company adopted statement financial accounting standards sfas 123r sharebased payment effective january 1 2006 sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r effective december 31 2006 also audited accordance standards public company accounting oversight board united states effectiveness company’s internal control financial reporting december 31 2006 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 26 2007 expressed unqualified opinion management’s assessment effectiveness company’s internal control financial reporting unqualified opinion effectiveness company’s internal control financial reporting deloitte touche llp deloitte touche llp parsippany new jersey february 26 2007 report independent registered public accounting firm board directors stockholders bristolmyers squibb company opinion consolidated balance sheet december 31 2005 related consolidated statements earnings comprehensive income retained earnings cash flows two years period ended december 31 2005 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2005 results operations cash flows two years period ended december 31 2005 conformity accounting principles generally accepted united states america addition opinion financial statement schedule two years period ended december 31 2005 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion pricewaterhousecoopers llp pricewaterhousecoopers llp philadelphia pa march 13 2006 item 9item 8 financial statements supplementary data accompanying notes integral part financial statements bristolmyers squibb company consolidated statements comprehensive income retained earnings dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheets dollars millions except per share data accompanying notes integral part financial statements bristolmyers squibb company consolidated statements cash flows dollars millions consolidated statements cash flows include activities medical imaging business accompanying notes integral part financial statements note 1 accounting policies basis consolidation consolidated financial statements prepared conformity united states us generally accepted accounting principles gaap include accounts bristolmyers squibb company bms company bristolmyers squibb controlled majorityowned subsidiaries intercompany balances transactions eliminated certain prior year amounts reclassified conform current year presentation use estimates preparation financial statements requires use estimates assumptions based complex judgments considered reasonable affect reported amounts assets liabilities disclosure contingent assets contingent liabilities date financial statements reported amounts revenues expenses reporting period significant assumptions employed estimates used determining values intangible assets restructuring charges accruals sales rebate return accruals legal contingencies tax assets tax liabilities stockbased compensation costs retirement postretirement benefits including actuarial assumptions financial instruments observable market quotes well estimates used applying revenue recognition policy actual results may differ estimated results revenue recognition company recognizes revenue accordance staff accounting bulletin sab 101 revenue recognition financial statements amended sab 104 revenue recognition title substantially risks rewards ownership transferred customer generally revenue recognized time shipment however case certain sales made nutritionals convatec segments certain nonus businesses within pharmaceuticals segment revenue recognized date receipt purchaser accordance statements financial accounting standards sfas 48 revenue recognition right return exists revenues reduced time recognition reflect expected returns estimated based historical experience business trends additionally accordance emerging issues task force eitf issue 019 accounting consideration given vendor customer including reseller vendor’s products provisions made time revenue recognition discounts rebates estimated sales allowances based historical experience updated changes facts circumstances appropriate provisions recorded reduction revenue case new products product introduction extension existing line product company determines products similar therapeutic category company determines new product dissimilar characteristics existing products company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns sales rebate return accruals medicaid rebate accruals 125 million 137 million december 31 2007 2006 respectively women infants children wic rebate accruals 198 million 230 million december 31 2007 2006 respectively sales return accruals 178 million 221 million december 31 2007 2006 respectively managed health care rebate contractual discount accruals 134 million 111 million december 31 2007 2006 respectively rebate accruals established period related revenue recognized resulting reduction sales establishment liability included accrued liabilities accrual recorded based estimate proportion recorded revenue result rebate return prime vendor chargeback accruals established similar manner recorded reduction accounts receivable 70 million 63 million december 31 2007 2006 respectively income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases company’s assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recorded reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made december 31 2007 2006 company net deferred tax assets 3483 million 3154 million respectively net valuation allowances 1950 million 625 million respectively note 1 accounting policies continued company recorded significant deferred tax assets december 31 2007 related us foreign tax credit carryforwards approximately 1140 million us research tax credit carryforwards approximately 275 million charitable contribution carryforwards 80 million charitable contribution carryforwards expire varying amounts beginning 2009 foreign tax credit research tax credit carryforwards expire varying amounts beginning 2012 foreign tax credit research credit reduced due derecognition financial accounting standards board fasb interpretation fin 48 accounting uncertainty income taxes interpretation fasb statement 109 realization credits charitable contribution carryforwards dependent generating sufficient domestic taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions productivity transformation initiative pti increasing biologics manufacturing capacity us implementing tax planning strategies increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit charitable contribution carryforwards company conducts business various countries throughout world subject tax numerous jurisdictions result business activities company files significant number tax returns subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported company may require several years resolve company establishes liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation “note 8 income taxes” july 2006 fasb issued fin 48 case company effective january 1 2007 fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 accounting income taxes fin 48 requires tax positions evaluated using recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return differences tax positions taken tax return amounts recognized financial statements recorded adjustments income taxes payable receivable adjustments deferred taxes fin 48 also requires expanded disclosure end reporting period including tabular reconciliation unrecognized tax benefits company adopted fin 48 january 1 2007 result adoption accounting pronouncement company recognized 27 million previously unrecognized tax benefits accounted increase opening balance retained earnings may 2007 fasb issued fasb staff position fsp fin 481 definition settlement fasb interpretation 48 effective retroactively january 1 2007 fsp fin 481 provides guidance determine whether tax position effectively settled purpose recognizing previously unrecognized tax benefits adoption fsp fin 481 effect company’s consolidated financial statements previously reported upon adoption fin 48 company’s total amount uncertain tax benefits january 1 2007 net deferred income tax benefits excluding interest penalties 960 million addition company derecognized adoption 180 million unrecognized tax benefits tax rate impact settled gross unrecognized tax benefits january 1 2007 1140 million december 31 2007 company approximately 141 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated us company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided cash equivalents cash equivalents primarily consist bank deposits time deposits money market funds cash equivalents primarily highly liquid investments original maturities three months less time purchase recorded cost approximates fair value company maintains cash equivalent balances us dollars foreign currencies subject currency rate risk marketable securities company accounts marketable securities accordance sfas 115 accounting certain investments debt equity securities company determined appropriate classification marketable securities “availableforsale” time purchase december 31 2007 2006 company’s investments marketable securities reported fair value fair value determined based observable market quotes valuation models using assessments note 1 accounting policies continued counterparty credit worthiness credit default risk underlying security overall capital market liquidity declines fair value considered temporary charged earnings considered temporary reported component accumulated comprehensive income oci stockholders’ equity company uses average cost method determining cost basis computing realized gains losses sale availableforsale securities realized gains losses included income expense inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals improvements capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets 50 years buildings 3 40 years machinery equipment fixtures company periodically evaluates whether current events circumstances indicate carrying value depreciable assets may recoverable impairment longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value capitalized software certain costs obtain internal use software significant systems projects capitalized amortized estimated useful life software ranges 3 10 years costs obtain software projects significant expensed incurred capitalized software net accumulated amortization included intangible assets 248 million 291 million december 31 2007 2006 respectively amortization expense 116 million 124 million 116 million years ended december 31 2007 2006 2005 respectively investments company accounts 50 lessowned companies ability exercise significant influence using equity method accounting otherwise cost method used company’s share net income losses equity investments included equity net income affiliates consolidated statement earnings losses recognized income expense decline market value deemed temporary company reviews equity investments impairment based determination whether decline market value investment company’s carrying value temporary making determination company considers accounting principles board apb opinion 18 equity method accounting investments common stock related interpretations set forth factors evaluated determining whether loss value recognized including company’s ability hold investment market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment goodwill intangible assets accordance sfas 142 goodwill intangible assets goodwill tested impairment annually using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value company completed annual goodwill impairment assessment first quarter 2007 monitored potential impairment remaining quarters 2007 neither indicated impairment goodwill intangible assets consisting patents trademarks technology licenses capitalized software amortized straightline basis useful lives ranging 3 17 years intangible assets capitalized software deemed impaired net carrying value exceeds estimated fair value capitalized software evaluated impairment described “impairment longlived assets” note 1 accounting policies continued restructuring streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results may vary estimates product liability accruals product liability including associated legal costs recorded undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recorded undiscounted basis probable recovery realized classified reduction litigation charges consolidated statement earnings contingencies normal course business company subject loss contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability tax matters accordance sfas 5 accounting contingencies company records accruals loss contingencies probable liability incurred amount loss reasonably estimated company accordance sfas 5 recognize gain contingencies realized discussion contingencies see “note 8 income taxes” “note 22 legal proceedings contingencies” derivative financial instruments derivative financial instruments used company principally management interest rate foreign currency exposures company hold issue derivative financial instruments speculative purposes company records derivative instruments balance sheet fair value changes derivative’s fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized consolidated statement earnings derivative designated cash flow hedge effective portions changes fair value derivative recorded oci subsequently recognized consolidated statement earnings hedged item affects earnings cash flows classified consistent underlying hedged item purchased foreign currency options entire change fair value included measurement hedge effectiveness cash flow hedges ineffective portions changes fair value cash flow hedges recognized charge credit earnings company designates assigns derivatives hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer expected occur company immediately recognizes gain loss designated hedging financial instruments consolidated statement earnings shipping handling costs company typically charge customers shipping handling costs therefore shipping handling costs included marketing selling administrative expenses 262 million 2007 251 million 2006 230 million 2005 advertising costs advertising costs expensed incurred advertising expense 505 million 474 million 500 million 2007 2006 2005 respectively note 1 accounting policies continued research development research development costs expensed incurred company time enter strategic alliances third parties give company rights develop manufacture market andor sell pharmaceutical products rights owned third parties result alliances company may obligated make payments alliance partners connection research development contingent upon achievement certain predetermined criteria milestones achieved prior regulatory approval product payments expensed research development milestone payments made connection regulatory approvals including nonus regulatory approvals additional indications capitalized amortized cost products sold remaining useful life asset capitalized milestone payments tested recoverability periodically whenever events changes circumstances indicate carrying amounts may recoverable company records research development net reimbursements connection collaboration agreements acquired inprocess research development fair value inprocess research development acquired business combination determined based present value research project’s projected cash flows income approach utilized consistent guidance practice aid issued american institute certified public accountants assets acquired business combinations used research development activities focus software electronic devices pharmaceutical industries future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weightedaverage cost capital acquired inprocess research development expensed incurred underlying product received regulatory approval future alternative use addition costs nonrefundable related acquisition licensing products yet received regulatory approval marketed alternative future use charged earnings incurred earnings per share basic earnings per common share computed using weightedaverage number shares outstanding year diluted earnings per common share computed using weightedaverage number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options restricted stock convertible instruments foreign currency translation statements earnings company’s foreign subsidiaries translated us dollars using average exchange rates net assets company’s foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included accumulated oci recently issued accounting standards december 2007 meeting fasb ratified consensus reached eitf issue 071 accounting collaborative arrangements related development commercialization intellectual property eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenues costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf 9919 reporting revenue gross principal versus net agent accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf 071 applies entire collaborative agreement issue effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date company currently process evaluating impact adopting pronouncement december 2007 fasb issued sfas 141r business combinations replaces sfas 141 business combinations requires acquirer recognize assets acquired liabilities assumed noncontrolling interest acquiree acquisition date measured fair values date limited exceptions statement also requires note 1 accounting policies continued acquirer business combination achieved stages recognize identifiable assets liabilities well noncontrolling interest acquiree full amounts fair values sfas 141r makes various amendments authoritative literature intended provide additional guidance confirm guidance literature provided statement applies business combinations acquisition date december 15 2008 company currently process evaluating impact adopting pronouncement december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 sfas 160 establishes accounting reporting standards require ownership interests subsidiaries held parties parent clearly identified labeled presented consolidated statement financial position within equity separate parent’s equity statement also requires amount consolidated net income attributable parent noncontrolling interest clearly identified presented face consolidated statement income changes parent’s ownership interest parent retains controlling financial interest subsidiary must accounted consistently subsidiary deconsolidated retained noncontrolling equity investment former subsidiary must initially measured fair value gain loss deconsolidation subsidiary measured using fair value noncontrolling equity investment statement also requires entities provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners statement effective fiscal years beginning december 15 2008 company currently process evaluating impact adopting pronouncement june 2007 eitf reached consensus issue 073 accounting nonrefundable advance payments goods services received used future research development activities nonrefundable advance payments goods services used rendered future research development activities deferred capitalized amounts recognized expense related goods delivered services performed goods services longer expected provided issue effective fiscal years beginning december 15 2007 earlier application permitted pronouncement expected material effect company’s consolidated financial statements february 2007 fasb issued sfas 159 fair value option financial assets financial liabilitiesincluding amendment fasb statement 115 permits entity measure certain financial assets financial liabilities fair value objective sfas 159 improve financial reporting allowing entities mitigate volatility reported earnings caused measurement related assets liabilities using different attributes without apply complex hedge accounting provisions sfas 159 entities elect fair value option instrument report unrealized gains losses earnings subsequent reporting date fair value option election irrevocable unless new election date occurs sfas 159 establishes presentation disclosure requirements help financial statement users understand effect entity’s election earnings eliminate disclosure requirements accounting standards assets liabilities measured fair value must displayed face balance sheet statement effective fiscal years beginning november 15 2007 company elect early adoption pronouncement permitted adoption accounting pronouncement expected material effect company’s consolidated financial statements september 2006 fasb issued statement sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r pronouncement requires employer recognize overfunded underfunded status defined benefit postretirement plan multiemployer plan asset liability statement financial position recognize changes funded status year changes occur comprehensive income business entity pronouncement also requires employer measure funded status plan date yearend statement financial position limited exceptions pronouncement require prior periods restated reflect impact sfas 158 company adopted sfas 158 fiscal year ended december 31 2006 adoption accounting pronouncement resulted 1064 million reduction accumulated oci stockholders’ equity 767 million reduction total assets 297 million increase total liabilities adoption sfas 158 impact company’s results operations cash flows september 2006 fasb issued sfas 157 fair value measurements pronouncement defines fair value establishes framework measuring fair value expands disclosures fair value measurements statement effective fiscal years beginning november 15 2007 november 14 2007 fasb agreed oneyear deferral implementation sfas 157 nonfinancial assets liabilities adoption accounting pronouncement expected material effect company’s consolidated financial statements financial assets liabilities assets liabilities carried fair value company currently process evaluating impact adopting pronouncement nonfinancial assets liabilities note 1 accounting policies continued september 2006 us securities exchange commission sec issued sab 108 considering effects prior year misstatements quantifying misstatements current year financial statements expresses staff’s views regarding process quantifying financial statement misstatements bulletin effective interim period first fiscal year ending november 15 2006 sab 108 requires companies utilize “dual approach” assess quantitative effects financial statement misstatements dual approach includes income statement focus balance sheet focus assessment adoption bulletin effect company’s consolidated financial statements july 2006 fasb issued fasb interpretation fin 48 accounting uncertainty income taxes interpretation fasb statement 109 case company effective january 1 2007 fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 accounting income taxes fin 48 requires tax positions evaluated using recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return differences tax positions taken tax return amounts recognized financial statements recorded adjustments income taxes payable receivable adjustments deferred taxes fin 48 also requires expanded disclosure end reporting period including tabular reconciliation unrecognized tax benefits company adopted fin 48 january 1 2007 result adoption accounting pronouncement company recognized 27 million previously unrecognized tax benefits accounted increase opening balance retained earnings may 2007 fasb issued fsp fin 481 definition settlement fasb interpretation 48 effective retroactively january 1 2007 fsp fin 481 provides guidance determine whether tax position effectively settled purpose recognizing previously unrecognized tax benefits adoption fsp fin 481 effect company’s consolidated financial statements march 2006 fasb issued sfas 156 accounting servicing financial assets amendment fasb statement 140 pronouncement relates accounting separately recognized servicing assets servicing liabilities statement effective fiscal years beginning september 15 2006 adoption accounting pronouncement material effect company’s consolidated financial statements february 2006 fasb issued sfas 155 accounting certain hybrid financial instruments amendment fasb statements 133 140 pronouncement primarily resolves certain issues addressed implementation sfas 133 accounting derivative instruments hedging activities concerning beneficial interests securitized financial assets statement effective financial instruments acquired issued subject remeasurement event occurring beginning 2007 fiscal year adoption accounting pronouncement material effect company’s consolidated financial statements may 2005 fasb issued sfas 154 accounting changes error correctionsa replacement apb opinion 20 fasb statement 3 pronouncement applies voluntary changes accounting principle revises requirements accounting reporting change accounting principle sfas 154 requires retrospective application prior periods’ financial statements voluntary change accounting principle unless impracticable pronouncement also requires change method depreciation amortization depletion longlived nonfinancial assets accounted change accounting estimate effected change accounting principle sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 statement change transition provisions existing accounting pronouncements including transition phase effective date sfas 154 adoption accounting pronouncement material effect company’s consolidated financial statements march 2005 fasb issued fin 47 accounting conditional asset retirement obligationsan interpretation fasb statement 143 fin 47 clarifies entity must record liability conditional asset retirement obligation fair value obligation reasonably estimated asset retirement obligations covered fin 47 entity legal obligation perform asset retirement activity even timing method settling obligation conditional future event may within control entity fin 47 also clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation interpretation effective later end fiscal years ending december 15 2005 company adopted provisions fin 47 fiscal year ended december 31 2005 adoption accounting pronouncement material effect company’s consolidated financial statements december 2004 fasb issued sfas 123 revised 2004 sharebased payment sfas 123r requires measurement recognition compensation expense stockbased payment awards made employees directors based estimated fair values sfas 123r supersedes company’s previous accounting apb 25 accounting stock issued employees periods beginning january 1 2006 march 2005 sec issued sab 107 sharebased note 1 accounting policies continued payment relating sfas 123r company applied provisions sab 107 adoption sfas 123r company adopted sfas 123r using modified prospective transition method requires application accounting standard january 1 2006 elected alternative method provided fsp 123r3 transition election related accounting tax effects sharebased payment awards determining company’s pool excess tax benefits company’s consolidated financial statements year ended december 31 2006 reflect impact sfas 123r accordance modified prospective transition method company’s consolidated financial statements prior periods restated reflect include impact sfas 123r stockbased compensation expense recognized sfas 123r year ended december 31 2006 112 million 73 million net tax 004 per share corresponding amount recorded additional paidin capital within stockholders’ equity additionally 10 million related performance awards reclassified liabilities stockholders’ equity connection adoption sfas 123r note 2 alliances investments sanofiaventis company agreements sanofiaventis sanofi codevelopment cocommercialization avaproavalide irbesartan angiotensin ii receptor antagonist indicated treatment hypertension diabetic nephropathy plavix clopidogrel platelet aggregation inhibitor worldwide alliance operates framework two geographic territories one americas principally us canada puerto rico latin american countries australia europe asia accordingly two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries general country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place agreements expire later respect plavix 2013 respect avaproavalide 2012 americas australia 2013 europe asia ii expiration patents exclusivity rights applicable territory company acts operating partner territory covering americas australia owns 501 majority controlling interest territory sanofi’s ownership interest territory 499 company consolidates country partnership results territory records sanofi’s share results minority interest net taxes 746 million 2007 428 million 2006 578 million 2005 company recorded sales territory comarketing countries territory covering europe asia 5958 million 2007 4355 million 2006 4805 million 2005 cash flows operating activities partnerships territory covering americas australia recorded operating activities within company’s consolidated statement cash flows distributions partnership profits sanofi’s funding ongoing partnership operations occur routine basis also recorded within operating activities company’s consolidated statement cash flows sanofi acts operating partner territory covering europe asia owns 501 majority financial controlling interest within territory company’s ownership interest partnerships within territory 499 company accounts investment partnership entities territory equity method records share results equity net income affiliates consolidated statement earnings company’s share net income partnership entities taxes 526 million 2007 439 million 2006 345 million 2005 company routinely receives distributions profits provides funding ongoing operations partnerships territory covering europe asia transactions recorded operating activities within company’s consolidated statement cash flows 2001 company sanofi companies formed alliance copromotion irbesartan part company contributed irbesartan distribution rights us sanofi paid company total 350 million two years ended december 31 2002 company accounted transaction sale interest license 350 million deferred amortized income expected useful life license approximately 11 years formation irbesartan copromotion alliance company recognized income 32 million 31 million 31 million 2007 2006 2005 respectively unamortized portion deferred income recorded liabilities section consolidated balance sheet 154 million 186 million december 31 2007 2006 respectively note 2 alliances investments continued following summarized financial information company’s equity investments partnership sanofi territory covering europe asia otsuka company worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote otsuka abilify aripiprazole treatment schizophrenia related psychiatric disorders except japan china taiwan north korea south korea philippines thailand indonesia pakistan egypt product currently copromoted otsuka united kingdom uk germany france spain us germany spain product invoiced thirdparty customers company behalf otsuka company records alliance revenue 65 contractual share thirdparty net sales records expenses related product company recognizes alliance revenue abilify shipped risks rewards ownership transferred thirdparty customers uk france italy company presently exclusive distributor product company records 100 net sales related cost products sold expenses company also exclusive right sell abilify countries europe americas number countries asia countries company records 100 net sales related cost products sold terms agreement company purchases product otsuka performs finish manufacturing sale company otsuka thirdparty customers agreement expires november 2012 us entire european union agreement expires june 2014 country company exclusive right sell abilify agreement expires later 10th anniversary first commercial sale country expiration applicable patent country company recorded total revenue abilify 1660 million 2007 1282 million 2006 912 million 2005 total milestone payments made otsuka agreement december 2007 217 million 157 million expensed acquired inprocess research development 1999 remaining 60 million capitalized intangible assets amortized cost products sold remaining life agreement us ranging 8 11 years company amortized cost products sold 6 million 2007 2006 2005 unamortized capitalized payment balance 29 million 35 million december 31 2007 2006 respectively imclone company commercialization agreement expiring september 2018 imclone systems incorporated imclone biopharmaceutical company focused developing targeted cancer treatments codevelopment copromotion erbitux us 2004 us food drug administration fda approved biologics license application erbitux use combination irinotecan treatment patients epidermal growth factor receptor egfrexpressing metastatic colorectal cancer mcrc refractory irinotecanbased chemotherapy use single agent treatment patients egfrexpressing mcrc intolerant irinotecanbased chemotherapy march 2006 fda approved erbitux use treatment squamous cell carcinoma head neck combination radiation monotherapy company paid 250 million milestone payment imclone fda approvals 2004 2006 agreement imclone receives distribution fee based flat rate 39 net sales north america october 2007 company imclone amended codevelopment agreement merck kgaa provide cocommercialization erbitux japan expires 2032 imclone ability terminate agreement 2018 determine commercially unreasonable continue erbitux yet marketed japan although application submitted japanese pharmaceuticals medical devices agency use erbitux treating patients advanced colorectal cancer company accounts 500 million total approval milestones paid 2004 2006 license acquisitions amortizes payments cost products sold remaining term agreement ends 2018 2007 2006 2005 company amortized cost products sold 38 million 34 million 17 million respectively unamortized portion approval payments recorded intangible assets 397 million 435 million december 31 2007 2006 respectively note 2 alliances investments continued company accounts investment imclone equity method records share results equity net income affiliates consolidated statement earnings company’s recorded investment market value holdings imclone common stock 114 million approximately 619 million december 31 2007 respectively 109 million approximately 385 million december 31 2006 respectively company holds 144 million shares imclone stock representing approximately 17 imclone’s shares outstanding december 31 2007 2006 per share basis carrying value imclone investment closing market price imclone shares december 31 2007 792 4300 respectively compared 759 2676 respectively december 31 2006 company determines equity share imclone’s net income loss eliminating imclone’s results milestone revenue imclone recognizes 400 million preapproval milestone payments made company 2001 2003 company recorded 80 million preapproval milestone payments equity investment expensed remaining 320 million acquired inprocess research development period milestone revenue recognized imclone excess 400 million eliminated company determining equity share imclone’s results share imclone’s results operations company recorded net income 7 million 2007 net income 43 million 2006 net loss 5 million 2005 company recorded net sales erbitux 692 million 2007 652 million 2006 413 million 2005 gilead 2004 company gilead sciences inc gilead entered joint venture develop commercialize fixeddose combination company’s sustiva efavirenz gilead’s truvada emtricitabine tenofovir disoproxil fumarate us july 2006 fda granted approval atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg treatment human immunodeficiency virus infection adults september 2006 companies amended agreements commercialize atripla canada atripla approved health canada october 2007 european commission december 2007 commercialization 27 countries eu well norway iceland gilead records 100 atripla revenues consolidates results joint venture operating results company records revenue bulk efavirenz component atripla upon sales product joint venture gilead thirdparty customers company’s revenue efavirenz component determined applying percentage atripla revenue approximates revenue sustiva brand company recorded efavirenz revenues 335 million 2007 76 million 2006 respectively related atripla sales company accounts participation joint venture equity method accounting records share joint venture results equity net income affiliates consolidated statement earnings company recorded equity loss joint venture gilead 9 million 2007 6 million 2006 4 million 2005 astrazeneca january 2007 company entered two worldwide except japan codevelopment cocommercialization agreements astrazeneca plc astrazeneca one codevelopment cocommercialization saxagliptin dppiv inhibitor saxagliptin agreement one codevelopment cocommercialization dapagliflozin sodiumglucose contransporter2 sglt2 inhibitor sglt2 agreement compounds studied treatment diabetes discovered company terms agreements company received astrazeneca upfront payment 100 million january 2007 deferred recognized useful life products income company amortized income 7 million upfront payments 2007 unamortized portion upfront payment 93 million december 31 2007 milestone payments expected received company upon successful achievement various development regulatory events well salesrelated milestones saxagliptin agreement company could receive 300 million development regulatory milestones met additional 300 million salesbased milestones met sglt2 agreement company could receive 350 million development regulatory milestones met additional 300 million salesbased milestones met agreement company astrazeneca also share development commercialization costs majority development costs initial development plans 2009 paid astrazeneca additional development costs generally shared equally company records development costs related saxagliptin dapagliflozin net astrazeneca’s share research development expenses agreement two companies jointly develop clinical marketing strategy share commercialization expenses profitslosses equally global basis excluding japan company manufacture products pfizer april 2007 company pfizer inc pfizer entered worldwide codevelopment cocommercialization agreement apixaban anticoagulant discovered company studied prevention treatment broad range venous arterial thrombotic conditions accordance terms agreement pfizer made upfront payment 250 note 2 alliances investments continued million company may 2007 deferred recognized life agreement income december 2007 company pfizer agreed include japan worldwide agreement connection japan agreement pfizer made additional upfront payment 40 million december 2007 deferred recognized useful life product income company amortized income 11 million two upfront payments 2007 unamortized portion upfront payment 279 million december 31 2007 pfizer fund 60 development costs effective january 1 2007 going forward company fund 40 company records apixaban development costs net pfizer’s share research development expenses company may also receive additional payments 780 million pfizer based development regulatory milestones companies jointly develop clinical marketing strategy share commercialization expenses profitslosses equally global basis manufacture product arrangement note 3 restructuring 2007 activities december 2007 company announced threeyear plan fundamentally change way runs business meet challenges changing business environment take advantage diverse opportunities marketplace company transformed nextgeneration biopharmaceutical company previously announced pti company aims achieve culture continuous improvement enhance efficiency effectiveness competitiveness substantially improve cost base 2007 company recorded pretax charges 189 million relating termination benefits related costs workforce reductions approximately 2800 manufacturing selling administrative personnel across geographic regions charges offset 6 million adjustments reflecting changes estimates restructuring actions taken prior periods following table presents detail charges segment type company expects substantially complete activities end 2008 2006 activities 2006 company recorded pretax charges 73 million relating termination benefits related costs workforce reductions approximately 1080 selling operating administrative personnel primarily north america europe asia latin america charges decreased 14 million adjustments reflecting changes estimates restructuring actions taken prior periods following table presents detail charges segment type company expects substantially complete activities 2008 note 3 restructuring continued 2005 activities 2005 company recorded pretax charges 33 million relating termination benefits related costs workforce reductions approximately 640 selling administrative personnel primarily north america latin america europe africa asia charge includes restructuring us cardiovascularmetabolics primary care sales organization charges offset 1 million adjustments reflecting changes estimates restructuring actions taken prior periods following table presents detail charges segment type company substantially completed restructuring activities 2006 restructuring charges spending liabilities associated prior current actions follows addition charges company recorded 110 million 186 million 110 million accelerated depreciation fixed asset impairment charges primarily related rationalization manufacturing network 2007 2006 2005 respectively charges primarily recorded cost products sold consolidated statement operations primarily related pharmaceuticals segment note 4 acquisitions divestitures october 2007 company completed acquisition adnexus therapeutics inc adnexus developer new therapeutic class biologics called adnectins net purchase price 415 million addition event certain future development regulatory milestones achieved company obligated terms agreement pay former stockholders adnexus additional 74 million net purchase price acquisition preliminarily allocated tangible identifiable intangible assets acquired liabilities assumed based estimated fair values acquisition date 415 million 230 million allocated acquired inprocess research development immediately expensed 27 million assigned identifiable intangible assets predominantly related existing process technology used future discovery excess purchase price associated transaction costs estimated fair values net assets acquired recorded goodwill acquisition accounted purchase method accordingly results operations included accompanying consolidated financial statements date acquisition pro forma supplemental financial information 2007 included impact business combination material july 2007 company completed sale bufferin excedrin brands japan asia excluding china taiwan certain oceanic countries lion corporation japan 247 million cash result transaction company recognized pretax gain 247 million 144 million net tax third quarter 2007 january 2006 company completed sale inventory trademark patent intellectual property rights us related dovonex treatment psoriasis warner chilcott company inc 200 million cash addition company received royalty based 5 net sales dovonex end 2007 result transaction company recognized pretax gain 200 million 130 million net tax first quarter 2006 note 4 acquisitions divestitures continued third quarter 2005 company completed sale us canadian consumer medicines consumer medicines business related assets novartis ag novartis terms agreement novartis acquired trademarks patents intellectual property rights consumer medicines 661 million cash including impact working capital adjustment 15 million attributable postclosing supply arrangement company novartis related assets include rights us consumer medicines brands latin america europe middle east africa results operations consumer medicines included company’s consolidated statement earnings date disposal result transaction company recorded pretax gain 569 million 370 million net tax third quarter 2005 note 5 discontinued operations assets held sale december 2007 company entered definitive agreement avista capital partners lp avista sale medical imaging business purchase price approximately 525 million cash subject customary postclosing adjustments closing transaction completed january 7 2008 company expects recognize pretax gain approximately 20 million 40 million 30 million 50 million loss net tax first quarter 2008 subject postclosing adjustments results medical imaging business previously included former health care operating segment included incomeloss discontinued operations net tax periods presented net assets associated medical imaging business totaling approximately 483 million well assets totaling 42 million reclassified assets held sale december 31 2007 period time company continue generate cash flows report income statement activity incomeloss discontinued operations net tax associated medical imaging business activities give rise cash flows income statement activities transitional nature generally result agreements ensure facilitate orderly transfer business operations agreements include services accounting customer service distribution manufacturing activities expected material company’s results operations cash flows agreements extend periods generally less 24 months majority ranging 3 6 months following assets liabilities segregated classified assets held sale liabilities related assets held sale appropriate consolidated balance sheet december 31 2007 assets liabilities relate medical imaging business described totaling 483 million well assets totaling 42 million balances december 31 2006 reclassified amounts presented adjusted exclude cash intercompany receivables payables business held sale company excluded divestiture addition goodwill december 31 2007 2 million excluded following summary net assets held sale considered determining gain sale 2008 may 2005 company completed sale oncology therapeutics network otn one equity partners llc cash proceeds 197 million including impact preliminary working capital adjustment company recorded pretax gain 63 million 13 million net tax presented gain sale discontinued operations consolidated statement earnings otn previously presented separate segment note 5 discontinued operations assets held sale continued following summarized financial information related medical imaging otn businesses segregated continuing operations reported discontinued operations date disposition reflect costs certain services provided medical imaging otn company costs allocated company medical imaging otn services included legal counsel insurance external audit fees payroll processing certain human resource services information technology systems support consolidated statement cash flows includes medical imaging otn businesses date disposition company uses centralized approach cash management financing operations accordingly debt allocated business note 6 earnings per share numerator basic earnings per share net earnings available common stockholders numerator diluted earnings per share net earnings available common stockholders interest expense added back assumed conversion convertible debt common stock denominator basic earnings per share weightedaverage number common stock outstanding period denominator diluted earnings per share weightedaverage shares outstanding adjusted effect dilutive stock options assumed conversion convertible debt common stock computations basic diluted earnings per common share follows weightedaverage shares issuable upon exercise stock options included diluted earnings per share calculation antidilutive 107 million 2007 164 million 2006 156 million 2005 respectively 2007 2006 29 million weightedaverage shares issuable well 38 million 35 million respectively interest expense net tax assumed conversion convertible debt included diluted earnings per share calculation antidilutive note 7 expense net components expense net follows 2007 interest expense increased net interest swap losses 13 million 2006 interest expense increased net interest swap losses 18 million 2005 interest expense reduced net interest swap gains 54 million net includes income thirdparty contract manufacturing royalty income expense debt retirement costs impairment marketable securities gains losses disposal property plant equipment gains losses sale marketable securities insurance recoveries deferred income recognized certain litigation matters see “item 8 financial statementsnote 18 financial instruments” additional discussion terminated swap contracts note 8 income taxes components earnings loss continuing operations minority interest income taxes follows amounts categorized based location taxing authorities provisionbenefit income taxes attributable continuing operations consisted note 8 income taxes continued effective tax rate company’s provision income taxes 2007 2006 2005 different amount computed applying statutory us federal income tax rate earnings continuing operations minority interest income taxes result following effective income tax rate earnings continuing operations minority interest income taxes 227 2007 compared 224 2006 202 2005 2007 tax rate unfavorably impacted impairment company’s investment certain auction rate securities ars tax benefit nondeductible writeoff acquired inprocess research development expenses related acquisition adnexus partially offset tax benefit 105 million first quarter 2007 due favorable resolution certain tax matters us internal revenues service irs related deductibility litigation settlement expenses impact foreign tax credits effective tax rate 2006 unfavorably impacted elimination tax benefits section 936 internal revenue code treatment provisions portion certain litigation reserves nondeductible partially offset favorable us tax legislation enacted 2006 related tax treatment certain intercompany transactions amongst company’s foreign subsidiaries implementation tax planning strategies related utilization certain charitable contributions increase 2006 effective tax rate 2005 primarily due aforementioned section 936 benefit elimination treatment provisions portion certain litigation reserves nondeductible tax benefits 2005 associated settlement irs examination favorable adjustment 2005 taxes special dividends american jobs creation act 2004 partially offset favorable us tax legislation enacted 2006 related tax treatment certain intercompany transactions amongst company’s foreign subsidiaries implementation tax planning strategies 2006 related utilization certain charitable contributions note 8 income taxes continued deferred taxes valuation allowance components current noncurrent deferred income tax assets liabilities follows company recorded significant deferred tax assets december 31 2007 related us foreign tax credit carryforwards approximately 1140 million us research tax credit carryforwards approximately 275 million charitable contribution carryforwards 80 million charitable contribution carryforwards expire varying amounts beginning 2009 foreign tax credit research tax credit carryforwards expire varying amounts beginning 2012 foreign tax credit research tax credit reduced due derecognition fin 48 realization credits charitable contribution carryforwards dependent generating sufficient domestic taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions pti increasing biologics manufacturing capacity us implementing tax planning strategies increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit charitable contribution carryforwards company also recorded deferred tax assets related foreign net operating loss carryforwards 1461 million december 31 2007 increase 1265 million compared 196 million december 31 2006 primarily due international reorganization two company’s foreign affiliates operating loss carryforwards related international reorganization fully offset establishment valuation allowance 1261 million reflecting company’s view loss carryfowards expected realized valuation allowance 1950 million december 31 2007 relates 72 million state deferred tax assets 1448 million foreign net operating loss tax credit carryforwards 426 million state net operating loss tax credit carryforwards company believes likely realized 4 million state deferred tax assets related adnexus acquisition offset goodwill income taxes paid year 994 million 741 million 1556 million 2007 2006 2005 respectively october 2007 company filed refund claim irs years 2000 2001 carry back foreign tax credits recover taxes paid 2000 2001 principal amount refund claim approximately 334 million fourth quarter 2007 company accrued interest income refund claim approximately 45 million net federal benefit reflected provision income taxes note 8 income taxes continued current tax benefit realized upon exercise stock options credited capital excess par value stock amounted 5 million 10 million 19 million 2007 2006 2005 respectively december 31 2007 company approximately 141 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated us company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided company conducts business various countries throughout world subject tax numerous jurisdictions result business activities company files significant number tax returns subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported company may require several years resolve company establishes liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation company adopted provisions fin 48 january 1 2007 resulting recognition 27 million previously unrecognized tax benefits accounted increase opening balance retained earnings reconciliation company’s changes uncertain tax positions january 1 2007 december 31 2007 follows uncertain tax benefits december 31 2007 recorded company’s deferred tax assets extent uncertainty directly related asset otherwise recorded either current noncurrent income tax payable previously reported upon adoption fin 48 company’s total amount uncertain tax benefits january 1 2007 net deferred income tax benefits excluding interest penalties 960 million addition company derecognized upon adoption 180 million unrecognized tax benefits tax rate impact settled gross unrecognized tax benefits january 1 2007 1140 million note 8 income taxes continued included balance unrecognized tax benefits 242 million uncertain tax positions january 1 2007 264 million december 31 2007 ultimate deductibility highly certain uncertainty timing deductibility impact deferred tax accounting interest penalties applicable disallowance shorter deductibility period would affect annual effective tax rate would accelerate payment cash taxing authority utilization tax attributes earlier period amounts unrecognized tax benefits recognized would impact effective tax rate 898 million january 1 2007 794 million december 31 2007 company classifies interest penalties related unrecognized tax benefits income tax expense amounts reflected separately reconciliation total amount interest penalties related uncertain tax positions recognized statement earnings 2007 59 million interest 5 million penalties total amount interest penalties related uncertain tax positions recognized balance sheet december 31 2007 81 million interest 27 million penalties company currently examination number tax authorities including major tax jurisdictions listed table proposed adjustments tax issues transfer pricing certain tax credits deductibility certain expenses company estimates reasonably possible balance unrecognized tax benefits december 31 2007 decrease range approximately 175 million 215 million next twelve months result anticipated effective settlement certain tax audits jurisdictions listed settlements involve payment additional taxes adjustment certain deferred taxes andor recognition tax benefits company also anticipates reasonably possible new issues raised tax authorities may require increases balance unrecognized tax benefits however estimate increases cannot made company believes adequately provided open tax years tax jurisdiction fin 48 company files income tax returns us federal jurisdiction various state foreign jurisdictions exceptions company subject us federal state local nonus income tax examinations tax authorities following summary major tax jurisdictions tax authorities may assert additional taxes company based upon tax years currently audit subsequent years likely audited note 9 cash equivalents marketable securities cash equivalents december 31 2007 2006 primarily consisted bank deposits time deposits money market funds cash equivalents primarily highly liquid investments original maturities three months less time purchase recorded cost approximates fair value company maintains cash equivalent balances us dollars foreign currencies subject currency rate risk marketable securities december 31 2007 consisted us dollardenominated floating rate securities frs primarily ‘aaaaaa’ rated frs longterm debt securities coupons reset periodically benchmark interest rate underlying assets company’s frs consist primarily investment grade corporate bonds loans company accounts marketable securities accordance sfas 115 accounting certain investments debt equity securities classifies “available sale” carrying value frs reduced 25 million 362 million 337 million december 31 2007 reflecting change fair market value company assessed decline fair market value temporary recorded pretax 25 million reduction 16 million net tax shareholders’ equity accumulated oci addition december 31 2007 company 811 million principal invested ars held company private placement securities longterm nominal maturities interest rates reset dutch auction month monthly auctions historically provided liquid market securities company’s investments ars represent interests collateralized debt obligations supported pools residential commercial mortgages credit cards insurance securitizations structured credits including corporate bonds underlying collateral ars held company consists subprime mortgages consistent company’s investment policy guidelines ars investments held company aaaaaa credit ratings time purchase liquidity issues experienced global credit capital markets ars held company december 31 2007 experienced multiple failed auctions amount securities submitted sale exceeded amount purchase orders addition fourth quarter 2007 79 million principal invested ars held company downgraded others placed credit watch securities retained least one aaa rating december 31 2007 estimated market value company’s ars holdings december 31 2007 419 million reflects 392 million adjustment principal value 811 million although ars continue pay interest according stated terms based valuation models analysis otherthantemporary impairment factors company recorded pretax impairment charge 275 million fourth quarter 2007 reflecting portion ars holdings company concluded otherthantemporary decline value addition company recorded unrealized loss 117 million pretax net tax accumulated oci reduction shareholders’ equity reflecting adjustments ars holdings company concluded temporary decline value 275 million impairment charge material impact company’s liquidity financial flexibility ars classified prior periods current assets marketable securities given failed auctions company’s ars illiquid successful auction accordingly entire amount remaining ars reclassified marketable securities noncurrent assets marketable securities december 31 2006 consisted us dollardenominated ars frs principal values ars frs 1462 million 466 million respectively company’s carrying value ars frs december 31 2006 principal value approximates fair value following tables summarize company’s available sale debt securities december 31 2007 december 31 2006 company recorded pretax otherthantemporary impairment charge 275 million earnings december 31 2007 related securities note 9 cash equivalents marketable securities continued contractual maturities carrying value availableforsale debt securities december 31 2007 follow 2007 2006 2005 company purchased 199 billion 307 billion 285 billion debt securities respectively sold 206 billion 315 billion 295 billion debt securities respectively purchase sale value debt securities approximated principal value security note 10 receivables major categories receivables follows miscellaneous receivables 2007 2006 include 824 million 647 million respectively receivables alliance partners miscellaneous receivables 2007 also included 472 million income tax refund claims additional information company’s alliance partners see “note 2 alliances investments” note 11 inventories major categories inventories follows note 12 property plant equipment major categories property plant equipment follows capitalized interest 35 million 18 million 9 million years ended december 31 2007 2006 2005 respectively included categories property plant equipment shown note 13 goodwill changes carrying amount goodwill years ended december 31 2007 2006 follows goodwill 156 million recorded 2007 pharmaceuticals segment result acquisition adnexus medical imaging goodwill 2 million reported discontinued operations written part pretax gain disposal 2008 discussion acquisitions see “note 4 acquisitions divestitures” note 14 intangible assets december 31 2007 2006 intangible assets consisted following note 14 intangible assets continued included decrease patentstrademarks technology 273 million reclassification medical imaging assets held sale amortization expense intangible assets years ended december 31 2007 2006 2005 350 million 363 million 352 million respectively includes 65 million 67 million 68 million amortization expense related medical imaging discontinued operations years ended december 31 2007 2006 2005 respectively expected amortization expense related current net carrying amount intangible assets follows note 15 shortterm borrowings longterm debt shortterm borrowings end 2007 2006 19 billion 187 million respectively longterm debt 44 billion december 31 2007 compared 72 billion december 31 2006 2007 company reclassified longterm debt shortterm borrowings 108 million 110 yen notes due 2008 31 million 143 yen notes due 2008 400 million 400 notes due 2008 associated unamortized discount interest rate swap valuation 12 billion floating rate convertible debentures due 2023 2008 putcall september 2007 company repaid 13 billion remaining balance fiveyear tranche floating rate bank term facility due 2010 fourth quarter 2006 company restructured longterm debt retiring outstanding 25 billion 575 notes due 2011 cash tender offer subsequent redemption issuing 500 million 641 million inception aggregate principal amount 4375 notes due 2016 500 million 641 million inception aggregate principal amount 4625 notes due 2021 well 125 billion aggregate principal amount 5875 notes due 2036 resulted 220 million pretax expense comprised items discussed premium paid debt tender make whole 72 million 24 million respectively addition company recognized earnings 12 million unamortized discount debt issuance costs associated 2011 debt incurred pretax loss 62 million related termination remaining 20 billion notional amount 2011 fixedtofloating interest rate swap agreements recognized earnings pretax unamortized portion 18 million aforementioned loss incurred termination 500 million notional amount 2011 fixedtofloating interest rate swaps occurred june 2005 furthermore november 2006 company recognized earnings accumulated oci pretax unamortized portion 32 million 21 million net tax loss incurred 2011 settlement interest rate lock contracts used manage exposure changes interest rates anticipated issuance 2011 longterm fixed rate debt december 2006 company replaced prior 2 billion revolving credit facility new 2 billion fiveyear revolving credit facility syndicate lenders extendable anniversary date consent lenders facility contains customary terms conditions substantially similar prior facility including financial covenant whereby ratio consolidated debt consolidated capital cannot exceed 50 end quarter company compliance covenant since inception new facility borrowings outstanding revolving credit facility december 31 2007 company unused shortterm lines credit available trade finance facilities foreign banks 109 million 402 million december 31 2007 2006 respectively note 15 shortterm borrowings longterm debt continued components longterm debt follows 1 company’s outstanding 12 billion convertible debentures pay interest quarterly annual rate equal threemonth libor reset quarterly minus 050 yield never less zero final maturity september 15 2023 debentures callable par time september 21 2008 issuer holders also redeem debentures par september 15 2008 2013 2018 fundamental change ownership company occurs bond initial conversion price 4128 conversion rate 242248 shares adjustable depending average closing prices applicable period maximum conversion rate 387597 shares company entered fixed floating interest rate swaps 41 billion us dollar value december 31 2007 longterm debt 2006 conjunction new issuance 125 billion 5875 notes due 2036 10 billion notes 13 billion inception company executed several fixed floating interest rate swaps convert new fixed rate debt paid 2016 2021 2036 variable rate debt years ended december 31 2007 2006 company realized net increases interest expense 13 million 18 million respectively result higher floating rates obtained swap agreements november 2006 connection early retirement outstanding 25 billion 575 notes due 2011 company terminated remaining 20 billion notional amount 2011 fixed floating interest rate swap agreements incurred pretax loss 62 million april 2005 connection early redemption 25 billion notes due 2006 company terminated 2 billion notional amount 2006 fixedtofloating interest rate swap agreements incurred pretax loss 28 million june 2005 company terminated 500 million notional amount 2011 fixedtofloating interest rate swap agreements related 25 billion notes due 2011 incurred pretax loss 23 million loss amortized interest expense 3 million 2 million recognized 2006 2005 respectively remaining loss 18 million together 62 million loss incurred unwind 20 billion swap fully recognized 2006 september 2005 company terminated 350 million notional amount 2026 fixedtofloating interest rate swap agreements related 350 million debentures due 2026 pretax gain 39 million gain recognized interest expense remaining life debentures due 2026 approximately 1 million pretax recognized 2007 2006 cash payments interest including payments due interest rate swaps 610 million 682 million 598 million 2007 2006 2005 respectively company’s cash receipts interest rate swaps 210 million 205 million 275 million 2007 2006 2005 respectively excluded cash payments interest 2 2008 obligations included shortterm borrowings company’s consolidated balance sheet december 31 2007 balances approximate outstanding nominal longterm debt values company’s convertible debenture included due payment 2008 contains 2008 put call feature described note 15 shortterm borrowings longterm debt continued december 31 2007 company provided total 236 million financial guarantees form standby letters credit performance bonds standby letters credit insurance companies support thirdparty liability programs performance bonds issued support range ongoing operating activities including sale company products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority company’s outstanding financial guarantees expire within year expected funded note 16 stockholders’ equity changes common shares treasury stock capital excess par value stock restricted stock follows share company’s preferred stock convertible 1696 shares common stock callable company’s option reductions number issued shares preferred stock 2007 2006 2005 due conversions shares common stock dividends declared per common share 115 2007 112 2006 112 2005 accumulated balances related component oci net taxes follows note 17 employee stock benefit plans employee stock plans may 1 2007 stockholders approved company’s 2007 stock award incentive plan 2007 plan 2007 plan replaced 2002 stock incentive plan 2002 plan expired may 31 2007 plan provides 42 million new shares common stock reserved delivery participants plus shares remaining available new grants 2002 plan shares recaptured outstanding awards 2002 plan number shares actually delivered participants connection award restrictions lapsed counted number shares reserved shares tendered prior year pay purchase price options number shares previously utilized satisfy withholding tax obligations upon exercise continue available reserved december 31 2007 352 million shares common stock reserved issuance pursuant stock plans options conversions preferred stock 98 million 39 million shares available granted active plans december 31 2007 2006 respectively adjusted combination plans company’s 2007 plan 2002 plan executive officers key employees may granted options purchase company’s common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years generally company issues shares stock option exercise treasury stock additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price 2007 plan 2002 plan provide granting common stock key employees subject restrictions continuous employment restrictions generally expire fouryear period date grant compensation expense recognized restricted period first quarter 2007 company began granting restricted stock units instead restricted stock 2007 plan 2002 plan also incorporate company’s longterm performance awards delivered form target number performance shares threeyear cycle 2007 2009 awards annual goals set beginning performance period based 50 earnings per share 50 sales maximum performance result maximum payout 220 goals 2005 2007 2006 2008 awards set threeyear period based 50 cumulative earnings per share 50 cumulative sales ultimate payout modified company’s total stockholder return versus 11 companies proxy peer group maximum performance three measures result maximum payout 253 target threshold targets met performance period payment made plan teamshare stock option plan terminated january 3 2005 fulltime employees excluding key executives granted options purchase company’s common stock market price date options granted company authorized 66 million shares issuance plan individual grants generally became exercisable evenly third fourth fifth anniversary grant date maximum term 10 years options 356 million shares exercised plan december 31 2007 company’s results operations years ended december 31 2007 2006 reflect impact sfas 123r includes impact expensing stock options company elected alternative method provided fsp 123r3 determining company’s pool excess tax benefits results operations year ended december 31 2005 restated reflect impact expensing stock options prepared accordance apb 25 following table summarizes stockbased compensation expense net tax related employee stock options restricted stock longterm performance awards years ended december 31 2007 2006 2005 note 17 employee stock benefit plans continued table reflects pro forma net income diluted net income per share year ended december 31 2005 stock options summary option activities follows note 17 employee stock benefit plans continued information related stock option grants exercises 2007 plan 2002 plan summarized follows december 31 2007 104 million total unrecognized compensation cost related stock options expected recognized weightedaverage period 25 years following tables summarize information concerning company’s stock compensation plans currently outstanding exercisable options 1 shares plan longer issued following table summarizes significant ranges outstanding exercisable options december 31 2007 amounts millions except per share data aggregate intrinsic value preceding table represents total pretax intrinsic value based company’s closing stock price 2652 december 31 2007 would received option holders option holders exercised options date total number inthemoney options exercisable december 31 2007 28 million december 31 2006 123 million outstanding options exercisable weightedaverage exercise price 4203 note 17 employee stock benefit plans continued fair value employee stock options granted 2007 estimated date grant prior january 1 2006 estimated using weightedaverage estimated per option value granted using blackscholes option pricing model following assumptions company derived expected volatility assumption required blackscholes model calculating 10year historical volatility weighting equally derived implied volatility consistent sfas 123r sab 107 prior 2006 company used historical stock price volatility accordance sfas 123 purposes pro forma information selection blended historical implied volatility approach based company’s assessment calculation expected volatility representative future stock price trends using historical volatility riskfree interest rate assumption based upon us treasury yield curve effect time grant dividend yield assumption based company’s history expectation dividend payouts expected life employee stock options represents weightedaverage period stock options expected remain outstanding derived output latticebinomial model expected life employee stock options impacted underlying assumptions calibration company’s model latticebinomial model assumes employees’ exercise behavior function option’s remaining vested life extent option inthemoney latticebinomial model estimates probability exercise function two variables based entire history exercises cancellations past option grants made company prior 2006 company used optionpricing model indirectly estimate expected life stock options expected life expected volatility stock options based upon historical economic data trended future forfeitures employee stock options accounted asincurred basis stockbased compensation expense recognized consolidated statement earnings 12 months ended december 31 2007 2006 based awards ultimately expected vest reduced estimated forfeitures sfas 123r requires forfeitures estimated time grant revised necessary subsequent periods actual forfeitures differ estimates forfeitures estimated based historical experience company’s pro forma information required sfas 123 periods prior 2006 company accounted forfeitures occurred company acquired adnexus october 19 2007 part acquisition agreement company assumed 24 million shares adnexus incentive stock options isos replaced 06 million shares company isos converted options retain original vesting schedules including vesting commencement date well expiration date blackscholes model used determine expected term individual isos valuations result weightedaverage expected term 52 years weightedaverage fair value october 19 2007 2034 note 17 employee stock benefit plans continued restricted stock awards restricted stock units fair value nonvested shares company’s common stock determined based average trading price company’s common stock grant date restricted share activities follows december 31 2007 2006 145 million 126 million respectively total unrecognized compensation cost related nonvested restricted stock restricted stock units cost expected recognized weightedaverage period 26 years balance december 31 2007 275 years balance december 31 2006 total cost nonvested shares share units granted recognized compensation expense twelve months ended december 31 2007 2006 2005 53 million 34 million 27 million respectively total fair value shares share units vested 12 months ended december 31 2007 2006 2005 35 million 21 million 14 million respectively performance awards prior adoption sfas 123r compensation expense related performance awards determined based market price company’s stock time award applied expected number shares contingently issuable 100 amortized threeyear performance cycle since adoption sfas 123r fair value 2006 2008 performance award estimated date grant using monte carlo simulation model due market condition monte carlo simulation model utilizes multiple input variables determine probability satisfying market condition stipulated award grant calculates fair market value longterm performance awards 2007 2009 performance award contain market condition fair value based closing trading price company’s common stock grant date valuation model 2006 2008 award used following assumptions weightedaverage expected volatility based threeyear historical volatility levels company’s common stock expected dividend yield based historical dividend payments riskfree interest rate reflects yield fiveyear zero coupon us treasury bonds based performance shares’ contractual term fair value performance awards amortized performance period award note 17 employee stock benefit plans continued information related performance awards 2007 plan 2002 plan summarized follows december 31 2007 2006 11 million 2 million respectively total unrecognized compensation cost related performance share plan expected recognized weightedaverage period 18 years 20 years respectively accuracy fair value estimates company’s determination fair value stockbased payment awards date grant using optionpricing model affected company’s stock price well assumptions regarding number highly complex subjective variables include limited company’s expected stock price volatility term awards actual projected employee stock option exercise behaviors optionpricing models developed use estimating value traded options vesting hedging restrictions fully transferable company’s employee stock options certain characteristics significantly different traded options changes subjective assumptions materially affect estimated value management’s opinion existing valuation models may provide accurate measure fair value company’s employee stock options although fair value employee stock options determined accordance sfas 123r sab 107 using optionpricing model value may indicative fair value observed willing buyerwilling seller market transaction company adopted sfas 123r requires measurement recognition compensation expense stockbased payment awards made employees directors based estimated fair values sfas 123r supersedes company’s previous accounting apb 25 periods beginning january 1 2006 march 2005 sec issued sab 107 relating sfas 123r company applied provisions sab 107 adoption sfas 123r company adopted sfas 123r using modified prospective transition method requires application accounting standard january 1 2006 elected alternative method provided fsp 123r3 determining company’s pool excess tax benefits company’s consolidated financial statements year ended december 31 2006 reflect impact sfas 123r accordance modified prospective transition method company’s consolidated financial statements prior periods restated reflect include impact sfas 123r stockbased compensation expense recognized sfas 123r years ended december 31 2007 2006 133 million 112 million respectively 88 million 73 million net tax respectively 004 per share 004 per share respectively corresponding amount recorded additional paidin capital within stockholders’ equity additionally 2006 10 million related performance awards reclassified liabilities stockholders’ equity connection adoption sfas 123r note 18 financial instruments company exposed market risk due changes currency exchange rates interest rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used speculative purposes company’s primary net foreign currency translation exposures euro canadian dollar japanese yen mexican peso chinese renminbi company utilizes foreign currency contracts hedge anticipated transactions primarily intercompany transactions certain foreign currencies designates derivative instruments foreign currency cash flow hedges appropriate notional amounts company’s foreign exchange derivative contracts december 31 2007 2006 1656 million 1585 million respectively derivatives majority qualify hedges future anticipated cash flows effective portion changes fair value temporarily deferred accumulated oci recognized earnings hedged item affects earnings table summarizes company’s outstanding foreign exchange forward contracts december 31 2007 fair value foreign exchange forward contracts based yearend currency rates fair value foreign exchange forward contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates 1 nonqualifying hedges qualify hedge accounting treatment prescribed sfas 133 accounting derivative instruments hedging activities december 31 2007 company held foreign exchange option contracts buy sell japanese yen total notional fair market value buy contracts 145 million 1 million respectively fully offset total notional fair market value sell contracts 145 million 1 million respectively 2007 2006 2005 company reclassified pretax deferred losses 56 million 18 million 130 million respectively accumulated oci earnings majority classified cost products sold december 31 2007 balance deferred losses foreign exchange forward contracts included accumulated oci pretax basis 54 million 37 million net tax expected reclassified earnings within next 12 months note 18 financial instruments continued sfas no133 requires company perform periodic assessments hedge effectiveness assessments determine whether derivatives designated qualifying hedges continue highly effective offsetting changes cash flows hedged items ineffective portion fair value longer deferred accumulated oci included current period earnings years ended december 31 2007 2006 impact hedge ineffectiveness earnings significant additionally years ended december 31 2007 2006 impact discontinued hedges pretax loss 12 million pretax loss 10 million respectively furthermore company uses foreign exchange forward contracts offset exposure certain currency assets liabilities earnings denominated certain foreign currencies foreign exchange forward contracts designated hedges therefore changes fair value derivatives recognized earnings income net occur notional fair value amounts foreign exchange forward contracts december 31 2007 described table foreign exchange forward contracts type outstanding december 31 2006 2007 impact foreign exchange forward contracts designated hedges pretax gain 4 million 2006 2005 amounts recognized earnings related types foreign exchange forward contracts qualify hedge accounting treatment significant fair value forward contracts net liability 47 million december 31 2007 16 million recorded noncurrent asset 63 million recorded current liability fair value forward contracts net liability 33 million december 31 2006 18 million recorded noncurrent asset 51 million recorded current liability fair value foreign exchange contracts based yearend currency rates blackscholes model case option contracts addition foreign exchange hedge contracts noted company utilizes forward contracts hedge foreign currencydenominated monetary assets liabilities primary objective forward contracts protect us dollar value foreign currencydenominated monetary assets liabilities effects volatility foreign exchange rates might occur prior receipt settlement us dollars foreign currencydenominated monetary assets liabilities primarily denominated euro forward contracts designated hedges marked market expense net notional fair value amount purchased foreign exchange forward contracts material december 31 2007 24 million 1 million asset respectively december 31 2006 notional fair value amounts sold foreign exchange forward contracts december 31 2007 22 million 1 million liability respectively december 31 2006 company also uses nonus dollar borrowings primarily €500 million notes due 2016 €500 million notes due 2021 hedge foreign currency exposures company’s net investment certain foreign affiliates nonus dollar borrowings designated hedges net investments effective portion foreign exchange gains losses hedges recorded part foreign currency translation component accumulated oci december 31 2007 2006 168 million 27 million losses respectively recorded foreign currency translation component accumulated oci company unhedged exposures net foreign currencydenominated assets liabilities approximately 19 billion 16 billion december 31 2007 2006 respectively primarily mexico japan uk china australia canada company uses derivative instruments part interest rate risk management strategy derivative instruments used comprised principally fixed floating rate interest rate swaps subject fairvalue hedge accounting treatment november 2006 connection funding retirement 2011 fixed rate debt company executed several fixed floating interest rate swaps convert 13 billion 1 billion 13 billion inception company’s newlyissued fixed rate debt paid 2016 2021 2036 variable rate debt total notional amounts outstanding interest rate swaps 26 billion 1 billion 15 billion december 31 2007 26 billion 1 billion 13 billion december 31 2006 accordance sfas 133 accounting derivative instruments hedging activities company recognized net increase interest expense 13 million 18 million 2007 2006 respectively net reduction interest expense 54 million 2005 impact interest rate swaps swap contracts well underlying debt hedged recorded fair value resulted increase noncurrent assets 72 million current liabilities 96 million reduction longterm debt 24 million december 31 2007 increase noncurrent assets 7 million current liabilities 57 million reduction longterm debt 50 million december 31 2006 swap contracts generally held maturity intended create appropriate balance fixed floating rate debt company swap contracts qualify fair value hedges terminated prior maturity dates reported part carrying value underlying debt amortized earnings remaining life debt swap contracts qualify cash flow hedges terminated reported accumulated oci amortized earnings remaining life debt following tables summarize interest rate swaps outstanding december 31 2007 2006 earnings impact terminated interest rate swap contracts 2007 2006 2005 note 18 financial instruments continued interest rate swaps outstanding earnings impact terminated interest rate swap contracts 1 underlying 2011 notes extinguished 2006 2 underlying 2006 notes extinguished 2005 3 underlying 2026 notes extinguished carrying amount company’s financial instruments includes cash equivalents accounts receivable accounts payable approximates fair value december 31 2007 2006 discussion cash equivalents marketable securities see “note 9 cash equivalents marketable securities” longterm debt difference fair value carrying value material note 19 segment information company organized three reportable segmentspharmaceuticals nutritionals convatec pharmaceuticals segment comprised global pharmaceutical international consumer medicines businesses nutritionals segment consists mead johnson primarily infant formula business children’s nutritional business convatec segment consists ostomy wound skin care business december 2007 company entered definitive agreement avista sale medical imaging business closing transaction completed january 2008 results medical imaging business previously included former health care operating segment included income discontinued operations net tax periods net assets associated medical imaging business totaling approximately 483 million well assets totaling 42 million reclassified assets held sale december 31 2007 included corporateother may 2005 company completed sale otn one equity partners llc results otn previously presented separate operating segment included income discontinued operations net tax year ended december 31 2005 results medical imaging business otn included tables third quarter 2005 company completed sale consumer medicines business included pharmaceuticals operating segment additional information sale consumer medicines see “note 4 acquisitions divestitures” note 19 segment information continued company’s products sold principally wholesale retail trade nationally internationally certain products also sold drug manufacturers hospitals clinics government agencies medical profession three wholesalers accounted approximately 19 16 12 respectively company’s total net sales 2007 2006 sales wholesalers accounted approximately 19 16 11 respectively company’s total net sales 2005 three wholesalers accounted 21 18 12 respectively company’s total net sales concentrated pharmaceuticals segment net sales company’s key products follows corporateother consists principally interest income interest expense certain administrative expenses allocations business segments certain corporate programs litigation expense impairment auction rate securities debt retirement costs gain sale businesses product assets deferred income recognized collaboration agreement restructuring charges corporateother assets include cash equivalents marketable securities assets discontinued operations certain assets note 19 segment information continued corporateother amounts include activities medical imaging business including capital expenditures 5 million 14 million 13 million 2007 2006 2005 respectively depreciation expense 9 million 10 million 7 million 2007 2006 2005 respectively geographic areas note 20 leases minimum rental commitments noncancelable operating leases primarily real estate motor vehicles effect december 31 2007 follows operating lease rental expense net sublease rental income 17 million 2007 21 million 2006 15 million 2005 166 million 2007 149 million 2006 150 million 2005 december 2006 company completed sale leaseback several administrative facilities new jersey 283 million resulted pretax gain transaction 154 million 145 million deferred reduce future lease rental costs lease periods ranging 8 12 years note 21 pension postretirement benefit plans company certain subsidiaries defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan us funding policy contribute amounts provide current service fund past service liability plan benefits based primarily participant’s years credited service compensation plan assets consist principally equity fixedincome securities company also provides comprehensive medical group life benefits substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside us net periodic benefit cost company’s defined benefit pension postretirement benefit plans included following components company recognized impact medicare prescription drug improvement modernization act 2003 2007 2006 2005 accordance fsp 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 recorded 11 million 2007 2006 2005 respectively reduction net periodic benefit costs note 21 pension postretirement benefit plans continued net actuarial loss prior service costbenefit amortized accumulated oci net periodic benefit costs 2007 140 million 11 million respectively pension benefits 6 million benefit 3 million respectively benefits estimated net actuarial loss prior service cost amortized accumulated oci net periodic benefit cost 2008 changes benefit obligations plan assets funded status amounts recognized balance sheet years ended december 31 2007 2006 company’s defined benefit postretirement benefit plans follows b company recognized impact medicare prescription drug improvement modernization act 2003 2007 2006 2005 accordance fsp 1062 recorded 98 million 94 million 2007 2006 respectively reduction accumulated postretirement benefit obligation several plans underfunded accrued benefit obligations exceeded accrued benefit liabilities december 31 2006 additional minimum liabilities established increase accrued benefit liabilities values underfunded accrued benefit obligations additional minimum liabilities totaled 232 million december 31 2006 prior adoption sfas 158 us unfunded benefit equalization plan several international plans liabilities reversed accumulated oci upon adoption sfas 158 note 21 pension postretirement benefit plans continued accumulated benefit obligation defined benefit pension plans 5417 million 5422 million december 31 2007 2006 respectively information related company’s pension plans december 31 follows attributable primarily unfunded us benefit equalization plan several plans international markets unfunded us benefit equalization plan provides pension benefits employees compensation irs limits cannot funded taxadvantaged manner additional information pertaining company’s pension postretirement plans follows weightedaverage assumptions used determine benefit obligations december 31 follows weightedaverage actuarial assumptions used determine net periodic benefit cost years ended december 31 follows december 31 2007 company’s expected longterm rate return us pension plan assets 875 target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income 875 approximated applying expected returns 9 public equity 15 private equity 6 fixed income target allocation actual historical returns also relevant annualized returns periods ended december 31 2007 82 10 years 104 15 years 106 20 years us pension plan assets represented approximately 75 total company pension plan assets december 31 2007 830 disclosed total company expected return assets 2007 875 us pension plans due impact international pension plans typically employ less aggressive asset allocation 875 expected return disclosed benefits 2007 relevant assets invested manner us pension plan assets international plan assets note 21 pension postretirement benefit plans continued assumed health care cost trend rates december 31 follows assumed health care cost trend rates effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects company’s asset allocation pension postretirement benefits december 31 2007 2006 follows company’s investment strategy emphasizes equities order achieve high expected returns long run low expense low required cash contributions us pension plans target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income maintained cash flow ie cash contributions benefit payments used rebalance back targets necessary investments well diversified within three major asset categories 30 us equity passively managed otherwise investments actively managed investment strategies international pension plans typically similar although asset allocations usually conservative bristolmyers squibb company common stock represents less 1 plan assets december 31 2007 2006 assets postretirement benefits commingled us pension plan assets therefore investment strategy identical described us pension plans contributions although minimum contributions required company made cash contributions us pension plans 238 million 235 million 318 million 2007 2006 2005 respectively company also plans make cash contribution us pension plans 2008 contributions made us pension plans company may make taxdeductible contributions 401h account retiree medical benefits equal portion pension normal cost contributions international pension plans 85 million 90 million 105 million 2007 2006 2005 respectively contributions international plans expected range 70 million 90 million 2008 note 21 pension postretirement benefit plans continued estimated future benefit payments following benefit payments mainly us pension plans reflect expected future service appropriate expected paid adoption sfas 158 company adopted sfas 158 fiscal year ended december 31 2006 resulting 1064 million reduction accumulated oci stockholders’ equity 767 million reduction total assets 297 million increase total liabilities impact adoption summarized follows savings plan principal defined contribution plan bristolmyers squibb savings investment program company’s contribution based employee contributions level company match company’s contributions plan 60 million 2007 56 million 2006 51 million 2005 termination indemnity plans company operates certain jurisdictions primarily europe require recording statutory termination obligations assessed accordance eitf issue 881 determination vested benefit obligation defined benefit pension plan total pension liability recorded obligations 70 million december 31 2007 75 million december 31 2006 note 22 legal proceedings contingencies various lawsuits claims proceedings investigations pending involving company certain subsidiaries accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated matters involve antitrust securities patent infringement pricing sales marketing practices environmental health safety matters consumer fraud employment matters product liability insurance coverage significant matters described assurance increase scope pending matters future lawsuits claims proceedings investigations material intellectual property plavix litigation plavix currently company’s largest product ranked net sales net sales plavix approximately 48 billion year ended december 31 2007 33 billion year ended december 31 2006 38 billion year ended december 31 2005 us net sales plavix 41 billion 2007 27 billion 2006 32 billion 2005 plavix patents subject number challenges us including litigation apotex inc apotex corp apotex described less significant markets product possible reasonably estimate impact lawsuits company however loss market exclusivity plavix sustained generic competition would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity company product partner sanofi companies intend vigorously pursue enforcement patent rights plavix litigation united states patent infringement litigation apotex related matters previously disclosed company’s us territory partnership alliance sanofi plaintiff pending patent infringement lawsuit instituted us district court southern district new york district court entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v apotex suit based us patent 4847265 ‘265 patent composition matter patent discloses claims among things hydrogen sulfate salt clopidogrel medicine made available us companies plavix plaintiffs’ infringement position based apotex’s filing abbreviated new drug application anda fda seeking approval sell generic clopidogrel bisulfate prior expiration composition matter patent 2011 apotex alleged patent invalid andor unenforceable previously disclosed march 2006 company sanofi announced executed proposed settlement agreement march agreement apotex settle pending patent infringement lawsuit response concerns expressed federal trade commission ftc state attorneys general parties modified march agreement modified agreement may 2006 july 2006 companies announced modified agreement failed receive required antitrust clearance state attorneys general august 8 2006 apotex launched generic version clopidogrel bisulfate august 31 2006 district court issued preliminary injunction ordering apotex halt sales generic clopidogrel bisulfate recall product customers june 19 2007 district court issued opinion order upholding validity enforceability ‘265 patent maintaining main patent protection plavix us november 2011 district court also ruled apotex’s generic clopidogrel bisulfate product infringed ‘265 patent permanently enjoined apotex engaging activity infringes ‘265 patent including marketing generic product us patent expires amount damages set later time apotex’s appeal district court’s decision pending us court appeals federal circuit hearing scheduled march 2008 district court stayed certain antitrust counterclaims brought apotex pending outcome appeal activities relating damages phase litigation continuing also previously disclosed company’s us territory partnership alliance sanofi also plaintiff three additional pending patent infringement lawsuits dr reddy’s laboratories inc dr reddy’s laboratories ltd dr reddy’s teva pharmaceuticals usa inc teva cobalt pharmaceuticals inc cobalt related ‘265 patent trial date action dr reddy’s set january 14 2008 dr reddy’s received final approval anda january 24 2008 court entered order requires dr reddy’s give company 10 business days notice intent launch patent infringement actions teva cobalt stayed pending resolution apotex litigation parties actions agreed bound outcome litigation apotex although teva cobalt appeal outcome litigation note 22 legal proceedings contingencies continued consequently july 12 2007 district court entered judgments cobalt teva permanently enjoined cobalt teva engaging activity infringes ‘265 patent expires cobalt teva filed appeal dr reddy’s teva cobalt filed anda fda exclusivity periods statutory stay periods hatchwaxman act expired accordingly final approval fda would provide company authorization distribute generic clopidogrel bisulfate product us subject various legal remedies companies may apply including injunctive relief damages previously disclosed march 2007 company served civil investigative demand ftc requesting documents information related proposed settlement addition previously disclosed april 2007 company received subpoena new york state attorney general’s office antitrust bureau documents related proposed settlement company cooperating fully investigations possible time reasonably assess outcomes investigations impact company also previously disclosed company’s us territory partnership alliance sanofi plaintiff another pending patent infringement lawsuit instituted us district court district new jersey entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v watson pharmaceuticals inc watson laboratories inc watson suit filed october 2004 based us patent 6429210 ‘210 patent discloses claims particular crystalline polymorph form hydrogen sulfate salt clopidogrel marketed plavix case discovery phase december 2005 court permitted watson pursue declaratory judgment counterclaim respect us patent 6504030 january 2006 court approved parties’ stipulation stay case pending outcome trial apotex matter april 2007 pharmastar filed request inter partes reexamination ‘210 patent us patent trademark office granted request july 2007 thus ‘210 patent currently reexamination possible time reasonably assess outcomes appeal apotex district court’s decision plavix patent litigations timing renewed generic competition plavix apotex additional generic competition plavix thirdparty generic pharmaceutical companies however apotex prevail appeal patent litigation company would expect face renewed generic competition plavix apotex promptly thereafter loss market exclusivity plavix andor sustained generic competition would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity additionally possible time reasonably assess amount damages could recovered company apotex’s ability pay damages event company prevails apotex’s appeal district court decision see “antitrust litigation” “shareholder derivative actions” “securities litigation” discussion certain us litigations relating plavix litigation international plavix canada apotex inc previously disclosed sanofisynthelabo canada inc instituted prohibition action federal court canada apotex inc minister health response notice allegation noa apotex directed canadian patent 1336777 ‘777 patent covering clopidogrel bisulfate apotex’s noa indicated filed abbreviated new drug submission ands clopidogrel bisulfate tablets sought approval notice compliance ands expiration ‘777 patent scheduled august 12 2012 apotex’s noa alleged ‘777 patent invalid infringed march 2005 canadian federal court ottawa rejected apotex’s challenge canadian plavix patent held asserted claims novel obvious infringed granted sanofi’s application order prohibition minister health apotex order prohibition precludes approval apotex’s ands patent expires 2012 unless federal court’s decision reversed appeal apotex filed appeal canadian federal court appeal heard december 1213 2006 december 2006 federal court appeal dismissed apotex’s appeal upheld federal court’s issuance order prohibition february 2007 apotex filed leave appeal decision supreme court canada july 2007 supreme court canada granted apotex leave appeal decision canadian federal court appeal biotecanada canadian generic pharmaceutical association canada’s researchbased pharmaceutical companies granted leave intervene oral hearing scheduled april 2008 also previously disclosed april 2007 apotex filed lawsuit canada ontario superior court justice entitled apotex inc apotex corp v sanofiaventis sanofisynthelabo inc bristolmyers squibb company bristolmyers squibb sanofi pharmaceuticals holding partnership seeking payment 60 million plus interest related breakup proposed settlement agreement defendants filed motions dismiss grounds forum non conveniens subject matter jurisdiction motions granted january 14 2008 note 22 legal proceedings contingencies continued plavix canada cobalt previously disclosed sanofi sanofisynthelabo canada instituted prohibition action federal court canada cobalt minister health response noa cobalt directed ‘777 patent canadian patent 2334870 ‘870 patent cobalt’s noa indicated filed ands clopidogrel bisulfate tablets sought notice compliance ands expiration ‘777 ‘870 patents cobalt alleged ‘777 patent invalid ‘870 patent invalid infringed case stayed pending outcome apotex appeal plavix korea previously disclosed june 2006 korean intellectual property tribunal kipt invalidated claims sanofi’s korean patent 103094 including claims directed clopidogrel pharmaceutically acceptable salts clopidogrel bisulfate sanofi appealed january 2008 patent court affirmed kipt decision company sanofi considering options including appeal sanofi also commenced infringement actions generic pharmaceutical companies several launched generic clopidogrel bisulfate product korea possible time reasonably assess outcome lawsuits impact company plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia august 2007 genrx filed application federal court australia seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 australian court granted sanofi’s injunction scheduled trial date april 2008 intellectual property litigation abilify previously disclosed otsuka filed patent infringement actions teva barr pharmaceuticals inc barr sandoz inc sandoz synthon laboratories inc synthon sun pharmaceuticals sun apotex relating us patent 5006528 covers aripiprazole expires october 2014 aripiprazole comarketed company otsuka us abilify lawsuits currently pending us district court district new jersey possible time reasonably assess outcome lawsuits impact company erbitux yeda litigation october 2003 yeda research development company ltd yeda filed suit imclone aventis pharmaceuticals inc federal court claiming three individuals associated yeda named inventors us patent 6217866 ‘866 patent covers therapeutic combination egfrspecific monoclonal antibody antineoplastic agents chemotherapeutic agents use treatment cancer september 2006 following trial court issued opinion order held three researchers yeda sole inventors subject matter ‘866 patent giving complete ownership patent yeda imclone appealed imclone also filed declaratory judgment action district court complaint alleged yeda researchers remain sole inventors ‘866 patent invalid commercial agreement imclone company pays royalty imclone sales erbitux impacted court’s decision pursuant settlement agreement executed imclone sanofi yeda announced december 7 2007 end worldwide litigation related ‘866 patent yeda sanofi granted imclone worldwide license ‘866 patent parties agreed yeda sole owner ‘866 patent us yeda sanofi coowners ‘866 patent foreign counterparts settlement agreement change imclone’s worldwide royalty rate erbitux sales commercial agreement imclone company pays royalty imclone sales erbitux impacted settlement agreement note 22 legal proceedings contingencies continued yeda also right license patent others yeda’s license patent third parties could result product competition erbitux might otherwise occur early assess whether extent competitive impact occur quantify impact however yeda licensed patent amgen inc amgen received fda approval market egfr product competes erbitux abbott laboratories previously disclosed february 2007 abbott laboratories abbott filed suit imclone us district court district massachusetts alleging imclone’s manufacture sale erbitux infringe us patent 5665578 ‘578 patent seeking damages alleged infringement pursuant settlement sublicensing agreements executed imclone repligen corporation repligen announced september 10 2007 repligen granted imclone royaltyfree irrevocable worldwide sublicense future use patented technology including ‘578 patent owned abbott licensed repligen agreement abbott repligen company’s commercial agreements imclone include provisions pursuant certain financial consequences company resulting settlement sublicensing agreements would responsibility imclone settlement sublicensing agreements however end lawsuit possible time assess outcome lawsuit potential impact company orencia january 2006 repligen regents university michigan filed complaint company us district court eastern district texas marshall division orencia launched february 2006 complaint alleges company’s thenanticipated sales orencia infringe us patent 6685541 repligen since amended complaint include ongoing future sales orencia courtordered mediation scheduled march 4 2008 trial scheduled commence april 2008 august 2006 zymogenetics inc filed complaint company us district court district delaware complaint alleges company’s manufacture sales orencia infringe us patents nos 5843725 6018026 trial expected commence 2009 pravachol december 2006 lek dd lek slovenian generic company whollyowned novartis filed suit company watson us district court eastern district texas marshall texas lek’s complaint alleges company’s sale pravachol watson’s sale authorized generic pravachol infringe two patents lek patents us patents nos 6740775 issued may 25 2004 7078558 issued july 18 2006 company filed answer complaint june 2007 company believes strong defense suit intends defend vigorously trial scheduled commence august 2009 possible time reasonably assess outcome lawsuits impact company general commercial litigation clayworth litigation previously disclosed company together number pharmaceutical manufacturers named defendant action filed california state superior court oakland james clayworth et al v bristolmyers squibb company et al alleging defendants conspired fix prices pharmaceuticals agreeing charge drugs us charge outside us particularly canada asserting claims california’s cartwright act unfair competition law plaintiffs sought trebled monetary damages injunctive relief december 2006 court granted company manufacturers’ motion summary judgment based passon defense judgment entered favor defendants january 2007 notice appeal respect judgment filed remains pending possible time reasonably assess outcome lawsuit impact company event plaintiffs successful appeal note 22 legal proceedings contingencies continued rxusa wholesale litigation previously disclosed july 2006 complaint filed drug wholesaler rxusa wholesale inc us district court eastern district new york company 15 drug manufacturers five drug wholesalers two officers defendant mckesson wholesale distribution industry trade group rxusa wholesale inc v alcon labs inc et al complaint alleges violations federal new york antitrust laws well various laws plaintiff claims defendants allegedly engaged anticompetitive acts resulted exclusion plaintiff relevant market seeks 586 million damages trebling relief company together manufacturer defendants filed motion dismiss case november 2006 motion remains pending court possible time reasonably estimate outcome lawsuit impact company antitrust litigation previously disclosed 18 lawsuits comprised individual suits purported class actions filed company us district court southern district ohio western division various plaintiffs including pharmacy chains individually assignees whole part certain wholesalers various health welfare benefit plansfunds individual residents various states lawsuits allege among things purported settlement apotex patent infringement litigation violated sherman act related laws plaintiffs seeking among things permanent injunctive relief barring apotex settlement andor monetary damages class actions filed behalf direct purchasers consolidated caption plavix direct purchaser antitrust litigation class actions filed behalf indirect purchasers consolidated caption plavix indirect purchaser antitrust litigation amended complaints filed october 19 2007 defendants filed consolidated motion dismiss december 11 2007 possible time reasonably assess outcome lawsuits impact company shareholder derivative actions july 31 2007 certain members board directors current former officers company named two derivative actions filed new york state supreme court john frank v peter dolan et al 07602580 donald beebout v peter dolan et al 07602579 one derivative action filed federal district court steven w sampson v james robinson iii et al 07cv6890 complaints allege breaches fiduciary duties allegedly failing disclose material information relating efforts settle plavix patent infringement litigation apotex plaintiffs seek monetary damages behalf company contribution indemnification decision filed december 13 2007 state court granted motions dismiss complaints frank beebout relating certain members board directors dismiss complaints former officers company filed motion dismiss federal district court action sampson pending securities litigation bristolmyers squibb co securities litigation previously disclosed june july 2007 two putative class action complaints minneapolis firefighters’ relief assoc v bristolmyers squibb co et al 07 cv 5867 jean lai v bristolmyers squibb company et al filed us district southern district new york company’s former chief executive officer peter dolan current chief financial officer andrew bonfield complaints allege violations securities laws allegedly failing disclose material information relating efforts settle plavix patent infringement litigation apotex september 20 2007 court dismissed lai case without prejudice changed caption case bristolmyers squibb co securities litigation appointed ontario teachers’ pension plan board lead plaintiff october 15 2007 ontario teachers’ pension plan board filed amended complaint making similar allegations earlier filed complaints longer naming andrew bonfield defendant motions dismiss filed company intends defend vigorously litigation possible time reasonably assess outcome lawsuits potential impact company note 22 legal proceedings contingencies continued pricing sales promotional practices litigation investigations previously disclosed company together number defendants defendant number private civil matters relating pricing practices addition company together number pharmaceutical manufacturers received subpoenas document requests various government agencies seeking records relating pricing sales marketing practices best price reporting september 28 2007 company department justice doj office us attorney district massachusetts finalized previously disclosed agreement principle settle several investigations involving company’s drug pricing sales marketing activities settlement agreement provides civil resolution resolves matters actively investigated discussed doj us attorney district massachusetts number years including matters relating 1 pricing certain products sold several years ago subsidiary reimbursed governmental health care programs 2 financial relationships subsidiary certain customers entities 3 certain consulting programs 4 promotion abilify unapproved indications 5 calculation certain medicaid rebates serzone nefazodone hydrochloride 6 pricing certain company’s products reimbursed governmental health care programs criminal charges company respect matters pursuant agreement company agreed pay 499 million plus interest resolve federal state claims resulting total amount approximately 516 million settlement date company paid federal portion global settlement approximately 317 million plus interest state portion global settlement approximately 182 million plus interest disbursed unless states approve settlement assurances states approve settlement connection settlement company entered fiveyear corporate integrity agreement office inspector general department health human services settlement covers matters outlined doj us attorney district massachusetts states indicated may pursue matters outside scope settlement event matters could result assertion civil andor criminal claims also previously disclosed result agreement principle company recorded aggregate reserves amount 499 million plus interest matters payment federal portion global settlement made remaining reserve december 31 2007 182 million plus interest certain states choose participate amount reserved may reflect eventual losses possible time reasonably assess outcome additional matters doj office us attorney district massachusetts may pursue potential impact company litigation previously disclosed company together number pharmaceutical manufacturers defendant private class actions well suits brought attorneys general numerous states many new york counties city new york actions plaintiffs allege defendants caused average wholesale prices awps products inflated thereby injuring government programs entities persons reimbursed prescription drugs based awps twelve state attorneys’ general suits pending federal state courts around country case alabama state court scheduled first proceed trial february 2008 one set class actions suit arizona attorney general several suits filed new york counties city new york consolidated us district court district massachusetts awp mdl court awp mdl certified three classes persons entities paid reimbursed seven company’s physicianadministered drugs june 2007 nonjury trial awp mdl court found company liable violations massachusetts’ consumer protection laws respect certain oncology drugs certain years awarded damages amount 183 thousand class 3 private thirdparty payors instructed parties apply court’s opinion determine damages class 2 medigap insurers august 2007 court found damages 187 thousand class 2 company appealed june 2007 decision us court appeals first circuit previously disclosed june 2007 company settled principle claims class 1 medicare part b beneficiaries nationwide 13 million plus half costs class notice maximum payment 1 million parties finalizing terms settlement hearing scheduled thereafter preliminary approval class 1 settlement company recorded reserves 14 million matters accordance gaap reserve reflects company’s estimate probable loss respect matters assuming settlement finalized settlement finalized amount reserved may reflect eventual losses possible time reasonably assess outcome litigation matters described potential impact company note 22 legal proceedings contingencies continued product liability litigation company party various product liability lawsuits addition lawsuits company also faces unfiled claims involving products time company believe ongoing matters potential unfiled claims aware potential result material effect company’s financial results operations environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including comprehensive environmental response compensation liability act cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency epa counterpart state agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable december 31 2007 company estimated share total future costs sites approximately 69 million recorded liabilities represents sum best estimates simple estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties currently expected puerto rico air emissions civil litigation previously disclosed company one several defendants class action suit filed superior court puerto rico relating air emissions governmentowned operated wastewater treatment facility court certified class august 9 2007 august 15 2007 parties executed global settlement agreement resolving claims litigation hearing approve settlement held october 26 2007 terms settlement certain measures including capital improvements implemented wastewater treatment facility minimize potential future odor emissions company’s share payment plaintiffs approximately 700 thousand november 6 2007 court entered final judgment approving settlement concludes company’s involvement litigation except company’s payment share cost capital improvements finalized early 2008 passaic river nj remediation natural resource damages claims previously disclosed september 2003 new jersey department environmental protection njdep issued administrative enforcement directive requiring company companies perform assessment natural resource damages implement unspecified interim remedial measures restore conditions lower passaic river lpr directive named company due releases nearby bulk chemical reprocessing facility operated predecessor mckesson corp subsequently epa issued notice letter numerous parties company requesting performance remedial investigationfeasibility study rifs conditions lpr consent agreement epa 2004 group parties committed pay roughly half 20 million estimated rifs epa time epa thereafter substantially increased estimate scope cost rifs result epa agreed allow group perform remaining rifs tasks group’s estimate total costs complete rifs related tasks exceed 50 million group negotiated amended consent agreement epa conduct remaining rifs work became effective may 2007 part deal company mckesson bought remaining rifs tasks separately company agreed pay approximately 110 thousand towards rifs tasks previously funded mckesson work cooperatively going forward addition mid2007 epa announced plans seek implementation “earlyaction” remedial measures address highlycontaminated portions lpr rifs completed epa indicated expects select actions early 2008 also group federal natural resource trustee agencies proposed private party group enter agreement assess natural resource damages lpr group expects discuss proposal trustees near future extent liability company may face related requirements cannot yet determined note 22 legal proceedings contingencies continued north brunswick township board education previously disclosed october 2003 company contacted counsel representing north brunswick nj board education boe regarding site waste materials er squibb sons may disposed 1940’s 1960’s fill material containing industrial waste heavy metals excess residential standards discovered expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 njdep sent company others information request letter possible waste disposal site company responded march 2004 boe township current owners school property park conducting jointly financing soil remediation work ground water investigation work plan approved njdep asked company contribute cost due financial constraints late 2004 boe asked company contribute funds interim basis assure uninterrupted performance necessary site work company continues actively monitor cleanup project including costs date neither school board township asserted claim company instead company local entities negotiated agreement attempt resolve matter mediation central component anticipated agreement provision company interim funding help defray cleanup costs agreement executed parties company transmitted initial interim funding payment january 2008 parties recently commenced work prepare mediation expected conclude mid2008 ods regulatory compliance previously disclosed epa investigating industrial commercial facilities throughout us use refrigeration equipment containing ozonedepleting substances ods enforcing compliance regulations governing prevention service repair leaks ods requirements 2004 company performed voluntary corporatewide audit facilities us puerto rico use odscontaining refrigeration equipment company submitted audit report epa november 2004 identifying potential violations ods requirements several facilities addition matters covered company’s audit report letter epa previously sent company’s whollyowned subsidiary mead johnson request information regarding compliance ods requirements facility evansville indiana company responded request june 2004 result identified potential violations evansville facility company currently discussions epa resolve potential violations discovered audit identified result epa request information evansville facility epa determines evansville facility facilities violation applicable ods requirements company could subject penalties andor required convert replace refrigeration equipment use nonods approved substitutes mact compliancepuerto rico facilities barceloneta humacao previously disclosed march 2005 company commenced voluntary environmental audit barceloneta humacao puerto rico facilities determine compliance epa’s regulations regarding maximum achievable control technology requirements emissions hazardous air pollutants pharmaceuticals production pharmaceutical mact company submitted epa audit report humacao facility june 2005 barceloneta facility july 2005 disclosed potential violations pharmaceutical mact requirements facilities company epa currently discussions regarding resolution matter wage hour litigation previously disclosed two putative class action complaints filed company former sales representatives kin fung et al v bristolmyers squibb company et al case number rg07333147 filed june 2007 superior court state california county alameda plaintiff alleges company violated california wage hour laws among things paying overtime compensation putative class similarly situated sales employees plaintiff filed amended complaint september 24 2007 add cause action penalties california labor code §2699 private attorney general act california labor code §2699 allows plaintiff collect civil penalties violations provision california labor code 75 collected labor workforce development agency california labor code §2699 oneyear statute limitations allows recovery penalty outstanding violation per pay period could interpreted require penalty per employee per pay period january 4 2008 court dismissed kin fung matter entirety due mr fung’s assertion wish participate plaintiff matter beth amendola v bristolmyers squibb company et al docket 07cv6088 filed june 2007 district court plaintiff alleges company violated federal fair labor standards act among things paying overtime compensation putative class similarly situated sales employees parties currently engaged preliminary discovery amendola matter note 22 legal proceedings contingencies continued company intends vigorously defend lawsuits matters early stages litigation possible time reasonably assess outcome litigation matters described expected outcome would material company’s results operations cash flows material financial condition liquidity proceedings sec germany investigation previously disclosed october 2004 sec notified company conducting informal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents october 4 2006 sec informed company inquiry formal sec’s inquiry encompasses matters currently investigation german prosecutor munich germany company understands inquiry investigation concern potential violations foreign corrupt practices act german law respectively company cooperating sec german authorities company established accrual represents minimum expected probable losses respect investigation german prosecutor possible time reasonably assess outcome investigations impact company bari italy investigation previously disclosed january 2006 company notified prosecutor bari region italy bari prosecutor company investigation result activities two employees region investigation also involved number doctors pharmacists pharmaceutical companies sales representatives main allegation parties engaged plan defraud national health service companies lacked appropriate compliance controls andor processes procedures control activities sales representatives february 2007 company bari prosecutor reached agreement principle settle matter agreement requires final approval civil court final hearing matter occur 2008 company paid administrative fine amount material company convatec italy investigation italian competition authorities investigated complaint lodged hospital ferrara region italy relating allegation four medical device companies including convatec boycotted tenders 2003 2004 ferrara tenders convatec responded allegations earlier year may 2007 convatec received statement objections italian competition authorities whereby authorities alleged four medical device companies including convatec acted concerted manner regard ferrara tenders pricing discussions three regions acted way prevent competition throughout italy hearing matter held july 2007 august 2007 competition authorities issued decision found four medical device companies infringed italian antitrust law participating ferrara tenders imposed fine 2345200 convatec division bms italy fine imposed bms italy fine based convatec’s market share turnover 2004 companies also fined amounts smaller convatec appealed decision administrative court hearing appeal expected early mid 2008 decision likely issue soon thereafter note 23 subsequent events december 2007 company entered definitive agreement avista sale medical imaging business purchase price approximately 525 million cash subject customary postclosing adjustments closing transaction completed january 7 2008 company expects recognize pretax gain approximately 20 million 40 million 30 million 50 million loss net tax first quarter 2008 subject postclosing adjustments february 21 2008 company completed sale leaseback administrative facility paris france approximately 155 million company expects record gain majority deferred reduce future lease rental costs lease period note 24 selected quarterly financial data unaudited 1 earnings per share quarters may add amounts year period computed discrete basis 2 common equivalent shares excluded computation diluted earnings per share effect would antidilutive follows millions 3 three months ended december 31 2007 2006 result net loss basic diluted loss per share equal 4 2007 2006 29 million weightedaverage shares issuable well 38 million 35 million interest expense net tax conversion convertible debt included diluted earnings per share calculation antidilutive note 24 selected quarterly financial data unaudited continued 5 company recorded following items 2007 2006 affected comparability results 6 financial information reflects medical imaging business discontinued operations see “ note 5 discontinued operations assets held sale” report independent registered public accounting firm board directors stockholders bristolmyers squibb company audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries “company” december 31 2007 2006 related consolidated statements earnings comprehensive income retained earnings cash flows years ended audits also included financial statement schedule years ended december 31 2007 2006 listed index item 15 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits consolidated financial statements company year ended december 31 2005 effects retrospective adjustments discontinued operations bristolmyers squibb medical imaging “mi” business discussed note 5 consolidated financial statements audited auditors whose report dated march 13 2006 expressed unqualified opinion statements conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2007 2006 results operations cash flows years ended conformity accounting principles generally accepted united states america also opinion financial statement schedule years ended december 31 2007 2006 considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein also audited retrospective adjustments 2005 consolidated financial statements operations mi discontinued 2007 discussed note 5 consolidated financial statements procedures included 1 obtaining company’s underlying accounting analysis prepared management retrospective adjustments discontinued operations comparing retrospectively adjusted amounts per 2005 consolidated financial statements analysis 2 comparing previously reported amounts previously issued consolidated financial statements year 3 testing mathematical accuracy accounting analysis 4 comparing adjustments retrospectively adjust consolidated financial statements discontinued operations company’s supporting documentation opinion retrospective adjustments appropriate properly applied however engaged audit review apply procedures 2005 consolidated financial statements company respect retrospective adjustments accordingly express opinion form assurance 2005 consolidated financial statements taken whole discussed notes 1 8 17 21 consolidated financial statements company adopted financial accounting standards board interpretation “fin” 48 accounting uncertainty income taxes interpretation fasb statement 109 effective january 1 2007 statement financial accounting standards “sfas” 123r sharebased payment effective january 1 2006 sfas 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r effective december 31 2006 also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 21 2008 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp deloitte touche llp parsippany new jersey february 21 2008 report independent registered public accounting firm board directors stockholders bristolmyers squibb company opinion consolidated statements earnings comprehensive income retained earnings cash flows year ended december 31 2005 effects adjustments retrospectively reflect discontinued operations described note 5 present fairly material respects results operations cash flows bristolmyers squibb company subsidiaries year ended december 31 2005 conformity accounting principles generally accepted united states america 2005 consolidated financial statements effects adjustments discussed note 5 presented herein addition opinion financial statement schedule year ended december 31 2005 effects adjustments retrospectively reflect discontinued operations described note 1 financial statement schedule presents fairly material respects information set forth therein read conjunction related consolidated financial statements referred financial statement schedule year ended december 31 2005 effects adjustments discussed note 1 financial statement schedule presented herein financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audit conducted audit effects adjustments described statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audit provides reasonable basis opinion engaged audit review apply procedures adjustments retrospectively reflect discontinued operations described note 5 financial statements note 1 financial statement schedule accordingly express opinion form assurance whether adjustments appropriate properly applied adjustments audited auditors pricewaterhousecoopers llp pricewaterhousecoopers llp philadelphia pa march 13 2006 item 9item 8 financial statements supplementary data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements comprehensive income retained earnings dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies basis consolidation consolidated financial statements prepared conformity united states us generally accepted accounting principles gaap include accounts bristolmyers squibb company may referred bristolmyers squibb bms company controlled majorityowned subsidiaries intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date codevelopment cocommercialization license arrangements entered parties various therapeutic areas terms including upfront licensing contingent payments arrangements assessed determine whether terms give economic control entity may require consolidation entity entities consolidated controlled means majority voting interest referred variable interest entities arrangements material variable interest entities including associated codevelopment cocommercialization license arrangements determined exist reclassifications certain prior year amounts reclassified conform current year presentation use estimates preparation financial statements requires use management estimates assumptions based complex judgments significant assumptions employed estimates used determining fair value intangible assets restructuring charges accruals sales rebate return accruals including related us health care reform legal contingencies tax assets tax liabilities stockbased compensation expense pension postretirement benefits including actuarial assumptions see “note 21 pension postretirement postemployment liabilities” fair value financial instruments direct observable market quotes inventory obsolescence potential impairment longlived assets allowances bad debt well estimates used applying revenue recognition policy new discounts 2010 us healthcare reform law medicare coverage gap managed medicaid expansion public health service 340b program require additional assumptions due lack historical claims experience addition new pharmaceutical company fee estimate subject external data well calculation based company’s relative share industry results actual results may differ estimated results revenue recognition revenue recognized title substantially risks rewards ownership transferred customer generally time shipment however certain sales made nonus businesses recognized date receipt purchaser see “note 2 alliances collaborations” discussion revenue recognition related alliances revenues reduced time recognition reflect expected returns estimated based historical experience business trends provisions made time revenue recognition discounts rebates estimated sales allowances based historical experience updated changes facts circumstances including impact new legislation healthcare reform appropriate provisions recognized reduction revenue limited circumstances new product extension existing line product historical experience products similar therapeutic category exists revenue deferred right return longer exists sufficient historical experience estimate sales returns developed sales rebate return accruals sales rebate return accruals established related revenue recognized resulting reduction sales establishment liability accrual recognized based estimate proportion recognized revenue result rebate return chargeback accruals related government programs cash discounts established similar manner recognized reduction accounts receivable income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made cash equivalents cash equivalents consist us treasury securities government agency securities bank deposits time deposits money market funds cash equivalents primarily highly liquid investments original maturities three months less time purchase recognized cost approximates fair value cash equivalents maintained foreign currencies 607 million december 31 2010 subject currency rate risk marketable securities investments companies marketable securities classified “available sale” date purchase reported fair value december 31 2010 2009 fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity declines fair value considered temporary charged earnings considered temporary reported component accumulated comprehensive income oci shareholders’ equity declines fair value determined credit related charged earnings average cost method used determining realized gains losses sale “available sale” securities investments 50 less owned companies ability exercise significant influence maintained accounted using equity method accounting share net income losses equity investments included equity net income affiliates consolidated statements earnings equity investments reviewed impairment assessing decline market value investment carrying value temporary making determination factors evaluated determining whether loss value recognized includes consideration intent ability hold investments market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity justifying carrying amount investment impairment losses recognized expense decline market value deemed temporary inventory valuation inventories stated lower average cost market property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets follows impairment longlived assets current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows assets disposed reported lower carrying value estimated net realizable value capitalized software certain costs obtain internal use software significant systems projects capitalized amortized estimated useful life software costs obtain software projects significant expensed incurred business combinations acquired business included consolidated financial statements upon obtaining control acquired assets acquired liabilities assumed recognized date acquisition respective fair values excess purchase price estimated fair values net assets acquired recognized goodwill business combinations entered january 1 2009 legal costs audit fees business valuation costs business acquisition costs expensed incurred goodwill acquired inprocess research development intangible assets goodwill tested impairment annually using twostep process first step identifies potential impairment second step measures amount impairment loss goodwill impaired carrying amount reporting unit’s goodwill exceeds estimated fair value biopharmaceuticals segment includes several separate reporting units based geography aggregated impairment testing purposes annual goodwill impairment assessment completed first quarter 2010 subsequently monitored potential impairment remaining quarters 2010 none indicated impairment goodwill fair value inprocess research development iprd acquired business combination determined based present value research project’s projected cash flows using income approach future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weightedaverage cost capital iprd acquired january 1 2009 initially capitalized considered indefinitelived assets subject annual impairment reviews often upon occurrence certain events review requires determination fair value respective intangible assets fair value intangible assets less carrying value impairment loss recognized difference compounds reach commercialization assets amortized expected useful lives prior january 1 2009 amounts allocated acquired iprd expensed date acquisition patentstrademarks licenses technology amortized straightline basis estimated useful lives considered impaired net carrying value exceeds estimated fair value restructuring charges recognized result actions streamline operations rationalize manufacturing facilities judgment used estimating impact restructuring plans including future termination benefits exit costs incurred actions take place actual results could vary estimates product liability accruals product liability established undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recognized undiscounted basis probable recovery realized contingencies loss contingencies legal proceedings claims may occur wide range matters including government investigations shareholder lawsuits product environmental liability tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies recognized realized derivative financial instruments derivative financial instruments used principally management interest rate foreign currency exposures held issued trading purposes derivative instruments recognized fair value changes derivative’s fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized earnings derivative designated cash flow hedge effective portions changes fair value derivative reported accumulated comprehensive income oci subsequently recognized earnings hedged item affects earnings cash flows classified consistent underlying hedged item derivatives designated assigned hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer probable occur gain loss immediately recognized designated hedge earnings nonderivative instruments also designated hedges net investments foreign affiliates nonderivative instruments mainly euro denominated longterm debt effective portion designated nonderivative instrument recognized foreign currency translation section oci ineffective portion recognized earnings shipping handling costs shipping handling costs included marketing selling administrative expenses 135 million 2010 208 million 2009 262 million 2008 68 million 2009 103 million 2008 included discontinued operations advertising product promotion costs advertising product promotion costs expensed incurred foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized oci net assets subsidiaries highly inflationary economies remeasured functional currency reporting currency remeasurement recognized earnings research development research development costs expensed incurred strategic alliances third parties provide rights develop manufacture market andor sell pharmaceutical products rights owned party certain research development payments alliance partners contingent upon achievement certain predetermined criteria milestone payments achieved prior regulatory approval product expensed research development milestone payments made connection regulatory approvals capitalized amortized cost products sold remaining useful life asset capitalized milestone payments tested recoverability periodically whenever events changes circumstances indicate carrying amounts may recoverable research development recognized net reimbursements connection collaboration agreements upfront licensing milestone receipts obtained development deferred amortized estimated life product income amortization period upfront licensing milestone receipts new materially modified arrangement january 1 2011 assessed determined considering terms arrangements recently issued accounting standards new accounting standards adopted january 1 2010 none impact consolidated financial statements upon adoption among items standards • provide clarifying criteria determining transferor surrendered control transferred financial assets removed concept qualifying specialpurpose entity • require ongoing reassessment primary beneficiary variable interest entity eliminate quantitative approach previously required determining primary beneficiary provide guidance determining primary beneficiary entity power direct activities variable interest entity significantly impacts entities economic performance obligation absorb losses right receive benefits events significant variable interest entity january 1 2011 new revenue recognition standard adopted applied new materially modified revenue arrangements upfront licensing fees contingent milestones relating research development deliverables guidance • provides principles application guidance whether multiple deliverables exist arrangement separated consideration allocated • eliminates residual method allocating revenue • requires allocation consideration received bundled revenue arrangement among separate deliverables introducing estimated selling price method valuing elements vendorspecific objective evidence thirdparty evidence selling price available • expands related disclosure requirements adoption standard expected material impact consolidated financial statements beginning 2011 annual nontaxdeductible fee paid federal government based allocation company’s market share branded prior year sales certain government programs including medicare medicaid department veterans affairs department defense tricare fee classified operating expense note 2 alliances collaborations sanofi company agreements sanofiaventis sanofi codevelopment cocommercialization avaproavalide irbesartanirbesartanhydrochlorothiazide angiotensin ii receptor antagonist indicated treatment hypertension diabetic nephropathy plavix clopidogrel bisulfate platelet aggregation inhibitor worldwide alliance operates framework two geographic territories one americas principally us canada puerto rico latin american countries australia europe asia accordingly two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries general country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place agreements expire later respect plavix 2013 respect avaproavalide 2012 americas australia 2013 europe asia ii expiration patents exclusivity rights applicable territory company acts operating partner owns 501 majority controlling interest territory covering americas australia sanofi’s ownership interest territory 499 company consolidates country partnership results territory reflects sanofi’s share results noncontrolling interest company recognizes net sales territory comarketing countries outside territory eg germany italy irbesartan spain greece discovery royalties owed sanofi included cost products sold cash flows operating activities partnerships territory covering americas australia included within operating activities company’s consolidated statements cash flows distributions partnership profits sanofi’s funding ongoing partnership operations occur routine basis also recognized within operating activities sanofi acts operating partner owns 501 majority controlling interest territory covering europe asia company’s ownership interest territory 499 included assets company consolidate partnership entities territory accounts equity method reflects share results equity net income affiliates company routinely receives distributions profits provides funding ongoing operations partnerships territory covering europe asia reflected cash provided operating activities company sanofi separate partnership governing copromotion irbesartan us alliance company recognizes income related amortization deferred income associated sanofi’s 350 million payment company acquisition interest irbesartan license us upon formation alliance deferred income continue amortized 2012 expected expiration license income attributed certain supply activities development optout royalties sanofi also reflected net income following summarized financial information reflected consolidated financial statements following summarized financial information interests partnerships sanofi territory covering europe asia consolidated accounted using equity method cost products sold includes discovery royalties 307 million 2010 446 million 2009 531 million 2008 paid directly sanofi expenses shared based applicable ownership percentages current assets current liabilities include approximately 567 million 2010 10 billion 2009 11 billion 2008 related receivablespayables attributed respective years net cash distributions company sanofi well intercompany balances partnerships within territory remaining current assets current liabilities consist thirdparty trade receivables inventories amounts due company sanofi purchase inventories royalties expense reimbursements otsuka company worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote otsuka abilify aripiprazole treatment schizophrenia bipolar mania disorder major depressive disorder except japan china taiwan north korea south korea philippines thailand indonesia pakistan egypt terms agreement company purchases product otsuka performs finish manufacturing sale thirdparty customers company otsuka product currently copromoted otsuka us canada united kingdom uk germany france spain us germany france spain product invoiced thirdparty customers company behalf otsuka company recognizes alliance revenue contractual share thirdparty net sales reduced us starting january 1 2010 65 58 2010 company continues receive 65 thirdparty net sales france germany spain expense reimbursement beginning january 1 2011 company invoice thirdparty customers uk behalf otsuka company receive 65 net sales expense reimbursement company recognizes alliance revenue abilify shipped risks rewards ownership transferred thirdparty customers certain countries company presently exclusive distributor product exclusive right sell abilify company recognizes 100 net sales related cost products sold expenses april 2009 company otsuka agreed extend us portion commercialization manufacturing agreement expected loss product exclusivity april 2015 terms agreement company paid otsuka 400 million amortized reduction net sales extension period unamortized balance included assets beginning january 1 2011 share abilify us net sales company recognizes changed 58 535 reduced 515 january 1 2012 period otsuka responsible 30 us expenses related commercialization abilify reimbursements netted principally advertising product promotion selling general administrative expenses beginning january 1 2013 expected loss us exclusivity april 2015 including expected six month pediatric extension company receive following percentages us annual net sales period otsuka responsible 50 us expenses related commercialization abilify addition company otsuka announced entered oncology collaboration sprycel dasatinib ixempra ixabepilone includes us japan european union eu markets oncology territory beginning 2010 2020 collaboration fees company pay otsuka annually following percentages net sales sprycel ixempra oncology territory periods otsuka contribute 20 first 175 million certain commercial operational expenses relating oncology products ii 1 commercial operational expenses relating products territory excess 175 million starting 2011 otsuka right copromote sprycel company us japan 2012 top five eu markets us extension oncology collaboration include changeofcontrol provision case acquisition company acquiring company competing product abilify new company assume abilify agreement amended oncology collaboration exists today acquiring company product competes abilify otsuka elect request acquiring company choose whether divest abilify competing product scenario abilify divested otsuka would obligated acquire company’s rights abilify agreement amended agreements also provide event generic competitor abilify january 1 2010 company option terminating abilify april 2009 amendment agreement previously amended remaining force company exercise option either company would receive payment otsuka according predetermined schedule oncology collaboration would terminate time ii oncology collaboration would continue truncated period according predetermined schedule eu agreement remained unchanged expire june 2014 countries company exclusive right sell abilify agreement expires later 10th anniversary first commercial sale country expiration applicable patent country addition 400 million extension payment total milestone payments made otsuka agreement december 2010 217 million 157 million expensed iprd 1999 remaining 60 million capitalized intangible assets amortized cost products sold remaining life agreement us following summarized financial information related alliance reflected consolidated financial statements january 2007 company granted otsuka exclusive rights japan develop commercialize onglyza company expects receive milestone payments based certain regulatory events well salesbased payments following regulatory approval onglyza japan retained rights copromote onglyza otsuka japan otsuka responsible development costs japan lilly company epidermal growth factor receptor egfr commercialization agreement eli lilly company lilly’s november 2008 acquisition imclone systems incorporated imclone codevelopment promotion erbitux cetuximab necitumumab imc11f8 us expires erbitux september 2018 company also codevelopment copromotion rights products canada japan erbitux indicated use treatment patients metastatic colorectal cancer use treatment squamous cell carcinoma head neck egfr agreement respect erbitux sales north america lilly receives distribution fee based flat rate 39 net sales north america plus reimbursement certain royalties paid lilly included cost products sold october 2007 company imclone amended codevelopment agreement merck kgaa merck provide cocommercialization erbitux japan rights agreement expire 2032 however lilly ability terminate agreement 2018 determines commercially unreasonable lilly continue erbitux received marketing approval japan july 2008 use erbitux treating patients advanced recurrent colorectal cancer company receives 50 pretax profit merck sales erbitux japan shared equally lilly company’s share profits commercialization japan included income company amortizing 500 million previously capitalized milestone payments accounted license acquisition 2018 remaining term agreement amortization classified costs products sold upon execution initial commercialization agreement company acquired ownership interest imclone accounted equity method company sold shares imclone approximately 1007 million recognized pretax gain 895 million november 2008 january 2010 company lilly restructured egfr commercialization agreement described company imclone relates necitumumab novel targeted cancer therapy currently phase iii development nonsmall cell lung cancer restructured companies share cost developing potentially commercializing necitumumab us canada japan lilly maintains exclusive rights necitumumab markets company fund 55 development costs studies used us fund 275 global studies company pay 250 million lilly milestone payment upon first approval us canada company recognize sales receive 55 profits bear 55 losses necitumumab lilly provide 50 selling effort parties general equally participate commercialization efforts japan company lilly share commercial costs profits evenly agreement relates necitumumab continues beyond patent expiration parties agree terminate may terminated time company 12 months advance notice 18 months prior launch either party uncured material breach parties agree terminate lilly manufacture bulk requirements assume responsibility fillfinish necitumumab beginning 2011 following summarized financial information related alliance reflected consolidated financial statements gilead company gilead sciences inc gilead joint venture develop commercialize atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg oncedaily single tablet threedrug regimen combining company’s sustiva efavirenz gilead’s truvada emtricitabine tenofovir disoproxil fumarate us canada europe company accounts participation us joint venture equity method accounting recognizes share joint venture results equity net income affiliates consolidated statements earnings us canada european countries company records revenue bulk efavirenz component atripla upon sales product thirdparty customers revenue efavirenz component determined applying percentage atripla revenue approximate revenue sustiva brand limited number eu countries company recognizes revenue atripla since product purchased gilead distributed thirdparty customers following summarized financial information related alliance reflected consolidated financial statements astrazeneca company maintains two worldwide codevelopment cocommercialization agreements astrazeneca plc astrazeneca first worldwide excluding japan codevelopment cocommercialization onglyza saxagliptin dppiv inhibitor saxagliptin agreement second worldwide including japan codevelopment cocommercialization dapagliflozin sodiumglucose cotransporter2 sglt2 inhibitor sglt2 agreement compounds studied treatment diabetes discovered company kombiglyze codeveloped astrazeneca saxagliptin agreement two companies jointly develop clinical marketing strategy share commercialization expenses profits losses equally global basis excluding case saxagliptin japan company manufacture products companies cocommercialize dapagliflozin japan share profits losses equally agreement company option decline involvement cocommercialization given country instead receive royalty percentage rates company optsout cocommercialization agreements tiered based net sales july 31 2009 fda approved onglyza adjunct diet exercise improve blood sugar glycemic control adults treatment type 2 diabetes mellitus august 2009 company astrazeneca launched onglyza us october 1 2009 onglyza received marketing authorization use eu treat adults type 2 diabetes combination either metformin sulfonylurea thiazolidinedione agents alone diet exercise provide adequate glycemic control december 2010 fda approved kombiglyze saxagliptin metformin combination therapy treatment type 2 diabetes adults company received astrazeneca total 300 million upfront licensing milestone payments related saxagliptin agreement 50 million upfront licensing payments related sglt2 agreement december 31 2010 including 50 million received 2010 payments deferred amortized useful life products income additional milestone payments expected received company upon successful achievement various development regulatory events well salesbased milestones saxagliptin agreement company could receive additional 50 million remaining development regulatory milestone saxagliptin met additional 300 million salesbased milestones saxagliptin met sglt2 agreement company could receive additional 350 million development regulatory milestones dapagliflozin met additional 390 million salesbased milestones dapagliflozin met agreement company astrazeneca also share development commercialization costs majority development costs initial development plans paid astrazeneca bearing costs initial agreed upon development plan dapagliflozin japan additional development costs shared equally net reimbursements company development costs related saxagliptin dapagliflozin netted research development following summarized financial information related alliance reflected consolidated financial statements pfizer company pfizer inc pfizer maintain worldwide codevelopment cocommercialization agreement eliquis apixaban anticoagulant discovered company studied prevention treatment broad range venous arterial thrombotic conditions company received 314 million upfront licensing payments 2007 addition company received 150 million milestone payment april 2009 commencement phase iii clinical trials prevention major adverse cardiovascular events acute coronary syndrome 10 million milestone 2010 filing marketing authorization application eu payments deferred amortized useful life products income pfizer fund 60 development costs initial development plan effective january 1 2007 going forward company fund 40 net reimbursements company eliquis development costs netted research development company may also receive additional payments pfizer additional 620 million based achieving development regulatory milestones companies jointly develop clinical marketing strategy share commercialization expenses profits losses equally global basis manufacture product arrangement following summarized financial information related alliance reflected consolidated financial statements exelixis october 2010 company entered two metabolic collaboration agreements exelixis inc one license exelixis’ smallmolecule tgr5 agonist program including backups tgr5 agreement second collaborate discover optimize characterize smallmolecule ror antagonists ror agreement company paid exelixis initial payment 40 million expensed research development could pay additional development approval milestones 250 million tgr5 agreement 255 million ror agreement exelixis also eligible receive additional 150 million salesbased milestones tgr5 ror programs royalties net sales products tgr5 ror programs company received exclusive worldwide license develop commercialize small molecule tgr5 agonists ror antagonists tgr5 agreement company sole responsibility research development manufacturing commercialization ror agreement company collaborating exelixis ror antagonist programs preclinical transition point company sole responsibility research development manufacture commercialization resulting products december 2008 company exelixis entered global codevelopment cocommercialization arrangement xl184 metvegret inhibitor oral anticancer compound license xl281 utility ras raf mutant tumors development exelixis terms arrangement company paid exelixis 195 million 2008 upon execution agreement paid additional 45 million 2009 expensed research development 2008 june 2010 company terminated development collaboration exelixis xl184 rights returning exelixis resulting 17 million termination fee expensed research development company could pay exelixis development regulatory milestones 315 million additional 150 million salesbased milestones related xl281 addition company exelixis history collaborations identify develop promote oncology targets january 2007 company exelixis entered oncology collaboration license agreement exelixis pursing development three small molecule inds codevelopment copromotion terms agreement paid exelixis 100 million upfront licensing milestone payments date pursuant amendment agreement executed october 2010 exelixis optedout codevelopment xl139 company made payment exelixis amount 20 million expensed research development result company received exclusive worldwide license develop commercialize xl139 sole responsibility development manufacture commercialization compound successful pay exelixis development regulatory milestones 170 million additional 90 million salesbased milestones well royalties royalty percentage rates tiered based net sales december 31 2010 company held equity investment exelixis represented less 1 outstanding shares alder november 2009 company alder biopharmaceuticals inc alder entered global agreement development commercialization ald518 novel biologic completed phase iia development treatment rheumatoid arthritis terms arrangement alder granted company worldwide exclusive rights develop commercialize ald518 potential indications except cancer alder retains rights granted company option codevelop exclusive rights cocommercialize outside united states company paid alder 85 million upfront licensing payment 2009 expensed research development addition company could pay 764 million developmentbased regulatorybased milestone payments potential salesbased milestones certain circumstances may exceed 200 million royalties net sales company chooses option pursue cancer indications company could pay additional 185 million developmentbased regulatorybased milestone payments aforementioned salesbased milestones royalties net sales royalty percentage rates tiered based net sales note 3 business segment information company operates one biopharmaceuticals segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization global supply chain organization utilized responsible development delivery products market products distributed sold five regional organizations serve united states europe latin america middle east africa japan asia pacific canada emerging markets business also supported global corporate staff functions segment information presented consistent financial information regularly reviewed chief operating decision maker purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods products sold principally wholesalers lesser extent directly distributors retailers hospitals clinics government agencies pharmacies gross sales three largest pharmaceutical wholesalers us percentage total gross sales follows selected geographic area information follows net sales key products follows capital expenditures depreciation property plant equipment within biopharmaceuticals segment follows segment income excludes impact significant items indicative current operating performance ongoing results earnings attributed sanofi noncontrolling interest reconciliation earnings continuing operations income taxes follows note 4 restructuring productivity transformation initiative pti designed fundamentally change way business run meet challenges changing business environment take advantage diverse opportunities marketplace transformation nextgeneration biopharmaceutical company continues addition pti strategic process designed achieve culture continuous improvement enhance efficiency effectiveness competitiveness continue improve cost base implemented following pti restructuring charges recognized accelerated depreciation asset impairment charges shutdown costs included cost products sold primarily relate rationalization manufacturing network biopharmaceuticals segment assets continue depreciated cease use date facility remaining charges primarily attributed process standardization activities attributed pension plan curtailment charges recognized incurred restructuring charges included termination benefits workforce reductions manufacturing selling administrative research development personnel across geographic regions approximately 995 2010 1350 2009 2370 2008 following table represents activity employee termination exit cost liabilities connection continued optimization manufacturing network operations latina italy sold international chemical investors se ici may 31 2010 resulting 218 million loss consisted 200 million impairment charge recorded 2010 attributed writedown assets fair value less cost sale assets met held sale criteria 18 million working capital adjustments transaction related fees 18 million 22 million 6 subordinated promissory note payable installments may 2017 received consideration additional charges may required pertaining company’s obligation fund portion ici’s future restructuring costs 19 million 23 million part transaction one year supply agreement entered ici company nonexclusive supplier certain products ici also three year tolling manufacturing agreement extended additional two years entered ici company supply certain raw material products processed finished latina facility distributed company various markets note 5 acquisitions zymogenetics inc acquisition october 12 2010 bms acquired 100 outstanding shares common stock zymogenetics inc zymogenetics october 2010 aggregate purchase price approximately 885 million acquisition related costs 10 million classified incomeexpense zymogenetics focused developing commercializing therapeutic proteinbased products treatment human diseases companies collaborated development pegylatedinterferon lambda novel interferon currently phase iib development treatment hepatitis c infection acquisition provides company full rights develop commercialize pegylatedinterferon lambda also brings proven capabilities therapeutic proteins revenue recothrom fda approved specialty surgical biologic goodwill generated acquisition primarily attributed full ownership rights pegylatedinterferon lambda goodwill iprd intangible assets valued acquisition nondeductible tax purposes purchase price allocation follows 1 includes 63 million recorded long term assets inventory expected utilized excess one year 2 includes 310 million related pegylatedinterferon lambda 3 attributed recothrom amortized 10 years results zymogenetics operations included accompanying consolidated financial statements october 8 2010 pro forma supplemental financial information provided impact acquisition material operating results medarex inc acquisition september 1 2009 company acquired means tender offer secondstep merger 100 remaining outstanding shares stock equivalents medarex already owned total purchase price 2331 million acquisition costs 11 million classified incomeexpense medarex focused discovery development commercialization fully human antibodybased therapeutic products address major unmet healthcare needs areas oncology inflammation autoimmune disorders infectious diseases result acquisition full rights yervoy ipilimumab currently phase iii development received increases biologics development pipeline creating balanced portfolio small molecules biologics goodwill generated acquisition primarily attributed balanced portfolio associated biopharma model potential optimize existing yervoy programs goodwill iprd intangible assets valued acquisition nondeductible tax purposes purchase price allocation follows 1 income approximately 21 million recognized remeasurement fair value equity interest medarex held acquisition date 2 includes 51 ownership interest genmab 64 million 187 ownership celldex therapeutics inc 17 million subsequently sold december 31 2009 loss 33 million 3 includes approximately 10 billion related yervoy 4 amortized 10 years 5 amortized 13 years results medarex operations included accompanying consolidated financial statements august 27 2009 pro forma supplemental financial information provided impact acquisition material operating results kosan biosciences inc acquisition june 2008 company completed acquisition kosan biosciences inc kosan cancer therapeutics company library novel compounds including hsp90 inhibitors cancer microtubule stabilizers may additional potential neurodegenerative diseases net purchase price approximately 191 million transaction accounted purchase method accounting purchase price allocated acquiredinprocess research development 32 million net assets 32 million goodwill 127 million note 6 mead johnson nutrition company initial public offering february 2009 mead johnson completed initial public offering ipo sold 345 million shares class common stock 24 per share net proceeds 782 million deducting 46 million underwriting discounts commissions offering expenses allocated noncontrolling interest capital excess par value stock upon completion ipo 423 million shares mead johnson class common stock 1277 million shares mead johnson class b common stock held company representing 831 interest mead johnson 975 combined voting power outstanding common stock rights holders shares class common stock class b common stock identical except regard voting conversion share class common stock entitled one vote per share class b common stock entitled ten votes per share convertible time election holder one share class common stock class b common stock automatically converted shares class common stock various agreements related separation mead johnson entered including separation agreement transitional services agreement tax matters agreement registration rights agreement employee matters agreement note 7 discontinued operations mead johnson nutrition company splitoff remaining interest mead johnson completed december 23 2009 splitoff effected exchange offer previously held 170 million shares mead johnson converting class b common stock class common stock 269 million outstanding shares company’s stock resulting pretax gain 7275 million 7157 million net taxes shares received connection exchange valued using closing price december 23 2009 2570 reflected treasury stock gain exchange determined using sum fair value shares received plus net deficit mead johnson attributable company less taxes direct expenses related transaction including tax reserve 244 million established convatec disposition august 2008 divestiture convatec business cidron healthcare limited affiliate nordic capital fund vii avista capital partners lp avista completed gross purchase price 4050 million resulting pretax gain 3387 million 2022 million net taxes medical imaging disposition january 2008 divestiture bristolmyers squibb medical imaging medical imaging avista completed gross purchase price approximately 525 million resulting pretax gain 25 million aftertax loss 43 million transitional relationships discontinued operations subsequent respective dispositions cash flows income associated mead johnson convatec medical imaging businesses continued generated relating activities transitional nature result agreements intended facilitate orderly transfer business operations include among others services accounting customer service distribution manufacturing activities related convatec medical imaging businesses completed december 31 2010 amended mead johnson agreement expires september 2012 income generated transitional activities included incomeexpense expected material future results operations cash flows following summarized financial information related mead johnson convatec medical imaging businesses segregated continuing operations reported discontinued operations date disposition note 8 earnings per share note 9 incomeexpense includes note 10 income taxes components earnings continuing operations income taxes categorized based location taxing authorities follows provisionbenefit income taxes attributable continuing operations consisted effective tax rate reconciliation effective tax rate us statutory federal income tax rate increase 2010 effective tax rate 2009 due • 207 million charge recognized fourth quarter 2010 resulted primarily additional us taxable income earnings foreign subsidiaries previously considered permanently reinvested offshore • 30 million charge 2010 completion 2009 us tax return • 67 million benefit 2009 completion 2008 us tax return • unfavorable earnings mix high low tax jurisdictions partially offset • certain favorable discrete tax adjustments 131 million 2010 compared 64 million benefit 2009 primarily resulting effective settlements us international uncertain tax positions • outofperiod tax adjustment 59 million 2010 related previously unrecognized net deferred tax assets primarily attributed deferred profits financial reporting purposes related certain alliances december 31 2009 material current prior periods decrease 2009 effective tax rate 2008 primarily due • higher 2008 pretax income us including gain sale imclone shares • unfavorable earnings mix 2008 high tax jurisdictions • unfavorable 2008 tax impact related iprd ars impairment charges • additional 67 million benefit 2009 completion 2008 us tax return partially offset • 91 million benefit 2008 related final settlement 20022003 audit internal revenue service irs deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows valuation allowance deferred tax assets established likely deferred tax assets realized december 31 2010 valuation allowance 1863 million established following items 1493 million foreign net operating loss tax credit carryforwards 356 million state deferred tax assets including net operating loss tax credit carryforwards 14 million us federal net operating loss carryforwards changes valuation allowance follows us federal net operating loss carryforwards acquired result acquisitions zymogenetics medarex kosan biosciences inc kosan adnexus subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 research development tax credit carryforwards expire varying amounts beginning 2018 realization research development tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured management believes likely deferred tax assets realized income tax payments 672 million 2010 885 million 2009 636 million 2008 income tax payments net 432 million cash refund related foreign tax credit carryback claim 2000 2001 current tax benefit realized upon exercise stock options credited capital excess par value stock 8 million 2010 5 million 2009 december 31 2010 us taxes provided approximately 164 billion undistributed earnings foreign subsidiaries undistributed earnings invested expected permanently invested offshore future earnings repatriated us earnings determined remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided company favorable tax rates ireland puerto rico grants scheduled expire prior 2023 2010 company completed internal restructuring certain legal entities contributed 207 million charge recognized fourth quarter 2010 possible us tax authorities could assert additional material tax liabilities arising restructuring assertion occur company would vigorously challenge assertion believes would prevail however assurance result business conducted various countries throughout world subject tax numerous jurisdictions result significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported may require several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows uncertain tax benefits reduce deferred tax assets extent uncertainty directly related asset otherwise recognized either current noncurrent us foreign income taxes payable unrecognized tax benefits recognized would impact effective tax rate 818 million 964 million 675 million december 31 2010 2009 2008 respectively gross additions tax positions related current year ended december 31 2009 include 287 million tax reserves related transfer various international units mead johnson prior ipo splitoff transaction recognized discontinued operations gross reductions tax positions related prior years year ended december 31 2009 include 10 million liabilities related mead johnson accrued interest penalties unrecognized tax benefits classified either current noncurrent us foreign income taxes payable accrued interest related unrecognized tax benefits 51 million 39 million 64 million december 31 2010 2009 2008 respectively accrued penalties related unrecognized tax benefits 23 million 19 million 20 million december 31 2010 2009 2008 respectively interest penalties related unrecognized tax benefits classified income tax expense expensebenefit related interest unrecognized tax benefits expense 12 million 2010 benefits 25 million 2009 17 million 2008 expensebenefit related penalties unrecognized tax benefits expense 4 million 2010 benefits 1 million 2009 7 million 2008 company currently examination number tax authorities including major tax jurisdictions listed table proposed adjustments tax issues transfer pricing certain tax credits deductibility certain expenses company estimates reasonably possible total amount unrecognized tax benefits december 31 2010 decrease range approximately 245 million 275 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits primarily settlement related involve payment additional taxes adjustment certain deferred taxes andor recognition tax benefits company also anticipates reasonably possible new issues raised tax authorities may require increases balance unrecognized tax benefits however estimate increases cannot reasonably made time company believes adequately provided open tax years tax jurisdiction income tax returns filed us federal jurisdiction various state foreign jurisdictions exceptions company subject us federal state local nonus income tax examinations tax authorities following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited us 2005 2010 canada 2001 2010 france 2008 2010 germany 2007 2010 italy 2006 2010 mexico 2003 2010 note 11 fair value measurement fair value financial assets liabilities classified one following categories level 1 quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy gives highest priority level 1 inputs level 2 observable prices based inputs quoted active markets corroborated market data level 3 unobservable inputs used little market data available fair value hierarchy gives lowest priority level 3 inputs majority ars private placement securities longterm nominal maturities rated ‘a’ standard poor’s primarily represent interests insurance securitizations valuation models utilized rely exclusively level 3 inputs due lack observable market quotes ars portfolio inputs based expected cash flow streams collateral values including assessments counterparty credit quality default risk underlying security discount rates overall capital market liquidity fair value ars determined using internally developed valuations based part indicative bids received underlying assets securities evidence fair value frs longterm debt securities coupons reset periodically benchmark interest rate 2010 93 million principal par frs received known reported defaults frs due current lack active market frs general lack transparency underlying assets qualitative analysis relied upon value frs including discussion brokers fund managers default risk underlying security overall capital market liquidity level 3 inputs declines fair value reported temporary loss comprehensive income intentions sell investments likely investments required sold recovery amortized cost basis financial assets liabilities utilize level 1 level 2 inputs direct indirect observable price quotes utilized including libor euribor yield curves foreign exchange forward prices nymex futures pricing common stock price quotes summary valuation techniques level 1 level 2 financial assets liabilities • us treasury bills us government agency securities us government agency money market funds valued quoted market price observable pricing sources reporting date • equity securities valued using quoted stock prices new york stock exchange national association securities dealers automated quotation system reporting date • prime money market funds net asset value 1 per share • corporate debt securities commercial paper valued quoted market price observable pricing sources reporting date • fdic insured debt securities valued quoted market price observable pricing sources reporting date • us treasury money market funds valued quoted market price observable pricing sources reporting date • interest rate swap derivative assets liabilities valued using libor euribor yield curves less credit valuation adjustments reporting date counterparties contracts highlyrated financial institutions none experienced significant downgrades 2010 valuations may fluctuate considerably periodtoperiod due volatility underlying interest rates driven market conditions duration swap addition credit valuation adjustment volatility may significant impact valuation interest rate swaps due changes counterparty credit ratings credit default swap spreads • foreign currency forward derivative assets liabilities valued using quoted forward foreign exchange prices reporting date counterparties contracts highlyrated financial institutions none experienced significant downgrades 2010 valuations may fluctuate considerably periodtoperiod due volatility underlying foreign currencies majority foreign currency forward derivatives mature within two years counterparty credit risk considered significant note 12 cash equivalents marketable securities cash equivalents 5033 million december 31 2010 7683 million december 31 2009 consisted prime money market funds government agency securities treasury securities cash equivalents primarily consist highly liquid investments original maturities three months less time purchase recorded cost approximates fair value following table summarizes current noncurrent marketable securities accounted “available sale” debt securities equity securities 1 frs unrealized loss position 12 months december 31 2010 following table summarizes activity financial assets utilizing level 3 fair value measurements december 31 2010 2510 million noncurrent “available sale” corporate debt securities us government agency securities us treasury bills fdic insured debt securities floating rate securities mature within five years 80 million corporate debt securities mature within six 10 years auction rate securities mature beyond 10 years note 13 receivables include receivables netted deferred income related alliance partners recognition income result alliance partner receivables deferred income reduced 734 million 730 million december 31 2010 2009 respectively additional information regarding alliance partners see “note 2 alliances collaborations” nonus receivables sold nonrecourse basis 932 million 660 million 2010 2009 respectively aggregate receivables due three pharmaceutical wholesalers us represented 51 47 total trade receivables december 31 2010 2009 respectively second quarter 2010 government greece announced intends convert certain past due receivables government run hospitals noninterest bearing notes paid one three year periods december 31 2010 notes process issued receivables 39 million 51 million included longterm assets 10 million charge attributed imputed discount expected noninterest bearing notes expected collection period recognized 2010 incomeexpense changes allowances follows note 14 inventories include inventories expected remain onhand beyond one year 297 million 249 million december 31 2010 2009 respectively included noncurrent assets addition 44 million inventories currently cannot sold us food drug administration fda approves manufacturing process change inventories noncurrent assets include capitalized costs related production products programs phase iii development subject final fda approval 59 million 49 million december 31 2010 2009 respectively status regulatory approval process probability future sales considered assessing recoverability costs note 15 property plant equipment property plant equipment includes depreciation expense 473 million 2010 469 million 2009 562 million 2008 51 million 2009 50 million 2008 included discontinued operations capitalized interest 8 million 2010 13 million 2009 23 million 2008 note 16 goodwill intangible assets changes carrying amount goodwill segment follows intangible assets include changes intangible assets follows amortization expense included discontinued operations 9 million 2009 12 million 2008 expected future amortization expense december 31 2010 finitelived intangible assets 293 million 2011 259 million 2012 177 million 2013 163 million 2014 130 million 2015 435 million thereafter note 17 accrued expenses accrued expenses include note 18 sales rebates return accruals reductions trade receivables listing accrued rebates returns liabilities follows note 19 deferred income deferred income includes upfront licensing milestone receipts amortized expected life product see “note 2 alliances collaborations” information pertaining revenue recognition transactions alliances collaborations deferred gain saleleaseback transactions relates several saleleaseback transactions amortized remaining lease terms related facilities 2018 27 million 2010 28 million 2009 25 million 2008 see “note 25 leases” information pertaining gain saleleasebacks transactions note 20 equity changes common shares treasury stock capital excess par value stock follows accumulated balances related component comprehensive incomeloss oci net taxes follows reconciliation noncontrolling interest follows noncontrolling interest primarily related partnerships sanofi territory covering americas net sales plavix net earnings attributable noncontrolling interest presented net taxes 683 million 2010 589 million 2009 472 million 2008 consolidated statements earnings corresponding increase provision income taxes distribution partnership profits sanofi’s funding ongoing partnership operations occur routine basis included within operating activities consolidated statements cash flows activity includes pretax income distributions related partnerships net earnings noncontrolling interest included discontinued operations 69 million 2009 7 million 2008 treasury stock recognized cost reacquire shares treasury shares acquired mead johnson splitoff recognized fair value stock splitoff date shares issued treasury recognized utilizing firstin firstout method may 2010 board directors authorized repurchase 30 billion common stock repurchases may made either open market private transactions including repurchase plans established accordance rule 10b51 securities exchange act 1934 amended stock repurchase program expiration date expected take place next years may suspended discontinued time 2010 company repurchased 23 million shares average price approximately 2550 per share aggregate cost 587 million includes 1 million transaction fees note 21 pension postretirement postemployment liabilities company certain subsidiaries sponsor defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan covers us employees represents approximately 70 consolidated pension plan assets obligations funding policy contribute amounts fund past service liability plan benefits based primarily participant’s years credited service final average compensation plan assets consist principally equity fixedincome securities comprehensive medical group life benefits provided substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside us net periodic benefit cost defined benefit pension postretirement benefit plans includes us retirement income plan several plans amended june 2009 amendments eliminate crediting future benefits relating service effective december 31 2009 salary increases continue considered additional fiveyear period determining benefit obligation related prior service plan amendments accounted curtailment result applicable plan assets obligations remeasured remeasurement resulted 455 million reduction accumulated oci 295 million net taxes corresponding decrease unfunded status plan due curtailment updated plan asset valuations change discount rate 70 75 curtailment charge 25 million also recognized incomeexpense second quarter 2009 remaining amount unrecognized prior service cost addition participants reclassified inactive benefit plan purposes actuarial gains losses amortized expected weightedaverage remaining lives plan participants 32 years connection plan amendment contributions principal defined contribution plans us puerto rico increased effective january 1 2010 net impact actions expected reduce future retiree benefit costs although future costs continue subject market conditions factors including actual expected plan asset performance interest rate fluctuations lumpsum benefit payments 2009 certain plan assets related obligations transferred us retirement income plan several plans new plans sponsored mead johnson active mead johnson participants resulting 170 million reduction accumulated oci 110 million net taxes first quarter 2009 corresponding decrease unfunded status plan due updated plan asset valuations change discount rate 65 70 net actuarial loss prior service cost expected amortized accumulated oci net periodic benefit cost 2011 changes defined benefit postretirement benefit plan obligations assets funded status amounts recognized consolidated balance sheets follows table includes activity related mead johnson pension postretirement plans 2009 part separation activities certain defined benefit pension postretirement plan assets liabilities transferred separate mead johnson sponsored defined benefit pension postretirement plans final transfers occurring december 2009 related plan assets liabilities transferring participants allocated based assumptions set forth plan transfer agreement accumulated benefit obligation defined benefit pension plans 6407 million 5908 million december 31 2010 2009 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine benefit obligations december 31 follows weightedaverage actuarial assumptions used determine net periodic benefit cost years ended december 31 follows yield high quality corporate bonds matches duration benefit obligations used determining discount rate citigroup pension discount curve used developing discount rate us plans several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class historical longterm actual annualized returns us pension plans follows expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” fair value plan assets exceeds marketrelated value 313 million december 31 2010 marketrelated value exceeds fair value plan assets 222 million december 31 2009 change primarily driven asset gains 2010 2009 offset full recognition significant losses incurred plan assets 2008 differences assumed actual returns amortized marketrelated value straightline basis threeyear period gains losses resulted changes actuarial assumptions changes discount rate differences assumed actual experience differences actual assumed returns plan assets gains losses except differences amortized marketrelated value amortized extent exceed 10 higher marketrelated value projected benefit obligation respective plan result approximately 400 million related pension benefits expected amortized 2011 majority remaining actuarial losses amortized life expectancy plans’ participants us plans expected remaining service periods plans assumed healthcare cost trend rates december 31 follows assumed healthcare cost trend rates effect amounts reported healthcare plans onepercentagepoint change assumed healthcare cost trend rates would following effects plan assets fair value pension postretirement plan assets asset category december 31 2010 2009 follows fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity transfers fair value levels recognized beginning reporting period investment valuation policies per investment class follows equity funds securities classified level 1 include publicly traded equities traded national securities exchange valued last reported sales price reporting date securities classified level 2 valued net asset value shares held year end based fair value underlying investments level 3 equity funds valued estimated fair value estimated fair value based fair value underlying investment values cost plus minus accumulated earnings losses approximates fair value equity securities classified level 1 include publicly traded equities traded national securities exchange valued last reported sales price reporting date publicly traded equities traded overthecounter market valued last reported bid price reporting date fixed income funds securities classified level 1 include publicly traded equities traded national securities exchange valued last reported sales price reporting date securities classified level 2 valued net asset value shares held year end based fair value underlying investments venture capital limited partnerships interests classified level 3 carried estimated fair value estimated fair value based fair value underlying investment values cost plus minus accumulated earnings losses approximates fair value government mortgage backed securities classified level 2 valued quoted market price broker dealer quotations transparent pricing sources reporting date corporate debt securities classified level 2 either valued quoted market prices observable pricing sources reporting date valued based upon comparable securities similar yields credit ratings securities classified level 3 valued estimated bids brokers third party vendor sources utilize expected cash flow streams data including counterparty credit quality default risk discount rates overall capital market liquidity shortterm investment funds securities classified level 2 valued net asset value shares held year end based fair value underlying investments short term investments primarily invested short term money market instruments us treasury agency securities classified level 1 valued quoted market prices observable pricing sources reporting date securities classified level 2 valued quoted market price broker dealer quotations transparent pricing sources reporting date insurance contracts interests classified level 3 carried contract value approximates estimated fair value estimated fair value based fair value underlying investment insurance company insurance contracts held certain nonus pension plans collateralized mortgage obligation bonds securities classified level 2 either valued quoted market prices observable pricing sources reporting date valued based upon comparable securities similar yields credit ratings purpose underlying loan securities classified level 3 valued estimated bids brokers thirdparty vendor sources utilize expected cash flow streams data including counterparty credit quality default risk discount rates overall capital market liquidity event driven hedge funds securities classified level 2 valued net asset value shares held year end based fair value underlying investments event driven hedge funds primarily invest long short relative country positions various strategies including global fixed income global currencies global equities commodities emerging market debt inflationindexed bonds asset backed securities classified level 2 either valued quoted market prices observable pricing sources reporting date valued based upon comparable securities similar yields credit ratings purpose underlying loan securities classified level 3 valued estimated bids brokers thirdparty vendor sources utilize expected cash flow streams data including counterparty credit quality default risk discount rates overall capital market liquidity state municipal bonds securities classified level 2 valued quoted market price broker dealer quotations transparent pricing sources reporting date real estate interests classified level 2 either valued quoted market prices observable pricing sources reporting date valued based upon comparable investments interests classified level 3 valued net asset value shares held year end based fair value underlying investments cash equivalents securities classified level 1 highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement following summarizes activity financial assets utilizing level 3 fair value measurements investment strategy emphasizes equities order achieve higher expected returns lower expenses required cash contributions longterm target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income maintained us pension plans cash contributions benefit payments used rebalance back targets necessary investments well diversified within three major asset categories approximately 81 us pension plans equity investments actively managed venture capital limited partnerships typically valued three month lag bristolmyers squibb company common stock represents less 1 plan assets december 31 2010 2009 contributions us pension plans 341 million 2010 656 million 2009 including 27 million mead johnson 250 million 2008 contributions us pension plans expected approximate 330 million 2011 300 million contributed january 2011 contributions international pension plans 90 million 2010 133 million 2009 176 million 2008 contributions international plans expected range 75 million 90 million 2011 estimated future benefit payments savings plan principal defined contribution plan bristolmyers squibb savings investment program contribution based employee contributions level company match qualified defined contribution plans amended allow increased matching additional company contributions effective 2010 expense related plan 188 million 2010 50 million 2009 58 million 2008 post employment benefit plan postemployment liabilities longterm disability benefits 92 million 93 million december 31 2010 2009 respectively expense related benefits 18 million 2010 21 million 2009 26 million 2008 termination indemnity plans statutory termination obligations europe recognized undiscounted basis assuming employee termination measurement date liability recognized obligations 25 million december 31 2010 49 million december 31 2009 note 22 employee stock benefit plans employee stock plans may 1 2007 shareholders approved 2007 stock award incentive plan 2007 plan 2007 plan replaced 2002 stock incentive plan 2002 plan expired may 31 2007 plan provides 42 million new shares common stock reserved delivery participants plus shares remaining available new grants 2002 plan shares recaptured outstanding awards 2002 plan shares actually delivered participants connection award restrictions lapsed reduce number shares reserved shares tendered prior year pay purchase price options shares previously utilized satisfy withholding tax obligations upon exercise continue available reserved shares common stock reserved issuance pursuant stock plans options conversions preferred stock 331 million 346 million december 31 2010 2009 respectively shares available granted active plans 103 million 92 million december 31 2010 2009 respectively adjusted combination plans shares stock option exercise share unit vesting issued treasury stock 2007 plan 2002 plan executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price 2007 plan 2002 plan provide granting common stock key employees subject restrictions continuous employment restrictions expire four year period date grant compensation expense recognized restricted period restricted stock units granted instead restricted stock since 2007 stock unit right receive stock end specified vesting period voting rights beginning 2010 market share units granted certain executives 2007 plan vesting market share units conditioned upon continuous employment vesting date payout factor equals least 60 payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs 25 per year four years 2007 plan 2002 plan also incorporated longterm performance awards three year cycle delivered form target number performance share units number shares ultimately issued calculated based actual performance compared earnings targets performance criteria established beginning performance period awards annual goals maximum payout 1675 threshold targets met performance period payment made plan annual period stockbased compensation expense follows alternative method determine pool excess tax benefits elected stock options stock option activities follows december 31 2010 unrecognized compensation cost related stock options 39 million expected recognized weightedaverage period 18 years beginning 2010 company stopped granting stock options form compensation grants additional restricted stock units market share units additional information related stock option grants exercises 2007 plan 2002 plan summarized follows following table summarizes information concerning stock compensation plans currently outstanding exercisable options following table summarizes significant ranges outstanding exercisable options december 31 2010 amounts millions except per share data aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 2648 december 31 2010 41 million inthemoney options exercisable december 31 2010 95 million outstanding options exercisable weightedaverage exercise price 3377 december 31 2009 fair value stock options estimated grant date using blackscholes option pricing model stock options service condition model applying multiple input variables determine probability satisfying market conditions options service market conditions following weightedaverage assumptions used valuation expected volatility assumption required blackscholes model derived calculating 10year historical volatility weighting equally derived implied volatility blended historical implied volatility approach expected volatility believed representative future stock price trends using historical volatility riskfree interest rate assumption based upon us treasury yield curve effect grant date dividend yield assumption based historical expected dividend payouts expected life stock options represents weightedaverage period stock options remain outstanding derived output latticebinomial model expected life impacted underlying assumptions calibration model assumes employees’ exercise behavior function option’s remaining vested life extent option inthemoney model estimates probability exercise function two variables based historical exercises cancellations prior option grants made expense based awards ultimately expected vest recognized vesting period forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates restricted stock awards restricted stock units restricted stock awards restricted stock units vest ratably four year period december 31 2010 unrecognized compensation cost related nonvested restricted stock 141 million expected recognized weightedaverage period 25 years fair value nonvested shares restricted stock awards units determined based closing trading price company’s common stock grant date total fair value vested shares 79 million 74 million 84 million 2010 2009 2008 respectively 6 million shares granted 2009 weighted average grant date fair value 1777 5 million shares granted 2008 weighted average grant date fair value 2222 market share units market share units vest ratably four year period based share price performance december 31 2010 unrecognized compensation cost related nonvested market share units 19 million expected recognized weightedaverage period 32 years fair value market share units estimated date grant using model applying multiple input variables determine probability satisfying market conditions model uses following input variables expected volatility based four year historical volatility levels company’s common stock current implied volatility fouryear riskfree interest rate derived federal reserve based market share units’ contractual term expected dividend yield based historical dividend payments fair value market share unit amortized vesting period award longterm performance awards longterm performance share units determined based achievement annual performance goals vested end three year period fair value performance awards based closing trading price common stock grant date fair value performance share units granted 2010 discounted participated dividends fair value performance share units granted 2009 2008 discounted using riskfree interest rate date grant participate dividends performance share units granted 17 million 2010 14 million 2009 12 million 2008 weighted average grant date fair value 2365 1559 1912 respectively assuming 100 payout share units outstanding 34 million december 31 2010 25 million december 31 2009 11 million shares issued 2010 december 31 2010 unrecognized compensation cost related performance share unit plan 19 million expected recognized weightedaverage period 17 years total fair value vested shares 56 million 21 million 11 million 2010 2009 2008 respectively note 23 shortterm borrowings longterm debt shortterm borrowings include part medarex acquisition medarex’s outstanding 225 convertible senior notes due may 15 2011 assumed notes adjusted right receive 1167 cash time 1000 principal amount outstanding equivalent 16 per share time prior maturity substantially redeemed 2010 longterm debt includes included debt floating rate convertible senior debentures due 2023 redeemed holders par september 15 2013 2018 fundamental change ownership occurs debentures callable par time company debentures conversion price 4042 equal conversion rate 2474292 shares 1000 principal amount subject certain antidilutive adjustments maximum conversion rate 387597 shares 1000 principal amount debentures pay interest quarterly annual rate equal three month libor reset quarterly minus 050 yield never less zero february 2009 mead johnson company borrower mead johnson guarantor indirect majorityowned subsidiaries entered three year syndicated revolving credit facility agreement fourth quarter 2009 mead johnson borrowed 200 million revolving credit facility issued various notes totaling 15 billion proceeds used repay certain intercompany debt prior splitoff 2010 750 million aggregate principal value debt repurchased tender offer 319 million notional amount interest rate swaps related debt repurchases terminated following table summarizes activity 2009 117 million aggregate principal value debt repurchased 53 million notional amount interest rate swaps related debt repurchases terminated following table summarizes activity 2008 254 million aggregate principal value debt repurchased 241 million notional amount interest rate swaps related debt repurchases terminated following table summarizes activity discussion interest rate swaps see “note 24 financial instruments” interest payments net amounts related interest rate swaps 178 million 2010 206 million 2009 303 million 2008 principal value longterm debt obligations 4749 million december 31 2010 597 million due 2013 remaining 4152 million due later 2013 fair value longterm debt 5861 million 6258 million december 31 2010 2009 respectively estimated based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments 20 billion five year revolving credit facility syndicate lenders maturing december 2011 maintained facility extendable consent lenders contains customary terms conditions including financial covenant whereby ratio consolidated net debt consolidated capital cannot exceed 50 end quarter company compliance covenant since inception facility borrowings outstanding facility december 31 2010 2009 december 31 2010 178 million financial guarantees provided form standby letters credit performance bonds standby letters credit insurance companies support thirdparty liability programs performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority outstanding financial guarantees expire within year expected funded note 24 financial instruments financial instruments include cash equivalents marketable securities receivables accounts payable debt instruments derivatives due short term maturity carrying amount receivables accounts payable approximate fair value exposure market risk due changes currency exchange rates interest rates result certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes foreign currency forward contracts used manage cash flow exposures primary net foreign currency exposures hedged euro japanese yen canadian dollar british pound australian dollar mexican peso fixedtofloating interest rate swaps used part interest rate risk management strategy swaps qualify fairvalue hedge accounting treatment certain net asset changes due foreign exchange volatility hedged nonus dollar borrowings qualify net investment hedge derivative financial instruments present certain market counterparty risks however concentration counterparty risk mitigated limiting amounts individual counterparty using banks worldwide standard poor’s moody’s longterm debt ratings higher addition conventional derivative financial instruments utilized consolidated financial statements would materially impacted counterparties failed perform according terms agreement currently collateral form securitization required furnished counterparties derivative financial instruments following summarizes fair value outstanding derivatives notional value natural gas contracts 2 million decatherms december 31 2009 qualifying hedges cash flow hedges foreign currency forward contracts foreign currency forward contracts utilized hedge forecasted intercompany transactions certain foreign currencies contracts designated foreign currency cash flow hedges appropriate notional fair value amounts contracts 1423 million 22 million net liability 1511 million 10 million net liability december 31 2010 2009 respectively majority contracts qualify hedges probable forecasted cash flows effective portion changes fair value temporarily reported accumulated oci recognized earnings hedged item affects earnings following table summarizes significant outstanding foreign currency forward contracts december 31 2010 fair value contracts based yearend currency rates viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates deferred losses foreign currency forward contracts qualifying cash flow hedge accounting 18 million 11 million net taxes december 31 2010 expected reclassified earnings within next 23 months effectiveness assessed inception hedge quarterly basis assessments determine whether derivatives designated qualifying hedges continue highly effective offsetting changes cash flows hedged items ineffective portion change fair value included current period earnings impact hedge ineffectiveness earnings significant 2010 2009 2008 cash flow hedge accounting discontinued forecasted transaction longer probable occurring originally forecasted date 60 days thereafter hedge longer effective discontinued foreign exchange hedges reported incomeexpense significant 2010 2009 2008 interest rate contracts terminated swaps qualify cash flow hedges recognized accumulated oci amortized earnings remaining life debt hedged debt remains outstanding impact oci earnings foreign currency forward contracts natural gas contracts forward starting swaps qualified cash flow hedges follows hedge net investment nonus dollar borrowings primarily 500 million notes due 2016 500 million notes due 2021 13 billion total used hedge foreign currency exposures net investment certain foreign affiliates borrowings designated hedge net investment effective portion foreign exchange gains losses recognized foreign currency translation cta component accumulated oci december 31 2010 459 million 602 million notes due 2016 dedesignated impact oci earnings nonderivative debt designated hedge net investment follows fair value hedges interest rate contracts derivative instruments used part interest rate risk management strategy principally fixedtofloating interest rate swaps designated fairvalue hedges total notional amounts fair value outstanding interest rate swaps 3526 million 234 million net assets 3731 million 160 million net assets december 31 2010 2009 respectively swaps underlying debt benchmark risk hedged recognized fair value swaps intended create appropriate balance fixed floating rate debt basis adjustment debt qualifying fair value hedging relationships amortized earnings adjustment interest expense remaining life debt underlying swap terminated prior maturity 2010 fixedtofloating interest rate swaps executed convert 332 million 680 debentures due 2026 147 million 715 debentures due 2023 500 million 4375 notes due 2016 fixed rate debt variable rate debt 2009 fixedtofloating interest rate swaps executed convert 797 million 545 notes due 2018 525 notes due 2013 fixed rate debt variable rate debt swaps qualified fair value hedge debt instrument 2010 fixedtofloating interest rate swap agreements 237 million notional amount 500 million notional amount terminated generating proceeds 116 million 2009 1061 million notional amount fixedtofloating interest rate swap agreements terminated proceeds 204 million 2008 550 million notional amount fixedtofloating interest rate swap agreements terminated proceeds 197 million proceeds swap terminations less accrued interest deferred amortized interest expense remaining life underlying debt additionally company terminated certain interest rate swap agreements connection repurchase certain debt obligations resulted net proceeds 48 million 2010 7 million 2009 34 million 2008 gain loss attributable transactions immediately recognized incomeexpense discussion company’s debt repurchase see “note 23 shortterm borrowings longterm debt” following summarizes interest rate swaps outstanding december 31 2010 impact interest expense interest rate swaps qualified fair value hedges follows nonqualifying foreign currency forward contracts foreign currency forward contracts also utilized hedge foreign currencydenominated monetary assets liabilities primary objective contracts protect us dollar value foreign currencydenominated monetary assets liabilities effects volatility foreign exchange rates might occur prior receipt settlement us dollars contracts designated hedges adjusted fair value incomeexpense occur substantially offset change fair value underlying foreign currency denominated monetary asset liability notional fair value amounts contracts significant december 31 2010 2009 furthermore foreign currency forward contracts also used offset exposure certain assets liabilities earnings denominated certain foreign currencies contracts designated hedges adjusted fair value incomeexpense occur december 31 2010 company hold foreign exchange contracts mature within next 12 months impact earnings nonqualifying foreign currency forward contracts significant years ended december 31 2010 2009 2008 note 25 leases minimum rental commitments noncancelable operating leases primarily real estate motor vehicles effect december 31 2010 follows operating lease expense 145 million 2010 149 million 2009 179 million 2008 17 million 2009 12 million 2008 included discontinued operations sublease income material years ended december 31 2010 2009 2008 saleleaseback administrative facility paris france completed 227 million 155 million resulting pretax gain 111 million gain deferred reduce future lease costs lease period 2017 note 26 legal proceedings contingencies company certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business relating product liability patent commercial consumer environmental securities matters company recognizes accruals contingencies probable liability incurred amount loss reasonably estimated litigation expense net included 41 million insurance reimbursement prior litigation offset additional reserves certain average wholesale prices awp litigation 2010 125 million securities litigation settlement 2009 33 million 2008 related awp litigation net revised estimates previously accrued amounts cash payments related significant litigation 6 million 2010 139 million 2009 210 million 2008 significant matters described although company believes substantial defenses matters assurance increase scope pending matters future lawsuits claims government investigations legal proceedings material unless otherwise noted company unable assess outcome respective litigation able provide estimated range potential loss furthermore failure enforce patent rights would likely result substantial decreases respective product sales generic competition intellectual property plavix litigation plavix currently company’s largest product ranked net sales plavix patents subject number challenges us including litigation apotex inc apotex corp apotex described less significant markets product company product partner sanofi companies intend vigorously pursue enforcement patent rights plavix litigation us patent infringement litigation apotex related matters previously disclosed company’s us territory partnership alliance sanofi plaintiff pending patent infringement lawsuit instituted united states district court southern district new york district court entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v apotex suit based us patent 4847265 ‘265 patent composition matter patent discloses claims among things hydrogen sulfate salt clopidogrel medicine made available us companies plavix also previously reported district court upheld validity enforceability ‘265 patent maintaining main patent protection plavix us november 2011 district court also ruled apotex’s generic clopidogrel bisulfate product infringed ‘265 patent permanently enjoined apotex engaging activity infringes ‘265 patent including marketing generic product us patent expires apotex appealed district court’s decision december 12 2008 united states court appeals federal circuit court affirmed district court’s ruling sustaining validity ‘265 patent apotex filed petition circuit court rehearing en banc march 2009 circuit court denied apotex’s petition case remanded district court proceedings relating damages july 2009 apotex filed petition writ certiorari us supreme court requesting supreme court review circuit court’s decision november 2009 us supreme court denied petition declining review circuit court’s decision december 2009 company filed motion district court summary judgment damages january 2010 apotex filed motion seeking stay ongoing damages proceedings pending outcome reexamination plavix patent us patent trademark office pto described april 2010 district court denied apotex’s motion stay proceedings october 2010 district court granted companies’ summary judgment motion awarded 442 million damages plus costs interest apotex appealing amount damages award however validity patent claiming clopidogrel bisulfate finally judicially determined favor companies possible time determine whether amount damages award upheld appeal previously disclosed company’s us territory partnership alliance sanofi also plaintiff five additional patent infringement lawsuits dr reddy’s laboratories inc dr reddy’s laboratories ltd dr reddy’s teva pharmaceuticals usa inc teva cobalt pharmaceuticals inc cobalt watson pharmaceuticals inc watson laboratories inc watson sun pharmaceuticals sun lawsuits dr reddy’s teva cobalt relate ‘265 patent may 2009 dr reddy’s signed consent judgment favor sanofi bms conceding validity infringement ‘265 patent previously reported patent infringement actions teva cobalt stayed pending resolution apotex litigation parties actions agreed bound outcome litigation apotex consequently july 12 2007 district court entered judgments cobalt teva permanently enjoined cobalt teva engaging activity infringes ‘265 patent expires cobalt teva filed appeal july 2009 circuit court issued mandate teva appeal binding teva decision apotex litigation august 2009 cobalt consented entry judgment appeal agreeing bound circuit court’s decision apotex litigation lawsuit watson filed october 2004 based us patent 6429210 ‘210 patent discloses claims particular crystalline polymorph form hydrogen sulfate salt clopidogrel marketed plavix december 2005 court permitted watson pursue declaratory judgment counterclaim respect us patent 6504030 january 2006 court approved parties’ stipulation stay case pending outcome trial apotex matter may 1 2009 bms watson entered stipulation dismiss case april 2007 pharmastar filed request inter partes reexamination ‘210 patent pto granted request july 2007 july 2009 pto vacated reexamination proceeding lawsuit sun filed july 11 2008 based infringement ‘265 patent ‘210 patent respect ‘265 patent sun agreed bound outcome apotex litigation dr reddy’s teva cobalt watson sun filed anda fda respect dr reddy’s teva cobalt watson exclusivity periods statutory stay periods hatchwaxman act expired accordingly final approval fda would provide company authorization distribute generic clopidogrel bisulfate product us subject various legal remedies companies may apply including injunctive relief damages june 1 2009 apotex filed request ex parte reexamination ‘265 patent pto august 2009 pto agreed reexamine patent december 2009 pto issued nonfinal office action rejecting several claims covering plavix including claim previously upheld litigation apotex referred pto issued ex parte reexamination certificate withdrawing rejections nonfinal office action confirming patentability claims ‘265 patent apotex filed second request ex parte reexamination ‘265 patent june 2010 pto denied apotex’s request reexamine patent additionally november 13 2008 apotex filed lawsuit new jersey superior court entitled apotex inc et al v sanofiaventis et al seeking payment 60 million plus interest related breakup march 2006 proposed settlement agreement parties filed crossmotions summary judgment pending january 2011 apotex filed lawsuit florida state court broward county alleging breach contract relating parties’ may 2006 proposed settlement agreement plavix litigation international plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex since changed name apotex august 2007 apotex filed application federal court australia seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 australian court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april 2008 august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid view decision possible generic company could develop seek registration australia alternate salt form clopidogrel bisulfate hydrochloride hydrobromide taurocholate company sanofi filed notices appeal full court federal court australia full court appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 september 29 2009 full federal court australia held claims patent 597784 invalid november 2009 company sanofi applied high court australia high court special leave appeal judgment full court march 2010 high court denied company sanofi’s request hear appeal full court decision case remanded federal court proceedings related damages expected amount damages material company plavix eu previously disclosed 2007 yes pharmaceutical development services gmbh yes pharmaceutical filed application marketing authorization germany alternate salt form clopidogrel application relied data studies originally conducted sanofi bms plavix still subject data protection eu sanofi bms filed action yes pharmaceutical partners administrative court cologne objecting marketing authorization matter currently pending although specific marketing authorizations withdrawn market plavix canada apotex inc april 22 2009 apotex filed impeachment action sanofi federal court canada alleging sanofi’s canadian patent 1336777 ‘777 patent invalid ‘777 patent covers clopidogrel bisulfate patent issue prohibition action canada previously disclosed canadian federal court ottawa rejected apotex’s challenge ‘777 patent held asserted claims novel obvious infringed granted sanofi’s application order prohibition minister health apotex precluding approval apotex’s abbreviated new drug submission patent expires 2012 decision affirmed appeal federal court appeal supreme court canada june 8 2009 sanofi filed defense impeachment action filed suit apotex infringement ‘777 patent trial expected occur 2011 intellectual property litigation abilify previously disclosed otsuka filed patent infringement actions teva barr pharmaceuticals inc barr sandoz inc sandoz synthon laboratories inc synthon sun pharmaceuticals sun zydus pharmaceuticals usa inc zydus apotex relating us patent 5006528 ‘528 patent covers aripiprazole expires april 2015 including additional sixmonth pediatric exclusivity period aripiprazole comarketed company otsuka us abilify nonjury trial us district court district new jersey nj district court tevabarr apotex completed august 2010 november 2010 nj district court upheld validity enforceability ‘528 patent maintaining main patent protection abilify us april 2015 nj district court also ruled defendants’ generic aripiprazole product infringed ‘528 patent permanently enjoined engaging activity infringes ‘528 patent including marketing generic product us patent including sixmonth pediatric extension expires sandoz synthon sun zydus also bound nj district court’s decision december 2010 tevabarr apotex appealed decision us court appeals federal circuit possible time determine outcome appeal nj district court’s decision otsuka prevail appeal generic competition would likely result substantial decreases sales abilify us would material adverse effect results operations cash flows could material financial condition atripla april 2009 teva filed anda manufacture market generic version atripla single tablet threedrug regimen combining company’s sustiva gilead’s truvada time company’s us patent rights covering sustiva’s composition matter method use challenged teva sent gilead paragraph iv certification letter challenging two fifteen orange book listed patents atripla product joint venture company gilead may 2009 gilead filed patent infringement action teva us district court southern district new york sdny january 2010 company received notice teva amended anda challenging eight additional orange book listed patents atripla march 2010 company merck sharp dohme corp filed patent infringement action teva also sdny relating two us patents claim crystalline polymorph forms efavirenz march 2010 gilead filed two patent infringement actions teva sdny relating six orange book listed patents atripla discovery matters ongoing possible time reasonably assess outcome lawsuits impact company reyataz teva filed anda manufacture market generic versions four reyataz dosage forms 100 150 200 300 mg company received paragraph iv certification letter teva challenging two orange book listed patents reyataz december 2009 company novartis pharmaceutical corporation novartis filed patent infringement lawsuit us district court district delaware district court teva infringement two listed patents covering reyataz triggered automatic 30month stay approval teva’s anda subsequent patent infringement lawsuits filed discovery matters ongoing possible time reasonably assess outcome lawsuits impact company baraclude august 2010 teva filed anda manufacture market generic versions baraclude company received paragraph iv certification letter teva challenging one orange book listed patent baraclude september 2010 company filed patent infringement lawsuit delaware district court teva infringement listed patent covering baraclude triggered automatic 30month stay approval teva’s anda possible time reasonably assess outcome lawsuit impact company sprycel september 2010 apotex filed anda manufacture market generic versions sprycel company received paragraph iv certification letter apotex challenging four orange book listed patents sprycel including composition matter patent november 2010 company filed patent infringement lawsuit us district court district new jersey apotex infringement four orange book listed patents covering sprycel triggered automatic 30month stay approval apotex’s anda possible time reasonably assess outcome lawsuit impact company general commercial litigation clayworth litigation previously disclosed company together number pharmaceutical manufacturers named defendant action filed california state superior court oakland james clayworth et al v bristolmyers squibb company et al alleging defendants conspired fix prices pharmaceuticals agreeing charge drugs us charge outside us particularly canada asserting claims california’s cartwright act unfair competition law plaintiffs sought trebled monetary damages injunctive relief december 2006 court granted company manufacturers’ motion summary judgment based passon defense judgment entered favor defendants july 2008 judgment favor defendants affirmed california court appeals july 2010 california supreme court reversed court appeal’s judgment matter remanded superior court proceedings defendants’ motion summary judgment grounds remains pending motion denied trial could scheduled early summer possible time reasonably assess outcome lawsuit impact company event plaintiffs successful appeal antitrust litigation previously disclosed 18 lawsuits comprised individual suits purported class actions filed company us district court southern district ohio western division various plaintiffs including pharmacy chains individually assignees whole part certain wholesalers various health welfare benefit plansfunds individual residents various states lawsuits allege among things purported settlement apotex patent infringement litigation violated sherman act related laws plaintiffs seeking among things permanent injunctive relief barring apotex settlement andor monetary damages putative class actions filed behalf direct purchasers consolidated caption plavix direct purchaser antitrust litigation putative class actions filed behalf indirect purchasers consolidated caption plavix indirect purchaser antitrust litigation amended complaints filed october 19 2007 defendants filed consolidated motion dismiss december 2007 district court granted defendants’ motion dismiss direct purchaser claims appeal taken dismissal january 2011 district court granted defendants’ motion dismiss respect indirect purchaser claims possible time reasonably assess outcome lawsuits impact company pricing sales promotional practices litigation investigations abilify state attorneys general investigation march 2009 company received letter delaware attorney general’s office advising multistate coalition investigating whether certain abilify marketing practices violated respective states’ consumer protection statutes possible time reasonably assess outcome investigation potential impact company awp litigation previously disclosed company together number pharmaceutical manufacturers defendant number private class actions well suits brought attorneys general various states actions plaintiffs allege defendants caused average wholesale prices awps products inflated thereby injuring government programs entities persons reimbursed prescription drugs based awps company defendant five state attorneys general suits pending state courts around country beginning august 2010 company defendant trial commonwealth court pennsylvania commonwealth court brought commonwealth pennsylvania september 2010 jury issued verdict company finding company liable fraudulent negligent misrepresentation however commonwealth court judge issued decision pennsylvania consumer protection claim go jury finding company liable 276 million enjoining company contributing provision inflated awps company moved vacate decision commonwealth moved judgment notwithstanding verdict alternative new trial motions currently pending commonwealth court previously reported one set class actions consolidated us district court district massachusetts awp mdl august 2009 district court granted preliminary approval proposed settlement awp mdl plaintiffs’ claims company 19 million plus half costs class notice maximum payment 1 million final approval hearing scheduled occur march 2011 california 340b litigation previously disclosed august 2005 county santa clara filed purported class action company numerous pharmaceutical manufacturers behalf putative class cities counties california well covered entities purchased drugs pursuant 340b drug discount program 340b entities alleging manufacturers provide proper discounts 340b entities may 2009 us district court northern district california district court denied plaintiff’s motion without prejudice certify class september 2010 us supreme court granted certiorari issue whether 340b entities standing sue district court previously dismissed case finding 340b entities standing us court appeals ninth circuit reversed district court district court stayed case pending decision us supreme court possible time reasonably assess outcome lawsuit potential impact company product liability litigation company party various product liability lawsuits previously disclosed addition lawsuits company also faces unfiled claims involving products plavix previously disclosed company certain affiliates sanofi defendants number individual lawsuits claiming personal injury allegedly sustained using plavix appear united states district court district new jersey nj district court december 31 2010 companies defendants 20 actions nj district court executed tolling agreements respect unfiled claims potential additional plaintiffs possible time reasonably assess outcome lawsuits potential impact company hormone replacement therapy company one number defendants masstort litigation plaintiffs allege among things various hormone therapy products including hormone therapy products formerly manufactured company estrace estradiol delestrogen ovcon cause breast cancer stroke blood clots cardiac injuries women defendants aware risks failed warn consumers december 31 2010 company defendant 300 lawsuits filed behalf 450 plaintiffs federal state courts throughout us company entered two separate settlements principle resolve claims approximately 200 plaintiffs company’s hormone therapy products sold companies january 2000 august 2001 environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including comprehensive environmental response compensation liability act cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated thirdparties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable company estimated share future costs sites 68 million december 31 2010 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties new brunswick facility environmental personal injury lawsuits previously disclosed may 2008 100 lawsuits filed company superior court middlesex county nj behalf current former residents new brunswick nj live lived adjacent company’s new brunswick facility complaints allege various personal injuries property damage resulting alleged soil groundwater contamination property stemming historical operations new brunswick facility october 2008 new jersey supreme court granted mass tort status cases transferred new jersey superior court atlantic county centralized case management purposes company intends defend vigorously litigation possible time reasonably assess outcome lawsuits potential impact company north brunswick township board education previously disclosed october 2003 company contacted counsel representing north brunswick nj board education boe regarding site waste materials er squibb sons may disposed 1940’s 1960’s fill material containing industrial waste heavy metals excess residential standards discovered expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 new jersey department environmental protection njdep sent company others information request letter possible waste disposal site company responded march 2004 boe township current owners school property park conducting jointly financing soil remediation work ground water investigation work plan approved njdep asked company contribute cost company actively monitoring cleanup project including costs date neither school board township asserted claim company instead company local entities negotiated agreement attempt resolve matter informal means avoid litigation central component agreement provision company interim funding help defray cleanup costs assure work interrupted company transmitted interim funding payments december 2007 november 2009 parties commenced mediation late 2008 however efforts successful parties moved binding allocation process addition september 2009 township boe filed suits several parties alleged contributed waste materials site proceedings sec germany investigation previously disclosed october 2004 sec notified company conducting informal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents october 2006 sec informed company inquiry become formal sec’s inquiry encompasses matters formerly investigation german prosecutor munich germany since resolved company understands inquiry concerns potential violations foreign corrupt practices act company cooperating sec medarex shareholder litigation july 22 2009 company medarex announced signing merger agreement providing acquisition medarex company tender offer 1600 per share cash following announcement certain medarex shareholders filed similar lawsuits state federal court relating transaction medarex members medarex’s board directors company following consolidation state court actions august 20 2009 parties entered memorandum understanding mou pursuant parties reached agreement principle settle state federal actions pursuant agreements mou among things medarex made certain supplemental disclosures tender offer period parties also agreed present superior court new jersey mercer county nj superior court stipulation settlement documentation may required order obtain approval court settlement dismissal actions upon terms set forth mou july 2010 proposed settlement approved nj superior court several objectors settlement filed motions reconsideration asking court reconsider approval settlement denied december 2010 january 2011 objectors filed notices appeal king pharmaceuticals inc november 2009 king pharmaceuticals inc king affiliated entities filed suit zymogenetics inc zymogenetics wholly owned subsidiary company see “note 5 acquisitions” united states district court eastern district tennessee king alleges zymogenetics engaged unfair competition false advertising trademark infringement related claims federal law tennessee state law king seeks various forms relief including damages injunctive relief precluding company making certain representations regarding king’s products company’s recothrom product king also filed motions district court seeking temporary restraining orders preliminary injunctive relief december 2009 judge denied king’s motions preliminary injunction lawsuit continues trial case currently scheduled fourth quarter 2011 possible time reasonably assess outcome lawsuit potential impact company note 27 selected quarterly financial data unaudited 1 earnings per share quarters may add amounts year period computed discrete basis 2 marketable securities includes current noncurrent assets following specified items affected comparability results 2010 2009 2010 2009 report independent registered public accounting firm board directors stockholders bristolmyers squibb company audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries “company” december 31 2010 2009 related consolidated statements earnings comprehensive income retained earnings cash flows three years period ended december 31 2010 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2010 2009 results operations cash flows three years period ended december 31 2010 conformity accounting principles generally accepted united states america discussed note 1 consolidated financial statements company adopted accounting standard related business combinations effective business combinations entered january 1 2009 also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2010 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 18 2011 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp parsippany new jersey february 18 2011 item 9item 8 financial statements supplementary data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies basis consolidation consolidated financial statements prepared conformity united states us generally accepted accounting principles gaap include accounts bristolmyers squibb company may referred bristolmyers squibb bms company controlled majorityowned subsidiaries intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date codevelopment cocommercialization license arrangements entered parties various therapeutic areas terms including upfront licensing contingent payments arrangements assessed determine whether terms give economic control entity may require consolidation entity entities consolidated controlled means majority voting interest referred variable interest entities arrangements material variable interest entities including associated codevelopment cocommercialization license arrangements determined exist use estimates preparation financial statements requires use management estimates assumptions based complex judgments significant assumptions employed estimates used determining fair value intangible assets restructuring charges accruals sales rebate return accruals including related us healthcare reform legal contingencies tax assets tax liabilities stockbased compensation expense pension postretirement benefits including actuarial assumptions see “note 19 pension postretirement postemployment liabilities” fair value financial instruments direct observable market quotes inventory obsolescence potential impairment longlived assets allowances bad debt well estimates used applying revenue recognition policy new discounts 2010 us healthcare reform law medicare coverage gap managed medicaid require additional assumptions due lack historical claims experience addition new pharmaceutical company fee estimate subject external data well calculation based company’s relative share industry results actual results may differ estimated results revenue recognition revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally time shipment however certain sales made nonus businesses recognized date receipt purchaser see “note 3 alliances collaborations” discussion revenue recognition related alliances provisions made time revenue recognition expected sales returns discounts rebates estimated sales allowances based historical experience updated changes facts circumstances including impact new legislation provisions recognized reduction revenue limited circumstances new product extension existing line product historical experience products similar therapeutic category exists revenue deferred right return longer exists sufficient historical experience estimate sales returns developed income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax basis assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made cash equivalents cash equivalents consist us treasury securities government agency securities bank deposits time deposits money market funds cash equivalents consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value marketable securities investments companies marketable securities classified “availableforsale” date purchase reported fair value december 31 2011 2010 fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity declines fair value considered temporary charged earnings considered temporary reported component accumulated comprehensive income oci shareholders’ equity declines fair value determined credit related charged earnings average cost method used determining realized gains losses sale “availableforsale” securities investments 50 less owned companies ability exercise significant influence maintained accounted using equity method accounting share net income losses equity investments included equity net income affiliates consolidated statements earnings equity investments reviewed impairment assessing decline market value investment carrying value temporary considers intent ability retain investment length time extent market value less cost financial condition investee inventory valuation inventories stated lower average cost market property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation computed straightline method based estimated useful lives related assets estimated useful lives depreciable assets range 20 50 years buildings 3 20 years machinery equipment fixtures impairment longlived assets current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows longlived assets held sale reported lower carrying value estimated net realizable value capitalized software certain costs obtain internal use software significant systems projects capitalized amortized estimated useful life software costs obtain software projects significant expensed incurred business combinations businesses acquired included consolidated financial statements upon obtaining control acquiree assets acquired liabilities assumed recognized date acquisition respective fair values excess purchase price estimated fair values net assets acquired recognized goodwill legal costs audit fees business valuation costs business acquisition costs expensed incurred goodwill acquired inprocess research development intangible assets goodwill tested impairment annually using twostep process first step identifies potential impairment second step measures amount impairment loss goodwill impaired carrying amount reporting unit’s goodwill exceeds estimated fair value geographical reporting units aggregated impairment testing purposes annual goodwill impairment assessment completed first quarter 2011 subsequently monitored potential impairment remaining quarters 2011 none indicated impairment goodwill fair value inprocess research development iprd acquired business combination determined based present value research project’s projected cash flows using income approach future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted probability regulatory success resulting cash flows discounted rate approximating company’s weightedaverage cost capital iprd initially capitalized considered indefinitelived assets subject annual impairment reviews often upon occurrence certain events review requires determination fair value respective intangible assets fair value intangible assets less carrying value impairment loss recognized difference compounds reach commercialization assets amortized expected useful lives patentstrademarks licenses technology amortized straightline basis estimated useful lives monitored impairment triggers considered impaired net carrying value exceeds estimated fair value restructuring charges recognized result actions streamline operations rationalize manufacturing facilities judgment used estimating impact restructuring plans including future termination benefits exit costs incurred actions take place actual results could vary estimates contingencies loss contingencies legal proceedings claims may occur wide range matters including government investigations shareholder lawsuits product environmental liability contractual claims tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies recognized realized legal fees expensed incurred derivative financial instruments derivative financial instruments used principally management interest rate foreign currency exposures held issued trading purposes derivative instruments recognized fair value changes derivative’s fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized earnings derivative designated cash flow hedge effective portions changes fair value derivative reported accumulated comprehensive income oci subsequently recognized earnings hedged item affects earnings cash flows classified consistent underlying hedged item derivatives designated assigned hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer probable occur gain loss immediately recognized designated hedge earnings nonderivative instruments also designated hedges net investments foreign affiliates nonderivative instruments mainly euro denominated longterm debt effective portion designated nonderivative instrument recognized foreign currency translation section oci ineffective portion recognized earnings shipping handling costs shipping handling costs included marketing selling administrative expenses 139 million 2011 135 million 2010 208 million 2009 68 million 2009 included discontinued operations advertising product promotion costs advertising product promotion costs expensed incurred foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized oci net assets subsidiaries highly inflationary economies remeasured functional currency reporting currency remeasurement recognized earnings research development research development costs expensed incurred clinical study costs accrued service periods specified contracts adjusted necessary based upon ongoing review level effort costs actually incurred strategic alliances third parties provide rights develop manufacture market andor sell pharmaceutical products rights owned party certain research development payments alliance partners contingent upon achievement certain predetermined criteria milestone payments achieved prior regulatory approval product expensed research development milestone payments made connection regulatory approvals capitalized amortized cost products sold remaining useful life asset capitalized milestone payments tested recoverability periodically whenever events changes circumstances indicate carrying amounts may recoverable research development recognized net reimbursements connection collaboration agreements upfront licensing milestone receipts obtained development deferred amortized estimated life product income company future obligation development upfront licensing milestone receipts recognized immediately income amortization period upfront licensing milestone receipts new materially modified arrangement january 1 2011 assessed determined considering terms arrangements recently issued accounting standards january 2011 new revenue recognition standard adopted new materially modified revenue arrangements upfront licensing fees contingent milestones relating research development deliverables guidance provides principles application guidance whether multiple deliverables exist arrangement separated consideration allocated adoption standard impact consolidated financial statements september 2011 fasb amended guidance goodwill impairment testing amendment allows entities first assess qualitative factors determining whether fair value reporting unit exceeds carrying value entity concludes qualitative assessment likely fair value reporting unit exceeds carrying value performing twostep impairment test unnecessary standard effective fiscal years beginning december 15 2011 expected impact consolidated financial statements note 2 business segment information bms operates single segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization global supply chain organization utilized responsible development delivery products market products distributed sold regional organizations serve united states europe latin america middle east africa japan asia pacific canada emerging markets defined brazil russia india china turkey business also supported global corporate staff functions segment information presented consistent financial information regularly reviewed chief operating decision maker chief executive officer purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods products sold principally wholesalers lesser extent directly distributors retailers hospitals clinics government agencies pharmacies gross sales three largest pharmaceutical wholesalers us percentage total gross sales follows selected geographic area information follows net sales key products follows capital expenditures depreciation property plant equipment within segment follows segment income excludes impact significant items indicative current operating performance ongoing results earnings attributed sanofi noncontrolling interest reconciliation earnings continuing operations income taxes follows note 3 alliances collaborations sanofi bms agreements sanofi codevelopment cocommercialization avaproavalide angiotensin ii receptor antagonist indicated treatment hypertension diabetic nephropathy plavix platelet aggregation inhibitor worldwide alliance operates framework two geographic territories one americas principally us canada puerto rico latin american countries australia europe asia accordingly two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries general country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place agreements expire upon expiration patents exclusivity rights applicable territory bms acts operating partner owns 501 majority controlling interest territory covering americas australia consolidates country partnership results territory sanofi’s 499 share results reflected noncontrolling interest bms recognizes net sales territory comarketing countries outside territory eg germany italy irbesartan spain greece royalties owed sanofi included cost products sold development royalties sanofi acts operating partner owns 501 majority controlling interest territory covering europe asia bms 499 ownership interest territory accounts equity method distributions profits relating partnerships included operating activities bms sanofi separate partnership governing copromotion irbesartan us bms recognizes income related amortization deferred income associated sanofi’s 350 million payment bms acquisition interest irbesartan license us upon formation alliance certain supply activities development optout royalties sanofi reflected net basis incomeexpense fourth quarter 2011 bms established 80 million reserve related avalide supply disruption early 2011 connection ongoing negotiations sanofi charge included expense summarized financial information related alliance follows following summarized financial information interests partnerships sanofi territory covering europe asia consolidated accounted using equity method cost products sold includes discovery royalties 184 million 2011 307 million 2010 446 million 2009 paid directly sanofi expenses shared based applicable ownership percentages current assets current liabilities include approximately 400 million 2011 567 million 2010 10 billion 2009 related receivablespayables attributed respective years net cash distributions bms sanofi well intercompany balances partnerships within territory remaining current assets current liabilities consist thirdparty trade receivables inventories amounts due bms sanofi purchase inventories royalties expense reimbursements otsuka bms worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote abilify treatment schizophrenia bipolar mania disorder major depressive disorder excluding certain asia pacific countries us portion amended commercialization manufacturing agreement expires upon expected loss product exclusivity april 2015 contractual share abilify net sales recognized bms 65 2009 58 2010 535 2011 beginning january 1 2012 contractual share revenue recognized bms reduced 515 uk germany france spain bms receives 65 thirdparty net sales countries us thirdparty customers invoiced bms behalf otsuka alliance revenue recognized abilify shipped risks rewards ownership transferred third party customers certain countries bms presently exclusive distributor product exclusive right sell abilify bms recognizes net sales bms purchases product otsuka performs finish manufacturing sale thirdparty customers bms otsuka terms amended agreement bms paid otsuka 400 million amortized reduction net sales expected loss us exclusivity april 2015 unamortized balance included assets otsuka receives royalty based 15 total us net sales included cost products sold otsuka responsible 30 us expenses related commercialization abilify 2010 2012 reimbursements netted principally marketing selling administrative advertising product promotion expenses beginning january 1 2013 expected loss us exclusivity april 2015 including expected six month pediatric extension bms receive following percentages us annual net sales period otsuka responsible 50 us expenses related commercialization abilify bms otsuka also entered oncology collaboration sprycel ixempra us japan european union eu markets oncology territory collaboration fee classified cost products sold paid otsuka based following percentages annual net sales sprycel ixempra oncology territory periods otsuka contributes 20 first 175 million certain commercial operational expenses relating oncology products ii 1 commercial operational expenses relating products territory excess 175 million beginning 2011 otsuka copromotes sprycel us japan exercised right copromote top five eu markets beginning january 2012 us extension oncology collaboration include changeofcontrol provision case acquisition bms acquiring company competing product abilify new company assume abilify agreement amended oncology collaboration exists today acquiring company product competes abilify otsuka elect request acquiring company choose whether divest abilify competing product scenario abilify divested otsuka would obligated acquire rights bms abilify agreement amended agreements also provide event generic competitor abilify january 1 2010 bms option terminating abilify april 2009 amendment agreement previously amended remaining force bms exercise option either bms would receive payment otsuka according predetermined schedule oncology collaboration would terminate time ii oncology collaboration would continue truncated period according predetermined schedule eu agreement remained unchanged expire june 2014 countries bms exclusive right sell abilify agreement expires later 10th anniversary first commercial sale country expiration applicable patent country addition 400 million extension payment total milestone payments made otsuka agreement december 2011 217 million 157 million expensed iprd 1999 remaining 60 million capitalized intangible assets amortized cost products sold remaining life original agreement us summarized financial information related alliance follows january 2007 bms granted otsuka exclusive rights develop commercialize onglyza japan bms expects receive milestone payments based certain regulatory events well salesbased payments following regulatory approval onglyza japan retained rights copromote onglyza otsuka japan otsuka responsible development costs japan lilly bms epidermal growth factor receptor egfr commercialization agreement eli lilly company lilly’s 2008 acquisition imclone systems incorporated imclone codevelopment promotion erbitux necitumumab imc11f8 us expires erbitux september 2018 bms also codevelopment copromotion rights products canada japan erbitux indicated use treatment patients metastatic colorectal cancer use treatment squamous cell carcinoma head neck egfr agreement respect erbitux sales north america lilly receives distribution fee based flat rate 39 net sales north america plus reimbursement certain royalties paid lilly included cost products sold 2007 bms imclone amended codevelopment agreement merck kgaa merck provide cocommercialization erbitux japan rights agreement expire 2032 however lilly ability terminate agreement 2018 determines commercially unreasonable lilly continue erbitux received marketing approval japan 2008 use erbitux treating patients advanced recurrent colorectal cancer bms receives 50 pretax profit merck sales erbitux japan shared equally lilly profit sharing commercialization japan attributed bms included income bms amortizing 500 million license acquisition costs 2018 2010 bms lilly restructured egfr commercialization agreement described bms imclone relates necitumumab novel targeted cancer therapy currently phase iii development nonsmall cell lung cancer restructured companies share cost developing potentially commercializing necitumumab us canada japan lilly maintains exclusive rights necitumumab markets bms fund 55 development costs studies used us 50 japan studies fund 275 global studies bms pay 250 million lilly milestone payment upon first approval us canada bms recognize sales 55 profits losses necitumumab lilly provide 50 selling effort parties general equally participate commercialization efforts japan bms lilly share commercial costs profits evenly agreement relates necitumumab continues beyond patent expiration parties agree terminate may terminated time bms 12 months advance notice 18 months prior launch either party uncured material breach parties agree terminate lilly responsible manufacturing bulk requirements bms responsible fillfinish necitumumab summarized financial information related alliance follows gilead bms gilead sciences inc gilead joint venture develop commercialize atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg oncedaily single tablet threedrug regimen treatment human immunodeficiency virus hiv infection combining sustiva product bms truvada emtricitabine tenofovir disoproxil fumarate product gilead us canada europe bms accounts participation us joint venture equity method accounting net sales bulk efavirenz component atripla deferred combined product sold thirdparty customers net sales efavirenz component based relative ratio average respective net selling prices truvada sustiva summarized financial information related alliance follows astrazeneca bms maintains two worldwide codevelopment cocommercialization agreements astrazeneca plc astrazeneca onglyzakombiglyze excluding japan dapagliflozin onglyza kombiglyze indicated use treatment diabetes dapagliflozin currently studied treatment diabetes onglyza dapagliflozin discovered bms kombiglyze codeveloped astrazeneca companies jointly develop clinical marketing strategy share commercialization expenses profits losses equally global basis also share development costs bms manufactures products bms option decline involvement cocommercialization given country instead receive tiered royalty based net sales reimbursements development commercial cost sharing included research development advertising product promotion marketing selling administrative expenses expense attributable astrazeneca’s share profits included costs products sold bms received 300 million upfront milestone licensing payments related saxagliptin december 31 2011 could receive additional 300 million salesbased milestones bms also received 170 million upfront milestone licensing payments related dapagliflozin december 31 2011 could potentially receive additional 230 million development regulatory milestones additional 390 million salesbased milestones upfront milestone licensing payments deferred amortized estimated useful life products income summarized financial information related alliance follows pfizer bms pfizer inc pfizer maintain worldwide codevelopment cocommercialization agreement eliquis anticoagulant discovered bms prevention treatment atrial fibrillation arterial thrombotic conditions pfizer funds 60 development costs initial development plan effective january 1 2007 companies jointly develop clinical marketing strategy share commercialization expenses profits equally global basis bms manufactures product reimbursements development costs commercial cost sharing included research development advertising product promotion marketing selling administrative expenses bms received 559 million upfront milestone licensing payments eliquis date including 20 million received january 2012 could receive additional 325 million development regulatory milestones payments deferred amortized estimated useful life products income summarized financial information related alliance follows note 4 acquisitions amira pharmaceuticals inc september 7 2011 bms acquired 100 outstanding shares amira pharmaceuticals inc amira 325 million cash plus three separate contingent 50 million payments due upon achievement certain development salesbased milestones first contingent payment made fourth quarter 2011 fair value total contingent consideration 58 million recorded liabilities acquisition costs 1 million included expense amira privatelyheld biotechnology company primarily focused discovery development therapeutic products treatment cardiovascular fibrotic inflammatory diseases acquisition provides bms 1 full rights develop commercialize am152 completed phase clinical studies remainder amira lysophosphatidic acid 1 receptor antagonist program 2 researchers fibrotic expertise 3 preclinical autotaxin program goodwill generated acquisition primarily attributed acquired scientific expertise fibrotic diseases allowing expansion new therapeutic class contingent liability estimated utilizing model assessed probability achieving milestone discounted amount potential payment based expected timing estimates used evaluating contingent liability consistent used evaluating acquired iprd discount rate payment consistent market debt yields noncallable publiclytraded bonds bms similar maturities estimated potential payment dates fair value measurement based significant inputs observable market therefore represents level 3 measurement results amira’s operations included consolidated financial statements september 7 2011 zymogenetics inc acquisition october 12 2010 bms acquired 100 outstanding shares common stock zymogenetics inc zymogenetics october 2010 aggregate purchase price approximately 885 million acquisition costs 10 million included expense zymogenetics focused developing commercializing therapeutic proteinbased products treatment human diseases companies collaborated development pegylatedinterferon lambda novel interferon phase iib development acquisition date treatment hepatitis c infection acquisition provides company full rights develop commercialize pegylatedinterferon lambda valued 310 million iprd acquisition date also brings proven capabilities therapeutic proteins revenue recothrom fda approved specialty surgical biologic goodwill generated acquisition primarily attributed full ownership rights pegylatedinterferon lambda results zymogenetics operations included consolidated financial statements october 8 2010 medarex inc acquisition september 1 2009 bms acquired means tender offer secondstep merger 100 remaining outstanding shares stock equivalents medarex already owned total purchase price 2331 million acquisition costs 11 million included expense medarex focused discovery development commercialization fully human antibodybased therapeutic products address major unmet healthcare needs areas oncology inflammation autoimmune disorders infectious diseases result acquisition full rights yervoy ipilimumab valued 10 billion acquisition date received increases biologics development pipeline creating balanced portfolio small molecules biologics goodwill generated acquisition primarily attributed balanced portfolio associated biopharma model potential optimize existing yervoy programs results medarex operations included consolidated financial statements august 27 2009 purchase price allocations follows 1 income 21 million recognized remeasurement fair value equity interest medarex held acquisition date 2 inventory related zymogenetics acquisition includes 63 million recorded long term assets inventory expected utilized excess one year 3 current long term assets related medarex acquisition includes 51 ownership interest genmab inc 64 million 187 ownership celldex therapeutics inc 17 million subsequently sold 2009 loss 33 million pro forma supplemental financial information provided impacts acquisitions material operating results year acquisition goodwill iprd intangible assets valued acquisitions nondeductible tax purposes note 5 mead johnson nutrition company initial public offering splitoff mead johnson nutrition company initial public offering february 2009 mead johnson nutrition company mead johnson completed initial public offering ipo sold 345 million shares class common stock 24 per share net proceeds 782 million deducting 46 million underwriting discounts commissions offering expenses allocated noncontrolling interest capital excess par value stock upon completion ipo 423 million shares mead johnson class common stock 1277 million shares mead johnson class b common stock held bms representing 831 interest mead johnson 975 combined voting power outstanding common stock rights holders shares class common stock class b common stock identical except regard voting conversion share class common stock entitled one vote per share class b common stock entitled ten votes per share convertible time election holder one share class common stock class b common stock automatically converted shares class common stock various agreements related separation mead johnson entered including separation agreement transitional services agreement tax matters agreement registration rights agreement employee matters agreement mead johnson nutrition company splitoff remaining interest mead johnson completed december 23 2009 splitoff effected exchange offer previously held 170 million shares mead johnson converting class b common stock class common stock 269 million outstanding shares company’s stock resulting pretax gain 7275 million 7157 million net taxes shares received connection exchange valued using closing price december 23 2009 2570 reflected treasury stock gain exchange determined using sum fair value shares received plus net deficit mead johnson attributable bms less taxes direct expenses related transaction including tax reserve 244 million established transitional relationships discontinued operations subsequent respective dispositions cash flows income associated mead johnson business continue generated september 2012 relating activities transitional nature result agreements intended facilitate orderly transfer business operations include among others services accounting customer service distribution manufacturing income generated transitional activities substantially complete december 31 2011 material period presented following summarized financial information related mead johnson business segregated continuing operations reported discontinued operations date disposition note 6 restructuring following provision restructuring charges included termination benefits workforce reductions manufacturing selling administrative research development personnel across geographic regions approximately 822 2011 995 2010 1350 2009 following table represents activity employee termination exit cost liabilities note 7 incomeexpense includes note 8 income taxes provisionbenefit income taxes attributable continuing operations consisted effective tax rate reconciliation effective tax rate us statutory federal income tax rate decrease 2011 effective tax rate 2010 due • 207 million charge recognized fourth quarter 2010 resulted primarily additional us taxable income earnings foreign subsidiaries previously considered indefinitely reinvested offshore • changes prior period estimates upon finalizing us tax returns resulting 54 million benefit 2011 30 million charge 2010 • higher tax benefits contingent tax matters primarily related effective settlements remeasurements uncertain tax positions 161 million 2011 131 million 2010 partially offset • unfavorable earnings mix high low tax jurisdictions compared prior year • nontax deductible annual pharmaceutical company fee effective january 1 2011 tax impact 80 million • outofperiod tax adjustment 59 million 2010 previously unrecognized net deferred tax assets primarily attributed deferred profits related certain alliances december 31 2009 material prior periods increase 2010 effective tax rate 2009 due • 207 million charge recognized fourth quarter 2010 discussed • changes prior period estimates upon finalizing 2009 us tax return resulting 30 million charge 2010 67 million benefit 2009 upon finalizing 2008 us tax return • unfavorable earnings mix high low tax jurisdictions compared prior year partially offset • higher tax benefits contingent tax matters primarily related effective settlements remeasurements uncertain tax positions 131 million 2010 64 million 2009 • outofperiod tax adjustment 59 million 2010 discussed deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows us federal net operating loss carryforwards 717 million december 31 2011 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 research development tax credit carryforwards expire varying amounts beginning 2018 realization research development tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured management believes likely deferred tax assets realized december 31 2011 valuation allowance 3920 million established following items 3574 million foreign net operating loss tax credit carryforwards 332 million state deferred tax assets including net operating loss tax credit carryforwards 14 million us federal net operating loss carryforwards foreign holding companies net operating losses corresponding valuation allowances included increase 2027 million result statutory impairment charges required consolidated net earnings foreign holding companies higher asset basis statutory purposes basis used consolidated financial statements due internal reorganization certain legal entities prior periods changes valuation allowance follows income tax payments 597 million 2011 672 million 2010 885 million 2009 current tax benefit realized result stock related compensation credited capital excess par value stock 47 million 2011 8 million 2010 5 million 2009 december 31 2011 us taxes provided approximately 185 billion undistributed earnings foreign subsidiaries undistributed earnings indefinitely invested offshore future earnings repatriated us earnings determined remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided bms favorable tax rates ireland puerto rico grants scheduled expire prior 2023 2010 bms completed internal reorganization certain legal entities resulting 207 million charge possible us tax authorities could assert additional material tax liabilities arising reorganization assertion occur bms would vigorously challenge assertion believes would prevail however assurance result business conducted various countries throughout world subject tax numerous jurisdictions result significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported may require several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows uncertain tax benefits reduce deferred tax assets extent uncertainty directly related asset otherwise recognized either current noncurrent us foreign income taxes payable unrecognized tax benefits recognized would impact effective tax rate 570 million 818 million 964 million december 31 2011 2010 2009 respectively gross additions tax positions year ended december 31 2009 include 287 million tax reserves related transfer various international units mead johnson prior ipo splitoff transaction recognized discontinued operations gross reductions tax positions year ended december 31 2009 include 10 million liabilities related mead johnson accrued interest penalties payable unrecognized tax benefits included either current noncurrent us foreign income taxes payable accrued interest related unrecognized tax benefits 51 million 51 million 39 million december 31 2011 2010 2009 respectively accrued penalties related unrecognized tax benefits 25 million 23 million 19 million december 31 2011 2010 2009 respectively interest penalties related unrecognized tax benefits included income tax expense interest unrecognized tax benefits expense 10 million 2011 12 million 2010 benefit 25 million 2009 penalties unrecognized tax benefits expense 7 million 2011 4 million 2010 benefit 1 million 2009 bms currently examination number tax authorities including major tax jurisdictions listed table proposed adjustments tax issues transfer pricing certain tax credits deductibility certain expenses bms estimates reasonably possible total amount unrecognized tax benefits december 31 2011 decrease range approximately 70 million 100 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits primarily settlement related involve payment additional taxes adjustment certain deferred taxes andor recognition tax benefits bms also anticipates reasonably possible new issues raised tax authorities may require increases balance unrecognized tax benefits however estimate increases cannot reasonably made time bms believes adequately provided open tax years tax jurisdiction following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited us 2008 2011 canada 2003 2011 france 2008 2011 germany 2007 2011 italy 2002 2011 mexico 2003 2011 note 9 earnings per share note 10 financial instruments financial instruments include cash equivalents marketable securities accounts receivable payable debt instruments derivatives due short term maturity carrying amount receivables accounts payable approximate fair value bms exposure market risk due changes currency exchange rates interest rates result certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur derivative financial instruments used trading purposes counterparty credit risk considered part overall fair value measurement well effect credit risk derivatives liability position counterparty credit risk monitored ongoing basis mitigated limiting amounts outstanding individual counterparty utilizing conventional derivative financial instruments entering agreements counterparties meet high credit quality standards consolidated financial statements would materially impacted counterparty failed perform according terms agreement terms agreements posting collateral required party whether derivatives asset liability position fair value measurements fair values financial instruments classified one following categories level 1 inputs utilize nonbinding quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy gives highest priority level 1 inputs instruments include us treasury bills us government agency securities level 2 inputs utilize observable prices similar instruments nonbinding quoted prices identical similar instruments markets active observable inputs corroborated market data substantially full term assets liabilities instruments include corporate debt securities commercial paper federal deposit insurance corporation fdic insured debt securities certificates deposit money market funds foreign currency forward contracts interest rate swap contracts level 2 derivative instruments valued using london interbank offered rate libor euro interbank offered rate euribor yield curves less credit valuation adjustments observable forward foreign exchange rates reporting date valuations derivative contracts may fluctuate considerably periodtoperiod due volatility underlying foreign currencies underlying interest rates driven market conditions duration contract credit adjustment volatility may significant impact valuation interest rate swaps due changes credit ratings credit default swap spreads bms counterparties level 3 unobservable inputs used little market data available valuation models ars frs portfolio based expected cash flow streams collateral values including assessments counterparty credit quality default risk underlying security discount rates overall capital market liquidity majority ars private placement securities longterm nominal maturities rated ‘a’ standard poor’s december 31 2011 2010 primarily represent interests insurance securitizations fair value determined using internally developed valuations based part indicative bids received underlying assets securities evidence fair value due current lack active market frs general lack transparency underlying assets qualitative analysis relied upon value frs including discussions brokers fund managers default risk underlying security overall capital markets liquidity availableforsale securities cash equivalents following table summarizes availableforsale securities december 31 2011 2010 following table summarizes classification availableforsale securities consolidated balance sheet money market funds securities aggregating 5469 million 4332 million december 31 2011 2010 respectively included cash equivalents valued using level 2 inputs cash equivalents maintained foreign currencies 508 million december 31 2011 subject currency rate risk december 31 2011 2817 million noncurrent available sale corporate debt securities us treasury bills fdic insured debt securities floating rate securities mature within five years auction rate securities mature beyond 10 years following table summarizes activity financial assets utilizing level 3 fair value measurements qualifying hedges nonqualifying derivatives following summarizes fair value outstanding derivatives cash flow hedges foreign currency forward contracts primarily utilized hedge forecasted intercompany inventory purchase transactions certain foreign currencies forward contracts designated cash flow hedges effective portion changes fair value temporarily reported accumulated oci recognized earnings hedged item affects earnings december 31 2011 significant outstanding foreign currency forward contracts primarily attributed euro japanese yen foreign currency forward contracts notional amount 946 million 557 million respectively net gains foreign currency forward contracts qualifying cash flow hedge accounting expected reclassified cost products sold within next two years including 46 million pretax gains reclassified within next 12 months cash flow hedge accounting discontinued forecasted transaction longer probable occurring originally forecasted date 60 days thereafter hedge longer effective assessments determine whether derivatives designated qualifying hedges highly effective offsetting changes cash flows hedged items performed inception quarterly basis ineffective portion change fair value included current period earnings impact related discontinued cash flow hedges hedge ineffectiveness significant 2011 2010 2009 net investment hedges nonus dollar borrowings 541 million 707 million designated hedge foreign currency exposures net investment certain foreign affiliates borrowings designated net investment hedges recognized long term debt effective portion foreign exchange gains losses remeasurement debt recognized foreign currency translation component accumulated oci related offset long term debt fair value hedges fixedtofloating interest rate swap contracts designated fair value hedges used part interest rate risk management strategy create appropriate balance fixed floating rate debt swaps underlying debt benchmark risk hedged recorded fair value effective interest rate paid fixedtofloating interest rate swaps onemonth libor 0295 december 31 2011 plus interest rate spread ranging 13 29 underlying swap terminated prior maturity fair value basis adjustment underlying debt instrument amortized earnings reduction interest expense remaining life debt 2010 fixedtofloating interest rate swap contracts executed convert 332 million notional amount 680 debentures due 2026 147 million notional amount 715 debentures due 2023 fixed rate debt variable rate debt 2009 fixedtofloating interest rate swap contracts executed convert 200 million notional amount 545 notes due 2018 597 notional amount 525 notes due 2013 fixed rate debt variable rate debt contracts qualified fair value hedge debt instrument 2011 fixedtofloating interest rate swap contracts 16 billion notional amount 10 billion notional amount terminated generating total proceeds 356 million including accrued interest 66 million 2010 fixedtofloating interest rate swap contracts 237 million notional amount 500 million notional amount terminated generating total proceeds 116 million including accrued interest 18 million 2009 1061 million notional amount fixedtofloating interest rate swap contracts terminated generating proceeds 204 million including accrued interest 17 million nonqualifying foreign exchange contracts foreign currency forward contracts used offset exposure foreign currencydenominated monetary assets liabilities earnings primary objective contracts protect us dollar value foreign currencydenominated monetary assets liabilities earnings effects volatility foreign exchange rates might occur prior receipt settlement us dollars contracts designated hedges adjusted fair value incomeexpense occur substantially offset change fair value underlying foreign currency denominated monetary asset liability earnings effect nonqualifying hedges earnings significant years ended december 31 2011 2010 2009 shortterm borrowings longterm debt shortterm borrowings include longterm debt includes included debt 50 million floating rate convertible senior debentures due 2023 redeemed holders par september 15 2013 2018 fundamental change ownership occurs debentures callable par time company debentures current conversion price 4042 equal conversion rate 247429 shares 1000 principal amount subject certain antidilutive adjustments february 2009 mead johnson entered threeyear syndicated revolving credit facility agreement fourth quarter 2009 mead johnson borrowed 200 million revolving credit facility issued various notes totaling 15 billion proceeds used repay certain intercompany debt prior splitoff principal value longterm debt obligations 4669 million december 31 2011 597 million due 2013 652 million due 2016 remaining 3420 million due 2017 thereafter fair value longterm debt 6406 million 5861 million december 31 2011 2010 respectively estimated based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments debt repurchase activity follows interest payments 171 million 2011 178 2010 206 million 2009 net amounts related interest rate swap contracts september 2011 company replaced 20 billion revolving credit facility new 15 billion five year revolving credit facility syndicate lenders extendable anniversary date consent lenders financial covenants new facility borrowings outstanding either revolving credit facility december 31 2011 2010 december 31 2011 233 million financial guarantees provided form standby letters credit performance bonds standby letters credit issued financial institutions support guarantees made bms affiliates various obligations performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority outstanding financial guarantees expire within year expected funded note 11 receivables include receivables netted deferred income related alliance partners recognition income result alliance partner receivables deferred income reduced 901 million 734 million december 31 2011 2010 respectively additional information regarding alliance partners see “note 3 alliances collaborations” nonus receivables sold nonrecourse basis 1077 million 2011 932 million 2010 660 million 2009 aggregate receivables due three pharmaceutical wholesalers us represented 55 51 total trade receivables december 31 2011 2010 respectively changes allowances bad debt chargebacks cash discounts follows note 12 inventories include inventories expected remain onhand beyond one year included noncurrent assets 260 million including 92 million capitalized costs subject regulatory approval prior sold december 31 2011 297 million december 31 2010 status regulatory approval process probability future sales considered assessing recoverability costs note 13 property plant equipment property plant equipment includes depreciation expense 448 million 2011 473 million 2010 469 million 2009 51 million 2009 included discontinued operations capitalized interest 8 million 2010 13 million 2009 note 14 goodwill intangible assets changes carrying amount goodwill follows includes outofperiod adjustment recorded correct purchase price allocation september 2009 medarex acquisition 24 million contingent milestone payment prior acquisition medarex purchase price adjustment decreased intangible assets 98 million increased deferred tax assets 34 million goodwill 64 million effect adjustment material current prior periods intangible assets include 2011 10 billion iprd reclassified technology upon approval yervoy us 367 million iprd reclassified licenses outlicensed compounds performance obligations changes intangible assets follows amortization expense included discontinued operations 9 million 2009 amortization expense intangible assets expected 350 million 2012 275 million 2013 263 million 2014 236 million 2015 218 million 2016 1138 million thereafter note 15 accrued expenses accrued expenses include note 16 sales rebates return accruals reductions trade receivables accrued rebates returns liabilities follows note 17 deferred income deferred income includes upfront milestone licensing receipts amortized expected life product see “note 3 alliances collaborations” information pertaining revenue recognition transactions alliances collaborations deferred gains several saleleaseback transactions amortized remaining lease terms related facilities 2018 28 million 2011 27 million 2010 28 million 2009 note 18 equity treasury stock recognized cost reacquire shares treasury shares acquired mead johnson splitoff recognized fair value stock splitoff date shares issued treasury recognized utilizing firstin firstout method may 2010 board directors authorized repurchase 30 billion common stock repurchases may made either open market private transactions including repurchase plans established accordance rule 10b51 securities exchange act 1934 amended stock repurchase program expiration date may suspended discontinued time noncontrolling interest primarily related partnerships sanofi territory covering americas net sales plavix net earnings attributable noncontrolling interest presented net taxes 792 million 2011 683 million 2010 589 million 2009 consolidated statements earnings corresponding increase provision income taxes distribution partnership profits sanofi’s funding ongoing partnership operations occur routine basis activity includes pretax income distributions related partnerships net earnings noncontrolling interest included discontinued operations 69 million 2009 accumulated balances related component comprehensive incomeloss oci net taxes follows note 19 pension postretirement postemployment liabilities company certain subsidiaries sponsor defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan covers us employees represents approximately 70 consolidated pension plan assets obligations funding policy contribute least minimum amount required employee retirement income security act 1974 erisa plan benefits based primarily participant’s years credited service final average compensation plan assets consist principally equity fixedincome securities comprehensive medical group life benefits provided substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside us net periodic benefit cost defined benefit pension postretirement benefit plans includes net actuarial loss prior service cost 140 million expected amortized accumulated oci net periodic benefit cost pension postretirement benefit plans 2012 us retirement income plan several plans amended june 2009 amendments eliminate crediting future benefits relating service effective december 31 2009 salary increases continue considered additional fiveyear period determining benefit obligation related prior service plan amendments accounted curtailment result applicable plan assets obligations remeasured remeasurement resulted 455 million reduction accumulated oci 295 million net taxes corresponding decrease funded status plan due curtailment updated plan asset valuations change discount rate 70 75 curtailment charge 25 million also recognized expense second quarter 2009 remaining amount unrecognized prior service cost addition participants reclassified inactive benefit plan purposes actuarial gains losses amortized expected weightedaverage remaining lives plan participants 32 years connection plan amendment contributions principal defined contribution plans us puerto rico increased effective january 1 2010 net impact actions expected reduce future retiree benefit costs although future costs continue subject market conditions factors including actual expected plan asset performance interest rate fluctuations lumpsum benefit payments 2009 certain plan assets related obligations transferred us retirement income plan several plans new plans sponsored mead johnson active mead johnson participants resulting 170 million reduction accumulated oci 110 million net taxes first quarter 2009 corresponding decrease funded status plan due updated plan asset valuations change discount rate 65 70 changes defined benefit postretirement benefit plan obligations assets funded status amounts recognized consolidated balance sheets follows accumulated benefit obligation defined benefit pension plans 7322 million 6407 million december 31 2011 2010 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine benefit obligations december 31 follows weightedaverage actuarial assumptions used determine net periodic benefit cost years ended december 31 follows yield high quality corporate bonds matches duration benefit obligations used determining discount rate citigroup pension discount curve used developing discount rate us plans several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class historical longterm actual annualized returns us pension plans follows pension postretirement liabilities increased 13 billion december 31 2011 corresponding charge comprehensive income result lower expected return plan assets 414 million actuarial losses attributed benefit obligation 882 million actuarial losses resulted prevailing equity fixed income market conditions reduction interest rates 2011 expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” marketrelated value exceeded fair value plan assets 151 million december 31 2011 fair value plan assets exceeded marketrelated value 313 million december 31 2010 differences assumed actual returns amortized marketrelated value straightline basis threeyear period gains losses resulted changes actuarial assumptions changes discount rate differences assumed actual experience differences actual expected return plan assets gains losses except differences amortized marketrelated value amortized extent exceed 10 higher marketrelated value projected benefit obligation respective plan result approximately 900 million related pension benefits expected amortized 2012 majority remaining actuarial losses amortized life expectancy plans’ participants us plans expected remaining service periods plans assumed healthcare cost trend rates december 31 follows assumed healthcare cost trend rates effect amounts reported healthcare plans onepercentagepoint change assumed healthcare cost trend rates would following effects plan assets fair value pension postretirement plan assets asset category december 31 2011 2010 follows investment valuation policies per investment class follows level 1 inputs utilize quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy gives highest priority level 1 inputs instruments include equity securities equity funds fixed income funds publicly traded national securities exchange us treasury agency securities cash equivalents cash equivalents highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement level 2 inputs include observable prices similar instruments quoted prices identical similar instruments markets active observable inputs corroborated market data substantially full term assets liabilities equity funds fixed income funds event driven hedge funds shortterm investment funds classified level 2 within fair value hierarchy valued net asset value shares held year end corporate debt securities government mortgage backed securities collateralized mortgage obligation bonds asset backed securities us treasury agency securities state municipal bonds real estate interests classified level 2 within fair value hierarchy valued utilizing observable prices similar instruments quoted prices identical similar instruments markets active level 3 unobservable inputs used little market data available equity funds venture capital limited partnership investments classified level 3 within fair value hierarchy valued estimated fair value estimated fair value based fair value underlying investment values cost plus minus accumulated earnings losses approximates fair value insurance contract interests carried contract value approximates estimated fair value based fair value underlying investment insurance company insurance contracts held certain foreign pension plans valuation models corporate debt securities collateralized mortgage obligation bonds asset backed securities classified level 3 within fair value hierarchy based estimated bids brokers thirdparty vendor sources utilize expected cash flow streams collateral values including assessments counterparty credit quality default risk discount rates overall capital market liquidity following summarizes activity financial assets utilizing level 3 fair value measurements investment strategy emphasizes equities order achieve higher expected returns lower expenses required cash contributions longterm target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income maintained us pension plans investments well diversified within three major asset categories approximately 82 us pension plans equity investments actively managed venture capital limited partnerships typically valued three month lag bristolmyers squibb company common stock represents less 1 plan assets december 31 2011 2010 contributions us pension plans 343 million 2011 341 million 2010 656 million 2009 including 27 million mead johnson contributions us pension plans expected approximate 340 million 2012 300 million contributed january 2012 contributions international pension plans 88 million 2011 90 million 2010 133 million 2009 contributions international plans expected range 75 million 90 million 2012 estimated future benefit payments savings plan principal defined contribution plan bristolmyers squibb savings investment program contribution based employee contributions level company match qualified defined contribution plans amended allow increased matching additional company contributions effective 2010 expense related plan 181 million 2011 188 million 2010 50 million 2009 post employment benefit plan postemployment liabilities longterm disability benefits 92 million december 31 2011 2010 expense related benefits 18 million 2011 2010 21 million 2009 termination indemnity plans statutory termination obligations europe recognized undiscounted basis assuming employee termination measurement date liability recognized obligations 25 million december 31 2011 2010 note 20 employee stock benefit plans may 1 2007 shareholders approved 2007 stock award incentive plan 2007 plan replaced 2002 stock incentive plan expired may 31 2007 shares common stock reserved issuance pursuant stock plans options conversions preferred stock 302 million december 31 2011 shares available granted active plans adjusted combination plans 108 million december 31 2011 shares stock option exercise share unit vesting issued treasury stock shares actually delivered participants connection award restrictions lapsed reduce number shares reserved shares tendered prior year pay purchase price options shares previously utilized satisfy withholding tax obligations upon exercise continue available reserved executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable ratably 4 years maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price common stock may granted key employees subject restrictions continuous employment restrictions expire four year period date grant compensation expense recognized vesting period stock unit right receive stock end specified vesting period voting rights beginning 2010 market share units granted certain executives vesting market share units conditioned upon continuous employment vesting date payout factor equals least 60 payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs ratably four years longterm performance awards three year cycle delivered form target number performance share units number shares ultimately issued calculated based actual performance compared earnings targets performance criteria established beginning performance period awards annual goals maximum payout 1675 threshold targets met performance period payment made plan annual period vesting occurs end three year period stockbased compensation expense based awards ultimately expected vest recognized vesting period forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates stockbased compensation expense follows sharebased compensation activities follows total compensation costs related sharebased payment awards yet recognized weightedaverage period awards expected recognized december 31 2011 follows additional information related sharebased compensation awards summarized follows following table summarizes significant ranges outstanding exercisable options december 31 2011 amounts millions except per share data aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 3524 december 31 2011 fair value assumptions fair value stock options estimated grant date using blackscholes option pricing model stock options service condition model applying multiple input variables determine probability satisfying market conditions options service market conditions following weightedaverage assumptions used valuation expected volatility assumption required blackscholes model derived calculating 10year historical volatility weighting equally derived implied volatility blended historical implied volatility approach expected volatility believed representative future stock price trends using historical volatility riskfree interest rate assumption based upon us treasury yield curve effect grant date dividend yield assumption based historical expected dividend payouts expected life stock options represents weightedaverage period stock options remain outstanding derived output latticebinomial model expected life impacted underlying assumptions calibration model assumes employees’ exercise behavior function option’s remaining vested life extent option inthemoney model estimates probability exercise function two variables based historical exercises cancellations prior option grants made fair value restricted stock units longterm performance awards determined based closing trading price company’s common stock grant date beginning 2010 fair value performance share units granted discounted participate dividends fair value performance share units granted prior 2010 discounted using riskfree interest rate date grant participate dividends fair value market share units estimated date grant using model applying multiple input variables determine probability satisfying market conditions model uses following input variables expected volatility based four year historical volatility levels company’s common stock current implied volatility fouryear riskfree interest rate derived federal reserve based market share units’ contractual term expected dividend yield based historical dividend payments note 21 leases minimum rental commitments noncancelable operating leases primarily real estate motor vehicles effect december 31 2011 follows operating lease expense 136 million 2011 145 million 2010 149 million 2009 17 million 2009 included discontinued operations sublease income material years ended december 31 2011 2010 2009 note 22 legal proceedings contingencies company certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business company recognizes accruals contingencies probable liability incurred amount loss reasonably estimated matters involve patent infringement antitrust securities pricing sales marketing practices environmental commercial health safety matters consumer fraud employment matters product liability insurance coverage litigation expense net included 41 million insurance reimbursement prior litigation offset additional reserves certain average wholesale prices awp litigation 2010 125 million securities litigation settlement 2009 legal proceedings material company believes could become material described although company believes substantial defenses matters assurance increase scope pending matters future lawsuits claims government investigations legal proceedings material unless otherwise noted company unable assess outcome respective litigation able provide estimated range potential loss furthermore failure enforce patent rights would likely result substantial decreases respective product sales generic competition intellectual property plavix litigation us patent infringement litigation apotex related matters previously disclosed company’s us territory partnership alliance sanofi plaintiff pending patent infringement lawsuit instituted united states district court southern district new york district court entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v apotex suit based us patent 4847265 ‘265 patent composition matter patent discloses claims among things hydrogen sulfate salt clopidogrel medicine made available us companies plavix also previously reported district court upheld validity enforceability ‘265 patent maintaining main patent protection plavix us life patent term expires may 17 2012 district court also ruled apotex’s generic clopidogrel bisulfate product infringed ‘265 patent permanently enjoined apotex engaging activity infringes ‘265 patent including marketing generic product us patent expires apotex appealed district court’s decision december 12 2008 united states court appeals federal circuit court affirmed district court’s ruling sustaining validity ‘265 patent apotex filed petition circuit court rehearing en banc march 2009 circuit court denied apotex’s petition case remanded district court proceedings relating damages july 2009 apotex filed petition writ certiorari us supreme court requesting supreme court review circuit court’s decision november 2009 us supreme court denied petition declining review circuit court’s decision december 2009 companies filed motion district court summary judgment damages january 2010 apotex filed motion seeking stay ongoing damages proceedings pending outcome reexamination plavix patent us patent trademark office pto described april 2010 district court denied apotex’s motion stay proceedings october 2010 district court granted companies’ summary judgment motion awarded 442 million damages plus costs interest apotex appealed amount damages award however validity patent claiming clopidogrel bisulfate finally judicially determined favor companies maintaining patent protection market exclusivity plavix us may 17 2012 including additional sixmonth pediatric exclusivity period october 2011 circuit court upheld 442 million damages award reversed district court’s award prejudgment interest february 2012 companies received payment 442 million damages award plus costs postjudgment interest bms received 172 million previously disclosed company’s us territory partnership alliance sanofi also plaintiff five additional patent infringement lawsuits dr reddy’s laboratories inc dr reddy’s laboratories ltd dr reddy’s teva pharmaceuticals usa inc teva cobalt pharmaceuticals inc cobalt watson pharmaceuticals inc watson laboratories inc watson sun pharmaceuticals sun lawsuits dr reddy’s teva cobalt relate ‘265 patent may 2009 dr reddy’s signed consent judgment favor sanofi bms conceding validity infringement ‘265 patent previously reported patent infringement actions teva cobalt stayed pending resolution apotex litigation parties actions agreed bound outcome litigation apotex consequently july 12 2007 district court entered judgments cobalt teva permanently enjoined cobalt teva engaging activity infringes ‘265 patent expires cobalt teva filed appeal july 2009 circuit court issued mandate teva appeal binding teva decision apotex litigation august 2009 cobalt consented entry judgment appeal agreeing bound circuit court’s decision apotex litigation lawsuit watson filed october 2004 based us patent 6429210 ‘210 patent discloses claims particular crystalline polymorph form hydrogen sulfate salt clopidogrel marketed plavix december 2005 court permitted watson pursue declaratory judgment counterclaim respect us patent 6504030 january 2006 court approved parties’ stipulation stay case pending outcome trial apotex matter may 1 2009 bms watson entered stipulation dismiss case april 2007 pharmastar filed request inter partes reexamination ‘210 patent pto granted request july 2007 july 2009 pto vacated reexamination proceeding lawsuit sun filed july 11 2008 based infringement ‘265 patent ‘210 patent respect ‘265 patent sun agreed bound outcome apotex litigation respect ‘210 patent parties settled december 2011 case dismissed additionally november 13 2008 apotex filed lawsuit new jersey superior court entitled apotex inc et al v sanofiaventis et al seeking payment 60 million plus interest related breakup march 2006 proposed settlement agreement april 2011 new jersey superior court granted companies’ crossmotion summary judgment motion denied apotex’s motion summary judgment apotex appealed decisions possible time determine outcome appeal new jersey superior court’s decisions january 2011 apotex filed lawsuit florida state court broward county alleging breach contract relating parties’ may 2006 proposed settlement agreement discovery ongoing plavix litigation international plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex since changed name apotex august 2007 apotex filed application federal court australia seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 australian court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april 2008 august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid company sanofi filed notices appeal full court federal court australia full court appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 september 29 2009 full federal court australia held claims patent 597784 invalid november 2009 company sanofi applied high court australia high court special leave appeal judgment full court march 2010 high court denied company sanofi’s request hear appeal full court decision case remanded federal court proceedings related damages expected amount damages material company plavix eu previously disclosed 2007 yes pharmaceutical development services gmbh yes pharmaceutical filed application marketing authorization germany alternate salt form clopidogrel application relied data studies originally conducted sanofi bms plavix still subject data protection eu sanofi bms filed action yes pharmaceutical partners administrative court cologne objecting marketing authorization matter currently pending although specific marketing authorizations withdrawn market plavix canada apotex inc april 22 2009 apotex filed impeachment action sanofi federal court canada alleging sanofi’s canadian patent 1336777 ‘777 patent invalid ‘777 patent covers clopidogrel bisulfate patent issue prohibition action canada previously disclosed canadian federal court ottawa rejected apotex’s challenge ‘777 patent held asserted claims novel obvious infringed granted sanofi’s application order prohibition minister health apotex precluding approval apotex’s abbreviated new drug submission patent expires august 2012 decision affirmed appeal federal court appeal supreme court canada june 8 2009 sanofi filed defense impeachment action filed suit apotex infringement ‘777 patent trial completed june 2011 december 2011 federal court issued decision ‘777 patent invalid sanofi appealing decision though generic companies entered market intellectual property litigation abilify previously disclosed otsuka filed patent infringement actions teva barr pharmaceuticals inc barr sandoz inc sandoz synthon laboratories inc synthon sun pharmaceuticals sun zydus pharmaceuticals usa inc zydus apotex relating us patent 5006528 ‘528 patent covers aripiprazole expires april 2015 including additional sixmonth pediatric exclusivity period aripiprazole comarketed company otsuka us abilify nonjury trial us district court district new jersey nj district court tevabarr apotex completed august 2010 november 2010 nj district court upheld validity enforceability ‘528 patent maintaining main patent protection abilify us april 2015 nj district court also ruled defendants’ generic aripiprazole product infringed ‘528 patent permanently enjoined engaging activity infringes ‘528 patent including marketing generic product us patent including sixmonth pediatric extension expires sandoz synthon sun zydus also bound nj district court’s decision december 2010 tevabarr apotex appealed decision us court appeals federal circuit oral argument held february 2012 possible time determine outcome appeal nj district court’s decision otsuka prevail appeal generic competition would likely result substantial decreases sales abilify us would material adverse effect results operations cash flows could material financial condition atripla april 2009 teva filed anda manufacture market generic version atripla single tablet threedrug regimen combining company’s sustiva gilead’s truvada time company’s us patent rights covering sustiva’s composition matter method use challenged teva sent gilead paragraph iv certification letter challenging two fifteen orange book listed patents atripla product joint venture company gilead may 2009 gilead filed patent infringement action teva us district court southern district new york sdny january 2010 company received notice teva amended anda challenging eight additional orange book listed patents atripla march 2010 company merck sharp dohme corp filed patent infringement action teva also sdny relating two us patents claim crystalline polymorph forms efavirenz march 2010 gilead filed two patent infringement actions teva sdny relating six orange book listed patents atripla discovery matters ongoing possible time reasonably assess outcome lawsuits impact company baraclude august 2010 teva filed anda manufacture market generic versions baraclude company received paragraph iv certification letter teva challenging one orange book listed patent baraclude us patent 5206244 september 2010 company filed patent infringement lawsuit delaware district court teva infringement listed patent covering baraclude triggered automatic 30month stay approval teva’s anda discovery matter ongoing possible time reasonably assess outcome lawsuit impact company trial currently scheduled october 2012 sprycel september 2010 apotex filed anda manufacture market generic versions sprycel company received paragraph iv certification letter apotex challenging four orange book listed patents sprycel including composition matter patent november 2010 company filed patent infringement lawsuit us district court district new jersey apotex infringement four orange book listed patents covering sprycel triggered automatic 30month stay approval apotex’s anda october 2011 company received paragraph iv notice letter apotex informing company seeking approval generic versions 80 mg 140 mg dosage strengths sprycel challenging four orange book listed patents november 2011 bms filed patent infringement suit apotex 80 mg 140 mg dosage strengths new jersey district court case consolidated suit filed november 2010 discovery matter ongoing possible time reasonably assess outcome lawsuit impact company sustiva eu january 2012 teva obtained european marketing authorization efavirenz teva 600 mg tablets february 2012 company merck sharp dohme “merck” filed lawsuits requests injunctions teva netherlands germany uk infringement merck’s european patent 0582455 supplementary protection certificates expiring november 2013 possible time reasonably assess outcome lawsuits impact company general commercial litigation clayworth litigation previously disclosed company together number pharmaceutical manufacturers named defendant action filed california state superior court oakland james clayworth et al v bristolmyers squibb company et al alleging defendants conspired fix prices pharmaceuticals agreeing charge drugs us charge outside us particularly canada asserting claims california’s cartwright act unfair competition law plaintiffs sought trebled monetary damages injunctive relief december 2006 court granted company manufacturers’ motion summary judgment based passon defense judgment entered favor defendants july 2008 judgment favor defendants affirmed california court appeals july 2010 california supreme court reversed court appeal’s judgment matter remanded superior court proceedings march 2011 defendants’ motion summary judgment granted judgment entered favor defendants plaintiffs appealed decision pricing sales promotional practices litigation investigations abilify federal subpoena january 2012 company received subpoena united states attorney’s office southern district new york requesting information related among things sales marketing abilify possible time assess outcome matter potential impact company abilify state attorneys general investigation march 2009 company received letter delaware attorney general’s office advising multistate coalition investigating whether certain abilify marketing practices violated respective states’ consumer protection statutes possible time reasonably assess outcome investigation potential impact company awp litigation previously disclosed company together number pharmaceutical manufacturers defendant number private class actions well suits brought attorneys general various states actions plaintiffs allege defendants caused average wholesale prices awps products inflated thereby injuring government programs entities persons reimbursed prescription drugs based awps company defendant four state attorneys general suits pending state courts around country beginning august 2010 company defendant trial commonwealth court pennsylvania commonwealth court brought commonwealth pennsylvania september 2010 jury issued verdict company finding company liable fraudulent negligent misrepresentation however commonwealth court judge issued decision pennsylvania consumer protection claim go jury finding company liable 28 million enjoining company contributing provision inflated awps company moved vacate decision commonwealth moved judgment notwithstanding verdict court denied company commonwealth appealed decision pennsylvania supreme court qui tam litigation march 2011 company served unsealed qui tam complaint filed three former sales representatives california superior court county los angeles california department insurance elected intervene lawsuit complaint alleges company paid kickbacks california providers pharmacies violation california insurance frauds prevention act cal ins code § 18717 possible time reasonably assess outcome lawsuit impact company product liability litigation company party various product liability lawsuits previously disclosed addition lawsuits company also faces unfiled claims involving products plavix previously disclosed company certain affiliates sanofi defendants number individual lawsuits various federal state courts claiming personal injury damage allegedly sustained using plavix currently 250 claims filed primarily state federal courts new jersey illinois new york pennsylvania company also executed tolling agreement respect unfiled claims potential additional plaintiffs possible time reasonably assess outcome lawsuits potential impact company reglan company one number defendants numerous lawsuits behalf approximately 2500 plaintiffs claiming personal injury allegedly sustained using reglan another brand generic drug metoclopramide product indicated gastroesophageal reflux certain gastrointestinal disorders company generic subsidiary apothecon inc distributed metoclopramide tablets manufactured another party 1996 2000 possible time reasonably assess outcome lawsuits potential impact company hormone replacement therapy company one number defendants masstort litigation plaintiffs allege among things various hormone therapy products including hormone therapy products formerly manufactured company estrace estradiol delestrogen ovcon cause breast cancer stroke blood clots cardiac injuries women defendants aware risks failed warn consumers company agreed resolve claims approximately 400 plaintiffs december 31 2011 company remains defendant approximately 39 actively pending lawsuits federal state courts throughout us company’s hormone therapy products sold companies january 2000 august 2001 environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including comprehensive environmental response compensation liability act cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated thirdparties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable company estimated share future costs sites 69 million december 31 2011 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties new brunswick facility environmental personal injury lawsuits since may 2008 250 lawsuits filed company new jersey superior court behalf current former residents new brunswick nj live lived adjacent company’s new brunswick facility complaints either allege various personal injuries damages resulting alleged soil groundwater contamination property stemming historical operations new brunswick facility claims medical monitoring portion complaints also assert claims alleged property damage october 2008 new jersey supreme court granted mass tort status cases transferred new jersey superior court atlantic county centralized case management purposes company intends defend vigorously litigation discovery ongoing october 2011 50 additional cases filed new jersey superior court removed company federal court trenton nj plaintiffs moved remand cases state court company opposed possible time reasonably assess outcome lawsuits potential impact company north brunswick township board education previously disclosed october 2003 company contacted counsel representing north brunswick nj board education boe regarding site waste materials er squibb sons may disposed 1940’s 1960’s fill material containing industrial waste heavy metals excess residential standards discovered expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 new jersey department environmental protection njdep sent company others information request letter possible waste disposal site company responded march 2004 boe township current owners school property park conducting jointly financing soil remediation work ground water investigation work plan approved njdep asked company contribute cost company actively monitoring cleanup project including costs date neither school board township asserted claim company instead company local entities negotiated agreement attempt resolve matter informal means avoid litigation central component agreement provision company interim funding help defray cleanup costs assure work interrupted company transmitted interim funding payments december 2007 november 2009 parties commenced mediation late 2008 however efforts successful parties moved binding allocation process parties expected conduct fact expert discovery followed formal evidentiary hearings written argument hearings likely scheduled midtolate 2012 addition september 2009 township boe filed suits several parties alleged contributed waste materials site company currently believe responsible additional amounts beyond two interim payments totaling 4 million already transmitted additional possible loss expected material proceedings italy investigation july 2011 public prosecutor florence italy “italian prosecutor” initiated criminal investigation company’s subsidiary italy “bms italy” allegations company relate alleged activities former employee left company 1990s italian prosecutor requested interim measure judicial administrator appointed temporarily run operations bms italy request pending florence court possible time assess outcome investigation potential impact company sec germany investigation previously disclosed october 2004 sec notified company conducting informal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents october 2006 sec informed company inquiry become formal sec’s inquiry encompasses matters formerly investigation german prosecutor munich germany since resolved company understands inquiry concerns potential violations foreign corrupt practices act company cooperating sec note 23 subsequent event february 13 2012 bms completed acquisition 100 outstanding shares inhibitex inc inhibitex clinicalstage biopharmaceutical company focused developing products prevent treat serious infectious diseases aggregate purchase price approximately 25 billion acquisition related costs expected approximate 20 million included expense bms obtained inhibitex’s lead asset inx189 oral nucleotide polymerase ns5b inhibitor phase ii development treatment chronic hepatitis c infections well programs various stages development although preliminary purchase price allocation currently process purchase price expected allocated goodwill inx189 note 24 selected quarterly financial data unaudited 1 earnings per share quarters may add amounts year period computed discrete basis 2 marketable securities includes current noncurrent assets following specified items affected comparability results 2011 2010 relates releases tax reserves specified prior periods relates tax charge additional us taxable income earnings foreign subsidiaries previously considered permanently reinvested offshore report independent registered public accounting firm board directors shareholders bristolmyers squibb company audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries “company” december 31 2011 2010 related consolidated statements earnings comprehensive income cash flows three years period ended december 31 2011 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2011 2010 results operations cash flows three years period ended december 31 2011 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 17 2012 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp parsippany new jersey february 17 2012 item 9item 8 financial statements supplementary data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies basis consolidation consolidated financial statements prepared conformity united states us generally accepted accounting principles gaap including accounts bristolmyers squibb company may referred bristolmyers squibb bms company controlled majorityowned subsidiaries intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date codevelopment cocommercialization license arrangements assessed determine whether terms provide economic control entity requiring consolidation entity entities controlled means majority voting interest referred variable interest entities arrangements material variable interest entities periods presented use estimates preparation financial statements requires use management estimates assumptions significant assumptions employed estimates used determining fair value potential impairment intangible assets sales rebate return accruals legal contingencies income taxes pension postretirement benefits actual results may differ estimated results reclassifications certain prior period amounts reclassified conform current period presentation depreciation amortization consolidated statements cash flows includes depreciation property plant equipment amortization intangible assets deferred income provision restructuring equity net income affiliates litigation expense net previously presented separately consolidated statements earnings currently presented components incomeexpense revenue recognition revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally time shipment however certain sales nonus businesses recognized date receipt purchaser see “note 3 alliances collaborations” discussion revenue recognition related alliances provisions made time revenue recognition expected sales returns discounts rebates estimated sales allowances based historical experience updated changes facts circumstances including impact applicable healthcare legislation provisions recognized reduction revenue deferred right return longer exists sufficient historical experience estimate sales returns developed new product extension existing line product historical experience products similar therapeutic category income taxes provision income taxes includes income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax basis assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made recognize tax benefit uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefit recognized financial statements particular tax position based largest benefit likely realized upon settlement cash equivalents cash equivalents include us treasury securities government agency securities bank deposits time deposits money market funds cash equivalents consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value marketable securities investments companies marketable securities classified “availableforsale” date purchase reported fair value fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity investments 50 less owned companies accounted using equity method accounting ability exercise significant influence maintained share net income losses equity investments included equity net income affiliates incomeexpense equity investments reviewed impairment assessing decline market value investment carrying value temporary considers intent ability retain investment length time extent market value less cost financial condition investee inventory valuation inventories stated lower average cost market property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation computed straightline method based estimated useful lives related assets estimated useful lives depreciable assets range 20 50 years buildings 3 20 years machinery equipment fixtures impairment longlived assets current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques using level 3 fair value inputs including discounted value estimated future cash flows longlived assets held sale reported lower carrying value estimated net realizable value capitalized software eligible costs obtain internal use software significant systems projects capitalized amortized estimated useful life software insignificant costs obtain software projects expensed incurred business combinations businesses acquired consolidated upon obtaining control acquiree fair value assets acquired liabilities assumed recognized date acquisition excess purchase price estimated fair values net assets acquired recognized goodwill legal audit business valuation business acquisition costs expensed incurred goodwill acquired inprocess research development intangible assets fair value intangible assets typically determined using “income method” utilizes level 3 fair value inputs market participant valuations assume global view considering potential jurisdictions indications based discounted aftertax cash flow projections risk adjusted estimated probability technical regulatory success iprd finitelived intangible assets including licenses developed technology rights iprd projects reach commercialization amortized straightline basis estimated useful life estimated useful lives determined considering period assets expected contribute future cash flows goodwill tested least annually impairment assessing qualitative factors performing quantitative analysis determining whether likely fair value net assets carrying amounts examples qualitative factors assessed 2012 include share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year relevant factor assessed individually aggregate iprd tested impairment annual basis frequently events occur circumstances change would indicate potential reduction fair values assets carrying value carrying value iprd determined exceed fair value impairment loss recognized difference finitelived intangible assets tested impairment facts circumstances suggest carrying value asset may recoverable carrying value exceeds projected undiscounted pretax cash flows intangible asset impairment loss equal excess carrying value estimated fair value discounted aftertax cash flows recognized restructuring charges recognized result actions streamline operations rationalize manufacturing facilities judgment used estimating impact restructuring plans including future termination benefits exit costs incurred actions take place actual results could vary estimates contingencies loss contingencies legal proceedings claims may occur wide range matters including government investigations shareholder lawsuits product environmental liability contractual claims tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies recognized realized legal fees expensed incurred derivative financial instruments derivatives used principally management interest rate foreign currency exposures held used trading purposes derivatives recognized fair value changes fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized earnings derivative designated cash flow hedge effective portions changes fair value derivative reported accumulated comprehensive income oci subsequently recognized earnings hedged item affects earnings cash flows classified consistent underlying hedged item derivatives designated assigned hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer probable occur gain loss immediately recognized earnings nonderivative instruments primarily euro denominated longterm debt also designated hedges net investments foreign affiliates effective portion designated nonderivative instrument recognized foreign currency translation section oci ineffective portion recognized earnings shipping handling costs shipping handling costs included marketing selling administrative expenses 125 million 2012 139 million 2011 135 million 2010 advertising product promotion costs advertising product promotion costs expensed incurred foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized oci research development research development costs expensed incurred clinical study costs accrued service periods specified contracts adjusted necessary based upon ongoing review level effort costs actually incurred strategic alliances third parties provide rights develop manufacture market andor sell pharmaceutical products rights owned party certain research development payments alliance partners contingent upon achievement certain predetermined criteria milestone payments achieved prior regulatory approval product expensed research development milestone payments made connection regulatory approvals capitalized amortized cost products sold remaining useful life asset capitalized milestone payments tested recoverability periodically whenever events changes circumstances indicate carrying amounts may recoverable research development recognized net reimbursements connection collaboration agreements upfront preapproval milestone licensing receipts obtained development deferred amortized estimated life product income company future obligation development upfront milestone licensing receipts recognized immediately income amortization period upfront licensing milestone receipts assessed determined considering terms arrangements note 2 business segment information bms operates single segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization supply chain organization utilized responsible development delivery products market regional commercial organizations used distribute sell product business also supported global corporate staff functions segment information consistent financial information regularly reviewed chief operating decision maker chief executive officer purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods products sold principally wholesalers lesser extent directly distributors retailers hospitals clinics government agencies pharmacies gross sales three largest pharmaceutical wholesalers us percentage global gross sales follows selected geographic area information follows includes puerto rico b includes russia turkey c includes japan china canada australia brazil among countries includes royaltyrelated revenues sales attributed supply agreements net sales key products follows note 3 alliances collaborations alliances collaborations utilized third parties development commercialization certain products collaborations include arrangements access intellectual property research development manufacturing andor commercial capabilities arrangements often entered order share risks rewards related specific program product part specific divestiture strategy unless otherwise noted operating results associated alliances collaborations generally treated follows product revenues bms sales included net sales royalties collaboration profit sharing distribution fees included cost goods sold postapproval milestone payments partners deferred amortized useful life related products cost products sold cost sharing reimbursements offset applicable operating expense payments bms attributed upfront preapproval based milestone licensing payments deferred amortized estimated useful life related products incomeexpense reduction cost products sold amylin diabetes collaboration income expenses attributed collaboration’s noncore activities supply manufacturing arrangements compensation optingout commercialization certain countries included incomeexpense partnerships joint ventures either consolidated accounted equity method accounting related cash receipts distributions treated operating cash flow sanofi bms agreements sanofi codevelopment cocommercialization avaproavalide angiotensin ii receptor antagonist indicated treatment hypertension diabetic nephropathy plavix platelet aggregation inhibitor worldwide alliance operates framework two geographic territories one americas principally us canada puerto rico latin american countries australia europe asia accordingly territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries general country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place bms acts operating partner owns 501 majority controlling interest territory covering americas australia consolidates country partnership results territory sanofi’s 499 share results reflected noncontrolling interest bms recognizes net sales territory comarketing countries outside territory eg germany italy irbesartan spain greece royalties owed sanofi included cost products sold development royalties sanofi acts operating partner owns 501 majority controlling interest territory covering europe asia bms 499 ownership interest territory included equity net income affiliates distributions profits relating partnerships included operating activities bms sanofi separate partnership governing copromotion irbesartan us sanofi paid bms 350 million acquisition interest irbesartan license us upon formation alliance summarized financial information related alliance follows following summarized financial information interests partnerships sanofi territory covering europe asia consolidated accounted using equity method cost products sold includes discovery royalties 133 million 2012 184 million 2011 307 million 2010 paid directly sanofi expenses shared based applicable ownership percentages current assets current liabilities include approximately 293 million 2012 400 million 2011 567 million 2010 related receivablespayables attributed cash distributions bms sanofi well intercompany balances partnerships within territory remaining current assets current liabilities consist thirdparty trade receivables inventories amounts due bms sanofi purchase inventories royalties expense reimbursements september 2012 bms sanofi restructured terms codevelopment cocommercialization agreements discussed effective january 1 2013 subject receipt regulatory approvals certain countries sanofi assume worldwide operations alliance exception plavix us puerto rico alliance plavix two markets continue unchanged december 2019 terms original alliance arrangements exchange rights assumed sanofi bms receive quarterly royalties january 1 2013 december 31 2018 terminal payment sanofi 200 million end 2018 ongoing disputes companies resolved including onetime payment 80 million bms sanofi related avalide supply disruption us 2011 accrued 2011 otsuka bms worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote abilify treatment schizophrenia bipolar mania disorder major depressive disorder excluding certain asian countries us portion amended commercialization manufacturing agreement expires upon expected loss product exclusivity april 2015 contractual share abilify net sales recognized bms 58 2010 535 2011 515 2012 uk germany france spain bms receives 65 thirdparty net sales countries us thirdparty customers invoiced bms behalf otsuka alliance revenue recognized abilify shipped risks rewards ownership transferred third party customers bms recognizes net sales certain countries exclusive distributor product exclusive right sell abilify bms purchases product otsuka performs finish manufacturing sale thirdparty customers bms otsuka terms amended agreement bms paid otsuka 400 million amortized reduction net sales expected loss us exclusivity april 2015 unamortized amount included assets otsuka receives royalty based 15 total us net sales included cost products sold otsuka responsible 30 us expenses related commercialization abilify 2010 2012 bms also receives additional reimbursement otsuka costs incurred bms excess resource requirements specified agreement beginning january 1 2013 bms receive following percentages us annual net sales net sales initially recognized 35 adjusted reflect actual level net sales 2013 us commercialization agreement amended october 2012 requiring otsuka assume full responsibility providing funding sales force efforts effective january 2013 consideration bms paid otsuka 27 million january 2013 responsible funding certain operating expenses 82 million 2013 56 million 2014 8 million 2015 eu otsuka reimburse bms sales force effort provided march 31 2013 beginning april 1 2013 otsuka assume responsibility providing funding sales force effort bms otsuka also entered oncology collaboration sprycel ixempra ixabepilone us japan european union eu markets oncology territory collaboration fee classified cost products sold paid otsuka based following percentages annual net sales sprycel ixempra oncology territory periods otsuka contributes 20 first 175 million certain commercial operational expenses relating oncology products ii 1 commercial operational expenses relating products territory excess 175 million beginning 2011 otsuka copromotes sprycel us japan exercised right copromote top five eu markets beginning january 2012 us extension oncology collaboration include changeofcontrol provision case acquisition bms acquiring company competing product abilify new company assume abilify agreement amended oncology collaboration exists today acquiring company product competes abilify otsuka elect request acquiring company choose whether divest abilify competing product scenario abilify divested otsuka would obligated acquire rights bms abilify agreement amended agreements also provide event generic competitor abilify january 1 2010 bms option terminating abilify april 2009 amendment agreement previously amended remaining force bms exercise option either bms would receive payment otsuka according predetermined schedule oncology collaboration would terminate time ii oncology collaboration would continue truncated period according predetermined schedule eu agreement remained unchanged expire june 2014 countries bms exclusive right sell abilify agreement expires later april 2015 expiration applicable patent data exclusivity country addition 400 million extension payment total milestones paid otsuka 217 million 157 million expensed iprd 1999 remaining 60 million capitalized intangible assets amortized cost products sold remaining life original agreement us summarized financial information related alliance follows lilly bms epidermal growth factor receptor egfr commercialization agreement eli lilly company lilly’s 2008 acquisition imclone systems incorporated imclone codevelopment promotion erbitux necitumumab imc11f8 us expires erbitux september 2018 bms also codevelopment copromotion rights products canada japan erbitux indicated use treatment patients metastatic colorectal cancer use treatment squamous cell carcinoma head neck egfr agreement respect erbitux sales north america lilly receives distribution fee based flat rate 39 net sales north america plus reimbursement certain royalties paid lilly 2007 bms imclone amended codevelopment agreement merck kgaa merck provide cocommercialization erbitux japan rights agreement expire 2032 however lilly ability terminate agreement 2018 determines commercially unreasonable lilly continue erbitux received marketing approval japan 2008 use erbitux treating patients advanced recurrent colorectal cancer bms receives 50 pretax profit merck sales erbitux japan shared equally lilly bms amortizing 500 million license acquisition costs products sold 2018 2010 bms lilly restructured egfr commercialization agreement described bms imclone relates necitumumab novel targeted cancer therapy currently phase iii development nonsmall cell lung cancer companies share cost developing potentially commercializing necitumumab us canada japan lilly maintains exclusive rights necitumumab markets november 2012 provided notice termination global codevelopment cocommercialization arrangement necitumumab imc11f8 fully human monoclonal antibody investigated anticancer treatment discovered imclone part alliance company lilly rights returning lilly termination effective may 2014 though lilly may terminate earlier summarized financial information related alliance follows bms acquired amylin pharmaceuticals inc amylin august 8 2012 see “note 4 acquisitions” information amylin previously entered settlement termination agreement lilly regarding collaboration global development commercialization byetta bydureon exenatide products parties agreed transition full responsibility products amylin although transition us operations completed lilly yet transitioned nonus operations amylin september 2012 bms provided notification lilly bms assume essentially nonus operations exenatide products first half 2013 therefore terminate lilly’s exclusive right nonus commercialization exenatide products subject certain regulatory conditions bms responsible nonus losses incurred lilly 2012 2013 maximum 60 million entitled tiered royalties transition complete promissory notes assumed acquisition amylin aggregating 14 billion repaid lilly 2012 gilead bms gilead sciences inc gilead joint venture develop commercialize atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg oncedaily single tablet threedrug regimen treatment human immunodeficiency virus hiv infection combining sustiva product bms truvada emtricitabine tenofovir disoproxil fumarate product gilead us canada europe bms accounts participation us joint venture equity method accounting net sales bulk efavirenz component atripla deferred combined product sold thirdparty customers net sales efavirenz component based relative ratio average respective net selling prices truvada sustiva summarized financial information related alliance follows astrazeneca 2012 bms astrazeneca pharmaceuticals lp whollyowned subsidiary astrazeneca entered collaboration regarding worldwide development commercialization amylin’s portfolio products bydureon byetta symlin metreleptin currently development arrangement based framework existing diabetes alliance agreements discussed including equal sharing profits losses arising collaboration astrazeneca indicated intent establish equal governance rights certain key strategic financial decisions regarding collaboration pending required antitrust approvals certain international markets bms received preliminary proceeds 36 billion astrazeneca consideration entering collaboration including 73 million included accrued expenses expected reimbursed back astrazeneca 2013 remaining 35 billion accounted deferred income amortized reduction cost products sold prorata basis estimated useful lives related longlived assets assigned purchase price allocation primarily intangible assets weightedaverage estimated useful life 12 years property plant equipment weightedaverage estimated useful life 15 years net proceeds bms receive astrazeneca consideration entering collaboration subject certain adjustments including right receive additional 135 million astrazeneca exercises option equal governance rights bms astrazeneca agreed share certain tax attributes related amylin collaboration preliminary proceeds 36 billion bms received astrazeneca included 207 million related sharing certain tax attributes addition bms continues maintain two worldwide diabetes codevelopment cocommercialization agreements astrazeneca onglyza kombiglyze xr saxagliptin metformin hydrochloride extendedrelease komboglyze saxagliptin metformin immediaterelease marketed eu forxiga dapagliflozin agreements saxagliptin exclude japan document unless specifically noted refer kombiglyze komboglyze kombiglyze forxiga approved eu november 2012 onglyza forxiga discovered bms kombiglyze codeveloped astrazeneca companies jointly develop clinical marketing strategy share commercialization expenses profits losses equally global basis also share development costs exception forxiga development costs japan borne astrazeneca bms manufactures products bms opted decline involvement cocommercialization products certain countries bms global commercialization network instead receives compensation based net sales recorded astrazeneca countries bms received 300 million upfront milestone licensing payments related saxagliptin date could receive additional 300 million salesbased milestones bms also received 250 million upfront milestone licensing payments related dapagliflozin date including 80 million received january 2013 could potentially receive additional 150 million development regulatory milestones additional 390 million salesbased milestones bms entitled reimbursements 50 capital expenditures related amylin summarized financial information related alliances follows pfizer bms pfizer inc pfizer maintain worldwide codevelopment cocommercialization agreement eliquis anticoagulant discovered bms prevention treatment atrial fibrillation arterial thrombotic conditions eliquis approved us japan december 2012 pfizer funds 60 development costs initial development plan effective january 1 2007 companies jointly develop clinical marketing strategy share commercialization expenses profits equally global basis certain countries bms global commercialization network pfizer commercialize eliquis alone pay compensation bms based percentage net sales bms manufactures product bms received 654 million upfront milestone licensing payments eliquis date including 95 million received february 2013 could receive additional 230 million development regulatory milestones payments deferred amortized estimated useful life products income summarized financial information related alliance follows valeant 2012 bms pharmaswiss sa whollyowned subsidiary valeant pharmaceuticals international inc valeant entered collaboration certain mature brand products europe connection collaboration valeant responsible marketing promotion distribution sale products related regulatory matters covered territory bms responsible maintenance products’ intellectual property supply products collaboration expires december 31 2014 time valeant right purchase trademarks intellectual property price determined based multiple sales right exercised rights transferred valeant collaboration period revert back bms consideration entering collaboration bms received 79 million start collaboration period allocated license rights transferred valeant 61 million option purchase remaining assets end collaboration 18 million allocation based estimated fair value option elements considering various market factors including analysis estimated excess fair value mature brands business potential purchase price option purchase trademarks intellectual property exercised december 31 2014 fair value option recorded liability changes estimated fair value option liability recognized results operations remaining 61 million recognized alliance revenue throughout term collaboration bms also recognize revenue collaboration period supply product provide certain information technology regulatory order processing distribution transitional services exchange fee first six months collaboration note 4 acquisitions amylin pharmaceuticals inc acquisition august 8 2012 bms completed acquisition outstanding shares amylin biopharmaceutical company focused discovery development commercialization innovative medicines treat diabetes metabolic diseases acquisition costs 29 million included expenses bms obtained full us commercialization rights amylin’s two primary commercialized assets bydureon onceweekly diabetes treatment byetta daily diabetes treatment glucagonlike peptide1 glp1 receptor agonists approved certain countries improve glycemic control adults type 2 diabetes bms also obtained full commercialization rights symlin pramlintide acetate amylinomimetic approved us adjunctive therapy mealtime insulin treat diabetes goodwill generated acquisition primarily attributed expansion diabetes franchise iprd attributed metreleptin analog human hormone leptine studied developed treatment diabetes andor hypertriglyceridemia pediatric adult patients inherited acquired lipodystrophy estimated useful life cash flows utilized value metreleptin assumed initial positive cash flows commence shortly expected receipt regulatory approvals subject trial results inhibitex inc acquisition february 13 2012 bms completed acquisition outstanding shares inhibitex inc inhibitex clinicalstage biopharmaceutical company focused developing products prevent treat serious infectious diseases acquisition costs 12 million included expense bms obtained inhibitex’s lead asset inx189 oral nucleotide polymerase ns5b inhibitor phase ii development treatment chronic hepatitis c virus infections goodwill generated acquisition primarily attributed potential offer full portfolio therapy choices hepatitis virus infections well provide additional levels sustainability bms’s virology pipeline iprd primarily attributed inx189 expected effective used combination therapy assumed market participants would inherently maintain franchise synergies attributed maximizing cash flows existing virology pipeline assets cash flows utilized value inx189 included synergies also assumed initial positive cash flows commence shortly expected receipt regulatory approvals subject trial results august 2012 company discontinued development inx189 interest patient safety result company recognized noncash pretax impairment charge 18 billion related iprd intangible asset third quarter 2012 information discussion impairment charge see “note 13 goodwill intangible assets” amira pharmaceuticals inc acquisition september 7 2011 bms completed acquisition outstanding shares amira pharmaceuticals inc amira 325 million cash plus three separate contingent 50 million payments due upon achievement certain development salesbased milestones first contingent payment made fourth quarter 2011 purchase price amira includes estimated fair value total contingent consideration 58 million recorded liabilities acquisition costs 1 million included expense amira privatelyheld biotechnology company primarily focused discovery development therapeutic products treatment cardiovascular fibrotic inflammatory diseases acquisition provides bms 1 full rights develop commercialize am152 completed phase clinical studies remainder amira lysophosphatidic acid 1 receptor antagonist program 2 researchers fibrotic expertise 3 preclinical autotaxin program goodwill generated acquisition primarily attributed acquired scientific expertise fibrotic diseases allowing expansion new therapeutic class contingent liability estimated utilizing model assessed probability achieving milestone discounted amount potential payment based expected timing estimates used evaluating contingent liability consistent used evaluating acquired iprd discount rate payment consistent market debt yields noncallable publiclytraded bonds bms similar maturities estimated potential payment dates fair value measurement based significant inputs observable market therefore represents level 3 measurement zymogenetics inc acquisition october 8 2010 bms completed acquisition outstanding shares common stock zymogenetics inc zymogenetics october 2010 acquisition costs 10 million included expense zymogenetics focused developing commercializing therapeutic proteinbased products treatment human diseases companies collaborated development peginterferon lambda novel interferon phase iib development acquisition date treatment hepatitis c virus infection acquisition provides company full rights develop commercialize peginterferon lambda also brings proven capabilities therapeutic proteins revenue recothrom fda approved specialty surgical biologic goodwill generated acquisition primarily attributed full ownership rights peginterferon lambda final purchase price allocation zymogenetics amira inhibitex preliminary purchase price allocation pending final valuation intangible assets deferred income taxes amylin follows cash paid acquisition amylin included payments 5093 million outstanding common stockholders 219 million holders stock options restricted stock units including 94 million attributed accelerated vesting accounted stock compensation expense third quarter 2012 results operations acquired companies included consolidated financial statements acquisition date revisions goodwill preliminary estimates september 30 2012 amylin relate primarily adjustment preliminary amount allocated fair value acquired iprd decrease 250 million based additional information obtained related future cash flow projections net resulting deferred tax adjustment 99 million pro forma supplemental financial information provided impacts acquisitions material operating results year acquisition goodwill iprd intangible assets valued acquisitions nondeductible tax purposes note 5 incomeexpense includes restructuring charges included termination benefits workforce reductions manufacturing selling administrative research development personnel across geographic regions approximately 1205 2012 822 2011 995 2010 following table represents activity employee termination exit cost liabilities note 7 income taxes provisionbenefit income taxes consisted effective tax rate reconciliation effective tax rate us statutory federal income tax rate change 2012 effective tax rate 2011 due • tax benefit 392 million attributable capital loss deduction resulting tax insolvency inhibitex • favorable earnings mix high low tax jurisdictions primarily attributed lower plavix sales 1830 million impairment charge bms986094 intangible asset us lesser extent internal transfer intellectual property partially offset • contingent tax matters resulted 66 million charge 2012 161 million benefit 2011 • unfavorable impact current year rate delay legal enactment research development tax credit extended december 31 2012 • changes prior period estimates upon finalizing us tax returns resulting 54 million benefit 2011 change 2011 effective tax rate 2010 due • 207 million charge recognized fourth quarter 2010 resulted primarily additional us taxable income earnings foreign subsidiaries previously considered indefinitely reinvested offshore • changes prior period estimates upon finalizing us tax returns resulting 54 million benefit 2011 30 million charge 2010 • higher tax benefits contingent tax matters primarily related effective settlements remeasurements uncertain tax positions 161 million 2011 131 million 2010 partially offset • unfavorable earnings mix high low tax jurisdictions compared prior year • nontax deductible annual pharmaceutical company fee effective january 1 2011 tax impact 80 million • outofperiod tax adjustment 59 million 2010 previously unrecognized net deferred tax assets primarily attributed deferred profits related certain alliances december 31 2009 material prior periods american taxpayer relief act 2012 act signed law january 2 2013 among provisions act retroactive reinstatement rd tax credit look thru exception 2012 2013 result 2012 rd tax credit look thru exception benefit recognized first quarter 2013 deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows us federal net operating loss carryforwards 486 million december 31 2012 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 us federal tax credit carryforwards expire varying amounts beginning 2017 realization us federal tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration capital loss available 2200 million carried back 2009 carried forward 2017 foreign state net operating loss carryforwards expire varying amounts beginning 2013 certain amounts unlimited lives management established valuation allowance deferred tax asset likely realized december 31 2012 valuation allowance 4404 million established following items 3659 million primarily foreign net operating loss tax credit carryforwards 338 million state deferred tax assets including net operating loss tax credit carryforwards 15 million us federal net operating loss carryforwards 392 million us federal capital losses 2011 foreign holding companies net operating losses corresponding valuation allowances included increase 2027 million result statutory impairment charges required consolidated net earnings foreign holding companies higher asset basis statutory purposes basis used consolidated financial statements due internal reorganization certain legal entities prior periods changes valuation allowance follows income tax payments 676 million 2012 597 million 2011 672 million 2010 current tax benefit realized result stock related compensation credited capital excess par value stock 71 million 2012 47 million 2011 10 million 2010 us taxes provided approximately 21 billion undistributed earnings foreign subsidiaries undistributed earnings indefinitely invested offshore december 31 2012 additional tax provisions required earnings repatriated future us earnings determined remitted foreseeable future due complexities tax laws assumptions would made practicable estimate amounts income taxes provided result bms favorable tax rates ireland puerto rico grants scheduled expire prior 2023 internal reorganization certain legal entities resulted 207 million charge 2010 possible us tax authorities could assert additional material tax liabilities arising reorganization bms would vigorously challenge assertion occur believes would prevail however assurance result business conducted various countries throughout world subject tax numerous jurisdictions significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported requiring several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows additional information regarding unrecognized tax benefits follows uncertain tax benefits reduce deferred tax assets extent uncertainty directly related asset otherwise recognized either current noncurrent us foreign income taxes payable accrued interest penalties payable unrecognized tax benefits included either current noncurrent us foreign income taxes payable interest penalties related unrecognized tax benefits included income tax expense bms currently examination number tax authorities including limited major tax jurisdictions listed table proposed adjustments tax issues transfer pricing certain tax credits deductibility certain expenses bms estimates reasonably possible total amount unrecognized tax benefits december 31 2012 decrease range approximately 370 million 400 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits primarily settlement related involve payment additional taxes adjustment certain deferred taxes andor recognition tax benefits bms also anticipates reasonably possible new issues raised tax authorities may require increases balance unrecognized tax benefits however estimate increases cannot reasonably made time bms believes adequately provided open tax years tax jurisdiction following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited note 8 earnings per share note 9 financial instruments financial instruments include cash equivalents marketable securities accounts receivable payable debt instruments derivatives carrying amount receivables accounts payable approximates fair value due short term maturity changes currency exchange rates interest rates create exposure market risk certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur derivative financial instruments used trading purposes financial instruments subject counterparty credit risk considered part overall fair value measurement counterparty credit risk monitored ongoing basis mitigated limiting amounts outstanding individual counterparty utilizing conventional derivative financial instruments entering agreements counterparties meet high credit quality standards consolidated financial statements would materially impacted counterparty failed perform according terms agreement collateral required party whether derivatives asset liability position terms agreements fair value measurements fair values financial instruments classified one following categories level 1 inputs utilize nonbinding quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy gives highest priority level 1 inputs instruments include us treasury securities level 2 inputs utilize observable prices similar instruments nonbinding quoted prices identical similar instruments markets active observable inputs corroborated market data substantially full term assets liabilities instruments include corporate debt securities commercial paper federal deposit insurance corporation fdic insured debt securities certificates deposit money market funds foreign currency forward contracts interest rate swap contracts equity funds fixed income funds longterm debt additionally certain corporate debt securities utilize thirdparty matrix pricing model uses significant inputs corroborated market data substantially full term assets equity fixed income funds primarily invested publicly traded securities valued respective net asset value underlying investments significant unfunded commitments restrictions redemptions related equity fixed income funds december 31 2012 level 2 derivative instruments valued using london interbank offered rate libor euro interbank offered rate euribor yield curves less credit valuation adjustments observable forward foreign exchange rates reporting date valuations derivative contracts may fluctuate considerably periodtoperiod due volatility underlying foreign currencies underlying interest rates driven market conditions duration contract credit adjustment volatility may significant impact valuation interest rate swaps due changes counterparty credit ratings credit default swap spreads level 3 unobservable inputs used little market data available valuation models auction rate security ars floating rate security frs portfolio based expected cash flow streams collateral values including assessments counterparty credit quality default risk underlying security discount rates overall capital market liquidity fair value ars determined using internally developed valuation based part indicative bids received underlying assets security evidence fair value ars private placement security rated ‘bbb’ standard poor’s december 31 2012 represents interests insurance securitizations due current lack active market frs general lack transparency underlying assets qualitative analysis relied upon value frs including discussions brokers fund managers default risk underlying security overall capital markets liquidity availableforsale securities cash equivalents following table summarizes availableforsale securities december 31 2012 2011 following table summarizes classification availableforsale securities consolidated balance sheet money market funds securities aggregating 1288 million 5469 million december 31 2012 2011 respectively included cash equivalents valued using level 2 inputs cash equivalents maintained foreign currencies 493 million december 31 2012 subject currency rate risk december 31 2012 3512 million noncurrent available sale corporate debt securities frs mature within five years auction rate securities mature beyond 10 years change fair value investments equity fixed income funds recognized incomeexpense designed offset changes fair value certain employee retirement benefits following table summarizes activity financial assets utilizing level 3 fair value measurements qualifying hedges nonqualifying derivatives following summarizes fair value outstanding derivatives cash flow hedges foreign currency forward contracts primarily utilized hedge forecasted intercompany inventory purchase transactions certain foreign currencies forward contracts designated cash flow hedges effective portion changes fair value temporarily reported accumulated oci recognized earnings hedged item affects earnings notional amount outstanding foreign currency forward contracts primarily attributed euro 929 million japanese yen 413 million december 31 2012 net gains foreign currency forward contracts qualifying cash flow hedge accounting expected reclassified cost products sold within next two years including 25 million pretax gains reclassified within next 12 months cash flow hedge accounting discontinued forecasted transaction longer probable occurring originally forecasted date 60 days thereafter hedge longer effective assessments determine whether derivatives designated qualifying hedges highly effective offsetting changes cash flows hedged items performed inception quarterly basis ineffective portion change fair value included current period earnings impact related discontinued cash flow hedges hedge ineffectiveness significant periods presented net investment hedges nonus dollar borrowings 541 million 714 million designated hedge foreign currency exposures net investment certain foreign affiliates borrowings designated net investment hedges recognized long term debt effective portion foreign exchange gains losses remeasurement debt recognized foreign currency translation component accumulated oci related offset long term debt fair value hedges fixedtofloating interest rate swap contracts designated fair value hedges used part interest rate risk management strategy create appropriate balance fixed floating rate debt swaps underlying debt benchmark risk hedged recorded fair value effective interest rate paid fixedtofloating interest rate swaps onemonth libor 0210 december 31 2012 plus interest rate spread ranging 13 29 underlying swap terminated prior maturity fair value basis adjustment underlying debt instrument amortized earnings reduction interest expense remaining life debt 2011 fixedtofloating interest rate swap contracts 16 billion notional amount 10 billion notional amount terminated generating total proceeds 356 million including accrued interest 66 million 2010 fixedtofloating interest rate swap contracts 237 million notional amount 500 million notional amount terminated generating total proceeds 116 million including accrued interest 18 million nonqualifying foreign exchange contracts foreign currency forward contracts used offset exposure foreign currencydenominated monetary assets liabilities earnings primary objective contracts protect us dollar value foreign currencydenominated monetary assets liabilities earnings effects volatility foreign exchange rates might occur prior receipt settlement us dollars contracts designated hedges adjusted fair value incomeexpense occur substantially offset change fair value underlying foreign currency denominated monetary asset liability earnings effect nonqualifying hedges earnings significant periods presented debt obligations shortterm borrowings current portion longterm debt includes longterm debt current portion long term debt includes included current portion longterm debt 50 million floating rate convertible senior debentures due 2023 redeemed holders par september 15 2013 2018 fundamental change ownership occurs debentures callable par time company debentures current conversion price 3999 equal conversion rate 250047 shares 1000 principal amount subject certain antidilutive adjustments third quarter 2012 20 billion senior unsecured notes issued 750 million aggregate principal amount 0875 notes due 2017 750 million aggregate principal amount 2000 notes due 2022 500 million aggregate principal amount 3250 notes due 2042 registered public offering interest notes paid semiannually notes rank equally right payment bms’s existing future senior unsecured indebtedness bms may redeem notes whole part time predetermined redemption price net proceeds note issuances 1950 million net discount 36 million deferred loan issuance costs 14 million average amount commercial paper outstanding 224 million weightedaverage interest rate 016 2012 maximum month end amount commercial paper outstanding 700 million outstanding borrowings december 31 2012 substantially 20 billion debt obligations assumed acquisition amylin repaid third quarter 2012 including promissory note lilly respect revenue sharing obligation amylin senior notes due 2014 principal value longterm debt obligations 6631 million december 31 2012 648 million due 2013 27 million due 2014 659 million due 2016 750 million due 2017 remaining 4547 million due 2018 thereafter fair value longterm debt 8285 million 6406 million december 31 2012 2011 respectively estimated based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments debt repurchase activity follows interest payments 241 million 2012 171 million 2011 178 million 2010 net amounts related interest rate swap contracts bms currently two separate 15 billion fiveyear revolving credit facilities syndicate lenders including new facility received july 2012 financial covenants either facility borrowings outstanding either revolving credit facility december 31 2012 2011 december 31 2012 249 million financial guarantees provided form standby letters credit performance bonds standby letters credit issued financial institutions support guarantees made bms affiliates various obligations performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority outstanding financial guarantees expire within year expected funded note 10 receivables include receivables netted deferred income related alliance partners recognition income result alliance partner receivables deferred income reduced 1056 million 901 million december 31 2012 2011 respectively additional information regarding alliance partners see “note 3 alliances collaborations” nonus receivables sold nonrecourse basis 956 million 2012 1077 million 2011 932 million 2010 aggregate receivables three pharmaceutical wholesalers us represented 37 55 total trade receivables december 31 2012 2011 respectively changes allowances bad debt chargebacks cash discounts follows note 11 inventories include inventories expected remain onhand beyond one year 424 million december 31 2012 260 million december 31 2011 included noncurrent assets note 12 property plant equipment property plant equipment includes depreciation expense 382 million 2012 448 million 2011 473 million 2010 note 13 goodwill intangible assets changes carrying amount goodwill follows includes outofperiod adjustment correct purchase price allocation september 2009 medarex acquisition 24 million contingent milestone payment prior acquisition medarex purchase price adjustment decreased intangible assets 98 million increased deferred tax assets 34 million goodwill 64 million effect adjustment material current prior periods intangible assets include changes intangible assets follows annual amortization expense intangible assets expected approximately 850 million 2013 850 million 2014 750 million 2015 750 million 2016 700 million 2017 4210 million thereafter bms announced discontinued development bms986094 formerly known inx189 nucleotide polymerase ns5b inhibitor phase ii development treatment hepatitis c virus infection august 23 2012 decision made interest patient safety based rapid thorough ongoing assessment patients phase ii study voluntarily suspended august 1 2012 bms acquired bms986094 acquisition inhibitex february 2012 result termination development program 1830 million pretax impairment charge recognized iprd intangible asset impairment charge 120 million recognized 2012 related partial writedown fair value developed technology costs related nonkey product recothrom acquired acquisition zymogenetics developed technology impairment charge resulted continued competitive pricing pressures note 14 accrued expenses accrued expenses include note 15 sales rebates return accruals reductions trade receivables accrued rebates returns liabilities follows note 16 deferred income deferred income includes upfront milestone licensing receipts amortized expected life product see “note 3 alliances collaborations” information pertaining revenue recognition transactions including 35 billion proceeds received astrazeneca related amylin collaboration 2012 deferred gains several saleleaseback transactions amortized remaining lease terms related facilities 2018 deferred income amortization 308 million 2012 173 million 2011 137 million 2010 note 17 equity treasury stock recognized cost reacquire shares issued treasury recognized utilizing firstin firstout method may 2010 board directors authorized repurchase 30 billion common stock june 2012 increased authorization repurchase common stock additional 30 billion repurchases may made either open market private transactions including repurchase plans established accordance rule 10b51 securities exchange act 1934 stock repurchase program expiration date may suspended discontinued time noncontrolling interest primarily related plavix avaproavalide partnerships sanofi territory covering americas net earnings attributable noncontrolling interest presented net taxes 317 million 2012 792 million 2011 683 million 2010 corresponding increase provision income taxes distribution partnership profits sanofi’s funding ongoing partnership operations occur routine basis activity includes pretax income distributions related partnerships components comprehensive incomeloss oci follows realized gainslosses derivatives qualifying effective hedges recognized costs products sold b see “item 8 financial statementsnote 18 pension postretirement postemployment liabilities” detail c realized gainslosses available sale securities recognized incomeexpense accumulated balances related component comprehensive incomeloss oci net taxes follows note 18 pension postretirement postemployment liabilities company certain subsidiaries sponsor defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan covers us employees represents approximately 70 consolidated pension plan assets obligations funding policy contribute least minimum amount required employee retirement income security act 1974 erisa plan benefits based primarily participant’s years credited service final average compensation plan assets consist principally equity fixedincome securities comprehensive medical group life benefits provided substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside us net periodic benefit cost defined benefit pension postretirement benefit plans includes 151 million pension settlement charge recognized 2012 primary us pension plan result annual lump sum payments exceeding interest service costs fourth quarter charge included acceleration portion unrecognized actuarial losses net actuarial loss prior service cost 147 million expected amortized accumulated oci net periodic benefit cost pension postretirement benefit plans 2013 changes defined benefit postretirement benefit plan obligations assets funded status amounts recognized consolidated balance sheets follows accumulated benefit obligation defined benefit pension plans 8068 million 7322 million december 31 2012 2011 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine benefit obligations december 31 follows weightedaverage actuarial assumptions used determine net periodic benefit cost years ended december 31 follows yield high quality corporate bonds matches duration benefit obligations used determining discount rate citigroup pension discount curve used developing discount rate us plans several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class historical longterm actual annualized returns us pension plans follows pension postretirement liabilities increased 459 million december 31 2012 corresponding charge comprehensive income result actuarial losses attributed benefit obligation 731 million partially offset higher expected return plan assets 272 million actuarial losses resulted prevailing equity fixed income market conditions reduction interest rates 2012 expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” approximates fair value plan assets december 31 2012 differences assumed actual returns amortized marketrelated value straightline basis threeyear period gains losses resulted changes actuarial assumptions changes discount rate differences assumed actual experience differences actual expected return plan assets gains losses except differences amortized marketrelated value amortized extent exceed 10 higher marketrelated value projected benefit obligation respective plan result approximately 840 million related pension benefits expected amortized 2013 majority remaining actuarial losses amortized life expectancy plans’ participants us plans 30 years expected remaining service periods plans cost products sold research development marketing selling administrative expenses appropriate assumed healthcare cost trend rates december 31 follows assumed healthcare cost trend rates effect amounts reported healthcare plans onepercentagepoint change assumed healthcare cost trend rates would following effects plan assets fair value pension postretirement plan assets asset category december 31 2012 2011 follows investment valuation policies per investment class follows level 1 inputs utilize quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy gives highest priority level 1 inputs instruments include equity securities equity funds fixed income funds publicly traded national securities exchange us treasury agency securities cash equivalents cash equivalents highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement level 2 inputs include observable prices similar instruments quoted prices identical similar instruments markets active observable inputs corroborated market data substantially full term assets liabilities equity funds fixed income funds event driven hedge funds shortterm investment funds classified level 2 within fair value hierarchy valued net asset value shares held year end significant unfunded commitments restrictions redemptions related investments valued nav december 31 2012 corporate debt securities government mortgage backed securities collateralized mortgage obligation bonds asset backed securities us treasury agency securities state municipal bonds real estate interests classified level 2 within fair value hierarchy valued utilizing observable prices similar instruments quoted prices identical similar instruments markets active level 3 unobservable inputs used little market data available equity funds venture capital limited partnership investments classified level 3 within fair value hierarchy valued estimated fair value estimated fair value based fair value underlying investment values cost plus minus accumulated earnings losses approximates fair value insurance contract interests carried contract value approximates estimated fair value based fair value underlying investment insurance company insurance contracts held certain foreign pension plans valuation models corporate debt securities collateralized mortgage obligation bonds asset backed securities classified level 3 within fair value hierarchy based estimated bids brokers thirdparty vendor sources utilize expected cash flow streams collateral values including assessments counterparty credit quality default risk discount rates overall capital market liquidity following summarizes activity financial assets utilizing level 3 fair value measurements investment strategy emphasizes equities order achieve higher expected returns lower expenses required cash contributions longterm target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income maintained us pension plans investments well diversified within three major asset categories approximately 81 us pension plans equity investments actively managed venture capital limited partnerships typically valued three month lag bms company common stock represents less 1 plan assets december 31 2012 2011 contributions us pension plans 335 million 2012 343 million 2011 341 million 2010 contributions international pension plans 61 million 2012 88 million 2011 90 million 2010 aggregate contributions us international plans expected 100 million 2013 estimated future benefit payments savings plan principal defined contribution plan bristolmyers squibb savings investment program contribution based employee contributions level company match expense related plan 190 million 2012 181 million 2011 188 million 2010 post employment benefit plan postemployment liabilities longterm disability benefits 90 million 92 million december 31 2012 2011 respectively expense related benefits 17 million 2012 18 million 2011 2010 termination indemnity plans statutory termination obligations recognized undiscounted basis assuming employee termination measurement date liability recognized obligations 29 million 25 million december 31 2012 2011 respectively note 19 employee stock benefit plans may 1 2012 shareholders approved 2012 stock award incentive plan 2012 plan replaced 2007 stock incentive plan shares common stock reserved issuance pursuant stock plans options conversions preferred stock 283 million december 31 2012 shares available granted active plans adjusted combination plans 116 million december 31 2012 shares stock option exercise share unit vesting issued treasury stock shares actually delivered participants connection award restrictions lapsed reduce number shares reserved shares tendered prior year pay purchase price options shares previously utilized satisfy withholding tax obligations upon exercise continue available reserved executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable ratably 4 years maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price common stock may granted key employees subject restrictions continuous employment restrictions expire four year period date grant compensation expense recognized vesting period stock unit right receive stock end specified vesting period voting rights market share units granted certain executives beginning 2010 vesting conditioned upon continuous employment vesting date payout factor equals least 60 payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs ratably four years longterm performance awards three year cycle delivered form target number performance share units number shares ultimately issued calculated based actual performance compared earnings targets performance criteria established beginning performance period awards annual goals maximum payout 1675 threshold targets met performance period payment made plan annual period vesting occurs end three year period stockbased compensation expense based awards ultimately expected vest recognized vesting period acceleration unvested stock options restricted stock units connection acquisition amylin resulted stockbased compensation expense 2012 forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates stockbased compensation expense follows sharebased compensation activities follows total compensation costs related sharebased payment awards yet recognized weightedaverage period awards expected recognized december 31 2012 follows additional information related sharebased compensation awards summarized follows following table summarizes significant ranges outstanding exercisable options december 31 2012 amounts millions except per share data aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 3259 december 31 2012 fair value assumptions fair value restricted stock units longterm performance awards determined based closing trading price company’s common stock grant date beginning 2010 fair value performance share units granted discounted participate dividends fair value performance share units granted prior 2010 discounted using riskfree interest rate date grant participate dividends fair value market share units estimated date grant using model applying multiple input variables determine probability satisfying market conditions model uses following input variables expected volatility based four year historical volatility levels company’s common stock current implied volatility fouryear riskfree interest rate derived federal reserve based market share units’ contractual term expected dividend yield based historical dividend payments note 20 leases minimum rental commitments noncancelable operating leases primarily real estate motor vehicles effect december 31 2012 follows operating lease expense 142 million 2012 136 million 2011 145 million 2010 sublease income material periods presented note 21 legal proceedings contingencies company certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business company recognizes accruals contingencies probable liability incurred amount loss reasonably estimated matters involve patent infringement antitrust securities pricing sales marketing practices environmental commercial health safety matters consumer fraud employment matters product liability insurance coverage legal proceedings material company believes could become material described although company believes substantial defenses matters assurance increase scope pending matters future lawsuits claims government investigations legal proceedings material unless otherwise noted company unable assess outcome respective litigation able provide estimated range potential loss furthermore failure enforce patent rights would likely result substantial decreases respective product sales generic competition intellectual property plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex inc apotex since changed name apotex august 2007 apotex filed application federal court australia federal court seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 federal court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april 2008 august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid company sanofi filed notices appeal full court federal court australia full court appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 september 29 2009 full court held claims patent 597784 invalid november 2009 company sanofi applied high court australia high court special leave appeal judgment full court march 2010 high court denied company sanofi’s request hear appeal full court decision case remanded federal court proceedings related damages expected amount damages material company plavix eu previously disclosed 2007 yes pharmaceutical development services gmbh yes pharmaceutical filed application marketing authorization germany alternate salt form clopidogrel application relied data studies originally conducted sanofi bms plavix still subject data protection eu sanofi bms filed action yes pharmaceutical partners administrative court cologne objecting marketing authorization matter currently pending although specific marketing authorizations withdrawn market resolution lawsuit expected material impact company plavix canada apotex inc april 22 2009 apotex filed impeachment action sanofi federal court canada alleging sanofi’s canadian patent 1336777 ‘777 patent invalid june 8 2009 sanofi filed defense impeachment action filed suit apotex infringement ‘777 patent trial completed june 2011 december 2011 federal court canada issued decision ‘777 patent invalid sanofi appealed decision though generic companies since entered market decision expected later year abilify previously disclosed otsuka filed patent infringement actions teva barr pharmaceuticals inc barr sandoz inc sandoz synthon laboratories inc synthon sun pharmaceuticals sun zydus pharmaceuticals usa inc zydus apotex relating us patent 5006528 ‘528 patent covers aripiprazole expires april 2015 including additional sixmonth pediatric exclusivity period aripiprazole comarketed company otsuka us abilify nonjury trial us district court district new jersey nj district court tevabarr apotex completed august 2010 november 2010 nj district court upheld validity enforceability ‘528 patent maintaining main patent protection abilify us april 2015 nj district court also ruled defendants’ generic aripiprazole product infringed ‘528 patent permanently enjoined engaging activity infringes ‘528 patent including marketing generic product us patent including sixmonth pediatric extension expires sandoz synthon sun zydus also bound nj district court’s decision december 2010 tevabarr apotex appealed decision us court appeals federal circuit federal circuit may 2012 federal circuit affirmed nj district court’s decision june 2012 apotex filed petition rehearing en banc denied december 2012 united states supreme court denied apotex’s petition writ certiorari requesting appeal federal circuit decision concluded matter atripla april 2009 teva filed abbreviated new drug application anda manufacture market generic version atripla single tablet threedrug regimen combining company’s sustiva gilead’s truvada time company’s us patent rights covering sustiva’s composition matter method use challenged teva sent gilead paragraph iv certification letter challenging two fifteen orange booklisted patents atripla product joint venture company gilead may 2009 gilead filed patent infringement action teva us district court southern district new york sdny january 2010 company received notice teva amended anda challenging eight additional orange booklisted patents atripla march 2010 company merck sharp dohme corp merck filed patent infringement action teva also sdny relating two us patents claim crystalline polymorph forms efavirenz march 2010 gilead filed two patent infringement actions teva sdny relating six orange booklisted patents atripla trial expected 2013 possible time reasonably assess outcome lawsuits impact company baraclude august 2010 teva filed anda manufacture market generic versions baraclude company received paragraph iv certification letter teva challenging one orange booklisted patent baraclude us patent 5206244 ‘244 patent september 2010 company filed patent infringement lawsuit us district court district delaware district court teva infringement february 2013 delaware district court ruled company invalidated ‘244 patent company appeal delaware district court’s decision evaluating legal options upon final fda approval anda teva could launch generic product could rapid significant negative impact us sales baraclude beginning 2013 us net sales baraclude 241 million 2012 june 2012 company filed patent infringement lawsuit sandoz following receipt paragraph iv certification letter challenging orangebook listed patent parties requested case dismissed february 2013 parties filed stipulation dismissal case dismissed sprycel september 2010 apotex filed anda manufacture market generic versions sprycel company received paragraph iv certification letter apotex challenging four orange book listed patents sprycel including composition matter patent november 2010 company filed patent infringement lawsuit nj district court apotex infringement four orange book listed patents covering sprycel triggered automatic 30month stay approval apotex’s anda october 2011 company received paragraph iv notice letter apotex informing company seeking approval generic versions 80 mg 140 mg dosage strengths sprycel challenging four orange book listed patents november 2011 bms filed patent infringement suit apotex 80 mg 140 mg dosage strengths nj district court case consolidated suit filed november 2010 trial currently scheduled september 2013 discovery matter ongoing possible time reasonably assess outcome lawsuit impact company sustiva eu january 2012 teva obtained european marketing authorization efavirenz teva 600 mg tablets february 2012 company merck filed lawsuits requests injunctions teva netherlands germany uk infringement merck’s european patent 0582455 supplementary protection certificates expiring november 2013 december 2012 requests injunctions granted uk denied netherlands germany company merck appealing denial request injunction netherlands possible time reasonably assess outcome lawsuits impact company general commercial litigation clayworth litigation previously disclosed company together number pharmaceutical manufacturers named defendant action filed california superior court oakland james clayworth et al v bristolmyers squibb company et al alleging defendants conspired fix prices pharmaceuticals agreeing charge drugs us charge outside us particularly canada asserting claims california’s cartwright act unfair competition law plaintiffs sought trebled monetary damages injunctive relief december 2006 court granted company manufacturers’ motion summary judgment based passon defense judgment entered favor defendants july 2008 judgment favor defendants affirmed california court appeals july 2010 california supreme court reversed california court appeal’s judgment matter remanded california superior court proceedings march 2011 defendants’ motion summary judgment granted judgment entered favor defendants plaintiffs appealed decision california court appeals affirmed summary judgment defendants october 2012 plaintiffs filed petition seeking review california supreme court denied november 2012 remaining apotex matters related plavix previously disclosed november 2008 apotex filed lawsuit new jersey superior court entitled apotex inc et al v sanofiaventis et al seeking payment 60 million plus interest calculated rate 1 per month date filing lawsuit paid related breakup march 2006 proposed settlement agreement relating thethen pending plavix patent litigation apotex april 2011 new jersey superior court granted company’s crossmotion summary judgment motion denied apotex’s motion summary judgment apotex appealed decisions new jersey appellate division reversed grant summary judgments case remanded back superior court additional proceedings possible time reasonably assess outcome lawsuit impact company january 2011 apotex filed lawsuit florida state court broward county alleging breach contract relating may 2006 proposed settlement agreement apotex relating pending plavix patent litigation apotex seeking damages amount profits alleges would received selling generic clopidogrel bisulfate somewhere 8 115 months may 2006 agreement approved regulators discovery concluded company moved summary judgment denied november 2012 case scheduled trial beginning march 2013 possible time reasonably assess outcome lawsuit impact company pricing sales promotional practices litigation investigations abilify federal subpoena january 2012 company received subpoena united states attorney’s office southern district new york requesting information related among things sales marketing abilify possible time assess outcome matter potential impact company abilify state attorneys general investigation march 2009 company received letter delaware attorney general’s office advising multistate coalition investigating whether certain abilify marketing practices violated respective states’ consumer protection statutes possible time reasonably assess outcome investigation potential impact company abilify copay assistance litigation march 2012 company partner otsuka named codefendants putative class action lawsuit filed union health welfare funds sdny plaintiffs challenging legality abilify copay assistance program federal antitrust racketeer influenced corrupt organizations laws seeking damages company otsuka filed motion dismiss complaint possible time reasonably assess outcome litigation potential impact company awp litigation previously disclosed company together number pharmaceutical manufacturers defendant number private class actions well suits brought attorneys general various states actions plaintiffs allege defendants caused average wholesale prices awps products inflated thereby injuring government programs entities persons reimbursed prescription drugs based awps company remains defendant two state attorneys general suits pending state courts around country settled lawsuits brought mississippi louisiana attorneys general beginning august 2010 company defendant trial commonwealth court pennsylvania commonwealth court brought commonwealth pennsylvania september 2010 jury issued verdict company finding company liable fraudulent negligent misrepresentation however commonwealth court judge issued decision pennsylvania consumer protection claim go jury finding company liable 28 million enjoining company contributing provision inflated awps company moved vacate decision commonwealth moved judgment notwithstanding verdict commonwealth court denied company appealed decision pennsylvania supreme court qui tam litigation march 2011 company served unsealed qui tam complaint filed three former sales representatives california superior court county los angeles california department insurance elected intervene lawsuit complaint alleges company paid kickbacks california providers pharmacies violation california insurance frauds prevention act cal ins code § 18717 discovery ongoing possible time reasonably assess outcome lawsuit impact company product liability litigation company party various product liability lawsuits previously disclosed addition lawsuits company also faces unfiled claims involving products plavix previously disclosed company certain affiliates sanofi defendants number individual lawsuits various state federal courts claiming personal injury damage allegedly sustained using plavix currently 2000 claims filed state federal courts various states including california illinois new jersey new york defendants terminated previously disclosed tolling agreement effective september 1 2012 february 2013 judicial panel multidistrict litigation granted company sanofi’s motion establish multidistrict litigation coordinate federal pretrial proceedings plavix product liability related cases possible time reasonably assess outcome lawsuits potential impact company reglan company one number defendants numerous lawsuits behalf approximately 2700 plaintiffs claiming personal injury allegedly sustained using reglan another brand generic drug metoclopramide product indicated gastroesophageal reflux certain gastrointestinal disorders company generic subsidiary apothecon inc distributed metoclopramide tablets manufactured another party 1996 2000 possible time reasonably assess outcome lawsuits potential impact company resolution pending lawsuits expected material impact company hormone replacement therapy company one number defendants masstort litigation plaintiffs allege among things various hormone therapy products including hormone therapy products formerly manufactured company estrace estradiol delestrogen ovcon cause breast cancer stroke blood clots cardiac injuries women defendants aware risks failed warn consumers company agreed resolve claims approximately 400 plaintiffs february 2013 company remains defendant approximately 35 actively pending lawsuits federal state courts throughout us company’s hormone therapy products sold companies january 2000 august 2001 resolution remaining lawsuits expected material impact company byetta bydureon amylin whollyowned subsidiary company see “note 4 acquisitions” lilly codefendants product liability litigation related byetta bydureon february 2013 approximately 120 separate lawsuits pending behalf approximately 575 plaintiffs various courts us vast majority cases brought individuals allege personal injury sustained using byetta primarily pancreatitis cases claiming alleged wrongful death company agreed principle resolve claims 300 plaintiffs majority cases pending california state court judicial council granted amylin’s petition “coordinated proceeding” california state court cases alleging harm alleged use byetta amylin lilly currently scheduled trial one singleplaintiff case second quarter 2013 cannot reasonably predict outcome lawsuit claim proceeding however given amylin product liability insurance coverage existing claims future related claims involving byetta expected amount damages material company bms986094 august 2012 company announced discontinued development bms986094 investigational compound tested clinical trials treat hepatitis c virus infection due emergence serious safety issue date five lawsuits filed company texas state court plaintiffs removed federal court alleging participated phase ii study bms986094 suffered injuries result thereof agreement principle resolve four five filed claims vast majority claims surfaced date matter total slightly fewer 300 patients administered compound various doses durations part clinical trials resolution remaining lawsuit potential future lawsuits expected material impact company environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including comprehensive environmental response compensation liability act cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated thirdparties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable company estimated share future costs sites 72 million december 31 2012 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties new brunswick facility environmental personal injury lawsuits since may 2008 250 lawsuits filed company new jersey superior court behalf current former residents new brunswick new jersey live lived adjacent company’s new brunswick facility complaints either allege various personal injuries damages resulting alleged soil groundwater contamination property stemming historical operations new brunswick facility claims medical monitoring portion complaints also assert claims alleged property damage october 2008 new jersey supreme court granted mass tort status cases transferred new jersey superior court atlantic county centralized case management purposes company intends defend vigorously litigation discovery ongoing since october 2011 100 additional cases filed new jersey superior court removed company united states district court district new jersey possible time reasonably assess outcome lawsuits potential impact company north brunswick township board education previously disclosed october 2003 company contacted counsel representing north brunswick nj board education boe regarding site waste materials er squibb sons may disposed 1940’s 1960’s fill material containing industrial waste heavy metals excess residential standards discovered expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 new jersey department environmental protection njdep sent company others information request letter possible waste disposal site company responded march 2004 boe township current owners school property park conducting jointly financing soil remediation work ground water investigation work plan approved njdep asked company contribute cost company actively monitoring cleanup project including costs date neither school board township asserted claim company instead company local entities negotiated agreement attempt resolve matter informal means avoid litigation central component agreement provision company interim funding help defray cleanup costs assure work interrupted company transmitted interim funding payments december 2007 november 2009 parties commenced mediation late 2008 however efforts successful parties moved binding allocation process parties expected conduct fact expert discovery followed formal evidentiary hearings written argument hearings likely scheduled midtolate 2013 addition september 2009 township boe filed suits several parties alleged contributed waste materials site company currently believe responsible additional amounts beyond two interim payments totaling 4 million already transmitted additional possible loss expected material proceedings italy investigation july 2011 public prosecutor florence italy italian prosecutor initiated criminal investigation company’s subsidiary italy bms italy allegations company relate alleged activities former employee left company 1990s italian prosecutor also requested interim measures judicial administrator appointed temporarily run operations bms italy october 2012 parties reached agreement resolve request interim measures resulted italian prosecutor withdrawing request accepted florence court possible time assess outcome underlying investigation potential impact company sec germany investigation october 2006 sec informed company begun formal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents sec’s inquiry encompasses matters formerly investigation german prosecutor munich germany since resolved company understands inquiry concerns potential violations foreign corrupt practices act fcpa company cooperating sec fcpa investigation march 2012 company received subpoena sec subpoena issued connection investigation fcpa primarily relates sales marketing practices various countries company cooperating government investigation matters note 22 selected quarterly financial data unaudited 1 earnings per share quarters may add amounts year period computed discrete basis 2 marketable securities includes current noncurrent assets 3 also includes current portion longterm debt following specified items affected comparability results 2012 2011 2012 specified tax benefit relates capital loss deduction 2011 specified tax benefit relates releases tax reserves specified prior periods note 23 subsequent events collaboration medicines company february 2013 bms medicines company entered global license two year collaboration regarding recothrom recombinant thrombin use topical hemostat control nonarterial bleeding surgical procedures previously acquired bms connection acquisition zymogenetics 2010 net sales recothrom 67 million 2012 connection collaboration medicines company responsible sales distribution marketing certain regulatory matters relating recothrom bms responsible exclusive supply product certain assets transferred medicines company start collaboration period primarily recothrom business license agreement regulatory assets bms retained assets related recothrom including patents trademarks inventory collaboration expires february 2015 time medicines company right purchase remaining assets business held bms price determined based multiple sales plus cost remaining inventory held bms time option exercised assets previously transferred medicines company collaboration period revert back bms received 115 million start collaboration period allocated license rights transferred medicines company written option recorded option liability fair value allocation based estimated fair value elements considering various market factors estimated excess fair value business potential purchase price option purchase exercised changes estimated fair value option liability recognized results operations remaining amount proceeds received upon entering collaboration recognized alliance revenue throughout term collaboration bms also recognize alliance revenue collaboration period tiered royalties supply product bms provide certain information technology regulatory order processing distribution transitional services exchange fee period six months commencing start collaboration agreement enter collaboration reckitt benckiser group plc february 2013 bms reckitt benckiser group plc rbl agreed enter license three year collaboration regarding several overthecounterproducts sold primarily mexico brazil transaction expected close first second quarter 2013 subject customary closing conditions regulatory approvals net sales products approximately 100 million 2012 connection collaboration rbl responsible sales distribution marketing certain regulatory matters bms responsible exclusive supply products certain limited assets expected transferred rbl start collaboration period primarily market authorization well employees directly attributed business bms retain assets related business including patents trademarks inventory collaboration period upon expiration collaboration rbl right purchase remaining assets business held bms price determined based multiple sales plus cost remaining inventory held bms time option exercised assets previously transferred rbl collaboration period revert back bms expected receive proceeds 482 million start collaboration period allocated license rights transferred rbl written option recorded option liability fair value allocation based estimated fair value elements considering various market factors changes estimated fair value option liability recognized results operations remaining amount proceeds received upon entering collaboration recognized alliance revenue throughout term collaboration bms also recognize alliance revenue collaboration period tiered royalties supply product bms also provide certain information technology regulatory order processing distribution transitional services exchange fee period six months commencing start collaboration report independent registered public accounting firm board directors shareholders bristolmyers squibb company audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries “company” december 31 2012 2011 related consolidated statements earnings comprehensive income cash flows three years period ended december 31 2012 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2012 2011 results operations cash flows three years period ended december 31 2012 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2012 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 15 2013 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp parsippany new jersey february 15 2013 item 9item 8 financial statements supplementary data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies basis consolidation consolidated financial statements prepared conformity united states us generally accepted accounting principles gaap including accounts bristolmyers squibb company may referred bristolmyers squibb bms company controlled majorityowned subsidiaries intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date alliance license arrangements assessed determine whether terms provide economic control entity requiring consolidation entity entities controlled means majority voting interest referred variable interest entities arrangements material variable interest entities periods presented use estimates preparation financial statements requires use management estimates assumptions significant assumptions estimates determining fair value potential impairment intangible assets sales rebate return accruals legal contingencies income taxes pension postretirement benefits actual results may differ estimated results reclassifications certain prior period amounts reclassified conform current period presentation net product sales alliance revenues previously presented aggregate net sales consolidated statements earnings presented separately revenue recognition revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally time shipment including supply commercial products alliance partners principal end customer sale however certain revenue nonus businesses recognized date receipt customer alliance revenue related abilify atripla recognized products sold end customer alliance partner royalties based third party sales recognized earned accordance contract terms third party sales reliably measurable collectability reasonably assured refer “note 3 alliances” detail regarding alliances provisions made time revenue recognition expected sales returns discounts rebates estimated sales allowances based historical experience updated changes facts circumstances including impact applicable healthcare legislation provisions recognized reduction revenuewhen new product extension existing line product historical experience products similar therapeutic category revenue deferred right return longer exists sufficient historical experience estimate sales returns developed income taxes provision income taxes includes income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax basis assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made tax benefits recognized uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefit recognized financial statements particular tax position based largest benefit likely realized upon settlement cash equivalents cash equivalents include us treasury securities government agency securities bank deposits time deposits money market funds cash equivalents consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value marketable securities investments companies marketable securities classified “availableforsale” date purchase reported fair value fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity investments 50 less owned companies accounted using equity method accounting ability exercise significant influence maintained share net income losses equity investments included equity net income affiliates incomeexpense equity investments reviewed impairment assessing decline market value investment carrying value temporary considers intent ability retain investment length time extent market value less cost financial condition investee inventory valuation inventories stated lower average cost market property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation computed straightline method based estimated useful lives related assets ranging 20 50 years buildings 3 20 years machinery equipment fixtures impairment longlived assets current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques using level 3 fair value inputs including discounted value estimated future cash flows capitalized software eligible costs obtain internal use software significant systems projects capitalized amortized estimated useful life software insignificant costs obtain software projects expensed incurred business combinations businesses acquired consolidated upon obtaining control acquiree fair value assets acquired liabilities assumed recognized date acquisition excess purchase price estimated fair values net assets acquired recognized goodwill legal audit business valuation business acquisition costs expensed incurred goodwill acquired inprocess research development intangible assets fair value intangible assets typically determined using “income method” utilizes level 3 fair value inputs market participant valuations assume global view considering potential jurisdictions indications based discounted aftertax cash flow projections risk adjusted estimated probability technical regulatory success iprd finitelived intangible assets including licenses developed technology rights iprd projects reach commercialization amortized straightline basis estimated useful life estimated useful lives determined considering period assets expected contribute future cash flows goodwill tested least annually impairment assessing qualitative factors performing quantitative analysis determining whether likely fair value net assets carrying amounts examples qualitative factors assessed 2013 include share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year relevant factor assessed individually aggregate iprd tested impairment annual basis frequently events occur circumstances change would indicate potential reduction fair values assets carrying value carrying value iprd determined exceed fair value impairment loss recognized difference finitelived intangible assets tested impairment facts circumstances suggest carrying value asset may recoverable carrying value exceeds projected undiscounted pretax cash flows intangible asset impairment loss equal excess carrying value estimated fair value discounted aftertax cash flows recognized restructuring charges recognized result actions streamline operations rationalize manufacturing facilities judgment used estimating impact restructuring plans including future termination benefits exit costs incurred actions take place actual results could vary estimates contingencies loss contingencies legal proceedings claims may occur wide range matters including government investigations shareholder lawsuits product environmental liability contractual claims tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies including contingent proceeds related divestitures recognized realized legal fees expensed incurred derivative financial instruments derivatives used principally management interest rate foreign currency exposures held used trading purposes derivatives recognized fair value changes fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized earnings derivative designated cash flow hedge effective portions changes fair value derivative reported accumulated comprehensive incomeloss oci subsequently recognized earnings hedged item affects earnings cash flows classified consistent underlying hedged item derivatives designated assigned hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer probable occur gain loss immediately recognized earnings nonderivative instruments primarily euro denominated longterm debt also designated hedges net investments foreign affiliates effective portion designated nonderivative instrument recognized foreign currency translation section oci ineffective portion recognized earnings shipping handling costs shipping handling costs included marketing selling administrative expenses 119 million 2013 125 million 2012 139 million 2011 advertising product promotion costs advertising product promotion costs expensed incurred foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized oci research development research development costs expensed incurred clinical study costs accrued service periods specified contracts adjusted necessary based upon ongoing review level effort costs actually incurred strategic alliances third parties provide rights develop manufacture market andor sell pharmaceutical products rights owned party research development recognized net reimbursements connection alliance agreements recently issued accounting standards july 2013 financial accounting standards board issued update clarified existing guidance presentation unrecognized tax benefits various qualifying tax benefit carryforwards exist including unrecognized tax benefit presented reduction deferred tax assets liability update required adopted annual periods interim reporting periods beginning december 15 2013 early adoption permitted reduction deferred tax assets expected approximately 250 million note 2 business segment information bms operates single segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization supply chain organization responsible development delivery products market regional commercial organizations used distribute sell product business also supported global corporate staff functions segment information consistent financial information regularly reviewed chief executive officer purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods products sold principally wholesalers lesser extent directly distributors retailers hospitals clinics government agencies pharmacies gross revenues three largest pharmaceutical wholesalers us percentage global gross revenues follows selected geographic area information follows total revenues include royalties alliancerelated revenues products sold regional commercial organizations total revenues key products follows includes 1366 million 2013 1267 million 2012 1203 million 2011 presented alliance revenue b includes 1840 million 2013 2340 million 2012 2303 million 2011 presented alliance revenue note 3 alliances bms enters collaboration arrangements third parties development commercialization certain products although arrangements unique nature parties active participants operating activities collaboration exposed significant risks rewards depending commercial success activities bms may either inlicense intellectual property owned party outlicense intellectual property party arrangements also typically include research development manufacturing andor commercial activities cover single investigational compound commercial product multiple compounds andor products various life cycle stages refer collaborations alliances partners alliance partners payments alliance partners accounted presented results operations considering specific nature payment underlying activities payments relate multiple alliance activities including transfer rights separated individual units accounting standalone value activities occur life arrangements situations arrangement consideration allocated activities rights relative selling price basis multiple alliance activities rights standalone value combined single unit accounting common activities bms alliance partners presented results operations follows • bms principal end customer sale 100 thirdparty product sales included net product sales bmss alliance partner principal end customer sale bmss contractual share thirdparty sales andor royalty income included alliance revenue sale commercial products considered part bmss ongoing major central operations refer revenue recognition included note 1 accounting policies information regarding recognition criteria • amounts payable bms alliance partners principal end customer sale supply commercial products included alliance revenue sale commercial products considered part bmss ongoing major central operations • amounts payable bms alliance partners profit sharing royalties salesbased fees included cost products sold incurred • cost reimbursements parties recognized incurred included cost products sold marketing selling administrative expenses advertising product promotion expenses research development expenses based underlying nature related activities subject reimbursement • upfront contingent development approval milestones payable bms alliance partners investigational compounds commercial products deferred amortized shorter contractual term periods related compounds products expected contribute future cash flows amortization presented consistent nature payment arrangement example amounts received investigational compounds presented incomeexpense activities performed time related sale commercial products part bms’s ongoing major central operations amounts received commercial products presented alliance revenue sale commercial products considered part bms’s ongoing major central operations except astrazeneca plc astrazeneca alliance pertaining amylin products see discussion specific astrazeneca alliance disclosure herein • upfront contingent approval milestones payable bms alliance partners commercial products capitalized amortized shorter contractual term periods related products expected contribute future cash flows amortization included cost products sold • upfront contingent milestones payable bms alliance partners prior regulatory approval expensed incurred included research development expenses • equity net income affiliates included incomeexpense • payments bms alliance partners presented cash flows operating activities selected financial information pertaining alliances follows including net product sales bms principal thirdparty customer sale products subject alliance expenses summarized include amounts attributed activities products alliance payments alliance partners related amortization payments deferred capitalized includes deferred income classified liabilities related assets heldforsale 3671 million december 31 2013 specific information pertaining significant alliances discussed including nature purpose significant rights obligations parties specific accounting policy elections income statement classification amounts attributable payments parties otsuka bms worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote abilify excluding certain asian countries us portion agreement amended 2009 2012 expires upon expected loss product exclusivity april 2015 agreement expires european union eu countries june 2014 nonus country exclusive right sell abilify agreement expires later april 2015 loss exclusivity country parties actively participate joint executive governance operating committees although otsuka assumed responsibility providing funding sales force efforts effective january 2013 2012 us amendment bms responsible funding certain operating expenses various annual limits 2013 2015 bms purchases active pharmaceutical ingredient api otsuka completes manufacture product subsequent sale thirdparty customers us certain countries otsuka assumed responsibility providing funding sales force efforts eu effective april 2013 bms also provides certain services including distribution customer management pharmacovigilence otsuka principal thirdparty product sales us united kingdom uk germany france spain italy beginning march 1 2013 bms principal thirdparty product sales exclusive distributor exclusive right sell abilify remaining territories alliance revenue recognized bms’s share total net sales thirdparty customers territories us bms’s contractual share 515 2012 535 2011 beginning january 1 2013 bms’s contractual share changed percentages total us net sales set forth table assessment bmss expected annual contractual share completed quarterly reporting period adjusted based upon reported us abilify net sales december 31 2013 bmss annual contractual share 340 2013 alliance revenue recognized interim period quarter exceed amounts due contract united kingdom germany france spain italy beginning march 1 2013 bms’s contractual share thirdparty net sales 65 countries us alliance revenue recognized abilify shipped risks rewards ownership transferred thirdparty customers terms 2009 us amendment bms paid otsuka 400 million 2009 amortized reduction alliance revenue expected loss us exclusivity april 2015 unamortized balance included assets otsuka receives royalty based 15 total us net sales included cost products sold otsuka responsible 30 us expenses related commercialization abilify 2010 2012 bms otsuka also alliance sprycel ixempra ixabepilone us japan eu parties actively participate various governance committees bms control decision making parties copromote product bms responsible development manufacture product bms also principal endcustomer product sales fee paid otsuka based following percentages annual net sales sprycel ixempra annual periods otsuka contributes 20 first 175 million certain commercial operational expenses relating oncology products oncology territory 1 costs excess 175 million us extension oncology alliance include changeofcontrol provision case acquisition bms acquiring company competing product abilify new company assume abilify agreement amended oncology alliance exists today acquiring company product competes abilify otsuka elect request acquiring company choose whether divest abilify competing product scenario abilify divested otsuka would obligated acquire rights bms abilify agreement amended agreements also provide event generic competitor abilify january 1 2010 bms option terminating abilify april 2009 amendment agreement previously amended remaining force bms exercise option either bms would receive payment otsuka according predetermined schedule oncology alliance would terminate time ii oncology alliance would continue truncated period according predetermined schedule summarized financial information related alliance follows includes amortization extension payment reduction alliance revenue 66 million 2013 2012 2011 astrazeneca bms astrazeneca diabetes alliance consisting three worldwide codevelopment commercialization agreements first agreement covered onglyza related combination products sold various names second agreement covered forxiga commercialized farxiga us related combination products third agreement covered amylins portfolio products bydureon byetta symlin pramlintide acetate metreleptin currently development well certain assets owned amylin included manufacturing facility onglyza agreement excluded japan upon entering separate agreements coexclusive license rights product products underlying agreement granted astrazeneca exchange upfront payment potential milestone payments parties assumed certain obligations actively participate alliance parties actively participated joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms manufactured products three alliances principal endcustomer product sales substantially countries alliance agreement determined rights transferred astrazeneca standalone value rights sold separately bms party could astrazeneca received benefit delivered rights without fulfillment ongoing obligations bms alliance agreements including exclusive supply arrangement global alliance treated single unit accounting result upfront proceeds subsequent contingent milestone proceeds amortized life related products 2012 bms received 36 billion nonrefundable upfront payment astrazeneca consideration entering amylin alliance 2013 astrazeneca exercised option equal governance rights certain key strategic financial decisions regarding amylin alliance paid bms 135 million consideration payments accounted deferred income amortized based relative fair value predominant elements included alliance estimated useful lives intangible assets related bydureon estimated useful life 13 years byetta estimated useful life 7 years symlin estimated life 9 years metreleptin estimated useful life 12 years amylin manufacturing plant estimated useful life 15 years amortization presented reduction cost products sold alliance assets acquired shortly commencement alliance astrazeneca entitled share proceeds sale assets amortization acquired amylin intangible assets manufacturing plant also presented cost products sold bms entitled reimbursements 50 capital expenditures related acquired amylin manufacturing facility bms astrazeneca also shared certain tax attributes related amylin alliance bms received 300 million nonrefundable upfront milestone licensing payments related onglyza date bms also received 250 million nonrefundable upfront milestone licensing payments related forxiga date amortization onglyza forxiga deferred income included income onglyza forxiga commercial products commencement alliance parties equally shared commercialization development expenses well profits losses summarized financial information related astrazeneca alliances follows included liabilities related assets heldforsale december 31 2013 february 2014 bms sold astrazeneca diabetes business bms comprised global alliance including rights ownership onglyza forxiga bydureon byetta symlin pramlintide acetate metreleptin transaction included shares amylin resulting transfer manufacturing plant intellectual property related onglyza forxiga future purchase bms’s manufacturing facility located mount vernon indiana earlier 18 months following closing transaction parties terminated existing alliance agreements connection sale entered several new agreements including transitional services agreement supply agreement development agreement see “note 5 assets heldforsale” information gilead bms gilead sciences inc gilead joint ventures us canada europe develop commercialize atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg combining sustiva product bms truvada emtricitabine tenofovir disoproxil fumarate product gilead joint ventures consolidated gilead parties actively participate joint executive committee various operating committees direct oversight activities joint ventures joint ventures purchase sustiva truvada api bulk form parties complete finishing atripla us canada joint venture sells distributes atripla principal thirdparty customer sales europe gilead affiliates sell distribute atripla principal thirdparty customer sales parties longer coordinate joint promotional activities alliance revenue recognized atripla include bulk efavirenz component atripla based relative ratio average respective net selling prices truvada sustiva alliance revenue deferred related alliance receivable recognized combined product sold thirdparty customers europe following 2013 loss exclusivity sustiva effective january 1 2014 percentage atripla net sales bms recognize based ratio difference average net selling prices atripla truvada atripla average net selling price alliance continue either party terminates arrangement last patent expiration occurs atripla truvada sustiva us agreement may terminated gilead upon launch generic version sustiva bms upon launch generic version truvada event gilead terminates agreement upon loss exclusivity sustiva bms receive quarterly royalty payment 36 months following termination payment first 12 months following termination equal 55 atripla net sales multiplied ratio difference average net selling prices atripla truvada atripla average net selling price second third years following termination payment bms reduced 35 15 respectively atripla net sales multiplied price ratio described bms continue supply sustiva cost plus markup joint ventures threeyear period unless either party elects terminate supply arrangement summarized financial information related alliance follows lilly bms commercialization agreement eli lilly company lilly’s november 2008 acquisition imclone systems incorporated imclone codevelopment promotion erbitux us expires september 2018 parties actively participate joint executive committee various operating committees shared responsibilities research development alliance using resources infrastructures lilly responsible supplying product bms distribution sale bms responsible promotional efforts product north america although lilly right copromote expense bms also codevelopment copromotion rights canada japan bms principal thirdparty customer sales north america commercialization agreement bms pays lilly distribution fee based flat rate 39 net sales erbitux north america plus share certain royalties paid lilly japan bms shares rights erbitux agreement lilly merck kgaa receives 50 pretax profit merck kgaa’s net sales erbitux japan shared equally lilly march 2013bms lilly terminated arrangement necitumumab imc11f8 rights returning lilly discovered imclone necitumumab fully human monoclonal antibody part alliance bms lilly bms amortizing 500 million license acquisition costs associated erbitux alliance agreement 2018 summarized financial information related alliance follows bms acquired amylin pharmaceuticals inc amylin august 8 2012 see “note 4 acquisitions” information amylin previously entered settlement termination agreement lilly regarding alliance global development commercialization byetta bydureon exenatide products parties agreed transition full responsibility products amylin transition us operations completed time acquisition transition nonus operations exenatide products majority markets completed april 1 2013 terminating lillys exclusive right nonus commercialization exenatide products promissory notes assumed acquisition amylin aggregating 14 billion repaid lilly 2012 sanofi september 2012 bms sanofi restructured terms codevelopment cocommercialization agreements plavix avaproavalide effective january 1 2013 sanofi assumed essentially worldwide operations alliance exception plavix us puerto rico alliance plavix markets continue unchanged december 2019 terms original alliance arrangements described exchange rights assumed sanofi bms receive quarterly royalties january 1 2013 december 31 2018 terminal payment sanofi 200 million end 2018 ongoing disputes companies resolved including 80 million payment bms sanofi related avalide supply disruption us 2011 accrued 2011 beginning 2013 royalties received sanofi territory covering americas australia optout markets former development royalties presented alliance revenues 220 million development optout royalty income 143 million 2012 126 million 2011 included incomeexpense development royalty expense 67 million 2012 182 million 2011 included incomeexpense royalties attributed territory covering europe asia continue earned territory partnership included equity net income affiliates additionally equity net income affiliates 2013 included 22 million profit deferred prior restructuring agreement alliance revenues attributed supply irbesartan api sanofi 116 million 2013 117 million 2012 33 million 2011 supply arrangement irbesartan expires 2015 prior restructuring bms’s worldwide alliance sanofi codevelopment cocommercialization avaproavalide plavix operated framework two geographic territories one americas principally us canada puerto rico latin american countries australia europe asia two territory partnerships managed central expenses marketing research development royalties supply finished product individual countries bms acted operating partner owned 501 majority controlling interest territory covering americas australia consolidates country partnership results territory sanofi’s 499 share results reflected noncontrolling interest bms also recognized net product sales comarketing countries outside territory eg italy irbesartan germany greece spain sanofi acted operating partner owned 501 majority controlling interest territory covering europe asia bms 499 ownership interest territory summarized financial information related alliance follows included alliance receivables following summarized financial information interests partnerships sanofi territory covering europe asia consolidated accounted using equity method cost products sold territory covering europe asia includes discovery royalties 38 million 2013 133 million 2012 184 million 2011 paid directly sanofi expenses shared based applicable ownership percentages current assets current liabilities include approximately 108 million 2013 293 million 2012 400 million 2011 related receivablespayables attributed cash distributions bms sanofi well intercompany balances partnerships within territory remaining current assets current liabilities consist thirdparty trade receivables inventories amounts due bms sanofi purchase inventories royalties expense reimbursements pfizer bms pfizer inc pfizer maintain worldwide codevelopment cocommercialization agreement eliquis anticoagulant discovered bms pfizer funds 50 60 development costs depending study companies share commercialization expenses profits losses equally global basis certain countries bms global commercialization network pfizer commercialize eliquis alone pay bms compensation based percentage net sales upon entering agreement coexclusive license rights product granted pfizer exchange upfront payment potential milestone payments parties assumed certain obligations actively participate alliance parties actively participate joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms manufactures product alliance principal endcustomer product sales substantially countries determined rights transferred pfizer standalone value rights sold separately bms party could pfizer received benefit delivered rights without fulfillment ongoing obligations bms alliance agreement including exclusive supply arrangement global alliance treated single unit accounting result upfront proceeds subsequent contingent milestone proceeds amortized life related product bms received 784 million nonrefundable upfront milestone licensing payments related eliquis date including 20 million received january 2014 could receive additional 100 million development regulatory milestones amortization eliquis deferred income included income eliquis commercial product commencement alliance summarized financial information related alliance follows reckitt benckiser group may 2013 bms reckitt benckiser group plc reckitt entered threeyear alliance several overthecounterproducts sold primarily mexico brazil net sales products approximately 100 million 2012 reckitt received right sell distribute market products may 2016 certain responsibilities related regulatory matters covered territory bms receive royalties net sales products also exclusively supply certain products reckitt pursuant supply agreement cost plus markup certain limited assets including market authorizations certain employees directly attributed business transferred reckitt start alliance period bms retained ownership assets related business including trademarks covering products bms also granted reckitt option acquire trademarks inventory certain assets exclusively related products end alliance period price determined based multiple sales plus cost remaining inventory held bms time option exercised assets previously transferred reckitt revert back bms option may exercised reckitt may november 2015 case closing would expected occur may 2016 nonrefundable upfront proceeds 485 million received bms allocated two units accounting including rights transferred reckitt 376 million fair value option purchase remaining assets 109 million using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option determined using level 3 inputs included liabilities changes estimated fair value option liability significant 2013 amount allocated rights transferred reckitt amortized alliance revenue contractual term alliance revenue 116 million 2013 including product supply royalties medicines company february 2013 bms medicines company entered twoyear alliance recothrom recombinant thrombin use topical hemostat control nonarterial bleeding surgical procedures previously acquired bms connection acquisition zymogenetics inc 2010 net product sales recothrom 67 million 2012 medicines company received right sell distribute market recothrom global basis two years certain responsibilities related regulatory matters covered territory bms exclusively supply recothrom medicines company pursuant supply agreement cost plus markup also receive royalties net sales recothrom certain employees directly attributed business certain assets transferred medicines company start alliance period including recothrom biologics license application related regulatory assets bms retained assets related recothrom including patents trademarks inventory bms also granted medicines company option acquire patents trademarks inventory certain assets exclusively related recothrom price determined based multiple sales plus cost remaining inventory held bms time option exercised assets previously transferred medicines company revert back bms option may exercised medicines company february august 2014 case closing would expected occur february 2015 nonrefundable upfront proceeds 115 million received bms allocated two units accounting including rights transferred medicines company 80 million fair value option purchase remaining assets 35 million using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option determined using level 3 inputs included liabilities changes estimated fair value option liability significant 2013 amount allocated rights transferred medicines company amortized alliance revenue contractual term alliance revenue 74 million 2013 including product supply royalties valeant october 2012 bms pharmaswiss sa whollyowned subsidiary valeant pharmaceuticals international inc valeant entered alliance certain mature brand products europe valeant received right sell distribute market products europe december 31 2014 certain responsibilities related regulatory matters covered territory alliance term bms also exclusively supply products valeant pursuant supply agreement cost plus markup bms also granted valeant option acquire trademarks intellectual property exclusively related products price determined based multiple sales option exercised rights transferred valeant revert back bms option may exercised valeant january june 2014 case closing would expected occur december 2014 nonrefundable upfront proceeds 79 million received bms allocated two units accounting including rights transferred valeant 61 million fair value option purchase remaining assets 18 million using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option determined using level 3 inputs included accrued expenses changes estimated fair value option liability significant 2013 2012 amount allocated rights transferred valeant amortized alliance revenue contractual term alliance revenue 49 million 2013 5 million 2012 including product supply net product sales recognized transitional period 4 million 2013 5 million 2012 note 4 acquisitions amylin pharmaceuticals inc acquisition august 8 2012 bms completed acquisition outstanding shares amylin biopharmaceutical company focused discovery development commercialization innovative medicines treat diabetes metabolic diseases acquisition costs 29 million included expenses bms obtained full us commercialization rights amylin’s two primary commercialized assets bydureon onceweekly diabetes treatment byetta daily diabetes treatment glucagonlike peptide1 glp1 receptor agonists approved certain countries improve glycemic control adults type 2 diabetes bms also obtained full commercialization rights symlin amylinomimetic approved us adjunctive therapy mealtime insulin treat diabetes goodwill generated acquisition primarily attributed expansion diabetes franchise iprd attributed metreleptin analog human hormone leptin studied developed treatment diabetes andor hypertriglyceridemia pediatric adult patients inherited acquired lipodystrophy estimated useful life cash flows utilized value metreleptin assumed initial positive cash flows commence shortly expected receipt regulatory approvals subject trial results see note 5 assets heldforsale discussion sale companys diabetes business including amylin astrazeneca comprised global diabetes alliance inhibitex inc acquisition february 13 2012 bms completed acquisition outstanding shares inhibitex inc inhibitex clinicalstage biopharmaceutical company focused developing products prevent treat serious infectious diseases acquisition costs 12 million included expense bms obtained inhibitex’s lead asset inx189 oral nucleotide polymerase ns5b inhibitor phase ii development treatment chronic hepatitis c virus infections goodwill generated acquisition primarily attributed potential offer full portfolio therapy choices hepatitis virus infections well provide additional levels sustainability bms’s virology pipeline iprd primarily attributed inx189 expected effective used combination therapy assumed market participants would inherently maintain franchise synergies attributed maximizing cash flows existing virology pipeline assets cash flows utilized value inx189 included synergies also assumed initial positive cash flows commence shortly expected receipt regulatory approvals subject trial results august 2012 company discontinued development inx189 interest patient safety result company recognized noncash pretax impairment charge 18 billion related iprd intangible asset third quarter 2012 information discussion impairment charge see “note 14 goodwill intangible assets” amira pharmaceuticals inc acquisition september 7 2011 bms completed acquisition outstanding shares amira pharmaceuticals inc amira 325 million cash plus three separate contingent 50 million payments due upon achievement certain development salesbased milestones first contingent payment made fourth quarter 2011 purchase price amira includes estimated fair value total contingent consideration 58 million recorded liabilities acquisition costs 1 million included expense amira privatelyheld biotechnology company primarily focused discovery development therapeutic products treatment cardiovascular fibrotic inflammatory diseases acquisition provides bms 1 full rights develop commercialize am152 completed phase clinical studies remainder amira lysophosphatidic acid 1 receptor antagonist program 2 researchers fibrotic expertise 3 preclinical autotaxin program goodwill generated acquisition primarily attributed acquired scientific expertise fibrotic diseases allowing expansion new therapeutic class total consideration transferred allocation acquisition date fair values assets acquired liabilities assumed amylin inhibitex amira acquisitions follows cash paid acquisition amylin included payments 5093 million outstanding common stockholders 219 million holders stock options restricted stock units including 94 million attributed accelerated vesting accounted stock compensation expense third quarter 2012 results operations cash flows acquired companies included consolidated financial statements acquisition date pro forma supplemental financial information provided impacts acquisitions material operating results year acquisition goodwill iprd intangible assets valued acquisitions nondeductible tax purposes note 5 assets heldforsale february 2014 bms sold astrazeneca diabetes business bms comprised global alliance including rights ownership onglyza forxiga bydureon byetta symlin metreleptin transaction included shares amylin previously acquired bms august 2012 resulting transfer manufacturing facility west chester ohio intellectual property related onglyza forxiga future purchase bms’s manufacturing facility located mount vernon indiana earlier 18 months following closing transaction substantially employees dedicated diabetes business transferred astrazeneca upon closing transaction consideration transaction astrazeneca paid 27 billion bms closing 600 million milestone february 2014 approval farxiga us make contingent regulatory salesbased milestone payments 800 million royalty payments based net sales 2025 addition astrazeneca make payments 225 million certain assets transferred including mount vernon manufacturing site diabetes business china business treated single disposal group held sale december 31 2013 writedown required fair value business less costs sell exceeded related carrying value following assets liabilities diabetes business heldforsale presented separately bms’s accounts december 31 2013 allocation goodwill based relative fair value diabetes business december 31 2013 divested companys reporting unit stock asset purchase agreement contains multiple elements delivered subsequent closing transaction element transaction determined standalone value result portion consideration received closing allocated undelivered elements using relative selling price method including china diabetes business mount vernon manufacturing facility development agreement incremental discount attributed supply agreement remaining amount consideration received closing included calculation estimated net gain disposal contingent consideration including royalties milestone payments received also allocated underlying elements transaction relative selling price basis amounts allocated sale business immediately recognized amounts allocated elements either recognized immediately deferred whole part extent element delivered note 6 incomeexpense includes note 7 restructuring following provision restructuring charges included termination benefits workforce reductions manufacturing selling administrative research development personnel across geographic regions approximately 1450 2013 1205 2012 822 2011 following table represents activity employee termination exit cost liabilities note 8 income taxes provisionbenefit income taxes consisted effective tax rate reconciliation effective taxbenefit rate us statutory federal income tax rate change 2013 effective tax rate 2012 due • tax benefit 2012 392 million attributable capital loss deduction resulting tax insolvency inhibitex • tax benefits attributable higher impairment charges 2012 including 1830 million impairment charge bms986094 intangible asset us • higher charges contingent tax matters 134 million 2013 66 million 2012 partially offset • favorable earnings mix high low tax jurisdictions primarily attributable lower plavix revenues 2013 lesser extent impact internal transfer intellectual property fourth quarter 2012 • favorable impact current year rate legal enactment 2012 2013 research development tax credit 2013 retroactive reinstatement 2012 research development tax credit recognized 2013 82 million change 2012 effective tax rate 2011 due • tax benefit 392 million attributable capital loss deduction resulting tax insolvency inhibitex • favorable earnings mix high low tax jurisdictions primarily attributed lower plavix revenues 1830 million impairment charge bms986094 intangible asset us lesser extent internal transfer intellectual property partially offset • contingent tax matters resulted 66 million charge 2012 161 million benefit 2011 • unfavorable impact current year rate delay legal enactment research development tax credit extended december 31 2012 • changes prior period estimates upon finalizing us tax returns resulting 54 million benefit 2011 deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows us federal net operating loss carryforwards 396 million december 31 2013 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 us federal tax credit carryforwards expire varying amounts beginning 2017 realization us federal tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration capital loss available 2196 million carried back 2009 carried forward 2017 foreign state net operating loss carryforwards expire varying amounts beginning 2014 certain amounts unlimited lives management established valuation allowance deferred tax asset likely realized december 31 2013 valuation allowance 4623 million established following items 3849 million primarily foreign net operating loss tax credit carryforwards 378 million state deferred tax assets including net operating loss tax credit carryforwards 13 million us federal net operating loss carryforwards 383 million us federal capital losses changes valuation allowance follows income tax payments 478 million 2013 676 million 2012 597 million 2011 current tax benefit realized result stock related compensation credited capital excess par value stock 129 million 2013 71 million 2012 47 million 2011 us taxes provided approximately 24 billion undistributed earnings foreign subsidiaries undistributed earnings indefinitely invested offshore december 31 2013 additional tax provisions required earnings repatriated future us earnings determined remitted foreseeable future due complexities tax laws assumptions would made practicable estimate amounts income taxes provided result bms favorable tax rates ireland puerto rico grants scheduled expire prior 2023 business conducted various countries throughout world subject tax numerous jurisdictions significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported requiring several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows additional information regarding unrecognized tax benefits follows uncertain tax benefits reduce deferred tax assets extent uncertainty directly related asset otherwise recognized either current noncurrent us foreign income taxes payable accrued interest penalties payable unrecognized tax benefits included either current noncurrent us foreign income taxes payable interest penalties related unrecognized tax benefits included income tax expense bms currently examination number tax authorities including limited major tax jurisdictions listed table proposed adjustments tax issues transfer pricing certain tax credits deductibility certain expenses bms estimates reasonably possible total amount unrecognized tax benefits december 31 2013 decrease range approximately 350 million 400 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits primarily settlement related involve payment additional taxes adjustment certain deferred taxes andor recognition tax benefits bms also anticipates reasonably possible new issues raised tax authorities may require increases balance unrecognized tax benefits however estimate increases cannot reasonably made time bms believes adequately provided open tax years tax jurisdiction following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited note 9 earnings per share note 10 financial instruments fair value measurements financial instruments include cash equivalents marketable securities accounts receivable payable debt instruments derivatives changes exchange rates interest rates create exposure market risk certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur derivative financial instruments used trading purposes financial instruments subject counterparty credit risk considered part overall fair value measurement counterparty credit risk monitored ongoing basis mitigated limiting amounts outstanding individual counterparty utilizing conventional derivative financial instruments entering agreements counterparties meet high credit quality standards consolidated financial statements would materially impacted counterparty failed perform according terms agreement collateral required party whether derivatives asset liability position terms agreements fair value measurements fair values financial instruments classified one following categories level 1 inputs utilize nonbinding quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy gives highest priority level 1 inputs instruments include us treasury securities level 2 inputs utilize observable prices similar instruments nonbinding quoted prices identical similar instruments markets active observable inputs corroborated market data substantially full term assets liabilities instruments include corporate debt securities certificates deposit money market funds foreign currency forward contracts interest rate swap contracts equity funds fixed income funds longterm debt additionally certain corporate debt securities utilize thirdparty matrix pricing model uses significant inputs corroborated market data substantially full term assets equity fixed income funds primarily invested publicly traded securities valued respective net asset value underlying investments significant unfunded commitments restrictions redemptions related equity fixed income funds december 31 2013 level 2 derivative instruments valued using london interbank offered rate libor yield curves less credit valuation adjustments observable forward foreign exchange rates reporting date valuations derivative contracts may fluctuate considerably periodtoperiod due volatility underlying foreign currencies underlying interest rates driven market conditions duration contract credit adjustment volatility may significant impact valuation interest rate swaps due changes counterparty credit ratings credit default swap spreads level 3 unobservable inputs used little market data available fair value written options sell assets certain businesses connection alliance agreements see “note 3 alliances” discussion based option pricing methodology considers revenue profitability projections volatility discount rates potential exercise price assumptionsthe fair value contingent consideration related acquisition see note 4 acquisitions estimated utilizing model considered probability achieving milestone discount rates valuation models auction rate security ars floating rate security frs portfolio based expected cash flow streams collateral values including assessments counterparty credit quality default risk underlying security discount rates overall capital market liquidity fair value ars frs material december 31 2013 2012 financial assets liabilities measured fair value recurring basis summarized written option liabilities 18 million 144 million included accrued expenses liabilities respectively see note 3 alliances information b contingent consideration liability included liabilities see note 4 acquisitions information following table summarizes activity financial assets utilizing level 3 fair value measurements availableforsale securities following table summarizes availableforsale securities availableforsale securities included current marketable securities 819 million december 31 2013 noncurrent availableforsale corporate debt securities maturing within five years 3735 million december 31 2013 auction rate securities maturing beyond 10 years 12 million december 31 2013 fair value option financial assets company invests equity fixed income funds designed offset changes fair value certain employee retirement benefits investments equity fixed income funds included current marketable securities 74 million 46 million respectively december 31 2013 57 million 47 million respectively december 31 2012 investment income resulting change fair value investments equity fixed income funds 14 million 2013 5 million 2012 qualifying hedges following summarizes fair value outstanding derivatives cash flow hedges foreign currency forward contracts primarily utilized hedge forecasted intercompany inventory purchase transactions certain foreign currencies forward contracts designated cash flow hedges effective portion changes fair value temporarily reported accumulated oci recognized earnings hedged item affects earnings net gains foreign currency forward contracts expected reclassified cost products sold within next two years including 14 million pretax gains reclassified within next 12 months notional amount outstanding foreign currency forward contracts primarily attributed euro 780 million japanese yen 247 million december 31 2013 cash flow hedge accounting discontinued forecasted transaction longer probable occurring originally forecasted date 60 days thereafter hedge longer effective assessments determine whether derivatives designated qualifying hedges highly effective offsetting changes cash flows hedged items performed inception quarterly basis ineffective portion change fair value included current period earnings impact related discontinued cash flow hedges hedge ineffectiveness significant periods presented net investment hedges nonus dollar borrowings €541 million 741 million designated hedge foreign currency exposures net investment certain foreign affiliates borrowings designated net investment hedges recognized long term debt effective portion foreign exchange gains losses remeasurement debt recognized foreign currency translation component accumulated oci related offset long term debt fair value hedges fixedtofloating interest rate swap contracts designated fair value hedges used part interest rate risk management strategy create appropriate balance fixed floating rate debt swaps underlying debt benchmark risk hedged recorded fair value effective interest rate paid fixedtofloating interest rate swaps onemonth libor 017 december 31 2013 plus interest rate spread ranging 08 44 underlying swap terminated prior maturity fair value basis adjustment underlying debt instrument amortized earnings reduction interest expense remaining life debt fixedtofloating interest rate swap contracts executed 2013 convert 2050 million notional amount fixed rate variable rate debt 2011 fixedtofloating interest rate swap contracts 16 billion notional amount €10 billion notional amount terminated generating total proceeds 356 million including accrued interest 66 million debt obligations shortterm borrowings current portion longterm debt includes longterm debt current portion longterm debt includes included liabilities related assets heldforsale december 31 2013 included debt 49 million floating rate convertible senior debentures due 2023 redeemed holders par september 15 2018 fundamental change ownership occurs debentures callable par time company debentures current conversion price 3958 equal conversion rate 252623 shares 1000 principal amount subject certain antidilutive adjustments average amount commercial paper outstanding 259 million weightedaverage interest rate 012 2013 maximum month end amount commercial paper outstanding 820 million outstanding borrowings december 31 2013 fourth quarter 2013 15 billion senior unsecured notes issued 500 million aggregate principal amount 1750 notes due 2019 500 million aggregate principal amount 3250 notes due 2023 500 million aggregate principal amount 4500 notes due 2044 registered public offering interest notes paid semiannually notes rank equally right payment bms’s existing future senior unsecured indebtedness bms may redeem notes whole part time predetermined redemption price net proceeds note issuances 1477 million net discount 12 million deferred loan issuance costs 11 million third quarter 2012 20 billion senior unsecured notes issued 750 million aggregate principal amount 0875 notes due 2017 750 million aggregate principal amount 2000 notes due 2022 500 million aggregate principal amount 3250 notes due 2042 registered public offering interest notes paid semiannually notes rank equally right payment bms’s existing future senior unsecured indebtedness bms may redeem notes whole part time predetermined redemption price net proceeds note issuances 1950 million net discount 36 million deferred loan issuance costs 14 million 597 million principal amount 525 notes due 2013 matured repaid third quarter 2013 substantially 20 billion debt obligations assumed acquisition amylin repaid third quarter 2012 including promissory note lilly respect revenue sharing obligation amylin senior notes due 2014 january 2014 notices provided holders 545 notes due 2018 bms exercise call option redeem notes entirety february 2014 outstanding principal amount notes 582 million principal value longterm debt obligations 7593 million december 31 2013 27 million due 2014 684 million due 2016 750 million due 2017 631 million due 2018 remaining 5501 million due 2019 thereafter fair value longterm debt 8487 million 8285 million december 31 2013 2012 respectively estimated based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments debt repurchases 2013 debt repurchase activity 2012 2011 including repayment amylin debt obligations follows interest payments 268 million 2013 241 million 2012 171 million 2011 net amounts related interest rate swap contracts bms two separate 15 billion fiveyear revolving credit facilities syndicate lenders facilities provide customary terms conditions financial covenants extendable anniversary date consent lenders borrowings outstanding either revolving credit facility december 31 2013 2012 december 31 2013 633 million financial guarantees provided form standby letters credit performance bonds standby letters credit issued financial institutions support guarantees made bms affiliates various obligations performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority outstanding financial guarantees expire within year expected funded note 11 receivables include nonus receivables sold nonrecourse basis 1031 million 2013 956 million 2012 1077 million 2011 aggregate receivables three pharmaceutical wholesalers us represented 40 37 total trade receivables december 31 2013 2012 respectively changes allowances bad debt chargebacks cash discounts follows note 12 inventories include inventories expected remain onhand beyond one year included assets 351 million december 31 2013 424 million december 31 2012 note 13 property plant equipment property plant equipment includes property plant equipment related mount vernon indiana manufacturing facility approximately 300 million december 31 2013 facility expected sold earlier 18 months following closing diabetes business transaction included assets heldforsale assets available immediate sale present condition expected sold within year see note 3 alliances” discussion sale diabetes business depreciation expense 453 million 2013 382 million 2012 448 million 2011 note 14 goodwill intangible assets changes carrying amount goodwill follows first quarter 2013 purchase price allocation finalized amylin acquisition resulting 11 million adjustment goodwill deferred income taxes goodwill 550 million allocated sale diabetes business included assets heldforsale see“note 5 assets heldforsale” discussion intangible assets include changes intangible assets follows developed technology rights 5562 million iprd 120 million related sale diabetes business reclassified assets heldforsale december 31 2013 see “note 5 assets heldforsale” discussion annual amortization expense intangible assets expected approximately 300 million 2014 200 million 2015 200 million 2016 200 million 2017 150 million 2018 720 million thereafter bms announced discontinued development bms986094 formerly known inx189 nucleotide polymerase ns5b inhibitor phase ii development treatment hepatitis c virus infection august 2012 decision made interest patient safety based rapid thorough ongoing assessment patients phase ii study voluntarily suspended august 2012 bms acquired bms986094 acquisition inhibitex february 2012 result termination development program 1830 million pretax impairment charge recognized iprd intangible asset impairment charge 120 million recognized 2012 related continued competitive pricing pressures partial writedown fair value developed technology rights related previously acquired nonkey product note 15 accrued expenses accrued expenses include note 16 sales rebates return accruals reductions trade receivables accrued rebates returns liabilities follows note 17 deferred income deferred income includes upfront milestone licensing receipts amortized expected life product information pertaining upfront milestone licensing receipts deferred revenue related atripla see“note 3 alliances” deferred gains several saleleaseback transactions amortized remaining lease terms related facilities 2018 amortization deferred income 548 million 2013 308 million 2012 173 million 2011 deferred income 3671 million included liabilities related assets heldforsale december 31 2013 see“note 5 assets heldforsale” discussion note 18 equity treasury stock recognized cost reacquire shares issued treasury recognized utilizing firstin firstout method may 2010 board directors authorized repurchase 30 billion common stock june 2012 board directors increased authorization repurchase stock additional 30 billion repurchase program expiration date may consider future repurchases noncontrolling interest primarily related plavix avaproavalide partnerships sanofi territory covering americas net earnings attributable noncontrolling interest presented net taxes 20 million 2013 317 million 2012 792 million 2011 corresponding increase provision income taxes distribution partnership profits sanofi’s funding ongoing partnership operations occur routine basis activity includes pretax income distributions related partnerships components comprehensive incomeloss follows reclassifications net earnings derivatives qualifying effective hedges recognized costs products sold b actuarial losses prior service costcredits amortized cost products sold research development marketing selling administrative expenses c pension settlements curtailments recognized incomeexpense realized gainslosses available sale securities recognized incomeexpense accumulated balances related component comprehensive incomeloss net taxes follows note 19 pension postretirement postemployment liabilities company certain subsidiaries sponsor defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan covers us employees represents approximately 71 64 consolidated pension plan assets obligations respectively funding policy contribute least minimum amount required employee retirement income security act 1974 erisa plan benefits based primarily participant’s years credited service final average compensation plan assets consist principally equity fixedincome securities comprehensive medical group life benefits provided substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside us net periodic benefit creditcost defined benefit pension postretirement benefit plans includes pension settlement charges recognized determining annual lump sum payments exceed annual interest service costs certain pension plans including primary us pension plan 2013 2012 changes defined benefit postretirement benefit plan obligations assets funded status amounts recognized consolidated balance sheets follows accumulated benefit obligation defined benefit pension plans 7125 million 8068 million december 31 2013 2012 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine benefit obligations december 31 follows weightedaverage actuarial assumptions used determine net periodic benefit creditcost years ended december 31 follows yield high quality corporate bonds matches duration benefit obligations used determining discount rate citigroup pension discount curve used developing discount rate us plans several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class historical longterm actual annualized returns us pension plans follows accumulated comprehensive loss reduced 1475 million 2013 result actuarial gains attributed benefit obligation 805 million higher expected return plan assets 670 million actuarial gains resulted prevailing equity fixed income market conditions increase interest rates 2013 expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” fair value plan assets exceeded marketrelated value 455 million december 31 2013 differences assumed actual returns amortized marketrelated value straightline basis threeyear period gains losses resulted changes actuarial assumptions changes discount rate differences assumed actual experience differences actual expected return plan assets gains losses except differences amortized marketrelated value amortized extent exceed 10 higher marketrelated value projected benefit obligation respective plan majority remaining actuarial losses amortized life expectancy plans’ participants us plans 28 years expected remaining service periods plans cost products sold research development marketing selling administrative expenses amortization net actuarial loss prior service credit expected approximately 100 million 2014 assumed healthcare cost trend rates december 31 follows assumed healthcare cost trend rates effect amounts reported healthcare plans onepercentagepoint change assumed healthcare cost trend rates would material impact service interest cost post retirement benefit obligation plan assets fair value pension postretirement plan assets asset category december 31 2013 2012 follows investment valuation policies per investment class follows level 1 inputs utilize quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy gives highest priority level 1 inputs instruments include equity securities equity funds real estate funds fixed income funds publicly traded national securities exchange cash equivalents cash equivalents highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement level 2 inputs include observable prices similar instruments quoted prices identical similar instruments markets active observable inputs corroborated market data substantially full term assets liabilities equity funds fixed income funds event driven hedge funds shortterm investment funds classified level 2 within fair value hierarchy valued net asset value shares held year end significant unfunded commitments restrictions redemptions related investments valued nav december 31 2013 corporate debt securities government mortgage backed securities collateralized mortgage obligation bonds asset backed securities us treasury agency securities state municipal bonds classified level 2 within fair value hierarchy valued utilizing observable prices similar instruments quoted prices identical similar instruments markets active level 3 unobservable inputs used little market data available venture capital limited partnerships classified level 3 within fair value hierarchy invest underlying securities whose market values determined using pricing models discounted cash flow methodologies similar techniques significant unobservable inputs used valuation methodologies include discount rates earning interest taxes depreciation amortization ebitda multiples revenue multiples significant changes inputs could result significantly lower higher fair value measurements insurance contract interests carried contract value approximates estimated fair value based fair value underlying investment insurance company insurance contracts held certain foreign pension plans valuation models corporate debt securities government mortgage backed securities collateralized mortgage obligation bonds asset backed securities classified level 3 within fair value hierarchy based estimated bids brokers thirdparty vendor sources utilize expected cash flow streams collateral values including assessments counterparty credit quality default risk discount rates overall capital market liquidity following summarizes activity financial assets utilizing level 3 fair value measurements investment strategy emphasizes equities order achieve higher expected returns lower expenses required cash contributions longterm target asset allocation 53 public equity 20 us 20 international 13 global 7 private equity 40 longduration fixed income maintained us pension plans investments diversified within three major asset categories approximately 95 us pension plans equity investments actively managed venture capital limited partnerships typically valued three month lag using latest available information bms common stock represents less 1 plan assets december 31 2013 2012 contributions us pension plans 184 million 2013 335 million 2012 343 million 2011 contributions international pension plans 67 million 2013 61 million 2012 88 million 2011 aggregate contributions us international plans expected approximately 100 million 2014 estimated future benefit payments savings plans principal defined contribution plan bristolmyers squibb savings investment program contribution based employee contributions level company match expense attributed defined contribution plans us 190 million 2013 2012 181 million 2011 post employment benefit plans postemployment liabilities longterm disability benefits 63 million 90 million december 31 2013 2012 respectively related credit 8 million 2013 expense 17 million 2012 18 million 2011 termination indemnity plans international statutory termination obligations recognized undiscounted basis assuming employee termination measurement date liability recognized obligations 23 million 29 million december 31 2013 2012 respectively note 20 employee stock benefit plans may 1 2012 shareholders approved 2012 stock award incentive plan 2012 plan replaced 2007 stock incentive plan shares common stock reserved issuance pursuant stock plans options conversions preferred stock 262 million december 31 2013 shares available granted active plans adjusted combination plans 114 million december 31 2013 shares stock option exercise share unit vesting issued treasury stock shares actually delivered participants connection award restrictions lapsed reduce number shares reserved shares tendered prior year pay purchase price options shares previously utilized satisfy withholding tax obligations upon exercise continue available reserved executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable ratably four years maximum term ten years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price common stock units may granted key employees subject restrictions continuous employment restrictions expire four year period date grant compensation expense recognized vesting period stock unit right receive stock end specified vesting period voting rights market share units granted certain executives beginning 2010 vesting conditioned upon continuous employment vesting date payout factor equals least 60 share price award date payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs ratably four years longterm performance awards three year cycle delivered form target number performance share units number shares ultimately issued calculated based actual performance compared earnings targets performance criteria established beginning year three year performance cycle awards annual goals maximum payout 1675 threshold targets met performance period payment made plan annual period vesting occurs end three year period stockbased compensation expense based awards ultimately expected vest recognized vesting period acceleration unvested stock options restricted stock units connection acquisition amylin resulted stockbased compensation expense 2012 forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates stockbased compensation expense follows sharebased compensation activities follows total compensation costs related sharebased payment awards yet recognized weightedaverage period awards expected recognized december 31 2013 follows additional information related sharebased compensation awards summarized follows fair value restricted stock units longterm performance awards determined based closing trading price company’s common stock grant date fair value market share units approximated closing trading price companys common stock grant date estimated date grant considering payout formula probability satisfying market conditions following table summarizes significant ranges outstanding exercisable options december 31 2013 amounts millions except per share data aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 5315 december 31 2013 note 21 leases minimum rental commitments noncancelable operating leases primarily real estate motor vehicles effect december 31 2013 follows operating lease expense 144 million 2013 142 million 2012 136 million 2011 sublease income material periods presented note 22 legal proceedings contingencies company certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business company recognizes accruals contingencies probable liability incurred amount loss reasonably estimated matters involve patent infringement antitrust securities pricing sales marketing practices environmental commercial health safety matters consumer fraud employment matters product liability insurance coverage legal proceedings material company believes could become material described although company believes substantial defenses matters assurance increase scope pending matters future lawsuits claims government investigations legal proceedings material unless otherwise noted company unable assess outcome respective litigation able provide estimated range potential loss furthermore failure enforce patent rights would likely result substantial decreases respective product revenues generic competition intellectual property atripla april 2009 teva pharmaceutical industries ltd teva filed abbreviated new drug application anda manufacture market generic version atripla single tablet threedrug regimen combining company’s sustiva efavirenz gilead’s truvada time company’s us patent rights covering sustiva’s composition matter method use challenged teva sent gilead paragraph iv certification letter challenging two fifteen orange booklisted patents atripla may 2009 gilead filed patent infringement action teva us district court southern district new york sdny january 2010 company received notice teva amended anda challenging eight additional orange booklisted patents atripla march 2010 company merck sharp dohme corp merck filed patent infringement action teva also sdny relating two us patents claim crystalline polymorph forms efavirenz august 2013 company merck teva reached settlement relating two efavirenz polymorph patents case dismissed march 2010 gilead filed two patent infringement actions teva sdny relating six orange booklisted patents atripla april 2013 gilead teva reached agreement principle settle lawsuit patents covering tenofovir disoproxil fumarate contained atripla truvada products baraclude august 2010 teva filed anda manufacture market generic versions baraclude company received paragraph iv certification letter teva challenging one orange booklisted patent baraclude us patent 5206244 ‘244 patent covering entecavir molecule september 2010 company filed patent infringement lawsuit us district court district delaware district court teva infringement february 2013 delaware district court ruled company invalidated ‘244 patent company appealed delaware district court’s decision expected firsthalf 2014 october 2013 tevas anda generic version entecavir tentatively approved fda company prepared take legal action event teva chooses launch generic product prior resolution companys appeal could rapid significant negative impact us net product sales baraclude beginning early 2014 net product sales baraclude us 289 million 2013 baraclude south korea 2013 daewoong pharmaceutical co ltd hanmi pharmaceuticals co ltd initiated separate invalidity actions korean intellectual property office kipo korean patent 160523 ‘523 patent ‘523 patent expires october 2015 korean equivalent ‘244 patent us composition matter patent invalidity actions pending decision expected first half 2014 although outcome actions unclear time risk decision invalidating patent encourage generic companies launch generic versions baraclude prior october 2015 net product sales baraclude south korea 158 million 2013 plavixaustralia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex inc apotex since changed name apotex august 2007 apotex filed application federal court australia federal court seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 federal court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april 2008 august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid company sanofi filed notices appeal full court federal court australia full court appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 september 29 2009 full court held claims patent 597784 invalid november 2009 company sanofi applied high court australia high court special leave appeal judgment full court march 2010 high court denied company sanofi’s request hear appeal full court decision case remanded federal court proceedings related damages sought apotex australian government intervened matter also seeking damages alleged losses experienced period injunction place possible time predict outcome australian government’s claim impact company plavixcanada apotex inc april 22 2009 apotex filed impeachment action sanofi federal court canada alleging sanofi’s canadian patent 1336777 ‘777 patent invalid june 8 2009 sanofi filed defense impeachment action filed suit apotex infringement ‘777 patent trial completed june 2011 december 2011 federal court canada issued decision ‘777 patent invalid july 2013 federal court appeal reversed federal court canadas decision upheld validity 777 patent case remanded federal court canada consider damages owed company apotex infringement ‘777 patent september 2013 apotex sought leave appeal decision federal court appeal supreme court canada february 2014 supreme court canada decided hear case general commercial litigation remaining apotex matters related plavix previously disclosed november 2008 apotex filed lawsuit new jersey superior court company sanofi seeking payment 60 million plus interest calculated rate 1 per month paid related breakup march 2006 proposed settlement agreement relating thethen pending plavix patent litigation apotex april 2011 new jersey superior court granted company’s crossmotion summary judgment motion denied apotex’s motion summary judgment apotex appealed decisions new jersey appellate division reversed grant summary judgments remanding case back superior court additional proceedings parties agreed resolve matter binding arbitration currently scheduled march 2014 resolution matter expected material impact company january 2011 apotex filed lawsuit florida state court broward county alleging breach contract relating may 2006 proposed settlement agreement apotex relating pending plavix patent litigation trial held march 2013 jury verdict delivered favor company apotex appealed decision pricing sales promotional practices litigation investigations abilify federal subpoena january 2012 company received subpoena united states attorney’s office sdny requesting information related among things sales marketing abilify possible time assess outcome matter potential impact company abilify state attorneys general investigation march 2009 company received letter delaware attorney general’s office advising multistate coalition investigating whether certain abilify marketing practices violated respective states’ consumer protection statutes company entered tolling agreement states possible time reasonably assess outcome investigation potential impact company abilify copay assistance litigation march 2012 company partner otsuka named codefendants putative class action lawsuit filed union health welfare funds sdny plaintiffs challenging legality abilify copay assistance program federal antitrust racketeer influenced corrupt organizations rico laws seeking damages company otsuka filed motion dismiss complaint june 2013 court granted companys motion dismissing claims allowing plaintiffs replead rico claim august 2013 plaintiffs moved leave file amended complaint motion court granted part one claim alleging tortious interference contract remains outstanding company possible time reasonably assess outcome litigation potential impact company although time resolution matter expected material impact company awp litigation previously disclosed company together number pharmaceutical manufacturers defendant number private class actions well suits brought attorneys general various states actions plaintiffs allege defendants caused average wholesale prices awps products inflated thereby injuring government programs entities persons reimbursed prescription drugs based awps company remains defendant two state attorneys general suits pending state courts pennsylvania wisconsin beginning august 2010 company defendant trial commonwealth court pennsylvania commonwealth court brought commonwealth pennsylvania september 2010 jury issued verdict company finding company liable fraudulent negligent misrepresentation however commonwealth court judge issued decision pennsylvania consumer protection claim go jury finding company liable 28 million enjoining company contributing provision inflated awps company appealed decision pennsylvania supreme court oral argument took place may 2013 qui tam litigation march 2011 company served unsealed qui tam complaint filed three former sales representatives california superior court county los angeles california department insurance elected intervene lawsuit complaint alleges company paid kickbacks california providers pharmacies violation california insurance frauds prevention act cal ins code § 18717 possible time reasonably assess outcome lawsuit impact company product liability litigation company party various product liability lawsuits previously disclosed addition lawsuits company also faces unfiled claims involving products plavix previously disclosed company certain affiliates sanofi defendants number individual lawsuits various state federal courts claiming personal injury damage allegedly sustained using plavix currently 5700 claims involving injury plaintiffs well claims spouses andor beneficiaries filed state federal courts various states including california illinois new jersey delaware new york february 2013 judicial panel multidistrict litigation granted company sanofi’s motion establish multidistrict litigation coordinate federal pretrial proceedings plavix product liability related cases new jersey federal court possible time reasonably assess outcome lawsuits potential impact company reglan company one number defendants numerous lawsuits behalf approximately 3000 plaintiffs including injury plaintiffs claiming personal injury allegedly sustained using reglan another brand generic drug metoclopramide product indicated gastroesophageal reflux certain gastrointestinal disorders well claims spouses andor beneficiaries company generic subsidiary apothecon inc distributed metoclopramide tablets manufactured another party 1996 2000 possible time reasonably assess outcome lawsuits resolution pending lawsuits however expected material impact company hormone replacement therapy company one number defendants masstort litigation plaintiffs allege among things various hormone therapy products including hormone therapy products formerly manufactured company estrace estradiol delestrogen ovcon cause breast cancer stroke blood clots cardiac injuries women defendants aware risks failed warn consumers company agreed resolve claims approximately 400 plaintiffs also reached settlement principle resolve additional 29 claims company remains defendant approximately three actively pending lawsuits federal state courts throughout us company’s hormone therapy products sold companies january 2000 august 2001 resolution remaining lawsuits expected material impact company byetta amylin former subsidiary company lilly codefendants product liability litigation related byetta date 280 separate lawsuits pending behalf approximately 1100 plaintiffs include injury plaintiffs well claims spouses andor beneficiaries various courts us company agreed principle resolve 350 claims majority cases brought individuals allege personal injury sustained using byetta primarily pancreatic cancer pancreatitis cases claiming alleged wrongful death majority cases pending federal court san diego recently established multidistrict litigation next largest contingent cases pending coordinated proceeding california superior court los angeles amylin lilly currently scheduled trial singleplaintiff case february 2014 california superior court los angeles amylin product liability insurance covering substantial number claims involving byetta additional liability amylin respect byetta expected shared company astrazeneca possible reasonably predict outcome lawsuit claim proceeding potential impact company bms986094 august 2012 company announced discontinued development bms986094 investigational compound tested clinical trials treat hepatitis c virus infection due emergence serious safety issue date company aware ten lawsuits filed company plaintiffs texas oklahoma virginia removed federal court alleging participated clinical trials bms986094 suffered injuries result thereof company settled vast majority known claims including eight filed claims one claim filed state court remains outstanding resolution remaining lawsuits potential future lawsuits expected material impact company environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including comprehensive environmental response compensation liability act cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated thirdparties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable company estimated share future costs sites 66 million december 31 2013 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties new brunswick facilityenvironmental personal injury lawsuits since may 2008 250 lawsuits filed company new jersey superior court behalf current former residents new brunswick new jersey live lived adjacent company’s new brunswick facility complaints allege various personal injuries resulting environmental contamination new brunswick facility historical operations site claims medical monitoring portion complaints also assert claims alleged property damage october 2008 new jersey supreme court granted mass tort status cases transferred new jersey superior court atlantic county centralized case management purposes since october 2011 150 additional cases filed new jersey superior court removed company united states district court district new jersey accordingly excess 400 cases state federal court actions discovery ongoing first trial currently scheduled commence state court august 2014 company intends defend vigorously litigation possible time reasonably assess outcome lawsuits potential impact company north brunswick township board education previously disclosed october 2003 company contacted counsel representing north brunswick nj board education boe regarding site waste materials er squibb sons may disposed 1940’s 1960’s fill material containing industrial waste heavy metals excess residential standards discovered expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 new jersey department environmental protection njdep sent company others information request letter possible waste disposal site company responded march 2004 boe township current owners school property park conducting jointly financing soil remediation work ground water investigation work plan approved njdep asked company contribute cost company actively monitoring cleanup project including costs date neither school board township asserted claim company instead company local entities negotiated agreement attempt resolve matter informal means avoid litigation central component agreement provision company interim funding help defray cleanup costs assure work interrupted company transmitted interim funding payments december 2007 november 2009 parties commenced mediation late 2008 however efforts successful parties moved binding allocation process parties expected conduct fact expert discovery followed formal evidentiary hearings written argument hearings scheduled commence march 2014 addition september 2009 township boe filed suits several parties alleged contributed waste materials site company currently believe responsible additional amounts beyond two interim payments totaling 4 million already transmitted additional possible loss expected material proceedings sec germany investigation october 2006 sec informed company begun formal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents sec’s inquiry encompasses matters formerly investigation german prosecutor munich germany since resolved company understands inquiry concerns potential violations foreign corrupt practices act fcpa company cooperating sec fcpa investigation march 2012 company received subpoena sec subpoena issued connection investigation fcpa primarily relates sales marketing practices various countries company cooperating government investigation matters note 23 selected quarterly financial data unaudited 1 earnings per share quarters may add amounts year period computed discrete basis 2 marketable securities includes current noncurrent assets 3 also includes current portion longterm debt following specified items affected comparability results 2013 2012 specified items marketing selling administrative process standardization implementation costs b specified items research development upfront milestone licensing payments specified tax benefit relates capital loss deduction report independent registered public accounting firm board directors shareholders bristolmyers squibb company audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries “company” december 31 2013 2012 related consolidated statements earnings comprehensive income cash flows three years period ended december 31 2013 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2013 2012 results operations cash flows three years period ended december 31 2013 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2013 based criteria established internal controlintegrated framework 1992 issued committee sponsoring organizations treadway commission report dated february 14 2014 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp parsippany new jersey february 14 2014 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statements earnings dollars shares millions except per share data consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies basis consolidation consolidated financial statements prepared conformity united states us generally accepted accounting principles gaap including accounts bristolmyers squibb company controlled majorityowned subsidiaries certain variable interest entities may referred bristolmyers squibb bms company intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date alliance license arrangements assessed determine whether terms provide economic control entity requiring consolidation entity entities controlled means majority voting interest referred variable interest entities consolidated bms power direct activities variable interest entity significantly impacts economic performance obligation absorb losses right receive benefits could potentially significant entity use estimates preparation financial statements requires use management estimates assumptions significant assumptions estimates determining fair value potential impairment intangible assets sales rebate return accruals legal contingencies income taxes estimated selling prices used multiple element arrangements pension postretirement benefits actual results may differ estimated results reclassifications certain prior period amounts reclassified conform current period presentation revenue recognition revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally time shipment including supply commercial products alliance partners principal end customer sale however certain revenue nonus businesses recognized date receipt customer alliance revenue related abilify atripla recognized products sold end customer alliance partner royalties based thirdparty sales recognized earned accordance contract terms thirdparty sales reliably measurable collectability reasonably assured refer “note 3 alliances” detail regarding alliances provisions made time revenue recognition expected sales returns discounts rebates estimated sales allowances based historical experience updated changes facts circumstances including impact applicable healthcare legislation provisions recognized reduction revenuewhen new product extension existing line product historical experience products similar therapeutic category revenue deferred right return longer exists sufficient historical experience estimate sales returns developed income taxes provision income taxes includes income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax basis assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made tax benefits recognized uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefit recognized financial statements particular tax position based largest benefit likely realized upon settlement cash equivalents cash equivalents include us treasury securities government agency securities bank deposits time deposits money market funds cash equivalents consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value marketable securities investments companies marketable securities classified “availableforsale” date purchase reported fair value fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity investments 50 less owned companies accounted using equity method accounting ability exercise significant influence maintained share net income losses equity investments included equity net income affiliates incomeexpense equity investments reviewed impairment assessing decline market value investment carrying value temporary considers intent ability retain investment length time extent market value less cost financial condition investee inventory valuation inventories stated lower average cost market property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation computed straightline method based estimated useful lives related assets ranging 20 50 years buildings 3 20 years machinery equipment fixtures impairment longlived assets current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques using level 3 fair value inputs including discounted value estimated future cash flows capitalized software eligible costs obtain internal use software significant systems projects capitalized amortized estimated useful life software insignificant costs obtain software projects expensed incurred business combinations businesses acquired consolidated upon obtaining control acquiree fair value assets acquired liabilities assumed recognized date acquisition excess purchase price estimated fair values net assets acquired recognized goodwill legal audit business valuation business acquisition costs expensed incurred goodwill acquired inprocess research development intangible assets fair value intangible assets typically determined using “income method” utilizing level 3 fair value inputs market participant valuations assume global view considering potential jurisdictions indications based discounted aftertax cash flow projections risk adjusted estimated probability technical regulatory success iprd finitelived intangible assets including licenses developed technology rights iprd projects reach commercialization amortized straightline basis estimated useful life estimated useful lives determined considering period assets expected contribute future cash flows goodwill tested least annually impairment assessing qualitative factors performing quantitative analysis determining whether likely fair value net assets carrying amounts examples qualitative factors assessed 2014 include share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year relevant factor assessed individually aggregate iprd tested impairment annual basis frequently events occur circumstances change would indicate potential reduction fair values assets carrying value carrying value iprd determined exceed fair value impairment loss recognized difference finitelived intangible assets tested impairment facts circumstances suggest carrying value asset may recoverable carrying value exceeds projected undiscounted pretax cash flows intangible asset impairment loss equal excess carrying value estimated fair value discounted aftertax cash flows recognized restructuring charges recognized result actions streamline operations rationalize manufacturing facilities estimating impact restructuring plans including future termination benefits exit costs requires judgment actual results could vary estimates contingencies loss contingencies legal proceedings claims may occur wide range matters including government investigations shareholder lawsuits product environmental liability contractual claims tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies including contingent proceeds related divestitures recognized realized legal fees expensed incurred derivative financial instruments derivatives used principally management interest rate foreign currency exposures held used trading purposes derivatives recognized fair value changes fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized earnings derivative designated cash flow hedge effective portions changes fair value derivative reported accumulated comprehensive incomeloss oci subsequently recognized earnings hedged item affects earnings cash flows classified consistent underlying hedged item derivatives designated assigned hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer probable occur gain loss immediately recognized earnings nonderivative instruments primarily euro denominated longterm debt also designated hedges net investments foreign affiliates effective portion designated nonderivative instrument recognized foreign currency translation section oci ineffective portion recognized earnings shipping handling costs shipping handling costs included marketing selling administrative expenses 115 million 2014 119 million 2013 125 million 2012 advertising product promotion costs advertising product promotion costs expensed incurred foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized oci research development research development costs expensed incurred clinical study costs accrued service periods specified contracts adjusted necessary based upon ongoing review level effort costs actually incurred strategic alliances third parties provide rights develop manufacture market andor sell pharmaceutical products rights owned party research development recognized net reimbursements connection alliance agreements recently issued accounting standards april 2014 financial accounting standards board fasb issued amended guidance use presentation discontinued operations entitys consolidated financial statements new guidance restricts presentation discontinued operations business circumstances disposal business operations represents strategic shift major effect entitys operations financial results guidance becomes effective january 1 2015 adoption prospective basis may 2014 fasb issued new standard related revenue recognition requires entity recognize amount revenue expects entitled transfer promised goods services customers new standard replace existing revenue recognition standards us gaap becomes effective january 1 2017 early adoption permitted new standard applied retrospectively prior reporting period presented retrospectively cumulative effect change recognized date initial application retained earnings company assessing potential impact new standard financial reporting yet selected transition method note 2 business segment information bms operates single segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization supply chain organization responsible development delivery products market regional commercial organizations used distribute sell product business also supported global corporate staff functions segment information consistent financial information regularly reviewed chief executive officer purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods products sold principally wholesalers lesser extent directly distributors retailers hospitals clinics government agencies pharmacies gross revenues three largest pharmaceutical wholesalers us percentage global gross revenues follows selected geographic area information follows total revenues include royalties alliancerelated revenues products sold regional commercial organizations total revenues key products follows includes daklinza daclatasvir revenues 201 million sunvepra asunaprevir revenues 55 million 2014 b includes alliance revenues 1255 million 2014 1366 million 2013 1267 million 2012 c includes alliance revenues 1778 million 2014 1840 million 2013 2340 million 2012 includes bydureon exenatide extendedrelease injectable suspension byetta exenatide farxigaxigduo dapagliflozindapagliflozin metformin hydrochloride onglyzakombiglyze saxagliptinsaxagliptin metformin myalept metreleptin symlin pramlintide acetate bms sold diabetes business astrazeneca february 1 2014 e includes plavix clopidogrel bisulfate revenues 208 million 2014 258 million 2013 2547 million 2012 additionally includes avaproavalide irbesartanirbesartanhydrochlorothiazide revenues 211 million 2014 231 million 2013 503 million 2012 note 3 alliances bms enters collaboration arrangements third parties development commercialization certain products although arrangements unique nature parties active participants operating activities collaboration exposed significant risks rewards depending commercial success activities bms may either inlicense intellectual property owned party outlicense intellectual property party arrangements also typically include research development manufacturing andor commercial activities cover single investigational compound commercial product multiple compounds andor products various life cycle stages refer collaborations alliances partners alliance partners several key products abilify sprycel sustiva atripla eliquis erbitux opdivo well products comprising diabetes alliance discussed certain mature brands included alliance arrangements payments alliance partners accounted presented results operations considering specific nature payment underlying activities payments relate multiple alliance activities including transfer rights separated individual units accounting standalone value activities occur life arrangements situations arrangement consideration allocated activities rights relative selling price basis multiple alliance activities rights standalone value combined single unit accounting common activities bms alliance partners presented results operations follows • bms principal end customer sale 100 product sales included net product sales bmss alliance partner principal end customer sale bmss contractual share thirdparty sales andor royalty income included alliance revenue sale commercial products considered part bmss ongoing major central operations refer revenue recognition included note 1 accounting policies information regarding recognition criteria • amounts payable bms alliance partners principal end customer sale supply commercial products included alliance revenue sale commercial products considered part bmss ongoing major central operations • amounts payable bms alliance partners profit sharing royalties salesbased fees included cost products sold incurred • cost reimbursements parties recognized incurred included cost products sold marketing selling administrative expenses advertising product promotion expenses research development expenses based underlying nature related activities subject reimbursement • upfront contingent development approval milestones payable bms alliance partners investigational compounds commercial products deferred amortized shorter contractual term periods related compounds products expected contribute future cash flows amortization presented consistent nature payment arrangement example amounts received investigational compounds presented incomeexpense activities performed time related sale commercial products part bms’s ongoing major central operations amounts received commercial products presented alliance revenue sale commercial products considered part bms’s ongoing major central operations except astrazeneca plc astrazeneca alliance pertaining amylin products see discussion specific astrazeneca alliance disclosure herein • upfront contingent approval milestones payable bms alliance partners commercial products capitalized amortized shorter contractual term periods related products expected contribute future cash flows amortization included cost products sold • upfront contingent milestones payable bms alliance partners prior regulatory approval expensed incurred included research development expenses • equity net income affiliates included incomeexpense • payments bms alliance partners presented cash flows operating activities except otherwise described selected financial information pertaining alliances follows including net product sales bms principal thirdparty customer sale products subject alliance expenses summarized include amounts attributed activities products alliance payments alliance partners related amortization payments deferred capitalized includes deferred income classified liabilities related assets heldforsale 3671 million december 31 2013 specific information pertaining significant alliances discussed including nature purpose significant rights obligations parties specific accounting policy elections income statement classification amounts attributable payments parties otsuka bms worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote abilify excluding certain asian countries us portion agreement amended 2009 2012 expires upon expected loss product exclusivity april 20 2015 agreement expired european union eu countries june 2014 nonus country exclusive right sell abilify agreement expires later april 20 2015 loss exclusivity country parties actively participate joint executive governance operating committees although otsuka assumed responsibility providing funding sales force efforts effective january 2013 2012 us amendment bms responsible funding certain operating expenses various annual limits 2013 2015 bms purchases active pharmaceutical ingredient api otsuka completes manufacture product subsequent sale thirdparty customers us certain countries otsuka assumed responsibility providing funding sales force efforts eu effective april 2013 bms also provides certain services including distribution customer management pharmacovigilence otsuka principal thirdparty product sales us principal eu prior termination june 2014 bms principal thirdparty product sales exclusive distributor exclusive right sell abilify alliance revenue recognized bms’s share total net sales thirdparty customers territories us bms’s contractual share 515 2012 beginning january 1 2013 bms’s contractual share changed percentages total us net sales set forth table assessment bmss expected annual contractual share completed quarterly reporting period adjusted based upon reported us abilify net sales year end bmss annual contractual share 33 2014 34 2013 alliance revenue recognized interim period quarter exceed amounts due contract eu bms’s contractual share thirdparty net sales 65 countries us alliance revenue recognized abilify shipped risks rewards ownership transferred thirdparty customers terms 2009 us amendment bms paid otsuka 400 million 2009 amortized reduction alliance revenue expected loss us exclusivity april 20 2015 unamortized balance included assets otsuka receives royalty based 15 total us net sales included cost products sold otsuka responsible 30 us expenses related commercialization abilify 2010 2012 bms otsuka also alliance sprycel ixempra ixabepilone us japan eu parties actively participate various governance committees bms control decision making parties copromote product bms responsible development manufacture product also principal endcustomer product sales fee paid otsuka based following percentages annual net sales sprycel ixempra annual periods otsuka contributes 20 first 175 million certain commercial operational expenses relating oncology products oncology territory 1 costs excess 175 million summarized financial information related alliance follows includes amortization extension payment reduction alliance revenue 66 million 2014 2013 2012 astrazeneca prior diabetes business divestiture discussed bms alliance astrazeneca consisting three worldwide codevelopment commercialization agreements covering 1 onglyza related combination products sold various names 2 farxiga related combination products 3 beginning august 2012 bmss acquisition amylin pharmaceuticals inc amylin amylins portfolio products including bydureon byetta symlin myalept well certain assets owned amylin including manufacturing facility located west chester ohio coexclusive license rights product products underlying agreement granted astrazeneca exchange upfront payment potential milestone payments parties assumed certain obligations actively participate alliance parties actively participated joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms manufactured products three alliances principal endcustomer product sales substantially countries alliance agreement rights transferred astrazeneca standalone value rights sold separately bms party could astrazeneca received benefit delivered rights without fulfillment ongoing obligations bms alliance agreements including exclusive supply arrangement global alliance treated single unit accounting result upfront proceeds subsequent contingent milestone proceeds amortized life related products 2012 bms received 36 billion nonrefundable upfront payment astrazeneca consideration entering amylin alliance 2013 astrazeneca exercised option equal governance rights certain key strategic financial decisions regarding amylin alliance paid bms 135 million consideration payments accounted deferred income amortized based relative fair value predominant elements included alliance estimated useful lives intangible assets related bydureon estimated useful life 13 years byetta estimated useful life 7 years symlin estimated life 9 years myalept estimated useful life 12 years amylin manufacturing plant estimated useful life 15 years amortization presented reduction cost products sold alliance assets acquired shortly commencement alliance astrazeneca entitled share proceeds sale assets amortization acquired amylin intangible assets manufacturing plant also presented cost products sold bms entitled reimbursements 50 capital expenditures related acquired amylin manufacturing facility bms astrazeneca also shared certain tax attributes related amylin alliance prior termination alliance bms received nonrefundable upfront milestone licensing payments 300 million related onglyza 250 million related farxiga amortization onglyza farxiga deferred income included income onglyza farxiga commercial products commencement alliance parties also shared commercialization development expenses equally well profits losses february 2014 bms astrazeneca terminated alliance agreements bms sold astrazeneca substantially diabetes business comprising alliance divestiture included shares amylin resulting transfer ohio manufacturing facility intellectual property related onglyza farxiga including bmss interest outlicensing agreement onglyza japan future purchase bms’s manufacturing facility located mount vernon indiana 2015 substantially employees dedicated diabetes business transferred astrazeneca sale business completed jurisdictions bms astrazeneca entered several agreements connection sale including supply agreement development agreement transitional services agreement agreements bms obligated supply certain products including active product ingredients onglyza farxiga 2020 perform ongoing development activities certain clinical trial programs 2016 provide transitional services accounting financial services customer service distribution regulatory development information technology certain administrative services various periods order facilitate orderly transfer business operations annual costs attributed development agreement expected exceed approximately 115 million 2015 2016 consideration transaction includes 27 billion payment closing contingent regulatory salesbased milestone payments 14 billion including 800 million related approval milestones 600 million related salesbased milestones payable 2020 royalty payments based net sales 2025 payments 225 million certain assets transferred astrazeneca also pay bms required product supply price approximating product cost well negotiated transitional service fees royalty rates net sales follows stock asset purchase agreement contains multiple elements delivered subsequent closing transaction including china diabetes business transferred third quarter 2014 mount vernon indiana manufacturing facility activities development supply agreements elements determined standalone value result portion consideration received closing allocated undelivered elements using relative selling price method determining best estimated selling price element remaining amount consideration included calculation gain sale diabetes business contingent milestone royalty payments similarly allocated among underlying elements amounts determined payable bms amounts allocated sale business immediately recognized results operations amounts allocated elements recognized results operations extent element delivered consideration 38 billion accounted 2014 substantially first quarter including royalties 700 million contingent regulatory milestone payments related approval farxiga us japan approximately 33 billion consideration allocated sale business remaining 492 million allocated undelivered elements described consideration includes 235 million earned royalties including 192 million allocated elements delivered gain sale diabetes business 536 million including 292 million third quarter 2014 resulting primarily transfer china diabetes business astrazeneca gain based difference consideration allocated sale business excluding royalties net transaction fees carrying value diabetes business net assets including 600 million allocation goodwill reversal 821 million net deferred tax liabilities attributed amylin consideration allocated mount vernon indiana manufacturing facility continue deferred transferred astrazeneca consideration allocated development supply agreements continue amortized applicable service periods amortization deferred income attributed development agreement included income sale services considered part bms’s ongoing major central operations revenues attributed supply agreement included alliance revenues consideration transaction presented cash flow purposes based allocation process described either investing activity attributed sale business related assets operating activity attributed transitional services supply arrangement development agreement summarized financial information related astrazeneca alliances follows included liabilities related assets heldforsale december 31 2013 gilead bms gilead sciences inc gilead joint ventures us canada europe develop commercialize atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg combining sustiva product bms truvada emtricitabine tenofovir disoproxil fumarate product gilead joint ventures consolidated gilead parties actively participate joint executive committee various operating committees direct oversight activities joint ventures joint ventures purchase sustiva truvada api bulk form parties complete finishing atripla joint ventures gilead sell distribute atripla principal thirdparty customer sales parties longer coordinate joint promotional activities alliance revenue recognized atripla include bulk efavirenz component atripla based relative ratio average respective net selling prices truvada sustiva alliance revenue deferred related alliance receivable recognized combined product sold thirdparty customers europe following 2013 loss exclusivity sustiva effective january 1 2014 percentage atripla net sales europe recognized bms equal difference average net selling prices atripla truvada alliance continue europe either party terminates arrangement last patent expiration occurs atripla truvada sustiva us agreement may terminated gilead upon launch generic version sustiva bms upon launch generic version truvada event gilead terminates agreement upon loss exclusivity sustiva bms receive quarterly royalty payment 36 months following termination payment first 12 months following termination equal 55 atripla net sales multiplied ratio difference average net selling prices atripla truvada atripla average net selling price second third years following termination payment bms reduced 35 15 respectively atripla net sales multiplied price ratio described bms continue supply sustiva cost plus markup joint ventures threeyear period unless either party elects terminate supply arrangement summarized financial information related alliance follows lilly bms epidermal growth factor receptor egfr commercialization agreement eli lilly company lilly’s subsidiary imclone codevelopment copromotion erbitux us canada japan egfr agreement parties actively participate joint executive committee various operating committees share responsibilities research development using resources infrastructures respect erbitux lilly manufactures bulk requirements cetuximab facilities filling finishing performed third party bms oversight responsibility bms responsible promotional efforts north america although lilly right copromote expense bms also codevelopment copromotion rights canada japan bms principal thirdparty customer sales north america pays lilly distribution fee 39 erbitux net sales north america plus share certain royalties paid lilly agreement expires erbitux north america september 2018 bms shared rights erbitux japan agreement lilly merck kgaa received 50 pretax profit merck kgaa’s net sales erbitux japan shared equally lilly december 2014 bms agreed transfer cocommercialization rights japan merck kgaa may 2015 exchange future royalties 2032 included income earned march 2013 bms lilly terminated arrangement necitumumab imc11f8 rights returning lilly discovered imclone necitumumab fully human monoclonal antibody part alliance bms lilly license acquisition costs 500 million associated erbitux alliance agreement amortized 2018 summarized financial information related alliance follows bms acquired amylin pharmaceuticals inc amylin august 2012 see “note 4 acquisitions” information amylin previously entered settlement termination agreement lilly regarding alliance global development commercialization byetta bydureon exenatide products parties agreed transition full responsibility products amylin transition us operations completed prior acquisition transition nonus operations majority markets completed april 2013 terminating lillys nonus exclusive right promissory notes assumed acquisition amylin aggregating 14 billion repaid lilly 2012 sanofi september 2012 bms sanofi restructured terms codevelopment cocommercialization agreements plavix avaproavalide effective january 1 2013 sanofi assumed essentially worldwide operations alliance exception plavix us puerto rico alliance plavix markets continues unchanged december 2019 terms original alliance arrangements described exchange rights transferred sanofi bms receives quarterly royalties january 1 2013 december 31 2018 terminal payment sanofi 200 million end 2018 beginning 2013 royalties received sanofi territory covering americas australia optout markets former development royalties presented alliance revenues 223 million 2014 220 million 2013 development optout royalty income 143 million 2012 included incomeexpense development royalty expense due sanofi 2 million 2014 2013 presented cost products sold 67 million 2012 presented incomeexpense royalties attributed territory covering europe asia continue earned territory partnership included equity net income affiliates equity net income affiliates 2013 included 22 million profit deferred prior restructuring agreement alliance revenues attributed supply irbesartan api sanofi 90 million 2014 116 million 2013 117 million 2012 supply arrangement irbesartan expires 2015 prior restructuring bms’s worldwide alliance sanofi codevelopment cocommercialization avaproavalide plavix operated framework two geographic territories one americas principally us canada puerto rico latin american countries australia europe asia two territory partnerships managed central expenses marketing research development royalties supply finished product individual countries bms acted operating partner owned 501 majority controlling interest territory covering americas australia consolidated country partnership results territory sanofi’s 499 share results reflected noncontrolling interest bms also recognized net product sales comarketing countries outside territory eg italy irbesartan germany greece spain sanofi acted operating partner owned 501 majority controlling interest territory covering europe asia bms 499 ownership interest territory summarized financial information related alliance follows included alliance receivables following summarized financial information interests partnerships sanofi territory covering europe asia consolidated accounted using equity method cost products sold territory covering europe asia includes discovery royalties 32 million 2014 38 million 2013 133 million 2012 paid directly sanofi expenses shared based applicable ownership percentages current assets current liabilities include approximately 94 million 2014 108 million 2013 293 million 2012 related receivablespayables attributed cash distributions bms sanofi well intercompany balances partnerships within territory pfizer bms pfizer inc pfizer maintain worldwide codevelopment cocommercialization agreement eliquis anticoagulant discovered bms pfizer funds 50 60 development costs depending study companies share profits losses equally global basis certain countries pfizer commercializes eliquis pays bms compensation based percentage net sales upon entering agreement coexclusive license rights product granted pfizer exchange upfront payment potential milestone payments parties assumed certain obligations actively participate alliance actively participate joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms manufactures product alliance principal endcustomer product sales countries determined rights transferred pfizer standalone value rights sold separately bms party could pfizer receive benefit delivered rights without fulfillment ongoing obligations bms alliance agreement including exclusive supply arrangement global alliance treated single unit accounting upfront proceeds subsequent contingent milestone proceeds amortized life related product bms received 864 million nonrefundable upfront milestone licensing payments related eliquis date amortization eliquis deferred income included income eliquis commercial product commencement alliance summarized financial information related alliance follows reckitt benckiser group may 2013 bms reckitt benckiser group plc reckitt entered threeyear alliance several overthecounterproducts sold primarily mexico brazil net sales products approximately 100 million 2012 reckitt received right sell distribute market products may 2016 certain responsibilities related regulatory matters covered territory bms receives royalties net sales products exclusively supplies certain products reckitt cost plus markup certain limited assets including market authorizations certain employees directly attributed business transferred reckitt start alliance period bms retained ownership assets related business including trademarks covering products bms also granted reckitt option acquire trademarks inventory certain assets exclusively related products end alliance period price determined based multiple sales plus cost remaining inventory held bms time april 2014 alliance modified provide option reckitt purchase bms manufacturing facility located mexico primarily dedicated products included alliance options exercised together substantially employees facility expected transferred reckitt option exercised option exercised assets previously transferred reckitt revert back bms option may exercised reckitt may november 2015 case closing would expected occur may 2016 nonrefundable upfront proceeds 485 million received bms allocated two units accounting including rights transferred reckitt fair value option purchase remaining assets using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option determined using level 3 inputs included liabilities 15 million charge included expenses increase fair value option 129 million 2014 amount allocated rights transferred reckitt amortized alliance revenue contractual term summarized financial information related alliance follows medicines company february 2013 bms medicines company entered twoyear alliance recothrom recombinant thrombin use topical hemostat control nonarterial bleeding surgical procedures previously acquired bms connection acquisition zymogenetics inc 2010 net product sales recothrom 67 million 2012 medicines company received right sell distribute market recothrom global basis two years certain responsibilities related regulatory matters covered territory bms exclusively supplies recothrom medicines company cost plus markup receives royalties net sales recothrom certain employees directly attributed business certain assets transferred medicines company start alliance period including biologics license application related regulatory assets bms retained assets related recothrom including patents trademarks inventory bms also granted medicines company option acquire patents trademarks inventory certain assets exclusively related recothrom price determined based multiple sales plus cost remaining inventory held bms time medicines company exercised option acquired business 132 million february 2015 see note 5 assets heldforsale” information nonrefundable upfront proceeds 115 million received bms allocated two units accounting including rights transferred medicines company fair value option purchase remaining assets using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option 35 million december 31 2014 determined using level 3 inputs included accrued expenses amount allocated rights transferred medicines company amortized alliance revenue contractual term summarized financial information related alliance follows valeant october 2012 bms pharmaswiss sa whollyowned subsidiary valeant pharmaceuticals international inc valeant entered alliance certain mature brand products europe valeant received right sell distribute market products europe december 31 2014 certain responsibilities related regulatory matters covered territory bms exclusively supplies products valeant cost plus markup bms also granted valeant option acquire trademarks intellectual property exclusively related products price determined based multiple sales valeant exercised option acquired business 61 million january 2015 nonrefundable upfront proceeds 79 million received bms allocated two units accounting including rights transferred valeant fair value option purchase remaining assets using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option determined using level 3 inputs included accrued expenses 16 million charge included expenses increase fair value option 34 million 2014 amount allocated rights transferred valeant amortized alliance revenue contractual term summarized financial information related alliance follows ono bms ono pharmaceutical co ltd ono alliance agreement develop commercialize opdivo antipd1 human monoclonal antibody investigated anticancer treatment bms exclusive right develop manufacture commercialize opdivo territories worldwide except japan south korea taiwan ono responsible development commercialization prior amendment discussed ono entitled receive royalties following regulatory approvals territories excluding three countries listed royalty rates 4 north america 15 applicable territories alliance agreement amended july 2014 provide additional collaboration activities japan south korea taiwan pertaining opdivo several bms compounds including ipilimumab lirilumab urelumab bms986016 antilag3 parties right obligation jointly develop commercialize compounds bms responsible supply product profits losses development costs shared equally combination therapies involving compounds parties otherwise sharing 80 20 activities involving one party’s compounds bms ono also codevelop cocommercialize orencia japan bms responsible order fulfillment distribution intravenous formulation ono responsible subcutaneous formulation formulations jointly promoted parties assigned customer accounts bms responsible product supply copromotion fee 60 paid party sale made party’s assigned customer summarized financial information related alliance follows fstar october 2014 bms entered agreement fstar alpha ltd fstar agreement provides bms exclusive option purchase fstar alpha ltd phase 1 ready lead asset fs102 targeted therapy development treatment breast gastric cancer among welldefined population her2positive patients bms paid 50 million fstar shareholders 2014 option fee certain licensing rights included research development expenses responsible conducting funding development fs102 option exercisable bmss discretion expires upon earlier 60 days following obtaining proof concept june 2018 additional 100 million payable upon exercise option plus additional aggregate consideration 325 million contingent development regulatory approval milestone payments us europe bms obligated provide additional financial support fstar determined business defined asc 805 business combinations result contingent consideration included purchase price goodwill recognized however fstar variable interest entity equity holders lack characteristics controlling financial interest bms determined primary beneficiary power direct activities significantly directly impacting economic performance entity option rights described upon consolidation noncontrolling interest credited 59 million reflect fair value fs102 iprd asset 75 million deferred tax liabilities note 4 acquisitions ipierian inc acquisition april 2014 bms acquired outstanding shares ipierian inc ipierian biotechnology company focused new treatments tauopathies class neurodegenerative diseases acquisition provides bms full rights ipn007 preclinical monoclonal antibody treat progressive supranuclear palsy tauopathies consideration includes upfront payment 175 million contingent development regulatory milestone payments 550 million future royalties net sales acquired preclinical assets approved commercialized significant ipierian processes acquired therefore transaction accounted asset acquisition ipierian determined business upfront payment allocated ipn007 148 million included research development expenses remaining 27 million allocated deferred tax assets net operating losses tax credit carryforwards amylin pharmaceuticals inc acquisition august 2012 bms acquired outstanding shares amylin biopharmaceutical company focused discovery development commercialization innovative medicines treat diabetes metabolic diseases acquisition costs 29 million included expenses bms obtained full us commercialization rights amylin’s two primary commercialized assets bydureon onceweekly diabetes treatment byetta daily diabetes treatment glucagonlike peptide1 glp1 receptor agonists approved certain countries improve glycemic control adults type 2 diabetes bms also obtained full commercialization rights symlin amylinomimetic approved us adjunctive therapy mealtime insulin treat diabetes goodwill generated acquisition primarily attributed expansion diabetes franchise iprd attributed metreleptin analog human hormone leptin studied developed treatment diabetes andor hypertriglyceridemia pediatric adult patients inherited acquired lipodystrophy estimated useful life cash flows utilized value metreleptin assumed initial positive cash flows commence shortly expected receipt regulatory approvals subject trial results see note 3 alliancesastrazeneca discussion sale companys diabetes business including amylin astrazeneca comprised global diabetes alliance inhibitex inc acquisition february 2012 bms acquired outstanding shares inhibitex inc inhibitex clinicalstage biopharmaceutical company focused developing products prevent treat serious infectious diseases acquisition costs 12 million included expense bms obtained inhibitex’s lead asset inx189 oral nucleotide polymerase ns5b inhibitor phase ii development treatment chronic hepatitis c virus infections goodwill generated acquisition primarily attributed potential offer full portfolio therapy choices hepatitis virus infections well provide additional levels sustainability bms’s virology pipeline iprd primarily attributed inx189 expected effective used combination therapy assumed market participants would inherently maintain franchise synergies attributed maximizing cash flows existing virology pipeline assets cash flows utilized value inx189 included synergies also assumed initial positive cash flows commence shortly expected receipt regulatory approvals subject trial results august 2012 company discontinued development inx189 interest patient safety result company recognized noncash pretax impairment charge 18 billion information discussion impairment charge see “note 14 goodwill intangible assets” total consideration transferred allocation acquisition date fair values assets acquired liabilities assumed amylin inhibitex acquisitions follows cash paid acquisition amylin included payments 51 billion outstanding common stockholders 219 million holders stock options restricted stock units including 94 million attributed accelerated vesting accounted stock compensation expense 2012 results operations cash flows acquired companies included consolidated financial statements acquisition date pro forma supplemental financial information provided impacts acquisitions material operating results year acquisition goodwill iprd intangible assets valued acquisitions nondeductible tax purposes note 5 assets heldforsale discussed note 3 alliances bms sold diabetes business astrazeneca february 2014 previously comprised global alliance diabetes business treated single disposal group heldforsale december 31 2013 writedown required fair value business less costs sell exceeded related carrying value assets heldforsale december 31 2014 related alliances medicines company valeant allocation goodwill based relative fair value businesses divested companys reporting unit following table provides assets liabilities classified heldforsale note 6 incomeexpense includes note 7 restructuring following provision restructuring charges included employee termination benefits manufacturing selling administrative research development workforce reductions across geographic regions approximately 1387 2014 1450 2013 1205 2012 restructuring actions primarily related specialty care transformation initiatives 2014 designed create simplified organization across functions geographic markets sales force reductions several european countries 2013 following restructuring sanofi otsuka alliance agreements subject local regulations costs recognized completion discussions works councils additional costs 100 million expected incurred specialty care transformation initiatives 2015 following table represents activity employee termination exit cost liabilities note 8 income taxes provisionbenefit income taxes consisted effective tax rate reconciliation effective taxbenefit rate us statutory federal income tax rate effective tax rate lower us statutory rate 35 primarily attributable undistributed earnings certain foreign subsidiaries considered expected indefinitely reinvested offshore us taxes provided approximately 24 billion undistributed earnings foreign subsidiaries december 31 2014 undistributed earnings primarily relate operations ireland puerto rico operate favorable tax grants scheduled expire prior 2023 undistributed earnings repatriated us future determined earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes provided reforms us tax laws related foreign earnings proposed adopted may increase taxes could reduce results operations cash flows divestiture diabetes business resulted 361 million capital loss tax benefit sale amylin shares 2014 additional reserves 123 million established 2014 certain transfer pricing matters related tax periods 2008 2014 goodwill allocated diabetes business divestiture us branded prescription drug fee research development charge acquisition ipierian 2014 deductible tax purposes retroactive reinstatement 2012 us federal research development credit 2013 resulted additional tax credits 82 million 2013 tax insolvency inhibitex resulted 392 million capital loss tax benefit 2012 orphan drug credits included us federal research based credits periods presented deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows us federal net operating loss carryforwards 386 million december 31 2014 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 us federal tax credit carryforwards expire varying amounts beginning 2017 realization us federal tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration capital loss available 1564 million carried back 2009 carryforward amount expires various amounts beginning 2017 foreign state net operating loss carryforwards expire varying amounts beginning 2015 certain amounts unlimited lives december 31 2014 valuation allowance 4259 million established following items 3457 million primarily foreign net operating loss tax credit carryforwards 354 million state deferred tax assets including net operating loss tax credit carryforwards 12 million us federal net operating loss carryforwards 436 million us federal state capital losses changes valuation allowance follows income tax payments 544 million 2014 478 million 2013 676 million 2012 current tax benefit realized result stock related compensation credited capital excess par value stock 131 million 2014 129 million 2013 71 million 2012 business conducted various countries throughout world subject tax numerous jurisdictions significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported requiring several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows additional information regarding unrecognized tax benefits follows accrued interest penalties payable unrecognized tax benefits included either current noncurrent us foreign income taxes payable interest penalties related unrecognized tax benefits included income tax expense effective january 2014 bms adopted update fasb clarified existing guidance presentation unrecognized tax benefits various qualifying tax benefit carryforwards exist including unrecognized tax benefit presented reduction deferred tax assets liability noncurrent deferred tax assets income tax liabilities reduced 236 million upon adoption bms currently examination number tax authorities including limited major tax jurisdictions listed table proposed adjustments tax issues transfer pricing certain tax credits deductibility certain expenses bms estimates reasonably possible total amount unrecognized tax benefits december 31 2014 decrease range approximately 310 million 370 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits primarily settlement related involve payment additional taxes adjustment certain deferred taxes andor recognition tax benefits reasonably possible new issues raised tax authorities may increase unrecognized tax benefits however estimate increases cannot reasonably made time bms believes adequately provided open tax years tax jurisdiction following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited note 9 earnings per share note 10 financial instruments fair value measurements financial instruments include cash equivalents marketable securities accounts receivable payable debt instruments derivatives changes exchange rates interest rates create exposure market risk certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur derivative financial instruments used trading purposes financial instruments subject counterparty credit risk considered part overall fair value measurement counterparty credit risk monitored ongoing basis mitigated limiting amounts outstanding individual counterparty utilizing conventional derivative financial instruments entering agreements counterparties meet high credit quality standards consolidated financial statements would materially impacted counterparty failed perform according terms agreement collateral required party whether derivatives asset liability position terms agreements fair value measurements fair values financial instruments classified one following categories level 1 inputs utilize nonbinding quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs level 2 inputs utilize observable prices similar instruments nonbinding quoted prices identical similar instruments nonactive markets observable inputs corroborated market data substantially full term assets liabilities instruments include corporate debt securities certificates deposit money market funds foreign currency forward contracts interest rate swap contracts equity funds fixed income funds longterm debt additionally certain corporate debt securities utilize thirdparty matrix pricing model using significant inputs corroborated market data substantially full term assets equity fixed income funds primarily invested publicly traded securities valued respective net asset value underlying investments significant unfunded commitments restrictions redemptions related equity fixed income funds december 31 2014 level 2 derivative instruments valued using london interbank offered rate libor yield curves less credit valuation adjustments observable forward foreign exchange rates reporting date valuations derivative contracts may fluctuate considerably volatility underlying foreign currencies underlying interest rates driven market conditions duration contract credit adjustment volatility may significant impact valuation interest rate swap contracts resulting changes counterparty credit ratings credit default swap spreads level 3 unobservable inputs used little market data available fair value written options sell assets certain businesses see “note 3 alliances” discussion based option pricing methodology considers revenue profitability projections volatility discount rates potential exercise price assumptions fair value contingent consideration related acquisition estimated utilizing model considered probability achieving milestone discount rates financial assets liabilities measured fair value recurring basis summarized following table summarizes activity financial assets utilizing level 3 fair value measurements floating rate securities availableforsale securities following table summarizes availableforsale securities availableforsale securities included current marketable securities 1759 million december 31 2014 819 million december 31 2013 noncurrent availableforsale corporate debt securities mature within five years december 31 2014 except ars equity investments 36 million included assets december 31 2014 fair value option financial assets investments equity fixed income funds offsetting changes fair value certain employee retirement benefits included current marketable securities investment income resulting changes fair value significant qualifying hedges following summarizes fair value outstanding derivatives cash flow hedges foreign currency forward contracts primarily utilized hedge forecasted intercompany inventory purchase transactions certain foreign currencies contracts designated cash flow hedges effective portion changes fair value reported accumulated oci recognized earnings hedged item affects earnings net gains expected reclassified cost products sold within next two years notional amount outstanding foreign currency forward contracts primarily attributed euro 536 million japanese yen 636 million december 31 2014 fair value foreign currency forward contract attributed japanese yen notional amount 330 million designated cash flow hedge 7 million included prepaid expenses december 31 2014 cash flow hedge accounting discontinued forecasted transaction longer probable occurring within 60 days originally forecasted date hedge longer effective assessments determine whether derivatives designated qualifying hedges highly effective offsetting changes cash flows hedged items performed inception quarterly basis earnings impact related discontinued cash flow hedges hedge ineffectiveness significant periods presented net investment hedges nonus dollar borrowings €541 million 662 million designated hedge foreign currency exposures net investment certain foreign affiliates borrowings designated net investment hedges recognized long term debt effective portion foreign exchange gains losses remeasurement debt recognized foreign currency translation component accumulated oci related offset long term debt fair value hedges fixedtofloating interest rate swap contracts designated fair value hedges used interest rate risk management strategy create appropriate balance fixed floating rate debt contracts underlying debt hedged benchmark risk recorded fair value effective interest rate contracts onemonth libor 017 december 31 2014 plus interest rate spread ranging 08 29 underlying swap terminated prior maturity fair value basis adjustment underlying debt instrument amortized reduction interest expense remaining life debt notional amount fixedtofloating interest rate swap contracts executed 200 million 2014 21 billion 2013 notional amount fixedtofloating interest rate swap contracts terminated 426 million 2014 generating proceeds 119 million including accrued interest 10 million additional contracts terminated connection debt redemptions 2014 2012 debt obligations shortterm borrowings 590 million 359 million december 31 2014 2013 respectively consisting primarily bank overdrafts longterm debt current portion longterm debt includes included liabilities related assets heldforsale december 31 2013 fair value longterm debt 8045 million 8487 million december 31 2014 2013 respectively estimated based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments floating rate convertible senior debentures 18 million due 2023 redeemable holders par september 15 2018 fundamental change ownership occurs callable par time bms debentures current conversion price 3958 equal conversion rate 252623 shares 1000 principal amount subject certain antidilutive adjustments senior unsecured notes issued registered public offerings 15 billion 2013 20 billion 2012 interest notes paid semiannually notes rank equally right payment bms’s existing future senior unsecured indebtedness redeemable bms whole part time predetermined redemption price 525 notes principal amount 597 million matured repaid 2013 substantially 20 billion debt obligations assumed acquisition amylin repaid 2012 including promissory note lilly respect revenue sharing obligation amylin senior notes due 2014 debt redemptions 2013 debt redemption activity 2014 2012 including repayment amylin debt obligations follows interest payments 238 million 2014 268 million 2013 241 million 2012 net amounts received interest rate swap contracts two separate 15 billion fiveyear revolving credit facilities maintained syndicate lenders facilities provide customary terms conditions financial covenants extendable anniversary date consent lenders borrowings outstanding either revolving credit facility december 31 2014 2013 financial guarantees provided form standby letters credit performance bonds 725 million december 31 2014 standby letters credit issued financial institutions support guarantees various obligations performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority outstanding financial guarantees expire within year expected funded note 11 receivables nonus receivables sold nonrecourse basis 812 million 2014 1031 million 2013 956 million 2012 aggregate receivables three pharmaceutical wholesalers us represented 36 40 total trade receivables december 31 2014 2013 respectively changes allowances bad debt chargebacks cash discounts follows note 12 inventories expected remain onhand beyond one year 232 million december 31 2014 351 million december 31 2013 included assets note 13 property plant equipment property plant equipment related mount vernon indiana manufacturing facility approximately 235 million december 31 2014 facility expected sold 2015 included assets heldforsale periods assets available immediate sale present condition see note 3 alliances” discussion sale diabetes business depreciation expense 543 million 2014 453 million 2013 382 million 2012 note 14 goodwill intangible assets goodwill 600 million allocated sale diabetes business 2014 including 550 million presented assets heldforsale december 31 2013 see“note 5 assets heldforsale” discussion amortization expense 286 million 2014 858 million 2013 607 million 2012 future annual amortization expense intangible assets expected approximately 220 million 2015 210 million 2016 200 million 2017 150 million 2018 110 million 2019 583 million thereafter intangible asset impairment charges 380 million 2014 none 2013 21 billion 2012 310 million iprd impairment charge recognized 2014 peginterferon lambda phase iii development treatment hepatitis c virus hcv full writeoff required assessing potential commercial viability asset estimating fair value assessment considered lower likelihood filing registration certain markets completing revised projections revenues expenses significant decline prior projected revenues resulted global introduction oral noninterferon products used treat patients hcv alternative uses product bms announced discontinued development bms986094 formerly known inx189 nucleotide polymerase ns5b inhibitor phase ii development treatment hcv august 2012 decision made interest patient safety based rapid thorough ongoing assessment patients phase ii study voluntarily suspended august 2012 bms acquired bms986094 acquisition inhibitex february 2012 result termination development program 18 billion pretax impairment charge recognized 2012 impairment charge 120 million also recognized 2012 related continued competitive pricing pressures partial writedown fair value developed technology rights related previously acquired nonkey product note 15 accrued expenses note 16 sales rebates return accruals reductions trade receivables accrued rebates returns liabilities follows note 17 deferred income alliances include unamortized amounts upfront milestone licensing proceeds revenue deferrals attributed gilead alliance undelivered elements diabetes business divestiture upfront milestone licensing proceeds amortized shorter contractual rights period expected life product deferred gains saleleaseback transactions amortized remaining lease terms related facilities 2018 deferrals include approximately 300 million invoiced product early access program eu portion amount recognized revenue subject final price negotiations local government amortization deferred income 362 million 2014 548 million 2013 308 million 2012 deferred income 3671 million included liabilities related assets heldforsale december 31 2013 see“note 5 assets heldforsale” discussion note 18 equity treasury stock recognized cost reacquire shares issued treasury recognized utilizing firstin firstout method noncontrolling interest primarily related plavix avaproavalide partnerships sanofi territory covering americas net earnings attributable noncontrolling interest presented net taxes 22 million 2014 20 million 2013 317 million 2012 corresponding increase provision income taxes distribution partnership profits sanofi’s funding ongoing partnership operations occur routine basis activity includes pretax income distributions related partnerships components comprehensive incomeloss follows reclassifications net earnings derivatives qualifying effective hedges recognized costs products sold b actuarial gainslosses prior service costcredits amortized cost products sold research development marketing selling administrative expenses c pension settlements curtailments recognized incomeexpense realized gains availableforsale securities recognized incomeexpense accumulated balances related component comprehensive incomeloss net taxes follows note 19 pension postretirement postemployment liabilities bms sponsors defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan covering us employees representing approximately 65 consolidated pension plan assets 61 obligations bms contributes least minimum amount required employee retirement income security act 1974 erisa plan benefits based primarily participant’s years credited service final average compensation plan assets consist principally equity fixedincome securities comprehensive medical group life benefits provided substantially us retirees electing participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally equity fixedincome securities net periodic benefit costcredit defined benefit pension postretirement benefit plans includes september 2014 bms fiduciary counselors inc independent fiduciary bristolmyers squibb company retirement income plan entered definitive agreement transfer certain us pension assets prudential insurance company america prudential settle approximately 15 billion pension obligations bms purchased group annuity contract prudential december 2014 irrevocably assumed obligation make future annuity payments certain bms retirees transaction change amount monthly pension benefit received affected retirees surviving beneficiaries resulted pretax settlement charge 713 million pension settlement charges also recognized determining annual lump sum payments exceed annual interest service costs certain pension plans including primary us pension plan 2014 2013 2012 changes defined benefit postretirement benefit plan obligations assets funded status amounts recognized consolidated balance sheets follows accumulated benefit obligation defined benefit pension plans 7001 million 7125 million december 31 2014 2013 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine benefit obligations december 31 follows weightedaverage actuarial assumptions used determine net periodic benefit creditcost years ended december 31 follows yield high quality corporate bonds matching duration benefit obligations used determining discount rate citigroup pension discount curve used developing discount rate us plans expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” fair value plan assets exceeded marketrelated value 300 million december 31 2014 differences assumed actual returns amortized marketrelated value straightline basis threeyear period several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class historical longterm actual annualized returns us pension plans follows actuarial gains losses resulted changes actuarial assumptions changes discount rate revised mortality rates differences assumed actual experience differences actual expected return plan assets gains losses amortized life expectancy plan participants us plans 37 years 2015 expected remaining service periods plans extent exceed 10 higher marketrelated value projected benefit obligation respective plan amortization net actuarial loss prior service credit expected approximately 93 million 2015 periodic benefit cost credit included cost products sold research development marketing selling administrative expenses except curtailments settlements special termination benefits included expenses assumed healthcare cost trend rates december 31 follows assumed healthcare cost trend rates effect amounts reported healthcare plans onepercentagepoint change assumed healthcare cost trend rates would material impact service interest cost post retirement benefit obligation plan assets fair value pension postretirement plan assets asset category december 31 2014 2013 follows investment valuation policies per investment class follows level 1 inputs utilize quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy gives highest priority level 1 inputs instruments include equity securities equity funds real estate funds fixed income funds publicly traded national securities exchange cash equivalents cash equivalents highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement level 2 inputs include observable prices similar instruments quoted prices identical similar instruments markets active observable inputs corroborated market data substantially full term assets liabilities equity funds fixed income funds event driven hedge funds shortterm investment funds classified level 2 within fair value hierarchy valued net asset value shares held year end significant unfunded commitments restrictions redemptions related investments valued nav december 31 2014 corporate debt securities government mortgage backed securities us treasury agency securities state municipal bonds classified level 2 within fair value hierarchy valued utilizing observable prices similar instruments quoted prices identical similar instruments markets active level 3 unobservable inputs used little market data available venture capital limited partnerships classified level 3 within fair value hierarchy invest underlying securities whose market values determined using pricing models discounted cash flow methodologies similar techniques significant unobservable inputs used valuation methodologies include discount rates earning interest taxes depreciation amortization ebitda multiples revenue multiples significant changes inputs could result significantly lower higher fair value measurements insurance contract interests carried contract value approximates estimated fair value based fair value underlying investment insurance company insurance contracts held certain foreign pension plans following summarizes activity financial assets utilizing level 3 fair value measurements investment strategy emphasizes equities order achieve higher expected returns lower expenses required cash contributions longterm target asset allocation 43 public equity 16 us 16 international 11 global 7 private equity 50 longduration fixed income maintained us pension plans investments diversified within three major asset categories approximately 98 us pension plans equity investments actively managed venture capital limited partnerships typically valued three month lag using latest available information bms common stock represents less 1 plan assets december 31 2014 2013 contributions estimated future benefit payments contributions pension plans 124 million 2014 251 million 2013 396 million 2012 expected approximately 100 million 2015 estimated annual future benefit payments including lump sum payments range 300 million 400 million next five years aggregate 17 billion subsequent five year period savings plans principal defined contribution plan bristolmyers squibb savings investment program contribution based employee contributions level company match expense attributed defined contribution plans us 190 million 2014 2013 2012 note 20 employee stock benefit plans may 1 2012 shareholders approved 2012 stock award incentive plan 2012 plan replaced 2007 stock incentive plan shares common stock reserved issuance pursuant stock plans options conversions preferred stock 250 million december 31 2014 shares available granted active plans 112 million december 31 2014 shares issued treasury stock shares tendered prior year pay purchase price options shares previously utilized satisfy withholding tax obligations upon exercise continue available reserved executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable ratably four years maximum term ten years plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price company granted stock options stock appreciation rights since 2009 common stock units may granted key employees subject restrictions continuous employment generally vesting occurs ratably four year period grant date compensation expense recognized vesting period stock unit right receive stock end specified vesting period voting rights market share units granted executives vesting conditioned upon continuous employment vesting date payout factor least 60 share price award date payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs ratably four years performance share units granted executives three year cycle granted target number units subject adjustment based company performance shares ultimately issued awards granted prior 2014 calculated based actual performance compared earnings targets performance criteria established beginning year three year performance cycle shares ultimately issued awards granted 2014 based actual performance compared earnings target performance criteria established 2014 subsequent adjustment companys threeyear total shareholder return relative peer group companies vesting occurs third anniversary grant date stockbased compensation expense awards ultimately expected vest recognized vesting period acceleration unvested stock options restricted stock units connection acquisition amylin resulted stockbased compensation expense 2012 forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates information related stockbased compensation benefits follows fair value awards approximates closing trading price bmss common stock grant date fair value market share units also considers payout formula probability satisfying market conditions following table summarizes significant ranges outstanding exercisable options december 31 2014 amounts millions except per share data aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 5903 december 31 2014 note 21 leases annual minimum rental commitments noncancelable operating leases primarily real estate motor vehicles approximately 100 million next five years aggregate 100 million thereafter operating lease expenses 137 million 2014 144 million 2013 142 million 2012 sublease income material periods presented note 22 legal proceedings contingencies company certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business company recognizes accruals contingencies probable liability incurred amount loss reasonably estimated matters involve patent infringement antitrust securities pricing sales marketing practices environmental commercial health safety matters consumer fraud employment matters product liability insurance coverage legal proceedings material company believes could become material described although company believes substantial defenses matters assurance increase scope pending matters future lawsuits claims government investigations legal proceedings material unless otherwise noted company unable assess outcome respective litigation able provide estimated range potential loss furthermore failure enforce patent rights would likely result substantial decreases respective product revenues generic competition intellectual property baraclude august 2010 teva filed anda manufacture market generic versions baraclude company received paragraph iv certification letter teva challenging one orange booklisted patent baraclude us patent 5206244 ‘244 patent covering entecavir molecule september 2010 company filed patent infringement lawsuit us district court district delaware district court teva infringement february 2013 delaware district court ruled company invalidated ‘244 patent company appealed delaware district court’s decision june 2014 us court appeals federal circuit federal court appeals denied companys appeal july 2014 company filed petition en banc rehearing entire federal court appeals denied october 2014 january 2015 company filed petition writ certiorari us supreme court requesting court hear appeal federal court appeals decision september 2014 teva received final approval fda generic version entecavir launched product us experienced rapid significant negative impact us net product sales baraclude beginning fourth quarter 2014 us net product sales baraclude 215 million 2014 baraclude south korea 2013 daewoong pharmaceutical co ltd hanmi pharmaceuticals co ltd initiated separate invalidity actions korean intellectual property office korean patent 160523 ‘523 patent ‘523 patent expires october 2015 korean equivalent ‘244 patent us composition matter patent january 2015 korean intellectual property tribunal ruled 523 patent valid still remains risk generic companies continue challenge validity 523 patent andor launch generic versions baraclude prior october 2015 net product sales baraclude south korea 158 million 2014 plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex inc apotex since changed name apotex august 2007 apotex filed application federal court australia federal court seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 federal court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april 2008 august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid company sanofi filed notices appeal full court federal court australia full court appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 september 29 2009 full court held claims patent 597784 invalid november 2009 company sanofi applied high court australia high court special leave appeal judgment full court march 2010 high court denied company sanofi’s request hear appeal full court decision case remanded federal court proceedings related damages sought apotex australian government intervened matter also seeking damages alleged losses experienced period injunction place company apotex settled apotex case dismissed australian governments claim still pending possible time predict outcome australian government’s claim impact company plavix canada apotex inc april 22 2009 apotex filed impeachment action sanofi federal court canada alleging sanofi’s canadian patent 1336777 ‘777 patent invalid june 8 2009 sanofi filed defense impeachment action filed suit apotex infringement ‘777 patent trial completed june 2011 december 2011 federal court canada issued decision ‘777 patent invalid july 2013 federal court appeal reversed federal court canadas decision upheld validity 777 patent case remanded federal court canada consider damages owed company apotex infringement ‘777 patent september 2013 apotex sought leave appeal decision federal court appeal supreme court canada supreme court canada scheduled hear case november 2014 company apotex settled case dismissed thus concluding matter general commercial litigation remaining apotex matter related plavix previously disclosed january 2011 apotex filed lawsuit florida state court broward county alleging breach contract relating may 2006 proposed settlement agreement apotex relating pending plavix patent litigation trial held march 2013 jury verdict delivered favor company apotex appealed decision company apotex settled apotex withdrawn appeal thus concluding matter pricing sales promotional practices litigation investigations abilify federal subpoena january 2012 company received subpoena united states attorney’s office sdny requesting information related among things sales marketing abilify possible time assess outcome matter potential impact company abilify state attorneys general investigation march 2009 company received letter delaware attorney general’s office advising multistate coalition investigating whether certain abilify marketing practices violated respective states’ consumer protection statutes company entered tolling agreement states possible time reasonably assess outcome investigation awp litigation previously disclosed company together number pharmaceutical manufacturers defendant number private class actions well suits brought attorneys general various states actions plaintiffs allege defendants caused average wholesale prices awps products inflated thereby injuring government programs entities persons reimbursed prescription drugs based awps company remains defendant two state attorneys general suits pending state courts pennsylvania wisconsin beginning august 2010 company defendant trial commonwealth court pennsylvania commonwealth court brought commonwealth pennsylvania september 2010 jury issued verdict company finding company liable fraudulent negligent misrepresentation however commonwealth court judge issued decision pennsylvania consumer protection claim go jury finding company liable 28 million enjoining company contributing provision inflated awps company appealed decision pennsylvania supreme court oral argument took place may 2013 june 2014 pennsylvania supreme court vacated commonwealth judges decision remanded matter back commonwealth court january 2015 commonwealth court entered judgment favor company possible commonwealth pennsylvania could appeal decision qui tam litigation march 2011 company served unsealed qui tam complaint filed three former sales representatives california superior court county los angeles california department insurance elected intervene lawsuit complaint alleges company paid kickbacks california providers pharmacies violation california insurance frauds prevention act cal ins code § 18717 possible time reasonably assess outcome lawsuit impact company plavix state attorneys general lawsuits company certain affiliates sanofi defendants consumer protection andor false advertising actions brought several states relating sales promotion plavix possible time reasonably assess outcome lawsuits potential impact company product liability litigation company party various product liability lawsuits previously disclosed addition lawsuits company also faces unfiled claims involving products plavix previously disclosed company certain affiliates sanofi defendants number individual lawsuits various state federal courts claiming personal injury damage allegedly sustained using plavix currently 5500 claims involving injury plaintiffs well claims spouses andor beneficiaries filed state federal courts various states including california illinois new jersey delaware new york february 2013 judicial panel multidistrict litigation granted company sanofi’s motion establish multidistrict litigation coordinate federal pretrial proceedings plavix product liability related cases new jersey federal court possible time reasonably assess outcome lawsuits potential impact company reglan company one number defendants numerous lawsuits behalf approximately 3000 plaintiffs including injury plaintiffs claiming personal injury allegedly sustained using reglan another brand generic drug metoclopramide product indicated gastroesophageal reflux certain gastrointestinal disorders well claims spouses andor beneficiaries company generic subsidiary apothecon inc distributed metoclopramide tablets manufactured another party 1996 2000 possible time reasonably assess outcome lawsuits resolution pending lawsuits however expected material impact company byetta amylin former subsidiary company lilly codefendants product liability litigation related byetta date 430 separate lawsuits pending behalf 1900 active plaintiffs including pending settlements include injury plaintiffs well claims spouses andor beneficiaries various courts us company agreed principle resolve 510 claims majority cases brought individuals allege personal injury sustained using byetta primarily pancreatic cancer pancreatitis cases claiming alleged wrongful death majority cases pending federal court san diego recently established multidistrict litigation next largest contingent cases pending coordinated proceeding california superior court los angeles amylin product liability insurance covering substantial number claims involving byetta additional liability amylin respect byetta expected shared company astrazeneca possible reasonably predict outcome lawsuit claim proceeding potential impact company environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including comprehensive environmental response compensation liability act cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable company estimated share future costs sites 62 million december 31 2014 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties new brunswick facilityenvironmental personal injury lawsuits since may 2008 300 lawsuits filed company new jersey superior court behalf current former residents new brunswick new jersey live lived adjacent company’s new brunswick facility complaints allege various personal injuries resulting environmental contamination new brunswick facility historical operations site claims medical monitoring portion complaints also assert claims alleged property damage october 2008 new jersey supreme court granted mass tort status cases transferred new jersey superior court atlantic county centralized case management purposes since october 2011 200 additional cases filed new jersey superior court removed company united states district court district new jersey accordingly excess 500 cases state federal court actions june 2014 company plaintiffs agreed settlement finalized december 2014 concludes matter north brunswick township board education previously disclosed october 2003 company contacted counsel representing north brunswick nj board education boe regarding site waste materials er squibb sons may disposed 1940’s 1960’s fill material containing industrial waste heavy metals excess residential standards discovered expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 new jersey department environmental protection njdep sent company others information request letter possible waste disposal site company responded march 2004 boe township current owners school property park conducting jointly financing soil remediation work ground water investigation work plan approved njdep asked company contribute cost company actively monitoring cleanup project including costs date neither school board township asserted claim company instead company local entities negotiated agreement attempt resolve matter informal means avoid litigation central component agreement provision company interim funding help defray cleanup costs assure work interrupted company transmitted interim funding payments december 2007 november 2009 parties commenced mediation late 2008 however efforts successful parties moved binding allocation process parties expected conduct fact expert discovery followed formal evidentiary hearings written argument addition september 2009 township boe filed suits several parties alleged contributed waste materials site litigation settled parties company currently believe responsible additional amounts beyond two interim payments totaling 4 million already transmitted additional possible loss expected material proceedings sec germany investigation october 2006 sec informed company begun formal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents sec’s inquiry encompasses matters formerly investigation german prosecutor munich germany since resolved company understands inquiry concerns potential violations foreign corrupt practices act fcpa company cooperating sec fcpa investigation march 2012 company received subpoena sec issued connection investigation fcpa primarily relating sales marketing practices various countries company cooperating sec along department justice investigation matters particular company investigating certain sales marketing practices china possible time assess outcome matters potential impact company note 23 selected quarterly financial data unaudited earnings per share quarters may add amounts year period computed discrete basis b marketable securities includes current noncurrent assets c also includes current portion longterm debt following specified items affected comparability results 2014 2013 specified items cost products sold accelerated depreciation asset impairment shutdown costs b includes 16 million additional year branded prescription drug fee third quarter c specified tax charge relates transfer pricing matters specified items marketing selling administrative process standardization implementation costs b specified items research development upfront milestone licensing payments report independent registered public accounting firm board directors shareholders bristolmyers squibb company audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries “company” december 31 2014 2013 related consolidated statements earnings comprehensive income cash flows three years period ended december 31 2014 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2014 2013 results operations cash flows three years period ended december 31 2014 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2014 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 13 2015 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp parsippany new jersey february 13 2015 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statements earnings dollars millions except per share data consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies recently issued accounting standards basis consolidation consolidated financial statements prepared conformity united states us generally accepted accounting principles gaap including accounts bristolmyers squibb company controlled majorityowned subsidiaries certain variable interest entities may referred bristolmyers squibb bms company intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date alliance license arrangements assessed determine whether terms provide economic control entity requiring consolidation entity entities controlled means majority voting interest referred variable interest entities consolidated bms power direct activities variable interest entity significantly impacts economic performance obligation absorb losses right receive benefits could potentially significant entity use estimates preparation financial statements requires use management estimates assumptions significant assumptions estimates determining fair value potential impairment intangible assets sales rebate return accruals legal contingencies income taxes estimated selling prices used multiple element arrangements pension postretirement benefits actual results may differ estimated results reclassifications certain prior period amounts reclassified conform current period presentation advertising product promotion costs previously presented separately consolidated statements earnings included marketing selling administrative expenses revenue recognition revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally time shipment including supply commercial products alliance partners principal end customer sale however certain revenue nonus businesses recognized date receipt customer alliance revenue related abilify atripla recognized products sold end customer alliance partner royalties recognized thirdparty sales reliably measurable collectability reasonably assured refer “note 3 alliances” detail regarding alliances revenue reduced time recognition expected sales returns discounts rebates sales allowances based historical experience updated changes facts circumstances including impact applicable healthcare legislation revenue deferred historical experience products similar therapeutic category right return longer exists sufficient historical experience estimate sales returns developed income taxes provision income taxes includes income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax basis assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made tax benefits recognized uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefit recognized financial statements particular tax position based largest benefit likely realized upon settlement cash equivalents cash equivalents include bank deposits time deposits commercial paper money market funds cash equivalents consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value marketable securities investments companies marketable securities classified “availableforsale” date purchase reported fair value fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity investments 50 less owned companies accounted using equity method accounting ability exercise significant influence maintained share net income losses equity investments included incomeexpense equity investments reviewed impairment assessing decline market value investment carrying value temporary considers intent ability retain investment duration extent market value less cost investees financial condition inventory valuation inventories stated lower average cost market property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation computed straightline method based estimated useful lives related assets ranging 20 50 years buildings 3 20 years machinery equipment fixtures impairment longlived assets current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques using level 3 fair value inputs including discounted value estimated future cash flows capitalized software eligible costs obtain internal use software capitalized amortized estimated useful life software business combinations businesses acquired consolidated upon obtaining control fair value assets acquired liabilities assumed recognized date acquisition excess purchase price estimated fair values net assets acquired recognized goodwill business acquisition costs expensed incurred goodwill acquired inprocess research development intangible assets fair value intangible assets typically determined using “income method” utilizing level 3 fair value inputs market participant valuations assume global view considering potential jurisdictions indications based discounted aftertax cash flow projections risk adjusted estimated probability technical regulatory success iprd finitelived intangible assets including licenses developed technology rights iprd projects reach commercialization amortized straightline basis estimated useful life estimated useful lives determined considering period assets expected contribute future cash flows goodwill tested least annually impairment assessing qualitative factors performing quantitative analysis determining whether likely fair value net assets carrying amounts examples qualitative factors assessed 2015 include share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year relevant factor assessed individually aggregate iprd tested impairment annual basis frequently events occur circumstances change would indicate potential reduction fair values assets carrying value carrying value iprd determined exceed fair value impairment loss recognized difference finitelived intangible assets tested impairment facts circumstances suggest carrying value asset may recoverable carrying value exceeds projected undiscounted pretax cash flows intangible asset impairment loss equal excess carrying value estimated fair value discounted aftertax cash flows recognized restructuring charges recognized result actions streamline operations rationalize manufacturing facilities estimating impact restructuring plans including future termination benefits exit costs requires judgment actual results could vary estimates contingencies loss contingencies legal proceedings claims may occur wide range matters including government investigations shareholder lawsuits product environmental liability contractual claims tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies including contingent proceeds related divestitures recognized realized legal fees expensed incurred shipping handling costs shipping handling costs included marketing selling administrative expenses 85 million 2015 115 million 2014 119 million 2013 advertising product promotion costs advertising product promotion costs included marketing selling administrative expenses 825 million 2015 734 million 2014 855 million 2013 advertising product promotion costs expensed incurred foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized oci research development research development costs expensed incurred clinical study costs accrued service periods specified contracts adjusted necessary based upon ongoing review level effort costs actually incurred strategic alliances third parties provide licensing rights develop manufacture market andor sell pharmaceutical products rights owned party research development recognized net reimbursements connection alliance agreements upfront contingent milestone payments asset acquisitions investigational compounds also included research development expenses cash flow upfront contingent milestone payments licensing investigational compounds included operating activities asset business acquisitions included investing activities divestiture proceeds included investing activities well royalties consideration received subsequent related sale asset business adjustments reflected operating activities include divestiture gains losses related royalties research development asset acquisition charges gains losses debt redemption changes fair value written option liabilities recently issued accounting standards january 2016 financial accounting standards board fasb issued amended guidance recognition measurement presentation disclosures financial instruments effective january 1 2018 early adoption permitted new guidance requires fair value adjustments equity securities readily determinable fair values currently classified availableforsale reported earnings new guidance also requires qualitative impairment assessment equity investments without readily determinable fair value would require impairment charge earnings assessment indicates impairment exists company assessing potential impact new standard consolidated financial statements november 2015 fasb issued amended guidance presentation deferred tax assets liabilities new guidance requires deferred tax assets liabilities classified noncurrent bms elected early adopt standard december 31 2015 prospectively refer note 8 income taxes information april 2015 fasb issued amended guidance presentation debt issuance costs new guidance requires debt issuance costs presented reduction carrying value debt balance sheet consistent debt discounts bms elected early adopt standard december 31 2015 adoption standard material impact consolidated financial statements refer note 10 financial instruments fair value measurements information may 2014 fasb issued new standard related revenue recognition requires entity recognize amount revenue expects entitled transfer promised goods services customers new standard replace existing revenue recognition standards us gaap becomes effective july 2015 fasb decided delay effective date one year january 1 2018 early adoption permitted earlier 2017 new standard applied retrospectively prior reporting period presented retrospectively cumulative effect change recognized date initial application retained earnings company assessing potential impact new standard financial reporting yet selected transition method april 2014 fasb issued amended guidance use presentation discontinued operations entitys consolidated financial statements new guidance restricts presentation discontinued operations business circumstances disposal business operations represents strategic shift major effect entitys operations financial results guidance became effective january 1 2015 note 2 business segment information bms operates single segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization supply chain organization responsible discovery development manufacturing supply products regional commercial organizations market distribute sell products business also supported global corporate staff functions segment information consistent financial information regularly reviewed chief executive officer purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods products sold principally wholesalers lesser extent directly distributors retailers hospitals clinics government agencies pharmacies gross revenues three largest pharmaceutical wholesalers us percentage global gross revenues follows selected geographic area information follows revenues include royalties alliancerelated revenues products sold regional commercial organizations product revenues follows composition total revenues follows note 3 alliances bms enters collaboration arrangements third parties development commercialization certain products although arrangements unique nature parties active participants operating activities collaboration exposed significant risks rewards depending commercial success activities bms may either inlicense intellectual property owned party outlicense intellectual property party arrangements also typically include research development manufacturing andor commercial activities cover single investigational compound commercial product multiple compounds andor products various life cycle stages rights obligations parties global limited geographic regions refer collaborations alliances partners alliance partners several key products sustiva atripla empliciti erbitux opdivo sprycel yervoy abilify orencia eliquis well products comprising diabetes alliance discussed certain mature brands included alliance arrangements payments alliance partners accounted presented results operations considering specific nature payment underlying activities payments relate multiple alliance activities including transfer rights separated individual units accounting standalone value activities occur life arrangements situations arrangement consideration allocated activities rights relative selling price basis multiple alliance activities rights standalone value combined single unit accounting common activities bms alliance partners presented results operations follows • bms principal end customer sale 100 product sales included net product sales bmss alliance partner principal end customer sale bmss contractual share thirdparty sales andor royalty income included alliance revenue sale commercial products considered part bmss ongoing major central operations refer revenue recognition included note 1 accounting policies information regarding recognition criteria • amounts payable bms alliance partners principal end customer sale supply commercial products included alliance revenue sale commercial products considered part bmss ongoing major central operations • profit sharing royalties salesbased fees payable bms alliance partners included cost products sold incurred • cost reimbursements parties recognized incurred included cost products sold marketing selling administrative expenses research development expenses based underlying nature related activities subject reimbursement • upfront contingent development approval milestones payable bms alliance partners investigational compounds commercial products deferred amortized shorter contractual term periods related compounds products expected contribute future cash flows amortization presented consistent nature payment arrangement example amounts received investigational compounds presented incomeexpense activities performed time related sale commercial products part bms’s ongoing major central operations amounts received commercial products presented alliance revenue sale commercial products considered part bms’s ongoing major central operations except astrazeneca plc astrazeneca alliance pertaining amylin products see discussion specific astrazeneca alliance disclosure herein • upfront contingent approval milestones payable bms alliance partners commercial products capitalized amortized shorter contractual term periods related products expected contribute future cash flows amortization included cost products sold • upfront contingent milestones payable bms alliance partners prior regulatory approval expensed incurred included research development expenses • royalties contingent consideration payable bms alliance partners related divestiture businesses included income earned • equity net income affiliates included incomeexpense • payments bms alliance partners presented cash flows operating activities except otherwise described selected financial information pertaining alliances follows including net product sales bms principal thirdparty customer sale products subject alliance expenses summarized include amounts attributed activities products alliance payments alliance partners related amortization payments deferred capitalized bms entered certain licensing alliance agreements 2015 including options license acquire related assets upfront payments new agreements charged research development expenses 619 million 2015 prior period amounts disclosed research development expenses upfront payments alliance partners revised include similar type payments specific information pertaining significant alliances discussed including nature purpose significant rights obligations parties specific accounting policy elections income statement classification amounts attributable payments parties pfizer bms pfizer inc pfizer parties worldwide codevelopment cocommercialization agreement eliquis anticoagulant discovered bms pfizer funds 50 60 development costs depending study profits losses shared equally global basis except certain countries pfizer commercializes eliquis pays bms compensation based percentage net sales upon entering agreement coexclusive license rights product granted pfizer exchange upfront payment potential milestone payments parties assumed certain obligations actively participate alliance actively participate joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms manufactures product alliance principal end customer product sales us significant countries europe well canada australia china japan south korea 2015 bms transferred full commercialization rights pfizer certain smaller countries order simplify operations transferred countries bms supplies product pfizer cost plus percentage net sales endcustomers company determined rights transferred pfizer standalone value rights sold separately bms party could pfizer receive benefit delivered rights without fulfillment ongoing obligations bms alliance agreement including exclusive supply arrangement global alliance treated single unit accounting upfront proceeds subsequent contingent milestone proceeds amortized life related product bms received 884 million nonrefundable upfront milestone licensing payments related eliquis december 31 2015 amortization eliquis deferred income included income eliquis commercial product commencement alliance summarized financial information related alliance follows gilead bms gilead sciences inc gilead joint ventures us canada europe develop commercialize atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg combining sustiva product bms truvada emtricitabine tenofovir disoproxil fumarate product gilead joint ventures consolidated gilead parties actively participate joint executive committee various operating committees direct oversight activities joint ventures joint ventures purchase sustiva truvada active pharmaceutical ingredient api bulk form parties complete finishing atripla joint ventures gilead sell distribute atripla principal end customer product sales parties longer coordinate joint promotional activities alliance revenue recognized atripla include bulk efavirenz component atripla based relative ratio average respective net selling prices truvada sustiva alliance revenue deferred related alliance receivable recognized combined product sold thirdparty customers europe following 2013 loss exclusivity sustiva effective january 1 2014 percentage atripla net sales europe recognized bms equal difference average net selling prices atripla truvada alliance continue europe either party terminates arrangement last patent expiration occurs atripla truvada sustiva us agreement may terminated gilead upon launch generic version sustiva bms upon launch generic version truvada event gilead terminates agreement upon loss exclusivity sustiva bms receive quarterly royalty payment 36 months following termination payment first 12 months following termination equal 55 atripla net sales multiplied ratio difference average net selling prices atripla truvada atripla average net selling price second third years following termination payment bms reduced 35 15 respectively atripla net sales multiplied price ratio described bms continue supply sustiva cost plus markup joint ventures threeyear period unless either party elects terminate supply arrangement 2011 entered licensing agreement gilead develop commercialize fixeddose combination containing reyataz gilead’s cobicistat pharmacoenhancing “boosting” agent increases blood levels certain human immunodeficiency virus hiv medicines potentially allow one pill daily dosing evotaz atazanavir 300 mg cobicistat 150 mg approved us food drug administration fda january 2015 european commission ec july 2015 summarized financial information related alliance follows otsuka bms worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote abilify excluding certain asian countries us portion agreement expired april 2015 agreement expired european union eu countries june 2014 nonus country exclusive right sell abilify agreement expires later april 20 2015 loss exclusivity country parties actively participated joint executive governance operating committees otsuka responsible providing sales force efforts us effective january 2013 however bms responsible certain operating expenses various annual limits bms purchased api otsuka completed manufacturing product subsequent sale thirdparty customers us certain countries otsuka assumed responsibility providing funding sales force efforts eu effective april 2013 bms also provided certain services including distribution customer management pharmacovigilence bms principal end customer product sales exclusive distributor exclusive right sell abilify otsuka principal end customer product sales us eu alliance revenue includes bms’s share total net sales thirdparty customers territories bms’s contractual share us net sales set forth table assessment bmss expected annual contractual share completed quarterly reporting period adjusted based upon reported us abilify net sales year end bmss annual contractual share 50 2015 33 2014 34 2013 alliance revenue recognized interim period quarter exceed amounts due contract bms’s contractual share thirdparty net sales 65 eu countries us alliance revenue recognized abilify shipped risks rewards ownership transferred thirdparty customers bms otsuka also alliance sprycel us japan eu oncology territory parties copromote product us eu february 2015 copromotion agreement otsuka terminated japan parties actively participate various governance committees however bms control decision making bms responsible development manufacture product also principal end customer product sales ixempra ixabepilone included alliance prior bmss divestiture business 2015 fee paid otsuka based following percentages combined annual net sales sprycel ixempra oncology territory including post divestiture ixempra sales annual periods otsuka contributes 20 first 175 million certain commercial operational expenses relating oncology products oncology territory 1 costs excess 175 million summarized financial information related alliance follows includes amortization extension payment reduction alliance revenue 21 million 2015 66 million 2014 2013 lilly bms commercialization agreement eli lilly company lilly’s subsidiary imclone codevelopment promotion erbitux us canada japan parties actively participated joint executive committee various operating committees shared responsibilities research development using resources infrastructures lilly manufactured bulk requirements erbitux facilities filling finishing performed third party bms oversight responsibility bms exclusive distribution rights north america responsible promotional efforts north america although lilly right copromote us expense bms principal end customer product sales north america paid lilly distribution fee 39 erbitux net sales north america plus share certain royalties paid lilly bms’s rights obligations respect commercialization erbitux north america would expired september 2018 october 2015 bms transferred rights erbitux north america lilly exchange salesbased royalties described transferred rights include limited full commercialization manufacturing responsibilities transaction accounted business divestiture resulted noncash charge 171 million intangible assets directly related business allocation goodwill bms receive royalties september 2018 included income earned royalty rates applicable north america 38 erbitux net sales 165 million 2015 650 million 2016 650 million 2017 480 million 2018 plus 20 net sales excess amounts respective years bms shared rights erbitux japan agreement lilly merck kgaa received 50 pretax profit merck kgaa’s net sales erbitux japan shared equally lilly bms transferred cocommercialization rights japan merck kgaa 2015 exchange salesbased royalties 2032 included income earned march 2013 bms lilly terminated arrangement necitumumab imc11f8 rights returning lilly discovered imclone necitumumab fully human monoclonal antibody part alliance bms lilly summarized financial information related alliance follows astrazeneca prior diabetes business divestiture discussed bms alliance astrazeneca consisting three worldwide codevelopment commercialization agreements covering 1 onglyza related combination products sold various names 2 farxiga related combination products 3 beginning august 2012 bmss acquisition amylin pharmaceuticals inc amylin amylins portfolio products including bydureon byetta symlin myalept well certain assets owned amylin including manufacturing facility located west chester ohio coexclusive license rights product products underlying agreement granted astrazeneca exchange upfront payment potential milestone payments parties assumed certain obligations actively participate alliance parties actively participated joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms manufactured products three alliances principal end customer product sales substantially countries alliance agreement rights transferred astrazeneca standalone value rights sold separately bms party could astrazeneca received benefit delivered rights without fulfillment ongoing obligations bms alliance agreements including exclusive supply arrangement global alliance treated single unit accounting result upfront proceeds subsequent contingent milestone proceeds amortized life related products 2012 bms received 36 billion nonrefundable upfront payment astrazeneca consideration entering amylin alliance 2013 astrazeneca exercised option equal governance rights certain key strategic financial decisions regarding amylin alliance paid bms 135 million consideration payments accounted deferred income amortized based relative fair value predominant elements included alliance estimated useful lives intangible assets related bydureon estimated useful life 13 years byetta estimated useful life 7 years symlin estimated life 9 years myalept estimated useful life 12 years amylin manufacturing plant estimated useful life 15 years amortization presented reduction cost products sold alliance assets acquired shortly commencement alliance astrazeneca entitled share proceeds sale assets amortization acquired amylin intangible assets manufacturing plant also presented cost products sold bms entitled reimbursements 50 capital expenditures related acquired amylin manufacturing facility bms astrazeneca also shared certain tax attributes related amylin alliance prior termination alliance bms received nonrefundable upfront milestone licensing payments 300 million related onglyza 250 million related farxiga amortization onglyza farxiga deferred income included income onglyza farxiga commercial products commencement alliance parties also shared commercialization development expenses equally well profits losses february 2014 bms astrazeneca terminated alliance agreements bms sold astrazeneca substantially diabetes business comprising alliance divestiture included shares amylin resulting transfer ohio manufacturing facility intellectual property related onglyza farxiga including bmss interest outlicensing agreement onglyza japan purchase bms’s manufacturing facility located mount vernon indiana 2015 substantially employees dedicated diabetes business transferred astrazeneca bms astrazeneca entered several agreements connection sale including supply agreement development agreement transitional services agreement agreements bms obligated supply certain products including active product ingredients onglyza farxiga 2020 perform ongoing development activities certain clinical trial programs 2016 provide transitional services accounting financial services customer service distribution regulatory development information technology certain administrative services various periods order facilitate orderly transfer business operations annual costs attributed development agreement expected exceed approximately 115 million 2016 consideration transaction includes 27 billion payment closing contingent regulatory salesbased milestone payments 14 billion including 800 million related approval milestones 600 million related salesbased milestones payable 2020 royalty payments based net sales 2025 payments 225 million certain assets transferred astrazeneca also pay bms required product supply price approximating product cost well negotiated transitional service fees royalty rates net sales follows stock asset purchase agreement contains multiple elements delivered subsequent closing transaction including china diabetes business transferred 2014 mount vernon indiana manufacturing facility transferred 2015 activities development supply agreements elements determined standalone value result portion consideration received closing allocated undelivered elements using relative selling price method determining best estimated selling price element remaining amount consideration included calculation gain sale diabetes business contingent milestone royalty payments similarly allocated among underlying elements amounts determined payable bms amounts allocated sale business immediately recognized results operations amounts allocated elements recognized results operations extent element delivered consideration 38 billion accounted 2014 including royalties 700 million contingent regulatory milestone payments related approval farxiga us japan approximately 33 billion consideration allocated sale business remaining 492 million allocated undelivered elements described consideration includes 235 million earned royalties including 192 million allocated elements delivered gain sale diabetes business 536 million including 292 million third quarter 2014 resulting primarily transfer china diabetes business astrazeneca gain based difference consideration allocated sale business excluding royalties net transaction fees carrying value diabetes business net assets including 600 million allocation goodwill reversal 821 million net deferred tax liabilities attributed amylin consideration 179 million received 2015 transfer mount vernon indiana manufacturing facility related inventories resulting gain 79 million amounts allocated delivered elements consideration allocated development supply agreements continue amortized applicable service periods amortization deferred income attributed development agreement included income sale services considered part bms’s ongoing major central operations revenues attributed supply agreement included alliance revenues consideration transaction presented cash flow purposes based allocation process described either investing activity attributed sale business related assets operating activity attributed transitional services supply arrangement development agreement september 2015 bms transferred percentage future royalty rights amylin net product sales us cppib credit europe sarl luxembourg private limited liability company cppib transferred rights represent approximately 70 potential future royalties bms entitled 2019 2025 exchange transfer bms receive additional tieredbased royalty amylin net product sales us cppib 2016 2018 included income earned summarized financial information related astrazeneca alliances follows sanofi bms sanofi codevelopment cocommercialization agreements plavix avaproavalide effective january 1 2013 sanofi assumed essentially worldwide operations alliance exception plavix us puerto rico bms operating partner 501 controlling interest exchange rights transferred sanofi bms receives quarterly royalties january 1 2013 december 31 2018 terminal payment sanofi 200 million end 2018 royalties received sanofi territory covering americas australia optout markets former development royalties presented alliance revenues 211 million 2015 223 million 2014 220 million 2013 royalties attributed territory covering europe asia continue earned territory partnership included equity net income affiliates alliance revenues attributed supply irbesartan api sanofi 80 million 2015 90 million 2014 116 million 2013 supply arrangement irbesartan expired 2015 summarized financial information related alliance follows included alliance receivables following summarized financial information interests partnerships sanofi territory covering europe asia consolidated accounted using equity method cost products sold territory covering europe asia includes discovery royalties 22 million 2015 32 million 2014 38 million 2013 paid directly sanofi expenses shared based applicable ownership percentages current assets current liabilities include approximately 76 million 2015 94 million 2014 108 million 2013 related receivablespayables attributed cash distributions bms sanofi well intercompany balances partnerships within territory ono bms principal end customer product sales exclusive right develop manufacture commercialize opdivo antipd1 human monoclonal antibody investigated anticancer treatment territories worldwide except japan south korea taiwan ono pharmaceutical co ltd ono responsible development commercialization prior arrangement described ono entitled receive royalties following regulatory approvals territories excluding three countries listed royalty rates net sales 4 north america 15 applicable territories subject customary adjustments alliance arrangement expanded july 2014 establish collaboration activities japan south korea taiwan pertaining opdivo several bms compounds including yervoy lirilumab urelumab bms986016 antilag3 parties right obligation jointly develop commercialize compounds bms responsible supply products profits losses development costs shared equally combination therapies involving compounds parties otherwise sharing 80 20 activities involving one party’s compounds bms ono also alliance codevelop cocommercialize orencia japan bms responsible order fulfillment distribution intravenous formulation ono responsible subcutaneous formulation formulations jointly promoted parties assigned customer accounts bms responsible product supply copromotion fee 60 paid party sale made party’s assigned customer summarized financial information related alliance follows abbvie bms abbvie inc abbvie alliance empliciti humanized monoclonal antibody treatment multiple myeloma terms alliance bms granted exclusive global rights codevelop commercialize empliciti pdl biopharma inc part abbvie currently participates joint development us commercialization committees bms final decision making authority parties codeveloping product abbvie funds 20 global development costs bms solely responsible supply distribution sales marketing activities within alliance principal end customer product sales abbvie shares 30 profits losses us paid tiered royalties net sales empliciti outside us addition abbvie also entitled receive milestone payments bms certain regulatory events sales thresholds achieved agreement may terminated bms subsequent notice period either party material breach party financial information related alliance material years ended december 31 2015 2014 2013 fstar october 2014 bms entered agreement fstar alpha ltd fstar agreement provides bms exclusive option purchase fstar phase ready lead asset fs102 targeted therapy development treatment breast gastric cancer among welldefined population her2positive patients bms paid 50 million fstar shareholders 2014 consideration option grant certain licensing rights included research development expenses responsible conducting funding development fs102 option exercisable bmss discretion expires upon earlier 60 days following obtaining proof concept june 2018 additional 100 million payable upon exercise option plus additional aggregate consideration 325 million contingent development regulatory approval milestone payments us europe bms obligated provide additional financial support fstar determined business defined asc 805 business combinations result contingent consideration included purchase price goodwill recognized however fstar variable interest entity equity holders lack characteristics controlling financial interest bms determined primary beneficiary power direct activities significantly directly impacting economic performance entity option rights described upon consolidation 2014 noncontrolling interest credited 59 million reflect fair value fs102 iprd asset 75 million deferred tax liabilities promedior september 2015 bms purchased warrant gives bms exclusive right acquire promedior inc promedior biotechnology company whose lead asset prm151 developed treatment idiopathic pulmonary fibrosis ipf myelofibrosis mf warrant exercisable upon completion either ipf mf phase ii clinical studies conducted promedior expected occur earlier 2017 upfront payment allocated warrant 84 million included research development expenses third quarter 2015 remaining 66 million 150 million upfront payment allocated promedior’s obligation complete phase ii studies amortized expected period phase ii studies allocation determined using level 3 inputs following bmss review phase ii clinical study results bms elects exercise warrant obligated pay additional 300 million based ipf study results 250 million based mf study results plus additional aggregate consideration 800 million contingent development regulatory approval milestone payments us europe five prime november 2015 bms five prime therapeutics inc five prime entered exclusive worldwide licensing collaboration agreement development commercialization five prime’s colony stimulating factor 1 receptor csf1r antibody program including fpa008 currently phase development immunology oncology indications bms responsible development manufacturing commercialization fpa008 subject five prime’s option conduct certain studies cost develop fpa008 pigmented vilonodular synovitis pvns combination internal oncology pipeline assets five prime also retained option copromote us agreement replaces previous clinical collaboration agreement two parties consideration licensing rights bms made upfront payment 350 million fourth quarter 2015 included research development expense bms also committed pay 14 billion upon achievement contingent development regulatory milestones well future royalties product approved commercialized reckitt benckiser group may 2013 bms reckitt benckiser group plc reckitt started threeyear alliance several overthecounterproducts sold primarily mexico brazil reckitt received right sell distribute market products may 2016 bms receives royalties net sales products exclusively supplies certain products reckitt pursuant supply agreement cost plus markup certain limited assets including market authorizations certain employees directly attributed business transferred reckitt start alliance period bms retained ownership assets related business including trademarks covering products framework alliance bms also granted reckitt option acquire trademarks inventory certain assets exclusively related products end alliance period price determined primarily based upon multiple sales may 2014 may 2016 april 2014 alliance modified provide option reckitt purchase bms manufacturing facility located mexico primarily dedicated products included alliance july 2015 reckitt notified bms exercising option substantially employees facility expected transferred reckitt closing expected occur may 2016 refer note 5 assets heldforsale” information nonrefundable upfront proceeds 485 million received bms 2013 allocated two units accounting including rights transferred reckitt fair value option purchase remaining assets using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option determined using level 3 inputs included liabilities 2015 bms recognized income 123 million decrease fair value option zero due strengthening us dollar local currencies anticipated proceeds expected approximate fair value assets transferred amount allocated rights transferred reckitt amortized alliance revenue contractual term summarized financial information related alliance follows medicines company february 2013 bms medicines company entered twoyear alliance recothrom recombinant thrombin use topical hemostat control nonarterial bleeding surgical procedures previously acquired bms connection acquisition zymogenetics inc 2010 medicines company received right sell distribute market recothrom global basis two years bms exclusively supplied recothrom medicines company cost plus markup received royalties net sales recothrom certain employees directly attributed business certain assets transferred medicines company start alliance period including biologics license application related regulatory assets bms retained assets related recothrom including patents trademarks inventory bms also granted medicines company option acquire patents trademarks inventory certain assets exclusively related recothrom price determined based multiple sales plus cost remaining inventory held bms time medicines company exercised option acquired business 132 million february 2015 refer note 5 assets heldforsale” information nonrefundable upfront proceeds 115 million received bms 2013 allocated two units accounting including rights transferred medicines company fair value option purchase remaining assets using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option 35 million december 31 2014 determined using level 3 inputs included accrued expenses amount allocated rights transferred medicines company amortized alliance revenue contractual term summarized financial information related alliance follows valeant october 2012 bms pharmaswiss sa whollyowned subsidiary valeant pharmaceuticals international inc valeant entered alliance certain mature brand products europe valeant received right sell distribute market products europe december 31 2014 bms exclusively supplied products valeant cost plus markup bms also granted valeant option acquire trademarks intellectual property exclusively related products price determined based multiple sales valeant exercised option acquired business 61 million january 2015 refer note 5 assets heldforsale” information nonrefundable upfront proceeds 79 million received bms 2012 allocated two units accounting including rights transferred valeant fair value option purchase remaining assets using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option determined using level 3 inputs included accrued expenses 16 million charge included expenses increase fair value option 34 million 2014 amount allocated rights transferred valeant amortized alliance revenue contractual term summarized financial information related alliance follows note 4 acquisitions divestitures cardioxyl acquisition december 2015 bms acquired outstanding shares cardioxyl pharmaceuticals inc cardioxyl privately held biotechnology company focused discovery development novel therapeutic agents cardiovascular disease acquisition provided bms full rights cxl1427 nitroxyl prodrug phase ii development acute decompensated heart failure consideration includes upfront payment 200 million contingent development regulatory salesbased milestone payments 19 billion significant cardioxyl processes acquired therefore transaction accounted asset acquisition cardioxyl determined business term defined asc 805 business combinations consideration allocated cxl1427 resulting 167 million research development expenses net operating losses tax credit carryforwards resulting 33 million deferred tax assets flexus acquisition april 2015 bms acquired outstanding shares flexus biosciences inc flexus privately held biotechnology company focused discovery development novel anticancer therapeutics acquisition provided bms full rights preclinical small molecule ido1inhibitor targeted immunotherapy addition bms acquired flexuss idotdo discovery program includes idoselective idotdo dual tdoselective compounds consideration includes upfront payment 800 million plus acquisition costs contingent development regulatory milestone payments 450 million significant flexus processes acquired therefore transaction accounted asset acquisition flexus determined business consideration allocated idotdo discovery program resulting 800 million research development expenses net operating losses tax credit carryforwards resulting 14 million deferred tax assets ipierian acquisition april 2014 bms acquired outstanding shares ipierian inc ipierian biotechnology company focused new treatments tauopathies class neurodegenerative diseases acquisition provided bms full rights ipn007 preclinical monoclonal antibody treat progressive supranuclear palsy tauopathies consideration includes upfront payment 175 million contingent development regulatory milestone payments 550 million future royalties net sales acquired preclinical assets approved commercialized significant ipierian processes acquired therefore transaction accounted asset acquisition ipierian determined business consideration allocated ipn007 resulting 148 million research development expenses net operating losses tax credit carryforwards resulting 27 million deferred tax assets divestitures addition divestiture transactions astrazeneca lilly medicines company valeant discussed note 3 alliances bms divested ixempra business several businesses product lines 2015 transactions generated net proceeds 121 million resulting pretax gains 136 million including 40 million deferred gain 2014 additional contingent proceeds recognized earnings received revenues pretax earnings related businesses material note 5 assets heldforsale december 2015 bms agreed sell pipeline investigational hiv medicines viiv healthcare includes number programs different stages discovery preclinical clinical development transaction excludes bms’s hiv marketed medicines certain bms employees offered opportunity transfer viiv healthcare bms provide certain rd services transitional period transaction expected close first half 2016 upon obtaining customary regulatory approvals accounted sale business consideration includes upfront payment 350 million contingent development regulatory milestone payments 11 billion salesbased milestone payments 43 billion future royalties products approved commercialized bms also reimbursed rd services assets heldforsale 134 million december 31 2015 comprising primarily goodwill related investigational hiv business comprising alliance reckitt assets heldforsale 109 million december 31 2014 comprising inventory goodwill intangible assets related businesses comprising alliances medicines company valeant allocation goodwill based relative fair value businesses divested companys reporting unit note 6 incomeexpense includes • litigation settlements includes 90 million contractual dispute related license • includes unrealized foreign exchange loss 52 million resulting remeasurement bolivardenominated cash monetary balances bms’s whollyowned subsidiary venezuela december 31 2015 exchange rate changed simadi rate 200 official cencoex rate 63 considering limited amount foreign currency exchanged second half 2015 published exchange rates continuing deterioration economic conditions venezuela note 7 restructuring following provision restructuring charges included employee termination benefits manufacturing selling administrative research development workforce reductions across geographic regions approximately 1169 2015 1387 2014 1450 2013 restructuring actions primarily related specialty care transformation initiatives 2015 2014 designed create simplified organization across functions geographic markets sales force reductions several european countries 2013 following restructuring sanofi otsuka alliance agreements subject local regulations costs recognized completion discussions works councils following table represents activity employee termination exit cost liabilities note 8 income taxes provisionbenefit income taxes consisted effective tax rate reconciliation effective taxbenefit rate us statutory federal income tax rate effective tax rate lower us statutory rate 35 primarily attributable undistributed earnings certain foreign subsidiaries considered expected indefinitely reinvested offshore us taxes provided approximately 25 billion undistributed earnings foreign subsidiaries december 31 2015 undistributed earnings primarily relate operations switzerland ireland puerto rico undistributed earnings repatriated us future determined earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes provided reforms us tax laws related foreign earnings proposed adopted may increase taxes could reduce results operations cash flows bms operates favorable tax grant puerto rico scheduled expire prior 2023 divestiture certain businesses resulted capital loss tax benefits including 361 million sale amylin shares 2014 valuation allowances attributed capital loss carryforwards released 2015 following divestiture recothrom ixempra mature brands additional reserves 123 million established 2014 certain transfer pricing matters related tax periods 2008 2014 retroactive reinstatement 2012 us federal research development credit 2013 resulted additional tax credits 82 million 2013 orphan drug credits included us federal research based credits periods presented goodwill allocated business divestitures including diabetes business 2014 deductible tax purposes well us branded prescription drug fee periods research development charges resulting primarily acquisition flexus cardioxyl 2015 ipierian 2014 also deductible tax purposes deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows company elected early adopt accounting standard update 201517 december 31 2015 prospective basis results deferred taxes reported noncurrent balance sheet internal transfers intellectual property resulted deferred tax assets 635 million prepaid taxes 484 million included assets december 31 2015 assets amortized expected lives us federal net operating loss carryforwards 419 million december 31 2015 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 us federal tax credit carryforwards expire varying amounts beginning 2017 realization us federal tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration capital loss carryforward available 102 million dependent generating sufficient domesticsourced capital gain income scheduled expire 2019 foreign state net operating loss carryforwards expire varying amounts beginning 2016 certain amounts unlimited lives december 31 2015 valuation allowance 3534 million established following items 3090 million primarily foreign net operating loss tax credit carryforwards 340 million state deferred tax assets including net operating loss tax credit carryforwards 11 million us federal net operating loss carryforwards 29 million us federal capital losses 64 million us federal deferred tax assets changes valuation allowance follows income tax payments 577 million 2015 544 million 2014 478 million 2013 current tax benefit realized result stock related compensation credited capital excess par value stock 147 million 2015 131 million 2014 129 million 2013 business conducted various countries throughout world subject tax numerous jurisdictions significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported requiring several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows additional information regarding unrecognized tax benefits follows accrued interest penalties payable unrecognized tax benefits included either current noncurrent income taxes payable interest penalties related unrecognized tax benefits included income tax expense bms currently examination number tax authorities including limited major tax jurisdictions listed table proposed considering proposing material adjustments tax issues transfer pricing certain tax credits deductibility certain expenses bms estimates reasonably possible total amount unrecognized tax benefits december 31 2015 decrease range approximately 270 million 330 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits primarily settlement related involve payment additional taxes adjustment certain deferred taxes andor recognition tax benefits reasonably possible new issues raised tax authorities may increase unrecognized tax benefits however estimate increases cannot reasonably made time bms believes adequately provided open tax years tax jurisdiction following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited note 9 earnings per share note 10 financial instruments fair value measurements financial instruments include cash equivalents marketable securities accounts receivable payable debt instruments derivatives changes exchange rates interest rates create exposure market risk certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur derivative financial instruments used trading purposes financial instruments subject counterparty credit risk considered part overall fair value measurement counterparty credit risk monitored ongoing basis mitigated limiting amounts outstanding individual counterparty utilizing conventional derivative financial instruments entering agreements counterparties meet high credit quality standards consolidated financial statements would materially impacted counterparty failed perform according terms agreement collateral required party whether derivatives asset liability position terms agreements fair value measurements fair value financial instruments classified one following categories level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets additionally certain corporate debt securities utilize thirdparty matrix pricing model using significant inputs corroborated market data substantially full term assets equity fixed income funds primarily invested publicly traded securities valued respective net asset value underlying investments significant unfunded commitments restrictions redemptions related equity fixed income funds december 31 2015 level 2 derivative instruments valued using london interbank offered rate libor yield curves less credit valuation adjustments observable forward foreign exchange rates reporting date valuations derivative contracts may fluctuate considerably volatility underlying foreign currencies underlying interest rates driven market conditions duration contract level 3 unobservable inputs used little market data available fair value written options acquire outstanding shares sell assets certain businesses refer “note 3 alliances” discussion based option pricing methodology considers revenue profitability projections volatility discount rates potential exercise price assumptions financial assets liabilities measured fair value recurring basis summarized following table summarizes activity financial assets utilizing level 3 fair value measurements availableforsale securities following table summarizes availableforsale securities availableforsale securities included current marketable securities 1782 million december 31 2015 1759 million december 31 2014 noncurrent availableforsale corporate debt securities mature within five years december 31 2015 equity investments 60 million 36 million included assets december 31 2015 2014 respectively fair value option financial assets investments equity fixed income funds offsetting changes fair value certain employee retirement benefits included current marketable securities changes fair value significant qualifying hedges following summarizes fair value outstanding derivatives cash flow hedges foreign currency forward contracts used hedge certain forecasted intercompany inventory purchase transactions certain foreign currency transactions effective portion changes fair value contracts designated cash flow hedges temporarily reported accumulated comprehensive loss included earnings hedged item affects earnings net gains foreign currency forward contracts expected reclassified net earnings primarily included cost products sold within next two years notional amount outstanding foreign currency forward contracts primarily attributed euro 576 million japanese yen 746 million december 31 2015 fair value foreign currency forward contract attributed japanese yen notional amount 445 million designated cash flow hedge 5 million included accrued expenses december 31 2015 bms entered 750 million forward starting interest rate swap contracts maturing march 2017 hedge variability probable forecasted interest expense associated potential future issuances debt contracts designated cash flow hedges effective portion fair value changes included comprehensive income earnings impact related discontinued cash flow hedges hedge ineffectiveness significant periods presented cash flow hedge accounting discontinued forecasted transaction longer probable occurring within 60 days originally forecasted date hedge longer effective assessments determine whether derivatives designated qualifying hedges highly effective offsetting changes cash flows hedged items performed inception quarterly basis net investment hedges nonus dollar borrowings €950 million 1041 million designated hedge foreign currency exposures net investment certain foreign affiliates borrowings designated net investment hedges recognized long term debt effective portion foreign exchange gains losses remeasurement debt recognized foreign currency translation component accumulated comprehensive loss related offset longterm debt fair value hedges fixedtofloating interest rate swap contracts designated fair value hedges used interest rate risk management strategy create appropriate balance fixed floating rate debt contracts underlying debt hedged benchmark risk recorded fair value effective interest rate contracts onemonth libor 043 december 31 2015 plus interest rate spread ranging 08 07 underlying swap terminated prior maturity fair value basis adjustment underlying debt instrument amortized reduction interest expense remaining life debt notional amount fixedtofloating interest rate swap contracts executed 200 million 2014 21 billion 2013 notional amount fixedtofloating interest rate swap contracts terminated 147 million 2015 426 million 2014 generating proceeds 28 million 2015 119 million 2014 including accrued interest 1 million 2015 10 million 2014 additional contracts terminated connection debt redemptions 2015 2014 debt obligations shortterm borrowings 139 million 590 million december 31 2015 2014 respectively consisting primarily bank overdrafts average amount commercial paper outstanding 254 million weightedaverage interest rate 016 2015 maximum month end amount commercial paper outstanding 755 million outstanding borrowings december 31 2015 borrowings 2014 longterm debt includes excludes unamortized bond issuance costs 34 million reclassified december 31 2014 fair value longterm debt 6909 million 8045 million december 31 2015 2014 respectively estimated based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments senior unsecured notes issued registered public offerings 2015 2013 notes rank equally right payment bmss existing future senior unsecured indebtedness redeemable whole part time predetermined redemption price bms also terminated forward starting interest rate swap contracts entered 2015 resulting unrealized loss comprehensive income following table summarizes note issuances company repurchased 500 million longterm debt cash tender offer redeemed €10 billion 11 billion longterm debt following issuance new senior unsecured notes 2015 connection debt redemption activities certain interest rate swap contracts entered terminated second quarter 2015 debt redemptions 2013 debt redemption activity 2015 2014 follows including acceleration debt issuance costs loss interest rate lock contract related fees notes principal amount 597 million matured repaid 2013 interest payments 205 million 2015 238 million 2014 268 million 2013 net amounts received interest rate swap contracts two separate 15 billion fiveyear revolving credit facilities maintained syndicate lenders facilities provide customary terms conditions financial covenants extendable anniversary date consent lenders borrowings outstanding either revolving credit facility december 31 2015 2014 financial guarantees provided form standby letters credit performance bonds 726 million december 31 2015 standby letters credit issued financial institutions support guarantees various obligations performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority outstanding financial guarantees expire within year expected funded note 11 receivables nonus receivables sold nonrecourse basis 476 million 2015 812 million 2014 1031 million 2013 aggregate receivables three pharmaceutical wholesalers us represented 53 36 total trade receivables december 31 2015 2014 respectively changes allowances bad debt chargebacks cash discounts follows note 12 inventories expected remain onhand beyond one year including 85 million inventory pending regulatory approval included assets 227 million december 31 2015 232 million december 31 2014 note 13 property plant equipment mount vernon indiana manufacturing facility transferred astrazeneca third quarter 2015 connection sale diabetes business facilitys gross property plant equipment 415 million date transfer 182 million net accumulated depreciation refer note 3 alliances” discussion sale diabetes business fully depreciated bulk manufacturing facility ceased use 2015 resulting 439 million reduction gross property plant equipment accumulated depreciation expense 500 million 2015 543 million 2014 453 million 2013 note 14 goodwill intangible assets reduction goodwill 2015 resulted allocation amounts business divestitures refer note 3 alliances note 4 acquisitions divestitures note 5 assets heldforsale discussion divestitures amortization expense 183 million 2015 286 million 2014 858 million 2013 future annual amortization expense intangible assets expected approximately 200 million 2016 170 million 2017 150 million 2018 130 million 2019 100 million 2020 intangible asset impairment charges 181 million 2015 380 million 2014 none 2013 licenses 500 million 126 million net accumulated amortization derecognized 2015 result transfer erbitux north american business lilly october 2015 refer note 3 alliances discussion 160 million iprd impairment charge recognized 2015 bms986020 lysophosphatidic acid 1 receptor antagonist phase ii development treatment ipf full writeoff required considering occurrence certain adverse events voluntary suspension study internal assessment indicating significantly lower likelihood regulatory commercial success bms acquired bms986020 acquisition amira pharmaceuticals inc 2011 addition contingent consideration liability 8 million related acquisition also reversed lower likelihood success 310 million iprd impairment charge recognized 2014 peginterferon lambda phase iii development treatment hepatitis c virus hcv full writeoff required assessing potential commercial viability asset estimating fair value assessment considered lower likelihood filing registration certain markets completing revised projections revenues expenses significant decline prior projected revenues resulted global introduction oral noninterferon products used treat patients hcv alternative uses product note 15 accrued expenses note 16 sales rebates return accruals reductions trade receivables accrued rebates returns liabilities follows note 17 deferred income alliances include unamortized amounts upfront milestone licensing receipts revenue deferrals attributed gilead alliance deferred income undelivered elements diabetes business divestiture upfront milestone licensing receipts amortized shorter contractual rights period expected life product deferrals included approximately 300 million invoiced daklinza early access program france december 31 2014 deferred final pricing obtained french government 2015 amortization deferred income 307 million 2015 362 million 2014 548 million 2013 note 18 equity treasury stock recognized cost reacquire shares issued treasury recognized utilizing firstin firstout method components comprehensive incomeloss follows included cost products sold b included cost products sold research development marketing selling administrative expenses c included incomeexpense accumulated balances related component comprehensive loss net taxes follows note 19 pension postretirement postemployment liabilities bms sponsors defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan covering us employees representing approximately 65 consolidated pension plan assets 61 obligations future benefits related service plan eliminated 2009 bms contributes least minimum amount required employee retirement income security act 1974 erisa plan benefits based primarily participant’s years credited service final average compensation plan assets consist principally equity fixedincome securities comprehensive medical group life benefits provided substantially us retirees electing participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally equity fixedincome securities net periodic benefit costcredit defined benefit pension postretirement benefit plans includes september 2014 bms fiduciary counselors inc independent fiduciary bristolmyers squibb company retirement income plan entered definitive agreement transfer certain us pension assets prudential insurance company america prudential settle approximately 15 billion pension obligations bms purchased group annuity contract prudential december 2014 irrevocably assumed obligation make future annuity payments certain bms retirees transaction change amount monthly pension benefit received affected retirees surviving beneficiaries resulted pretax settlement charge 713 million pension settlement charges also recognized determining annual lump sum payments exceed annual interest service costs certain pension plans including primary us pension plan 2015 2014 2013 changes defined benefit postretirement benefit plan obligations assets funded status amounts recognized consolidated balance sheets follows accumulated benefit obligation defined benefit pension plans 6363 million 7001 million december 31 2015 2014 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine benefit obligations december 31 follows weightedaverage actuarial assumptions used determine net periodic benefit creditcost years ended december 31 follows yield high quality corporate bonds matching duration benefit obligations used determining discount rate citigroup pension discount curve used developing discount rate us plans expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” marketrelated value plan assets exceeded fair value approximately 225 million december 31 2015 differences assumed actual returns amortized marketrelated value straightline basis threeyear period several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class historical longterm actual annualized returns us pension plans follows actuarial gains losses resulted changes actuarial assumptions changes discount rate revised mortality rates differences assumed actual experience differences actual expected return plan assets gains losses amortized life expectancy plan participants us plans 35 years 2016 expected remaining service periods plans extent exceed 10 higher marketrelated value projected benefit obligation respective plan amortization net actuarial loss prior service credit expected approximately 70 million 2016 periodic benefit cost credit included cost products sold research development marketing selling administrative expenses except curtailments settlements special termination benefits included expenses assumed healthcare cost trend rates december 31 follows onepercentagepoint change assumed healthcare cost trend rates would material impact cost benefit obligation plan assets fair value pension postretirement plan assets asset category december 31 2015 2014 follows investment valuation policies per investment class follows level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs instruments include equity securities equity funds fixed income funds publicly traded national securities exchange cash equivalents cash equivalents highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets observable inputs corroborated market data substantially full term assets liabilities equity funds fixed income funds event driven hedge funds shortterm investment funds classified level 2 within fair value hierarchy valued net asset value shares held year end significant unfunded commitments restrictions redemptions related investments valued nav december 31 2015 corporate debt securities us treasury agency securities classified level 2 within fair value hierarchy valued utilizing observable prices similar instruments quoted prices identical similar instruments markets active level 3 unobservable inputs used little market data available venture capital limited partnerships classified level 3 within fair value hierarchy invest underlying securities whose market values determined using pricing models discounted cash flow methodologies similar techniques significant unobservable inputs used valuation methodologies include discount rates earnings interest taxes depreciation amortization ebitda multiples revenue multiples significant changes inputs could result significantly lower higher fair value measurements insurance contracts held certain foreign pension plans carried contract value approximates estimated fair value based fair value underlying investment insurance company following summarizes activity financial assets utilizing level 3 fair value measurements investment strategy emphasizes equities order achieve higher expected returns lower expenses required cash contributions longterm target asset allocation 43 public equity 16 international 14 global 13 us 7 private equity 50 longduration fixed income maintained us pension plans investments diversified within three major asset categories approximately 88 us pension plans equity investments actively managed venture capital limited partnerships typically valued three month lag using latest available information bms common stock represents less 1 plan assets december 31 2015 2014 contributions estimated future benefit payments contributions pension plans 118 million 2015 124 million 2014 251 million 2013 expected approximately 100 million 2016 estimated annual future benefit payments including lump sum payments range 300 million 400 million next five years aggregate 17 billion subsequent five year period savings plans principal defined contribution plan bristolmyers squibb savings investment program contribution based employee contributions level company match expense attributed defined contribution plans us approximately 190 million 2015 2014 2013 note 20 employee stock benefit plans may 1 2012 shareholders approved 2012 stock award incentive plan 2012 plan replaced 2007 stock incentive plan 2012 plan provides 109 million shares authorized grants plus shares outstanding awards 2007 plan february 29 2012 expire forfeited canceled withheld satisfy tax withholding obligations december 31 2015 108 million shares available award shares issued treasury stock satisfy obligations plan executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable ratably four years maximum term ten years plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price company granted stock options stock appreciation rights since 2009 restricted stock units may granted key employees subject restrictions continuous employment generally vesting occurs ratably four year period grant date compensation expense recognized vesting period stock unit right receive stock end specified vesting period voting rights market share units granted executives vesting conditioned upon continuous employment vesting date payout factor least 60 share price award date payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs ratably four years performance share units granted executives three year cycle granted target number units subject adjustment based company performance number shares issued performance share units vest determined based achievement annual performance goals number shares issued 20142016 20152017 performance share unit awards also adjusted based companys threeyear total shareholder return relative peer group companies vesting occurs third anniversary grant date stockbased compensation expense awards ultimately expected vest recognized vesting period forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates information related stockbased compensation benefits follows fair value awards approximates closing trading price bmss common stock grant date fair value market share units also considers payout formula probability satisfying market conditions following table summarizes significant ranges outstanding exercisable options december 31 2015 aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 6879 december 31 2015 note 21 leases annual minimum rental commitments noncancelable operating leases primarily real estate motor vehicles approximately 100 million next five years aggregate 300 million thereafter operating lease expenses approximately 140 million 2015 2014 2013 sublease income material periods presented note 22 legal proceedings contingencies company certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business claims proceedings involve various types parties including governments competitors customers suppliers service providers licensees employees shareholders among others resolution matters often develop long period time expectations change result new findings rulings appeals settlement arrangements company recognizes accruals contingencies probable liability incurred amount loss reasonably estimated matters involve patent infringement antitrust securities pricing sales marketing practices environmental commercial contractual rights licensing obligations health safety matters consumer fraud employment matters product liability insurance coverage legal proceedings material company believes could become material described although company believes substantial defenses matters assurance increase scope pending matters future lawsuits claims government investigations legal proceedings material unless otherwise noted company unable assess outcome respective litigation able provide estimated range potential loss furthermore failure enforce patent rights would likely result substantial decreases respective product revenues generic competition intellectual property baraclude south korea 2013 daewoong pharmaceutical co ltd hanmi pharmaceuticals co ltd donga pharmaceutical co ltd generic companies initiated separate invalidity actions korean intellectual property office korean patent 160523 ‘523 patent covering entecavir molecule january 2015 korean intellectual property tribunal ruled 523 patent valid decision affirmed appeal september 2015 patent court ‘523 patent expired october 9 2015 following expiration ‘523 patent generic companies entered south korean market expect continuing declines net product sales baraclude 2016 plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex inc apotex since changed name apotex august 2007 apotex filed application federal court australia federal court seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 federal court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april 2008 august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid company sanofi filed notices appeal full court federal court australia full court appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 september 29 2009 full court held claims patent 597784 invalid november 2009 company sanofi applied high court australia high court special leave appeal judgment full court march 2010 high court denied company sanofi’s request hear appeal full court decision case remanded federal court proceedings related damages sought apotex australian government intervened matter also seeking damages alleged losses experienced period injunction place company apotex settled apotex case dismissed australian governments claim still pending possible time predict outcome australian government’s claim impact company eliquis interpartes review ipr august 2015 bristolmyers squibb received petition inter partes review us patent 6967208 “the ‘208 patent” filed united states patent trademark office coalition affordable drugs affiliated entities individuals associated hedge fund ‘208 patent composition matter patent contains claims directed apixaban active ingredient eliquis petition requests patent trial appeal board ptab initiate proceeding review validity ‘208 patent including claims cover apixaban company responded opposed petition november 2015 ptab expected render decision whether initiate proceeding midfebruary 2016 ptab decides initiate proceeding decision merits would expected first half 2017 company intends vigorously defend ‘208 patent challenge ‘208 patent expires february 2023 company filed request patent term restoration us patent trademark office requesting patent expiration date restored december 2026 sprycel european union may 2013 apotex actavis group ptc ehf generics uk limited mylan unnamed company filed oppositions european patent office epo seeking revocation european patent 1169038 ‘038 patent covering dasatinib active ingredient sprycel ‘038 patent scheduled expire april 2020 excluding potential term extensions january 20 2016 opposition division epo revoked ‘038 patent company appeal epo’s decision epo board appeal ‘038 patent remain force pending outcome appeal epo’s decision intend pursue legal options defend intellectual property rights future infringement orphan drug exclusivity data exclusivity sprycel eu expire november 2016 decision affect validity sprycel patents within outside europe including different patent covers monohydrate form dasatinib us company entered settlement agreement apotex 2013 regarding patent infringement suit whereby apotex launch generic dasatinib monohydrate abbreviated new drug application product september 2024 earlier certain circumstances antipd1 antibody patent oppositions litigation brought claims infringement number ongoing patent litigations merck co inc merck around world respect patents directed methods treating cancer using pd1 antibody alliance ono bms exclusive rights patents including european patent ep 1 537 878 ’878 patent 2011 merck filed opposition european patent office epo seeking revocation ‘878 patent june 2014 opposition division epo maintained validity claims ’878 patent merck appealed decision may 2014 merck filed lawsuit united kingdom uk seeking revocation uk national version ’878 patent july 2014 bms ono sued merck patent infringement trial held uk july 2015 october 2015 court issued judgment finding ’878 patent valid infringed merck appealed judgment february 2015 merck filed lawsuit netherlands seeking revocation dutch national version ’878 patent bms ono subsequently sued merck patent infringement trial regarding validity infringement ’878 patent held january 29 2016 decision dutch court pending december 2015 bms ono filed lawsuits respect national versions ‘878 patent several european countries including france germany ireland spain switzerland bms ono file patent infringement actions merck national courts europe around time merck launches keytruda abovementioned national courts determine merck infringes valid claim ’878 patent bms ono may entitled monetary damages including royalties future sales keytruda bms ono seeking injunction prevent merck marketing keytruda litigations unless appropriate financial remedy cannot agreed upon awarded court september 2014 bms ono filed lawsuit united states alleging merck’s marketing keytruda infringes us patent 8728474 ’474 patent trial matter currently scheduled begin april 2017 june july 2015 bms ono filed lawsuits united states alleging merck’s marketing keytruda infringes us patent nos 9067999 ‘999 patent 9073994 ‘994 patent respectively patents related ‘474 patent lawsuits bms ono seeking prevent stop marketing keytruda united states unless appropriate financial remedy cannot agreed upon awarded court april 2014 merck three companies opposed european patent ep 2 161 336 ’336 patent directed class antipd1 antibodies february 2015 bms ono submitted request amend claims ’336 patent oral proceedings opposition division epo scheduled july 2016 september 2014 merck filed lawsuit australia seeking revocation australian patent 2011203119 directed class antipd1 antibodies based application ‘336 patent march 2015 bms ono countersued merck patent infringement ono bms similar patents applications pending united states countries september 2015 danafarber cancer institute danafarber filed complaint massachusetts federal court seeking correct inventorship five related us patents specifically danafarber seeking add two scientists inventors patents three patents ‘474 ‘999 ‘994 patents currently subject patent infringement proceedings filed bms ono merck delaware federal court specified pricing sales promotional practices litigation awp litigation previously disclosed company together number pharmaceutical manufacturers defendant number private class actions well suits brought attorneys general various states actions plaintiffs allege defendants caused average wholesale prices awps products inflated thereby injuring government programs entities persons reimbursed prescription drugs based awps company remains defendant two state attorneys general suits pending state courts pennsylvania wisconsin company designated one four defendants separate trials wisconsin 2016 settlement reached company defendants one hand state wisconsin beginning august 2010 company defendant trial commonwealth court pennsylvania commonwealth court brought commonwealth pennsylvania september 2010 jury issued verdict company finding company liable fraudulent negligent misrepresentation however commonwealth court judge issued decision pennsylvania consumer protection claim go jury finding company liable 28 million enjoining company contributing provision inflated awps company appealed decision pennsylvania supreme court june 2014 pennsylvania supreme court vacated commonwealth judges decision remanded matter back commonwealth court january 2015 commonwealth court entered judgment favor company commonwealth pennsylvania appealed decision pennsylvania supreme court affirmed lower courts decision favor company december 2015 qui tam litigation march 2011 company served unsealed qui tam complaint filed three former sales representatives california superior court county los angeles california department insurance elected intervene lawsuit complaint alleges company paid kickbacks california providers pharmacies violation california insurance frauds prevention act cal ins code § 18717 december 2015 company california department insurance reached agreement financial terms settlement principle parties continuing negotiations terms final settlement plavix state attorneys general lawsuits company certain affiliates sanofi defendants consumer protection andor false advertising actions brought several states relating sales promotion plavix possible time reasonably assess outcome lawsuits potential impact company product liability litigation company party various product liability lawsuits plaintiffs cases seek damages relief various grounds alleged personal injury economic loss previously disclosed addition lawsuits company also faces unfiled claims involving products plavix previously disclosed company certain affiliates sanofi defendants number individual lawsuits various state federal courts claiming personal injury damage allegedly sustained using plavix currently 5200 claims involving injury plaintiffs well claims spouses andor beneficiaries filed state federal courts various states including california new jersey delaware new york february 2013 judicial panel multidistrict litigation granted company sanofi’s motion establish multidistrict litigation coordinate federal pretrial proceedings plavix product liability related cases new jersey federal court possible time reasonably assess outcome lawsuits potential impact company reglan company one number defendants numerous lawsuits behalf approximately 3000 plaintiffs including injury plaintiffs claiming personal injury allegedly sustained using reglan another brand generic drug metoclopramide product indicated gastroesophageal reflux certain gastrointestinal disorders well claims spouses andor beneficiaries company generic subsidiary apothecon inc distributed metoclopramide tablets manufactured another party 1996 2000 possible time reasonably assess outcome lawsuits resolution pending lawsuits however expected material impact company byetta amylin former subsidiary company lilly codefendants product liability litigation related byetta date 500 separate lawsuits pending behalf 2400 active plaintiffs including pending settlements include injury plaintiffs well claims spouses andor beneficiaries various courts us company agreed principle resolve 510 claims majority cases brought individuals allege personal injury sustained using byetta primarily pancreatic cancer pancreatitis cases claiming alleged wrongful death majority cases pending federal court san diego multidistrict litigation mdl coordinated proceeding california superior court los angeles jccp november 2015 defendants motion summary judgment based federal preemption granted mdl jccp plaintiffs appealed us court appeals ninth circuit cases jccp yet formally dismissed amylin product liability insurance covering substantial number claims involving byetta additional liability amylin respect byetta expected shared company astrazeneca possible reasonably predict outcome lawsuit claim proceeding potential impact company shareholder derivative litigation december 2015 two shareholder derivative lawsuits filed new york state court certain officers directors company plaintiffs allege among things breaches fiduciary duty surrounding company’s previously disclosed october 2015 civil settlement securities exchange commission alleged foreign corrupt practices act violations company agreed payment approximately 147 million disgorgement penalties interest government investigations like pharmaceutical companies company certain subsidiaries subject extensive regulation national state local government agencies us countries bms operates result company time subject various governmental inquiries investigations possible criminal charges substantial fines andor civil penalties could result government investigations significant investigations conducted government agencies listed abilify state attorneys general investigation march 2009 company received letter delaware attorney general’s office advising multistate coalition investigating whether certain abilify marketing practices violated respective states’ consumer protection statutes possible time reasonably assess outcome investigation environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including comprehensive environmental response compensation liability act cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable company estimated share future costs sites 60 million december 31 2015 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties north brunswick township board education previously disclosed october 2003 company contacted counsel representing north brunswick nj board education boe regarding site waste materials er squibb sons may disposed 1940’s 1960’s fill material containing industrial waste heavy metals excess residential standards discovered expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 new jersey department environmental protection njdep sent company others information request letter possible waste disposal site company responded march 2004 boe township current owners school property park conducting jointly financing soil remediation work ground water investigation work plan approved njdep asked company contribute cost company actively monitoring cleanup project including costs date neither school board township asserted claim company instead company local entities negotiated agreement attempt resolve matter informal means avoid litigation central component agreement provision company interim funding help defray cleanup costs assure work interrupted company transmitted interim funding payments december 2007 november 2009 parties commenced mediation late 2008 however efforts successful parties moved binding allocation process parties expected conduct fact expert discovery followed formal evidentiary hearings written argument addition september 2009 township boe filed suits several parties alleged contributed waste materials site litigation settled parties company currently believe responsible additional amounts beyond two interim payments totaling 4 million already transmitted additional possible loss expected material note 23 selected quarterly financial data unaudited earnings per share quarters may add amounts year period computed discrete basis b marketable securities includes current noncurrent assets following specified items affected comparability results 2015 2014 specified items cost products sold accelerated depreciation asset impairment shutdown costs b specified items marketing selling administrative process standardization implementation costs specified items cost products sold accelerated depreciation asset impairment shutdown costs b includes 16 million additional year branded prescription drug fee third quarter c specified tax charge relates transfer pricing matters report independent registered public accounting firm board directors shareholders bristolmyers squibb company audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries “company” december 31 2015 2014 related consolidated statements earnings comprehensive income cash flows three years period ended december 31 2015 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2015 2014 results operations cash flows three years period ended december 31 2015 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2015 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 12 2016 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp parsippany new jersey february 12 2016 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statements earnings dollars millions except per share data consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies recently issued accounting standards basis consolidation consolidated financial statements prepared conformity us gaap including accounts bristolmyers squibb company controlled majorityowned subsidiaries certain variable interest entities intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date refer summary abbreviated terms end 2016 form 10k terms used throughout document alliance license arrangements assessed determine whether terms provide economic control entity requiring consolidation entity entities controlled means majority voting interest referred variable interest entities consolidated bms power direct activities variable interest entity significantly impacts economic performance obligation absorb losses right receive benefits could potentially significant entity use estimates judgments preparation financial statements requires use management estimates judgments assumptions significant assumptions estimates determining fair value potential impairment intangible assets sales rebate return accruals legal contingencies income taxes estimated selling prices used multiple element arrangements determining acquisition divestiture business asset pension postretirement benefits actual results may differ estimated results reclassifications certain prior period amounts reclassified conform current period presentation reclassifications provide concise financial statement presentation additional information disclosed notes material prior presentation current presentation consolidated statements earnings advertising product promotion included marketing selling administrative expenses consolidated balance sheets assets heldforsale included prepaid expenses accrued expenses combined accrued liabilities accrued rebates returns dividends payable pension postretirement postemployment liabilities combined pension liabilities consolidated statements cash flows net earnings attributable noncontrolling interest included adjustments divestiture gains royalties included adjustments divestiture gains royalties asset acquisition charges included adjustments asset acquisition charges revenue recognition revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally time shipment including supply commercial products alliance partners principal end customer sale however certain revenue nonus businesses recognized date receipt customer alliance revenue related abilify atripla recognized products sold end customer alliance partner royalties recognized thirdparty sales reliably measurable collectability reasonably assured refer “note 3 alliances” detail regarding alliances revenue reduced time recognition expected sales returns discounts rebates sales allowances based historical experience updated changes facts circumstances including impact applicable healthcare legislation revenue deferred historical experience products similar therapeutic category similar operational characteristics right return longer exists sufficient historical experience estimate sales returns developed income taxes provision income taxes includes income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax basis assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made tax benefits recognized uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefit recognized financial statements particular tax position based largest benefit likely realized upon settlement cash equivalents cash equivalents include bank deposits time deposits commercial paper money market funds cash equivalents consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value marketable securities investments companies marketable securities classified “availableforsale” date purchase reported fair value fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity investments 50 less owned companies accounted using equity method accounting ability exercise significant influence maintained share net income losses equity investments included incomeexpense equity investments reviewed impairment assessing decline market value investment carrying value temporary considers intent ability retain investment period time sufficient allow anticipated recovery market value duration extent market value less cost investees financial condition inventory valuation inventories stated lower average cost market property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation computed straightline method based estimated useful lives related assets ranging 20 50 years buildings 3 20 years machinery equipment fixtures impairment longlived assets current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques using unobservable fair value inputs discounted value estimated future cash flows capitalized software eligible costs obtain internal use software capitalized amortized estimated useful life software acquisitions businesses acquired consolidated upon obtaining control fair value assets acquired liabilities assumed recognized date acquisition excess purchase price estimated fair values net assets acquired recognized goodwill business acquisition costs expensed incurred contingent consideration potential development regulatory approval salesbased milestones salesbased royalties included purchase price business combinations excluded asset acquisitions amounts allocated lead investigational compounds asset acquisitions expensed date acquisition goodwill acquired inprocess research development intangible assets fair value intangible assets typically determined using “income method” utilizing level 3 fair value inputs market participant valuations assume global view considering potential jurisdictions indications based discounted aftertax cash flow projections risk adjusted estimated probability technical regulatory success iprd finitelived intangible assets including licenses developed technology rights iprd projects reach commercialization amortized straightline basis estimated useful life estimated useful lives determined considering period assets expected contribute future cash flows goodwill tested least annually impairment assessing qualitative factors performing quantitative analysis determining whether likely fair value net assets carrying amounts examples qualitative factors assessed 2016 include share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year relevant factor assessed individually aggregate iprd tested impairment annual basis frequently events occur circumstances change would indicate potential reduction fair values assets carrying value carrying value iprd determined exceed fair value impairment loss recognized difference finitelived intangible assets tested impairment facts circumstances suggest carrying value asset may recoverable carrying value exceeds projected undiscounted pretax cash flows intangible asset impairment loss equal excess carrying value estimated fair value discounted aftertax cash flows recognized restructuring charges recognized result actions streamline operations rationalize manufacturing facilities estimating impact restructuring plans including future termination benefits exit costs requires judgment actual results could vary estimates contingencies loss contingencies legal proceedings claims may occur wide range matters including government investigations shareholder lawsuits product environmental liability contractual claims tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies including contingent proceeds related divestitures recognized realized legal fees expensed incurred shipping handling costs shipping handling costs included marketing selling administrative expenses 70 million 2016 85 million 2015 115 million 2014 advertising product promotion costs advertising product promotion costs included marketing selling administrative expenses 789 million 2016 825 million 2015 734 million 2014 advertising product promotion costs expensed incurred foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized oci research development research development costs expensed incurred clinical study costs accrued service periods specified contracts adjusted necessary based upon ongoing review level effort costs actually incurred strategic alliances third parties provide licensing rights develop manufacture market andor sell pharmaceutical products rights owned party research development recognized net reimbursements connection alliance agreements upfront contingent milestone payments asset acquisitions investigational compounds also included research development expenses cash flow upfront contingent milestone payments licensing investigational compounds included operating activities asset business acquisitions included investing activities divestiture proceeds included investing activities well royalties consideration received subsequent related sale asset business adjustments reflected operating activities include divestiture gains losses related royalties research development asset acquisition charges gains losses debt redemption changes fair value written option liabilities recently issued accounting standards may 2014 fasb issued new accounting standard related revenue recognition requires entity recognize amount revenue expects entitled transfer promised goods services customers new standard subsequent amendments issued replace existing revenue recognition standards us gaap becomes effective january 1 2018 five step model utilized achieve core principle 1 identify customer contract 2 identify contract’s performance obligation 3 determine transaction price 4 allocate transaction price performance obligation 5 recognize revenue performance obligation satisfied new standard applied retrospectively prior reporting period presented retrospectively cumulative effect change recognized date initial application retained earnings disclosures regarding nature amount timing uncertainty revenue cash flows customer contracts also required company’s assessment new standard’s impact substantially complete based current contracts currently believe timing recognizing revenue typical net product sale customers significantly change however new standard longer require transaction price fixed determinable certain variable consideration might recognized prior occurrence resolution contingent event subject revenue reversal constraint result certain revenue previously deferred current standard transaction price fixed determinable eg early access programs accounted variable consideration might recognized earlier provided terms sufficient reliably estimate ultimate price expected realized addition future royalties related certain alliance arrangements eg sanofi japan erbitux arrangements disclosed note 3 alliances estimated recognized prior third party sale occurring provided probable estimated amounts would reversed future however timing royalties salesbased milestones forms contingent consideration resulting divestiture businesses eg diabetes north american erbitux businesses disclosed note 3 alliances well royalties salesbased royalties licensing arrangements expected change new standard’s guidance pertaining separation licensing rights related fee recognition expected significantly change timing recognizing revenue existing alliance arrangements currently generating revenue company currently anticipates adopt new standard modified retrospective basis cumulative effect change reflected retained earnings january 1 2018 restate prior periods result certain future royalties discussed estimated presented cumulative effect accounting change excluded results operations beginning 2018 subsequent significant revisions estimated amounts variable consideration pertaining similar arrangements entered subsequent adoption new standard also need estimated accounted comparable manner initial estimate reflected revenue assessed subsequent reporting period significant changes business processes systems controls currently expected required january 2016 fasb issued amended guidance recognition measurement presentation disclosures financial instruments effective january 1 2018 early adoption permitted new guidance requires fair value adjustments equity securities readily determinable fair values currently classified availableforsale reported earnings new guidance also requires qualitative impairment assessment equity investments without readily determinable fair value charge earnings impairment exists company expect amended standard material impact company’s results operations february 2016 fasb issued amended guidance lease accounting amended guidance requires recognition rightofuse asset lease liability initially measured present value future lease payments leases term longer 12 months guidance effective beginning 2019 early adoption permitted modified retrospective approach although company’s assessment amended standard completed minimal impacts results operations expected undiscounted value lease obligations approximately 800 million december 31 2016 consisting primarily facility leases accounted operating leases initial rightofuse asset lease liability amount reflected upon adoption subject several factors including actual lease portfolio earliest date initial application selection appropriate discount rate determining individual fixed lease payments terms including renewal periods reasonably certain occur march 2016 fasb issued amended guidance sharebased payment transactions excess tax benefits deficiencies recognized consolidated statement earnings rather capital excess par value stock prospective basis policy election available account forfeitures occur cumulative effect change recognized adjustment retained earnings date adoption excess tax benefits within consolidated statement cash flows presented operating activity prospective retrospective application cash payments tax authorities connection shares withheld statutory tax withholding requirements presented financing activity retrospective application guidance effective beginning 2017 expected reduction income tax expense excess tax benefits 2017 expected material company continue current practice relating accounting forfeitures cash flow presentation changes discussed increase net cash provided operating activities net cash used financing activities 208 million 2016 273 million 2015 june 2016 fasb issued amended guidance measurement credit losses financial instruments entities required use forwardlooking estimated loss model availableforsale debt security credit losses recognized allowances rather reduction amortized cost guidance effective beginning 2020 early adoption permitted 2019 modified retrospective approach company expect amended standard material impact company’s results operations october 2016 fasb issued amended guidance income tax accounting intraentity transfers assets inventory amended guidance requires tax consequences transfers assets members consolidated group recognized period transfer takes place excluding inventory guidance effective beginning 2018 early adoption permitted first quarter 2017 modified retrospective approach company early adopt amended standard beginning first quarter 2017 result prepaid receivables deferred tax assets attributed internal intellectual property transfers approximately 1 billion reduced cumulative effect accounting change retained earnings longer amortized component income taxes 86 million per year addition tax impact future internal transfers intellectual property included income tax expense transferred amortized subsequent periods january 2017 fasb issued amended guidance revises definition business amendments provide initial screen substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets would represent business considered business must input substantive process together significantly contribute ability create outputs business without outputs need organized workforce amendments also narrow definition term outputs guidance effective beginning 2018 early adoption permitted prospectively company assessing potential impact amended standard january 2017 fasb issued amended guidance simplifies recognition measurement goodwill impairment loss eliminating step 2 quantitative impairment test result impairment charges required amount reporting units carrying amount exceeds fair value amount allocated goodwill guidance effective prospective basis 2020 early adoption permitted interim annual goodwill impairment tests performed january 1 2017 company expect amended standard material impact company’s results operations note 2 business segment information bms operates single segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization supply chain organization responsible discovery development manufacturing supply products regional commercial organizations market distribute sell products business also supported global corporate staff functions segment information consistent financial information regularly reviewed chief executive officer purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods products sold principally wholesalers lesser extent directly distributors retailers hospitals clinics government agencies pharmacies gross revenues three largest pharmaceutical wholesalers us percentage global gross revenues follows selected geographic area information follows includes japan represented 7 10 6 total revenues 2016 2015 2014 respectively b revenues include royalties alliancerelated revenues products sold regional commercial organizations product revenues follows composition total revenues follows note 3 alliances bms enters collaboration arrangements third parties development commercialization certain products although arrangements unique nature parties active participants operating activities collaboration exposed significant risks rewards depending commercial success activities bms may either inlicense intellectual property owned party outlicense intellectual property party arrangements also typically include research development manufacturing andor commercial activities cover single investigational compound commercial product multiple compounds andor products various life cycle stages rights obligations parties global limited geographic regions refer collaborations alliances partners alliance partners several products empliciti erbitux opdivo sprycel yervoy eliquis orencia sustiva atripla abilify well products comprising diabetes alliance discussed certain mature brands included alliance arrangements payments alliance partners accounted presented results operations considering specific nature payment underlying activities payments relate multiple alliance activities including transfer rights separated individual units accounting standalone value activities occur life arrangements situations arrangement consideration allocated activities rights relative selling price basis multiple alliance activities rights standalone value combined single unit accounting common activities bms alliance partners presented results operations follows • bms principal end customer sale 100 product sales included net product sales bmss alliance partner principal end customer sale bmss contractual share thirdparty sales andor royalty income included alliance revenue sale commercial products considered part bmss ongoing major central operations refer revenue recognition included note 1 accounting policies information regarding recognition criteria • amounts payable bms alliance partners principal end customer sale supply commercial products included alliance revenue sale commercial products considered part bmss ongoing major central operations • profit sharing royalties salesbased fees payable bms alliance partners included cost products sold incurred • cost reimbursements parties recognized incurred included cost products sold marketing selling administrative expenses research development expenses based underlying nature related activities subject reimbursement • upfront contingent development approval milestones payable bms alliance partners investigational compounds commercial products deferred amortized shorter contractual term periods related compounds products expected contribute future cash flows amortization presented consistent nature payment arrangement example amounts received investigational compounds presented incomeexpense activities performed time related sale commercial products part bms’s ongoing major central operations amounts received commercial products presented alliance revenue sale commercial products considered part bms’s ongoing major central operations except astrazeneca alliance pertaining amylin products see discussion specific astrazeneca alliance disclosure herein • upfront contingent approval milestones payable bms alliance partners commercial products capitalized amortized shorter contractual term periods related products expected contribute future cash flows amortization included cost products sold • upfront contingent milestones payable bms alliance partners prior regulatory approval expensed incurred included research development expenses • royalties contingent consideration payable bms alliance partners related divestiture businesses included income earned • equity net income affiliates included incomeexpense • payments bms alliance partners presented cash flows operating activities except otherwise described selected financial information pertaining alliances follows including net product sales bms principal thirdparty customer sale products subject alliance expenses summarized include amounts attributed activities products alliance payments alliance partners related amortization payments deferred capitalized includes unamortized upfront milestone licensing proceeds revenue deferrals attributed atripla undelivered elements diabetes business divestiture proceeds amortization deferred income primarily related alliances 244 million 2016 307 million 2015 362 million 2014 upfront payments new licensing alliance agreements including options license acquire related assets charged research development expenses 15 million 2016 619 million 2015 70 million 2014 specific information pertaining significant alliances discussed including nature purpose significant rights obligations parties specific accounting policy elections income statement classification amounts attributable payments parties pfizer bms pfizer parties worldwide codevelopment cocommercialization agreement eliquis anticoagulant discovered bms pfizer funds 50 60 development costs depending study profits losses shared equally global basis except certain countries pfizer commercializes eliquis pays bms compensation based percentage net sales upon entering agreement coexclusive license rights product granted pfizer exchange upfront payment potential milestone payments parties assumed certain obligations actively participate alliance actively participate joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms manufactures product alliance principal end customer product sales us significant countries europe well canada australia china japan south korea 2015 bms transferred full commercialization rights pfizer certain smaller countries order simplify operations transferred countries bms supplies product pfizer cost plus percentage net sales endcustomers company determined rights transferred pfizer standalone value rights sold separately bms party could pfizer receive benefit delivered rights without fulfillment ongoing obligations bms alliance agreement including exclusive supply arrangement global alliance treated single unit accounting upfront proceeds subsequent contingent milestone proceeds amortized life related product bms received 884 million nonrefundable upfront milestone licensing payments related eliquis december 31 2016 amortization eliquis deferred income included income eliquis commercial product commencement alliance summarized financial information related alliance follows gilead bms gilead joint ventures us canada europe develop commercialize atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg combining sustiva product bms truvada emtricitabine tenofovir disoproxil fumarate product gilead joint ventures consolidated gilead parties actively participate joint executive committee various operating committees direct oversight activities joint ventures joint ventures purchase sustiva truvada api bulk form parties complete finishing atripla joint ventures gilead sell distribute atripla principal end customer product sales parties longer coordinate joint promotional activities alliance revenue recognized atripla include bulk efavirenz component atripla based relative ratio average respective net selling prices truvada sustiva alliance revenue deferred related alliance receivable recognized combined product sold thirdparty customers europe following 2013 loss exclusivity sustiva effective january 1 2014 percentage atripla net sales europe recognized bms equal difference average net selling prices atripla truvada alliance continue europe either party terminates arrangement last patent expires allows market exclusivity atripla us agreement may terminated gilead upon launch generic version sustiva bms upon launch generic version truvada individual components loss exclusivity us sustiva expected december 2017 event gilead terminates agreement upon loss exclusivity sustiva bms receive quarterly royalty payment 36 months following termination payment first 12 months following termination equal 55 atripla net sales multiplied ratio difference average net selling prices atripla truvada atripla average net selling price second third years following termination payment bms reduced 35 15 respectively atripla net sales multiplied price ratio described bms continue supply sustiva cost plus markup joint ventures threeyear period unless either party elects terminate supply arrangement summarized financial information related alliance follows otsuka bms worldwide commercialization agreement otsuka codevelop copromote abilify excluding certain asian countries us portion agreement expired april 2015 agreement expired eu countries june 2014 nonus country exclusive right sell abilify agreement expires later april 20 2015 loss exclusivity country parties actively participated joint executive governance operating committees otsuka responsible providing sales force efforts us effective january 2013 however bms responsible certain operating expenses various annual limits bms purchased api otsuka completed manufacturing product subsequent sale thirdparty customers us certain countries otsuka assumed responsibility providing funding sales force efforts eu effective april 2013 bms also provided certain services including distribution customer management pharmacovigilance bms principal end customer product sales exclusive distributor exclusive right sell abilify otsuka principal end customer product sales us eu alliance revenue includes bms’s share total net sales thirdparty customers territories assessment bmss expected annual contractual share completed quarterly reporting period adjusted based upon reported us abilify net sales year end bmss annual contractual share 50 2015 33 2014 alliance revenue recognized interim period quarter exceed amounts due contract bms’s contractual share thirdparty net sales 65 eu countries us alliance revenue recognized abilify shipped risks rewards ownership transferred thirdparty customers bms otsuka also alliance sprycel us japan eu oncology territory parties copromote product us eu february 2015 copromotion agreement otsuka terminated japan parties actively participate various governance committees however bms control decision making bms responsible development manufacture product also principal end customer product sales ixempra ixabepilone included alliance prior bmss divestiture business 2015 fee paid otsuka based following percentages combined annual net sales sprycel ixempra oncology territory including post divestiture ixempra sales annual periods otsuka contributes 20 first 175 million certain commercial operational expenses relating oncology products oncology territory 1 costs excess 175 million summarized financial information related alliance follows includes amortization extension payment reduction alliance revenue 21 million 2015 66 million 2014 lilly bms commercialization agreement lilly’s subsidiary imclone codevelopment promotion erbitux us canada japan parties actively participated joint executive committee various operating committees shared responsibilities research development using resources infrastructures lilly manufactured bulk requirements erbitux facilities filling finishing performed third party bms oversight responsibility bms exclusive distribution rights north america responsible promotional efforts north america although lilly right copromote us expense bms principal end customer product sales north america paid lilly distribution fee 39 erbitux net sales north america plus share certain royalties paid lilly bms’s rights obligations respect commercialization erbitux north america would expired september 2018 october 2015 bms transferred rights erbitux north america lilly exchange salesbased royalties described transferred rights include limited full commercialization manufacturing responsibilities transaction accounted business divestiture resulted noncash charge 171 million intangible assets directly related business allocation goodwill bms receive royalties september 2018 included income earned royalty rates applicable north america 38 erbitux net sales 165 million 2015 650 million 2016 650 million 2017 480 million 2018 plus 20 net sales excess amounts respective years royalties earned 227 million 2016 56 million 2015 bms shared rights erbitux japan agreement lilly merck kgaa received 50 pretax profit merck kgaa’s net sales erbitux japan shared equally lilly bms transferred cocommercialization rights japan merck kgaa 2015 exchange salesbased royalties 2032 included income earned royalties earned 19 million 2016 14 million 2015 summarized financial information related alliance follows astrazeneca prior diabetes business divestiture discussed bms alliance astrazeneca consisting three worldwide codevelopment commercialization agreements covering 1 onglyza related combination products sold various names 2 farxiga related combination products 3 beginning august 2012 bmss acquisition amylin amylins portfolio products including bydureon byetta symlin myalept well certain assets owned amylin including manufacturing facility located west chester ohio coexclusive license rights product products underlying agreement granted astrazeneca exchange upfront payment potential milestone payments parties assumed certain obligations actively participate alliance parties actively participated joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms manufactured products three alliances principal end customer product sales substantially countries alliance agreement rights transferred astrazeneca standalone value rights sold separately bms party could astrazeneca received benefit delivered rights without fulfillment ongoing obligations bms alliance agreements including exclusive supply arrangement global alliance treated single unit accounting result upfront proceeds subsequent contingent milestone proceeds amortized life related products 2012 bms received 36 billion nonrefundable upfront payment astrazeneca consideration entering amylin alliance 2013 astrazeneca exercised option equal governance rights certain key strategic financial decisions regarding amylin alliance paid bms 135 million consideration payments accounted deferred income amortized based relative fair value predominant elements included alliance estimated useful lives intangible assets related bydureon estimated useful life 13 years byetta estimated useful life 7 years symlin estimated life 9 years myalept estimated useful life 12 years amylin manufacturing plant estimated useful life 15 years amortization presented reduction cost products sold alliance assets acquired shortly commencement alliance astrazeneca entitled share proceeds sale assets amortization acquired amylin intangible assets manufacturing plant also presented cost products sold bms entitled reimbursements 50 capital expenditures related acquired amylin manufacturing facility bms astrazeneca also shared certain tax attributes related amylin alliance prior termination alliance bms received nonrefundable upfront milestone licensing payments 300 million related onglyza 250 million related farxiga amortization onglyza farxiga deferred income included income onglyza farxiga commercial products commencement alliance parties also shared commercialization development expenses equally well profits losses february 2014 bms astrazeneca terminated alliance agreements bms sold astrazeneca substantially diabetes business comprising alliance divestiture included shares amylin resulting transfer ohio manufacturing facility intellectual property related onglyza farxiga including bmss interest outlicensing agreement onglyza japan purchase bms’s manufacturing facility located mount vernon indiana 2015 substantially employees dedicated diabetes business transferred astrazeneca bms astrazeneca entered several agreements connection sale including supply agreement development agreement transitional services agreement agreements bms obligated supply certain products including active product ingredients onglyza farxiga 2020 perform ongoing development activities certain clinical trial programs substantially 2016 provide transitional services accounting financial services customer service distribution regulatory development information technology certain administrative services various periods order facilitate orderly transfer business operations consideration transaction includes 27 billion payment closing contingent regulatory salesbased milestone payments 14 billion including 800 million related approval milestones 600 million related salesbased milestones payable 2020 royalty payments based net sales 2025 payments 225 million certain assets transferred astrazeneca also pay bms required product supply price approximating product cost well negotiated transitional service fees royalty rates net sales follows stock asset purchase agreement contained multiple elements delivered subsequent closing transaction including china diabetes business transferred 2014 mount vernon indiana manufacturing facility transferred 2015 activities development supply agreements elements determined standalone value result portion consideration received closing allocated undelivered elements using relative selling price method determining best estimated selling price element remaining amount consideration included calculation gain sale diabetes business contingent milestone royalty payments similarly allocated among underlying elements amounts determined payable bms amounts allocated sale business immediately recognized results operations amounts allocated elements recognized results operations extent element delivered consideration 38 billion accounted 2014 including royalties 700 million contingent regulatory milestone payments related approval farxiga us japan approximately 33 billion consideration allocated sale business remaining 492 million allocated undelivered elements described consideration includes 235 million earned royalties including 192 million allocated elements delivered gain sale diabetes business 536 million including 292 million third quarter 2014 resulting primarily transfer china diabetes business astrazeneca gain based difference consideration allocated sale business excluding royalties net transaction fees carrying value diabetes business net assets including 600 million allocation goodwill reversal 821 million net deferred tax liabilities attributed amylin consideration 179 million received 2015 transfer mount vernon indiana manufacturing facility related inventories resulting gain 79 million amounts allocated delivered elements consideration allocated development supply agreements amortized applicable service periods amortization deferred income attributed development agreement included income sale services considered part bms’s ongoing major central operations revenues attributed supply agreement included alliance revenues consideration transaction presented cash flow purposes based allocation process described either investing activity attributed sale business related assets operating activity attributed transitional services supply arrangement development agreement september 2015 bms transferred percentage future royalty rights amylin net product sales us cppib transferred rights represent approximately 70 potential future royalties bms entitled 2019 2025 exchange transfer bms receive additional tieredbased royalty amylin net product sales us cppib 2016 2018 royalties presented income 134 million 2016 summarized financial information related astrazeneca alliances follows sanofi bms sanofi codevelopment cocommercialization agreements plavix avaproavalide effective january 1 2013 sanofi assumed essentially worldwide operations alliance exception plavix us puerto rico bms operating partner 501 controlling interest exchange rights transferred sanofi bms receives quarterly royalties january 1 2013 december 31 2018 terminal payment sanofi 200 million end 2018 royalties received sanofi territory covering americas australia optout markets former development royalties presented alliance revenues 195 million 2016 211 million 2015 223 million 2014 royalties attributed territory covering europe asia continue earned territory partnership included equity net income affiliates alliance revenues attributed supply irbesartan api sanofi 80 million 2015 90 million 2014 supply arrangement irbesartan expired 2015 summarized financial information related alliance follows included alliance receivables following summarized financial information interests partnerships sanofi territory covering europe asia consolidated accounted using equity method cost products sold territory covering europe asia includes discovery royalties 20 million 2016 22 million 2015 32 million 2014 paid directly sanofi expenses shared based applicable ownership percentages current assets current liabilities include approximately 69 million 2016 76 million 2015 94 million 2014 related receivablespayables attributed cash distributions bms sanofi well intercompany balances partnerships within territory ono bms principal end customer product sales exclusive right develop manufacture commercialize opdivo antipd1 human monoclonal antibody investigated anticancer treatment territories worldwide except japan south korea taiwan ono entitled receive royalties following regulatory approvals territories excluding three countries listed royalty rates net sales 4 north america 15 applicable territories subject customary adjustments alliance arrangement also includes collaboration activities japan south korea taiwan pertaining opdivo yervoy several bms investigational compounds parties right obligation jointly develop commercialize compounds bms responsible supply products profits losses development costs shared equally combination therapies involving compounds parties otherwise sharing 80 20 activities involving one party’s compounds bms ono also alliance codevelop cocommercialize orencia japan bms responsible order fulfillment distribution intravenous formulation ono responsible subcutaneous formulation formulations jointly promoted parties assigned customer accounts bms responsible product supply copromotion fee 60 paid party sale made party’s assigned customer recorded cost products sold summarized financial information related alliance follows abbvie bms abbvie alliance empliciti humanized monoclonal antibody treatment multiple myeloma terms alliance bms granted exclusive global rights codevelop commercialize empliciti pdl biopharma inc part abbvie currently participates joint development us commercialization committees bms final decision making authority parties codeveloping product abbvie funds 20 global development costs bms solely responsible supply distribution sales marketing activities within alliance principal end customer product sales abbvie shares 30 profits losses us paid tiered royalties net sales empliciti outside us bms paid abbvie 140 million certain regulatory milestone events including 52 million approval milestones december 31 2016 abbvie also entitled receive additional milestone payments bms certain regulatory events occur 120 million sales thresholds achieved 200 million agreement may terminated bms either party material breach party subsequent notice period summarized financial information related alliance follows fstar october 2014 bms entered agreement fstar agreement provides bms exclusive option purchase fstar phase ready lead asset fs102 targeted therapy development treatment breast gastric cancer among welldefined population her2positive patients bms paid 50 million fstar shareholders 2014 consideration option grant certain licensing rights included research development expenses responsible conducting funding development fs102 option exercisable bmss discretion expires upon earlier 60 days following obtaining proof concept june 2018 additional 100 million payable upon exercise option plus additional aggregate consideration 325 million contingent development regulatory approval milestone payments us europe bms obligated provide additional financial support fstar determined business defined asc 805 business combinations result contingent consideration included purchase price goodwill recognized however fstar variable interest entity equity holders lack characteristics controlling financial interest bms determined primary beneficiary power direct activities significantly directly impacting economic performance entity option rights described upon consolidation 2014 noncontrolling interest credited 59 million reflect fair value fs102 iprd asset 75 million deferred tax liabilities promedior september 2015 bms purchased warrant gives bms exclusive right acquire promedior biotechnology company whose lead asset prm151 developed treatment ipf mf warrant exercisable upon completion either ipf mf phase ii clinical studies conducted promedior expected occur earlier 2017 upfront payment allocated warrant 84 million included rd expenses 2015 remaining 66 million 150 million upfront payment allocated promedior’s obligation complete phase ii studies amortized expected period phase ii studies allocation determined using level 3 inputs following bmss review phase ii clinical study results bms elects exercise warrant obligated pay additional 300 million based ipf study results 250 million based mf study results plus additional aggregate consideration 800 million contingent development regulatory approval milestone payments us europe five prime november 2015 bms five prime entered exclusive worldwide licensing collaboration agreement development commercialization five prime’s csf1r antibody program including cabiralizumab fpa008 currently phase iii development immunology oncology indications bms responsible development manufacturing commercialization cabiralizumab subject five prime’s option conduct certain studies cost develop cabiralizumab pvns combination internal oncology pipeline assets five prime also retained option copromote us agreement replaces previous clinical collaboration agreement two parties consideration licensing rights bms made upfront payment 350 million 2015 included rd expense bms also committed pay 14 billion upon achievement contingent development regulatory milestones well future royalties product approved commercialized reckitt may 2013 bms reckitt started threeyear alliance several otc products sold primarily mexico brazil reckitt received right sell distribute market products may 2016 bms received royalties net sales products exclusively supplied certain products reckitt pursuant supply agreement cost plus markup certain limited assets including marketing authorizations certain employees directly attributed business transferred reckitt start alliance period bms retained ownership assets related business including trademarks covering products framework alliance bms also granted reckitt option acquire trademarks inventory certain assets exclusively related products end alliance period price determined primarily based upon multiple sales may 2014 may 2016 april 2014 alliance modified provide option reckitt purchase bms manufacturing facility located mexico primarily dedicated products included alliance well related employees july 2015 reckitt notified bms exercising option may 2016 bms sold business 317 million refer note 4 acquisitions divestitures” information nonrefundable upfront proceeds 485 million received bms 2013 allocated two units accounting including rights transferred reckitt fair value option purchase remaining assets using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option determined using level 3 inputs included liabilities 2015 bms recognized income 123 million decrease fair value option zero due strengthening us dollar local currencies amount allocated rights transferred reckitt amortized alliance revenue contractual term summarized financial information related alliance follows medicines company february 2013 bms medicines company entered twoyear alliance recothrom recombinant thrombin use topical hemostat control nonarterial bleeding surgical procedures previously acquired bms connection acquisition zymogenetics inc 2010 medicines company received right sell distribute market recothrom global basis two years bms exclusively supplied recothrom medicines company cost plus markup received royalties net sales recothrom certain employees directly attributed business certain assets transferred medicines company start alliance period including biologics license application related regulatory assets bms retained assets related recothrom including patents trademarks inventory bms also granted medicines company option acquire patents trademarks inventory certain assets exclusively related recothrom price determined based multiple sales plus cost remaining inventory held bms time medicines company exercised option acquired business 132 million february 2015 nonrefundable upfront proceeds 115 million received bms 2013 allocated two units accounting including rights transferred medicines company fair value option purchase remaining assets using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option 35 million december 31 2014 determined using level 3 inputs included accrued expenses amount allocated rights transferred medicines company amortized alliance revenue contractual term summarized financial information related alliance follows valeant october 2012 bms pharmaswiss sa whollyowned subsidiary valeant entered alliance certain mature brand products europe valeant received right sell distribute market products europe december 31 2014 bms exclusively supplied products valeant cost plus markup bms also granted valeant option acquire trademarks intellectual property exclusively related products price determined based multiple sales valeant exercised option acquired business 61 million january 2015 nonrefundable upfront proceeds 79 million received bms 2012 allocated two units accounting including rights transferred valeant fair value option purchase remaining assets using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option determined using level 3 inputs included accrued expenses 16 million charge included expenses increase fair value option 34 million 2014 amount allocated rights transferred valeant amortized alliance revenue contractual term summarized financial information related alliance follows note 4 acquisitions divestitures acquisitions evaluated determine whether business asset group assets following transactions accounted asset acquisitions since determined business term defined asc 805 business combinations primarily significant processes acquired result amounts allocated lead investigational compounds expensed capitalized consideration transaction allocated follows relates net operating loss tax credit carryforwards b includes 14 million acquisition costs cormorant july 2016 bms acquired outstanding shares cormorant private pharmaceutical company focused development therapies cancer rare diseases acquisition provides bms full rights cormorants lead candidate humaxil8 phase iii monoclonal antibody represents potentially complementary immunooncology mechanism action tcell directed antibodies costimulatory molecules contingent consideration includes development regulatory milestone payments padlock april 2016 bms acquired outstanding shares padlock private biotechnology company dedicated creating new medicines treat destructive autoimmune diseases acquisition provides bms full rights padlock’s pad inhibitor discovery program focused development potentially transformational treatment approaches patients rheumatoid arthritis padlock’s pad discovery program may additional utility treating systemic lupus erythematosus autoimmune diseases contingent consideration includes development regulatory milestone payments cardioxyl december 2015 bms acquired outstanding shares cardioxyl private biotechnology company focused discovery development novel therapeutic agents cardiovascular disease acquisition provided bms full rights cxl1427 nitroxyl prodrug phase ii development acute decompensated heart failure contingent consideration includes development regulatory salesbased milestone payments flexus april 2015 bms acquired outstanding shares flexus private biotechnology company focused discovery development novel anticancer therapeutics acquisition provided bms full rights preclinical small molecule ido1inhibitor targeted immunotherapy addition bms acquired flexuss idotdo discovery program includes idoselective idotdo dual tdoselective compounds contingent consideration includes development regulatory milestone payments 100 million milestone achieved paid former shareowners flexus 2016 commencement phase clinical trial included rd expense ipierian april 2014 bms acquired outstanding shares ipierian private biotechnology company focused new treatments tauopathies class neurodegenerative diseases acquisition provided bms full rights ipn007 preclinical monoclonal antibody treat progressive supranuclear palsy tauopathies contingent consideration includes development regulatory milestone payments future royalties net sales acquired preclinical assets approved commercialized divestitures includes royalties received subsequent related sale asset business viiv healthcare february 2016 bms sold investigational hiv medicines business viiv healthcare includes number programs different stages discovery preclinical clinical development transaction excluded bmss hiv marketed medicines bms earned transitional fees 105 million certain rd services 2016 february 2016 bms received upfront payment 350 million bms also receive viiv healthcare contingent development regulatory milestone payments 11 billion salesbased milestone payments 43 billion future tiered royalties products approved commercialized divestitures refer note 3 alliances discussion divestiture transactions reckitt lilly medicines company valeant astrazeneca revenues pretax earnings related businesses material 2016 2015 2014 excluding divestiture gains assets heldforsale assets heldforsale 134 million december 31 2015 included prepaid expenses amount consisted primarily goodwill related investigational hiv medicines business comprising alliance reckitt allocation goodwill determined using relative fair value applicable business companys reporting unit revenues pretax earnings related businesses material 2016 2015 2014 excluding divestiture gains note 5 incomeexpense includes • litigation settlements includes 90 million 2015 contractual dispute related license • transition service fees related divestiture diabetes investigational hiv businesses 2016 diabetes business 2015 2014 • written option adjustments included change fair value written option liability attributed reckitt alliance 2015 valeant reckitt 2014 • debt redemption loss 180 million resulted early redemption euro notes tender offer certain debt securities 2015 • includes unrealized foreign exchange loss 52 million 2015 resulting remeasurement bolivardenominated cash monetary balances bms’s whollyowned subsidiary venezuela december 31 2015 exchange rate changed simadi rate 200 official cencoex rate 63 considering limited amount foreign currency exchanged second half 2015 published exchange rates continuing deterioration economic conditions venezuela note 6 restructuring october 2016 company announced restructuring evolve streamline operating model expects incur charges connection employee workforce reductions early site exits charges expected incurred 2020 range 15 billion 20 billion consist employee termination benefit costs contract termination costs accelerated depreciation property plant equipment impairments longlived assets site shutdown costs cash outlays connection actions expected approximately 40 50 total charges approximately 90 million recognized actions fourth quarter 2016 primarily resulting certain rd employee workforce reductions accelerated depreciation expected early site exits restructuring charges recognized upon meeting certain criteria including finalization committed plans reliable estimates discussions local works councils certain markets restructuring charges recognized prior actions primarily related specialty care transformation initiatives designed create simplified organization across functions geographic markets addition accelerated depreciation charges incurred connection early exits manufacturing site ireland rd site us employee termination benefit costs incurred manufacturing selling administrative rd employee workforce reductions across geographic regions approximately 1100 2016 1200 2015 1400 2014 following tables summarize charges activity related restructuring actions note 7 income taxes provisionbenefit income taxes consisted effective tax rate reconciliation effective taxbenefit rate us statutory federal income tax rate effective tax rate lower us statutory rate 35 primarily attributable undistributed earnings certain foreign subsidiaries considered expected indefinitely reinvested offshore us taxes provided approximately 257 billion undistributed earnings foreign subsidiaries december 31 2016 undistributed earnings primarily relate operations switzerland ireland puerto rico undistributed earnings repatriated us future determined earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes provided bms operates favorable tax grant puerto rico scheduled expire prior 2023 divestiture certain businesses resulted capital loss tax benefits including 361 million sale amylin shares 2014 valuation allowances attributed capital loss carryforwards released 2015 following divestiture recothrom ixempra mature brands additional reserves 123 million established 2014 certain transfer pricing matters related tax periods 2008 2014 orphan drug credits included us federal research based credits periods presented goodwill allocated business divestitures including diabetes business 2014 deductible tax purposes well us branded prescription drug fee periods rd charges resulting primarily milestone payment former shareholders flexus acquisitions padlock cormorant 2016 flexus cardioxyl 2015 ipierian 2014 also deductible tax purposes puerto rico imposes excise tax gross company purchase price goods sold manufacturer puerto rico excise tax recognized cost products sold intraentity sale occurs us income tax purposes excise tax deductible results foreign tax credits generally recognized provision income taxes excise tax incurred increased manufacturing activities opdivo resulted higher domestic manufacturing deduction 2016 deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows internal transfers intellectual property resulted deferred tax assets included prepaid taxes 372 million december 31 2016 484 million prepaid taxes december 31 2015 assets amortized expected lives refer recently issued accounting standards note 1 accounting policies information regarding impact amended guidance company expects adopt 2017 us federal net operating loss carryforwards 368 million december 31 2016 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 foreign state net operating loss carryforwards expire varying amounts beginning 2017 certain amounts unlimited lives december 31 2016 valuation allowance 3078 million established following items 2894 million primarily foreign net operating loss tax credit carryforwards 101 million state deferred tax assets including net operating loss tax credit carryforwards 11 million us federal net operating loss carryforwards 72 million us federal deferred tax assets changes valuation allowance follows income tax payments 2041 million 2016 577 million 2015 544 million 2014 current tax benefit realized result stock related compensation credited capital excess par value stock 92 million 2016 147 million 2015 131 million 2014 business conducted various countries throughout world subject tax numerous jurisdictions significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported requiring several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows additional information regarding unrecognized tax benefits follows accrued interest penalties payable unrecognized tax benefits included either current noncurrent income taxes payable interest penalties related unrecognized tax benefits included income tax expense bms currently examination number tax authorities including limited major tax jurisdictions listed table proposed considering proposing material adjustments tax issues transfer pricing certain tax credits deductibility certain expenses bms estimates reasonably possible total amount unrecognized tax benefits december 31 2016 decrease range approximately 255 million 315 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits primarily settlement related involve payment additional taxes adjustment certain deferred taxes andor recognition tax benefits reasonably possible new issues raised tax authorities may increase unrecognized tax benefits however estimate increases cannot reasonably made time bms believes adequately provided open tax years tax jurisdiction following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited note 8 earnings per share note 9 financial instruments fair value measurements financial instruments include cash equivalents marketable securities accounts receivable payable debt instruments derivatives changes exchange rates interest rates create exposure market risk certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur derivative financial instruments used trading purposes financial instruments subject counterparty credit risk considered part overall fair value measurement counterparty credit risk monitored ongoing basis mitigated limiting amounts outstanding individual counterparty utilizing conventional derivative financial instruments entering agreements counterparties meet high credit quality standards consolidated financial statements would materially impacted counterparty failed perform according terms agreement collateral required party whether derivatives asset liability position terms agreements fair value measurements fair value financial instruments classified one following categories level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets additionally certain corporate debt securities utilize thirdparty matrix pricing model using significant inputs corroborated market data substantially full term assets equity fixed income funds primarily invested publicly traded securities valued respective net asset value underlying investments level 2 derivative instruments valued using libor yield curves less credit valuation adjustments observable forward foreign exchange rates reporting date valuations derivative contracts may fluctuate considerably volatility underlying foreign currencies underlying interest rates driven market conditions duration contract level 3 unobservable inputs used little market data available level 3 financial assets liabilities december 31 2016 2015 financial assets liabilities measured fair value recurring basis summarized availableforsale securities following table summarizes availableforsale securities fair value option financial assets elected investments equity fixed income funds fair value investments 108 million december 31 2016 103 million december 31 2015 included current marketable securities changes fair value significant b noncurrent marketable securities mature within five years december 31 2016 2015 qualifying hedges following summarizes fair value outstanding derivatives cash flow hedges foreign currency forward contracts used hedge certain forecasted intercompany inventory purchase transactions certain foreign currency transactions effective portion changes fair value contracts designated cash flow hedges temporarily reported accumulated comprehensive loss included earnings hedged item affects earnings net gains foreign currency forward contracts expected reclassified net earnings primarily included cost products sold within next two years notional amount outstanding foreign currency forward contracts primarily attributed euro 617 million japanese yen 321 million december 31 2016 2015 bms entered 750 million forward starting interest rate swap contracts maturing march 2017 hedge variability probable forecasted interest expense associated potential future issuances debt contracts designated cash flow hedges effective portion fair value changes included comprehensive income earnings impact related discontinued cash flow hedges hedge ineffectiveness significant periods presented cash flow hedge accounting discontinued forecasted transaction longer probable occurring within 60 days originally forecasted date hedge longer effective assessments determine whether derivatives designated qualifying hedges highly effective offsetting changes cash flows hedged items performed inception quarterly basis net investment hedges nonus dollar borrowings €950 million 993 million december 31 2016 designated hedge foreign currency exposures net investment certain foreign affiliates borrowings designated net investment hedges recognized long term debt effective portion foreign exchange gains remeasurement euro debt 48 million 80 million 79 million 2016 2015 2014 respectively recorded foreign currency translation component accumulated comprehensive loss related offset longterm debt fair value hedges fixedtofloating interest rate swap contracts designated fair value hedges used interest rate risk management strategy create appropriate balance fixed floating rate debt contracts underlying debt hedged benchmark risk recorded fair value effective interest rate contracts onemonth libor 070 december 31 2016 plus interest rate spread ranging 01 46 underlying swap terminated prior maturity fair value basis adjustment underlying debt instrument amortized reduction interest expense remaining life debt notional amount fixedtofloating interest rate swap contracts executed 255 million 2016 200 million 2014 notional amount fixedtofloating interest rate swap contracts terminated 500 million 2016 147 million 2015 426 million 2014 generating proceeds 43 million 2016 28 million 2015 119 million 2014 including accrued interest additional contracts terminated connection debt redemptions 2015 2014 debt obligations shortterm borrowings current portion longterm debt includes average amount commercial paper outstanding 254 million weightedaverage interest rate 016 2015 maximum month end amount commercial paper outstanding 755 million outstanding borrowings december 31 2015 commercial paper borrowings 2016 longterm debt current portion longterm debt includes fair value longterm debt 6932 million 6909 million december 31 2016 2015 respectively estimated using level 2 inputs based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments senior unsecured notes issued registered public offerings 2015 notes rank equally right payment bmss existing future senior unsecured indebtedness redeemable whole part time predetermined redemption price bms also terminated forward starting interest rate swap contracts entered 2015 resulting unrealized loss comprehensive income following table summarizes issuance longterm debt obligations 2015 none 2016 2014 following summarizes debt redemption activity 2015 2014 none 2016 including acceleration debt issuance costs loss interest rate lock contract related fees interest payments 191 million 2016 205 million 2015 238 million 2014 net amounts received interest rate swap contracts currently two separate 15 billion revolving credit facilities syndicate lenders facilities provide customary terms conditions financial covenants extended october 2020 july 2021 facility extendable annually one year anniversary date consent lenders borrowings outstanding either revolving credit facility december 31 2016 2015 available financial guarantees provided form standby letters credit performance bonds 812 million december 31 2016 standby letters credit issued financial institutions support guarantees various obligations performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority outstanding financial guarantees expire within year expected funded note 10 receivables nonus receivables sold nonrecourse basis 618 million 2016 476 million 2015 812 million 2014 aggregate receivables three pharmaceutical wholesalers us represented 66 53 total trade receivables december 31 2016 2015 respectively changes allowances bad debt chargebacks cash discounts follows note 11 inventories assets include inventory pending regulatory approval 54 million december 31 2016 85 million december 31 2015 amounts expected remain onhand beyond one year note 12 property plant equipment leases depreciation expense 448 million 2016 500 million 2015 543 million 2014 annual minimum rental commitments noncancelable operating leases primarily real estate motor vehicles approximately 100 million next five years aggregate 300 million thereafter operating lease expense approximately 145 million 2016 140 million 2015 2014 sublease income capital lease obligations material periods presented note 13 goodwill intangible assets amortization expense intangible assets 178 million 2016 183 million 2015 286 million 2014 future annual amortization expense intangible assets expected approximately 220 million 2017 200 million 2018 170 million 2019 130 million 2020 100 million 2021 intangible asset impairment charges 33 million 2016 181 million 2015 380 million 2014 160 million iprd impairment charge recognized 2015 bms986020 lpa1 antagonist phase ii development treatment ipf full writeoff required considering occurrence certain adverse events voluntary suspension study internal assessment indicating significantly lower likelihood regulatory commercial success bms acquired bms986020 acquisition amira pharmaceuticals inc 2011 addition contingent consideration liability 8 million related acquisition also reversed lower likelihood success 310 million iprd impairment charge recognized 2014 peginterferon lambda phase iii development treatment hcv full writeoff required assessing potential commercial viability asset estimating fair value assessment considered lower likelihood filing registration certain markets completing revised projections revenues expenses significant decline prior projected revenues resulted global introduction oral noninterferon products used treat patients hcv alternative uses product note 14 accrued liabilities note 15 equity treasury stock recognized cost reacquire shares issued treasury recognized utilizing firstin firstout method october 2016 board directors approved new share repurchase program authorizing repurchase additional 30 billion common stock repurchases may made either open market private transactions including repurchase plans established accordance rule 10b51 securities exchange act 1934 stock repurchase program expiration date may suspended discontinued time february 21 2017 bms entered asr agreements goldman sachs co morgan stanley co llc repurchase approximately 20 billion common stock aggregate asr funded combination debt cash part existing share repurchase authorization total number shares ultimately repurchased asr determined upon final settlement based discount volumeweighted average price bmss common stock asr period expected completed june 30 2017 components comprehensive incomeloss follows included cost products sold b included cost products sold research development marketing selling administrative expenses c included incomeexpense accumulated balances related component comprehensive loss net taxes follows note 16 pension postretirement benefit plans bms sponsors defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan covering us employees representing approximately 66 consolidated pension plan assets 61 obligations future benefits related service plan eliminated 2009 bms contributes least minimum amount required erisa plan benefits based primarily participant’s years credited service final average compensation plan assets consist principally equity fixedincome securities net periodic benefit costcredit defined benefit pension plans includes september 2014 bms fiduciary counselors inc independent fiduciary bristolmyers squibb company retirement income plan entered definitive agreement transfer certain us pension assets prudential settle approximately 15 billion pension obligations bms purchased group annuity contract prudential december 2014 irrevocably assumed obligation make future annuity payments certain bms retirees transaction change amount monthly pension benefit received affected retirees surviving beneficiaries resulted pretax settlement charge 713 million pension settlement charges also recognized determining annual lump sum payments exceed annual interest service costs certain pension plans including primary us pension plan 2016 2015 2014 changes defined benefit pension plan obligations assets funded status amounts recognized consolidated balance sheets follows accumulated benefit obligation defined benefit pension plans 6381 million 6363 million december 31 2016 2015 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine defined benefit pension plan obligations december 31 follows weightedaverage actuarial assumptions used determine defined benefit pension plan net periodic benefit creditcost years ended december 31 follows yield high quality corporate bonds matching duration benefit obligations used determining discount rate citi pension discount curve used developing discount rate us plans expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” approximated fair value plan assets december 31 2016 differences assumed actual returns amortized marketrelated value straightline basis threeyear period several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class historical longterm actual annualized returns us pension plans follows actuarial gains losses resulted changes actuarial assumptions changes discount rate revised mortality rates differences assumed actual experience differences actual expected return plan assets gains losses amortized life expectancy plan participants us plans 34 years 2017 expected remaining service periods plans extent exceed 10 higher marketrelated value projected benefit obligation respective plan amortization net actuarial loss prior service credit expected approximately 75 million 2017 periodic benefit cost credit included cost products sold research development marketing selling administrative expenses except curtailments settlements special termination benefits included expenses postretirement benefit plans comprehensive medical group life benefits provided substantially us retirees electing participate comprehensive medical group life plans lesser extent certain benefits nonus employees medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally equity fixedincome securities postretirement benefit plan obligations 308 million 355 million december 31 2016 2015 respectively fair value plan assets 331 million 328 million december 31 2016 2015 respectively weightedaverage discount rate used determine benefit obligations 36 december 31 2016 2015 net periodic benefit credits material plan assets fair value pension postretirement plan assets asset category december 31 2016 2015 follows investment valuation policies per investment class follows level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs instruments include equity securities equity funds fixed income funds publicly traded national securities exchange cash equivalents cash equivalents highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets observable inputs corroborated market data substantially full term assets liabilities equity funds fixed income funds shortterm investment funds classified level 2 within fair value hierarchy valued net asset value shares held year end represents fair value corporate debt securities us treasury agency securities classified level 2 within fair value hierarchy valued utilizing observable prices similar instruments quoted prices identical similar instruments markets active level 3 unobservable inputs used little market data available insurance contracts held certain foreign pension plans carried contract value approximates estimated fair value based fair value underlying investment insurance company may 2015 fasb issued amended guidance removing requirement categorize within fair value hierarchy investments fair value measured using nav per share equivalent practical expedient guidance applied retrospectively table venture capital limited partnership investments typically redeemable distributions upon liquidation underlying assets significant unfunded commitments investments essentially liquidations expected occur 2019 remaining investments using practical expedient redeemable weekly monthly basis following summarizes activity financial assets utilizing level 3 fair value measurements investment strategy maximize return maintaining appropriate level risk provide sufficient liquidity benefit obligations plan expenses target asset allocation 43 public equity 16 international 14 global 13 us 7 private equity 50 longduration fixed income maintained us pension plans investments diversified within three major asset categories approximately 90 us pension plans equity investments actively managed bms common stock represents less 1 plan assets december 31 2016 2015 contributions estimated future benefit payments contributions pension plans 81 million 2016 118 million 2015 124 million 2014 expected approximately 100 million 2017 estimated annual future benefit payments including lump sum payments range approximately 250 million 400 million next five years aggregate 14 billion subsequent five year period savings plans principal defined contribution plan bristolmyers squibb savings investment program contribution based employee contributions level company match expense attributed defined contribution plans us approximately 190 million 2016 2015 2014 note 17 employee stock benefit plans may 1 2012 shareholders approved 2012 plan replaced 2007 stock incentive plan 2012 plan provides 109 million shares authorized grants plus shares outstanding awards 2007 plan february 29 2012 expire forfeited canceled withheld satisfy tax withholding obligations december 31 2016 106 million shares available award shares issued treasury stock satisfy obligations plan executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable ratably four years maximum term ten years plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price company granted stock options stock appreciation rights since 2009 restricted stock units may granted key employees subject restrictions continuous employment generally vesting occurs ratably four year period grant date stock unit right receive stock end specified vesting period voting rights market share units granted executives vesting conditioned upon continuous employment vesting date payout factor least 60 share price award date payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs ratably four years performance share units granted executives three year cycle granted target number units subject adjustment number shares issued performance share units vest determined based achievement performance goals based companys threeyear total shareholder return relative peer group companies vesting conditioned upon continuous employment occurs third anniversary grant date stockbased compensation expense awards ultimately expected vest recognized vesting period forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates information related stockbased compensation benefits follows fair value restricted stock units market share units performance share units approximates closing trading price bmss common stock grant date adjusting units eligible accrued dividends addition fair value market share units performance share units considers probability satisfying payout factor total shareholder return respectively following table summarizes significant ranges outstanding exercisable options december 31 2016 aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 5844 december 31 2016 note 18 legal proceedings contingencies company certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business claims proceedings involve various types parties including governments competitors customers suppliers service providers licensees employees shareholders among others resolution matters often develops long period time expectations change result new findings rulings appeals settlement arrangements company recognizes accruals contingencies probable liability incurred amount loss reasonably estimated matters involve patent infringement antitrust securities pricing sales marketing practices environmental commercial contractual rights licensing obligations health safety matters consumer fraud employment matters product liability insurance coverage legal proceedings material company believes could become material described although company believes substantial defenses matters assurance increase scope pending matters future lawsuits claims government investigations legal proceedings material unless otherwise noted company unable assess outcome respective litigation able provide estimated range potential loss furthermore failure enforce patent rights would likely result substantial decreases respective product revenues generic competition intellectual property plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex inc apotex since changed name apotex august 2007 apotex filed application federal court australia federal court seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 federal court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april 2008 august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid company sanofi filed notices appeal full court federal court australia full court appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 september 29 2009 full court held claims patent 597784 invalid november 2009 company sanofi applied high court australia high court special leave appeal judgment full court march 2010 high court denied company sanofi’s request hear appeal full court decision case remanded federal court proceedings related damages sought apotex australian government intervened matter also seeking damages alleged losses experienced period injunction place company apotex settled apotex case dismissed australian governments claim still pending trial scheduled august 2017 possible time predict outcome australian government’s claim impact company sprycel european union may 2013 apotex actavis group ptc ehf generics uk limited mylan unnamed company filed oppositions european patent office epo seeking revocation european patent 1169038 ‘038 patent covering dasatinib active ingredient sprycel ‘038 patent scheduled expire april 2020 excluding potential term extensions january 20 2016 opposition division epo revoked ‘038 patent may 2016 company appealed epo’s decision epo board appeal february 1 2017 epo board appeal upheld opposition divisions decision ‘038 patent revoked orphan drug exclusivity data exclusivity sprycel eu expired november 2016 epo board appeals decision affect validity sprycel patents within outside europe including different patents cover monohydrate form dasatinib use dasatinib treat chronic myelogenous leukemia cml additionally february 2017 epo board appeal reversed remanded invalidity decision european patent 1610780 claim use dasatinib treat cml epos opposition division revoked october 2012 company intends take appropriate legal actions protect sprycel may experience decline european revenues event generic dasatinib product enters market antipd1 antibody patent oppositions litigation january 20 2017 bms ono announced companies signed global patent license agreement merck settle patentinfringement litigation related merck’s pd1 antibody keytruda pembrolizumab agreement result dismissal prejudice patent litigation companies pertaining keytruda bms ono asserted litigation merck’s sale keytruda infringed companies’ patents relating use pd1 antibodies treat cancer us europe uk netherlands france germany ireland spain switzerland australia japan part agreement merck make initial payment 625 million bms ono merck also obligated pay ongoing royalties global sales keytruda 65 january 1 2017 december 31 2023 25 january 1 2024 december 31 2026 agreement companies also granted certain rights respective patent portfolios pertaining pd1 initial payment royalties shared bms ono 7525 percent allocation respectively adjusting parties incurred legal fees september 2015 danafarber cancer institute danafarber filed complaint massachusetts federal court seeking correct inventorship five related us patents directed methods treating cancer using pd1 antibody specifically danafarber seeking add two scientists inventors patents pricing sales promotional practices litigation plavix state attorneys general lawsuits company certain affiliates sanofi defendants consumer protection andor false advertising actions brought several states relating sales promotion plavix possible time reasonably assess outcome lawsuits potential impact company product liability litigation company party various product liability lawsuits plaintiffs cases seek damages relief various grounds alleged personal injury economic loss previously disclosed addition lawsuits company also faces unfiled claims involving products plavix previously disclosed company certain affiliates sanofi defendants number individual lawsuits various state federal courts claiming personal injury damage allegedly sustained using plavix currently 5300 claims involving injury plaintiffs well claims spouses andor beneficiaries filed state federal courts various states including california new jersey delaware new york february 2013 judicial panel multidistrict litigation granted company sanofi’s motion establish multidistrict litigation mdl coordinate federal pretrial proceedings plavix product liability related cases new jersey federal court possible time reasonably assess outcome lawsuits potential impact company byetta amylin former subsidiary company lilly codefendants product liability litigation related byetta date 500 separate lawsuits pending behalf approximately 2000 active plaintiffs including pending settlements include injury plaintiffs well claims spouses andor beneficiaries various courts us company agreed principle resolve 30 claims majority cases brought individuals allege personal injury sustained using byetta primarily pancreatic cancer pancreatitis cases claiming alleged wrongful death majority cases pending federal court san diego mdl coordinated proceeding california superior court los angeles jccp november 2015 defendants motion summary judgment based federal preemption granted mdl jccp plaintiffs mdl appealed us court appeals ninth circuit jccp plaintiffs appealed california court appeal amylin product liability insurance covering substantial number claims involving byetta additional liability amylin respect byetta expected shared company astrazeneca possible reasonably predict outcome lawsuit claim proceeding potential impact company abilify company otsuka codefendants product liability litigation related abilify plaintiffs allege abilify caused engage compulsive gambling impulse control disorders approximately 130 cases filed state federal courts several additional cases pending canada judicial panel multidistrict litigation consolidated federal court cases pretrial purposes united states district court northern district florida eliquis company pfizer codefendants product liability litigation related eliquis plaintiffs assert claims including claims wrongful death result bleeding allege caused use eliquis 80 cases filed state federal courts united states two cases filed canada judicial panel multidistrict litigation consolidated federal court cases pretrial purposes united states district court southern district new york shareholder derivative litigation since december 2015 three shareholder derivative lawsuits filed new york state court certain officers directors company plaintiffs allege among things breaches fiduciary duty surrounding company’s previously disclosed october 2015 civil settlement securities exchange commission alleged foreign corrupt practices act violations china company agreed payment approximately 147 million disgorgement penalties interest may 2016 company filed motions dismiss two shareholder derivative lawsuits government investigations like pharmaceutical companies company certain subsidiaries subject extensive regulation national state local government agencies us countries bms operates result company time subject various governmental inquiries investigations possible criminal charges substantial fines andor civil penalties could result government investigations significant investigations conducted government agencies company aware listed abilify state attorneys general investigation march 2009 company received letter delaware attorney general’s office advising multistate coalition investigating whether certain abilify marketing practices violated respective states’ consumer protection statutes company executive committee coalition reached settlement matter one states new mexico members coalition participating settlement consent decrees entered participating states december 2016 environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable company estimated share future costs sites 62 million december 31 2016 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties 62 million includes estimated costs additional probable loss associated previously disclosed north brunswick township high school remediation site note 19 selected quarterly financial data unaudited earnings per share quarters may add amounts year period computed discrete basis b marketable securities includes current noncurrent assets c longterm debt includes current portion following specified items affected comparability results 2016 2015 specified items cost products sold accelerated depreciation asset impairment shutdown costs specified items cost products sold accelerated depreciation asset impairment shutdown costs b specified items marketing selling administrative process standardization implementation costs report independent registered public accounting firm board directors shareholders bristolmyers squibb company audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries “company” december 31 2016 2015 related consolidated statements earnings comprehensive income cash flows three years period ended december 31 2016 financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2016 2015 results operations cash flows three years period ended december 31 2016 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2016 based criteria established internal controlintegrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 21 2017 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp parsippany new jersey february 21 2017 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statements earnings dollars millions except per share data consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies recently issued accounting standards basis consolidation consolidated financial statements prepared conformity us gaap including accounts bristolmyers squibb company controlled majorityowned subsidiaries certain variable interest entities intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date refer summary abbreviated terms end 2017 form 10k terms used throughout document alliance license arrangements assessed determine whether terms provide economic control entity requiring consolidation entity entities controlled means majority voting interest referred variable interest entities consolidated bms power direct activities variable interest entity significantly impacts economic performance obligation absorb losses right receive benefits could potentially significant entity use estimates judgments preparation financial statements requires use management estimates judgments assumptions significant assumptions estimates determining fair value potential impairment intangible assets sales rebate return accruals legal contingencies income taxes determining acquisition divestiture business asset pension postretirement benefits actual results may differ estimated results reclassifications certain prior period amounts reclassified conform current period presentation consolidated statement cash flows previously presented interest rate swap contract terminations issuance common stock separate line items within cash flows financing activities presented components financing activities reclassifications provide concise financial statements presentations additional information disclosed notes material revenue recognition revenue recognized persuasive evidence arrangement exists sales price fixed determinable collectability reasonably assured title substantially risks rewards ownership transferred generally time shipment including supply commercial products alliance partners principal end customer sale however certain revenue nonus businesses recognized date receipt customer alliance revenue related abilify atripla recognized products sold end customer alliance partner royalties recognized thirdparty sales reliably measurable collectability reasonably assured refer “note 3 alliances” detail regarding alliances revenue reduced time recognition expected sales returns discounts rebates sales allowances based historical experience updated changes facts circumstances including impact applicable healthcare legislation revenue deferred historical experience products similar therapeutic category similar operational characteristics right return longer exists sufficient historical experience estimate sales returns developed income taxes provision income taxes includes income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax basis assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made tax benefits recognized uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefit recognized financial statements particular tax position based largest benefit likely realized upon settlement cash equivalents cash equivalents include bank deposits time deposits commercial paper money market funds cash equivalents consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value marketable securities investments companies marketable securities classified “availableforsale” date purchase reported fair value fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity investments 50 less owned companies accounted using equity method accounting ability exercise significant influence maintained share net income losses equity investments included income net equity investments reviewed impairment assessing decline market value investment carrying value temporary considers intent ability retain investment period time sufficient allow anticipated recovery market value duration extent market value less cost investees financial condition inventory valuation inventories stated lower average cost market property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation computed straightline method based estimated useful lives related assets ranging 20 50 years buildings 3 20 years machinery equipment fixtures impairment longlived assets current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques using unobservable fair value inputs discounted value estimated future cash flows capitalized software eligible costs obtain internal use software capitalized amortized estimated useful life software acquisitions businesses acquired consolidated upon obtaining control fair value assets acquired liabilities assumed recognized date acquisition excess purchase price estimated fair values net assets acquired recognized goodwill business acquisition costs expensed incurred contingent consideration potential development regulatory approval salesbased milestones salesbased royalties included purchase price business combinations excluded asset acquisitions amounts allocated lead investigational compounds asset acquisitions expensed date acquisition goodwill acquired inprocess research development intangible assets fair value acquired intangible assets typically determined using “income method” utilizing level 3 fair value inputs market participant valuations assume global view considering potential jurisdictions indications based discounted aftertax cash flow projections risk adjusted estimated probability technical regulatory success iprd finitelived intangible assets including licenses developed technology rights iprd projects reach commercialization amortized straightline basis estimated useful life estimated useful lives determined considering period assets expected contribute future cash flows goodwill tested least annually impairment assessing qualitative factors performing quantitative analysis determining whether likely fair value net assets carrying amounts examples qualitative factors assessed include share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year relevant factor assessed individually aggregate iprd tested impairment annual basis frequently events occur circumstances change would indicate potential reduction fair values assets carrying value impairment charges recognized extent carrying value iprd determined exceed fair value finitelived intangible assets tested impairment facts circumstances suggest carrying value asset may recoverable carrying value exceeds projected undiscounted pretax cash flows intangible asset impairment loss equal excess carrying value estimated fair value discounted aftertax cash flows recognized restructuring charges recognized result actions streamline operations reduce number facilities estimating impact restructuring plans including future termination benefits exit costs requires judgment actual results could vary estimates contingencies loss contingencies legal proceedings claims may occur government investigations shareholder lawsuits product environmental liability contractual claims tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies including contingent proceeds related divestitures recognized realized legal fees expensed incurred advertising product promotion costs advertising product promotion costs included marketing selling administrative expenses 740 million 2017 789 million 2016 825 million 2015 advertising product promotion costs expensed incurred foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized oci research development research development costs expensed incurred clinical study costs accrued service periods specified contracts adjusted necessary based upon ongoing review level effort costs actually incurred research development costs presented net reimbursements alliance partners upfront contingent milestone payments asset acquisitions investigational compounds also included research development expenses alternative future uses cash flow payments licensing asset acquisitions investigational compounds included operating activities well outlicensing proceeds payments acquisition ownership interest legal entity including acquisitions meet accounting definition business included investing activities well divestiture proceeds royalties consideration received subsequent related sale asset business adjustments reflected operating activities include divestiture gains losses related royalties research development asset acquisition charges gains losses debt redemption changes fair value written option liabilities recently adopted accounting standards sharebased payment transactions amended guidance sharebased payment transactions adopted first quarter 2017 net excess tax benefits 39 million 2017 recognized prospectively reduction tax expense rather capital excess par value stock net excess tax benefits also presented operating cash flow rather financing cash flow cash payments tax authorities connection shares withheld statutory tax withholding requirements presented financing cash flow rather operating cash flow changes cash flow presentation applied retrospectively increased operating cash flows decreased financing cash flows 125 million 208 million 273 million 2017 2016 2015 respectively income tax accounting intraentity transfers assets inventory amended guidance income tax accounting intraentity transfers assets inventory early adopted first quarter 2017 modified retrospective approach amended guidance requires tax consequences transfers recognized period transfer takes place net reductions prepaid deferred tax assets pertaining pre2017 internal transfers intellectual property 787 million adjusted retained earnings cumulative effect accounting change reduce annual tax expense 86 million beginning 2017 addition tax consequences additional internal transfers intellectual property may occur future included income tax expense upon transfer amortized subsequent periods recently issued accounting standards revenue contracts customers amended guidance revenue recognition adopted first quarter 2018 using modified retrospective method cumulative effect change recognized retained earnings new guidance referred asc 606 requires entity recognize amount revenue expects entitled transfer promised goods services customers replaces existing revenue recognition standards us gaap five step model utilized achieve core principle 1 identify customer contract 2 identify contract’s performance obligations 3 determine transaction price 4 allocate transaction price performance obligations 5 recognize revenue performance obligation satisfied company’s assessment new standard’s impact substantially complete timing recognizing revenue expected change typical net product sales customers existing alliance arrangements well royalties salebased milestones outlicensing arrangements addition timing recognizing royalties salesbased milestones forms contingent consideration resulting divestiture businesses expected change however transaction prices longer required fixed determinable certain variable consideration might recognized prior occurrence resolution contingent event extent probable significant reversal amount estimated cumulative revenue occur certain estimated future royalties termination fees licensing rights previously reacquired alliance partners expected recognized contract assets upon adoption new standard refer sanofi lilly arrangements note 3 alliances result new guidance cumulative effect adjustment revenue income expected lower 2018 approximately 200 million 125 million respectively compared would reported previous standard significant changes business processes systems controls expected required gains losses derecognition nonfinancial assets amended guidance gains losses derecognition nonfinancial assets adopted first quarter 2018 using modified retrospective method amendments clarify scope asset derecognition guidance adds guidance partial sales nonfinancial assets clarifies recognizing gains losses transfer nonfinancial assets contracts noncustomers amended guidance clarifies certain transactions sale outlicensing product rights constitute business require accounting similar asc 606 including potential recognition variable consideration amended guidance may result earlier recognition variable consideration depending facts circumstances transaction presentation net periodic pension postretirement benefits amended guidance requiring net periodic benefit components defined benefit pension postretirement plans service costs recorded outside income operations income adopted first quarter 2018 retrospective basis company expects annual cost products sold marketing selling administrative research development expenses increase aggregate corresponding offset income service cost component also included income amounts material adjusted amounts upon adoption new guidance follows definition business amended guidance revises definition business adopted prospectively first quarter 2018 amendments provide initial screen substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets integrated set assets activities would represent business screen met set must include input substantive process together significantly contribute ability create outputs set represent business amendment also narrows definition term output requires transfer organized work force outputs exist amended guidance may result transactions accounted assets future impact results operations dependent individual facts circumstances transaction recognition measurement financial assets liabilities amended guidance recognition measurement presentation disclosures financial instruments adopted prospectively first quarter 2018 new guidance requires fair value adjustments equity securities readily determinable fair values currently classified availableforsale reported earnings new guidance also requires qualitative impairment assessment equity investments without readily determinable fair value based upon observable price changes charge earnings impairment exists amended guidance expected materially impact company’s results operations based upon current equity investment portfolio accounting hedging activities amended guidance derivatives hedging adopted first quarter 2018 modified retrospective approach amended guidance revises expands items eligible hedge accounting simplifies hedge effectiveness testing changes timing recognition presentation certain hedged items certain disclosure requirements also modified hedging activities prospective basis amended guidance expected materially impact company’s results operations leases february 2016 fasb issued amended guidance lease accounting amended guidance requires recognition rightofuse asset lease liability initially measured present value future lease payments leases term longer 12 months guidance effective january 1 2019 early adoption permitted modified retrospective approach intend elect available practical expedients adoption assessment amended standard remains ongoing including continued implementation leasing software system procured 3rd party vendor evaluation potential changes enhancements internal controls substantially completed lease information data gathering lease data extraction processes believe overall implementation efforts remain schedule however system readiness remains critical factor ensuring successful adoption january 1 2019 undiscounted value lease obligations approximately 800 million december 31 2017 consisting primarily facility leases accounted operating leases initial rightofuse asset lease liability amounts balance sheets upon adoption subject several factors including lease portfolio date adoption selection appropriate discount rate determining fixed lease components lease renewal periods reasonably certain occur amended guidance expected materially impact company’s results operations recognition right use asset lease liability goodwill impairment testing january 2017 fasb issued amended guidance simplifies recognition measurement goodwill impairment loss eliminating step 2 quantitative impairment test result impairment charges required amount reporting units carrying amount exceeds fair value amount allocated goodwill guidance effective prospective basis january 1 2020 early adoption permitted interim annual goodwill impairment tests performed january 1 2017 amended guidance expected materially impact company’s results operations financial instruments measurement credit losses june 2016 fasb issued amended guidance measurement credit losses financial instruments entities required use forwardlooking estimated loss model availableforsale debt security credit losses recognized allowances rather reduction amortized cost guidance effective january 1 2020 early adoption permitted 2019 modified retrospective approach amended guidance expected materially impact company’s results operations note 2 business segment information bms operates single segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization supply chain organization responsible discovery development manufacturing supply products regional commercial organizations market distribute sell products business also supported global corporate staff functions segment information consistent financial information regularly reviewed chief executive officer purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods products sold principally wholesalers lesser extent directly distributors retailers hospitals clinics government agencies pharmacies gross revenues three largest pharmaceutical wholesalers us percentage global gross revenues follows selected geographic area information follows includes japan represented 7 10 total revenues 2017 2016 2015 respectively b revenues include royalties alliancerelated revenues products sold regional commercial organizations product revenues composition total revenues follows note 3 alliances bms enters collaboration arrangements third parties development commercialization certain products although arrangements unique nature parties active participants operating activities collaboration exposed significant risks rewards depending commercial success activities bms may either inlicense intellectual property owned party outlicense intellectual property party arrangements also typically include research development manufacturing andor commercial activities cover single investigational compound commercial product multiple compounds andor products various life cycle stages rights obligations parties global limited geographic regions refer collaborations alliances partners alliance partners products sold alliance arrangements certain markets include opdivo eliquis orencia sprycel yervoy empliciti sustiva atripla certain brands payments alliance partners accounted presented results operations considering specific nature payment underlying activities payments relate multiple alliance activities including transfer rights separated individual units accounting standalone value activities occur life arrangements situations arrangement consideration allocated activities rights relative selling price basis multiple alliance activities rights standalone value combined single unit accounting common activities bms alliance partners presented results operations follows • bms principal end customer sale 100 product sales included net product sales bmss alliance partner principal end customer sale bmss contractual share thirdparty sales andor royalty income included alliance revenue sale commercial products considered part bmss ongoing major central operations refer revenue recognition included note 1 accounting policies information regarding recognition criteria • amounts payable bms alliance partners principal end customer sale supply commercial products included alliance revenue sale commercial products considered part bmss ongoing major central operations • profit sharing royalties salesbased fees payable bms alliance partners included cost products sold incurred • cost reimbursements parties recognized incurred included cost products sold marketing selling administrative expenses research development expenses based underlying nature related activities subject reimbursement • upfront contingent development approval milestones payable bms alliance partners investigational compounds commercial products deferred amortized expected period bmss copromotion obligation market exclusivity period periods related compounds products expected contribute future cash flows amortization presented consistent nature payment arrangement example amounts received investigational compounds presented income net activities performed time related sale commercial products part bms’s ongoing major central operations amounts received commercial products presented alliance revenue sale commercial products considered part bms’s ongoing major central operations except astrazeneca alliance pertaining amylin products see discussion specific astrazeneca alliance disclosure herein • upfront contingent approval milestones payable bms alliance partners commercial products capitalized amortized shorter contractual term periods related products expected contribute future cash flows amortization included cost products sold • upfront contingent milestones payable bms alliance partners prior regulatory approval expensed incurred included research development expenses • royalties contingent consideration payable bms alliance partners related divestiture businesses included income earned • equity net income affiliates included income net • payments bms alliance partners presented cash flows operating activities except otherwise described selected financial information pertaining alliances follows including net product sales bms principal thirdparty customer sale products subject alliance expenses summarized include amounts attributed activities products alliance payments alliance partners related amortization payments deferred capitalized includes unamortized upfront milestone licensing proceeds revenue deferrals attributed atripla undelivered elements diabetes business divestiture proceeds amortization deferred income primarily related alliances 83 million 2017 244 million 2016 307 million 2015 upfront payments new licensing alliance agreements including options license acquire related assets charged research development expenses 41 million 2017 15 million 2016 619 million 2015 specific information pertaining significant alliances discussed including nature purpose significant rights obligations parties specific accounting policy elections income statement classification amounts attributable payments parties pfizer bms pfizer jointly develop commercialize eliquis anticoagulant discovered bms pfizer funds 50 60 development costs depending study profits losses shared equally global basis except certain countries pfizer commercializes eliquis pays bms sales based fee coexclusive license rights granted pfizer exchange upfront payment potential milestone payments parties assumed certain obligations actively participate joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms manufactures product alliance principal end customer product sales us significant countries europe well canada australia china japan south korea 2015 bms transferred full commercialization rights pfizer certain smaller countries order simplify operations transferred countries bms supplies product pfizer cost plus percentage net sales price endcustomers company determined rights transferred pfizer standalone value rights sold separately bms party could pfizer receive benefit delivered rights without fulfillment ongoing obligations bms alliance agreement including exclusive supply arrangement global alliance treated single unit accounting upfront proceeds subsequent contingent milestone proceeds amortized expected period bmss copromotion obligation market exclusivity period bms received 884 million nonrefundable upfront milestone licensing payments related eliquis december 31 2017 amortization eliquis deferred income included income eliquis commercial product commencement alliance summarized financial information related alliance follows gilead bms gilead formed joint venture us canada another joint venture europe develop commercialize combination product named atripla combines bmss sustiva gileads truvada two joint ventures consolidated gilead december 2017 gilead terminated bmss participation us canada joint venture following launch generic version sustiva thirdparty us result deferred income alliance receivables attributed sustiva product held joint venture december 31 2017 reduced 438 million reflect posttermination selling price addition bms entitled fee equal 55 atripla us net sales multiplied ratio difference average net selling prices atripla truvada atripla average net selling price 2018 fee reduced 35 2019 15 2020 atripla us net sales multiplied ratio described bms continue supply sustiva cost plus markup gilead threeyear period unless either party elects terminate supply arrangement prior termination bmss participation us joint venture parties actively participated joint executive committee various operating committees direct oversight activities joint venture joint venture purchased sustiva truvada api bulk form parties completed finishing atripla joint venture distributed atripla principal end customer product sales bms recorded bulk efavirenz component atripla alliance revenue based relative ratio average respective net selling prices truvada sustiva alliance revenue related alliance receivable recognized atripla sold thirdparty customers joint venture europe accounted bms continues operate similar manner described except gilead distributes atripla principal end customer product sales parties longer coordinate joint promotional activities european joint venture continue either party terminates arrangement last patent expires allows market exclusivity atripla summarized financial information related alliance follows otsuka bms otsuka copromote sprycel us japan eu oncology territory parties actively participate various governance committees however bms control decision making bms responsible development manufacture product also principal end customer product sales ixempra ixabepilone included alliance prior bmss divestiture business 2015 fee paid otsuka based following percentages combined annual net sales sprycel ixempra oncology territory including post divestiture ixempra sales 2020 bms also worldwide commercialization agreement otsuka codevelop copromote abilify excluding certain asian countries us portion agreement expired april 2015 eu portion expired june 2014 countries exclusive right sell abilify expiration occurred countrybycountry basis last expiration canada january 2018 parties actively participated joint executive governance operating committees otsuka responsible providing sales force efforts 2013 however bms responsible certain operating expenses various annual limits bms purchased api otsuka completed manufacturing product subsequent sale thirdparty customers us certain countries bms provided services including distribution customer management pharmacovigilance bms principal end customer product sales exclusive distributor exclusive right sell abilify otsuka principal end customer product sales us eu alliance revenue recorded bmss share net sales thirdparty customers us eu abilify shipped risks rewards ownership transferred thirdparty customers summarized financial information related alliance follows lilly bms commercialization agreement lilly’s subsidiary imclone codevelopment promotion erbitux us canada japan parties actively participated joint executive committee various operating committees shared responsibilities research development using resources infrastructures lilly manufactured bulk requirements erbitux facilities filling finishing performed third party bms oversight responsibility bms exclusive distribution rights north america responsible promotional efforts north america although lilly right copromote us expense bms principal end customer product sales north america paid lilly distribution fee 39 erbitux net sales north america plus share certain royalties paid lilly bms’s rights obligations respect commercialization erbitux north america would expired september 2018 october 2015 bms transferred rights erbitux north america lilly exchange salesbased royalties described transferred rights include limited full commercialization manufacturing responsibilities transaction accounted business divestiture resulted noncash charge 171 million intangible assets directly related business allocation goodwill bms receive royalties september 2018 included income earned royalty rates applicable north america 38 erbitux net sales 165 million 2015 650 million 2016 650 million 2017 480 million 2018 plus 20 net sales excess amounts respective years royalties earned 207 million 2017 227 million 2016 56 million 2015 bms shared rights erbitux japan agreement lilly merck kgaa received 50 pretax profit merck kgaa’s net sales erbitux japan shared equally lilly bms transferred cocommercialization rights japan merck kgaa 2015 exchange salesbased royalties 2032 included income earned royalties earned 17 million 2017 19 million 2016 14 million 2015 result adoption asc 606 first quarter 2018 estimated future royalties resulting transfer rights merck kgaa recorded cumulative effect adjustment retained earnings subsequent changes estimates recorded income net summarized financial information related alliance follows astrazeneca prior diabetes business divestiture discussed bms alliance astrazeneca consisting three worldwide codevelopment commercialization agreements covering 1 onglyza related combination products sold various names 2 farxiga related combination products 3 beginning august 2012 bmss acquisition amylin amylins portfolio products including bydureon byetta symlin myalept well certain assets owned amylin including manufacturing facility located west chester ohio february 2014 bms astrazeneca terminated alliance agreements bms sold astrazeneca substantially diabetes business comprising alliance divestiture included shares amylin resulting transfer ohio manufacturing facility intellectual property related onglyza farxiga including bmss interest outlicensing agreement onglyza japan purchase bms’s manufacturing facility located mount vernon indiana 2015 substantially employees dedicated diabetes business transferred astrazeneca bms astrazeneca entered several agreements connection sale including supply agreement development agreement transitional services agreement agreements bms obligated supply certain products perform ongoing development activities certain clinical study programs provide transitional services accounting financial services customer service distribution regulatory development information technology certain administrative services various periods order facilitate orderly transfer business operations consideration transaction includes 27 billion payment closing contingent regulatory salesbased milestone payments 14 billion including 800 million related approval milestones 600 million related salesbased milestones payable 2020 royalty payments based net sales 2025 payments 225 million certain assets transferred astrazeneca also pay bms required product supply price approximating product cost well negotiated transitional service fees royalty rates net sales follows stock asset purchase agreement contained multiple elements delivered subsequent closing transaction including china diabetes business transferred 2014 mount vernon indiana manufacturing facility transferred 2015 activities development supply agreements elements determined standalone value result portion consideration received closing allocated undelivered elements using relative selling price method determining best estimated selling price element remaining amount consideration included calculation gain sale diabetes business contingent milestone royalty payments similarly allocated among underlying elements amounts determined payable bms amounts allocated sale business immediately recognized results operations amounts allocated elements recognized results operations extent element delivered consideration 179 million received 2015 transfer mount vernon indiana manufacturing facility related inventories resulting gain 79 million amounts allocated delivered elements contingent consideration 100 million received 2017 astrazeneca upon achievement regulatory approval milestone resulting additional gain consideration allocated development supply agreements amortized applicable service periods amortization deferred income attributed development agreement ended december 2016 included income sale services considered part bms’s ongoing major central operations amortization deferred income attributed supply agreement ended december 2017 recorded alliance revenues attributed supply agreement included alliance revenues consideration transaction presented cash flow purposes based allocation process described either investing activity attributed sale business related assets operating activity attributed transitional services supply arrangement development agreement september 2015 bms transferred percentage future royalty rights amylin net product sales us cppib transferred rights represent approximately 70 potential future royalties bms entitled 2019 2025 exchange transfer bms receive additional tieredbased royalty amylin net product sales us cppib 2016 2018 royalties presented income 97 million 2017 134 million 2016 november 2017 bms transferred percentage future royalty rights portion onglyza farxiga net product sales royalty pharma transferred rights represent approximately 20 25 potential future royalties bms entitled products 2020 2025 exchange transfer bms receive additional tieredbased royalty onglyza farxiga net product sales royalty pharma 2018 2019 presented income earned summarized financial information related astrazeneca alliances follows sanofi bms sanofi codevelopment cocommercialization agreements plavix avaproavalide effective january 1 2013 sanofi assumed essentially worldwide operations alliance exception plavix us puerto rico bms operating partner 501 controlling interest exchange rights transferred sanofi bms receives quarterly royalties january 1 2013 december 31 2018 terminal payment sanofi 200 million end 2018 result adoption asc 606 2018 future royalties longer recorded alliance revenues recorded cumulative effect adjustment first quarter 2018 corresponding contract asset addition portion terminal payment recorded cumulative effect adjustment first quarter 2018 corresponding contract asset royalties received sanofi territory covering americas australia optout markets former development royalties presented alliance revenues 200 million 2017 195 million 2016 211 million 2015 royalties attributed territory covering europe asia continue earned territory partnership included equity net income affiliates alliance revenues attributed supply irbesartan api sanofi 80 million 2015 summarized financial information related alliance follows following summarized financial information interests partnerships sanofi territory covering europe asia consolidated accounted using equity method ono bms principal end customer product sales exclusive right develop manufacture commercialize opdivo worldwide except japan south korea taiwan ono entitled receive royalties 4 north america 15 territories excluding three countries listed subject customary adjustments bms ono jointly develop commercialize opdivo yervoy several bms investigational compounds japan south korea taiwan bms responsible supply products profits losses development costs shared equally combination therapies involving compounds parties otherwise sharing 80 20 activities involving one party’s compounds bms ono also jointly develop commercialize orencia japan bms responsible order fulfillment distribution intravenous formulation ono responsible subcutaneous formulation formulations jointly promoted parties assigned customer accounts bms responsible product supply copromotion fee 60 paid sale made party’s assigned customer 2017 ono granted bms exclusive license development commercialization ono4578 ono’s prostaglandin e2 receptor 4 antagonist bms acquired worldwide rights except japan south korea taiwan added existing collaboration china asean countries ono retained exclusive rights bms paid 40 million ono included rd expense 2017 ono eligible receive subsequent clinical regulatory salesbased milestone payments 480 million royalties countries bms exclusive licensing rights summarized financial information related alliance follows abbvie bms granted exclusive global rights codevelop commercialize empliciti humanized monoclonal antibody treatment multiple myeloma pdl biopharma inc part abbvie currently participates joint development us commercialization committees bms final decision making authority parties jointly develop product abbvie funds 20 global development costs bms solely responsible supply distribution sales marketing activities principal end customer product sales abbvie shares 30 profits losses us paid tiered royalties outside us bms paid abbvie 140 million certain regulatory milestone events including 52 million approval milestones december 31 2017 abbvie also entitled receive additional 120 million certain regulatory events occur 200 million certain sales thresholds achieved agreement may terminated immediately bms either party material breaches subsequent notice period summarized financial information related alliance follows fstar alpha october 2014 bms acquired exclusive option purchase fstar alpha lead asset fs102 antiher2 antibody fragment development treatment breast gastric cancer among welldefined population her2positive patients 2017 bms discontinued development fs102 exercise option resulting iprd charge 75 million included rd expense attributed noncontrolling interest promedior september 2015 bms purchased warrant gives bms exclusive right acquire promedior biotechnology company whose lead asset prm151 developed treatment ipf mf warrant exercisable upon delivery phase ii data following either ipf mf phase ii clinical studies directed promedior upfront payment allocated warrant 84 million included rd expenses 2015 remaining 66 million 150 million upfront payment allocated promedior’s obligation complete phase ii studies amortized expected period phase ii studies allocation determined using level 3 inputs bms obligated pay additional 250 million plus additional aggregate consideration 850 million contingent development regulatory approval milestone payments us europe exercises warrant five prime november 2015 bms five prime entered exclusive worldwide licensing collaboration agreement development commercialization five prime’s csf1r antibody program including cabiralizumab currently phase ii development io indications phase ii development pvns five prime responsible completion phase study combining cabiralizumab opdivo potential treatment variety cancers bms responsible development manufacturing commercialization activities five prime may conduct certain studies cost develop cabiralizumab pvns combination internal oncology pipeline assets five prime also retained option copromote us agreement replaces previous clinical collaboration agreement two parties consideration licensing rights bms made upfront payment 350 million 2015 included rd expense bms also committed pay 14 billion upon achievement contingent development regulatory milestones well future royalties product approved commercialized reckitt may 2013 bms transferred reckitt right sell distribute market several otc brands sold primarily mexico brazil may 2016 bms received royalties net sales products exclusively supplied certain products reckitt pursuant supply agreement cost plus markup certain limited assets including marketing authorizations certain employees directly attributed business transferred reckitt start alliance period bms retained ownership assets related business including trademarks covering products bms also granted reckitt option acquire trademarks inventory certain assets exclusively related products end alliance period price determined primarily based upon multiple sales may 2014 may 2016 april 2014 alliance modified provide option reckitt purchase bms manufacturing facility located mexico primarily dedicated products included alliance well related employees july 2015 reckitt notified bms exercising option may 2016 bms sold business 317 million nonrefundable upfront proceeds 485 million received bms 2013 allocated two units accounting including rights transferred reckitt fair value option purchase remaining assets using best estimate selling price elements considering various market factors market factors included analysis estimated excess fair value business potential purchase price option exercised fair value option determined using level 3 inputs included liabilities 2015 bms recognized income 123 million decrease fair value option zero due strengthening us dollar local currencies amount allocated rights transferred reckitt amortized alliance revenue contractual term summarized financial information related alliance follows medicines company february 2013 bms transferred medicines company right sell distribute market recothrom global basis two years certain employees directly attributed business certain assets transferred medicines company start alliance period including biologics license application related regulatory assets bms retained assets related recothrom including patents trademarks inventory bms also granted medicines company option acquire patents trademarks inventory certain assets exclusively related recothrom price determined based multiple sales plus cost remaining inventory held bms time medicines company exercised option february 2015 acquired business 132 million resulting 59 million divestiture gain valeant october 2012 bms transferred pharmaswiss sa whollyowned subsidiary valeant right sell distribute market certain mature brand products europe december 31 2014 bms also granted valeant option acquire trademarks intellectual property exclusively related products price determined based multiple sales valeant exercised option january 2015 acquired business 61 million resulting 88 million divestiture gain note 4 acquisitions divestitures licensing arrangements acquisitions evaluated determine whether business asset group assets following transactions accounted asset acquisitions since determined business term defined asc 805 business combinations primarily significant processes acquired result amounts allocated lead investigational compounds expensed capitalized consideration transaction allocated follows relates net operating loss tax credit carryforwards b includes 25 million certain negotiation rights collaborate license acquire nlrp3 antagonist program newly formed entity established former shareholders ifm c includes 14 million acquisition costs ifm 2017 bms acquired outstanding shares ifm private biotechnology company focused developing therapies modulate novel targets innate immune system treat cancer autoimmunity inflammatory diseases acquisition provided bms full rights ifms preclinical sting nlrp3 agonist programs focused enhancing innate immune response treating cancer contingent consideration includes development regulatory salesbased milestone payments bms may pay 555 million additional contingent milestones subsequent products selected ifms preclinical sting nlrp3 agonist programs included contingent consideration amount table cormorant 2016 bms acquired outstanding shares cormorant private pharmaceutical company focused development therapies cancer rare diseases acquisition provided bms full rights cormorants lead candidate humaxil8 phase iii monoclonal antibody represents potentially complementary immunooncology mechanism action tcell directed antibodies costimulatory molecules contingent consideration includes development regulatory milestone payments padlock 2016 bms acquired outstanding shares padlock private biotechnology company dedicated creating new medicines treat destructive autoimmune diseases acquisition provided bms full rights padlock’s pad inhibitor discovery program focused development potentially transformational treatment approaches patients rheumatoid arthritis padlock’s pad discovery program may additional utility treating systemic lupus erythematosus autoimmune diseases contingent consideration includes development regulatory milestone payments cardioxyl 2015 bms acquired outstanding shares cardioxyl private biotechnology company focused discovery development novel therapeutic agents cardiovascular disease acquisition provided bms full rights cxl1427 nitroxyl prodrug phase ii development acute decompensated heart failure contingent consideration includes development regulatory salesbased milestone payments 100 million included rd expense 2017 following commencement phase ii clinical study flexus 2015 bms acquired outstanding shares flexus private biotechnology company focused discovery development novel anticancer therapeutics acquisition provided bms full rights preclinical small molecule ido1inhibitor targeted immunotherapy addition bms acquired flexuss idotdo discovery program includes idoselective idotdo dual tdoselective compounds contingent consideration includes development regulatory milestone payments 350 million 100 million included rd expense 2017 2016 respectively following commencement phase ii phase iii clinical studies divestitures includes royalties received subsequent related sale asset business sk biotek 2017 bms sold small molecule active pharmaceutical ingredient manufacturing operations swords ireland sk biotek approximately 165 million subject certain adjustments initial proceeds 158 million received first quarter 2018 transaction accounted sale business divestiture includes transfer facility majority employees site inventories certain thirdparty contract manufacturing obligations assets reduced estimated relative fair value considering purchase price resulting impairment charge 146 million included cost products sold sk biotek provide certain manufacturing services bms 2022 viiv healthcare 2016 bms sold investigational hiv medicines business consisting number rd programs different stages discovery development viiv healthcare bms received 350 million also entitled receive viiv healthcare contingent development regulatory milestone payments 11 billion salesbased milestone payments 43 billion future tiered royalties bms earned transitional fees 10 million 105 million certain rd services 2017 2016 respectively divestitures refer note 3 alliances discussion divestiture transactions reckitt lilly medicines company valeant astrazeneca revenues pretax earnings related divestitures material 2017 2016 2015 excluding divestiture gains impairment charges assets heldforsale 2017 bms agreed sell rd facility wallingford connecticut transaction expected close first quarter 2018 accounted sale asset accounted heldforsale december 31 2017 reduced estimated relative fair value resulting impairment charge 79 million included rd expense licensing arrangements halozyme 2017 bms halozyme entered global collaboration license agreement develop subcutaneously administered bms io medicines using halozymes enhanze drugdelivery technology may allow rapid delivery large volume injectable medications subcutaneous delivery bms paid 105 million halozyme access technology included rd expense bms designated multiple io targets including pd1 develop using enhanze technology option select additional targets within five years effective date maximum 11 targets bms may pay additional 160 million achieved contingent development regulatory salesbased milestones nominated collaboration targets additional milestone payments combination products future royalties sales products using enhanze technology cytomx 2017 bms expanded strategic collaboration cytomx discover novel therapies using cytomx’s proprietary probody platform part original may 2014 collaboration discover develop commercialize probody therapeutics bms selected four oncology targets including ctla4 pursuant expanded agreement cytomx granted bms exclusive worldwide rights develop commercialize probody therapeutics eight additional targets bms paid cytomx 75 million rights initial four targets expensed rd prior 2017 bms paid 200 million cytomx access additional targets included rd expense 2017 bms also reimburse cytomx certain research costs collaboration period pay contingent development regulatory sales based milestones 448 million achieved collaboration target future royalties biogen 2017 bms outlicensed biogen exclusive rights develop commercialize bms986168 antietau compound development progressive supranuclear palsy biogen paid 300 million bms included income bms also entitled contingent development regulatory salesbased milestone payments 410 million achieved future royalties bms originally acquired rights compound 2014 acquisition ipierian biogen assumed bms’s remaining obligations former stockholders ipierian roche 2017 bms outlicensed roche exclusive rights develop commercialize bms986089 antimyostatin adnectin development duchenne muscular dystrophy roche paid 170 million bms included income bms also entitled contingent development regulatory milestone payments 205 million achieved future royalties note 5 income net income net includes • litigation settlements includes bmss share patentinfringement settlement 481 million related mercks pd1 antibody keytruda 2017 90 million 2015 contractual dispute related license • royalties licensing income includes upfront licensing fees 470 million biogen roche 2017 • transition service fees primarily related divestiture diabetes investigational hiv medicines businesses • written option adjustment includes change fair value written option liability attributed reckitt alliance • includes unrealized foreign exchange loss 52 million 2015 resulting remeasurement bolivardenominated cash monetary balances bms’s whollyowned subsidiary venezuela december 31 2015 note 6 restructuring october 2016 company announced restructuring plan evolve streamline operating model expects incur charges connection employee workforce reductions early site exits majority charges expected incurred 2020 range 15 billion 20 billion consist employee termination benefit costs contract termination costs accelerated depreciation impairment charges site exit costs cash outlays connection actions expected approximately 40 50 total charges approximately 800 million recognized actions since announcement including impairment charge small molecule manufacturing operation swords ireland restructuring charges recognized upon meeting certain criteria including finalization committed plans reliable estimates discussions local works councils certain markets restructuring charges addition actions recognized prior primarily related specialty care transformation initiatives designed create simplified organization across functions geographic markets addition accelerated depreciation charges incurred connection expected early exits small molecule manufacturing site cruiserath ireland rd facility wallingford connecticut refer note 4 acquisitions divestitures licensing arrangements information employee workforce reductions approximately 1900 2017 1100 2016 1200 2015 following tables summarize charges activity related restructuring actions note 7 income taxes provisionbenefit income taxes consisted effective tax rate reconciliation effective taxbenefit rate us statutory federal income tax rate new tax reform legislation us enacted december 22 2017 known tax cuts jobs act 2017 act moves worldwide tax system quasiterritorial tax system comprises broad complex changes us tax code including limited 1 reducing us tax rate 35 21 2 adding deemed repatriation transition tax certain foreign earnings profits 3 generally eliminating us federal income taxes dividends foreign subsidiaries 4 including certain income controlled foreign companies us taxable income 5 creating new minimum tax referred base erosion antiabuse income tax 6 limiting certain researchbased credits 7 eliminating domestic manufacturing deduction although many aspects act effective 2018 additional tax expense 29 billion recognized fourth quarter 2017 upon enactment act additional expense included 26 billion onetime deemed repatriation transition tax previously untaxed post1986 foreign earnings profits including related tax reserves earnings effectively taxed 155 rate extent specified foreign corporations held cash certain assets 80 rate remaining earnings profits remaining additional tax expense included adjustment measure net deferred tax assets new us tax rate 21 accounting reduction deferred tax assets 21 tax rate complete tax charge deemed repatriation tax incomplete recorded provisional amount able make reasonable estimate tax provisional amounts may change completed 2018 upon finalizing untaxed post1986 foreign earnings profits related cash certain eligible assets specified foreign corporations provisional amounts may also change additional guidance relevant tax code released earnings certain manufacturing operations low tax jurisdictions switzerland ireland puerto rico indefinitely reinvested prior enactment act bms operates favorable tax grant puerto rico scheduled expire prior 2023 result transition tax act company longer indefinitely reinvested respect undistributed earnings foreign subsidiaries provided deferred tax liability foreign state income withholding tax would apply company remains indefinitely reinvested respect financial statement basis excess tax basis foreign subsidiaries determination deferred tax liability respect basis difference practicable valuation allowances attributed capital loss carryforwards released 2015 following divestiture recothrom ixempra mature brands goodwill allocated business divestitures well us branded prescription drug fee deductible tax purposes rd charges primarily acquisition related milestone payments former shareholders deductible tax purposes include flexus cardioxyl ifm 2017 flexus padlock cormorant 2016 flexus cardioxyl 2015 puerto rico imposes excise tax gross company purchase price goods sold manufacturer puerto rico excise tax recognized cost products sold intraentity sale occurs us income tax purposes excise tax deductible results foreign tax credits generally recognized provision income taxes excise tax incurred increased manufacturing activities opdivo resulted higher domestic manufacturing deduction 2016 compared 2015 deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows adoption amended guidance intraentity transfers assets inventory resulted net reductions prepaid deferred tax assets pertaining pre2017 internal transfers intellectual property 787 million adjusted retained earnings cumulative effect accounting change additionally amended guidance sharebased payment transactions adopted 2017 net excess tax benefits 39 million recognized prospectively reduction tax expense rather capital excess par value stock tax benefit realized result stock related compensation credited capital excess par value stock 92 million 2016 147 million 2015 adoption amended guidance items reduced effective tax rate 24 year ended december 31 2017 refer note 1 basis presentation recently issued accounting standards information us federal net operating loss carryforwards 317 million december 31 2017 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 foreign state net operating loss carryforwards expire varying amounts beginning 2018 certain amounts unlimited lives december 31 2017 valuation allowance 2827 million established following items 2654 million primarily foreign net operating loss tax credit carryforwards 129 million state deferred tax assets including net operating loss tax credit carryforwards 10 million us federal net operating loss carryforwards 34 million us federal deferred tax assets changes valuation allowance follows income tax payments 546 million 2017 20 billion 2016 577 million 2015 business conducted various countries throughout world subject tax numerous jurisdictions significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported requiring several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credit deductibility certain expenses deemed repatriation transition tax liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows additional information regarding unrecognized tax benefits follows accrued interest penalties payable unrecognized tax benefits included either current noncurrent income taxes payable interest penalties related unrecognized tax benefits included income tax expense bms currently examination number tax authorities proposed considering proposing material adjustments tax positions issues transfer pricing certain tax credits deductibility certain expenses reasonably possible new issues raised tax authorities may require adjustments amount unrecognized tax benefits however estimate adjustments cannot reasonably made time also reasonably possible total amount unrecognized tax benefits december 31 2017 could decrease range approximately 255 million 315 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits may result payment additional taxes adjustment certain deferred taxes andor recognition tax benefits reasonably possible new issues raised tax authorities may increase unrecognized tax benefits however estimate increases cannot reasonably made time bms believes adequately provided open tax years tax jurisdiction following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited note 8 earnings per share note 9 financial instruments fair value measurements financial instruments include cash equivalents marketable securities accounts receivable payable debt instruments derivatives changes exchange rates interest rates create exposure market risk certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur derivative financial instruments used trading purposes financial instruments subject counterparty credit risk considered part overall fair value measurement counterparty credit risk monitored ongoing basis mitigated limiting amounts outstanding individual counterparty utilizing conventional derivative financial instruments entering agreements counterparties meet high credit quality standards consolidated financial statements would materially impacted counterparty failed perform according terms agreement collateral required party whether derivatives asset liability position terms agreements fair value measurements fair value financial instruments classified one following categories level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets additionally certain corporate debt securities utilize thirdparty matrix pricing model using significant inputs corroborated market data substantially full term assets equity fixed income funds primarily invested publicly traded securities valued respective net asset value underlying investments level 2 derivative instruments valued using libor yield curves less credit valuation adjustments observable forward foreign exchange rates reporting date valuations derivative contracts may fluctuate considerably volatility underlying foreign currencies underlying interest rates driven market conditions duration contract level 3 unobservable inputs used little market data available level 3 financial assets liabilities december 31 2017 2016 financial assets liabilities measured fair value recurring basis summarized equity investments measured fair value year end excluded table limited partnerships equity method investments 66 million 2017 37 million 2016 equity investments without readily determinable fair values 152 million 2017 8 million 2016 amounts included assets availableforsale securities following table summarizes availableforsale securities fair value option financial assets elected investments equity fixed income funds included current marketable securities changes fair value significant b noncurrent marketable securities mature within five years december 31 2017 2016 c includes equity investments qualifying hedges nonqualifying derivatives following summarizes fair value outstanding derivatives included prepaid expenses assets b included accrued liabilities pension liabilities cash flow hedges foreign currency forward contracts used hedge certain forecasted intercompany inventory purchase transactions certain foreign currency transactions effective portion changes fair value contracts designated cash flow hedges temporarily reported accumulated comprehensive loss included earnings hedged item affects earnings net gains foreign currency forward contracts expected reclassified net earnings primarily included cost products sold within next two years notional amount outstanding foreign currency forward contracts primarily attributed euro 1904 million japanese yen 311 million december 31 2017 2015 bms entered 750 million forward starting interest rate swap contracts maturing march 2017 hedge variability probable forecasted interest expense associated potential future issuances debt bms terminated forward starting interest rate swap contracts 2017 proceeds related gain material contracts designated cash flow hedges effective portion fair value changes included comprehensive income earnings impact related discontinued cash flow hedges hedge ineffectiveness significant periods presented cash flow hedge accounting discontinued forecasted transaction longer probable occurring within 60 days originally forecasted date hedge longer effective assessments determine whether derivatives designated qualifying hedges highly effective offsetting changes cash flows hedged items performed inception quarterly basis net investment hedges nonus dollar borrowings €950 million 1127 million december 31 2017 designated hedge foreign currency exposures net investment certain foreign affiliates borrowings designated net investment hedges recognized long term debt effective portion foreign exchange loss remeasurement euro debt 134 million 2017 gain 48 million 80 million 2016 2015 respectively recorded foreign currency translation component accumulated comprehensive loss related offset longterm debt fair value hedges fixedtofloating interest rate swap contracts designated fair value hedges used interest rate risk management strategy create appropriate balance fixed floating rate debt contracts underlying debt hedged benchmark risk recorded fair value effective interest rate contracts onemonth libor 156 december 31 2017 plus interest rate spread ranging 03 46 underlying swap terminated prior maturity fair value basis adjustment underlying debt instrument amortized reduction interest expense remaining life debt notional amount fixedtofloating interest rate swap contracts executed 255 million 2016 notional amount fixedtofloating interest rate swap contracts terminated 500 million 2016 147 million 2015 generating proceeds 43 million 2016 28 million 2015 including accrued interest additional contracts terminated connection debt redemptions 2015 debt obligations shortterm debt obligations include average amount commercial paper outstanding 389 million weightedaverage interest rate 117 2017 maximum amount commercial paper outstanding 13 billion 299 million outstanding borrowings december 31 2017 commercial paper borrowings 2016 longterm debt current portion longterm debt includes fair value longterm debt 75 billion 69 billion december 31 2017 2016 respectively estimated using level 2 inputs based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments senior unsecured notes issued registered public offerings 2017 2015 notes rank equally right payment bmss existing future senior unsecured indebtedness redeemable whole part time predetermined redemption price bms also terminated forward starting interest rate swap contracts entered 2015 resulting unrealized loss comprehensive income following table summarizes issuance longterm debt obligations 2017 2015 none 2016 bms repaid 750 million 0875 notes maturity 2017 following summarizes debt redemption activity 2017 2015 none 2016 including acceleration debt issuance costs loss interest rate lock contract related fees interest payments 215 million 2017 191 million 2016 205 million 2015 net amounts received interest rate swap contracts currently three separate revolving credit facilities totaling 50 billion syndicate lenders facilities provide customary terms conditions financial covenants 364 day 20 billion facility expires march 2018 two 15 billion facilities extended october 2021 july 2022 two 15 billion fiveyear facilities extendable annually one year anniversary date consent lenders borrowings outstanding revolving credit facility december 31 2017 2016 available financial guarantees provided form standby letters credit performance bonds 704 million december 31 2017 standby letters credit issued financial institutions support guarantees various obligations performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority outstanding financial guarantees expire within year expected funded note 10 receivables nonus receivables sold nonrecourse basis 637 million 2017 618 million 2016 476 million 2015 aggregate receivables three pharmaceutical wholesalers us represented 65 66 total trade receivables december 31 2017 2016 respectively changes allowances bad debt chargebacks cash discounts follows note 11 inventories assets include inventory expected remain hand beyond one year periods note 12 property plant equipment leases depreciation expense 682 million 2017 448 million 2016 500 million 2015 gross property plant equipment 475 million 85 million net accumulated depreciation reclassified assets heldforsale december 31 2017 result pending sale rd facility wallingford connecticut refer note 4 acquisitions divestitures licensing arrangements additional information annual minimum rental commitments noncancelable operating leases primarily real estate motor vehicles approximately 100 million next five years aggregate 300 million thereafter operating lease expense approximately 120 million 2017 145 million 2016 140 million 2015 sublease income capital lease obligations material periods presented note 13 goodwill intangible assets amortization expense intangible assets 190 million 2017 178 million 2016 183 million 2015 future annual amortization expense intangible assets expected approximately 220 million 2018 200 million 2019 160 million 2020 130 million 2021 100 million 2022 intangible asset impairment charges 80 million 2017 33 million 2016 181 million 2015 75 million iprd charge recognized attributed noncontrolling interest bms declined exercise option purchase fstar alpha 2017 160 million iprd impairment charge recognized bms986020 lpa1 antagonist phase ii development treatment ipf 2015 full writeoff required considering occurrence certain adverse events voluntary suspension study internal assessment indicating significantly lower likelihood regulatory commercial success bms acquired bms986020 acquisition amira pharmaceuticals inc 2011 note 14 accrued liabilities note 15 equity refer note 1 accounting policies recently issued accounting standards additional information bms stock repurchase program authorized board directors allowing repurchases open market private transactions including plans established accordance rule 10b51 securities exchange act 1934 stock repurchase program expiration date may suspended discontinued time treasury stock recognized cost reacquire shares issued treasury recognized utilizing firstin firstout method bms repurchased shares 2017 rule 10b51 open market purchases accelerated share repurchase agreements bms completed accelerated share repurchase agreements repurchased approximately 365 million shares companys common stock aggregate 2 billion 2017 agreements funded combination debt cash components comprehensive incomeloss follows included cost products sold b included cost products sold research development marketing selling administrative expenses c included income net accumulated balances related component comprehensive loss net taxes follows note 16 pension postretirement benefit plans bms sponsors defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan covering us employees representing approximately 66 consolidated pension plan assets 62 obligations future benefits related service plan eliminated 2009 bms contributes least minimum amount required erisa plan benefits based primarily participant’s years credited service final average compensation plan assets consist principally equity fixedincome securities net periodic benefit costcredit defined benefit pension plans includes pension settlement charges recognized determining annual lump sum payments exceed annual interest service costs certain pension plans including primary us pension plan 2017 2016 2015 changes defined benefit pension plan obligations assets funded status amounts recognized consolidated balance sheets follows accumulated benefit obligation defined benefit pension plans 67 billion 64 billion december 31 2017 2016 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine defined benefit pension plan obligations december 31 follows weightedaverage actuarial assumptions used determine defined benefit pension plan net periodic benefit creditcost years ended december 31 follows yield high quality corporate bonds matching duration benefit obligations used determining discount rate citi pension discount curve used developing discount rate us plans expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” approximated fair value plan assets december 31 2017 differences assumed actual returns amortized marketrelated value straightline basis threeyear period several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class historical longterm actual annualized returns us pension plans follows actuarial gains losses resulted changes actuarial assumptions changes discount rate revised mortality rates differences assumed actual experience differences actual expected return plan assets gains losses amortized life expectancy plan participants us plans 34 years 2018 expected remaining service periods plans extent exceed 10 higher marketrelated value projected benefit obligation respective plan amortization net actuarial loss prior service credit expected approximately 80 million 2018 periodic benefit cost credit included cost products sold research development marketing selling administrative expenses except curtailments settlements special termination benefits included expenses postretirement benefit plans comprehensive medical group life benefits provided substantially us retirees electing participate comprehensive medical group life plans lesser extent certain benefits nonus employees medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally equity fixedincome securities postretirement benefit plan obligations 298 million 308 million december 31 2017 2016 respectively fair value plan assets 364 million 331 million december 31 2017 2016 respectively weightedaverage discount rate used determine benefit obligations 33 36 december 31 2017 2016 respectively net periodic benefit credits material plan assets fair value pension postretirement plan assets asset category december 31 2017 2016 follows investment valuation policies per investment class follows level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs instruments include equity securities equity funds fixed income funds publicly traded national securities exchange cash equivalents cash equivalents highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets observable inputs corroborated market data substantially full term assets liabilities equity funds fixed income funds shortterm investment funds classified level 2 within fair value hierarchy valued net asset value shares held year end represents fair value corporate debt securities us treasury agency securities classified level 2 within fair value hierarchy valued utilizing observable prices similar instruments quoted prices identical similar instruments markets active level 3 unobservable inputs used little market data available insurance contracts held certain foreign pension plans carried contract value approximates estimated fair value based fair value underlying investment insurance company venture capital limited partnership investments typically redeemable distributions upon liquidation underlying assets significant unfunded commitments investments essentially liquidations expected occur 2019 remaining investments using practical expedient redeemable weekly monthly basis investment strategy maximize return maintaining appropriate level risk provide sufficient liquidity benefit obligations plan expenses target asset allocation 43 public equity 16 international 14 global 13 us 7 private equity 50 longduration fixed income maintained us pension plans investments diversified within three major asset categories approximately 90 us pension plans equity investments actively managed bms common stock represents less 1 plan assets december 31 2017 2016 contributions estimated future benefit payments contributions pension plans 396 million 2017 81 million 2016 118 million 2015 expected approximately 70 million 2018 estimated annual future benefit payments including lump sum payments range approximately 275 million 300 million next five years aggregate 16 billion subsequent five year period savings plans principal defined contribution plan bristolmyers squibb savings investment program contribution based employee contributions level company match expense attributed defined contribution plans us approximately 200 million 2017 2016 2015 note 17 employee stock benefit plans may 1 2012 shareholders approved 2012 plan replaced 2007 stock incentive plan 2012 plan provides 109 million shares authorized grants plus shares outstanding awards 2007 plan february 29 2012 expire forfeited canceled withheld satisfy tax withholding obligations december 31 2017 104 million shares available award shares issued treasury stock satisfy obligations plan executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable ratably four years maximum term ten years plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price company granted stock options stock appreciation rights since 2009 restricted stock units may granted key employees subject restrictions continuous employment generally vesting occurs ratably four year period grant date stock unit right receive stock end specified vesting period voting rights market share units granted executives vesting conditioned upon continuous employment vesting date payout factor least 60 share price award date payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs ratably four years performance share units granted executives three year cycle granted target number units subject adjustment number shares issued performance share units vest determined based achievement performance goals based companys threeyear total shareholder return relative peer group companies vesting conditioned upon continuous employment occurs third anniversary grant date stockbased compensation expense awards ultimately expected vest recognized vesting period forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates information related stockbased compensation benefits follows fair value restricted stock units market share units performance share units approximates closing trading price bmss common stock grant date adjusting units eligible accrued dividends addition fair value market share units performance share units considers probability satisfying payout factor total shareholder return respectively following table summarizes significant ranges outstanding exercisable options december 31 2017 aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 6128 december 31 2017 note 18 legal proceedings contingencies company certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business claims proceedings involve various types parties including governments competitors customers suppliers service providers licensees employees shareholders among others resolution matters often develops long period time expectations change result new findings rulings appeals settlement arrangements company recognizes accruals contingencies probable liability incurred amount loss reasonably estimated matters involve patent infringement antitrust securities pricing sales marketing practices environmental commercial contractual rights licensing obligations health safety matters consumer fraud employment matters product liability insurance coverage legal proceedings material company believes could become material described although company believes substantial defenses matters assurance increase scope pending matters future lawsuits claims government investigations legal proceedings material unless otherwise noted company unable assess outcome respective litigation able provide estimated range potential loss furthermore failure enforce patent rights would likely result substantial decreases respective product revenues generic competition intellectual property plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex inc apotex since changed name apotex august 2007 apotex filed application federal court australia federal court seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 federal court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april 2008 august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid company sanofi filed notices appeal full court federal court australia full court appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 september 29 2009 full court held claims patent 597784 invalid november 2009 company sanofi applied high court australia high court special leave appeal judgment full court march 2010 high court denied company sanofi’s request hear appeal full court decision case remanded federal court proceedings related damages sought apotex company apotex settled apotex case dismissed australian government intervened matter seeking maximum damages 449 million aud 346 million plus interest would split company sanofi alleged losses experienced paying higher price branded plavix period injunction place company sanofi disputed australian government entitled damages australian governments claim still pending trial concluded september 2017 company expecting decision 2018 sprycel european union may 2013 apotex actavis group ptc ehf generics uk limited mylan unnamed company filed oppositions epo seeking revocation european patent 1169038 ‘038 patent covering dasatinib active ingredient sprycel ‘038 patent scheduled expire april 2020 excluding potential term extensions january 20 2016 opposition division epo revoked ‘038 patent may 2016 company appealed epo’s decision epo board appeal february 2017 epo board appeal upheld opposition divisions decision revoked ‘038 patent orphan drug exclusivity data exclusivity sprycel eu expired november 2016 epo board appeals decision affect validity sprycel patents within outside europe including different patents cover monohydrate form dasatinib use dasatinib treat cml additionally february 2017 epo board appeal reversed remanded invalidity decision european patent 1610780 claim use dasatinib treat cml epos opposition division revoked october 2012 company intends take appropriate legal actions protect sprycel may experience decline european revenues event generic dasatinib product enters market antipd1 antibody patent oppositions litigation september 2015 danafarber cancer institute danafarber filed complaint massachusetts federal court seeking correct inventorship five related us patents directed methods treating cancer using pd1 pdl1 antibodies specifically danafarber seeking add two scientists inventors patents october 2017 pfizer allowed intervene case alleging one scientists identified danafarber employed company eventually acquired pfizer relevant period adverse decision litigation would result monetary liability company could decrease potential future licensing revenue patents eliquis patent litigation us 2017 twentyfive generic companies sent company paragraphiv certification letters informing company filed abbreviated new drug applications andas seeking approval generic versions eliquis result two eliquis patents listed fda orange book challenged composition matter patent claiming apixaban specifically formulation patent april 2017 company along partner pfizer initiated patent lawsuits hatchwaxman act generic filers federal district courts delaware west virginia august 2017 united states patent trademark office granted patent term restoration composition matter patent thereby restoring term eliquis composition matter patent company’s basis projected loe february 2023 november 2026 company settled lawsuits several anda filers february 2018 settlements affect company’s projected loe eliquis pricing sales promotional practices litigation plavix state attorneys general lawsuits company certain affiliates sanofi defendants consumer protection andor false advertising actions brought several states relating sales promotion plavix product liability litigation company party various product liability lawsuits plaintiffs cases seek damages relief various grounds alleged personal injury economic loss previously disclosed addition lawsuits company also faces unfiled claims involving products plavix previously disclosed company certain affiliates sanofi defendants number individual lawsuits various state federal courts claiming personal injury damage allegedly sustained using plavix 5000 claims involving injury plaintiffs well claims spouses andor beneficiaries filed state federal courts various states including california new jersey delaware new york february 2013 judicial panel multidistrict litigation granted company sanofi’s motion establish multidistrict litigation mdl coordinate federal pretrial proceedings plavix product liability related cases new jersey federal court following united states supreme court’s june 2017 reversal california supreme court decision held california state courts exercise personal jurisdiction claims noncalifornia residents 3300 outofstate resident plaintiffs claims including spouses beneficiaries previously pending california state court dismissed number california nonresident plaintiffs’ claims may refiled federal court company filed summary judgment motions remaining cases law firms representing majority remaining cases represented various courts withdraw discontinue cases resolution remaining lawsuits expected material impact company byetta amylin former subsidiary company lilly codefendants product liability litigation related byetta date 500 separate lawsuits pending behalf approximately 2000 active plaintiffs including pending settlements include injury plaintiffs well claims spouses andor beneficiaries various courts us previously reported company agreed resolve certain claims process dismissed majority cases brought individuals allege personal injury sustained using byetta primarily pancreatic cancer pancreatitis cases claiming alleged wrongful death majority cases pending federal court san diego mdl coordinated proceeding california superior court los angeles jccp november 2015 defendants motion summary judgment based federal preemption granted mdl jccp plaintiffs mdl appealed us court appeals ninth circuit november 2017 ninth circuit reversed mdl summary judgment order remanded case proceedings jccp plaintiffs appealed california court appeal remains pending amylin product liability insurance covering substantial number claims involving byetta additional liability amylin respect byetta expected shared company astrazeneca abilify company otsuka codefendants product liability litigation related abilify plaintiffs allege abilify caused engage compulsive gambling impulse control disorders 500 cases filed state federal courts several additional cases pending canada judicial panel multidistrict litigation consolidated federal court cases pretrial purposes united states district court northern district florida first mdl trial currently scheduled take place june 2018 eliquis company pfizer codefendants product liability litigation related eliquis plaintiffs assert claims including claims wrongful death result bleeding allege caused use eliquis majority claims pending mdl united states district court southern district new york state court delaware january 2018 160 cases pending courts united states one pending canada 150 cases dismissed prejudice mdl plaintiffs appealed dismissed cases second circuit court appeals shareholder derivative litigation since december 2015 three shareholder derivative lawsuits filed new york state court certain officers directors company plaintiffs allege among things breaches fiduciary duty surrounding company’s previously disclosed october 2015 civil settlement securities exchange commission alleged foreign corrupt practices act violations china company agreed payment approximately 147 million disgorgement penalties interest october 2017 three lawsuits dismissed company received notice appeal one dismissed lawsuits securities litigation february 2018 company became aware putative class action complaint joseph giugno v bristolmyers squibb co et al filed us district northern district california company’s chief executive officer giovanni caforio company’s chief financial officer charles bancroft certain former current executives company complaint alleges violations securities laws company’s disclosures related checkmate 026 clinical trial lung cancer company intends defend vigorously litigation government investigations like pharmaceutical companies company certain subsidiaries subject extensive regulation national state local government agencies us countries bms operates result company time subject various governmental inquiries investigations possible criminal charges substantial fines andor civil penalties could result government investigations environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable company estimated share future costs sites 628 million december 31 2017 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties amount includes estimated costs additional probable loss associated previously disclosed north brunswick township high school remediation site note 19 selected quarterly financial data unaudited earnings per share quarters may add amounts year period computed discrete basis b marketable securities includes current noncurrent assets c longterm debt includes current portion following specified items affected comparability results 2017 2016 specified items cost products sold accelerated depreciation asset impairment shutdown costs report independent registered public accounting firm shareholders board directors bristolmyers squibb company opinion financial statements audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries company december 31 2017 2016 related consolidated statements earnings comprehensive income cash flows three years period ended december 31 2017 related notes collectively referred financial statements opinion financial statements present fairly material respects financial position company december 31 2017 2016 results operations cash flows three years period ended december 31 2017 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states pcaob companys internal control financial reporting december 31 2017 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 13 2018 expressed unqualified opinion companys internal control financial reporting basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion deloitte touche llp parsippany new jersey february 13 2018 served companys auditor since 2006 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statements earnings dollars millions except per share data consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies recently issued accounting standards basis consolidation consolidated financial statements prepared conformity us gaap including accounts bristolmyers squibb company controlled majorityowned subsidiaries certain variable interest entities intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date refer summary abbreviated terms end 2018 form 10k terms used throughout document alliance license arrangements assessed determine whether terms provide economic control entity requiring consolidation entity entities controlled means majority voting interest referred variable interest entities consolidated bms power direct activities variable interest entity significantly impacts economic performance obligation absorb losses right receive benefits could potentially significant entity business segment information bms operates single segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization supply chain organization responsible discovery development manufacturing supply products regional commercial organizations market distribute sell products business also supported global corporate staff functions determination single segment consistent financial information regularly reviewed chief executive officer purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information product regional revenue see “note 2 revenue” use estimates judgments preparation financial statements requires use management estimates judgments assumptions significant assumptions estimates determining fair value potential impairment intangible assets sales rebate return accruals legal contingencies income taxes pension postretirement benefits actual results may differ estimated results reclassifications certain prior period amounts reclassified conform current period presentation lossgain equity investments previously presented impairment charges adjustments consolidated statements cash flows presented separately revenue recognition effective january 1 2018 adopted asc 606 using modified retrospective method refer “note 2 revenue” detailed discussion accounting policies related revenue recognition including deferred revenue royalties refer “note 3 alliances” detail regarding alliances income taxes provision income taxes includes income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax basis assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made tax benefits recognized uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefit recognized financial statements particular tax position based largest benefit likely realized upon settlement cash equivalents cash equivalents include bank deposits time deposits commercial paper money market funds cash equivalents consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value marketable debt securities marketable debt securities classified “availableforsale” date purchase reported fair value fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity marketable debt securities reviewed impairment assessing decline market value investment carrying value temporary considers intent ability retain investment period time sufficient allow anticipated recovery market value duration extent market value less cost investees financial condition investments equity securities investments equity securities readily determinable fair values recorded fair value changes fair value recorded income net investments equity securities without readily determinable fair values recorded cost minus impairment plus minus changes estimated fair value resulting observable price changes orderly transactions identical similar investment issuer changes estimated fair value investments equity securities without readily determinable fair values recorded income net investments 50 less owned companies accounted using equity method accounting ability exercise significant influence operating financial decisions investee maintained share net income losses equity investments accounted using equity method included income net investments equity securities without readily determinable fair values investments equity accounted using equity method assessed potential impairment quarterly basis based qualitative factors inventory valuation inventories stated lower average cost market property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation computed straightline method based estimated useful lives related assets ranging 20 50 years buildings 3 20 years machinery equipment fixtures current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques using unobservable fair value inputs discounted value estimated future cash flows capitalized software eligible costs obtain internal use software capitalized amortized estimated useful life software acquisitions businesses acquired consolidated upon obtaining control fair value assets acquired liabilities assumed recognized date acquisition excess purchase price estimated fair values net assets acquired recognized goodwill business acquisition costs expensed incurred contingent consideration potential development regulatory approval salesbased milestones salesbased royalties included purchase price business combinations excluded asset acquisitions amounts allocated lead investigational compounds asset acquisitions expensed date acquisition goodwill acquired inprocess research development intangible assets fair value acquired intangible assets typically determined using incomebased approach referred excess earnings method utilizing level 3 fair value inputs market participant valuations assume global view considering potential jurisdictions indications based discounted aftertax cash flow projections risk adjusted estimated probability technical regulatory success iprd finitelived intangible assets including licenses developed technology rights iprd projects reach commercialization amortized straightline basis estimated useful life estimated useful lives determined considering period assets expected contribute future cash flows goodwill tested least annually impairment assessing qualitative factors performing quantitative analysis determining whether likely fair value net assets carrying amounts examples qualitative factors assessed include share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year relevant factor assessed individually aggregate iprd tested impairment annual basis frequently events occur circumstances change would indicate potential reduction fair values assets carrying value impairment charges recognized extent carrying value iprd determined exceed fair value finitelived intangible assets tested impairment facts circumstances suggest carrying value asset may recoverable carrying value exceeds projected undiscounted pretax cash flows intangible asset impairment loss equal excess carrying value estimated fair value discounted aftertax cash flows recognized restructuring charges recognized result actions streamline operations reduce number facilities estimating impact restructuring plans including future termination benefits exit costs requires judgment actual results could vary estimates contingencies loss contingencies legal proceedings claims may occur government investigations shareholder lawsuits product environmental liability contractual claims tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies including contingent proceeds related divestitures recognized realized legal fees expensed incurred advertising product promotion costs advertising product promotion costs expensed incurred advertising product promotion costs included marketing selling administrative expenses 672 million 2018 740 million 2017 789 million 2016 foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized comprehensive lossincome research development research development costs expensed incurred clinical study costs accrued service periods specified contracts adjusted necessary based upon ongoing review level effort costs actually incurred research development costs presented net reimbursements alliance partners upfront contingent development milestone payments asset acquisitions investigational compounds also included research development expense alternative future uses cash flow payments licensing asset acquisitions investigational compounds included operating activities well outlicensing proceeds payments acquisition ownership interest legal entity including acquisitions meet accounting definition business included investing activities well divestiture proceeds royalties consideration received subsequent related sale asset business adjustments reflected operating activities include divestiture gains losses related royalties asset acquisition charges gains losses equity investments gains losses debt redemption recently adopted accounting standards revenue contracts customers amended guidance revenue recognition adopted first quarter 2018 using modified retrospective method cumulative effect change recognized retained earnings new guidance referred asc 606 requires entity recognize amount revenue expects entitled transfer promised goods services customers replaces existing revenue recognition standards us gaap fivestep model utilized achieve core principle 1 identify customer contract 2 identify contract’s performance obligation 3 determine transaction price 4 allocate transaction price performance obligation 5 recognize revenue performance obligation satisfied timing recognizing revenue typical net product sales customers significantly change however transaction prices longer required fixed determinable certain variable consideration might recognized prior occurrence resolution contingent event result certain revenue previously deferred prior standard transaction price fixed determinable accounted variable consideration might recognized earlier provided terms sufficient reliably estimate ultimate price expected realized estimated future royalties contingent fees related certain arrangements recognized prior third party sale event occurring extent probable significant reversal amount estimated cumulative revenue occur new guidance pertaining separation licensing rights related fee recognition significantly change timing recognizing revenue existing alliance arrangements currently generating revenue timing royalties salesbased milestones forms contingent consideration resulting divestiture businesses well royalties salesbased milestones licensing arrangements change cumulative effect accounting change resulted recognizing contract assets 214 million 168 million increase retained earnings net tax cumulative effect primarily attributed royalties licensing rights reacquired alliance partners expected received future eligible licensing exclusion result new guidance cumulative effect adjustment revenue approximately 197 million lower 2018 compared would reported previous guidance refer “note 2 revenue” information gains losses derecognition nonfinancial assets amended guidance gains losses derecognition nonfinancial assets asc 610 adopted first quarter 2018 using modified retrospective method amendments clarify scope asset derecognition guidance add guidance partial sales nonfinancial assets clarify recognizing gains losses transfer nonfinancial assets contracts noncustomers certain transactions sale transfer product rights constitute business require accounting similar asc 606 including potential recognition variable consideration amended guidance may result earlier recognition variable consideration depending facts circumstances transaction cumulative effect accounting change resulted recognizing contract assets 167 million 130 million increase retained earnings net tax cumulative effect primarily attributed royalties termination fees licensing rights reacquired third parties expected received future eligible licensing exclusion result new guidance cumulative effect adjustment income net approximately 140 million lower 2018 compared would reported previous guidance presentation net periodic pension postretirement benefits amended guidance requiring net periodic benefit components defined benefit pension postretirement plans service costs recorded outside income operations income adopted first quarter 2018 retrospective basis cost products sold marketing selling administrative research development expenses increased aggregate corresponding offset income net adjusted amounts upon adoption new guidance follows definition business amended guidance revises definition business adopted prospectively first quarter 2018 amendments provide initial screen substantially fair value gross assets acquired disposed concentrated single identifiable asset group similar identifiable assets integrated set assets activities would represent business screen met set must include input substantive process together significantly contribute ability create outputs set represent business amendment also narrows definition term “output” requires transfer organized work force outputs exist amended guidance may result transactions accounted assets future impact results operations dependent individual facts circumstances transaction recognition measurement financial assets liabilities amended guidance recognition measurement presentation disclosures financial instruments adopted using modified retrospective method first quarter 2018 new guidance requires fair value adjustments equity investments readily determinable fair values reported earnings new guidance also requires qualitative impairment assessment equity investments without readily determinable fair value based upon observable price changes charge earnings impairment exists cumulative effect accounting change resulted 36 million reduction comprehensive lossincome corresponding 34 million increase retained earnings net tax refer “note 5 income net” information impact results operations accounting hedging activities amended guidance derivatives hedging adopted using modified retrospective method first quarter 2018 amended guidance revises expands items eligible hedge accounting simplifies hedge effectiveness testing changes timing recognition presentation certain hedged items certain disclosure requirements also modified hedging activities prospective basis adoption amended standard material impact company’s results operations reclassification certain tax effects accumulated comprehensive income amended guidance reclassification certain tax effects accumulated comprehensive income adopted prospectively fourth quarter 2018 new guidance permits reclassification income tax effect amounts recorded within accumulated comprehensive income impacted tax cuts jobs act retained earnings company recorded cumulative effect adjustment increase accumulated comprehensive loss 283 million corresponding increase retained earnings collaborative arrangements amended guidance clarifying interaction asc 606 revenue contracts customers asc 808 collaborative arrangements adopted retrospectively first quarter 2018 amended guidance clarifies certain transactions collaborative arrangement participants accounted presented revenue asc 606 adoption amended guidance impact company’s results operations recently issued accounting standards yet adopted leases february 2016 fasb issued amended guidance lease accounting amended guidance requires recognition rightofuse asset lease liability initially measured present value future lease payments leases term longer 12 months amended guidance adopted january 1 2019 modified retrospective approach companys assessment amended guidance substantially complete including implementation leasing software system procured third party vendor gathering lease information data assessment reasonable certainty exercising renewal termination options evaluation changes enhancements processes internal controls based assessment intend elect package practical expedients adoption apply shortterm lease recognition exemption leases terms 12 months less include option purchase underlying asset reasonably certain exercise apply portfolio approach discount real property lease liabilities using companys incremental borrowing rate real property leases provide implicit rate lease terms vary based nature operations market dynamics country however leased facilities classified operating leases remaining lease terms 1 20 years comprise approximately 90 total lease obligation discounted value approximately 600 million december 31 2018 amended guidance expected materially impact company’s results operations recognition rightofuse asset lease liability sublease income material companys results operations cumulative effect accounting change expected material companys results operations financial instruments measurement credit losses june 2016 fasb issued amended guidance measurement credit losses financial instruments entities required use forwardlooking estimated loss model availableforsale debt security credit losses recognized allowances rather reduction amortized cost guidance effective january 1 2020 early adoption permitted 2019 modified retrospective approach amended guidance expected materially impact company’s results operations goodwill impairment testing january 2017 fasb issued amended guidance simplifies recognition measurement goodwill impairment loss eliminating step 2 quantitative impairment test result impairment charges required amount reporting units carrying amount exceeds fair value amount allocated goodwill guidance effective prospective basis january 1 2020 early adoption permitted interim annual goodwill impairment tests performed january 1 2017 amended guidance expected materially impact company’s results operations note 2 revenue following table summarizes disaggregation revenue nature net product sales represent 90 company’s total revenues years ended december 31 2018 2017 2016 products sold principally wholesalers distributors lesser extent directly retailers hospitals clinics government agencies pharmacies customer orders generally fulfilled within days receipt resulting minimal order backlog contractual performance obligations usually limited transfer control product customer transfer occurs either upon shipment upon receipt product certain nonus countries considering customer obtains legal title product company obtains right payment points customers able direct use obtain substantially remaining benefits product gross revenue three largest pharmaceutical wholesalers us percentage global gross revenues follows wholesalers initially invoiced contractual list prices payment terms typically 30 90 days based customary practices country exception certain biologic products us including opdivo yervoy empliciti 90 days 120 days revenue reduced wholesaler list price time recognition expected chargebacks discounts rebates sales allowances product returns referred gtn adjustments reductions attributed various commercial arrangements managed healthcare organizations government programs medicare medicaid 340b drug pricing program containing various pricing implications mandatory discounts pricing protection wholesaler list price discounts medicare part beneficiaries coverage gap addition nonus government programs include different pricing schemes cost caps volume discounts outcomebased pricing clawbacks determined sales individual companies aggregation companies participating specific market chargebacks cash discounts reflected reduction receivables settled issuance credits customer typically within one month rebates discounts adjustments including medicaid medicare reflected liability settled cash payments customer typically within various time periods ranging months one year significant judgment required estimating gtn adjustments considering legal interpretations applicable laws regulations historical experience payer channel mix current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel following table summarizes gtn adjustments includes adjustments provisions product sales made prior periods resulting changes estimates 96 million 71 million 155 million years ended december 31 2018 2017 2016 respectively alliance revenues consist primarily amounts related collaborations outlicensing arrangements evaluated whether represent contracts within scope revenue recognition guidance entirety contain aspects within scope guidance either directly reference based upon application guidance related derecognition nonfinancial assets asc 610 performance obligations identified separated party benefit directly rights goods services either together readily available resources rights goods services highly interdependent interrelated transaction prices arrangements may include fixed upfront amounts well variable consideration contingent development regulatory milestones salesbased milestones royalties likely amount method used estimate contingent development regulatory salesbased milestones ultimate outcomes binary nature expected value method used estimate royalties broad range potential outcomes exist except instances royalties relate license variable consideration included transaction price extent significant reversal amount cumulative revenue recognized probable occurring uncertainty associated variable consideration subsequently resolved significant judgment required estimating amount variable consideration recognize assessing factors outside bms’s influence likelihood regulatory success limited availability third party information expected duration time resolution lack relevant past experience historical practice offering fee concessions large number broad range possible amounts extent arrangements include multiple performance obligations separable transaction price assigned distinct performance obligation reflective relative standalone selling price recognized point time upon transfer control three types outlicensing arrangements typically utilized 1 arrangements outlicense intellectual property another party performance obligations 2 arrangements include license additional performance obligation supply product upon request third party 3 collaboration arrangements include transferring license third party jointly develop commercialize product outlicensing arrangements consist single performance obligation satisfied upon execution agreement development commercialization rights transferred third party upfront fees recognized immediately included income net although contingent development regulatory milestone amounts assessed period likelihood achievement typically constrained recognized uncertainty subsequently resolved full amount milestone included income net salesbased milestones royalties recognized milestone achieved subsequent sales occur salesbased milestones included income net royalties included alliance revenue certain outlicensing arrangements may also include contingent performance obligations supply commercial product third party upon request license supply obligations accounted separate performance obligations considered distinct third party benefit license either together supply resources readily available obligations separately identifiable obligations contract accordance revenue recognition guidance considering standalone selling prices situations upfront fees contingent development regulatory milestone amounts salesbased milestone royalties allocated license recognized manner described consideration supply obligation usually based upon stipulated costplus margin contractual terms represent standalone selling price supply consideration recognized point time upon transfer control product third party included alliance revenue fee allocation license supply represents amount consideration company expects entitled satisfaction separate performance obligations although collaboration arrangements unique nature parties active participants operating activities exposed significant risks rewards depending commercial success activities performance obligations inherent arrangements may include transfer certain development commercialization rights ongoing development commercialization services product supply obligations except certain product supply obligations considered distinct accounted separate performance obligations similar manner discussed performance obligations considered distinct combined single performance obligation since transferred rights highly integrated interrelated obligation jointly develop commercialize product third party result upfront fees recognized ratably time throughout expected period collaboration activities included income net license combined development commercialization obligations contingent development regulatory milestones longer constrained recognized similar manner prospective basis royalties profit sharing recognized underlying sales profits occur included alliance revenue refer “note 3 alliances” information following table summarizes disaggregation revenue product region revenues included royalties alliancerelated revenues products sold regional commercial organizations following table summarizes contract assets december 31 2018 january 1 2018 contract assets primarily estimated future royalties termination fees eligible licensing exclusion therefore recognized upon adoption asc 606 asc 610 contract assets reduced receivables increased period underlying sales occur contingent development regulatory milestones outlicensing arrangements 13 billion constrained recognized considering likelihood significant reversal cumulative amount revenue occurring cumulative catchup adjustments revenue affecting contract assets contract liabilities material year ended december 31 2018 revenue recognized performance obligation satisfied prior periods 495 million year ended december 31 2018 consisting primarily royalties outlicensing arrangements revised estimates gtn adjustments related prior period sales commissions incremental costs obtaining customer contracts expensed incurred amortization periods would less one year note 3 alliances bms enters collaboration arrangements third parties development commercialization certain products although arrangements unique nature parties active participants operating activities collaboration exposed significant risks rewards depending commercial success activities bms may either inlicense intellectual property owned party outlicense intellectual property party arrangements also typically include research development manufacturing andor commercial activities cover single investigational compound commercial product multiple compounds andor products various life cycle stages rights obligations parties global limited geographic regions refer collaborations alliances partners alliance partners common activities bms alliance partners presented results operations follows • bms principal end customer sale 100 product sales included net product sales bmss alliance partner principal end customer sale bmss contractual share thirdparty sales andor royalty income included alliance revenues sale commercial products considered part bmss ongoing major central operations refer “note 2 revenue” information regarding recognition criteria • amounts payable bms alliance partners principal end customer sale supply commercial products included alliance revenues sale commercial products considered part bmss ongoing major central operations • profit sharing royalties salesbased fees payable bms alliance partners included cost products sold incurred • cost reimbursements parties recognized incurred included cost products sold marketing selling administrative expenses research development expenses based underlying nature related activities subject reimbursement • upfront contingent development approval milestones payable bms alliance partners investigational compounds commercial products deferred amortized expected period bmss development copromotion obligation market exclusivity period periods related compounds products expected contribute future cash flows amortization presented consistent nature payment arrangement example amounts received investigational compounds presented income net activities performed time related sale commercial products included bms’s ongoing major central operations amounts received commercial products presented alliance revenue sale commercial products considered part bms’s ongoing major central operations • upfront contingent approval milestones payable bms alliance partners commercial products capitalized amortized shorter contractual term periods related products expected contribute future cash flows amortization included cost products sold • upfront contingent milestones payable bms alliance partners prior regulatory approval expensed incurred included research development expense • royalties contingent consideration payable bms alliance partners related divestiture businesses included income net earned • payments bms alliance partners presented cash flows operating activities except otherwise described selected financial information pertaining alliances follows including net product sales bms principal thirdparty customer sale products subject alliance expenses summarized include amounts attributed activities products alliance payments alliance partners related amortization payments deferred capitalized certain prior period amounts included revised exclude amounts arrangements longer meet criteria collaboration arrangements includes unamortized upfront milestone payments specific information pertaining significant alliances discussed including nature purpose significant rights obligations parties specific accounting policy elections income statement classification amounts attributable payments parties pfizer bms pfizer jointly develop commercialize eliquis anticoagulant discovered bms pfizer funds 50 60 development costs depending study profits losses shared equally global basis except certain countries pfizer commercializes eliquis pays bms salesbased fee coexclusive license rights granted pfizer exchange upfront payment potential milestone payments parties assumed certain obligations actively participate joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms pfizer manufacture product alliance bms principal end customer product sales us significant countries europe well canada australia china japan south korea 2015 bms transferred full commercialization rights pfizer certain smaller countries order simplify operations transferred countries bms supplies product pfizer cost plus percentage net sales price endcustomers recorded full upon transfer control product pfizer company allocate consideration rights transferred pfizer rights sold separately bms party could pfizer receive benefit delivered rights without fulfillment ongoing obligations bms alliance agreement global alliance treated single unit accounting upfront proceeds subsequent contingent milestone proceeds amortized expected period bmss copromotion obligation market exclusivity period bms received 884 million nonrefundable upfront milestone licensing payments related eliquis december 31 2018 amortization eliquis deferred income included income net eliquis commercial product commencement alliance summarized financial information related alliance follows otsuka bms otsuka copromote sprycel us eu parties actively participate various governance committees however bms control decision making bms responsible development manufacture product also principal end customer product sales fee paid otsuka based net sales levels oncology territory us japan eu equates 294 million first 1 billion annual net sales plus 1 net sales excess 1 billion summarized financial information related alliance follows bms also worldwide commercialization agreement otsuka codevelop copromote abilify us portion agreement expired april 2015 eu portion expired june 2014 countries bms exclusive right sell abilify expiration occurred countrybycountry basis last expiration canada january 2018 ono bms ono jointly develop commercialize opdivo yervoy several bms investigational compounds japan south korea taiwan bms responsible supply products profits losses development costs shared equally combination therapies involving compounds parties otherwise sharing 80 20 activities involving one party’s compounds bms ono also jointly develop commercialize orencia japan bms responsible order fulfillment distribution intravenous formulation ono responsible subcutaneous formulation formulations jointly promoted parties assigned customer accounts bms responsible product supply copromotion fee 60 paid sale made party’s assigned customer 2017 ono granted bms exclusive license development commercialization ono4578 ono’s prostaglandin e2 receptor 4 antagonist bms acquired worldwide rights except japan south korea taiwan added existing collaboration china asean countries ono retained exclusive rights bms paid 40 million ono included research development expense 2017 ono eligible receive subsequent clinical regulatory salesbased milestone payments 480 million royalties countries bms exclusive licensing rights 2018 bms provided ono right accept nktr214 alliance upon completion phase clinical study opdivo nktr214 ono territory right exercised ono partially reimburse bms development costs incurred study share certain future development costs contingent milestone payments profits losses collaboration nektar summarized financial information related alliance follows bms principal end customer product sales exclusive right develop manufacture commercialize opdivo worldwide except japan south korea taiwan ono entitled receive royalties 4 north america 15 territories excluding three countries listed subject customary adjustments gilead bms gilead operate joint venture europe develop commercialize combination product named atripla combines bmss sustiva gileads truvada joint venture consolidated gilead principal end customer product sales bms receives percentage end customer sales recorded alliance revenues joint venture continue either party terminates arrangement last patent expires allows market exclusivity atripla prior 2018 bms gilead operated joint venture us canada atripla terminated following launch generic version sustiva thirdparty us result deferred income alliance receivables attributed sustiva product held joint venture december 31 2017 reduced 438 million reflect posttermination selling price bms entitled fee equal 55 atripla us net sales multiplied ratio difference average net selling prices atripla truvada atripla average net selling price 2018 fee reduced 35 2019 15 2020 atripla us net sales multiplied ratio described bms supplies sustiva cost plus markup gilead threeyear period may terminate supply agreement notice period summarized financial information related alliance follows nektar 2018 bms nektar commenced worldwide license collaboration development commercialization nktr214 nektars investigational immunostimulatory therapy designed selectively expand specific cancerfighting cells natural killer cells directly tumor microenvironment opdivo nktr214 combination therapy currently phase ii clinical studies multiple cancer indications phase iii clinical studies melanoma rcc joint development plan agreed parties contemplates development various indications tumor types party responsible supply product bmss share development costs associated therapies comprising bms medicine used combination nktr214 675 subject certain cost caps nektar parties also jointly commercialize therapies subject regulatory approval bmss share global nktr214 profits losses 35 subject certain annual loss caps nektar bms paid nektar 185 billion rights discussed 83 million shares nektar common stock representing 48 ownership interest bmss equity ownership subject certain lockup standstill voting provisions fiveyear period amount upfront payment allocated equity investment 800 million considering nektars stock price date closing current limitations trading securities remaining 105 billion upfront payment allocated rights discussed included research development expense second quarter 2018 bms also pay 18 billion upon achievement contingent development regulatory salesbased milestones life alliance period research development expense payable agreement nektar 59 million year ended december 31 2018 abbvie bms abbvie jointly develop commercialize empliciti humanized monoclonal antibody treatment multiple myeloma parties participate development us commercialization committees bms final decision making authority abbvie funds 20 global development costs bms solely responsible supply distribution sales marketing activities principal end customer product sales abbvie shares 30 profits losses us paid tiered royalties outside us abbvie also entitled receive additional 100 million certain regulatory events occur 200 million certain sales thresholds achieved agreement may terminated immediately bms either party material breaches subsequent notice period summarized financial information related alliance follows note 4 acquisitions divestitures licensing arrangements acquisitions evaluated determine whether business asset group assets following transactions accounted asset acquisitions since determined business term defined asc 805 primarily significant processes acquired result amounts allocated lead investigational compounds expensed capitalized consideration transaction upon execution last 3 years allocated follows relates net operating loss tax credit carryforwards b includes 25 million certain negotiation rights collaborate license acquire nlrp3 antagonist program newly formed entity established former shareholders ifm 2017 bms acquired outstanding shares ifm private biotechnology company focused developing therapies modulate novel targets innate immune system treat cancer autoimmunity inflammatory diseases acquisition provided bms full rights ifms preclinical sting nlrp3 agonist programs focused enhancing innate immune response treating cancer contingent consideration includes development regulatory salesbased milestone payments 25 million included research development expense 2018 following commencement phase clinical study bms may pay 555 million additional contingent milestones subsequent products selected ifms preclinical sting nlrp3 agonist programs included contingent consideration amount table cormorant 2016 bms acquired outstanding shares cormorant private pharmaceutical company focused developing therapies cancer rare diseases acquisition provided bms full rights cormorants lead candidate humaxil8 phase iii monoclonal antibody represents potentially complementary io mechanism action tcell directed antibodies costimulatory molecules contingent consideration includes development regulatory milestone payments 60 million included research development expense 2018 upon conclusion 18month reversion option period padlock 2016 bms acquired outstanding shares padlock private biotechnology company dedicated creating new medicines treat destructive autoimmune diseases acquisition provided bms full rights padlock’s pad inhibitor discovery program focused development potentially transformational treatment approaches patients ra padlock’s pad discovery program may additional utility treating systemic lupus erythematosus autoimmune diseases contingent consideration includes development regulatory milestone payments cardioxyl 2015 bms acquired outstanding shares cardioxyl private biotechnology company focused discovery development novel therapeutic agents cardiovascular disease acquisition provided bms full rights cxl1427 nitroxyl prodrug phase ii development acute decompensated heart failure contingent consideration includes development regulatory salesbased milestone payments 100 million included research development expense 2017 following commencement phase ii clinical study flexus 2015 bms acquired outstanding shares flexus private biotechnology company focused discovery development novel anticancer therapeutics acquisition provided bms full rights preclinical small molecule ido1inhibitor targeted immunotherapy addition bms acquired flexuss idotdo discovery program includes idoselective idotdo dual tdoselective compounds contingent consideration includes development regulatory milestone payments 350 million 100 million included research development expense 2017 2016 respectively following commencement phase ii phase iii clinical studies divestitures following table summarizes proceeds gains royalty income resulting divestitures revenue pretax earnings related divestitures assets heldforsale material periods presented excluding divestiture gains includes royalties received subsequent related sale asset business diabetes business february 2014 bms astrazeneca terminated diabetes business alliance agreements bms sold astrazeneca substantially diabetes business comprising alliance divestiture included shares amylin resulting transfer ohio manufacturing facility intellectual property related onglyza farxiga including bmss interest outlicensing agreement onglyza japan purchase bms’s manufacturing facility located mount vernon indiana 2015 consideration transaction included 27 billion payment closing contingent regulatory salesbased milestone payments 14 billion including 800 million related approval milestones 600 million related salesbased milestones payable 2020 tiered royalty payments ranging 10 25 based net sales 2025 payments 225 million certain assets transferred astrazeneca also pay bms required product supply price approximating product cost well negotiated transitional service fees consideration allocated development supply agreements amortized applicable service periods amortization deferred income attributed development agreement ended december 2016 113 million 2016 included income net sale services considered part bms’s ongoing major central operations amortization deferred income attributed supply agreement ended december 2017 recorded alliance revenues attributed supply agreement included alliance revenues material 2018 2017 2016 royalties presented income net 457 million 2018 229 million 2017 227 million 2016 contingent consideration 100 million received 2017 resulting additional gain upon achievement regulatory approval milestone september 2015 bms transferred percentage future royalty rights amylin net product sales us cppib transferred rights represent approximately 70 potential future royalties bms entitled 2019 2025 exchange transfer bms received additional tieredbased royalty amylin net product sales us cppib 2016 2018 royalties presented income net 45 million 2018 100 million 2017 134 million 2016 november 2017 bms transferred percentage future royalty rights portion onglyza farxiga net product sales royalty pharma transferred rights represent approximately 20 25 potential future royalties bms entitled products 2020 2025 exchange transfer bms receive additional tieredbased royalty onglyza farxiga net product sales royalty pharma 2018 2019 royalties presented income net 159 million 2018 erbitux business bms commercialization agreement lilly’s subsidiary imclone codevelopment promotion erbitux us canada japan bms principal end customer product sales north america paid lilly distribution fee 39 erbitux net sales north america plus share certain royalties paid lilly october 2015 bms transferred rights erbitux north america lilly exchange tiered salesbased royalties september 2018 included income net royalties earned 145 million 2018 207 million 2017 227 million 2016 bms transferred cocommercialization rights japan merck kgaa 2015 exchange salesbased royalties 2032 included income net earned royalties earned 17 million 2017 19 million 2016 result adoption asc 610 first quarter 2018 estimated future royalties resulting transfer rights merck kgaa recorded cumulative effect adjustment retained earnings subsequent changes estimates recorded income net refer “note 1 accounting policies recently issued accounting standards” details manufacturing operations 2017 bms sold small molecule active pharmaceutical ingredient manufacturing operations swords ireland sk biotek approximately 165 million subject certain adjustments initial proceeds 158 million received first quarter 2018 transaction accounted sale business divestiture includes transfer facility majority employees site inventories certain thirdparty contract manufacturing obligations assets reduced estimated relative fair value considering purchase price resulting impairment charge 146 million included cost products sold sk biotek provide certain manufacturing services bms 2022 plavix avaproavalide sanofi reacquired bmss codevelopment cocommercialization agreements plavix avaproavalide 2013 consideration transfer rights included quarterly royalties december 31 2018 200 million terminal payment received 2018 120 million allocated optout markets 80 million allocated bmss 499 interest europe asia territory partnership royalties expected received 2018 portion terminal payment allocated optout markets reflected contract asset cumulative effect adjustment upon adoption asc 610 2018 bms fulfilled performance obligation 80 million allocated bmss partnership interest deferred december 31 2018 recognized income net transfer sanofi 2019 refer “note 1 accounting policies recently issued accounting standards” details royalties earned sanofi territory covering americas australia optout markets presented alliance revenues aggregated 26 million 2018 200 million 2017 195 million 2016 royalties attributed territory covering europe asia earned territory partnership paid bms included equity net income affiliates amounted 96 million 2018 95 million 2017 95 million 2016 investigational hiv business 2016 bms sold investigational hiv medicines business consisting number rd programs different stages discovery development viiv healthcare bms received 350 million also entitled receive viiv healthcare contingent development regulatory milestone payments 11 billion salesbased milestone payments 43 billion future tiered royalties bms earned transitional fees 10 million 105 million certain rd services 2017 2016 respectively otc business 2016 bms sold reckitt otc business containing brands sold primarily mexico brazil 317 million gain 277 million including trademarks inventory certain assets exclusively related products manufacturing facility located mexico primarily dedicated products mature brands divestitures include several brands sold cheplapharm resulting proceeds 153 million divestiture gains 127 million 2018 assets heldforsale 2018 bms agreed sell upsa consumer health business 16 billion transaction expected close second quarter 2019 accounted sale business accounted heldforsale december 31 2018 accordingly assets 479 million reclassified assets heldforsale included within prepaid expenses including 79 million receivables 81 million inventory 187 million property plant equipment 127 million goodwill additionally liabilities 152 million reclassified liabilities related assets heldforsale included within accrued liabilities including 78 million accrued liabilities 35 million accounts payable 25 million deferred tax liabilities 14 million liabilities december 31 2018 2017 bms agreed sell rd facility wallingford connecticut transaction closed 2018 accounted sale asset facility accounted heldforsale december 31 2017 reduced estimated relative fair value resulting impairment charge 79 million included research development expense licensing arrangements promedior 2015 bms purchased warrant gives bms exclusive right acquire promedior biotechnology company whose lead asset prm151 developed treatment ipf mf warrant exercisable upon delivery phase ii data following either ipf mf phase ii clinical studies directed promedior upfront payment allocated warrant 84 million included research development expense 2015 remaining 66 million 150 million upfront payment allocated promedior’s obligation complete phase ii studies amortized expected period phase ii studies allocation determined using level 3 inputs 2018 bms notified promedior would exercise warrant purchase outstanding shares promedior halozyme 2017 bms halozyme entered global collaboration license agreement develop subcutaneously administered bms io medicines using halozymes enhanze drugdelivery technology may allow rapid delivery large volume injectable medications subcutaneous delivery bms paid 105 million halozyme access technology included research development expense bms designated multiple io targets including pd1 develop using enhanze technology option select additional targets within five years effective date maximum 11 targets bms may pay contingent development regulatory salesbased milestones 160 million achieved nominated collaboration targets additional milestone payments combination products future royalties sales products using enhanze technology cytomx 2017 bms expanded strategic collaboration cytomx discover novel therapies using cytomx’s proprietary probody platform part original may 2014 collaboration discover develop commercialize probody therapeutics bms selected four oncology targets including ctla4 pursuant expanded agreement cytomx granted bms exclusive worldwide rights develop commercialize probody therapeutics eight additional targets bms paid cytomx 75 million rights initial four targets expensed rd prior 2017 bms paid 200 million cytomx access additional targets included research development expense 2017 bms also reimburse cytomx certain research costs collaboration period pay contingent development regulatory salesbased milestones 448 million achieved collaboration target future royalties biogen 2017 bms outlicensed biogen exclusive rights develop commercialize bms986168 antietau compound development progressive supranuclear palsy biogen paid 300 million bms included income net bms also entitled contingent development regulatory salesbased milestone payments 410 million achieved future royalties bms originally acquired rights compound 2014 acquisition ipierian biogen assumed bms’s remaining obligations former stockholders ipierian roche 2017 bms outlicensed roche exclusive rights develop commercialize bms986089 antimyostatin adnectin development duchenne muscular dystrophy roche paid 170 million bms included income net bms also entitled contingent development regulatory milestone payments 205 million achieved future royalties nitto denko 2016 bms nitto denko entered exclusive worldwide license agreement granting bms right develop commercialize nitto denkos investigational sirna molecules targeting hsp47 vitamin containing formulations includes nitto denkos lead asset ndl02s0201 currently phase ii study treatment advanced liver fibrosis bms paid 100 million nitto denko included research development expense bms may pay contingent development regulatory salesbased milestones 898 million achieved future royalties agreement also grants bms option receive exclusive licenses hsp47 sirnas vitamin containing formulations treatment lung fibrosis organ fibrosis fstar 2014 bms acquired exclusive option purchase fstar lead asset fs102 antiher2 antibody fragment development treatment breast gastric cancer among welldefined population her2positive patients 2017 bms discontinued development fs102 exercise option resulting iprd charge 75 million included research development expense attributed noncontrolling interest note 5 income net • lossgain equity investments includes fair value adjustment 534 million related companys equity investment nektar 2018 • litigation settlements include 481 million bmss share patentinfringement settlement related mercks pd1 antibody keytruda 2017 • royalties licensing income includes royalties resulting business divestitures intellectual property legal settlements upfront licensing fees including 470 million biogen roche 2017 • transition service fees primarily related divestiture diabetes investigational hiv medicines businesses 2016 note 6 restructuring october 2016 company announced restructuring plan evolve streamline operating model expects incur charges connection employee workforce reductions early site exits majority charges expected incurred 2020 range 15 billion 20 billion consist employee termination benefit costs contract termination costs accelerated depreciation impairment charges site exit costs cash outlays connection actions expected approximately 40 50 total charges approximately 11 billion recognized actions since announcement including impairment charge small molecule manufacturing operation swords ireland restructuring charges recognized upon meeting certain criteria including finalization committed plans reliable estimates discussions local works councils certain markets restructuring charges addition actions recognized prior primarily related specialty care transformation initiatives designed create simplified organization across functions geographic markets addition accelerated depreciation charges incurred connection expected early exits small molecule manufacturing site cruiserath ireland rd facility wallingford connecticut refer “note 4 acquisitions divestitures licensing arrangements” information employee workforce reductions approximately 900 2018 1900 2017 1100 2016 following tables summarize charges activity related restructuring actions note 7 income taxes provisionbenefit income taxes consisted effective tax rate reconciliation effective tax rate us statutory federal income tax rate new tax reform legislation enacted december 22 2017 known tax cuts jobs act 2017 act moved worldwide tax system quasiterritorial tax system comprised broad complex changes us tax code including limited 1 reduced us tax rate 35 21 2 added deemed repatriation transition tax certain foreign earnings profits 3 generally eliminated us federal income taxes dividends foreign subsidiaries 4 included certain income controlled foreign companies us taxable income gilti 5 created new minimum tax referred base erosion antiabuse income tax 6 limited certain us federal research based credits 7 eliminated domestic manufacturing deduction although many aspects act effective 2018 additional tax expense 29 billion recognized fourth quarter 2017 upon enactment including 26 billion onetime deemed repatriation transition tax previously untaxed post1986 foreign earnings profits including related tax reserves earnings effectively taxed 155 rate extent specified foreign corporations held cash certain assets 80 rate remaining earnings profits remaining additional tax expense included adjustment measure net deferred tax assets new us tax rate 21 provisional tax charge deemed repatriation transition tax including related tax reserves staff accounting bulletin 118 reduced 56 million 2018 accounting reduction deferred tax assets 21 tax rate complete december 31 2017 tax charge deemed repatriation transition tax complete december 31 2018 prior enactment act earnings certain manufacturing operations low tax jurisdictions switzerland ireland puerto rico indefinitely reinvested result transition tax act company longer indefinitely reinvested respect undistributed earnings foreign subsidiaries provided deferred tax liability foreign state income withholding tax would apply company remains indefinitely reinvested respect financial statement basis excess tax basis foreign subsidiaries determination deferred tax liability respect basis difference practicable bms operates favorable tax grant puerto rico scheduled expire prior 2023 valuation allowance set 2018 result nektar equity investment fair value losses would considered limited capital loss us federal state foreign contingent tax matters includes 119 million tax benefit 2018 respect lapse statutes goodwill allocated business divestitures well us branded prescription drug fee deductible tax purposes rd charges primarily acquisition related milestone payments former shareholders deductible tax purposes include cormorant ifm 2018 flexus cardioxyl ifm 2017 flexus padlock cormorant 2016 puerto rico imposes excise tax gross company purchase price goods sold manufacturer puerto rico excise tax recognized cost products sold intraentity sale occurs us income tax purposes excise tax deductible results foreign tax credits generally recognized provision income taxes excise tax incurred deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows us federal net operating loss carryforwards 206 million december 31 2018 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 foreign state net operating loss carryforwards expire varying amounts beginning 2018 certain amounts unlimited lives december 31 2018 valuation allowance 32 billion established following items 29 billion primarily foreign net operating loss tax credit carryforwards 134 million state deferred tax assets including net operating loss tax credit carryforwards 138 million us federal deferred tax assets including equity fair value adjustments us federal net operating loss carryforwards changes valuation allowance follows income tax payments 747 million 2018 546 million 2017 20 billion 2016 business conducted various countries throughout world subject tax numerous jurisdictions significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported requiring several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credit deductibility certain expenses deemed repatriation transition tax liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows additional information regarding unrecognized tax benefits follows accrued interest penalties payable unrecognized tax benefits included either current noncurrent income taxes payable interest penalties related unrecognized tax benefits included income tax expense bms currently examination number tax authorities proposed considering proposing material adjustments tax positions issues transfer pricing certain tax credits deductibility certain expenses reasonably possible new issues raised tax authorities may require adjustments amount unrecognized tax benefits however estimate adjustments cannot reasonably made time also reasonably possible total amount unrecognized tax benefits december 31 2018 could decrease range approximately 320 million 360 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits may result payment additional taxes adjustment certain deferred taxes andor recognition tax benefits reasonably possible new issues raised tax authorities may increase unrecognized tax benefits however estimate increases cannot reasonably made time bms believes adequately provided open tax years tax jurisdiction following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited note 8 earnings per share note 9 financial instruments fair value measurements financial instruments include cash equivalents marketable securities accounts receivable payable debt instruments derivatives changes exchange rates interest rates create exposure market risk certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur derivative financial instruments used trading purposes financial instruments subject counterparty credit risk considered part overall fair value measurement counterparty credit risk monitored ongoing basis mitigated limiting amounts outstanding individual counterparty utilizing conventional derivative financial instruments entering agreements counterparties meet high credit quality standards consolidated financial statements would materially impacted counterparty failed perform according terms agreement collateral required party whether derivatives asset liability position terms agreements fair value measurements fair value financial instruments classified one following categories level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets additionally certain corporate debt securities utilize thirdparty matrix pricing model using significant inputs corroborated market data substantially full term assets equity fixed income funds primarily invested publicly traded securities valued respective nav underlying investments level 2 derivative instruments valued using libor yield curves less credit valuation adjustments observable forward foreign exchange rates reporting date valuations derivative contracts may fluctuate considerably volatility underlying foreign currencies underlying interest rates driven market conditions duration contract level 3 unobservable inputs used little market data available level 3 financial assets liabilities december 31 2018 2017 financial assets liabilities measured fair value recurring basis summarized availableforsale securities changes fair value equity investments included income net upon adoption asu 201601 first quarter 2018 following table summarizes debt equity securities classified availableforsale includes equity investments readily determinable fair values measured using fair value option december 31 2017 b includes equity fixed income funds measured using fair value option december 31 2017 refer “note1 accounting policies recently issued accounting standards” information c noncurrent marketable securities mature within five years december 31 2018 december 31 2017 equity investments measured fair value excluded table limited partnerships equity method investments 114 million december 31 2018 66 million december 31 2017 equity investments without readily determinable fair values 206 million december 31 2018 152 million december 31 2017 amounts included assets adjustments equity investments without readily determinable fair values 19 million resulting observable price changes similar securities issuer recorded income net following table summarizes net loss recorded equity investments readily determinable fair values held december 31 2018 qualifying hedges nonqualifying derivatives cash flow hedges foreign currency forward contracts used hedge certain forecasted intercompany inventory purchases sales transactions certain foreign currency transactions fair value contracts designated cash flow hedges temporarily reported accumulated comprehensive loss included earnings hedged item affects earnings upon adoption amended guidance derivatives hedging entire change fair value hedging instrument included assessment hedge effectiveness recorded derivatives qualifying cash flow hedges component comprehensive lossincome net gain loss foreign currency forward contracts expected reclassified net earnings primarily included cost products sold within next 12 months notional amount outstanding foreign currency forward contracts primarily attributed euro 12 billion japanese yen 464 million december 31 2018 earnings impact related discontinued cash flow hedges hedge ineffectiveness significant periods presented cash flow hedge accounting discontinued forecasted transaction longer probable occurring within 60 days originally forecasted date hedge longer effective assessments determine whether derivatives designated qualifying hedges highly effective offsetting changes cash flows hedged items performed inception quarterly basis foreign currency forward contracts designated hedging instruments used offset exposures certain foreign currency denominated assets liabilities earnings changes fair value derivatives recognized earnings occur net investment hedges nonus dollar borrowings €950 million 11 billion december 31 2018 designated hedge euro currency exposures net investment certain foreign affiliates borrowings designated net investment hedges recognized long term debt effective portion foreign exchange gain remeasurement euro debt 45 million 48 million 2018 2016 respectively loss 134 million 2017 recorded foreign currency translation component accumulated comprehensive loss related offset longterm debt january 2018 bms entered 300 million crosscurrency interest rate swap contracts maturing december 2022 designated hedge japanese yen currency exposures companys net investment japan subsidiary contract fair value changes recorded foreign currency translation component comprehensive lossincome related offset pension liabilities fair value hedges fixed floating interest rate swap contracts designated fair value hedges used interest rate risk management strategy create appropriate balance fixed floating rate debt contracts underlying debt hedged benchmark risk recorded fair value effective interest rate contracts onemonth libor 250 december 31 2018 plus interest rate spread ranging 03 46 gains losses resulting changes fair value underlying debt attributable hedged benchmark interest rate risk recorded interest expense associated offset carrying value debt since specific terms notional amount swap intended match debt hedged changes fair value swap recorded interest expense associated offset derivative asset liability consolidated balance sheet result net impact earnings underlying swap terminated prior maturity fair value adjustment underlying debt amortized reduction interest expense remaining term debt following summarizes fair value outstanding derivatives included prepaid expenses assets b included accrued liabilities pension liabilities following table summarizes financial statement classification amount gainloss recognized hedging instruments following table summarizes effect derivative nonderivative instruments designated hedging instruments comprehensive lossincome amount expected reclassified earnings next 12 months debt obligations shortterm debt obligations include average amount commercial paper outstanding 19 million 389 million weightedaverage interest rate 127 117 2018 2017 respectively maximum amount commercial paper outstanding 300 million outstanding borrowings december 31 2018 maximum amount commercial paper outstanding 13 billion 299 million outstanding borrowings december 31 2017 longterm debt current portion longterm debt includes fair value longterm debt 71 billion 75 billion december 31 2018 2017 respectively valued using level 2 inputs based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments senior unsecured notes issued registered public offerings 2017 notes rank equally right payment bmss existing future senior unsecured indebtedness redeemable whole part time predetermined redemption price following table summarizes issuance longterm debt obligations 2017 none 2018 2016 bms repaid 750 million 0875 notes maturity 2017 company repurchased certain longterm debt obligations interest rates ranging 5875 6875 2017 following summarizes debt redemption activity including acceleration debt issuance costs gain previously terminated interest rate swap contracts related fees interest payments 212 million 2018 215 million 2017 191 million 2016 net amounts received interest rate swap contracts december 31 2018 company three separate revolving credit facilities totaling 50 billion syndicate lenders including two 15 billion facilities expiring september 2022 july 2023 extendable annually one year anniversary date consent lenders january 2019 existing 364 day 20 billion facility expiring march 2019 replaced new 364 day 20 billion facility expiring january 2020 new threeyear 10 billion facility expiring january 2022 entered credit facilities provide customary terms conditions financial covenants borrowings outstanding revolving credit facility december 31 2018 2017 available financial guarantees provided form bank overdraft facilities standby letters credit performance bonds approximately 10 billion december 31 2018 standby letters credit issued financial institutions support guarantees various obligations performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions note 10 receivables nonus receivables sold nonrecourse basis 756 million 2018 637 million 2017 618 million 2016 aggregate receivables three pharmaceutical wholesalers us represented 70 65 total trade receivables december 31 2018 2017 respectively changes allowances bad debt chargebacks cash discounts follows note 11 inventories assets include inventory expected remain hand beyond one year periods note 12 property plant equipment leases depreciation expense 505 million 2018 682 million 2017 448 million 2016 annual minimum rental commitments noncancelable operating leases primarily real estate motor vehicles approximately 100 million next five years aggregate 200 million thereafter operating lease expense approximately 130 million 2018 120 million 2017 140 million 2016 sublease income capital lease obligations material periods presented note 13 goodwill intangible assets period adjustment included year ended december 31 2018 reduce goodwill increase accumulated comprehensive loss 180 million attributed goodwill prior acquisitions foreign entities previously recorded correct local currency adjustment impact consolidated results operations material previously reported balance sheets amortization expense intangible assets 198 million 2018 190 million 2017 178 million 2016 future annual amortization expense intangible assets expected approximately 230 million 2019 190 million 2020 160 million 2021 130 million 2022 100 million 2023 intangible asset impairment charges 84 million 2018 80 million 2017 33 million 2016 2018 64 million impairment charge recorded income net outlicensed asset obtained 2010 acquisition zymogenetics inc meet primary endpoint phase ii clinical study 75 million iprd charge recognized attributed noncontrolling interest bms declined exercise option purchase fstar 2017 note 14 accrued liabilities note 15 equity cumulative effect resulting adoption asu 201616 b refer “note 1 accounting policies recently issued accounting standards” additional information c cash dividends declared per common share 161 157 153 2018 2017 2016 respectively bms stock repurchase program authorized board directors allowing repurchases open market private transactions including plans established accordance rule 10b51 securities exchange act 1934 stock repurchase program expiration date may suspended discontinued time treasury stock recognized cost reacquire shares issued treasury recognized utilizing firstin firstout method bms repurchased 2 billion common stock 2017 accelerated share repurchase agreements funded combination debt cash components comprehensive lossincome follows included cost products sold b included income net accumulated balances related component comprehensive lossincome net taxes follows note 16 retirement benefits bms sponsors defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan “plan” covering us employees representing approximately 66 consolidated pension plan assets 60 obligations future benefits related service plan eliminated 2009 bms contributes least minimum amount required erisa plan benefits based primarily participant’s years credited service final average compensation december 2018 plan assets consist primarily fixedincome securities december 2018 bms announced plans fully terminate bristolmyers squibb retirement income plan “plan” pension obligations related plan 36 billion distributed combination lump sum payments eligible plan participants elect payments purchase group annuity contract athene annuity life company athene whollyowned insurance subsidiary athene holding ltd benefit obligation plan december 31 2018 therefore determined plan termination basis assumed portion eligible active deferred vested participants elect lump sum payments remaining obligation expected transferred athene includes annuity purchase price premium plan sufficient assets satisfy transaction obligations transaction expected close third quarter 2019 time company expects record total noncash pretax pension settlement charge approximately 15 billion 20 billion net periodic benefit costcredit defined benefit pension plans includes pension settlement charges recognized determining annual lump sum payments exceed annual interest service costs certain pension plans including primary us pension plan 2018 2017 2016 changes defined benefit pension plan obligations assets funded status amounts recognized consolidated balance sheets follows accumulated benefit obligation defined benefit pension plans 60 billion 67 billion december 31 2018 2017 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine defined benefit pension plan obligations december 31 follows weightedaverage actuarial assumptions used determine defined benefit pension plan net periodic benefit costcredit years ended december 31 follows yield high quality corporate bonds matching duration benefit obligations used determining discount rate citi pension discount curve used developing discount rate us plans expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” approximated fair value plan assets december 31 2018 differences assumed actual returns amortized marketrelated value straightline basis threeyear period several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class historical longterm actual annualized returns us pension plans follows actuarial gains losses resulted changes actuarial assumptions changes discount rate revised mortality rates differences assumed actual experience differences actual expected return plan assets actuarial gains 2018 related plan benefit obligations primarily result increases discount rates actuarial losses 2017 related plan benefit obligations primarily result decreases discount rates gains losses amortized life expectancy plan participants us plans 33 years 2019 expected remaining service periods plans extent exceed 10 higher marketrelated value projected benefit obligation respective plan result adopting asu 201707 refer “note 1 accounting policies recently issued accounting standards” details periodic benefit cost credit included income net except service cost component included cost products sold research development marketing selling administrative expenses postretirement benefit plans comprehensive medical group life benefits provided substantially us retirees electing participate comprehensive medical group life plans lesser extent certain benefits nonus employees medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally equity fixedincome securities postretirement benefit plan obligations 253 million 298 million december 31 2018 2017 respectively fair value plan assets 331 million 364 million december 31 2018 2017 respectively weightedaverage discount rate used determine benefit obligations 39 33 december 31 2018 2017 respectively net periodic benefit credits material plan assets fair value pension postretirement plan assets asset category december 31 2018 2017 follows investment valuation policies per investment class follows level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs instruments include equity securities equity funds fixed income funds publicly traded national securities exchange cash equivalents cash equivalents highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets observable inputs corroborated market data substantially full term assets liabilities equity funds fixed income funds shortterm investment funds classified level 2 within fair value hierarchy valued nav shares held year end represents fair value corporate debt securities us treasury agency securities classified level 2 within fair value hierarchy valued utilizing observable prices similar instruments quoted prices identical similar instruments markets active level 3 unobservable inputs used little market data available insurance contracts held certain foreign pension plans carried contract value approximates estimated fair value based fair value underlying investment insurance company venture capital limited partnership investments typically redeemable distributions upon liquidation underlying assets significant unfunded commitments investments essentially liquidations expected occur end 2019 remaining investments using practical expedient redeemable weekly monthly basis investment strategy maximize return maintaining appropriate level risk provide sufficient liquidity benefit obligations plan expenses 2018 target allocation 97 longduration fixed income 3 private equity adopted maintained principal defined benefit pension plan bristolmyers squibb retirement income plan bms common stock represents less 1 plan assets december 31 2018 2017 contributions estimated future benefit payments contributions pension plans 71 million 2018 396 million 2017 81 million 2016 expected material 2019 estimated annual future benefit payments nonterminating plans including lump sum payments approximately 100 million next five years subsequent five year period savings plans principal defined contribution plan bristolmyers squibb savings investment program contribution based employee contributions level company match expense attributed defined contribution plans us approximately 200 million 2018 2017 2016 note 17 employee stock benefit plans may 1 2012 shareholders approved 2012 plan replaced 2007 stock incentive plan 2012 plan provides 109 million shares authorized grants plus shares outstanding awards 2007 plan february 29 2012 expire forfeited canceled withheld satisfy tax withholding obligations december 31 2018 102 million shares available award shares issued treasury stock satisfy obligations plan executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable ratably four years maximum term ten years plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price company granted stock options stock appreciation rights since 2009 restricted stock units may granted key employees subject restrictions continuous employment generally vesting occurs ratably four year period grant date stock unit right receive stock end specified vesting period voting rights market share units granted executives vesting conditioned upon continuous employment vesting date payout factor least 60 share price award date payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs ratably four years performance share units granted executives three year cycle granted target number units subject adjustment number shares issued performance share units vest determined based achievement performance goals based companys threeyear total shareholder return relative peer group companies vesting conditioned upon continuous employment occurs third anniversary grant date stockbased compensation expense awards ultimately expected vest recognized vesting period forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates information related stockbased compensation benefits follows fair value restricted stock units market share units performance share units approximates closing trading price bmss common stock grant date adjusting units eligible accrued dividends addition fair value market share units performance share units considers probability satisfying payout factor total shareholder return respectively following table summarizes significant outstanding exercisable options december 31 2018 aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 5198 december 31 2018 note 18 legal proceedings contingencies company certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business claims proceedings involve various types parties including governments competitors customers suppliers service providers licensees employees shareholders among others resolution matters often develops long period time expectations change result new findings rulings appeals settlement arrangements company recognizes accruals contingencies probable liability incurred amount loss reasonably estimated matters involve patent infringement antitrust securities pricing sales marketing practices environmental commercial contractual rights licensing obligations health safety matters consumer fraud employment matters product liability insurance coverage legal proceedings material company believes could become material described although company believes substantial defenses matters assurance increase scope pending matters future lawsuits claims government investigations legal proceedings material unless otherwise noted company unable assess outcome respective litigation able provide estimated range potential loss furthermore failure enforce patent rights would likely result substantial decreases respective product revenues generic competition intellectual property plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex inc apotex since changed name apotex august 2007 apotex filed application federal court australia federal court seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 federal court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april 2008 august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid company sanofi filed notices appeal full court federal court australia full court appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 september 29 2009 full court held claims patent 597784 invalid november 2009 company sanofi applied high court australia high court special leave appeal judgment full court march 2010 high court denied company sanofi’s request hear appeal full court decision case remanded federal court proceedings related damages sought apotex company apotex settled apotex case dismissed australian government intervened matter seeking maximum damages 449 million aud 316 million plus interest would split company sanofi alleged losses experienced paying higher price branded plavix period injunction place company sanofi disputed australian government entitled damages australian governments claim still pending trial concluded september 2017 company expecting decision 2019 sprycel europe may 2013 apotex actavis group ptc ehf generics uk limited mylan unnamed company filed oppositions epo seeking revocation european patent 1169038 ‘038 patent covering dasatinib active ingredient sprycel january 20 2016 opposition division epo revoked ‘038 patent may 2016 company appealed epo’s decision epo board appeal february 2017 epo board appeal upheld opposition division’s decision revoked ‘038 patent orphan drug exclusivity data exclusivity sprycel eu expired november 2016 epo board appeal’s decision affect validity sprycel patents within outside europe including different patents cover monohydrate form dasatinib use dasatinib treat cml additionally february 2017 epo board appeal reversed remanded invalidity decision european patent 1610780 claim use dasatinib treat cml epo’s opposition division revoked october 2012 december 2018 epo’s opposition division upheld validity patent directed use dasatinib treat cml expires 2024 company intends take appropriate legal actions protect sprycel generics approved certain eu markets may experience decline european revenues event generic dasatinib product enters market antipd1 antibody patent oppositions litigation september 2015 danafarber cancer institute danafarber filed complaint massachusetts federal court seeking correct inventorship five related us patents directed methods treating cancer using pd1 pdl1 antibodies specifically danafarber seeking add two scientists inventors patents october 2017 pfizer allowed intervene case alleging one scientists identified danafarber employed company eventually acquired pfizer relevant period february 2019 company settled lawsuit pfizer bench trial lawsuit danafarber began february 4 2019 decision expected 2019 eliquis patent litigation us 2017 twentyfive generic companies sent company paragraphiv certification letters informing company filed andas seeking approval generic versions eliquis result two eliquis patents listed fda orange book challenged composition matter patent claiming apixaban specifically formulation patent april 2017 company along partner pfizer initiated patent lawsuits hatchwaxman act generic filers federal district courts delaware west virginia august 2017 us patent trademark office granted patent term restoration composition matter patent thereby restoring term eliquis composition matter patent company’s basis projected loe february 2023 november 2026 company settled lawsuits number anda filers december 2018 settlements affect company’s projected loe eliquis pricing sales promotional practices litigation plavix state attorneys general lawsuits company certain affiliates sanofi defendants consumer protection andor false advertising actions brought several states relating sales promotion plavix product liability litigation company party various product liability lawsuits plaintiffs cases seek damages relief various grounds alleged personal injury economic loss previously disclosed addition lawsuits company also faces unfiled claims involving products byetta amylin former subsidiary company lilly codefendants product liability litigation related byetta date 500 separate lawsuits pending behalf approximately 2000 active plaintiffs including pending settlements include injury plaintiffs well claims spouses andor beneficiaries various courts us majority cases brought individuals allege personal injury sustained using byetta primarily pancreatic cancer cases claiming alleged wrongful death majority cases pending federal court san diego mdl coordinated proceeding california superior court los angeles jccp november 2015 defendants motion summary judgment based federal preemption granted mdl jccp november 2017 ninth circuit reversed mdl summary judgment order remanded case mdl november 2018 california court appeal reversed state court dismissal state court cases remanded jccp proceedings amylin product liability insurance covering substantial number claims involving byetta additional liability amylin respect byetta expected shared company astrazeneca abilify company otsuka codefendants product liability litigation related abilify plaintiffs allege abilify caused engage compulsive gambling impulse control disorders 2000 cases filed state federal courts additional cases pending canada judicial panel multidistrict litigation consolidated federal court cases pretrial purposes us district court northern district florida february 15 2019 company otsuka entered master settlement agreement establishing proposed settlement program resolve abilify compulsivity claims filed january 28 2019 mdl well various state courts including california new jersey eliquis company pfizer codefendants product liability litigation related eliquis plaintiffs assert claims including claims wrongful death result bleeding allege caused use eliquis january 2019 claims remain pending mdl us district court southern district new york three cases remain pending state courts one remains pending canada 200 cases dismissed prejudice mdl claims 23 plaintiffs appeal second circuit court appeals company expects decision 2019 onglyza company astrazeneca codefendants product liability litigation related onglyza plaintiffs assert claims including claims wrongful death result heart failure cardiovascular injuries allege caused use onglyza january 2019 claims pending state federal court behalf approximately 250 individuals allege ingested product suffered injury significant majority claims pending federal courts february 2018 judicial panel multidistrict litigation ordered federal cases transferred mdl us district court eastern district kentucky part company’s global diabetes business divestiture company sold onglyza astrazeneca february 2014 potential liability respect onglyza expected shared astrazeneca shareholder derivative litigation since december 2015 three shareholder derivative lawsuits filed new york state court certain officers directors company plaintiffs allege among things breaches fiduciary duty surrounding company’s previously disclosed october 2015 civil settlement sec alleged fcpa violations china company agreed payment approximately 147 million disgorgement penalties interest october 2017 three lawsuits dismissed company received notice appeal one dismissed lawsuits oral argument appeal dismissal scheduled february 2019 securities litigation since february 2018 two separate putative class action complaints filed us district northern district california us district court southern district new york company’s chief executive officer giovanni caforio company’s chief financial officer charles bancroft certain former current executives company case california voluntarily dismissed remaining complaint alleges violations securities laws company’s disclosures related checkmate026 clinical trial lung cancer fully briefed motion dismiss pending court company intends defend vigorously litigation acquisition celgene litigation february 20 2019 nine complaints filed celgene shareholders us district court district delaware us district court district new jersey us district court southern district new york court chancery state delaware seeking enjoin companys proposed acquisition celgene complaints actions name defendants celgene members celgenes board directors four complaints also name company burgundy merger sub inc whollyowned subsidiary company formed solely purpose completing pending acquisition celgene merged celgene upon completion acquisition defendants complaints naming company defendant three styled putative class actions plaintiffs allege violations various federal securities laws breaches fiduciary duties connection acquisition celgene company separately tenth complaint styled putative class action filed court chancery state delaware behalf companys shareholders naming members companys board directors defendants complaint alleges members companys board directors breached fiduciary duties company shareholders failing disclose material information pending acquisition company burgundy merger sub celgene intend defend vigorously lawsuits acquisition flexus litigation february 2015 company acquired flexus including rights ido1 inhibitor september 2015 incyte corporation “incyte” sued flexus flexuss founders “flexus defendants” superior court state delaware initial subsequent amended complaints incyte alleged claims flexus defendants among others misappropriation various trade secrets relating research development incytes ido1 inhibitor november 2018 following two ahalf week trial trade secrets jury superior court delaware returned defense verdict behalf flexus defendants incyte may appeal decision average wholesale price litigation company defendant qui tam whistleblower lawsuit us district court eastern district pennsylvania us government declined intervene complaint alleges company inaccurately reported average manufacturer prices centers medicare medicaid services lower owed similar claims filed companies court denied companys motion dismiss november 2018 government investigations like pharmaceutical companies company certain subsidiaries subject extensive regulation national state local government agencies us countries bms operates result company time subject various governmental inquiries investigations possible criminal charges substantial fines andor civil penalties could result government investigations environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable company estimated share future costs sites 62 million december 31 2018 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties amount includes estimated costs additional probable loss associated previously disclosed north brunswick township high school remediation site note 19 subsequent event january 3 2019 bms announced company entered definitive merger agreement bms acquire celgene terms agreement merger completed celgene shareholders receive one share bms common stock 5000 cash share celgene common stock held celgene shareholders also receive one tradeable contingent value right share celgene representing right receive 900 cash subject achievement future regulatory milestones based closing price share bms common stock january 2 2019 recent trading day prior date announcement merger consideration represented approximately 74 billion amount consideration received celgene stockholders fluctuate changes price shares bms common stock bms expects fund transaction combination existing cash new debt bms also expects enter accelerated share repurchase program approximately 50 billion subject closing transaction market conditions board directors approval company expects transaction close end third quarter 2019 subject approval bristolmyers squibb celgene shareholders satisfaction customary closing conditions regulatory approvals note 20 selected quarterly financial data unaudited earnings per share quarters may add amounts year period computed discrete basis b marketable securities includes current noncurrent assets c longterm debt includes current portion following specified items affected comparability results 2018 2017 specified items cost products sold accelerated depreciation asset impairment shutdown costs report independent registered public accounting firm shareholders board directors bristolmyers squibb company opinion financial statements audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries company december 31 2018 2017 related consolidated statements earnings comprehensive income cash flows three years period ended december 31 2018 related notes collectively referred financial statements opinion financial statements present fairly material respects financial position company december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states pcaob companys internal control financial reporting december 31 2018 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 25 2019 expressed unqualified opinion companys internal control financial reporting basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion deloitte touche llp parsippany new jersey february 25 2019 served companys auditor since 2006 item 9item 8financial statements supplementary data bristolmyers squibb company consolidated statements earnings dollars millions except per share data excludes amortization acquired intangible assets consolidated statements comprehensive lossincome dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies recently issued accounting standards basis consolidation consolidated financial statements prepared conformity us gaap including accounts bristolmyers squibb company controlled majorityowned subsidiaries certain variable interest entities intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date refer summary abbreviated terms end 2020 form 10k terms used throughout document alliance license arrangements assessed determine whether terms provide economic control entity requiring consolidation entity entities controlled means majority voting interest referred variable interest entities consolidated bms power direct activities variable interest entity significantly impacts economic performance obligation absorb losses right receive benefits could potentially significant entity business segment information bms operates single segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization supply chain organization responsible discovery development manufacturing supply products regional commercial organizations market distribute sell products business also supported global corporate staff functions consistent bms’s operational structure chief executive officer “ceo” chief operating decision maker manages allocates resources global corporate level managing allocating resources global corporate level enables ceo assess overall level resources available best deploy resources across functions therapeutic areas regional commercial organizations research development projects line overarching longterm corporatewide strategic goals rather product franchise basis determination single segment consistent financial information regularly reviewed ceo purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information product regional revenue see “note 2 revenue” use estimates judgments preparation financial statements requires use management estimates judgments assumptions significant assumptions estimates used determining accounting acquisitions impairments goodwill intangible assets sales rebate return accruals legal contingencies income taxes actual results may differ estimates reclassifications certain reclassifications made conform prior period consolidated financial statements current period presentation cash payments resulting licensing arrangements including upfront contingent milestones previously included operating activities consolidated statements cash flows presented investing activities adjustment resulted increase net cash provided operating activities net cash used investing activities 143 million 2019 11 billion 2018 deferred income previously presented separately consolidated statements cash flows presented operating assets liabilities reclassifications impact net assets net earnings cash equivalents restricted cash equivalents include bank deposits time deposits commercial paper money market funds cash equivalents consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value cash restricted withdrawal general use contractually legally restricted including escrow litigation settlements funds restricted annual company contributions defined contribution plan us restricted cash 427 million 474 million december 31 2020 2019 respectively marketable debt securities marketable debt securities classified “availableforsale” date purchase reported fair value fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity marketable debt securities reviewed impairment assessing decline market value investment carrying value temporary considers intent ability retain investment period time sufficient allow anticipated recovery market value duration extent market value less cost investees financial condition investments equity securities investments equity securities readily determinable fair values recorded fair value changes fair value recorded incomeexpense net investments equity securities without readily determinable fair values recorded cost minus impairment plus minus changes estimated fair value resulting observable price changes orderly transactions identical similar investment issuer changes estimated fair value investments equity securities without readily determinable fair values recorded incomeexpense net investments 50 less owned companies accounted using equity method accounting ability exercise significant influence operating financial decisions investee maintained proportional share investees net income losses equity investments accounted using equity method included incomeexpense net investments equity securities without readily determinable fair values investments equity accounted using equity method assessed potential impairment quarterly basis based qualitative factors inventory valuation inventories stated lower average cost net realizable value property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation computed straightline method based estimated useful lives related assets ranging 20 50 years buildings 3 20 years machinery equipment fixtures current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques using unobservable fair value inputs discounted value estimated future cash flows capitalized software eligible costs obtain internal use software capitalized amortized estimated useful life software ranging three ten years acquisitions businesses acquired consolidated upon obtaining control fair value assets acquired liabilities assumed recognized date acquisition excess purchase price estimated fair values net assets acquired recognized goodwill business acquisition costs expensed incurred contingent consideration potential development regulatory approval salesbased milestones salesbased royalties included purchase price business combinations excluded asset acquisitions certain transactions accounted asset acquisitions since determined business term defined asc 805 primarily significant processes acquired substantially relative fair value allocated single asset amounts allocated investigational compounds asset acquisitions expensed date acquisition goodwill acquired inprocess research development intangible assets fair value acquired intangible assets determined using incomebased approach referred excess earnings method utilizing level 3 fair value inputs market participant valuations assume global view considering potential jurisdictions indications based discounted aftertax cash flow projections risk adjusted estimated probability technical regulatory success finitelived intangible assets including licenses marketed product rights iprd projects reach commercialization amortized straightline basis estimated useful life estimated useful lives determined considering period assets expected contribute future cash flows finitelived intangible assets tested impairment facts circumstances suggest carrying value asset may recoverable carrying value exceeds projected undiscounted pretax cash flows intangible asset impairment loss equal excess carrying value estimated fair value discounted aftertax cash flows recognized goodwill tested least annually impairment assessing qualitative factors determining whether likely fair value net assets carrying amounts examples qualitative factors assessed include bms’s share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year relevant factor assessed individually aggregate iprd tested impairment annual basis frequently events occur circumstances change would indicate potential reduction fair values assets carrying value impairment charges recognized extent carrying value iprd determined exceed fair value restructuring charges recognized result actions streamline operations realize synergies acquisitions reduce number facilities estimating impact restructuring plans including future termination benefits integration expenses exit costs requires judgment actual results could vary estimates restructuring charges recognized upon meeting certain criteria including finalization committed plans reliable estimates discussions local works councils certain markets contingencies loss contingencies legal proceedings claims may occur government investigations shareholder lawsuits product environmental liability contractual claims tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies including contingent proceeds related divestitures recognized realized legal fees expensed incurred revenue recognition refer “note 2 revenue” detailed discussion accounting policies related revenue recognition including deferred revenue royalties refer “note 3 alliances” detail regarding alliances research development research development costs expensed incurred clinical study costs accrued service periods specified contracts adjusted necessary based upon ongoing review level effort costs actually incurred research development costs presented net reimbursements alliance partners upfront contingent development milestone payments asset acquisitions investigational compounds also included research development expense alternative future uses advertising product promotion costs advertising product promotion costs expensed incurred advertising product promotion costs included marketing selling administrative expenses 990 million 2020 633 million 2019 672 million 2018 foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized comprehensive lossincome income taxes provision income taxes includes income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax basis assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made tax benefits recognized uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefit recognized financial statements particular tax position based largest benefit likely realized upon settlement recently adopted accounting standards financial instruments measurement credit losses june 2016 fasb issued amended guidance measurement credit losses financial instruments entities required use forwardlooking estimated loss model availableforsale debt security credit losses recognized allowances rather reduction amortized cost bms adopted amended guidance modified retrospective approach january 1 2020 amended guidance impact bms’s results operations note 2 revenue following table summarizes disaggregation revenue nature net product sales represent 95 total revenues years ended december 31 2020 2019 2018 products sold principally wholesalers distributors specialty pharmacies lesser extent directly retailers hospitals clinics government agencies customer orders generally fulfilled within days receipt resulting minimal order backlog contractual performance obligations usually limited transfer control product customer transfer occurs either upon shipment upon receipt product considering customer obtains legal title product bms obtains right payment points customers able direct use obtain substantially remaining benefits product gross revenue three largest pharmaceutical wholesalers us percentage global gross revenues follows wholesalers initially invoiced contractual list prices payment terms typically 30 90 days based customary practices country revenue reduced wholesaler list price time recognition expected chargebacks discounts rebates sales allowances product returns referred gtn adjustments reductions attributed various commercial arrangements managed healthcare organizations government programs medicare medicaid 340b drug pricing program containing various pricing implications mandatory discounts pricing protection wholesaler list price discounts medicare part beneficiaries coverage gap addition nonus government programs include different pricing schemes cost caps volume discounts outcomebased pricing clawbacks determined sales individual companies aggregation companies participating specific market chargebacks cash discounts reflected reduction receivables settled issuance credits customer typically within one month rebates discounts adjustments including medicaid medicare reflected liability settled cash payments customer typically within various time periods ranging months one year significant judgment required estimating gtn adjustments considering legal interpretations applicable laws regulations historical experience payer channel mix current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel following table summarizes gtn adjustments includes adjustments provisions product sales made prior periods resulting changes estimates 106 million 2020 132 million 2019 96 million 2018 alliance revenues consist primarily amounts related collaborations outlicensing arrangements evaluated whether represent contracts within scope revenue recognition guidance entirety contain aspects within scope guidance either directly reference based upon application guidance related derecognition nonfinancial assets asc 610 performance obligations identified separated party benefit directly rights goods services either together readily available resources rights goods services highly interdependent interrelated transaction prices arrangements may include fixed upfront amounts well variable consideration contingent development regulatory milestones salesbased milestones royalties likely amount method used estimate contingent development regulatory salesbased milestones ultimate outcomes binary nature expected value method used estimate royalties broad range potential outcomes exist except instances royalties relate license variable consideration included transaction price extent significant reversal amount cumulative revenue recognized probable occurring uncertainty associated variable consideration subsequently resolved significant judgment required estimating amount variable consideration recognize assessing factors outside bms’s influence likelihood regulatory success limited availability third party information expected duration time resolution lack relevant past experience historical practice offering fee concessions large number broad range possible amounts extent arrangements include multiple performance obligations separable transaction price assigned distinct performance obligation reflective relative standalone selling price recognized point time upon transfer control three types outlicensing arrangements typically utilized arrangements bms outlicenses intellectual property another party performance obligations ii arrangements include license additional performance obligation supply product upon request third party iii collaboration arrangements include transferring license third party jointly develop commercialize product outlicensing arrangements consist single performance obligation satisfied upon execution agreement development commercialization rights transferred third party upfront fees recognized immediately included incomeexpense net although contingent development regulatory milestone amounts assessed period likelihood achievement typically constrained recognized uncertainty subsequently resolved full amount milestone included incomeexpense net salesbased milestones royalties recognized milestone achieved subsequent sales occur salesbased milestones included incomeexpense net royalties included alliance revenues certain outlicensing arrangements may also include contingent performance obligations supply commercial product third party upon request license supply obligations accounted separate performance obligations considered distinct third party benefit license either together supply resources readily available obligations separately identifiable obligations contract accordance revenue recognition guidance considering standalone selling prices situations upfront fees contingent development regulatory milestone amounts salesbased milestone royalties allocated license recognized manner described consideration supply obligation usually based upon stipulated costplus margin contractual terms represent standalone selling price supply consideration recognized point time upon transfer control product third party included alliance revenues fee allocation license supply represents amount consideration expected entitled satisfaction separate performance obligations although collaboration arrangements unique nature parties active participants operating activities exposed significant risks rewards depending commercial success activities performance obligations inherent arrangements may include transfer certain development commercialization rights ongoing development commercialization services product supply obligations except certain product supply obligations considered distinct accounted separate performance obligations similar manner discussed performance obligations considered distinct combined single performance obligation since transferred rights highly integrated interrelated obligation jointly develop commercialize product third party result upfront fees recognized ratably time throughout expected period collaboration activities included incomeexpense net license combined development commercialization obligations contingent development regulatory milestones longer constrained recognized similar manner prospective basis royalties profit sharing recognized underlying sales profits occur included alliance revenues refer “note 3 alliances” information following table summarizes disaggregation revenue product region includes bms celgene products 2020 2019 b revenues include royalties alliancerelated revenues products sold bms’s regional commercial organizations contract assets primarily estimated future royalties termination fees eligible licensing exclusion therefore recognized upon adoption asc 606 asc 610 contract assets reduced receivables increased period underlying sales occur cumulative catchup adjustments revenue affecting contract assets contract liabilities material year ended december 31 2020 2019 revenue recognized performance obligations satisfied prior periods 338 million 2020 411 million 2019 consisting primarily royalties outlicensing arrangements revised estimates gtn adjustments related prior period sales contract assets material december 31 2020 2019 sales commissions incremental costs obtaining customer contracts expensed incurred amortization periods would less one year note 3 alliances bms enters collaboration arrangements third parties development commercialization certain products although arrangements unique nature parties active participants operating activities collaboration exposed significant risks rewards depending commercial success activities bms may either inlicense intellectual property owned party outlicense intellectual property party arrangements also typically include research development manufacturing andor commercial activities cover single investigational compound commercial product multiple compounds andor products various life cycle stages rights obligations parties global limited geographic regions bms refer collaborations alliances partners alliance partners common activities bms alliance partners presented results operations follows •when bms principal end customer sale 100 product sales included net product sales bmss alliance partner principal end customer sale bms’s contractual share thirdparty sales andor royalty income included alliance revenues sale commercial products considered part bms’s ongoing major central operations refer “note 2 revenue” information regarding recognition criteria •amounts payable bms alliance partners principal end customer sale supply commercial products included alliance revenues sale commercial products considered part bms’s ongoing major central operations •profit sharing royalties salesbased fees payable bms alliance partners included cost products sold incurred •cost reimbursements parties recognized incurred included cost products sold marketing selling administrative expenses research development expenses based underlying nature related activities subject reimbursement •upfront contingent development regulatory approval milestones payable bms alliance partners investigational compounds commercial products deferred amortized expected period bmss development copromotion obligation market exclusivity period periods related compounds products expected contribute future cash flows amortization presented consistent nature payment arrangement example amounts received investigational compounds presented incomeexpense net activities performed time related sale commercial products included bms’s ongoing major central operations amounts received commercial products presented alliance revenue sale commercial products considered part bms’s ongoing major central operations •upfront contingent regulatory approval milestones payable bms alliance partners commercial products capitalized amortized shorter contractual term periods related products expected contribute future cash flows •upfront contingent milestones payable bms alliance partners prior regulatory approval expensed incurred included research development expense •royalties contingent consideration payable bms alliance partners related divestiture businesses included incomeexpense net earned •all payments bms alliance partners presented cash flows operating activities selected financial information pertaining alliances follows including net product sales bms principal thirdparty customer sale products subject alliance expenses summarized include amounts attributed activities products alliance payments alliance partners related amortization payments deferred capitalized includes unamortized upfront milestone payments specific information pertaining significant alliances discussed including nature purpose significant rights obligations parties specific accounting policy elections statements earnings classification amounts attributable payments parties pfizer bms pfizer jointly develop commercialize eliquis anticoagulant discovered bms pfizer funds 50 60 development costs depending study profits losses shared equally global basis except certain countries pfizer commercializes eliquis pays bms salesbased fee coexclusive license rights granted pfizer exchange upfront payment potential milestone payments parties assumed certain obligations actively participate joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms pfizer manufacture product alliance bms principal end customer product sales us significant countries europe well canada australia china japan south korea certain smaller countries pfizer full commercialization rights bms supplies product pfizer cost plus percentage net sales price endcustomers recorded full upon transfer control product pfizer bms allocate consideration rights transferred pfizer rights sold separately bms party could pfizer receive benefit delivered rights without fulfillment ongoing obligations bms alliance agreement global alliance treated single unit accounting upfront proceeds subsequent contingent milestone proceeds amortized expected period bms’s copromotion obligation market exclusivity period bms received 884 million nonrefundable upfront milestone licensing payments amortized included incomeexpense net eliquis commercial product commencement alliance summarized financial information related alliance follows ono bms ono jointly develop commercialize opdivo yervoy several bms investigational compounds japan south korea taiwan bms responsible supply products profits losses development costs shared equally combination therapies involving compounds parties otherwise sharing 80 20 activities involving one party’s compounds bms ono also jointly develop commercialize orencia japan bms responsible order fulfillment distribution intravenous formulation ono responsible subcutaneous formulation formulations jointly promoted parties assigned customer accounts bms responsible product supply copromotion fee 60 paid sale made party’s assigned customer 2019 ono exercised right accept nktr214 alliance bms upon completion phase clinical study opdivo nktr214 ono territory ono partially reimbursed bms development costs incurred study shares certain future development costs contingent milestone payments profits losses collaboration nektar 2017 ono granted bms exclusive license development commercialization ono4578 ono’s prostaglandin e2 receptor 4 antagonist 2020 rights terminated parties summarized financial information related alliance follows bms principal end customer product sales exclusive right develop manufacture commercialize opdivo worldwide except japan south korea taiwan ono entitled receive royalties 4 north america 15 territories excluding three countries listed subject customary adjustments nektar 2018 bms nektar commenced worldwide license collaboration development commercialization bempegaldesleukin nktr214 nektar’s investigational immunostimulatory therapy designed selectively expand specific cancerfighting cells natural killer cells directly tumor microenvironment january 2020 parties amended collaboration agreement opdivo nktr214 combination therapy currently phase iii clinical studies metastatic melanoma adjuvant melanoma muscleinvasive bladder cancer rcc joint development plan agreed parties part original agreement updated part january 2020 amendment specifies development certain indications tumor types party responsible supply product bms’s share development costs associated therapies comprising bms medicine used combination nktr214 675 subject certain cost caps nektar january 2020 amendment retains cost sharing percentages original agreement parties also jointly commercialize therapies subject regulatory approval bms’s share global nktr214 profits losses 35 subject certain annual loss caps nektar bms paid nektar 185 billion rights discussed 83 million shares nektar common stock represented 48 ownership interest bms’s equity ownership subject certain lockup standstill voting provisions fiveyear period amount upfront payment allocated equity investment 800 million considering nektar’s stock price date closing current limitations trading securities remaining 105 billion upfront payment allocated rights discussed included research development expense 2018 bms also pay 18 billion upon achievement contingent development regulatory salesbased milestones life alliance period research development expense payable agreement nektar 132 million 2020 108 million 2019 59 million 2018 bluebird bms bluebird jointly develop commercialize novel diseasealtering gene therapy product candidates targeting bcma collaboration arrangement began 2013 included right bms license antibcma products resulting collaboration ii right bluebird participate development commercialization licensed products resulting collaboration 5050 codevelopment profit share us exchange reduction milestone payments iii salesbased milestones royalties payable bluebird upon commercialization licensed products resulting collaboration bluebird declined exercise codevelopment profit sharing rights options license idecabtagene vicleucel idecel bb2121 bb21217 exercised 2016 2017 respectively bms bluebird share equally profits losses relating developing commercializing manufacturing idecel within us bms exclusively responsible development commercialization idecel outside us bms responsible worldwide development including related funding substantial completion bluebird ongoing phase clinical trial commercialization bb21217 bluebird option codevelop copromote share equally profits losses us 2020 bms bluebird amended collaboration arrangement among items bms assuming contract manufacturing agreements relating idecel adherent lentiviral vector time bms assuming responsibility manufacturing idecel suspension lentiviral vector outside us bluebird responsible manufacturing idecel suspension lentiviral vector us parties also released future exclusivity related bcmadirected cell therapies addition bms agreed buy obligation pay bluebird future exus milestones royalties idecel bb21217 payment 200 million included research development expense 2020 cost sharing payments parties material otsuka bms otsuka copromoted sprycel us eu 2019 bms responsible development manufacture product also principal end customer product sales fee paid otsuka 2020 based net sales levels oncology territory us japan eu equated 294 million first 10 billion annual net sales plus 1 net sales excess 10 billion revenues earned otsuka alliance 18 billion 2019 17 billion 2018 payments otsuka 302 million 2019 297 million 2018 recorded cost product sold effective january 1 2020 otsuka longer copromoting sprycel us result arrangement longer considered collaboration asc 808 revenues earned fees paid otsuka oncology territory 2020 included select financial information table note 4 acquisitions divestitures licensing arrangements acquisitions business combination celgene november 20 2019 bms completed celgene acquisition expected position bms leading biopharmaceutical company sustained innovation longterm growth address needs patients cancer inflammatory immunologic cardiovascular diseases highvalue innovative medicines leading scientific capabilities share celgene common stock converted right receive one share bms common stock 5000 cash celgene shareholders also received one tradeable contingent value right “cvr” share celgene common stock representing right receive 900 cash subject achievement future regulatory milestones aggregate cash paid connection celgene acquisition 357 billion 246 billion net cash acquired bms funded acquisition cash onhand debt proceeds described “note 9 financial instruments fair value measurements” transaction accounted business combination requires assets acquired liabilities assumed recognized fair value acquisition date assessment fair value assets acquired liabilities assumed finalized measurement period adjustments reflected 2020 primarily resulted completing valuations real estate personal property revised future cash flow estimates certain intangible assets changes estimated tax basis certain intangible assets based upon tax ruling reduced deferred income tax liabilities changes certain equity investments legal contingency income tax liabilities related impact net earnings would recognized previous periods adjustments recognized acquisition date material consolidated financial statements total consideration acquisition consisted following closing price cvr based first trade november 21 2019 b fair value awards attributed postcombination services 10 billion included compensation costs refer “note 18 employee stock benefit plans” information purchase price allocation resulted following amounts allocated assets acquired liabilities assumed acquisition date based upon respective fair values summarized intangible assets consists currently marketed product rights approximately 444 billion amortized 51 years calculated using weightedaverage useful life assets iprd approximately 195 billion amortized valued using multiperiod excess earnings method starts forecast expected future net cash flows associated asset involves adjusting forecast present value applying appropriate discount rate reflects risk factors associated cash flow streams b amount includes 381 million inventory 130 billion developed product rights 19 million accrued liabilities 5 million noncurrent liabilities refer “divestitures” information c goodwill represents goingconcern value associated future product discovery beyond existing pipeline expected value synergies resulting cost savings avoidance attributed identifiable assets goodwill deductible tax purposes bms’s consolidated statement earnings year ended december 31 2019 include 19 billion revenues 16 billion net loss associated result operations celgene acquisition date december 31 2019 acquisition expenses 657 million year ended december 31 2019 including financial advisory legal proxy filing regulatory financing fees hedge costs following unaudited pro forma information prepared celgene acquisition otezla divestiture occurred january 1 2018 unaudited supplemental pro forma consolidated results purport reflect combined company’s results operations would project future results operations combined company unaudited supplemental pro forma consolidated results reflect historical financial information bms celgene adjusted give effect celgene acquisition otezla divestitures occurred january 1 2018 primarily following adjustments •amortization expenses primarily related fair value adjustments celgene’s intangible assets inventories debt •nonrecurring acquisitionrelated costs directly attributable celgene acquisition tax expense directly attributable otezla divestiture •interest expense including amortization deferred financing fees attributable celgene acquisition financing •elimination historical revenue expenses related otezla refer “divestitures” adjustments adjusted applicable tax impact using estimated weightedaverage statutory tax rate applied applicable pro forma adjustments asset acquisitions myokardia november 17 2020 bms acquired myokardia clinicalstage biopharmaceutical company pioneering precision medicine approach discover develop commercialize targeted therapies treatment serious cardiovascular diseases bms subsidiary completed tender offer acquire issued outstanding shares myokardia’s common stock accepted shares validly tendered withdrawn expiration time tender offer 22500 per share 131 billion including cash settlements equity stock awards acquisition provides bms rights myokardia’s lead asset mavacamten potential firstinclass cardiovascular medicine treatment obstructive hypertrophic cardiomyopathy completed phase iii development anticipated nda submission first quarter 2021 bms funded transaction combination cash hand operations net proceeds received connection 2020 senior unsecured notes offering consideration transferred allocated based relative fair value gross assets acquired transaction accounted asset acquisition since mavacamten represented substantially fair value gross assets acquired excluding cash deferred income taxes result 114 billion iprd charge recognized fourth quarter 2020 following summarizes total consideration transferred allocation consideration transferred assets acquired liabilities assumed represents accelerated vesting myokardia stock awards included marketing selling administrative expense 241 million research development expense 241 million december 31 2020 b includes iprd 114 billion 111 billion related mavacamten licenses 115 million forbius 2020 bms acquired outstanding shares forbius privately held clinicalstage protein engineering company designs develops biotherapeutics treatment cancer fibrotic diseases acquisition provides bms full rights forbius’s tgfbeta program including program’s lead investigational asset avid200 phase development bms accounted transaction asset acquisition since avid200 represented substantially fair value gross assets acquired transaction price included upfront payment 185 million contingent development regulatory salesbased milestone payments 815 million upfront payment included research development expense except 7 million allocated deferred tax assets research development expense also includes 100 million 2020 60 million 2018 resulting occurrence certain development events attributed cormorant asset acquisition completed 2016 divestitures following table summarizes financial impact divestitures including royalties included incomeexpense net revenue pretax earnings related divestitures material periods presented excluding divestiture gains losses includes royalties received subsequent related sale asset business diabetes business february 2014 bms astrazeneca terminated diabetes business alliance agreements bms sold astrazeneca substantially diabetes business comprising alliance consideration transaction included tiered royalty payments ranging 10 25 based net sales 2025 royalties 673 million 2020 533 million 2019 457 million 2018 september 2015 bms transferred percentage future royalty rights amylin net product sales us cppib transferred rights represent approximately 70 potential future royalties bms entitled 2019 2025 exchange transfer bms received additional tieredbased royalty amylin net product sales us cppib 2016 2018 including 45 million 2018 paid 39 million 2020 48 million 2019 november 2017 bms transferred percentage future royalty rights portion onglyza farxiga net product sales royalty pharma transferred rights represent approximately 20 25 potential future royalties bms entitled products 2020 2025 exchange transfer bms received additional tieredbased royalty onglyza farxiga net product sales royalty pharma including 165 million 2019 159 million 2018 paid 67 million 2020 erbitux business bms commercialization agreement lilly’s subsidiary imclone codevelopment promotion erbitux us canada japan bms principal end customer product sales north america paid lilly distribution fee 39 erbitux net sales north america plus share certain royalties paid lilly october 2015 bms transferred rights erbitux north america lilly exchange tiered salesbased royalties september 2018 including 145 million 2018 bms transferred cocommercialization rights japan merck kgaa 2015 exchange salesbased royalties 2032 result adoption asc 610 2018 estimated future royalties resulting transfer rights merck kgaa recorded cumulative effect adjustment retained earnings 23 million change estimated future royalties included 2019 manufacturing operations 2019 bms sold manufacturing packaging facility anagni italy catalent inc transaction accounted sale business divestiture included transfer facility majority employees site inventories certain thirdparty contract manufacturing obligations assets reduced relative fair value considering purchase price resulting impairment charge 121 million included cost products sold catalent inc provide certain manufacturing packaging services bms period time 2017 bms sold small molecule active pharmaceutical ingredient manufacturing operations swords ireland sk biotek co ltd proceeds 160 million received 2018 transaction accounted sale business divestiture included transfer facility majority employees site inventories certain thirdparty contract manufacturing obligations plavix avaproavalide sanofi reacquired bmss codevelopment cocommercialization agreements plavix avaproavalide 2013 consideration transfer rights included quarterly royalties december 31 2018 200 million terminal payment received 2018 120 million allocated optout markets 80 million allocated bmss 499 interest europe asia territory partnership royalties expected received 2018 portion terminal payment allocated optout markets reflected contract asset cumulative effect adjustment upon adoption asc 610 2018 bms fulfilled performance obligation 80 million allocated bmss partnership interest deferred december 31 2018 recognized equity investment gain transferred sanofi 2019 royalties earned sanofi territory covering americas australia optout markets presented alliance revenues aggregated 26 million 2018 royalties attributed territory covering europe asia earned territory partnership paid bms included equity net lossincome affiliates amounted 96 million 2018 otezla order complete celgene acquisition bms required ftc divest certain products november 21 2019 bms completed divestiture otezla apremilast amgen 134 billion cash transaction accounted asset divestiture otezla acquired part celgene acquisition classified heldforsale time acquisition fair value otezla net assets consisted 130 billion developed product rights 381 million inventory upsa business 2019 bms sold upsa consumer health business including shares upsa sas bms’s assets liabilities relating upsa product portfolio transaction accounted sale business mature brands 2020 mature brand sold resulting proceeds 50 million divestiture gains 49 million 2018 several mature brands sold cheplapharm resulting proceeds 153 million divestiture gains 127 million licensing arrangements following table summarizes financial impact keytruda royalties tecentriq royalties upfront milestone licensing fees products obtained commercial approval included incomeexpense net tecentriq patent license 2020 bms ono entered global patent license agreement roche group related tecentriq atezolizumab roche’s antipdl1 antibody agreement roche paid 324 million included royalties nine months ended september 30 2020 pay singledigit royalties worldwide net sales tecentriq december 31 2026 upfront payment royalties shared bms ono consistent existing agreements bms recorded 239 million incomeexpense net settlement 19 million royalties fourth quarter 2020 dragonfly 2020 bms obtained global exclusive license dragonfly’s interleukin12 il12 investigational immunotherapy program including extended halflife cytokine df6002 bms responsible development subsequent commercialization df6002 related products worldwide including strategic decisions regulatory responsibilities funding manufacturing dragonfly continue involved development df6002 current certain future phase iii clinical trials bms paid 475 million dragonfly rights 2020 including 75 million following commencement phase combination clinical study included research development expense dragonfly eligible receive additional contingent consideration comprised development regulatory salesbased milestone payments 27 billion royalties global net sales note 5 incomeexpense net note 6 restructuring celgene acquisition plan 2019 restructuring integration plan implemented initiative realize sustainable run rate synergies resulting cost savings avoidance celgene acquisition currently expected approximately 30 billion synergies expected realized cost products sold 10 marketing selling administrative expenses 55 research development expenses 35 charges approximately 30 billion expected incurred 2022 cumulative charges approximately 19 billion recognized including integration planning execution expenses employee termination benefit costs accelerated stockbased compensation contract termination costs shutdown costs associated site exits cash outlays connection actions expected approximately 25 billion employee workforce reductions approximately 1565 2020 125 2019 myokardia acquisition plan 2020 restructuring integration plan initiated realize expected cost synergies resulting cost savings avoidance myokardia acquisition charges approximately 150 million expected incurred 2022 consist integration planning execution expenses employee termination benefit costs company transformation 2016 restructuring plan announced evolve streamline bms’s operating model cumulative charges approximately 15 billion recognized actions since announcement actions plan completed december 31 2020 following provides charges related restructuring initiatives type cost following summarizes charges spending related restructuring plan activities includes reductions liability resulting changes estimates 10 million 2020 4 million 2019 17 million 2018 respectively excludes 70 million 2020 145 million 2019 accelerated stockbased compensation relating celgene acquisition plan note 7 income taxes provisionbenefit income taxes consisted effective tax rate reconciliation effective tax rate us statutory federal income tax rate follows tax charge deemed repatriation transition tax complete december 31 2018 included favorable measurement period adjustments provisional amounts recorded 2017 associated act gilti tax associated otezla divestiture 266 million 2020 808 million 2019 bms longer indefinitely reinvested respect undistributed earnings foreign subsidiaries provided deferred tax liability foreign state income withholding tax would apply bms remains indefinitely reinvested respect financial statement basis excess tax basis foreign subsidiaries determination deferred tax liability respect basis difference practicable bms operates favorable tax grant puerto rico scheduled expire prior 2023 internal transfer certain intangible assets us acquired celgene transaction resulted tax charge establish deferred tax liability based fair value assets 2020 us federal valuation allowance established 2019 2018 result nektar equity investment fair value losses would considered limited capital loss us federal state foreign contingent tax matters includes 81 million tax benefit 2019 119 million tax benefit 2018 respect lapse statutes fair value adjustments contingent value rights taxable tax deductible nondeductible rd charges primarily resulted 114 billion myokardia iprd charge 2020 puerto rico imposes excise tax gross company purchase price goods sold bms’s manufacturer puerto rico excise tax recognized cost products sold intraentity sale occurs us income tax purposes excise tax deductible results foreign tax credits generally recognized bms’s provision income taxes excise tax incurred deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows us federal net operating loss carryforwards 15 billion december 31 2020 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 foreign state net operating loss carryforwards expire varying amounts beginning 2021 certain amounts unlimited lives december 31 2020 valuation allowance 28 billion exists following items 20 billion primarily foreign net operating loss tax credit carryforwards 207 million state deferred tax assets including net operating loss tax credit carryforwards 557 million us federal deferred tax assets including equity fair value adjustments us federal net operating loss carryforwards changes valuation allowance follows income tax payments 34 billion 2020 15 billion 2019 747 million 2018 respectively business conducted various countries throughout world subject tax numerous jurisdictions significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported requiring several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credit deductibility certain expenses deemed repatriation transition tax liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows excluding interest penalties additional information regarding unrecognized tax benefits follows accrued interest penalties payable unrecognized tax benefits included either current noncurrent income taxes payable interest penalties related unrecognized tax benefits included income tax expense bms currently examination number tax authorities proposed considering proposing material adjustments tax positions issues transfer pricing certain tax credits deductibility certain expenses bms received several notices proposed adjustments irs related transfer pricing tax positions 2008 2012 tax years reasonably possible new issues raised tax authorities may require adjustments amount unrecognized tax benefits however estimate adjustments cannot reasonably made time also reasonably possible total amount unrecognized tax benefits december 31 2020 could decrease range approximately 375 million 415 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits may result payment additional taxes adjustment certain deferred taxes andor recognition tax benefits following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited note 8 lossearnings per share total number potential shares common stock excluded diluted eps computation antidilutive impact 106 million 2020 material 2019 2018 note 9 financial instruments fair value measurements financial instruments include cash equivalents marketable securities accounts receivable payable debt instruments derivatives changes exchange rates interest rates create exposure market risk certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur derivative financial instruments used trading purposes financial instruments subject counterparty credit risk considered part overall fair value measurement counterparty credit risk monitored ongoing basis mitigated limiting amounts outstanding individual counterparty utilizing conventional derivative financial instruments entering agreements counterparties meet high credit quality standards consolidated financial statements would materially impacted counterparty failed perform according terms agreement collateral required party whether derivatives asset liability position terms agreements fair value measurements fair value financial instruments classified one following categories level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets additionally certain corporate debt securities utilize thirdparty matrix pricing model using significant inputs corroborated market data substantially full term assets equity fixed income funds primarily invested publicly traded securities valued respective nav underlying investments level 2 derivative instruments valued using libor yield curves less credit valuation adjustments observable forward foreign exchange rates reporting date valuations derivative contracts may fluctuate considerably volatility underlying foreign currencies underlying interest rates driven market conditions duration contract level 3 unobservable inputs used little market data available level 3 financial liabilities consist acquisition related contingent consideration success payments related undeveloped product rights resulting celgene acquisition financial assets liabilities measured fair value recurring basis summarized contingent consideration obligations recorded estimated fair values bms revalues obligations reporting period related contingencies resolved contingent value rights adjusted fair value using traded price securities end reporting period fair value measurements contingent consideration liabilities estimated using probabilityweighted discounted cash flow approaches based significant unobservable inputs related product candidates acquired business combinations reviewed quarterly inputs include applicable estimated probabilities timing achieving specified development regulatory milestones estimated annual sales discount rate used calculate present value estimated future payments significant changes increase decrease probabilities achieving related development regulatory events shorten lengthen time required achieve events increase decrease estimated annual sales would result corresponding increases decreases fair values obligations fair value acquisition related contingent consideration december 31 2020 2019 calculated using following significant unobservable inputs transfers levels 1 2 3 year ended december 31 2020 following table represents rollforward fair value level 3 instruments availableforsale debt securities equity investments following table summarizes availableforsale debt securities marketable debt securities mature within five years december 31 2020 2019 following summarizes carrying amount equity investments december 31 2020 2019 following summarizes activity related equity investments changes fair value equity investments included incomeexpense net unrealized net gains equity investments still held 12 billion 2020 156 million 2019 unrealized net losses equity investments still held 537 million 2018 qualifying hedges nonqualifying derivatives cash flow hedges foreign currency forward contracts used hedge certain forecasted intercompany inventory purchases sales transactions certain foreign currency transactions fair value contracts designated cash flow hedges temporarily reported accumulated comprehensive loss included earnings hedged item affects earnings net gain loss foreign currency forward contracts expected reclassified net earnings primarily included cost products sold incomeexpense net within next 12 months notional amount outstanding foreign currency forward contracts primarily attributed euro 35 billion japanese yen 12 billion december 31 2020 earnings impact related discontinued cash flow hedges hedge ineffectiveness significant periods presented cash flow hedge accounting discontinued forecasted transaction longer probable occurring within 60 days originally forecasted date hedge longer effective assessments determine whether derivatives designated qualifying hedges highly effective offsetting changes cash flows hedged items performed inception quarterly basis foreign currency forward contracts designated hedging instruments used offset exposures certain foreign currency denominated assets liabilities earnings changes fair value derivatives recognized earnings occur bms may hedge portion future foreign currency exposure utilizing strategy involves purchased local currency put option written local currency call option accounted hedges future sales denominated local currency specifically bms sells writes local currency call option purchases local currency put option expiration dates local currency notional amounts different strike prices premium collected sale call option equal premium paid purchased put option resulting net premium paid combination transactions generally referred “zerocost collar” expiration dates notional amounts correspond amount timing forecasted foreign currency sales us dollar weakens relative currency hedged anticipated sales purchased put option value reduces zero benefit increase us dollar equivalent value anticipated foreign currency cash flows however benefit would capped strike level written call forms upper end collar 2020 treasury lock hedge contracts entered total notional value 21 billion hedge future interest rate risk associated anticipated issuance longterm debt fund myokardia acquisition treasury lock contracts terminated upon issuance 2020 unsecured senior notes 51 million proceeds included comprehensive lossincome net investment hedges nonus dollar borrowings €950 million 12 billion december 31 2020 designated net investment hedges hedge euro currency exposures net investment certain foreign affiliates recognized longterm debt effective portion foreign exchange gain remeasurement euro debt included foreign currency translation component accumulated comprehensive loss related offset longterm debt crosscurrency interest rate swap contracts 400 million december 31 2020 designated hedge japanese yen currency exposure bms’s net investment japan subsidiaries contract fair value changes recorded foreign currency translation component comprehensive lossincome related offset noncurrent assets noncurrent liabilities fair value hedges fixed floating interest rate swap contracts designated fair value hedges used interest rate risk management strategy create appropriate balance fixed floating rate debt contracts underlying debt hedged benchmark risk recorded fair value effective interest rate contracts onemonth libor 014 december 31 2020 plus interest rate spread 46 gains losses resulting changes fair value underlying debt attributable hedged benchmark interest rate risk recorded interest expense associated offset carrying value debt since specific terms notional amount swap intended align debt hedged changes fair value swap recorded interest expense associated offset derivative asset liability consolidated balance sheet result net impact earnings underlying swap terminated prior maturity fair value adjustment underlying debt amortized reduction interest expense remaining term debt 2019 forward starting interest rate swap option contracts entered total notional value 76 billion hedge future interest rate risk associated anticipated issuance longterm debt fund celgene acquisition additionally deal contingent forward starting interest rate swap contracts entered aggregate notional principal amount 104 billion hedge interest rate risk associated issuance longterm debt fund acquisition forward starting interest rate swap option contracts terminated deal contingent forward starting interest rate swap contracts terminated upon completion celgene acquisition following summarizes fair value outstanding derivatives included current assets noncurrent assets b included current liabilities noncurrent liabilities following table summarizes financial statement classification amount gainloss recognized hedging instruments following table summarizes effect derivative nonderivative instruments designated hedging instruments comprehensive lossincome majority expected reclassified earnings next 12 months debt obligations 2020 bms issued aggregate principal amount 70 billion fixed rate unsecured senior notes proceeds net discount deferred loan issuance costs 69 billion notes rank equally right payment bms’s existing future senior unsecured indebtedness redeemable time whole part varying specified redemption prices plus accrued unpaid interest 2019 bms issued aggregate principal amount approximately 190 billion floating rate fixed rate unsecured senior notes proceeds net discount deferred loan issuance costs 188 billion notes rank equally right payment bms’s existing future senior unsecured indebtedness fixed rate notes redeemable time whole part varying specified redemption prices plus accrued unpaid interest connection celgene acquisition bms commenced offers exchange outstanding notes issued celgene approximately 199 billion likeamount new notes issued bms “exchange offers” exchange transaction accounted modification assumed debt instruments following settlement exchange offers bms issued approximately 185 billion new notes exchange celgene notes tendered exchange offers aggregate principal amount celgene notes remained outstanding following settlement exchange offers approximately 13 billion 2019 bms entered 80 billion term loan credit agreement consisting 10 billion 364day tranche 40 billion threeyear tranche 30 billion fiveyear tranche connection celgene acquisition term loan subject customary terms conditions financial covenants proceeds term loan used fund portion cash paid celgene acquisition payment related fees expenses subsequent completion acquisition bms repaid term loan entirety using cash proceeds generated otezla divestiture refer “note 4 acquisitions divestitures licensing arrangements” information fair value longterm debt 585 billion 507 billion december 31 2020 2019 respectively valued using level 2 inputs based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments repayment notes maturity aggregated 28 billion 2020 13 billion 2019 interest payments 16 billion 2020 414 million 2019 218 million 2018 december 31 2020 bms four separate revolving credit facilities totaling 60 billion consisted 364day 20 billion facility expired january 2021 threeyear 10 billion facility expiring january 2022 two fiveyear 15 billion facilities extended january 2021 september 2024 july 2025 respectively facilities provide customary terms conditions financial covenants may used provide backup liquidity bms’s commercial paper borrowings bms’s 10 billion facility two 15 billion revolving facilities extendable annually one year anniversary date consent lenders borrowings outstanding revolving credit facility december 31 2020 2019 january 2021 bms entered 364day 20 billion facility expiring january 2022 extendable annually one year anniversary date consent lenders available financial guarantees provided form bank overdraft facilities standby letters credit performance bonds approximately 12 billion december 31 2020 standby letters credit guarantees issued financial institutions support various obligations including sale products hospitals foreign ministries health bonds customs duties value added tax shortterm debt obligations include longterm debt current portion longterm debt includes note 10 receivables nonus receivables sold nonrecourse basis 12 billion 2020 797 million 2019 756 million 2018 aggregate receivables three pharmaceutical wholesalers us represented approximately 56 50 total trade receivables december 31 2020 2019 respectively changes allowances expected credit loss chargebacks cash discounts follows includes provision expected credit loss 12 million 2020 12 million 2019 4 million 2018 certain prior year amounts previously included provision presented utilization note 11 inventories total inventories include fair value adjustments resulting celgene acquisition approximately 774 million 35 billion december 31 2020 2019 respectively recognized future periods noncurrent assets include inventory expected remain hand beyond one year periods note 12 property plant equipment includes measurement period adjustments refer “note 4 acquisitions divestitures licensing arrangements” information depreciation expense 586 million 2020 554 million 2019 505 million 2018 note 13 leases leased facilities office research development storage distribution purposes comprise approximately 90 total lease obligation lease terms vary based nature operations market dynamics country however leased facilities classified operating leases remaining lease terms one year 20 years leases contain specific renewal options periods ranging one year 10 years notice renew must provided advance lease expiration automatic renewals advance notice required periods covered option extend lease included noncancellable lease term exercise option determined reasonably certain leases also contain termination options provide flexibility terminate lease ahead expiration sufficient advance notice periods covered option terminate lease included noncancellable lease term exercise option determined reasonably certain judgment required assessing whether renewal termination options reasonably certain exercised factors considered contractual terms compared current market rates leasehold improvements expected significant value costs terminate lease importance facility operations costs determined variable based index rate included measurement real estate lease liabilities variable costs include real estate taxes insurance utilities common area maintenance operating costs implicit rate leases readily determinable incremental borrowing rate applied portfolio approach discount real estate lease liabilities remaining 10 lease obligations comprised vehicles used primarily salesforce rd facility operated third party management’s direction vehicle lease terms vary country terms generally one year four years following table summarizes components lease expense operating lease rightofuse assets liabilities follows future lease payments noncancellable operating leases december 31 2020 follows rightofuse assets obtained exchange new operating lease obligations 326 million 2020 includes 82 million rightofuse assets acquired myokardia acquisition cash paid amounts included measurement operating lease liabilities 164 million 2020 79 million 2019 cash paid 2019 net 33 million lease incentive received undiscounted lease obligations operating leases yet commenced approximately 750 million december 31 2020 obligation primarily relates research development facility constructed lessor expected ready use 2022 rightofuse asset impairment charge 31 million incurred 2020 due site vacancy partial sublease fair value rightofuse asset determined using income approach incorporating potential future cash flows associated sublease building supplemental balance sheet information related leases follows note 14 goodwill intangible assets includes measurement period adjustments refer “note 4 acquisitions divestitures licensing arrangements” information 2020 131 billion iprd reclassified acquired marketed product rights upon approval us reblozyl treatment anemia adults lowerrisk mds zeposia onureg amortization expense intangible assets 99 billion 2020 13 billion 2019 198 million 2018 future annual amortization expense intangible assets expected approximately 102 billion 2021 101 billion 2022 95 billion 2023 85 billion 2024 12 billion 2025 intangible asset impairment charges 11 billion 2020 66 million 2019 84 million 2018 respectively 2020 575 million impairment charge recorded cost products sold resulting lower cash flow projections reflecting revised commercial forecasts inrebic resulting full impairment asset additionally 470 million impairment charge recorded research development expense following decision discontinue orvacel program development inrebic orvacel obtained connection acquisition celgene 2019 32 million iprd impairment charge recorded research development expense following decision discontinue development investigational compound obtained acquisition medarex 2018 64 million impairment charge recorded incomeexpense net outlicensed asset obtained 2010 acquisition zymogenetics inc meet primary endpoint phase ii clinical study note 15 supplemental financial information includes restricted cash 89 million 84 million december 31 2020 2019 respectively note 16 equity cumulative effect resulting adoption asu 201409 asu 201602 b cash dividends declared per common share 184 2020 168 2019 161 2018 bms share repurchase program authorized board directors allowing repurchases shares effected open market privately negotiated transactions compliance rule 10b18 exchange act including rule 10b51 trading plans share repurchase program expiration date may suspended discontinued time treasury stock recognized cost reacquire shares issued treasury recognized utilizing firstin firstout method bms repurchased approximately 27 million shares common stock 16 billion year ended december 31 2020 remaining share repurchase capacity share repurchase program approximately 44 billion december 31 2020 2019 bms executed accelerated share repurchase agreements “asr” repurchase aggregate 7 billion common stock asr funded cash onhand approximately 99 million shares common stock 80 7 billion aggregate repurchase price received bms included treasury stock 2020 agreement settled approximately 16 million shares common stock received bms transferred treasury stock components comprehensive lossincome follows included cost products sold b included incomeexpense net accumulated balances related component comprehensive lossincome net taxes follows note 17 retirement benefits bms sponsors defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan “plan” covered us employees future benefits related service plan eliminated 2009 bms contributed least minimum amount required erisa plan benefits based primarily participant’s years credited service final average compensation 2018 bms announced plans fully terminate plan pension obligations related plan distributed combination lump sum payments eligible plan participants elected payments purchase group annuity contracts wholly owned insurance subsidiaries athene holding ltd “athene” 2019 13 billion distributed plan participants elected lump sum payments election window group annuity contracts purchased athene 26 billion remaining plan participants athene irrevocably assumed pension obligations transactions fully terminated plan resulted 15 billion noncash pretax pension settlement charge 2019 principal us defined benefit pension plan overfunded termination result excess plan assets 424 million reflected bms assets december 31 2019 assets primarily reported long term restricted cash due election contribute assets bristolmyers squibb savings investment program qualified replacement plan election requires assets used fund future annual company contribution bristolmyers squibb savings investment program bms acquired celgene november 20 2019 certain celgene’s international subsidiaries funded unfunded defined benefit pension plans recorded fair value celgene plans using assumptions accounting policies consistent disclosed bms upon acquisition excess projected benefit obligation plan assets recognized liability previously existing deferred actuarial gains losses unrecognized service costs benefits eliminated net periodic benefit costcredit defined benefit pension plans includes pension settlement charges recognized determining annual lump sum payments exceed annual interest service costs certain pension plans including primary us pension plan 2019 2018 changes defined benefit pension plan obligations assets funded status amounts recognized consolidated balance sheets follows accumulated benefit obligation defined benefit pension plans 32 billion 29 billion december 31 2020 2019 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine defined benefit pension plan obligations follows weightedaverage actuarial assumptions used determine defined benefit pension plan net periodic benefit costcredit follows yield high quality corporate bonds matching duration benefit obligations used determining discount rate citi pension discount curve used developing discount rate us plans expected return plan assets assumption plan based management’s expectations longterm average rates return achieved underlying investment portfolio several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class actuarial gains losses resulted changes actuarial assumptions changes discount rate revised mortality rates differences assumed actual experience differences actual expected return plan assets actuarial losses 2020 2019 related plan benefit obligations primarily result decreases discount rates actuarial gains 2018 related plan benefit obligations primarily result increases discount rates gains losses amortized life expectancy plan participants us plans 25 years 2021 expected remaining service periods plans extent exceed 10 higher marketrelated value projected benefit obligation respective plan postretirement benefit plans comprehensive medical group life benefits provided substantially legacy bms us retirees electing participate comprehensive medical group life plans lesser extent certain benefits nonus employees medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory postretirement benefit plan assets consist principally fixedincome securities postretirement benefit plan obligations 267 million 255 million december 31 2020 2019 respectively fair value plan assets 398 million december 31 2019 weightedaverage discount rate used determine benefit obligations 20 29 december 31 2020 2019 respectively net periodic benefit credits material result bristolmyers squibb retirement income plans termination 2019 381 million assets held separate account within pension trust used fund retiree medical plan payments reverted back company 2020 resulting excise tax 76 million plan assets fair value pension postretirement plan assets asset category december 31 2020 2019 follows investment valuation policies per investment class follows level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs instruments include equity securities equity funds fixed income funds publicly traded national securities exchange cash equivalents cash equivalents highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets observable inputs corroborated market data substantially full term assets liabilities equity funds fixed income funds classified level 2 within fair value hierarchy valued nav shares held year end represents fair value corporate debt securities us treasury agency securities classified level 2 within fair value hierarchy valued utilizing observable prices similar instruments quoted prices identical similar instruments markets active level 3 unobservable inputs used little market data available insurance contracts held certain foreign pension plans carried contract value approximates estimated fair value based fair value underlying investment insurance company investments using practical expedient consist primarily multiasset funds redeemable either daily weekly monthly basis investment strategy maximize return maintaining appropriate level risk provide sufficient liquidity benefit obligations plan expenses individual plan investment allocations determined local fiduciary committees composition total assets pension plans december 31 2020 broadly characterized allocation equity securities 28 debt securities 60 investments 12 contributions estimated future benefit payments contributions pension plans 96 million 2020 63 million 2019 71 million 2018 expected material 2021 estimated annual future benefit payments nonterminating plans including lump sum payments approximately 140 million 2021 approximately 125 million next four years subsequent five year period savings plans principal defined contribution plan bristolmyers squibb savings investment program contributions based employee contributions level company match expense attributed defined contribution plans us approximately 290 million 2020 200 million 2019 2018 respectively note 18 employee stock benefit plans may 1 2012 shareholders approved 2012 plan replaced 2007 stock incentive plan 2012 plan provides 109 million shares authorized grants plus shares outstanding awards 2007 plan february 29 2012 expire forfeited canceled withheld satisfy tax withholding obligations december 31 2020 95 million shares available award shares issued treasury stock satisfy bms’s obligations plan part celgene acquisition bms assumed 2017 stock incentive plan 2014 equity incentive plan referred together bms plans “plans” plans provided granting options restricted stock units “rsus” performance share units “psus” sharebased performancebased awards former celgene employees officers nonemployee directors additionally terms plans provided accelerated vesting awards upon change control followed involuntary termination without cause december 31 2020 23 million shares available award celgene plans outstanding celgene equity awards assumed bms converted bms equity awards acquisition replacement bms awards generally terms conditions including vesting former celgene awards exchanged shares issued treasury stock satisfy bms’s obligations plans cvrs also issued holders vested unexercised “in money” options outstanding acquisition date celgene rsu holders unvested “in money” options outstanding acquisition date awards vesting prior march 31 2021 also eligible receive cvrs celgene rsu holders unvested “in money” options outstanding acquisition date awards vesting march 31 2021 eligible receive cash value 900 per preconverted celgene rsu “in money” options cvr milestones achieved contractual obligation pay contingent value rights terminated january 2021 fda approve lisocel jcar017 december 31 2020 executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable ratably four years maximum term 10 years plans provide granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price primarily utilize treasury shares satisfy exercise stock options rsus may granted key employees subject restrictions continuous employment generally vesting occurs ratably three four year period grant date stock unit right receive stock end specified vesting period voting rights market share units “msus” granted executives vesting conditioned upon continuous employment vesting date payout factor least 60 share price award date payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs ratably four years psus granted executives three year cycle granted target number units subject adjustment number shares issued psus vest determined based achievement performance goals based bms’s threeyear total shareholder return relative peer group companies vesting conditioned upon continuous employment occurs third anniversary grant date stockbased compensation expense awards ultimately expected vest recognized vesting period forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates stockbased compensation expense follows income tax benefit excludes excess tax benefits sharebased compensation awards vested exercised 35 million 2020 4 million 2019 25 million 2018 total stockbased compensation expense years ended december 31 2020 2019 includes 382 million 66 million respectively related celgene postcombination service period 71 million 145 million respectively accelerated vesting awards related celgene acquisition also includes 3 million 2020 10 million 2019 related cvr obligation unvested stock awards post combination service period refer “note 4 acquisitions divestitures licensing arrangements” information related celgene acquisition replacement stock options granted celgene option holders acquisition issued consistent vesting conditions replaced award replacement stock options contractual terms 10 years initial grant date majority stock options outstanding vest onefourth increments four year period although certain awards cliff vest longer shorter service periods celgene option holders may elect exercise options time option term however shares purchased vested date exercise shall subject forfeiture lapse accordance established vesting time period fair value acquisition date attributable postcombination service adjusted estimated forfeitures recognized expense straightline basis remaining vesting period bms estimated fair value replacement options using blackscholes option pricing model following assumptions riskfree interest rate based rates available us federal reserve treasury constant maturities remaining term equal options expected life time replacement award expected volatility replacement stock option awards estimated based 5050 blend implied volatility five year historical volatility bms’ publicly traded stocks expected term employee share option period time option expected outstanding based historical forecasted exercise behavior dividend yield estimated based bms’ annual dividend rate time award replacement following table summarizes stock compensation activity year ended december 31 2020 december 31 2020 substantially 81 million unvested stock options weightedaverage exercise price 5336 expected vest fair value rsus msus psus approximates closing trading price bms’s common stock grant date adjusting units eligible accrued dividends addition fair value msus psus considers probability satisfying payout factor total shareholder return respectively fair value replacement rsus approximates closing trading price bms’ common stock date acquisition adjusting units eligible accrued dividends fair value acquisition date attributable postcombination service adjusted estimated forfeitures recognized expense straightline basis remaining vesting period following table summarizes significant outstanding exercisable options december 31 2020 aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 6203 december 31 2020 note 19 legal proceedings contingencies bms certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business claims proceedings involve various types parties including governments competitors customers suppliers service providers licensees employees shareholders among others matters may involve patent infringement antitrust securities pricing sales marketing practices environmental commercial contractual rights licensing obligations health safety matters consumer fraud employment matters product liability insurance coverage among others resolution matters often develops long period time expectations change result new findings rulings appeals settlement arrangements legal proceedings significant bms believes could become significant material described bms believe matters except otherwise specifically noted material adverse effect financial position liquidity bms believes substantial defenses matters outcomes bms’s legal proceedings contingencies inherently unpredictable subject significant uncertainties assurance increase scope one pending matters future lawsuits claims government investigations legal proceedings material bms’s financial position results operations cash flows particular period furthermore failure enforce bms’s patent rights would likely result substantial decreases respective product revenues generic competition unless otherwise noted bms unable assess outcome respective matters able estimate possible loss range losses could potentially result matters contingency accruals recognized probable liability incurred amount related loss reasonably estimated developments legal proceedings matters could cause changes amounts previously accrued evaluated reporting period discussion bms’s tax contingencies see “note 7 income taxes” intellectual property antipd1 antibody litigation september 2015 danafarber cancer institute “danafarber” filed complaint us district court district massachusetts seeking correct inventorship six related us patents directed methods treating cancer using pd1 pdl1 antibodies specifically danafarber seeking add two scientists inventors patents october 2017 pfizer allowed intervene case alleging one scientists identified danafarber employed company eventually acquired pfizer relevant period february 2019 bms settled lawsuit pfizer bench trial lawsuit danafarber took place february 2019 may 2019 court issued opinion ruling two scientists added inventors patents decision appealed us court appeals federal circuit federal circuit affirmed district court opinion bms filed petition reconsider decision federal circuit en banc denied october 2020 june 2019 danafarber filed new lawsuit district massachusetts bms seeking damages result court’s decision adding scientists inventors car october 18 2017 day fda approved kite pharma inc’s “kite” yescarta product juno along sloan kettering institute cancer research “ski” filed complaint kite us district court central district california complaint alleged yescarta infringes certain claims us patent 7446190 “the ’190 patent” concerning car cell technologies kite filed answer counterclaims asserting noninfringement invalidity ’190 patent december 2019 following eightday trial jury rejected kite’s defenses finding kite willfully infringed ’190 patent awarding juno ski reasonable royalty consisting 585 million upfront payment 276 running royalty kite’s sales yescarta expiration ’190 patent august 2024 january 2020 kite renewed previous motion judgment matter law also moved new trial juno filed motion seeking enhanced damages supplemental damages ongoing royalties prejudgment interest march 2020 court denied kite’s motions entirety april 2020 court granted part juno’s motion entered final judgment awarding juno ski approximately 12 billion royalties interest enhanced damages 276 running royalty kite’s sales yescarta december 13 2019 expiration ’190 patent august 2024 april 2020 kite appealed final judgment us court appeals federal circuit date scheduled oral hearing appeal eliquis us 2017 bms received notice letters twentyfive generic companies notifying bms filed andas containing paragraph iv certifications seeking approval generic versions eliquis result two eliquis patents listed fda orange book challenged composition matter patent claiming apixaban specifically formulation patent response bms along partner pfizer initiated patent infringement actions hatchwaxman act generic filers us district court district delaware april 2017 august 2017 us patent trademark office granted patent term restoration composition matter patent november 2026 thereby restoring term eliquis composition matter patent bms’s basis projected loe bms settled number anda filers settlements affect bms’s projected loe eliquis trial remaining anda filers took place late 2019 august 2020 us district court issued decision finding remaining anda filers’ products infringed eliquis composition matter formulation patents eliquis patents invalid remaining anda filers appealed court appeals federal circuit plavix australia sanofi notified august 2007 genrx proprietary limited “genrx” obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex inc subsequently changed name apotex “genrxapotex” august 2007 genrxapotex filed application federal court australia seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 federal court australia granted sanofi’s injunction subsidiary bms subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated genrxapotex case august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid bms sanofi filed notices appeal full court federal court australia “full court” appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims genrxapotex appealed holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims september 29 2009 full court held claims patent 597784 invalid march 2010 high court australia denied request bms sanofi hear appeal full court decision case remanded federal court proceedings related damages sought genrxapotex bms genrxapotex settled genrxapotex case dismissed australian government intervened matter seeking maximum damages 449 million aud 341 million plus interest would split bms sanofi alleged losses experienced paying higher price branded plavix period injunction place bms sanofi dispute australian government entitled damages trial concluded september 2017 april 2020 federal court issued decision dismissing australian government’s claim damages may 2020 australian government appealed federal courts decision appeal hearing scheduled february 2021 pomalyst canada celgene received notice allegation january 2020 natco pharma canada inc “natco canada” notifying celgene filed abbreviated new drug submission “ands” canada’s minister health respect certain celgene’s canadian patents natco canada seeking market generic version pomalyst canada response celgene initiated patent infringement action federal court canada natco canada alleges asserted patents invalid andor infringed trial scheduled begin november 15 2021 celgene received second notice allegation november 2020 natco canada notifying celgene filed second ands canada’s minister health respect certain celgene’s canadian patents natco canada seeking market generic version pomalyst canada response celgene initiated patent infringement action federal court canada natco canada alleges asserted patents invalid andor infringed trial date scheduled matter celgene received two notices allegation march 2020 dr reddy’s laboratories ltd “drl canada” notifying celgene filed ands canada’s minister health respect certain celgene’s canadian patents drl canada seeking market generic version pomalyst canada response celgene initiated two patent infringement actions federal court canada drl canada alleges asserted patents invalid andor infringed trial scheduled begin january 2022 pomalyst us beginning 2017 celgene received notice letters behalf teva pharmaceuticals usa inc “teva” apotex inc “apotex” apotex corp hetero labs limited hetero labs limited unitv hetero drugs limited hetero usa inc collectively “hetero” eugia pharma specialities limited aurobindo pharma ltd collectively “aurobindo” mylan pharmaceuticals inc breckenridge pharmaceutical inc “breckenridge” notifying celgene filed andas containing paragraph iv certifications seeking approval market generic versions pomalyst us response celgene filed patent infringement actions companies us district court district new jersey asserting certain fda orange booklisted patents companies filed answers counterclaims declaratory judgment actions alleging asserted patents invalid unenforceable infringed litigations subsequently consolidated march 2020 celgene subsequently filed additional patent infringement actions us district court district new jersey companies asserting newlyissued patent listed fda orange book covers formulations comprising pomalidomide companies filed responsive pleadings april june 2020 alleging patent invalid infringed court consolidated additional litigations previouslyconsolidated litigations september 2020 court granted mylan pharmaceuticals inc’s motion dismiss decision celgene appealed october 2020 breckenridge aurobindo received final approval fda respective andas november 2020 celgene breckenridge entered confidential settlement agreement pursuant terms confidential settlement agreement january 7 2021 court enjoined breckenridge infringing asserted patents unless extent otherwise specifically authorized celgene dismissed breckenridge proceedings final pretrial conference concerning consolidated litigations scheduled february 16 2021 expected delayed february march 2019 celgene filed additional patent infringement actions us district court district new jersey companies asserting certain patents listed fda orange book cover polymorphic forms pomalidomide companies filed answers andor counterclaims alleging patents invalid andor infringed actions consolidated earlierfiled actions companies trial date set matter june 2019 celgene received notice letter dr reddy’s laboratories ltd dr reddy’s laboratories inc together “drl” notifying celgene filed anda containing paragraph iv certifications seeking approval market generic version pomalyst us response celgene initiated patent infringement action drl us district court district new jersey asserting certain fda orange booklisted patents drl filed answer counterclaims alleging patents invalid andor infringed march 2020 celgene filed additional patent infringement action us district court district new jersey drl asserting newlyissued patent listed fda orange book covers formulations comprising pomalidomide consolidated drl case court set trial date consolidated action february 2021 celgene filed additional patent infringement action us district court district new jersey drl asserting certain patents listed fda orange book cover polymorphic forms pomalidomide drl responded complaint trial date set matter revlimid us celgene received notice letters behalf zydus pharmaceuticals usa inc cipla ltd “cipla” apotex sun pharma global fze sun pharma global inc sun pharmaceutical industries inc sun pharmaceutical industries limited hetero mylan pharmaceuticals inc mylan inc mylan nv collectively “mylan” aurobindo pharma limited eugia pharma specialities limited aurobindo pharma usa inc aurolife pharma llc lupin limited notifying celgene filed andas containing paragraph iv certifications seeking approval market generic versions revlimid us response celgene filed patent infringement actions companies us district court district new jersey asserting certain fda orange booklisted patents well litigations asserting nonfda orange booklisted patents certain defendants filed answers andor counterclaims alleging asserted patents invalid andor infringed trial date scheduled new jersey actions celgene also filed patent infringement action mylan us district court northern district west virginia “west virginia action” asserting certain fda orange booklisted patents mylan filed answer counterclaims alleging patents invalid andor infringed trial scheduled begin west virginia action october 4 2021 december 2020 celgene settled outstanding claims litigation cipla pursuant settlement celgene agreed provide cipla license celgene’s patents required manufacture sell certain volumelimited amounts generic lenalidomide united states beginning certain date march 2022 volumelimited license date previously provided natco addition celgene agreed provide cipla license celgene’s patents required manufacture sell unlimited quantity generic lenalidomide united states beginning january 31 2026 sprycel us august 2019 bms received notice letter dr reddy’s laboratories inc notifying bms filed anda containing paragraph iv certifications seeking approval generic version sprycel us challenging two fda orange booklisted monohydrate form patents expiring 2025 2026 response bms filed patent infringement action us district court district new jersey trial date scheduled 2020 bms received notice letter lupin notifying bms filed anda containing paragraph iv certifications seeking approval generic version sprycel us challenging two fda orange booklisted monohydrate form patents expiring 2025 2026 response bms filed patent infringement actions us district courts district new jersey delaware trial date scheduled pricing sales promotional practices litigation plavix state attorneys general lawsuits bms certain sanofi entities defendants consumer protection actions brought attorneys general hawaii new mexico relating labeling sales andor promotion plavix trial hawaii matter concluded november 2020 decision expected first quarter 2021 product liability litigation bms party various product liability lawsuits plaintiffs cases seek damages relief various grounds alleged personal injury economic loss previously disclosed addition lawsuits bms also faces unfiled claims involving products abilify bms otsuka codefendants product liability litigation related abilify plaintiffs allege abilify caused engage compulsive gambling impulse control disorders 2500 cases filed state federal courts additional cases pending canada judicial panel multidistrict litigation consolidated federal court cases pretrial purposes us district court northern district florida february 2019 bms otsuka entered master settlement agreement establishing proposed settlement program resolve abilify compulsivity claims filed january 28 2019 mdl well various state courts including california new jersey date approximately 2700 cases comprising approximately 3900 plaintiffs dismissed based participation settlement program failure comply settlement related court orders us less 20 cases remain pending behalf plaintiffs either chose participate settlement program filed claims settlement cutoff date ten cases pending canada four class actions six individual injury claims ten cases three active class actions quebec ontario one individual injury claim class actions certified proceed separately subject pending appeal ontario class certification decision byetta amylin former subsidiary bms lilly codefendants product liability litigation related byetta december 2020 approximately 590 separate lawsuits pending behalf approximately 2250 active plaintiffs including pending settlements include injury plaintiffs well claims spouses andor beneficiaries various courts us majority cases brought individuals allege personal injury sustained using byetta primarily pancreatic cancer cases claiming alleged wrongful death majority cases pending federal court san diego mdl coordinated proceeding california superior court los angeles “jccp” november 2015 defendants’ motion summary judgment based federal preemption granted mdl jccp november 2017 ninth circuit reversed mdl summary judgment order remanded case mdl november 2018 california court appeal reversed state court summary judgment order remanded cases jccp proceedings amylin filed motion summary judgment based federal preemption motion summary judgment based absence general causation evidence heard 2020 amylin product liability insurance covering substantial number claims involving byetta exhausted part bms’s global diabetes business divestiture bms sold byetta astrazeneca february 2014 additional liability amylin respect byetta expected shared astrazeneca onglyza bms astrazeneca codefendants product liability litigation related onglyza plaintiffs assert claims including claims wrongful death result heart failure cardiovascular injuries allege caused use onglyza december 2020 claims pending state federal court behalf approximately 280 individuals allege ingested product suffered injury february 2018 judicial panel multidistrict litigation ordered federal cases transferred mdl us district court eastern district kentucky significant majority claims pending mdl part bms’s global diabetes business divestiture bms sold onglyza astrazeneca february 2014 potential liability respect onglyza expected shared astrazeneca securities litigation bms securities class action since february 2018 two separate putative class action complaints filed us district northern district california us district court southern district new york bms’s chief executive officer giovanni caforio bms’s chief financial officer time charles bancroft certain former current executives bms case california voluntarily dismissed remaining complaint alleges violations securities laws bms’s disclosures related checkmate026 clinical trial lung cancer september 2019 court granted bms’s motion dismiss allowed plaintiffs leave file amended complaint october 2019 plaintiffs filed amended complaint bms moved dismiss amended complaint september 2020 court granted bms’s motion dismiss prejudice plaintiffs appealed courts decision october 2020 celgene securities class action beginning march 2018 two putative class actions filed celgene certain officers us district court district new jersey “celgene securities class action” complaints allege defendants violated federal securities laws making misstatements andor omissions concerning 1 trials ged0301 2 celgene’s 2020 outlook projected sales otezla 3 new drug application zeposia court consolidated two actions appointed lead plaintiff lead counsel coliaison counsel putative class february 2019 defendants filed motion dismiss plaintiff’s amended complaint full december 2019 court denied motion dismiss part granted motion dismiss part including claims arising alleged misstatements regarding ged0301 although court gave plaintiff leave replead dismissed claims elected dismissed claims dismissed prejudice november 2020 court granted class certification respect remaining claims december 2020 defendants sought leave appeal court’s class certification decision trial date scheduled april 2020 certain schwab management investment companies behalf certain schwab funds filed individual action us district court district new jersey asserting largely allegations celgene securities class action remaining defendants action july 2020 defendants filed motion dismiss plaintiffs complaint full litigation average manufacturer price litigation bms defendant qui tam whistleblower lawsuit us district court eastern district pennsylvania us government declined intervene complaint alleges bms inaccurately reported average manufacturer prices centers medicare medicaid services lower owed similar claims filed companies january 2020 bms reached agreement principle resolve matter subject negotiation definitive settlement agreement contingencies bms cannot provide assurances efforts reach final settlement successful hiv medication antitrust lawsuits bms two manufacturers hiv medications defendants related lawsuits pending northern district california lawsuits allege defendants’ agreements develop sell fixeddose combination products treatment hiv including atripla evotaz violate antitrust laws currently pending actions asserted behalf indirect purchasers initiated 2019 northern district california 2020 southern district florida matter transferred northern district california july 2020 court granted part defendants’ motion dismiss including dismissing prejudice plaintiffs’ claims overarching conspiracy plaintiffs’ theories based alleged payment royalties patent expiration claims however remain trial indirect purchasers’ claims scheduled august 2022 september october 2020 two purported class actions also filed asserting similar claims behalf direct purchasers defendants’ motions dismiss compel arbitration matters scheduled heard february 2021 trial direct purchasers’ claims scheduled humana litigations may 2018 humana inc “humana” filed lawsuit celgene pike county circuit court commonwealth kentucky humana’s complaint alleges celgene engaged unlawful offlabel marketing connection sales thalomid revlimid asserts claims celgene fraud breach contract negligent misrepresentation unjust enrichment violations new jersey’s racketeer influenced corrupt organizations act complaint seeks among things treble punitive damages injunctive relief attorneys’ fees costs april 2019 celgene filed motion dismiss humana’s complaint court denied january 2020 trial date scheduled may 2020 celgene filed suit humana pharmacy inc “hpi” humana subsidiary delaware superior court celgene’s complaint alleges hpi breached contractual obligations celgene assigning claims humana asserting complaint seeks damages hpi’s breach well declaratory judgment september 2020 hpi filed motion dismiss celgene’s complaint march 2019 humana filed separate lawsuit celgene us district court district new jersey humana’s complaint alleges celgene violated various antitrust consumer protection unfair competition laws delay prevent generic competition thalomid revlimid brand drugs including allegedly refusing sell samples products generic manufacturers purposes bioequivalence testing intended included andas approval market generic versions products b allegedly bringing unjustified patent infringement lawsuits procuring invalid patents andor entering anticompetitive patent settlements c allegedly securing exclusive supply contract supply thalidomide active pharmaceutical ingredient complaint purports assert claims behalf humana subsidiaries several capacities including direct purchaser indirect purchaser seeks among things treble punitive damages injunctive relief attorneys’ fees costs celgene filed motion dismiss humana’s complaint court stayed discovery pending adjudication motion trial date scheduled thalomid revlimid antitrust class action litigation related proceedings beginning november 2014 certain putative class action lawsuits filed celgene us district court district new jersey alleging celgene violated various antitrust consumer protection unfair competition laws allegedly securing exclusive supply contract alleged purpose preventing generic manufacturer securing supply thalidomide active pharmaceutical ingredient b allegedly refusing sell samples thalomid revlimid brand drugs various generic manufacturers alleged purpose bioequivalence testing necessary andas submitted fda approval market generic versions products c allegedly bringing unjustified patent infringement lawsuits order allegedly delay approval proposed generic versions thalomid revlimid andor allegedly entering settlements patent infringement lawsuits certain generic manufacturers allegedly anticompetitive effects plaintiffs behalf putative classes thirdparty payers seeking injunctive relief damages various lawsuits consolidated master action purposes october 2017 plaintiffs filed motion certification two damages classes laws thirteen states district columbia nationwide injunction class celgene filed opposition plaintiffs’ motion judgment pleadings dismissing state law claims plaintiffs longer seek represent class october 2018 court denied plaintiffs’ motion class certification celgene’s motion judgment pleadings december 2018 plaintiffs filed new motion class certification celgene opposed july 2019 parties reached settlement putative class plaintiff claims would dismissed prejudice december 2019 certain thirdparty payors members settlement class refused release potential claims participate settlement celgene exercised right terminate settlement agreement march 2020 celgene reached revised settlement class plaintiffs may 2020 court preliminarily approved settlement october 2020 court entered final order approving settlement dismissed matter settlement resolve claims certain entities opted first settlement march 2020 united healthcare services inc “uhs” affiliates opted first settlement thalomid revlimid antitrust class action litigation filed lawsuit celgene us district court district minnesota uhs’s complaint makes largely claims allegations class action litigation addition certain claims regarding donations directed copay assistance complaint purports assert claims behalf uhs subsidiaries several capacities including direct purchaser indirect purchaser seeks among things treble punitive damages injunctive relief attorneys’ fees costs december 2020 celgene’s motion transfer action district new jersey granted case pending court july 2020 blue cross blue shield association “bcbsa” sued celgene bms behalf federal employee program us district court district columbia bcbsa’s complaint makes largely claims allegations class action litigation motion transfer matter district new jersey pending august 2020 health care service corporation “hcsc” bcbsm inc dba blue cross blue shield minnesota blue cross blue shield florida inc dba florida blue sued celgene bms state courts minnesota complaint makes largely claims allegations class action litigation adds allegations behalf hcsc alleged offlabel marketing thalomid revlimid september 2020 celgene bms removed action us district court district minnesota motions remand dismiss action transfer venue district new jersey pending january 2021 cigna corporation “cigna” sued celgene bms us district court eastern district pennsylvania cigna’s complaint makes largely claims allegations class action litigation cigna’s complaint purports assert claims behalf cigna subsidiaries several capacities including direct purchaser indirect purchaser celgene’s bms’s response complaint due march 2021 government investigations like pharmaceutical companies bms certain subsidiaries subject extensive regulation national state local authorities us countries bms operates result bms time subject various governmental regulatory inquiries investigations well threatened legal actions proceedings possible criminal charges substantial fines andor civil penalties could result government regulatory investigations environmental proceedings previously reported bms party several environmental proceedings matters responsible various state federal foreign laws including cercla certain costs investigating andor remediating contamination resulting past industrial activity bms’s current former sites waste disposal reprocessing facilities operated third parties cercla matters respect cercla matters bms responsible various state federal foreign laws bms typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” bms accrues liabilities probable reasonably estimable bms estimated share future costs sites 788 million december 31 2020 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties amount includes estimated costs additional probable loss associated previously disclosed north brunswick township high school remediation site note 20 selected quarterly financial data unaudited earnings per share quarters may add amounts year period computed discrete basis b marketable debt securities includes current noncurrent assets c longterm debt includes current portion commencing november 20 2019 celgene’s operations included consolidated financial statements refer “note 4 acquisitions divestitures licensing arrangements” additional information following specified items affected comparability results 2020 2019 includes amortization purchase price adjustments celgene debt report independent registered public accounting firm shareholders board directors bristolmyers squibb company opinion financial statements audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries company december 31 2020 2019 related consolidated statements earnings comprehensive lossincome cash flows three years period ended december 31 2020 related notes collectively referred financial statements opinion financial statements present fairly material respects financial position company december 31 2020 2019 results operations cash flows three years period ended december 31 2020 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states pcaob companys internal control financial reporting december 31 2020 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 9 2021 expressed unqualified opinion companys internal control financial reporting basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion critical audit matters critical audit matters communicated matters arising currentperiod audit financial statements communicated required communicated audit committee 1 relate accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate grosstonet us rebate accruals us medicaid medicare part managed healthcare refer “note 2 revenue” financial statements critical audit matter description fully disclosed note 2 financial statements company reduces gross product sales list price time revenue recognized expected chargebacks discounts rebates sales allowances product returns referred grosstonet “gtn” adjustments reductions attributed various commercial arrangements managed healthcare organizations government programs mandate various reductions list price chargebacks cash discounts reflected reduction receivables settled issuance credits customer rebates discounts adjustments reflected liability settled cash payments certain gtn liabilities related us medicaid medicare part managed healthcare organizations rebate programs “gtn us rebate accruals” involve use significant assumptions judgments calculation significant assumptions judgments include consideration legal interpretations applicable laws regulations historical claims experience payer channel mix current contract prices unbilled claims submission time lags inventory levels distribution channel given complexity involved determining significant assumptions used calculating gtn us rebate accruals auditing estimates involved especially subjective judgment critical audit matter addressed audit procedures related gtn us rebate accruals included following among others •we evaluated appropriateness consistency company’s methods assumptions used calculate gtn us rebate accruals •we tested effectiveness internal controls review company’s estimation model including underlying assumptions key inputs company’s process calculate gtn us rebate accruals •we tested mathematical accuracy gtn us rebate accruals •we tested significant assumptions key inputs used calculate gtn us rebate accruals •we evaluated company’s ability estimate gtn us rebate accruals accurately comparing actual amounts incurred gtn us rebate accruals historical estimates •we tested overall reasonableness gtn us rebate accruals recorded period end developing expectation comparison actual recorded balances •we involved audit professionals industry quantitative analytics experience assist us performing auditing procedures taxes unrecognized tax benefit liabilities us transfer pricing refer “note 7 income taxes” financial statements critical audit matter description fully disclosed note 7 financial statements company recognizes certain income tax benefits associated transactions us operating companies related foreign affiliates income tax benefits estimated based transfer pricing agreements thirdparty transfer pricing studies company’s judgment whether morelikelythannot benefits realized tax benefits may ultimately realized company determined judgment accrued unrecognized tax benefit liabilities amounts recognized unrecognized tax benefit liabilities related us transfer pricing may significantly affected subsequent periods due various factors changes tax law identification additional relevant facts change company’s judgment regarding measurement tax benefits upon ultimate settlement taxing authorities given complexity associated assumptions used calculate unrecognized tax benefit liabilities related us transfer pricing coupled significant judgments made company determination auditing estimates involved especially subjective judgment critical audit matter addressed audit procedures related unrecognized tax benefit liabilities related us transfer pricing included following among others •we evaluated appropriateness consistency company’s methods assumptions used identification recognition measurement disclosure unrecognized tax benefit liabilities •we tested effectiveness internal controls review underlying assumptions key inputs company’s process calculate unrecognized tax benefit liabilities •we obtained understanding company’s related party transactions transfer pricing policies •we tested mathematical accuracy unrecognized tax benefit liabilities •we tested completeness unrecognized tax benefit liabilities •we tested reasonableness underlying tax positions amounts accrued selection unrecognized tax benefit liabilities reviewing company’s evaluation relevant facts tax law associated tax position testing significant assumptions inputs used calculate unrecognized tax benefit liabilities reference third party data information produced entity understanding transfer pricing principles tax laws inquires management •we evaluated whether company appropriately considered new information could significantly change recognition measurement disclosure unrecognized tax benefit liabilities •we involved income tax specialists audit professionals industry experience assist us performing auditing procedures deloitte touche llp parsippany new jersey february 9 2021 served company’s auditor since 2006 item 9item 8 financial statements supplementary data accompanying notes integral part financial statements bristolmyers squibb company consolidated statement comprehensive income retained earnings dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheet dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated statement cash flows dollars millions accompanying notes integral part financial statements bristolmyers squibb company notes consolidated financial statements note 1 accounting policies throughout notes consolidated financial statements certain prior periods prior period comparisons reflect balances amounts restated basis information restatement see “note 2 restatement previously issued financial statements years ended december 31 2002 2001” basis consolidation consolidated financial statements include accounts bristolmyers squibb company bms company bristolmyers squibb controlled majority owned subsidiaries intercompany balances transactions eliminated certain prior year amounts reclassified conform current year presentation including reclassification amounts relating equity net income affiliates formerly netted minority interest net taxes presented separate line consolidated statement earnings see also “investments” use estimates preparation financial statements conformity us generally accepted accounting principles gaap requires use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets contingent liabilities date financial statements reported amounts revenues expenses reporting period significant assumptions employed estimates used determining values intangible assets restructuring charges accruals sales rebate return accruals legal contingencies tax assets tax liabilities well estimates used applying revenue recognition policy accounting retirement postretirement benefits including actuarial assumptions actual results could differ estimated results revenue recognition company recognizes revenue substantially risks rewards ownership transferred customer case certain sales made nutritionals healthcare segments certain nonus businesses within pharmaceuticals segment revenue recognized date receipt purchaser revenues reduced time sale reflect expected returns estimated based historical experience additionally provisions made time sale discounts rebates estimated sales allowances based historical experience updated changes facts circumstances appropriate provisions recorded reduction revenue case sales made wholesalers 1 result incentives 2 excess wholesaler’s ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchases 4 time incentives would cover substantially vary directly wholesaler’s cost carrying inventory excess wholesaler’s ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory company’s cost inventory company recognizes revenue consignment inventory longer subject incentive arrangements later inventory sold wholesalers’ customers firstin firstout fifo basis company’s estimates inventory wholesalers deferred revenue consigned inventory based projected prescription demandbased sales products well company’s analysis thirdparty information including information obtained certain wholesalers respect inventory levels sellthrough customers thirdparty market research data company’s internal information company’s estimates subject inherent limitations estimates rely thirdparty data certain thirdparty information form estimates reflect limitations sales rebate return accruals medicaid rebate accruals 234 million 220 million december 31 2003 2002 respectively managed healthcare rebate accruals 226 million 212 million december 31 2003 2002 respectively rebate accruals established period related revenue recognized resulting reduction sales establishment liability included accrued liabilities accrual recorded based estimate proportion recorded revenue result rebate return prime vendor chargeback accruals established similar manner recorded reduction accounts receivable 94 million 126 million december 31 2003 2002 respectively bristolmyers squibb company notes consolidated financial statements continued note 1 accounting policies continued income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases company’s assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recorded reduce deferred tax assets likely tax benefit realized company record provision income taxes undistributed earnings foreign subsidiaries expect repatriate foreseeable future company establishes liabilities possible assessments taxing authorities resulting known tax exposures amounts represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known cash equivalents cash equivalents primarily highly liquid investments original maturities three months less time purchase recorded cost approximates fair value marketable securities company accounts marketable securities accordance statement financial accounting standards sfas 115 accounting certain investments debt equity securities company determined appropriate classification marketable securities “availableforsale” time purchase december 31 2003 2002 company’s investments marketable securities reported fair value unrealized gains losses reported component accumulated comprehensive income loss stockholders’ equity amortized cost debt securities adjusted amortization premiums accretion discounts date purchase maturity amortization included interest income addition deduction coupon interest earned investments company follows investment managers’ method determining cost basis computing realized gains losses sale availableforsale securities average cost method realized gains losses included income expense marketable securities classified available sale recorded cost approximates fair value inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals improvements capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets 50 years buildings 3 40 years machinery equipment fixtures company periodically evaluates whether current events circumstances indicate carrying value depreciable assets may recoverable impairment longlived assets effective january 1 2002 company adopted provisions sfas 144 accounting impairment longlived assets adoption sfas 144 material effect consolidated financial statements company sfas 144 establishes accounting impairment longlived tangible intangible assets goodwill disposal segment business pursuant sfas 144 company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value bristolmyers squibb company notes consolidated financial statements continued note 1 accounting policies continued capitalized software certain costs obtain internal use software significant systems projects capitalized amortized estimated useful life software ranges four ten years costs obtain software projects significant expensed incurred capitalized software net accumulated amortization included assets 407 million 363 million december 31 2003 2002 respectively investments january 2003 company adopted financial accounting standards board fasb interpretation 46 “fin 46” “interpretation” consolidation variable interest entities interpretation arb 51 fin 46 clarifies application accounting research bulletin arb 51 “consolidated financial statements” certain entities equity investors characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support parties entities known variable interest entities “vies” fasb issued revision fin 46 “fin 46r” december 2003 fin 46r effective interim period ending march 31 2004 new existing vies adoption fin 46 effect company’s financial statements entity meet definition vie fin 46 company accounts entity provisions accounting principles board apb opinon number 18 equity method accounting investments common stock requires company consolidates majority 50 owned subsidiaries ability exercise control company accounts 50 less owned companies ability exercise significant influence using equity method accounting company’s share net income losses equity investments included equity net income affiliates consolidated statement earnings company periodically reviews equity investments impairment adjusts investments fair value decline market value deemed temporary 2002 company recorded asset impairment charge 379 million otherthantemporary decline market value imclone systems incorporated imclone longterm investments securities comprise marketable equity securities investments market values readily available included assets marketable equity securities classified availableforsale reported fair value fair value based quoted market prices end reporting period securities investments market values readily available carried cost unrealized gains losses reported net related tax effects component accumulated comprehensive income loss stockholders’ equity sold time sale gains losses calculated specific identification method recognized incomeexpense losses also recognized income decline market value deemed temporary goodwill intangible assets company adopted sfas 142 goodwill intangible assets january 1 2002 certain provisions adopted july 1 2001 respect amortization goodwill arising acquisitions made june 30 2001 sfas 142 addresses initial recognition measurement intangible assets acquired outside business combination recognition measurement goodwill intangible assets subsequent acquisition new rules goodwill longer amortized subject annual impairment tests connection accounting change goodwill resulting company’s acquisition dupont pharmaceuticals business dupont pharmaceuticals investment imclone amortized goodwill arising business acquisitions prior july 1 2001 amortized straightline basis periods ranging 15 40 years goodwill amortized effective january 1 2002 2001 goodwill amortization expense 75 million accordance sfas 142 goodwill tested impairment upon adoption new standard annually thereafter sfas 142 requires goodwill tested impairment using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value company completed goodwill impairment assessment indicated impairment goodwill bristolmyers squibb company notes consolidated financial statements continued note 1 accounting policies continued intangible assets consisting patents trademarks technology licenses amortized straightline basis useful lives ranging 3 17 years sfas 142 requires indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net book value exceeds estimated fair value intangible assets evaluated impairment accordance sfas 144 described “impairment longlived assets” product liability accruals product liability recorded undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recorded undiscounted basis probable recovery realized classified reduction litigation charges consolidated statement earnings contingencies normal course business company subject contingencies legal proceedings claims arising business cover wide range matters including among others product liability environmental liability tax matters accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated discussion contingencies reference made “note 9 income taxes” “note 22 legal proceedings contingencies” derivative financial instruments derivative financial instruments used company principally management interest rate foreign currency exposures company hold issue derivative financial instruments speculative purposes company records derivative instruments balance sheet fair value changes derivative’s fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized charge credit earnings derivative designated cash flow hedge effective portions changes fair value derivative recorded comprehensive income loss subsequently recognized consolidated statement earnings hedged item affects earnings cash flows classified consistent underlying hedged item purchased foreign currency options entire change fair value included measurement hedge effectiveness cash flow hedges ineffective portions changes fair value cash flow hedges recognized charge credit earnings company designates assigns derivatives hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer expected occur company immediately recognizes gain loss designated hedging financial instruments consolidated statement earnings shipping handling costs company typically charge customers shipping handling costs shipping handling costs included marketing selling administrative expenses 2003 2002 2001 258 million 248 million 258 million respectively advertising costs advertising costs expensed incurred advertising expense 448 million 393 million 401 million 2003 2002 2001 respectively milestone payments company time enter strategic alliances third parties give company rights develop manufacture market andor sell pharmaceutical products rights owned third parties result alliances company may obligated make payments alliance partners contingent upon achievement certain predetermined criteria milestones achieved prior marketing approval product payments expensed research development product approval additional milestones capitalized amortized cost products sold remaining useful life asset capitalized milestone payments tested recoverability whenever events changes circumstances indicate carrying amounts may recoverable bristolmyers squibb company notes consolidated financial statements continued note 1 accounting policies continued acquired inprocess research development fair value inprocess research development acquired business combination determined independent appraisal based present value research project’s projected cash flows income approach utilized consistent guidance practice aid issued american institute certified public accountants entitled “assets acquired business combinations used research development activities focus software electronic devices pharmaceutical industries” future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weighted average cost capital acquired inprocess research development expensed incurred underlying product received regulatory approval future alternative use addition costs nonrefundable related acquisition licensing products yet received regulatory approval marketed alternative future use charged earnings incurred earnings per share basic earnings per common share computed using weightedaverage number shares outstanding year diluted earnings per common share computed using weightedaverage number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options convertible instruments stock compensation plans company applies apb opinion 25 accounting stock issued employees related interpretations accounting stockbased compensation plans company recognize compensation expense stock options granted plans exercise price option date grant equal fair market value date grants restricted stock company recognizes compensation expense straightline basis period restrictions expire following table summarizes company’s results pro forma basis recorded compensation expense based upon fair value grant date awards plans consistent methodology prescribed sfas 123 accounting stockbased compensation 2003 2002 2001 see “note 17 stockholders’ equity” additional information bristolmyers squibb company notes consolidated financial statements continued note 2 restatement previously issued financial statements years ended december 31 2002 2001 company restated consolidated balance sheet december 31 2002 consolidated statements earnings cash flows comprehensive income retained earnings years ended december 31 2002 2001 restatement affected periods prior 2001 impact restatement prior periods reflected adjustment retained earnings january 1 2001 addition restatement impacts first second third quarters 2003 restated amounts quarters comparable interim periods 2002 presented “note 24 selected quarterly financial data unaudited” restatement corrects certain company’s historical accounting policies conform gaap ii corrects certain errors made application gaap set forth restatement adjustments included restatement previously issued financial statements years ended december 31 2002 2001 “error” within meaning apb opinion 20 accounting changes following table presents impact restatement adjustments described net earnings years ended december 31 2002 2001 retained earnings january 1 2001 adjustments net sales related adjustments cost products sold wic rebates accrual historically company accrued rebates women infants children wic program date coupons issued states error application gaap requires accrual date sale product company corrected policy accrue wic rebates date sale goods transit company corrected error application gaap regarding timing revenue recognition certain sales made mead johnson nutritionals mead johnson unit healthcare unit certain nonus pharmaceuticals units company previously recorded revenue products sold date shipment records revenue based terms sale date receipt purchaser net sales adjustments company corrected error accounting managed health care sales rebate accrual amounts initially recorded connection company’s previous restatement company restated certain sales transactions made certain asia business units revenue recognized error prior transfer substantially risks rewards ownership due existence right return available purchaser product company erroneously failed adjust timely basis accrual sales returns charge backs deductions sales products divested division made prior divestiture required gaap adjustments earnings continuing operations minority interest income taxes international pension employee benefit plan accrual historically company erroneously accounted certain international employee benefit plans cash nongaap methods based belief impact applying accrual method required gaap immaterial 2003 company actuarial analysis performed larger plans determined understated benefits liabilities plans company accounts pension bristolmyers squibb company notes consolidated financial statements continued note 2 restatement previously issued financial statements years ended december 31 2002 2001 continued employee benefit plans accrual method addition company failed make required accrual one international employee benefit plans due misapplication gaap intercompany accounts company determined certain unreconciled intercompany accounts payable receivable aggregating net balance 29 million written prior january 1 2001 marketing selling administrative adjustments company recorded number adjustments respect marketing selling administrative expense company determined error application historical accounting policy accruing earned vacation yet taken company determined properly recorded expense training operational support relating contract third party period incurred company wrote certain accounts adequate documentation supporting existence company also wrote reserves postemployment benefits pensions retained error certain divested businesses company incorrectly capitalized certain costs related internally developed software due misapplication gaap company also failed adjust certain expense reserves timely basis actual amount expense incurred required gaap company also corrected number smaller immaterial errors application gaap intercompany foreign exchange gains losses historically company deferred gains losses certain intercompany foreign exchange loan transactions recording gains losses accumulated comprehensive loss company’s consolidated balance sheet error application gaap requires unless intercompany transaction longterm investment settlement planned foreseeable future foreign currency transaction gain loss included determining net income company corrected policy comply gaap restatement items company several foreign subsidiaries operate jurisdictions hyperinflationary currencies respect company recorded restatement adjustments correct errors relating accounting deferred tax assets liabilities valuation allowances result company record foreign exchange gain loss respect deferred tax assets error company erroneously overaccrued expenses relating certain grants completed failing adjust accruals actual amounts expenses incurred life grants company failed writeoff unreconciled account relating acquisition dupont pharmaceuticals 2001 company also failed adjust certain expense reserves timely basis actual amount expense incurred required gaap company also corrected number smaller immaterial errors application gaap adjustments minority interest net taxes company recorded duplicate deferred tax net assets error related tax attributes certain partnership entities sanofisynthelabo sanofi owns majority controlling interest adjustments provision income taxes contingency reserves certain instances periods restated company made errors recording reserves tax contingencies company believes may inappropriate adjustments tax contingency reserves 2001 2002 company completed review able determine whether errors tax contingency reserves corrected restatement related inappropriate accounting us federal state tax items company identified number errors related current deferred federal state taxes corresponding current deferred tax expense errors included establishing deferred tax assets extent necessary corresponding valuation allowances net operating loss tax credit carryforwards ii applying misapplying asset liability approach deferred taxes required gaap iii considering relevant information date issuance financial statements iv timely adjusting differences tax provisions filed tax returns foreign tax items company identified number errors related current deferred foreign taxes corresponding tax expense errors included establishing deferred tax assets extent necessary corresponding valuation allowances net operating loss tax credit carryforwards ii applying misapplying asset liability approach deferred taxes required gaap iii considering information available date issuance financial statements iv timely adjusting filed tax returns v accounting income taxes certain jurisdictions cash basis bristolmyers squibb company notes consolidated financial statements continued note 2 restatement previously issued financial statements years ended december 31 2002 2001 continued following table presents impact restatement adjustments described provision income taxes following table presents impact income tax restatement adjustments described company’s consolidated balance sheet december 31 2002 adjustments cash equivalents classification company determined certain investments cash management program erroneously classified cash equivalents consolidated balance sheet december 31 2001 2002 statement cash flows fiscal years 2001 2002 respectively approximately 09 billion 16 billion investments held company reflected cash equivalents company’s consolidated balance sheet december 31 2001 2002 respectively although company believes investments highly liquid maturities investments exceeded three months previous presentation cash equivalents error company restated prior periods present investments marketable securities restatement adjustment company’s consolidated balance sheet december 31 2002 decreased amount cash equivalents approximately 16 billion restatement adjustment statements cash flows increased amount net cash used investing activities years ended december 31 2001 2002 approximately 09 billion 07 billion respectively adjustments expense net classification table presents restatement charges credits certain amounts classified error reclassified part restatement expense net appropriate line item consolidated statement earnings years ended december 31 2002 2001 certain items included “other net” reclassifications amounts “errors” within meaning apb opinion 20 accounting changes rather amounts reclassified conform current year presentation bristolmyers squibb company notes consolidated financial statements continued note 2 restatement previously issued financial statements years ended december 31 2002 2001 continued following table presents impact restatement adjustments company’s previously reported 2002 2001 results condensed basis bristolmyers squibb company notes consolidated financial statements continued note 3 alliances investments sanofisynthelabo company agreements sanofi codevelopment cocommercialization avaproavalide irbesartan angiotensin ii receptor antagonist indicated treatment hypertension plavix clopidogrel platelet inhibitor worldwide alliance operates framework two geographic territories one americas australia europe asia two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place company acts operating partner territory covering americas principally united states canada puerto rico latin american countries australia owns majority controlling interest territory company consolidates country partnership results territory records sanofi’s share results minority interest net taxes 351 million 2003 292 million 2002 174 million 2001 company recorded sales territory comarketing countries germany italy spain greece 3224 million 2003 2476 million 2002 1658 million 2001 sanofi acts operating partner territory covering europe asia owns majority financial controlling interest territory 2003 company accounts investment partnership entities territory equity method records share results equity net income affiliates consolidated statement earnings company’s share net income partnership entities taxes 187 million 2003 120 million 2002 78 million 2001 company sanofi formed alliance copromotion irbesartan part company contributed irbesartan distribution rights united states sanofi paid company total 350 million 2002 2001 company accounts transaction sale interest license defers amortizes 350 million income expected useful life license approximately eleven years company amortized income 31 million 2003 2002 8 million 2001 otsuka company worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote abilify aripiprazole treatment schizophrenia total milestone payments made otsuka 1999 december 2002 207 million 157 million expensed acquired inprocess research development 1999 50 million capitalized payments amortized remaining life agreement approximately 9 years company began copromoting product otsuka united states puerto rico november 2002 company also copromote product several european countries marketing approval received european authorities revenue earned otsuka ships product title passes customer company records alliance revenue 65 share net sales copromotion countries records expenses related product company also exclusive right sell abilify number countries europe latin america asia countries sales commence company record 100 net sales related cost sales company recorded revenue abilify 283 million 2003 25 million 2002 imclone november 2001 company purchased 144 million shares imclone 70 per share 1007 million represented approximately 199 imclone shares outstanding prior company’s commencement public tender offer imclone shares transaction accounted using equity method accounting imclone biopharmaceutical company focused developing targeted cancer treatments include growth factor blockers cancer vaccines antiangiogenesis therapeutics equity investment imclone part strategic agreement company imclone also includes arrangement codevelop copromote cancer drug erbitux series payments originally totaling 1 billion company paid imclone milestone payment 200 million 2001 december 28 2001 imclone announced us food drug administration fda refused accept filing biologics license application bla submitted imclone erbitux bla submitted gain marketing approval treat irinotecanrefractory colorectal carcinoma march 5 2002 agreement imclone revised reduce total payments 900 million 1 billion revised agreement company paid imclone 140 million march 2002 60 million march 2003 250 million march 2004 approval erbitux fda additional 250 million upon achievement second milestone 200 million paid imclone march 2002 2003 160 million expensed inprocess research development first quarter 2002 remaining 40 million recorded additional equity investment eliminate income statement effect portion milestone payment company economic claim ownership interest imclone also revised agreement company pay imclone distribution fee based flat rate 39 bristolmyers squibb company notes consolidated financial statements continued note 3 alliances investments continued product net revenues north america company purchase commercial requirements bulk erbitux imclone price equal actual manufacturing cost plus 10 terms revised agreement continue 2018 fourth quarter 2001 company recorded pretax charge approximately 735 million comprised 575 million writeoff acquired inprocess research development related equity investment 160 million writeoff portion 200 million milestone payment made 2001 remaining 40 million 200 million milestone payment recorded additional equity investment eliminate income statement effect portion milestone payment company economic claim ownership interest imclone acquired inprocess research development charge related three oncology research projects phase later stage development one research project erbitux amount determined identifying research projects areas technological feasibility established alternative future use projected fda approval dates used years 2002 2008 time company expected projects begin generate cash flows cost complete projects estimated 323 million research development projects considered valuation subject normal risks uncertainties associated demonstrating safety efficacy required obtain fda approval purchase price allocation resulted 66 million patent technology intangible assets amortized weightedaverage useful lives 17 years approximately 375 million goodwill amortized 1207 million paid 2001 equity investment 1007 million milestone payment 200 million 735 million expensed acquired inprocess research development 2001 remaining 472 million recorded equity investment additional 9 million added investment primarily acquisition costs resulting carrying value 481 million december 31 2001 third quarter 2002 company recorded pretax charge earnings 379 million temporary decline market value imclone based decline value imclone’s shares 2002 fair value equity investment imclone used record impairment determined based market value imclone shares september 30 2002 total equity investment imclone december 31 2003 63 million compared 102 million december 31 2002 per share basis carrying value imclone investment closing market price imclone shares december 31 2003 441 3966 respectively compared 709 1062 respectively december 31 2002 closing market price imclone shares march 11 2004 4529 per share company recorded 36 million net loss share imclone’s losses 2003 included 36 million loss 5 million related imclone’s restatement 2001 results final reporting 2002 full year 2003 first quarter results 2002 company recorded 40 million net loss share imclone’s losses amortization previously capitalized milestone payments company records share results equity net income affiliates consolidated statement earnings february 12 2004 fda approved resubmitted bla erbitux treatment patients epidermal growth factor receptor egfr expressing metastatic colorectal cancer failed irinotecanbased regimen combination irinotecan monotherapy patients intolerant irinotecan bristolmyers squibb company notes consolidated financial statements continued note 3 alliances investments continued summary financial information following summarized financial information company’s equity investments imclone joint venture sanofi europe asia information includes imclone data date investment november 2001 bristolmyers squibb company notes consolidated financial statements continued note 4 restructuring items 2003 activities 2003 company recorded pretax restructuring charges 65 million relating downsizing streamlining worldwide operations rationalization worldwide manufacturing operations charge 50 million primarily relates employee termination benefits approximately 950 employees including manufacturing administrative sales personnel europe north america asia central america items 15 million relate primarily relocation expenses result consolidation research facilities charges partially offset adjustment due changes estimates prior period reserves 39 million principally due higher anticipated proceeds disposal assets reduced separation costs company expects complete restructuring activities 2006 addition company recorded 67 million asset impairments accelerated depreciation relating rationalization manufacturing operations cost products sold following table presents detail provision restructuring items operating segment type company allocate restructuring charges business segments company also recorded 102 million research development related upfront payments four licensing agreements allocated business segments 2002 activities 2002 company recorded pretax restructuring charges 160 million relating reduction elimination nonstrategic research efforts well consolidation research facilities workforce reductions downsizing streamlining worldwide operations charge 71 million relates employee termination benefits approximately 1040 employees including research manufacturing sales administrative personnel 51 million represents asset writedowns including 24 million impairment charge company’s investment deltagen 38 million exit costs closure facilities related expenses charges offset adjustment prior period restructuring reserves 146 million 65 million due lower expected separation costs 59 million due higher anticipated proceeds disposal assets previously written restructuring 22 million projects cancelled addition 17 million adjustment cost products sold made reflect reversal inventory reserves associated cancelled projects company substantially completed restructuring activities 2003 addition 69 million accelerated depreciation relating planned shutdown research facilities united states included research development expense 2 million inventory writeoffs associated projects included cost products sold bristolmyers squibb company notes consolidated financial statements continued note 4 restructuring items continued following table presents detail provision restructuring items operating segment type company allocate restructuring charges business segments 2001 activities 2001 company recorded pretax restructuring charges 519 million restructuring programs included termination benefits asset writedowns costs implemented 2001 downsize streamline operations rationalize manufacturing facilities terminate certain sales force research contract obligations actions substantially completed charge 229 million relates employee termination benefits 3400 employees result companywide restructuring effort downsize streamline operations impacted virtually areas including sales force manufacturing administrative research personnel additional charges include 95 million termination contract sales force 65 million exit costs primarily related costs associated closure certain manufacturing operations charge also included 119 million writedown fixed assets primarily related exit nutritionals business eastern europe closure pharmaceutical production facility united states closure research facility france items 11 million relate costs associated product recall restructuring charges partially offset reversal 63 million result change estimate relating separation costs cancellation projects previously provided additional costs associated restructuring projects 2001 include 74 million sales deductions customer charge backs relating abandonment nonstrategic pharmaceutical product lines included reduction sales 58 million related inventory writeoffs included cost products sold following table presents detail provision restructuring items operating segment type company allocate restructuring charges business segments bristolmyers squibb company notes consolidated financial statements continued note 4 restructuring items continued rollforward restructuring charges spending liabilities associated prior current actions follows liabilities included accrued expenses consolidated balance sheet note 5 acquisitions divestitures dupont pharmaceuticals acquisition october 1 2001 company acquired dupont pharmaceuticals e du pont de nemours company 78 billion cash results dupont pharmaceuticals included consolidated financial statements date acquisition dupont pharmaceuticals primarily domestic pharmaceutical imaging product business focused research development acquisition financed proceeds issuance 15 billion commercial paper issuance 50 billion mediumterm notes internal cash flows following summary final allocation purchase price estimated fair values assets acquired liabilities assumed dollars millions bristolmyers squibb company notes consolidated financial statements continued note 5 acquisitions divestitures continued total intangible assets 1976 million amortized weightedaverage useful lives include core developed technology 1783 million 15 11 years weightedaverage useful life respectively patents 193 million 11 year weightedaverage useful life goodwill 3780 million assigned pharmaceuticals segment total amount 2418 million expected deductible tax purposes 15year period time acquisition 20 billion purchase price allocated acquired inprocess research development charged earnings fourth quarter 2001 charge associated five research projects amount determined identifying research projects technological feasibility established alternative future use two projects terminated three remaining projects two clinical stage one preclinical currently proceeding research development projects considered valuation subject normal risks uncertainties associated demonstrating safety efficacy required fda approval connection acquisition company recorded 575 million restructuring liabilities result severance relocation workforce elimination duplicate facilities contract terminations costs recognized company liability assumed acquisition date resulting additional goodwill liabilities consisted 325 million employee termination benefits approximately 1800 employees 80 million related closure facilities 170 million contract terminations 575 million originally recorded accrued expenses reduced 458 million december 31 2001 13 million december 31 2002 7 million end 2003 reduction balance 2002 due cash payments 284 million adjustment reverse previously recorded liabilities 161 million corresponding reduction goodwill adjustment primarily due lower expected separation costs contract termination expenses facilities exit costs related acquisition reduction balance 2003 due cash payments 6 million following unaudited pro forma financial information presents results acquisition occurred beginning 2001 unaudited pro forma results prepared comparative purposes include certain adjustments additional amortization expense result identifiable intangible assets arising acquisition increased interest expense acquisition debt exclude acquired inprocess research development charge related dupont pharmaceuticals acquisition pro forma net earnings per share amounts include 26 billion gain sale clairol pro forma results necessarily indicative either results operations actually would resulted acquisition effect beginning respective periods future results 2002 company completed sale two branded products moisturel duricef resulted pretax gain 30 million 2001 company completed sale three pharmaceutical products corzide delestrogen florinef licensing rights corgard united states estrace tablets apothecon commodity business solage viactiv product lines resulted pretax gain 475 million bristolmyers squibb company notes consolidated financial statements continued note 6 discontinued operations 2001 company completed sale clairol procter gamble cash proceeds approximately 50 billion sale resulted pretax gain 43 billion 26 billion taxes included gain disposal discontinued operations addition 2001 company spun zimmer holdings inc zimmer taxfree distribution resulting common stock dividend 156 million 2002 company resolved several postclosing matters associated previously discontinued businesses resulting increase 38 million gain disposal clairol 38 million credit related reduction tax contingency reserve related spinoff zimmer 4 million credit retained earnings related adjustment zimmer pension liability affecting spinoff zimmer net sales earnings discontinued operations follows net earnings 32 million 2002 reflected statement earnings primarily reflects reduction tax contingency reserve related spinoff zimmer 2001 consolidated statement cash flows includes clairol zimmer businesses date disposition company uses centralized approach cash management financing operations accordingly company allocate debt businesses cash flows operating investing activities principally investing discontinued operations years ended december 31 2002 2001 17 million 53 billion including approximately 50 billion proceeds sale clairol respectively bristolmyers squibb company notes consolidated financial statements continued note 7 earnings per share numerator basic diluted earnings per share net earnings available common stockholders denominator basic earnings per share weighted average number common shares outstanding period denominator diluted earnings per share weighted average shares outstanding adjusted effect dilutive stock options computations basic earnings per common share diluted earnings per common share follows weightedaverage shares issuable upon exercise stock options included diluted earnings per share calculation dilutive 114 million 2003 121 million 2002 43 million 2001 1 net earnings 2003 includes interest expense added back assumed conversion convertible debt common shares bristolmyers squibb company notes consolidated financial statements continued note 8 expense net components expense net interest expense 2003 2002 primarily related issuance 50 billion debt 15 billion commercial paper conjunction 2001 dupont pharmaceuticals imclone transactions addition 2003 2002 interest expense reduced net interestrate swap gains 116 million 23 million respectively interest income relates primarily cash equivalents investments marketable securities bristolmyers squibb company notes consolidated financial statements continued note 9 income taxes components earnings loss continuing operations minority interest income taxes amounts categorized based location taxing authorities provisionbenefit income taxes attributable continuing operations consisted company’s provision income taxes 2003 2002 2001 different amount computed applying statutory us federal income tax rate earnings continuing operations minority interest income taxes result following effective tax rate continuing operations increased 259 2003 142 2002 due primarily decrease effective tax rate benefit operations ireland puerto rico switzerland 156 2003 179 2002 provisions certain nondeductible litigation reserves increase estimates contingent tax matters 2003 compared 2002 bristolmyers squibb company notes consolidated financial statements continued note 9 income taxes continued components current noncurrent deferred income tax assets liabilities valuation allowance 368 million december 31 2003 relates 83 million foreign state net deferred tax assets 285 million foreign state net operating loss tax credit carryforwards company currently believes likely remain unrealized future income taxes paid year 869 million 2491 million 1021 million 2003 2002 2001 respectively current tax benefit realized upon exercise stock options charged capital excess par value stock amounted 10 million 45 million 157 million 2003 2002 2001 respectively company settled us federal income tax returns internal revenue service irs 1997 us federal income taxes provided substantially unremitted earnings nonus subsidiaries since management’s practice intent indefinitely postpone remittance total amount net unremitted earnings nonus subsidiaries approximately 126 billion december 31 2003 company establishes liabilities possible assessments taxing authorities resulting known tax exposures amounts represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known december 31 2003 certain tax contingencies liabilities established although company cannot reasonably estimate possible amount contingency possible contingencies could material effect changes estimates related contingent tax matters included rate reconciliation year ended december 31 2002 company recognized income tax benefit 261 million due settlement certain prior year tax matters determination company expected settlement tax litigation bristolmyers squibb company notes consolidated financial statements continued note 9 income taxes continued also 2002 company reorganized structure ownership many nonus subsidiaries principal purpose reorganization facilitate company’s ability efficiently deploy financial resources outside united states company believes reorganization transactions generally taxfree inside outside united states possible however taxing authorities particular jurisdictions could assert tax liabilities arising reorganization transactions operations reorganized subsidiaries reasonably possible predict whether taxing authority assert tax liability reasonably estimate possible loss range loss respect asserted tax liability company would vigorously challenge assertion believes would prevail assurance result company prevail final nonappealable determinations possible impact could material note 10 receivables major categories receivables follow note 11 inventories major categories inventories follow bristolmyers squibb company notes consolidated financial statements continued note 12 consignment significant portion company’s us pharmaceuticals sales made wholesalers april 2002 company disclosed experienced substantial buildup wholesaler inventories us pharmaceuticals business several years primarily 2000 2001 buildup primarily due sales incentives offered company wholesalers company accounts certain sales pharmaceutical products cardinal health inc cardinal mckesson corporation mckesson using consignment model based part relationship amount incentives offered wholesalers amount inventory held wholesalers company determined shipments product cardinal shipments product mckesson met consignment model criteria set forth “note 1 accounting policiesrevenue recognition” july 1 1999 july 1 2000 respectively case continuing end 2002 period thereafter accordingly consignment model required applied shipments prior respective periods company recognized revenue respect sales cardinal mckesson upon shipment product although company generally views approximately one month supply desirable level wholesaler inventory goforward basis level wholesaler inventory representative industry average applying consignment model sales cardinal mckesson company defined inventory excess wholesaler’s ordinary course business inventory level inventory two weeks three weeks supply respectively based levels inventory cardinal mckesson required used basis negotiation incentives granted march 2001 company entered distribution agreement mckesson provision warehousing order fulfillment services company’s oncology therapeutics network otn specialty distributor anticancer medicines related products terms agreement mckesson purchases oncology products service otn’s fulfillment needs number vendors including company subsequent shipment product mckesson company significant continuing involvement transaction including marketing product enduser invoicing customer collecting receivables customer behalf mckesson addition otn keeps credit risk responsible shipping costs customer company accounts sales oncology products mckesson using consignment model defers recognition revenue products sold mckesson transactions resulted deferred revenue 76 million 470 million december 31 2003 2002 respectively company recognized previously recorded deferred revenue net sales 2003 2002 net rebates returns adjustments approximately 321 million 1397 million respectively bristolmyers squibb company notes consolidated financial statements continued note 13 property plant equipment major categories property plant equipment follow capitalized interest included categories property plant equipment shown company capitalized interest 35 million 16 million years ended december 31 2003 2002 respectively note 14 goodwill changes carrying amount goodwill years ended december 31 2003 2002 follows bristolmyers squibb company notes consolidated financial statements continued note 15 intangible assets intangible assets major asset class follows amortization expense intangible assets majority included costs products sold years ended december 31 2003 2002 2001 227 million 269 million 116 million respectively expected amortization expense next five years related current balance intangible assets follows bristolmyers squibb company notes consolidated financial statements continued note 16 shortterm borrowings longterm debt included shortterm borrowings amounts due foreign banks 114 million 89 million current installments longterm debt 13 million 132 million december 31 2003 2002 respectively us commercial paper outstanding december 31 2003 us commercial paper outstanding december 31 2002 1158 million average interest rate 140 commercial papers issued 2003 fully repaid december 31 2003 proceeds commercial paper issuance 2003 2002 used general corporate purposes average interest rates international shortterm borrowings current installments longterm debt outstanding december 31 2003 804 133 respectively compared 958 256 respectively december 31 2002 december 31 2003 company two revolving credit facilities totaling 1 billion aggregate support domestic commercial paper program facilities established september 2001 august 2003 respectively syndicate lenders extendable anniversary date consent lenders one revolving credit facilities certain financial covenants company compliance december 31 2003 borrowings outstanding revolving credit facilities december 31 2003 2002 company unused shortterm lines credit foreign banks 363 million 321 million december 31 2003 2002 respectively components longterm debt follows 2003 company issued 24 billion debt follows october 2003 company issued 12 billion convertible debentures pay interest quarterly annual rate equal 3month libor reset quarterly minus 050 yield never less zero final maturity september 15 2023 debentures callable par time september 21 2008 issuer holders also redeem debentures par september 15 2008 2013 2018 fundamental change ownership bristolmyers squibb company notes consolidated financial statements continued note 16 shortterm borrowings longterm debt continued company occurs bond initial conversion price 4128 conversion rate 242248 shares adjustable depending average closing prices applicable period maximum conversion rate 387597 shares company entered fixed floating interest rate swaps 55 billion longterm debt cash payments interest 290 million 375 million 100 million 2003 2002 2001 respectively 1 2004 obligations included shortterm borrowings company’s consolidated balance sheet balances represent outstanding nominal longterm debt values december 31 2003 company provided financial guarantees form standby letters credit performance bonds majority standby letters credit us nuclear regulatory commission massachusetts department public health relating company’s medical imaging manufacturing operations insurance companies support thirdparty liability programs performance bonds relate sale company product various foreign ministries health middle east company believes significant majority guarantees expire without funded amounts obligations presented following table bristolmyers squibb company notes consolidated financial statements continued note 17 stockholders’ equity changes common shares treasury stock capital excess par value stock restricted stock share company’s preferred stock convertible 1696 shares common stock callable company’s option reductions number issued shares preferred stock 2003 2002 2001 due conversions shares common stock dividends declared per common share 112 2003 112 2002 111 2001 accumulated balances related component comprehensive income loss follows company expects recognize 153 million deferred hedging losses net earnings next twelve months bristolmyers squibb company notes consolidated financial statements continued note 17 stockholders’ equity continued stock compensation plans company’s 2002 stock incentive plan officers key employees may granted options purchase company’s common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price plan also provides granting performancebased stock options certain key executives terms 2002 stock incentive plan authorized shares include 09 outstanding shares per year 2007 well number shares tendered prior year pay purchase price options number shares previously utilized satisfy withholding tax obligations upon exercise shares available grant prior year granted year shares cancelled forfeited expired also available future grant plan incorporates company’s longterm performance awards addition 2002 stock incentive plan provides granting 20000000 shares common stock key employees subject restrictions continuous employment restrictions generally expire fiveyear period date grant compensation expense recognized restricted period december 31 2003 2002 respectively 2308930 1705503 restricted shares outstanding plan teamshare stock option plan fulltime employees excluding key executives granted options purchase company’s common stock market price date options granted company authorized 66000000 shares issuance plan individual grants generally become exercisable evenly third fourth fifth anniversary grant date maximum term 10 years options 31525341 shares exercised plan december 31 2003 fair value options granted 2003 2002 2001 estimated 515 per common share 1112 per common share 2259 per common share respectively date grant using blackscholes optionpricing model following assumptions bristolmyers squibb company notes consolidated financial statements continued note 17 stockholders’ equity continued stock option transactions 1 effective spinoff zimmer august 6 2001 unexercised bristolmyers squibb stock options held zimmer employees converted zimmer stock options remaining unexercised bristolmyers squibb stock options number stock options exercise price adjusted preserve intrinsic value stock options ratio exercise price fair value existed prior spinoff following tables summarize information concerning company’s stock compensation plans currently outstanding exercisable options bristolmyers squibb company notes consolidated financial statements continued note 17 stockholders’ equity continued december 31 2003 277723092 shares common stock reserved issuance pursuant stock plans options conversions preferred stock options related discontinued operations included amounts material bristolmyers squibb company notes consolidated financial statements continued note 18 financial instruments company exposed market risk due changes currency exchange rates interest rates result company utilizes foreign exchange option forward contracts offset effect exchange rate fluctuations anticipated foreign currency transactions primarily intercompany inventory purchases expected occur within next two years company exposures net foreign currency denominated assets liabilities approximated 1932 million 2145 million december 31 2003 2002 respectively primarily europe japan mexico canada foreign exchange option contracts forward contracts used hedge anticipated transactions company’s primary foreign currency exposures relation us dollar euro canadian dollar japanese yen notional amounts company’s foreign exchange derivative contracts december 31 2003 2002 2488 million 1775 million respectively derivatives majority qualify hedges future cash flows effective portion changes fair value temporarily recorded comprehensive income recognized earnings hedged item affects earnings ineffective portion hedges reported earnings occurs fair value option forward contracts liabilities 265 million 25 million december 31 2003 2002 respectively recorded accrued liabilities december 31 2003 2002 fair value foreign exchange contracts based yearend currency rates blackscholes model case option contracts company uses derivative instruments part interest rate risk management policy derivative instruments used comprised principally fixed floating rate interest rate swaps subject fairvalue hedge accounting treatment 2003 2002 company entered several fixed floating interest rate swap contracts several financial institutions notional amounts swaps 55 billion 30 billion december 31 2003 2002 respectively accordance sfas 133 accounting derivative instruments hedging activities company recognized net reduction interest expense 116 million 23 million 2003 2002 respectively reflects benefit lower floating rate obtained swap compared fixed rate underlying debt swap contracts well underlying debt hedged recorded fair value resulted increase current assets longterm debt 40 million 133 million december 31 2003 2002 respectively swap contracts generally held maturity company use derivative financial instruments speculative purposes 2003 2002 company reclassified losses 223 million 71 million comprehensive income earnings majority classified cost products sold 2001 gain 2 million reclassified comprehensive income expenses carrying amount company’s financial instruments includes cash equivalents marketable securities accounts receivable accounts payable approximates fair value december 31 2003 2002 longterm debt noted difference fair value carrying value material bristolmyers squibb company notes consolidated financial statements continued note 19 segment information company organized pharmaceutical company related healthcare businesses four reportable segmentspharmaceuticals otn nutritionals healthcare pharmaceuticals segment comprised global pharmaceutical international excluding japan consumer medicines businesses otn segment specialty distributor anticancer medicines related products otn previously included pharmaceuticals segment met quantitative thresholds reportable segment accordingly prior periods reclassified conform current year presentations nutritionals segment consists mead johnson primarily infant formula business healthcare segment consists convatec medical imaging consumer medicines united states japan businesses company’s products sold principally wholesale retail trade nationally internationally certain products also sold drug manufacturers hospitals clinics government agencies medical profession three wholesalers accounted approximately 15 12 respectively company’s total net sales 2003 2002 sales wholesalers accounted 14 13 14 respectively company’s total net sales 2001 three wholesalers accounted approximately 14 company’s total net sales concentrated pharmaceuticals segment worldwide sales selected products product categories follows bristolmyers squibb company notes consolidated financial statements continued note 19 segment information continued business segments corporateother principally consists interest income interest expense certain administrative expenses allocations business segments certain corporate programs corporateother also includes gain sales businessesproduct lines 30 million 475 million 2002 2001 respectively accelerated depreciation 69 million 2002 termination benefits exit costs 50 million 109 million 2003 2002 respectively asset writedown impairment charges 3 million 53 million 2003 2002 respectively upfront payments licensing agreements 66 million 2003 downsized rationalized operations facilities 519 million 2001 litigation charges net 220 million 659 million 77 million 2003 2002 2001 respectively 2002 also includes 379 million asset impairment charge imclone pharmaceuticals segment includes charge acquired inprocess research development 169 million 2772 million 2002 2001 respectively additionally 2003 pharmaceuticals includes litigation settlement income 21 million upfront payment licensing agreement 36 million 53 million accelerated depreciation assets manufacturing facilities north america expected closed end 2006 11 million charge asset impairment 13 million charge relocation expenses 2 million charge retention bonus benefits also 2001 74 million deductions customer chargebacks related abandoned product lines included reduction net sales recorded corporateother assets include cash equivalents marketable securities goodwill certain assets bristolmyers squibb company notes consolidated financial statements continued note 19 segment information continued geographic areas note 20 leases minimum rental commitments noncancelable operating leases primarily real estate effect december 31 2003 operating lease rental expense net sublease rental income 11 million 2003 25 million 2002 2001 137 million 2003 95 million 2002 80 million 2001 bristolmyers squibb company notes consolidated financial statements continued note 21 pension postretirement benefit plans company certain subsidiaries defined benefit pension plans defined contribution plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan funding policy contribute amounts provide current service fund past service liability plan benefits based primarily years credited service participant’s compensation plan assets consist principally equity fixedincome securities company also provides comprehensive medical group life benefits substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside united states cost company’s deferred benefits postretirement benefit plans included following components company elected defer recognition medicare prescription drug improvement modernization act 2003 time accumulated postretirement benefit obligation net periodic postretirement benefit cost reflect effect act retiree medical plan specific authoritative guidance accounting federal subsidy pending fasb guidance issued could require change previously reported information bristolmyers squibb company notes consolidated financial statements continued note 21 pension postretirement benefit plans continued changes benefit obligations plan assets december 31 2003 2002 company’s defined benefit postretirement benefit plans several plans underfunded accrued benefit obligations exceeded accrued benefit liabilities december 31 2003 2002 additional minimum liabilities established increase accrued benefit liabilities values underfunded accrued benefit obligations totaled 203 million 150 million december 31 2003 2002 respectively us unfunded benefit equalization plan us underfunded key international plan plans uk japan canada belgium additional minimum liability offset creation 10 million intangible asset charges comprehensive income included stockholders’ equity 193 million 140 million december 31 2003 2002 respectively accumulated benefit obligation defined benefit pension plans 4154 million 3604 million december 31 2003 2002 respectively bristolmyers squibb company notes consolidated financial statements continued note 21 pension postretirement benefit plans continued information pension plans accumulated benefit obligations excess plan assets attributable primarily unfunded us benefit equalization plan several plans international markets unfunded us benefit equalization plan provides pension benefits employees compensation irs limits cannot funded taxadvantaged manner additional information pertaining company’s pension postretirement plans company’s expected longterm rate return us pension plan assets 9 target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income 9 approximated applying expected returns 9 public equity 15 private equity 6 fixed income target allocation actual historical returns also relevant annualized returns periods ended december 31 2003 95 10 years 103 15 years 108 20 years us pension plan assets represented 839 total company pension plan assets december 31 2002 881 disclosed total company expected return assets 2003 90 us pension plans due impact international pension plans typically employ less aggressive asset allocation 9 expected return disclosed benefits 2003 relevant assets invested manner us pension plan assets international plan assets bristolmyers squibb company notes consolidated financial statements continued note 21 pension postretirement benefit plans continued assumed health care cost trend rates december 31 assumed health care cost trend rates effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects company’s asset allocation pension postretirement benefits december 31 2003 2002 company’s investment strategy emphasizes equities order achieve high expected returns long run low expense low required cash contributions us pension plans target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income maintained cash flow ie cash contributions benefit payments used rebalance back targets necessary investments diversified within three major asset categories 40 us equity passively managed otherwise investments actively managed investment strategies international pension plans typically similar although asset allocations usually conservative bristolmyers squibb company common stock represents less 1 plan assets december 31 2003 2002 assets postretirement benefits commingled us pension plan assets therefore investment strategy identical described us pension plans contributions result improved investment returns 2003 significant contributions recent years current plan make cash contributions us pension plans 2004 significant tax deductible contributions likely allowed irs rules minimum contributions required contributions made us pension plans company may make taxdeductible contributions 401h account retiree medical benefits equal portion pension normal cost contributions international pension plans expected 50 70 million range bristolmyers squibb company notes consolidated financial statements continued note 21 pension postretirement benefit plans continued estimated future benefit payments following benefit payments reflect expected future service appropriate expected paid savings plan principal defined contribution plan bristolmyers squibb savings investment program company’s contribution based employee contributions level company match company’s contributions plan 51 million 2003 50 million 2002 54 million 2001 bristolmyers squibb company notes consolidated financial statements continued note 22 legal proceedings contingencies various lawsuits claims proceedings investigations pending company certain subsidiaries accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated matters involve antitrust securities patent infringement employee retirement income security act 1974 amended erisa pricing sales marketing practices environmental health safety matters product liability insurance coverage significant matters described fourth quarter 2003 company established reserves liabilities 250 million comprised 150 million relation wholesaler inventory issues certain accounting matters discussed securities matters 100 million relation pharmaceutical pricing sales marketing practices discussed pricing sales promotional practices litigation investigations possible time reasonably assess final outcome matters accordance gaap company determined amounts represent minimum expected probable losses respect groups matters eventual losses related matters may exceed reserves impact either one groups matters could material company believe topend range losses estimated exception accruals taxol® buspar environmental product liability proceedings company established reserves matters described assurance increase scope matters future lawsuits claims proceedings investigations material management continues believe previously disclosed next years aggregate impact beyond current reserves legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity plavix litigation company’s us territory partnership alliance sanofi plaintiff two pending patent infringement lawsuits instituted u district court southern district new york entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v apotex inc apotex corp 02cv2255 rws sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v dr reddy’s laboratories ltd dr reddy’s laboratories inc 02cv3672 rws similar proceedings involving plavix also instituted outside united states suits filed march 21 2002 may 14 2002 respectively based us patent 4847265 composition matter patent discloses claims among things hydrogen sulfate salt clopidogrel marketed plavix us patent 5576328 discloses claims among things use clopidogrel prevent secondary ischemic event plaintiffs later withdrew patent 5576328 lawsuit plaintiffs’ infringement position based defendants’ filing abbreviated new drug application anda fda seeking approval sell generic clopidogrel prior expiration composition matter patent 2011 defendants responded alleging patent invalid andor unenforceable cases consolidated discovery fact discovery closed october 15 2003 teva pharmaceuticals usa teva generic drug manufacturer filed anda fda claiming patent 5576328 relating plavix invalid two others infringed teva none patents involved pending patent infringement litigation involving plavix teva filing challenge patent issue plavix litigation therefore expected impact litigation appear teva intends commercialize generic form plavix prior expiration termination patent issue litigation although assurance continue case net sales plavix approximately 25 billion 2003 expected grow substantially next several years company anticipates revenue growth important factor offsetting expected decreases sales company’s products recently experience exclusivity losses period currently company expects plavix market exclusivity united states 2011 composition matter patent plavix found infringed invalid andor unenforceable district court level fda could approve defendants’ andas sell generic clopidogrel generic competition plavix could begin company exhausted appeals generic competition would likely result substantial decreases sales plavix united states although plaintiffs intend vigorously pursue enforcement patent rights plavix possible time reasonably assess outcome lawsuits company prevail lawsuits timing potential generic competition plavix however generic competition occur company believes unlikely occur sometime year 2005 also possible reasonably estimate impact lawsuits company however loss market exclusivity plavix subsequent development generic competition would material company’s sales plavix results operations cash flows could material financial condition liquidity bristolmyers squibb company notes consolidated financial statements continued note 22 legal proceedings contingencies continued vanlev litigation april may june 2000 company former chairman board chief executive officer charles heimbold jr former chief scientific officer peter ringrose phd named defendants number class action lawsuits alleging violations federal securities laws regulations actions consolidated one action us district court district new jersey plaintiff claims defendants disseminated materially false misleading statements andor failed disclose material information concerning safety efficacy commercial viability product vanlev period november 8 1999 april 19 2000 may 2002 plaintiff submitted amended complaint adding allegations company present chairman board chief executive officer peter r dolan former chairman board chief executive officer charles heimbold jr former chief scientific officer peter ringrose phd disseminated materially false misleading statements andor failed disclose material information concerning safety efficacy commercial viability vanlev period april 19 2000 march 20 2002 number related class actions making essentially allegations also filed us district court southern district new york actions transferred us district court district new jersey company filed motion partial judgment favor based upon pleadings plaintiff opposed motion part seeking amend complaint including another attempt expand proposed class period court ruled company’s motion dismiss plaintiff’s motion leave amend discovery ongoing plaintiff purports seek compensatory damages costs expenses behalf shareholders possible time reasonably assess final outcome litigation reasonably estimate possible loss range loss respect litigation company prevail final nonappealable determinations litigation impact could material securities matters period march may 2002 company number current former officers named defendants number securities class action suits variously alleged violations federal securities laws regulations connection three different matters 1 vanlev discussed 2 sales incentives wholesaler inventory levels 3 imclone’s product erbitux discussed allegations concerning vanlev transferred us district court district new jersey consolidated action pending remaining actions consolidated pending us district court southern district new york plaintiffs filed consolidated class action complaint april 11 2003 company certain current former officers alleging class period october 19 1999 march 10 2003 consolidated class action complaint alleges violations federal securities laws connection among things company’s investment relationship imclone’s product erbitux certain accounting issues addressed 2002 restatement including issues related wholesaler inventory sales incentives establishment reserves accounting certain asset sales plaintiffs seek compensatory damages costs expenses august 1 2003 company moved dismiss consolidated class action complaint plaintiffs opposed company’s motion dismiss company replied motion remains pending court discovery matter stayed pursuant private securities litigation reform act addition action filed early october 2003 new york state court making similar factual allegations asserting variety claims including among others common law fraud negligent misrepresentation discovery taken matter january 9 2004 company moved dismiss complaint beginning october 2002 number company’s current former officers directors named defendants three shareholder derivative suits pending us district court southern district new york number company’s current former officers directors named defendants three shareholder derivative suits filed period march 2003 may 2003 us district court district new jersey july 2003 us district court district new jersey ordered three shareholder derivative lawsuits filed court transferred us district court southern district new york subsequently us district court southern district new york ordered six federal shareholder derivative suits consolidated plaintiffs filed consolidated amended verified shareholder complaint certain members board directors current former officers pricewaterhousecoopers pwc company’s independent auditors company nominal defendant consolidated amended complaint alleges among things violations federal securities laws breaches fiduciary duty certain individual defendants connection company’s conduct concerning among things safety efficacy commercial viability vanlev discussed company’s sales incentives certain wholesalers inventory levels wholesalers company’s investment bristolmyers squibb company notes consolidated financial statements continued note 22 legal proceedings contingencies continued relations imclone’s product erbitux alleged anticompetitive behavior connection buspar taxol® lawsuit also alleges malpractice negligent misrepresentation negligence pwc plaintiffs seek restitution rescission certain officers’ directors’ compensation alleged improper insider trading proceeds injunctive relief fees costs expenses contribution certain officers alleged liability consolidated securities class action pending us district court southern district new york discussed contribution indemnification pwc discovery taken matter december 19 2003 company moved dismiss consolidated amended complaint two similar actions pending new york state court plaintiffs seek equitable relief damages costs attorneys’ fees sec us attorney’s office grand jury district new jersey investigating activities company certain current former members company’s management connection wholesaler inventory issues referenced certain accounting issues company cooperating investigations possible time reasonably assess final outcome litigations investigations reasonably estimate possible loss range loss respect litigations investigations company producing documents actively cooperating investigations could result assertion civil andor criminal claims company andor current former members company’s management company prevail final nonappealable determinations litigations investigations impact could material erisa litigation december 2002 first quarter 2003 company others named defendants five class actions brought erisa us district courts southern district new york district new jersey actions consolidated southern district new york caption bristolmyers squibb co erisa litigation 02 cv 10129 amended consolidated complaint alleging class period january 1 1999 march 10 2003 served august 18 2003 amended consolidated complaint brought behalf four named plaintiffs putative class consisting participants bristolmyers squibb company savings investment program savings planand beneficiaries whose benefit savings plan held andor acquired company stock time class period excluding defendants heirs predecessors successors assigns named defendants company bristolmyers squibb company savings plan committee thirteen individuals presently serve committee served committee recent past charles heimbold jr peter r dolan past present chief executive officer respectively company amended consolidated complaint generally alleges defendants breached fiduciary duties erisa class period among things continuing offer company stock fund company stock investment alternatives savings plan continuing invest company matching contributions company stock fund company stock failing disclose investments company stock allegedly imprudent savings plan’s purchases company stock january 1 1999 alleged transactions prohibited erisa finally defendants heimbold dolan alleged breached fiduciary duties erisa failing monitor actions committee erisa claims predicated upon factual allegations similar raised “other securities matters” concerning among things safety efficacy commercial viability vanlev company’s sales incentives certain wholesalers inventory levels wholesalers company’s investment relations imclone’s product erbitux alleged anticompetitive behavior connection buspar taxol® significant discovery october 2 2003 company defendants moved dismiss amended consolidated complaint plaintiffs opposed motion dismiss defendants replied possible time reasonably predict final outcome reasonably estimate possible loss range loss respect consolidated litigation company prevail final nonappealable determinations matters impact could material pricing sales promotional practices litigation investigations company together number pharmaceutical manufacturers defendant several private class actions brought nevada montana attorneys general counties suffolk westchester rockland new york pending federal state courts relating pricing certain company products federal cases consolidated pretrial purposes caption pharmaceutical industry average wholesale price litigation mdl 1456 us district court district massachusetts awp multidistrict litigation bristolmyers squibb company notes consolidated financial statements continued note 22 legal proceedings contingencies continued june 18 2003 court awp multidistrict litigation granted private plaintiffs’ motion leave file amended master consolidated complaint amended master complaint amended master complaint contains two sets allegations company first alleges company’s many pharmaceutical manufacturers’ reporting prices certain drug products 20 listed drugs company’s case effect falsely overstating average wholesale price awp published industry compendia turn improperly inflated reimbursement paid medical providers others prescribed administered products second alleges company certain defendant pharmaceutical manufacturers conspired one another program called “together rx card program” fix awps certain drugs made available consumers program amended master complaint asserts claims federal rico antitrust statutes state consumer protection fair trade statutes amended master complaint brought behalf two main proposed classes divided subclasses 1 persons entities 1991 forward directly paid portion price listed drug price calculated reference awp b contracted pharmacy benefit manager provide others drugs listed amended consolidated complaint 2 persons entities 2002 forward paid reimbursed portion purchase price drug covered together rx card program based whole part awp company defendants moved dismiss amended master complaint grounds fails state claims applicable statutes motions denied february 24 2004 although court dismissed one plaintiffs’ claims failure plead cognizable rico “enterprise” accordingly company defendants required answer amended master complaint addition company engaged continue engage discovery private class actions awp multidistrict litigation nevada montana attorneys general complaints assert claims similar amended master complaint state law also assert claims name respective states alleged violations state medicaid fraud statutes nevada montana attorneys general cases originally commenced respective state courts later removed awp multidistrict litigation attorney general moved case remanded state court ground federal jurisdiction june 11 2003 court awp multidistrict litigation ruled nevada action company named remanded state court ground defendants joined original removal petition case proceeding nevada state court retained jurisdiction montana case defendants moved dismiss montana second nevada case company named oral argument heard motion december 12 2003 ruling issued finally company defendant related state court proceedings commenced new york new jersey california arizona tennessee proceedings attorney general pennsylvania federal court proceedings commenced counties suffolk westchester rockland new york collectively new york counties awp cases proceedings transferred awp multidistrict litigation pretrial purposes although plaintiffs california arizona new jersey actions sought remand cases state courts california remand motions denied arizona remand motion granted remand motions remain pending new york counties awp cases allege rico claims similar made amended master consolidated complaint awp multidistrict litigation however claims behalf counties contributors new york state’s medicaid obligations defendants firstfiled suffolk county case moved dismiss amended complaint action oral argument heard motion december 12 2003 ruling issued respect case remanded arizona state court defendants filed motions dismiss stay hearing motions currently scheduled june 10 2004 merits discovery stayed cases preliminary stage company unable assess outcome possible effect business profitability reasonably estimate possible loss range loss respect cases company prevail final nonappealable determinations litigations investigations impact could material company together number pharmaceutical manufacturers also received subpoenas document requests various government agencies seeking records relating pricing sales marketing practices “best price” reporting drugs covered medicare andor medicaid requests records come us attorney’s office district massachusetts office inspector general department health human services conjunction civil division department justice office inspector general office personnel management conjunction us attorney’s office eastern district pennsylvania several states addition request information come house committee energy commerce connection investigation committee bristolmyers squibb company notes consolidated financial statements continued note 22 legal proceedings contingencies continued currently conducting medicaid best price issues finally company received civil investigative demand attorney general state missouri relating direct consumer advertising pravachol period 20012003 company also received notice putative class action lawsuit involving issues filed february 23 2004 circuit court jackson county missouri kansas city captioned richard summers v bristolmyers squibb company served complaint july 22 2003 company announced recently initiated internal review certain sales marketing practices review focuses whether practices comply applicable antikickback laws also includes analysis practices respect compliance 1 best price reporting rebate requirements medicaid program certain us governmental programs reference medicaid rebate program 2 applicable fda requirements company met representatives us attorney’s office district massachusetts discuss review company received subpoena us attorney’s office district massachusetts company’s internal review expected continue resolution pending governmental investigations related matters company producing documents actively cooperating investigations could result assertion civil andor criminal claims company unable assess outcome reasonably estimate possible loss range loss respect investigations could include imposition fines penalties administrative remedies andor liability additional rebate amounts company prevail final nonappealable determinations litigations investigations impact could material ctla4ig litigation august 17 2000 repligen corporation repligen university michigan instituted lawsuit company us district court eastern district michigan suit alleged dr craig thompson formerly professor university michigan involved collaboration certain company’s scientists thompson’s activity collaboration made rightful inventor several patents company later obtained covering soluble forms ctla4 related methods use conducting trial september 2003 district court ruled repligen university michigan failed prove thompson made inventive contribution patents suit thus entitled added sole joint inventor company’s patents repligen university michigan appealed district court’s decision us court appeals federal circuit erbitux litigation october 28 2003 complaint filed yeda research development company ltd yeda imclone systems aventis pharmaceuticals inc us district court southern district new york action alleges seeks three individuals associated yeda also named coinventors us patent 6217866 covers therapeutic combination egfr monoclonal antibody antineoplastic agents chemotherapeutic agents use treatment cancer yeda’s action successful yeda could position practice license others practice invention could result product competition erbitux might otherwise occur company party action unable predict outcome stage proceedings product liability litigation company party product liability lawsuits involving allegations injury caused company’s pharmaceutical overthecounter medications majority lawsuits involve certain overthecounter medications containing phenylpropanolamine ppa company’s serzone stadol ns prescription drugs addition lawsuits company also faces unfiled claims involving products ppa may 2000 yale university published results hemorrhagic stroke project concluded evidence suggestion ppa may increase risk hemorrhagic stroke limited population november 2000 fda issued public health advisory requested manufacturers ppacontaining products voluntarily cease manufacturing marketing time ppacontaining products manufactured sold company comtrex liquid gel formulations naldecon november 6 2000 company well manufacturers ppa containing products discontinued manufacture marketing ppa containing products allowed customers return unused product possession january 2001 company served first “ppa” lawsuit company currently defendant approximately 148 personal injury lawsuits filed behalf approximately 355 plaintiffs federal state courts throughout bristolmyers squibb company notes consolidated financial statements continued note 22 legal proceedings contingencies continued united states majority lawsuits involve multiple defendants among claims plaintiffs allege ppa causes hemorrhagic ischemic strokes defendants aware risk failed warn consumers failed remove ppa products plaintiffs seek compensatory punitive damages federal cases transferred us district court western district washington phenylpropanolamine ppa products liability litigation mdl 1407 district court denied motions class certification class action lawsuits pending company litigation june 18 2003 district court issued ruling effectively limiting plaintiffs’ claims hemorrhagic ischemic strokes rulings favorable defendants included inadmissibility expert testimony cases alleging injuries occurring three days ingestion ppa containing product cases involving psychoses seizures cardiac injuries company expects dismissed additional cases products never used plaintiffs’ alleged injury occurred three days ingestion ppa containing product plaintiff suffered cardiac injuries psychoses serzone nefazodone hydrochloride antidepressant launched company may 1994 canada march 1995 united states december 2001 company added black box warning serzone label warning potential risk severe hepatic events including possible liver failure need transplantation risk death within several months black box warning added package insert serzone number lawsuits including several class actions filed company plaintiffs allege company knew known hepatic risks posed serzone failed adequately warn physicians users risks seek compensatory punitive damages medical monitoring refunds costs purchasing serzone present company 182 lawsuits behalf 2038 plaintiffs pending federal state courts throughout united states twentyfour cases pending new york state court consolidated pretrial discovery addition approximately 652 alleged unfiled claims injury associated serzone august 2002 federal cases transferred us district court southern district west virginia serzone products liability litigation mdl 1477 although discovery still early stage appears cases involve liver failure june 2003 district court dismissed class claims two class action complaints although number class action complaints filed company sought certification one personal injury classes remaining class action complaints seek certification personal injury classes january 30 2004 court issued order setting hearing class certification october 20 2004 addition cases filed united states three national class actions filed canada stadol ns stadol ns approved 1992 fda unscheduled opioid analgesic nasal spray february 1995 company asked fda schedule stadol ns schedule iv low potential abuse drug due postmarketing reports suggestive inappropriate use product october 31 1997 became schedule iv drug since 1997 company received number lawsuits involving stadol late 2002 number filed suits increased due newly passed tort reform legislation became effective january 1 2003 plaintiffs new suits previously asserted claims company alleged injuries company currently party 51 cases pending behalf total approximately 908 plaintiffs federal state courts throughout united states plaintiffs claim company committed fraud fda wrongfully promoted stadol ns nonaddictive plaintiffs allege company failed adequately warn addiction dependency risk associated use stadol ns addition lawsuits approximately 9600 alleged unfiled claims approximately 80 active majority cases claims pending mississippi addition cases filed united states two class actions one individual case filed canada breast implant litigation company together subsidiary medical engineering corporation mec certain companies remains defendant number claims lawsuits alleging damages personal injuries various types resulting polyurethanecovered breast implants smoothwalled breast implants formerly manufactured mec related company vast majority claims company direct lawsuits resolved settlements trial likewise claims potential claims company registered nationwide class action settlement approved federal district court birmingham alabama revised settlement resolved revised settlement company established accruals respect breast implant product liability litigation company believes possible loss addition amounts accrued material company intends vigorously defend product liability lawsuits believes majority cases claims without merit possible time reasonably assess final outcome company’s pending product liability lawsuits unfiled claims certainty management opinion ultimate disposition matters material adverse effect company’s financial position company believes adequate selfinsurance reserves commercially available excess insurance cover potential loss related product liability cases claims bristolmyers squibb company notes consolidated financial statements continued note 22 legal proceedings contingencies continued platinol litigation february 13 2004 class action complaint filed north shore hematologyoncology associates pc company us district court district columbia putative class action brought behalf direct purchasers platinol alleges company violated federal antitrust laws maintaining monopoly us market allegations focus company’s actions concerning us patent 5562925 ‘925 patent including procurement ‘925 patent submission information relating ‘925 patent listing orange book initiation previous lawsuits potential generic manufacturers based ‘925 patent plaintiffs seek declaratory judgment damages including treble damages company markets platinol exclusive patent licenses research corporation technologies rct federal trade commission ftc also opened investigation relating platinol matter settled entry consent decree effect april 14 2013 possible time reasonably assess final outcome litigation reasonably estimate possible loss range loss respect litigation company prevail final nonappealable determinations litigation impact could material taxol® litigation 2000 2001 2002 number putative class actions brought company alleging antitrust consumer protection similar claims concerning company’s actions obtain enforce patent rights relating taxol® number state attorneys general brought similar claims certain insurers asserted similar claims without filing suits matters settled required court approval given final approval supervising court total amount settlements 144 million amount 135 million accrued 2002 remaining 9 million accrued 2003 ftc also opened investigation relating taxol® matter settled entry consent decree effect april 14 2013 additional case based allegations brought small generic drug manufacturer 2003 company moved dismiss case court granted motion july 2003 plaintiff sought reconsideration decision unsuccessful plaintiff filed notice appeal us court appeals seventh circuit possible time reasonably assess final outcome suit reasonably estimate possible loss range loss dismissal reversed dismissal reversed company prevail final nonappealable determination action impact could material buspar litigation 2001 number putative class actions brought company alleging antitrust consumer protection similar claims concerning company’s actions obtain enforce patent rights relating buspar number state attorneys general brought similar claims certain insurers generic drug manufacturers chain drug stores asserted similar claims matters settled required court approval given final approval supervising court total amount settlements 551 million amount 35 million accrued 2001 500 million accrued 2002 remaining 16 million accrued 2003 ftc also opened investigation relating buspar matter settled entry consent decree effect april 14 2013 environmental proceedings following discussion describes 1 environmental proceedings governmental authority may involve potential monetary sanctions 100000 threshold prescribed specific sec rule 2 civil action environmental claim could result significant liabilities 3 updates ongoing matters resolution matters disclosed recent public filings 4 summary environmental remediation costs bristolmyers squibb company notes consolidated financial statements continued note 22 legal proceedings contingencies continued preliminary results internal audit performed company’s facility hopewell nj indicate operations site’s wastewater treatment plant related discharges may compliance new jersey water pollution control act implementing regulations terms company’s discharge permits company reported findings new jersey department environmental protection njdep february 2004 currently engaged settlement discussions state none results audit suggest adverse impact public health company taken continue take corrective actions address identified deficiencies prevent future occurrences january 2004 njdep sent company approximately five companies information request letter relating site north brunswick township nj waste materials er squibb sons squibb wholly owned subsidiary bms may disposed 1940s 1960s fill material containing industrial waste heavy metals excess residential standards discovered fall 2003 expansion project north brunswick township high school board township current owners site preparing submit workplan njdep asked company contribute cost remediation company discussions njdep site owners potentially responsible parties site investigation ongoing claims asserted company september 2003 njdep issued administrative enforcement directive notice new jersey spill compensation control act requiring company approximately 65 companies perform assessment natural resource damages implement unspecified interim remedial measures restore conditions lower passaic river directive alleges company liable historically sent bulk waste former inland chemical company facility newark new jersey releases hazardous substances facility migrated newark bay continue adverse impact lower passaic river watershed subsequently us environmental protection agency usepa also issued notice letter us comprehensive environmental response compensation liability act cercla numerous partiesbut including bmsseeking cooperation study conditions substantially stretch passaic river subject njdep’s directive usepa estimates study cost 20 million study may also lead cleanup actions directed usepa army corps engineers extent liability either directive usepa’s notice letter cannot yet determined although company believe bms caused contributed contamination lower passaic river watershed company informed njdep willing discuss allegations company njdep directive states responsible parties cooperate njdep may perform damage assessment restoration take civil action recover remedial costs treble damages administrative costs penalties october 16 2003 michigan department environmental quality mdeq sent company letter violation lov alleging unspecified period time emissions certain digestion tanks mead johnson’s zeeland michigan facility exceeded applicable limit facility’s renewable operating air permit lov requires company take corrective action submit compliance program report although mdeq demanded fines penalties enforcement action could result penalties injunctive relief company contesting allegations lov july 2003 njdep advised squibb believed company violated clean air act failing comply prevention significant deterioration requirements connection replacement gas turbine company’s cogeneration facility new brunswick new jersey facility 1997 december 3 2003 company settled matter njdep signing administrative consent order requires company submit permit application creating facilitywide emissions cap pay administrative fine approximately 28000 may 2003 environmental quality board puerto rico issued notice bristolmyers squibb alleging five violations federal resource recovery conservation act relating recordkeeping storage requirements hazardous wastes company’s facility humacao based prior dealings eqb technical nature alleged violations company believes penalties imposed significant company one several defendants class action suit filed superior court puerto rico february 2000 residents alleging air emissions government owned operated wastewater treatment facility barceloneta caused respiratory ailments violated local air rules company believes wastewater discharges treatment facility material compliance terms company’s permit company believes litigation resolved immaterial amount nevertheless suit still initial stage event adverse judgment company’s ultimate financial liability could significantly greater anticipated bristolmyers squibb company notes consolidated financial statements continued note 22 legal proceedings contingencies continued company also responsible various state federal foreign laws including cercla certain costs investigating remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties company estimates costs based information obtained usepa relevant agency andor studies prepared independent consultants including total estimated costs site expected costsharing potentially responsible parties prp company accrues liabilities probable reasonably estimable company estimates share total future costs sites approximately 58 million represents sum best estimates simple estimate reasonably made estimates minimums costs without taking account potential recoveries parties currently expected company paid less 4 million excluding legal fees last five years investigation remediation matters including liabilities cercla onsite remediations although possible predict certainty outcome environmental proceedings ultimate costs remediation company believe reasonably possible expenditures company may incur excess existing reserves material adverse effect business financial position results operations indemnification officers directors company’s corporate bylaws require extent permitted law company shall indemnify officers directors judgments fines penalties amounts paid settlement including legal fees appeals incurred connection civil criminal actions proceedings relates services company subsidiaries bylaws provide limit amount indemnification permitted case willful misconduct knowing violation criminal law improper personal benefit permitted laws state delaware company many years purchased directors officers insurance coverage cover claims made directors officers amounts types coverage varied period dictated market conditions various excess policies provide additional coverage litigation matters regulatory actions described involve certain company’s current former directors officers covered aforementioned indemnity applicable certain prior period insurance policies however certain indemnification payments may covered company’s directors officers insurance coverage company cannot predict certainty extent company recover insurers indemnification payments made connection litigation matters regulatory actions described july 31 2003 one company’s insurers federal insurance company filed lawsuit new york supreme court company several current former officers members board directors seeking rescission alternative declarations allowing federal avoid payment certain directors officers insurance policies certain fiduciary liability insurance policies respect potential liability arising connection matters described “vanlev litigation” “other securities matters” “erisa litigation” sections discovery taken matter october 3 2003 another company’s insurers sr international business insurance co ltd sri informed company intended try avoid certain insurance policies issued company grounds alleged material misrepresentation nondisclosure initiated arbitration proceedings london england sri indicated intends rely upon allegations similar described “other securities matters” section support avoidance action possible time reasonably assess final outcome matters reasonably estimate possible loss range loss respect matters company prevail final nonappealable determinations matters impact could material bristolmyers squibb company notes consolidated financial statements continued note 23 subsequent events december 2003 company confirmed mead johnson wholly owned subsidiary company reached agreement novartis ag novartis sell novartis adult nutritional business terms agreement novartis acquire brands trademarks patents intellectual property rights mead johnson global adult medical nutrition business 385 million including 20 million contingent product conversion 22 million upfront payment supply agreement transaction closed february 2004 pretax gain approximately 290 million expected recorded first quarter 2004 2003 adult nutritional products recorded sales 200 million company announced january 2004 agreed acquire acordis specialty fibres acordis privately held company based united kingdom licenses patent rights supplies materials convatec wound therapeutics line transaction subject regulatory approval received transaction completed company expects record inprocess research development charge 50 million 70 million fda approved bla erbitux anticancer agent company developing partnership imclone february 2004 erbitux injection use combination irinotecan treatment patients egfrexpressing metastatic colorectal cancer refractory irinotecanbased chemotherapy use single agent treatment patients egfrexpressing metastatic colorectal cancer intolerant irinotecanbased chemotherapy accordance agreement company paid imclone march 2004 250 million milestone payment approval erbitux fda bristolmyers squibb company notes consolidated financial statements continued note 24 selected quarterly financial data unaudited selected quarterly financial data set forth note 24 revised reflect restatement discussion restatement see “note 2 restatement previously issued financial statements years ended december 31 2002 2001” bristolmyers squibb company notes consolidated financial statements continued note 24 selected quarterly financial data unaudited continued bristolmyers squibb company notes consolidated financial statements continued note 24 selected quarterly financial data unaudited continued note earnings per share quarters may add amounts year period computed discrete basis 1 2003 includes litigation settlement charges 16 million 265 million second fourth quarters respectively first second third quarters include litigation settlement income 21 million 57 million 4 million respectively first second third fourth quarters include provisions restructuring items 26 million 29 million 37 million 39 million respectively second third fourth quarters include reversals prior period restructuring items 25 million 3 million 10 million respectively third fourth quarters include upfront payments licensing agreements 21 million 81 million respectively 2002 includes gain sale product lines 30 million first quarter first third fourth quarters include writeoffs acquired inprocess research development 160 million 7 million 2 million respectively second fourth quarters include provisions restructuring items 4 million 93 million respectively first third quarters include reversals prior period restructuring items 1 million 28 million respectively litigation settlement charges 90 million 569 million included first third quarters respectively also third quarter includes 379 million asset impairment charge imclone 2 principal corrections interim periods 2003 restatement discussed “note 2 restatement previously issued financial statements years ended december 31 2002 2001” intercompany foreign exchange gains losses first quarter wic rebates accrual second quarter minority interest tax adjustment third quarter well intercompany foreign exchange gains losses income taxes vacation accrual third quarter 3 common equivalent shares excluded computation diluted earnings per share effect would antidilutive follows millions 4 2002 first quarter discontinued operations results included purchase price adjustment related clairol transaction 24 million 14 million net tax third quarter discontinued operations results included litigation provision 10 million 6 million net tax gain adjustment relating clairol transaction 41 million 24 million net tax fourth quarter discontinued operations results included 38 million reduction provision income taxes due reduction tax contingency reserve related zimmer spinoff 5 principal corrections interim periods 2002 2003 restatement discussed “note 2 restatement previously issued financial statements years ended december 31 2002 2001” intercompany foreign exchange gains losses third quarter goods transit adjustments provision income taxes fourth quarter report independent auditors board directors stockholders bristolmyers squibb company opinion consolidated financial statements listed index appearing item 15a1 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2003 2002 results operations cash flows three years period ended december 31 2003 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed index appearing item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance auditing standards generally accepted united states america require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion described note 2 restatement previously issued financial statements years ended december 31 2002 2001 company restated previously issued financial statements described note 1 accounting policies 2001 company changed method accounting business combinations goodwill arising transactions consummated subsequent june 30 2001 2002 changed method accounting goodwill arising transactions consummated prior july 1 2001 impairment longlived assets pricewaterhousecoopers llp pricewaterhousecoopers llp philadelphia pennsylvania march 9 2004 item 9item 8 financial statements supplementary data accompanying notes integral part financial statements bristolmyers squibb company consolidated statements comprehensive income retained earnings dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part financial statements bristolmyers squibb company consolidated statements cash flows dollars millions consolidated statements cash flows include activities discontinued operations accompanying notes integral part financial statements note 1 accounting policies basis consolidation consolidated financial statements prepared conformity united states us generally accepted accounting principles gaap include accounts bristolmyers squibb company may referred bristolmyers squibb bms company controlled majorityowned subsidiaries intercompany balances transactions eliminated company entered codevelopment cocommercialization license arrangements parties various therapeutic areas terms including upfront contingent payments arrangements parties determined variable interest entities requirements fin 46r consolidation variable interest entities primarily due company providing 50 subordinated financial support result company consolidate financial results parties reclassifications certain prior year amounts reclassified conform current year presentation among changes 2008 company reclassified certain receivables sale products alliance partners new presentation also changed previously reported line items within consolidated statements cash flows however new presentation change net cash provided operating activities see “note 12 receivables net” use estimates preparation financial statements requires use estimates assumptions based complex judgments considered reasonable affect reported amounts assets liabilities disclosure contingent assets contingent liabilities date financial statements reported amounts revenues expenses reporting period significant assumptions employed estimates used determining values intangible assets restructuring charges accruals sales rebate return accruals legal contingencies tax assets tax liabilities stockbased compensation expense retirement postretirement benefits including actuarial assumptions financial instruments observable market quotes well estimates used applying revenue recognition policy actual results may differ estimated results revenue recognition company recognizes revenue title substantially risks rewards ownership transferred customer generally revenue recognized time shipment however case certain sales made nutritionals business certain nonus businesses within pharmaceuticals segment revenue recognized date receipt purchaser see “note 2 alliances collaborations” discussion revenue recognition related alliances revenues reduced time recognition reflect expected returns estimated based historical experience business trends additionally provisions made time revenue recognition discounts rebates estimated sales allowances based historical experience updated changes facts circumstances appropriate provisions recorded reduction revenue case new products product introduction extension existing line product company determines products similar therapeutic category company determines new product dissimilar characteristics existing products company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns note 1 accounting policies continued sales rebate return accruals sales rebate return accruals established period related revenue recognized resulting reduction sales establishment liability included accrued rebates returns accrual recorded based estimate proportion recorded revenue result rebate return prime vendor chargeback accruals cash discounts established similar manner recorded reduction accounts receivable accrued liabilities reductions trade receivables follows income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases company’s assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recorded reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made cash equivalents cash equivalents consist us treasury backed securities bank deposits time deposits money market funds cash equivalents primarily highly liquid investments original maturities three months less time purchase recorded cost approximates fair value company maintains cash equivalent balances us dollars foreign currencies subject currency rate risk marketable securities company determined appropriate classification marketable securities “available sale” time purchase company’s investments marketable securities reported fair value december 31 2008 2007 fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity declines fair value considered temporary charged earnings considered temporary reported component accumulated comprehensive income oci stockholders’ equity company uses average cost method determining cost basis computing realized gains losses sale available sale securities realized gains losses included expense net inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals improvements capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets 50 years buildings 3 40 years machinery equipment fixtures company periodically evaluates whether current events circumstances indicate carrying value depreciable assets may recoverable note 1 accounting policies continued impairment longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value capitalized software certain costs obtain internal use software significant systems projects capitalized amortized estimated useful life software ranges three 10 years costs obtain software projects significant expensed incurred capitalized software net accumulated amortization included intangible assets net 295 million 248 million december 31 2008 2007 respectively amortization expense 84 million 2008 116 million 2007 124 million 2006 investments company accounts 50 lessowned companies ability exercise significant influence using equity method accounting otherwise cost method used company’s share net income losses equity investments included equity net income affiliates consolidated statements earnings losses recognized expense net decline market value deemed temporary company reviews equity investments impairment based determination whether decline market value investment company’s carrying value temporary making determination company considers factors evaluated determining whether loss value recognized including company’s ability hold investment market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment acquisitions company’s consolidated financial statements results operations reflect acquired business completion acquisition restated acquired businesses accounted using purchase method accounting requires assets acquired liabilities assumed recorded date acquisition respective fair values excess purchase price estimated fair values net assets acquired recorded goodwill amounts allocated acquired inprocess research development iprd expensed date acquisition goodwill recognized acquired net assets constitute business goodwill intangible assets goodwill tested impairment annually using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value pharmaceutical segment includes four separate reporting units based geography nutritionals segment consists one reporting unit company completed annual goodwill impairment assessment first quarter 2008 monitored potential impairment remaining quarters 2008 none indicated impairment goodwill intangible assets net consisting patentstrademarks licenses technology capitalized software amortized straightline basis useful lives ranging two 17 years intangible assets deemed impaired net carrying value exceeds estimated fair value restructuring company recognized restructuring charges connection activities streamline operations rationalize manufacturing facilities result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results may vary estimates note 1 accounting policies continued product liability accruals product liability including associated legal costs recorded undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recorded undiscounted basis probable recovery realized classified reduction litigation expense net consolidated statements earnings contingencies normal course business company subject loss contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability company records accruals loss contingencies probable liability incurred amount loss reasonably estimated company recognize gain contingencies realized discussion contingencies see “note 25 legal proceedings contingencies” derivative financial instruments derivative financial instruments used company principally management interest rate foreign currency exposures company hold issue derivative financial instruments speculative purposes company records derivative instruments balance sheet fair value changes derivative’s fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized consolidated statements earnings derivative designated cash flow hedge effective portions changes fair value derivative recorded oci subsequently recognized consolidated statements earnings hedged item affects earnings cash flows classified consistent underlying hedged item purchased foreign currency options entire change fair value included measurement hedge effectiveness cash flow hedges ineffective portions changes fair value cash flow hedges recognized charge credit earnings company designates assigns derivatives hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer expected occur company immediately recognizes gain loss designated hedging financial instruments consolidated statements earnings shipping handling costs company typically charge customers shipping handling costs therefore shipping handling costs included marketing selling administrative expenses 242 million 2008 226 million 2007 211 million 2006 advertising costs advertising costs expensed incurred advertising expense 570 million 2008 503 million 2007 472 million 2006 research development research development costs expensed incurred company time enter strategic alliances third parties give company rights develop manufacture market andor sell pharmaceutical products rights owned third parties result alliances company may obligated make payments alliance partners connection research development contingent upon achievement certain predetermined criteria milestones achieved prior regulatory approval product payments expensed research development milestone payments made connection regulatory approvals including nonus regulatory approvals additional indications capitalized amortized cost products sold remaining useful life asset capitalized milestone payments tested recoverability periodically whenever events changes circumstances indicate carrying amounts may recoverable company records research development net reimbursements connection collaboration agreements note 1 accounting policies continued acquired inprocess research development fair value inprocess research development acquired business combination determined based present value research project’s projected cash flows income approach utilized consistent guidance practice aid issued american institute certified public accountants assets acquired business combinations used research development activities focus software electronic devices pharmaceutical industries future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weightedaverage cost capital acquired inprocess research development expensed incurred underlying product received regulatory approval future alternative use addition costs nonrefundable related acquisition licensing products yet received regulatory approval marketed alternative future use charged earnings incurred earnings per share basic earnings per common share computed using weightedaverage number shares outstanding year diluted earnings per common share computed using weightedaverage number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options restricted stock convertible instruments foreign currency translation statements earnings company’s foreign subsidiaries translated us dollars using average exchange rates net assets company’s foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included accumulated oci recently issued accounting standards effective january 1 2008 company adopted emerging issues task force eitf issue 073 accounting nonrefundable advance payments goods services received use future research development activities nonrefundable advance payments goods services used rendered future research development activities deferred capitalized amounts recognized expense related goods delivered services performed goods services longer expected provided company’s adoption eitf 073 material effect company’s consolidated financial statements effective january 1 2008 company adopted statement financial accounting sfas 159 fair value option financial assets financial liabilities including amendment sfas 115 accounting certain investments debt equity securities permits entity measure certain financial assets financial liabilities fair value objective sfas 159 improve financial reporting allowing entities mitigate volatility reported earnings caused measurement related assets liabilities using different attributes without apply complex hedge accounting provisions sfas 159 entities elect fair value option instrument report unrealized gains losses earnings subsequent reporting date fair value option election irrevocable unless new election date occurs sfas 159 establishes presentation disclosure requirements help financial statement users understand effect entity’s election earnings eliminate disclosure requirements accounting standards assets liabilities measured fair value must displayed face balance sheet company chose elect fair value option financial assets liabilities existing january 1 2008 elect fair value option financial assets liabilities assets liabilities previously carried fair value therefore adoption sfas 159 impact company’s consolidated financial statements effective january 1 2008 company adopted provisions sfas 157 fair value measurements financial assets liabilities assets liabilities carried fair value pronouncement defines fair value establishes framework measuring fair value expands disclosures fair value measurements implementation sfas 157 nonfinancial assets liabilities effective january 1 2009 company’s adoption sfas 157 relating financial assets liabilities material effect company’s consolidated financial statements adoption sfas 157 respect nonfinancial assets liabilities future expected material impact company’s consolidated financial statements march 2008 fasb issued sfas 161 disclosures derivative instruments hedging activities amendment sfas 133 accounting derivative instruments hedging activities sfas 161 requires objectives using note 1 accounting policies continued derivative instruments disclosed terms underlying risk accounting designation fair value derivative instruments gains losses need presented tabular format order present complete picture effects using derivative instruments sfas 161 effective financial statements issued fiscal years beginning november 15 2008 company provided required disclosures december 31 2008 consolidated financial statements december 2007 meeting fasb ratified consensus reached eitf issue 071 accounting collaborative arrangements related development commercialization intellectual property eitf concluded collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenues costs incurred third parties connection collaborative arrangements would presented gross net based criteria eitf 9919 reporting revenue gross principal versus net agent accounting literature payments collaborators would evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification amounts significant financial statement amounts related arrangements activities arrangement conducted separate legal entity accounted accounting literature however required disclosure eitf 071 applies entire collaborative agreement eitf effective fiscal years beginning december 15 2008 applied retrospectively periods presented collaborative arrangements existing effective date accounting pronouncement material effect company’s consolidated financial statements december 2007 fasb issued sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 sfas 160 establishes accounting reporting standards require ownership interests subsidiaries held parties parent clearly identified labeled presented consolidated balance sheets within equity separate parent’s equity fasb also requires amount consolidated net income attributable parent noncontrolling interest clearly identified presented face consolidated statements income changes parent’s ownership interest parent retains controlling financial interest subsidiary must accounted consistently subsidiary deconsolidated retained noncontrolling equity investment former subsidiary must initially measured fair value fasb also requires entities provide sufficient disclosures clearly identify distinguish interests parent interests noncontrolling owners fasb effective company january 1 2009 also change company’s consolidated financial statements presentation 2009 december 2007 fasb issued sfas 141r business combinations replaces sfas 141 business combinations requires recognition assets acquired liabilities assumed noncontrolling interest acquiree acquisition date measured fair values date business combination achieved stages fasb requires recognition identifiable assets liabilities well noncontrolling interest acquiree full amounts fair values fasb also requires fair value acquired inprocess research development recorded indefinite lived intangibles contingent consideration recorded acquisition date restructuring acquisitionrelated deal costs expensed incurred addition excess fair value net assets acquired purchase price subsequent changes estimated contingencies recorded earnings fasb applies company’s business combinations acquisition date january 1 2009 july 2006 fasb issued fasb interpretation fin 48 accounting uncertainty income taxes interpretation fasb statement 109 case company effective january 1 2007 fin 48 clarifies accounting uncertainty income taxes recognized enterprise’s financial statements accordance sfas 109 accounting income taxes fin 48 requires tax positions evaluated using recognition threshold measurement attribute financial statement recognition measurement tax position taken expected taken tax return differences tax positions taken tax return amounts recognized financial statements recorded adjustments income taxes payable receivable adjustments deferred taxes fin 48 also requires expanded disclosure end reporting period including tabular reconciliation unrecognized tax benefits company adopted fin 48 january 1 2007 result adoption accounting pronouncement company recognized 27 million previously unrecognized tax benefits accounted increase opening balance retained earnings may 2007 fasb issued fasb staff position fsp fin 481 definition settlement fasb interpretation 48 effective retroactively january 1 2007 fsp fin 481 provides guidance determine whether tax position effectively settled purpose recognizing previously unrecognized tax benefits adoption fsp fin 481 effect company’s consolidated financial statements note 2 alliances collaborations sanofi company agreements sanofiaventis sanofi codevelopment cocommercialization avaproavalide irbesartanirbesartanhydrochlorothiazide angiotensin ii receptor antagonist indicated treatment hypertension diabetic nephropathy plavix clopidogrel platelet aggregation inhibitor worldwide alliance operates framework two geographic territories one americas principally us canada puerto rico latin american countries australia europe asia accordingly two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries general country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place agreements expire later respect plavix 2013 respect avaproavalide 2012 americas australia 2013 europe asia ii expiration patents exclusivity rights applicable territory company acts operating partner territory covering americas australia owns 501 majority controlling interest territory sanofi’s ownership interest territory 499 company consolidates country partnership results territory records sanofi’s share results minority interest net taxes 976 million 2008 746 million 2007 428 million 2006 company recorded net sales territory comarketing countries outside territory germany italy spain greece 6893 million 2008 5958 million 2007 4355 million 2006 cash flows operating activities partnerships territory covering americas australia recorded operating activities within company’s consolidated statements cash flows distributions partnership profits sanofi’s funding ongoing partnership operations occur routine basis also recorded within operating activities company’s consolidated statements cash flows sanofi acts operating partner territory covering europe asia owns 501 majority financial controlling interest within territory company’s ownership interest partnerships within territory 499 company accounts investment partnership entities territory equity method records share results equity net income affiliates consolidated statements earnings company’s share income partnership entities taxes 632 million 2008 526 million 2007 439 million 2006 company routinely receives distributions profits provides funding ongoing operations partnerships territory covering europe asia transactions recorded operating activities within company’s consolidated statements cash flows company sanofi alliance copromotion irbesartan company recognized income 31 million 2008 32 million 2007 31 million 2006 related amortization deferred income associated sanofi’s 350 million payment company acquisition interest irbesartan license us upon formation alliance unrecognized portion deferred income amounted 123 million 154 million december 31 2008 2007 respectively continue amortize 2012 expected expiration license following summarized financial information company’s interests partnerships sanofi territory covering europe asia otsuka company worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote otsuka abilify aripiprazole treatment schizophrenia bipolar mania disorder major depressive disorder except japan china taiwan north korea south korea philippines thailand indonesia pakistan egypt terms agreement company purchases product otsuka performs finish manufacturing sale company otsuka thirdparty customers product currently copromoted otsuka us united kingdom uk germany france spain us germany spain product invoiced thirdparty customers company note 2 alliances collaborations continued behalf otsuka company records alliance revenue 65 contractual share thirdparty net sales records expenses related product company recognizes alliance revenue abilify shipped risks rewards ownership transferred thirdparty customers uk france italy company presently exclusive distributor product company records 100 net sales related cost products sold expenses company also exclusive right sell abilify countries europe americas number countries asia countries company records 100 net sales related cost products sold agreement expires november 2012 us entire european union eu agreement expires june 2014 country company exclusive right sell abilify agreement expires later 10th anniversary first commercial sale country expiration applicable patent country company recorded net sales abilify 2153 million 2008 1660 million 2007 1282 million 2006 total milestone payments made otsuka agreement december 2008 217 million 157 million expensed acquired inprocess research development 1999 remaining 60 million capitalized intangible assets net amortized cost products sold remaining life agreement us company amortized cost products sold 6 million 2008 2007 2006 unamortized capitalized payment balance 23 million 29 million december 31 2008 2007 respectively imclone company commercialization agreement expiring september 2018 imclone systems incorporated imclone codevelopment copromotion erbitux cetuximab us well codevelopment copromotion rights canada japan extent product commercialized countries erbitux indicated use treatment patients metastatic colorectal cancer use treatment squamous cell carcinoma head neck agreement covering north america imclone receives distribution fee based flat rate 39 net sales north america october 2007 company imclone amended codevelopment agreement merck kgaa provide cocommercialization erbitux japan expires 2032 imclone ability terminate agreement 2018 determines commercially unreasonable imclone continue erbitux received marketing approval japan july 2008 use erbitux treating patients advanced recurrent colorectal cancer company recorded net sales erbitux 749 million 2008 692 million 2007 652 million 2006 company amortized cost products sold 37 million 2008 38 million 2007 34 million 2006 previously capitalized milestone payments accounted license acquisition unamortized portion approval payments recorded intangible assets net 360 million 397 million december 31 2008 2007 respectively continue amortize 2018 remaining term agreement upon initial execution commercialization agreement company acquired ownership interest imclone approximated 17 time transaction noted accounting investment equity method company recorded equity loss income affiliates adjusted revenue recognized imclone preapproved milestone payments made company prior 2004 5 million 2008 equity net income affiliates 7 million 2007 43 million 2006 november 2008 eli lilly company lilly acquired imclone result company sold shares imclone 10 billion recognized pretax gain 895 million company continue marketing rights erbitux believes rights imclone’s investigational compound imc11f8 gilead company gilead sciences inc gilead joint venture develop commercialize atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg oncedaily single tablet threedrug regimen combining company’s sustiva efavirenz gilead’s truvada emtricitabine tenofovir disoproxil fumarate us canada europe atripla approved fda july 2006 health canada october 2007 european commission december 2007 commercialization 27 countries eu well norway iceland gilead records atripla revenues us canada countries europe consolidates results joint venture operating results company records revenue bulk efavirenz component atripla upon sales product joint venture thirdparty customers company’s net sales efavirenz component determined applying percentage atripla revenue approximates revenue sustiva brand limited number eu countries company records revenue atripla company agreed purchase product gilead distribute thirdparty customers company recorded revenues 582 million 2008 335 million 2007 76 million 2006 related atripla sales company accounts participation us joint venture equity method accounting records share joint venture results equity net income affiliates consolidated statements earnings company recorded equity loss us joint venture gilead 9 million 2008 2007 6 million 2006 note 2 alliances collaborations continued astrazeneca january 2007 company entered two worldwide except japan codevelopment cocommercialization agreements astrazeneca plc astrazeneca one codevelopment cocommercialization saxagliptin dppiv inhibitor saxagliptin agreement one codevelopment cocommercialization dapagliflozin sodiumglucose contransporter2 sglt2 inhibitor sglt2 agreement compounds studied treatment diabetes discovered company terms agreements company received astrazeneca upfront payment 100 million january 2007 october 2008 company received astrazeneca milestone payment 50 million june 2008 filing new drug application food drug administration fda onglyza companies proposed name onglyza approved fda european medicines evaluation agency serve trade name saxagliptin upfront milestone payments deferred recognized useful life products income company amortized income 9 million upfront payments 2008 7 million 2007 unamortized portion upfront milestone payments 134 million december 31 2008 93 million december 31 2007 additional milestone payments expected received company upon successful achievement various development regulatory events well salesrelated milestones saxagliptin agreement company could receive 300 million development regulatory milestones met additional 300 million salesbased milestones met sglt2 agreement company could receive 350 million development regulatory milestones met additional 300 million salesbased milestones met agreement company astrazeneca also share development commercialization costs majority development costs initial development plans 2009 paid astrazeneca additional development costs generally shared equally company records development costs related saxagliptin dapagliflozin net astrazeneca’s share research development expenses agreement two companies jointly develop clinical marketing strategy share commercialization expenses profitslosses equally global basis excluding japan company manufacture products pfizer april 2007 company pfizer inc pfizer entered worldwide codevelopment cocommercialization agreement apixaban anticoagulant discovered company studied prevention treatment broad range venous arterial thrombotic conditions accordance terms agreement pfizer made upfront payment 250 million company may 2007 deferred recognized life agreement income december 2007 company pfizer agreed include japan worldwide agreement connection japan agreement pfizer made additional upfront payment 40 million december 2007 deferred recognized useful life product income company amortized income 18 million two upfront payments 2008 11 million 2007 unamortized portion upfront payments 261 million december 31 2008 279 million december 31 2007 pfizer fund 60 development costs effective january 1 2007 going forward company fund 40 company records apixaban development costs net pfizer’s share research development expenses company may also receive additional payments 780 million pfizer based development regulatory milestones companies jointly develop clinical marketing strategy share commercialization expenses profitslosses equally global basis manufacture product arrangement exelixis december 2008 company exelixis inc exelixis entered global codevelopment cocommercialization arrangement xl184 metvegret inhibitor oral anticancer compound license xl281 utility ras raf mutant tumors development exelixis terms arrangement company agreed pay exelixis 195 million 2008 upon execution agreement additional 45 million 2009 company expensed research development 240 million upon execution agreement 2008 exelixis fund first 100 million development xl184 exelixis elects continue sharing development costs elects copromote us exelixis fund 35 future global development costs excluding japan share us profitslosses equally failing elections exelixis receives milestones royalties company fund 100 development costs japan addition doubledigit royalties nonus sales company could pay 610 million development regulatory milestones met additional 300 million salesbased milestones met addition company exelixis history collaborations identify develop promote oncology targets december 2006 company exelixis entered oncology collaboration license agreement exelixis note 2 alliances collaborations continued pursuing development three small molecule inds codevelopment copromotion terms agreement company paid exelixis 60 million upfront fees 2006 2008 company paid exelixis 40 million ind acceptance milestones exelixis elects fund development costs copromote us parties equally share development costs profits exelixis opts codevelopment copromotion agreement bms take full development us commercial rights successful pay exelixis development regulatory milestones 190 million additional 90 million salesbased milestones well doubledigit royalties note 3 restructuring december 2007 july 2008 company announced productivity transformation initiatives pti designed fundamentally change way runs business meet challenges changing business environment take advantage diverse opportunities marketplace company transformed nextgeneration biopharmaceutical company create total 25 billion annual productivity cost savings cost avoidance 2012 connection pti company aims achieve culture continuous improvement enhance efficiency effectiveness competitiveness substantially improve cost base charges associated previously announced pti estimated aggregate range 13 billion 16 billion includes 695 million costs already incurred costs net 159 million gains related sale mature product lines businesses exact timing recognition pti charges cannot predicted certainty affected existence triggering events expense recognition among factors also included charges net termination benefits 174 million 2008 182 million 2007 exit costs 44 million 2008 1 million 2007 net restructuring charges include termination benefits workforce reduction approximately 2370 2008 2800 2007 1080 2006 manufacturing selling administrative research development personnel across geographic regions following table presents details expenses incurred segment corporateother connection restructuring activities note 3 restructuring continued following table represents reconciliation restructuring liabilities spending liabilities addition termination charges company recognized accelerated depreciation fixed asset impairment charges shutdown costs 241 million 2008 110 million 2007 186 million 2006 charges included cost products sold primarily relate rationalization company’s manufacturing network pharmaceuticals segment assets continue depreciated facility closures complete remaining costs pti primarily attributed process standardization activities across company recognized incurred note 4 acquisitions divestitures june 2008 company completed acquisition kosan biosciences inc kosan cancer therapeutics company library novel compounds including hsp90 inhibitors cancer microtubule stabilizers may additional potential neurodegenerative diseases net purchase price approximately 191 million transaction accounted purchase method accounting purchase price preliminarily allocated acquiredinprocess research development 32 million net assets 32 million goodwill 127 million october 2007 company completed acquisition adnexus therapeutics inc adnexus developer new therapeutic class biologics called adnectins net purchase price 415 million addition event certain future development regulatory milestones achieved company obligated terms agreement pay former stockholders adnexus additional 74 million transaction accounted purchase method accounting purchase price allocated acquiredinprocess research development 230 million identifiable intangible assets 27 million existing process technology used future discovery net assets 9 million goodwill 149 million reflecting additional deferred tax assets 7 million 2008 results operations two acquisitions included accompanying consolidated financial statements dates acquisition pro forma supplemental financial information included impact business combinations material december 2008 company completed sale mature brand business located egypt 209 million cash glaxosmithkline result transaction company recognized pretax gain 144 million 88 million net tax fourth quarter 2008 august 2008 company completed divestiture convatec business january 2008 company completed divestiture bristolmyers squibb medical imaging see “note 6 discontinued operations assets held sale” discussions divestitures note 4 acquisitions divestitures continued july 2007 company completed sale bufferin excedrin brands japan asia excluding china taiwan certain oceanic countries lion corporation japan 247 million cash result transaction company recognized pretax gain 247 million 144 million net tax third quarter 2007 january 2006 company completed sale inventory trademark patent intellectual property rights us related dovonex treatment psoriasis warner chilcott company inc 200 million cash addition company received royalty based 5 net sales dovonex end 2007 result transaction company recognized pretax gain 200 million 130 million net tax first quarter 2006 note 5 mead johnson nutrition company initial public offering february 2009 mead johnson nutrition company mead johnson completed initial public offering ipo sold 345 million shares class common stock 24 per share net proceeds received approximately 780 million allocated minority interest net taxes capital excess par value stock within company’s stockholders’ equity accordance sfas 160 noncontrolling interests consolidated financial statements amendment arb 51 upon completion ipo company held 423 million shares mead johnson class common stock 1277 million shares mead johnson class b common stock rights holders shares class common stock class b common stock identical except regard voting conversion share class common stock entitled one vote per share class b common stock entitled ten votes per share convertible time election holder one share class common stock class b common stock automatically convert shares class common stock certain circumstances upon completion ipo company holds 831 interest mead johnson mead johnson continue consolidated financial reporting purposes company entered various agreements relating separation mead johnson including separation agreement transitional services agreement tax matters agreement registration rights agreement employee matters agreement february 17 2009 mead johnson entered three year syndicated revolving credit facility agreement credit facility unsecured provides borrowings letters credit 410 million note 6 discontinued operations assets held sale august 2008 company completed divestiture convatec business cidron healthcare limited affiliate nordic capital fund vii avista capital partners lp avista gross purchase price approximately 41 billion resulting pretax gain 34 billion 20 billion net tax included discontinued operations gross purchase price includes estimated postclosing purchase price adjustment based company’s estimate closing working capital convatec business therefore purchase price transaction gain subject future adjustment based actual closing working capital convatec business pursuant terms stock asset purchase agreement dated may 3 2008 addition 2008 company recorded discontinued operations curtailment loss 5 million special termination benefits 13 million associated remeasurement us japan pension plans’ obligations assets triggered decision sell convatec business results convatec business previously reported separate operating segment included earnings discontinued operations net taxes periods presented january 2008 company completed divestiture bristolmyers squibb medical imaging medical imaging avista gross purchase price approximately 525 million excluding post closing adjustments resulting pretax gain 25 million aftertax loss 43 million included discontinued operations results medical imaging business previously included former health care operating segment included earnings discontinued operations net taxes periods presented net assets associated medical imaging business totaling approximately 525 million reclassified assets liabilities held sale december 31 2007 period time company continue generate cash flows report income statement activity expense net associated convatec medical imaging businesses activities give rise cash flows income statement activities transitional nature generally result agreements intended facilitate orderly transfer business operations agreements include among others services accounting customer service distribution manufacturing activities convatec medical imaging businesses expected material company’s results operations cash flows convatec agreements extend periods generally less 24 months majority ranging six 18 months transaction close date subject certain cases limited extensions medical imaging agreements extend periods generally less 24 months majority ranging three six months transaction close date subject certain cases closing extensions transitional service fees net identifiable direct costs recognized expense net amounted 15 million year ended december 31 2008 note 6 discontinued operations assets held sale continued following summarized financial information related convatec medical imaging businesses segregated continuing operations reported discontinued operations date disposition reflect costs certain services provided convatec medical imaging company costs allocated company convatec medical imaging services included without limitation legal counsel insurance external audit fees payroll processing certain human resource services information technology systems support consolidated statements cash flows includes convatec medical imaging businesses date disposition company uses centralized approach cash management financing operations accordingly debt allocated businesses following table includes medical imaging assets liabilities segregated classified assets held sale liabilities related assets held sale appropriate consolidated balance sheets december 31 2007 amounts presented adjusted exclude cash intercompany receivables payables business held sale company excluded divestiture addition goodwill december 31 2007 2 million excluded following summary net assets held sale considered determining pretax gain sale first quarter 2008 assets generating operating results cash flows included consolidated balance sheet assets held sale december 31 2007 note 7 earnings per share numerator basic earnings per share net earnings available common stockholders numerator diluted earnings per share net earnings available common stockholders interest expense added back assumed conversion convertible debt common stock denominator basic earnings per share weightedaverage number common stock outstanding period denominator diluted earnings per share weightedaverage shares outstanding adjusted effect dilutive stock options restricted shares assumed conversion convertible debt common stock computations basic diluted earnings per common share follows weightedaverage shares issuable upon exercise stock options 139 million 2008 107 million 2007 164 million 2006 included diluted earnings per share calculation antidilutive addition 29 million shares assumed conversion convertible debt included diluted earnings per share calculation 2007 2006 antidilutive note 8 expense net components expense net follows interest expense includes 48 million net interest rate swap gains 2008 net interest rate swap losses 13 million 2007 18 million 2006 see “note 21 financial instruments” additional discussion terminated swap contracts interest income relates primarily interest earned cash equivalents investments marketable securities detail auction rate securities ars impairment see “note 11 cash equivalents marketable securities” net includes income thirdparty contract manufacturing certain royalty income expense gains losses sale property plant equipment gains losses sale marketable securities including 19 million loss sale ars 2008 insurance recoveries certain litigation chargesrecoveries convatec medical imaging net transitional service fees amortization certain upfront payments related company’s alliances see “note 2 alliances collaborations” note 9 income taxes components earningsloss continuing operations income taxes minority interest follows amounts categorized based location taxing authorities provisionbenefit income taxes attributable continuing operations consisted note 9 income taxes continued effective tax rate company’s provision income taxes 2008 2007 2006 different amount computed applying statutory us federal income tax rate earnings continuing operations income taxes minority interest result following increase 2008 effective tax rate 2007 primarily due higher pretax income us including gain sale imclone earnings mix high tax jurisdictions 2008 partially offsetting factors lower nondeductible charges 2008 acquired inprocess research development expenses lower ars impairment charges little tax benefit tax rate 2008 favorably impacted benefit 91 million tax related final settlement 20022003 audit internal revenue service 2007 tax rate unfavorably impacted impairment company’s investment certain ars little tax benefit nondeductible writeoff acquired inprocess research development expenses related acquisition adnexus partially offset tax benefit 105 million first quarter 2007 due favorable resolution certain tax matters internal revenue service related deductibility litigation settlement expenses us foreign tax credits claimed effective tax rate 2006 unfavorably impacted elimination tax benefits section 936 internal revenue code treatment provisions portion certain litigation reserves nondeductible partially offset favorable us tax legislation enacted 2006 related tax treatment certain intercompany transactions amongst company’s foreign subsidiaries implementation tax planning strategies related utilization certain charitable contributions note 9 income taxes continued deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows company established valuation allowance deferred tax assets company determined likely deferred tax assets realized december 31 2008 valuation allowance 1795 million established following items 77 million state deferred tax assets 1407 million foreign net operating loss tax credit carryforwards 280 million state net operating loss tax credit carryforwards 14 million related impaired financial instruments 17 million us federal state deferred tax assets related adnexus kosan acquisitions offset goodwill company recognized significant deferred tax assets december 31 2008 related us federal foreign tax credit carryforwards 451 million us federal research development tax credit carryforwards 271 million us federal charitable contribution carryforwards fully utilized 2008 due gains related convatec medical imaging divestitures foreign tax credit research development tax credit carryforwards expire varying amounts beginning 2014 foreign tax credit research development tax credit carryforwards reduced due derecognition fin 48 convatec medical imaging divestitures resulted significant reduction foreign tax credit research development tax credit carryforwards 2008 realization foreign tax credit research development tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured management believes likely deferred tax assets realized income taxes paid year 636 million 2008 994 million 2007 741 million 2006 discussed tax rate 2008 favorably impacted benefit 91 million tax related final settlement 20022003 audit internal revenue service final settlement related joint committee congress approval foreign tax credit carryback claim 2000 2001 company received 432 million cash refund including interest 2008 current tax benefit realized upon exercise stock options credited capital excess par value stock 5 million 2007 10 million 2006 note 9 income taxes continued december 31 2008 company approximately 154 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated us company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided company conducts business various countries throughout world subject tax numerous jurisdictions result business activities company files significant number tax returns subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported company may require several years resolve company establishes liabilities possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation company adopted provisions fin 48 january 1 2007 resulting recognition 27 million previously unrecognized tax benefits accounted increase opening balance retained earnings fin 48 requires expanded disclosure end annual reporting period including tabular reconciliation unrecognized tax benefits certain information regarding interest penalty amounts reflected part company’s uncertain tax positions tabular reconciliation company’s changes uncertain tax positions january 1 2007 december 31 2007 january 1 2008 december 31 2008 follows annual tabular reconciliation required fin 48 requires gross presentation unrecognized tax benefits gross basis reductions deferred tax assets company’s total amount unrecognized tax benefits january 1 2008 excluding interest penalties 1058 million note 9 income taxes continued uncertain tax benefits december 31 2008 recorded company’s deferred tax assets extent uncertainty directly related asset otherwise recorded either current noncurrent income taxes payable total amount gross uncertain tax benefits december 31 2008 excluding interest penalties decreased 791 million reduction primarily due favorable resolution uncertain tax positions partially offset additional uncertain tax benefits accrued 2008 included gross reductions tax positions related prior years 27 million uncertain tax positions longer included fin 48 table result disposition businesses included balance unrecognized tax benefits 264 million uncertain tax positions january 1 2008 116 million december 31 2008 ultimate deductibility highly certain uncertainty timing deductibility impact deferred tax accounting interest penalties applicable disallowance shorter deductibility period would affect annual effective tax rate would accelerate payment cash taxing authority utilization tax attributes earlier period amounts unrecognized tax benefits recognized would impact effective tax rate 794 million january 1 2008 675 million december 31 2008 company classifies interest penalties related unrecognized tax benefits income tax expense amounts reflected separately reconciliation total amount interest penalties related uncertain tax positions recognized consolidated statements earnings 2008 net benefit 6 million interest 4 million penalties net benefit interest result 48 million additional accrual 54 million reduction interest net benefit penalties result 5 million additional accrual 9 million reduction penalties total amount interest penalties related uncertain tax positions recognized consolidated balance sheets december 31 2008 64 million interest 20 million penalties company currently examination number tax authorities including major tax jurisdictions listed table proposed adjustments tax issues transfer pricing certain tax credits deductibility certain expenses company estimates reasonably possible total amount unrecognized tax benefits december 31 2008 decrease range approximately 95 million 125 million next twelve months result settlement certain tax audits settlements involve payment additional taxes adjustment certain deferred taxes andor recognition tax benefits company also anticipates reasonably possible new issues raised tax authorities may require increases balance unrecognized tax benefits however estimate increases cannot reasonably made company believes adequately provided open tax years tax jurisdiction fin 48 company files income tax returns us federal jurisdiction various state foreign jurisdictions exceptions company subject us federal state local nonus income tax examinations tax authorities following summary major tax jurisdictions tax authorities may assert additional taxes company based upon tax years currently audit subsequent years likely audited us 2004 2008 canada 2001 2008 france 2004 2008 germany 1999 2008 italy 2003 2008 mexico 2003 2008 note 10 fair value measurement stated “note 1 accounting policies” january 1 2008 company adopted methods fair value described sfas 157 value financial assets liabilities defined sfas 157 fair value based price would received sell asset paid transfer liability orderly transaction market participants measurement date order increase consistency comparability fair value measurements sfas 157 establishes fair value hierarchy prioritizes observable unobservable inputs used measure fair value three broad levels described level 1 quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy gives highest priority level 1 inputs level 2 observable prices based inputs quoted active markets corroborated market data level 3 unobservable inputs used little market data available fair value hierarchy gives lowest priority level 3 inputs determining fair value company utilizes valuation techniques maximize use observable inputs minimize use unobservable inputs extent possible well considers counterparty credit risk assessment fair value company chose elect fair value option prescribed sfas 159 financial assets liabilities previously carried fair value therefore material financial assets liabilities carried fair value short longterm debt obligations trade accounts receivable payable still reported carrying values financial assets liabilities carried fair value december 31 2008 classified table one three categories described company’s assets utilize level 3 inputs fair value measurement consist auction rate securities floating rate securities frs due lack observable market quotes company’s ars investment portfolio company utilizes valuation models rely exclusively level 3 inputs including based expected cash flow streams collateral values including assessments counterparty credit quality default risk underlying security discount rates overall capital market liquidity valuation company’s ars investment portfolio subject uncertainties difficult predict factors may impact company’s valuation include changes credit ratings securities well underlying assets supporting securities rates default underlying assets underlying collateral value discount rates counterparty risk ongoing strength quality market credit liquidity company’s determination fair value ars investment portfolio december 31 2008 included indicative prices received external banks internally developed valuations based part indicative bids received underlying assets securities nonobservable evidence fair value although ars continue pay interest according stated terms due continued severity capital markets length time ars mature company believes full recovery longer probable discussion company’s december 31 2008 fair value carrying value rollforward ars activity including sales otherthantemporary impairment charge recorded 2008 see “note 11 cash equivalents marketable securities” note 10 fair value measurement continued company’s frs primarily rated ‘abaa1’ better frs longterm debt securities coupons reset periodically benchmark interest rate underlying assets frs consist primarily consumer loans auto loans collateralized loan obligations monoline securities assetbacked securities corporate bonds loans since latter part 2007 general frs market became less liquid active due continuing credit liquidity concerns result availability observable market quotes active market level 1 inputs market quotes similar identical assets liabilities inputs derived principally corroborated observable market data correlation means level 2 inputs company markstomarket frs based indicative pricing indicative price quotes represent individual broker’s assessments based similar assets well using valuation techniques analyzing underlying assets frs due current lack active market company’s frs general lack transparency underlying assets company also relies qualitative analysis including discussions brokers fund managers default risk underlying security overall capital market liquidity level 3 inputs value frs portfolio discussion company’s december 31 2008 fair value carrying value rollforward activity occurred 2008 see “note 11 cash equivalents marketable securities” financial assets liabilities utilize level 1 level 2 inputs company utilizes direct indirect observable price quotes including libor euribor yield curves foreign exchange forward prices nymex futures pricing common stock price quotes summary valuation techniques level 1 level 2 financial assets liabilities • us treasury bills treasurybacked securities valued quoted market price broker dealer quotations transparent pricing sources reporting date • equity securities valued using quoted stock prices new york stock exchange national association securities dealers automated quotation system reporting date • interest rate swap derivative assets liabilities valued using libor euribor yield curves less credit valuation adjustments reporting date counterparties contracts financial institutions experienced downgrades 2008 valuations may fluctuate considerably periodtoperiod due volatility underlying interest rates driven market conditions duration swap addition credit valuation adjustment significant impact valuation company’s interest rate swaps due changes counterparty credit ratings credit default swap spreads • foreign exchange derivative assets liabilities valued using quoted forward foreign exchange prices reporting date counterparties contracts financial institutions experienced downgrades 2008 valuations may fluctuate considerably periodtoperiod due volatility underlying foreign currencies due shortterm maturities company’s foreign exchange derivatives generally 15 months less counterparty credit risk significant • natural gas forward contracts valued using nymex futures prices natural gas reporting date counterparties contracts financial institutions experienced downgrades 2008 valuations may fluctuate considerably periodtoperiod due volatility underlying natural gas prices due shortterm maturities company’s natural gas derivatives 15 months less counterparty credit risk significant increases decreases aggregate fair value financial assets liabilities measured fair value would significant impact company’s liquidity financial flexibility approximately 87 fair value net financial assets us treasury bills us treasurybacked securities although company elected fair value option financial assets liabilities existing january 1 2008 transacted 2008 future transacted financial asset liability evaluated fair value election prescribed sfas 159 fair valued provisions sfas 157 company elect fair value option 16 billion senior notes issued may 1 2008 note 11 cash equivalents marketable securities cash equivalents december 31 2008 7976 million primarily consisted us treasurybacked securities cash equivalents december 31 2007 1801 million primarily consisted bank deposits time deposits money market funds cash equivalents primarily highly liquid investments original maturities three months less time purchase recorded cost approximates fair value company maintains cash equivalent balances us dollars foreign currencies subject currency rate risk marketable securities december 31 2008 primarily consisted us treasury bills us dollardenominated frs 2008 company’s frs holdings downgraded december 31 2007 ratings primarily ‘aaaaaa’ ratings ranged ‘aaaaaa’ ‘abaa1’ december 31 2008 frs longterm debt securities coupons reset periodically benchmark interest rate underlying assets company’s frs consist primarily consumer loans auto loans collateralized loan obligations monoline securities assetbacked securities corporate bonds loans company accounts marketable securities accordance sfas 115 accounting certain investments debt equity securities classifies “available sale” noncurrent frs classified noncurrent assets december 31 2008 following tables summarize company’s current noncurrent marketable securities december 31 2008 2007 include us dollardenominated frs ars accounted “available sale” debt securities 1 company recognized pretax otherthantemporary impairment charge 305 275 million 2008 2007 respectively 19 million loss sale certain securities note 11 cash equivalents marketable securities continued december 31 2007 company’s principal value frs amounted 337 million 2008 company received 108 million principal par primarily frs matured march 2008 temporarily reduced fair value remaining frs 26 million 203 million unrealized loss accumulated oci addition 2008 company reclassified 94 million remaining frs maturity dates beyond 2009 current assets noncurrent assets due liquidity concerns continued uncertainty capital markets 2008 company received 118 million connection sale ars carrying value 137 million resulting loss 19 million addition 305 million otherthantemporary impairment charge recognized including 117 million previously determined temporary december 31 2007 2008 impairment charge required analysis otherthantemporary impairment factors including severity duration decline value future prospects issuer company’s ability intent hold security recovery ars sold securities generally backed subprime mortgages collateralized debt obligations structured credit ars remaining december 31 2008 primarily represents interests insurance securitizations lesser extent structured credits following table summarizes activity financial assets fair value measurements estimated utilizing level 3 inputs ars frs discussion fair value financial instruments including ars frs see “note 10 fair value measurement” contractual maturities carrying value “available sale” debt securities december 31 2008 follows note 12 receivables net major categories receivables follows receivables netted deferred income sales product alliance partners recognition revenue result corresponding reclassification made reduced alliance partner receivables deferred income 566 million 246 million december 31 2008 2007 respectively additional information company’s alliance partners see “note 2 alliances collaborations” aggregate receivables due three pharmaceutical wholesalers us represented 35 29 total trade receivables december 31 2008 2007 respectively note 13 inventories net major categories inventories follows inventories expected remain onhand beyond one year 185 million 73 million december 31 2008 2007 respectively included noncurrent assets note 14 property plant equipment net major categories property plant equipment follows capitalized interest 23 million 2008 27 million 2007 18 million 2006 note 15 goodwill changes carrying amount goodwill segment years ended december 31 2008 2007 follows see “ note 4 acquisitions divestitures” detail note 16 intangible assets net december 31 2008 2007 intangible assets consisted following change carrying amount intangible assets years ended december 31 2008 2007 follows impairment charges 2008 relate certain patent product rights acquired dupont 2001 results development programs abandoned license terminations amortization expense intangible assets 254 million 2008 350 million 2007 363 million 2006 amortization expense intangible assets related convatec medical imaging reflected discontinued operations 4 million 2008 69 million 2007 71 million 2006 expected amortization expense related current net carrying amount intangible assets follows note 17 accrued expenses major categories accrued expenses follows note 18 shortterm borrowings longterm debt shortterm borrowings 154 million 1891 million december 31 2008 2007 respectively september 2008 company repaid 1150 million principal amount 1200 million aggregate principal amount floating rate convertible senior debentures due 2023 result partial redemption note holders portion remaining balance 50 million redeemed holders par september 15 2013 2018 fundamental change ownership company occurs part remaining debt callable par time issuer debentures conversion price 4128 conversion rate 242248 shares subject certain antidilutive adjustments maximum conversion rate 387597 shares debentures pay interest quarterly annual rate equal three month libor reset quarterly minus 050 yield never less zero august 2008 february 2008 company repaid 400 million 400 notes due 2008 117 million 110 yen notes due 2008 respectively december 2006 company obtained 20 billion five year revolving credit facility syndicate lenders extendable anniversary date consent lenders facility contains customary terms conditions including financial covenant whereby ratio consolidated debt consolidated capital cannot exceed 50 end quarter company compliance covenant since inception new facility borrowings outstanding revolving credit facility december 31 2008 components longterm debt follows 1 discussion company’s interest rate swaps refer “note 21 financial instruments” note 18 shortterm borrowings longterm debt continued november december 2008 company repurchased approximately 254 million principal amount debt terminated 241 million notional amount interest rate swaps resulting gain 57 million reported expense net table summarizes debt repurchase related activity may 1 2008 company issued 600 million aggregate principal amount 545 notes due 2018 10 billion aggregate principal amount 6125 notes due 2038 collectively “may 1 2008 issued notes” registered public offering interest payments made may 1 november 1 year beginning november 1 2008 may 1 2008 issued notes senior unsecured obligations company rank equally right payment company’s existing future senior unsecured indebtedness company may redeem may 1 2008 issued notes whole part time redemption price equal greater par value amount calculated based upon sum present values remaining scheduled payments set forth prospectus supplement dated april 28 2008 december 2008 company terminated 550 million notional amount 2036 2038 fixedtofloating interest rate swap agreements related notes due 2036 2038 received proceeds 197 million proceeds recognized interest expense remaining life underlying debt september 2005 company terminated 350 million notional amount 2026 fixedtofloating interest rate swap agreements related 350 million 680 debentures due 2026 received proceeds 39 million proceeds recognized interest expense remaining life underlying debt approximately 1 million pretax recognized years 2008 2007 2006 discussion company’s swap terminations refer “note 21 financial instruments” including payments due interest rate swaps cash payments interest 539 million 2008 610 million 2007 682 million 2006 cash receipts interest rate swaps 236 million 2008 210 million 2007 205 million 2006 excluded cash payments interest company’s principal value longterm debt obligations 5737 million december 31 2008 45 million due 2010 647 million due 2013 remaining 5045 million due later 2013 december 31 2008 company provided total 168 million financial guarantees form standby letters credit performance bonds standby letters credit insurance companies support thirdparty liability programs performance bonds issued support range ongoing operating activities including sale company products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority company’s outstanding financial guarantees expire within year expected funded note 19 stockholders’ equity changes common shares treasury stock capital excess par value stock restricted stock follows share company’s preferred stock convertible 1696 shares common stock callable company’s option reductions number issued shares preferred stock 2008 2007 2006 due conversions shares common stock accumulated balances related component oci net taxes follows note 20 employee stock benefit plans employee stock plans may 1 2007 stockholders approved company’s 2007 stock award incentive plan 2007 plan 2007 plan replaced 2002 stock incentive plan 2002 plan expired may 31 2007 plan provides 42 million new shares common stock reserved delivery participants plus shares remaining available new grants 2002 plan shares recaptured outstanding awards 2002 plan number shares actually delivered participants connection award restrictions lapsed counted number shares reserved shares tendered prior year pay purchase price options number shares previously utilized satisfy withholding tax obligations upon exercise continue available reserved december 31 2008 2007 350 million 352 million shares common stock respectively reserved issuance pursuant stock plans options conversions preferred stock 100 million 98 million shares available granted active plans december 31 2008 2007 respectively adjusted combination plans company’s 2007 plan 2002 plan executive officers key employees may granted options purchase company’s common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years generally company issues shares stock option exercise treasury stock additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price december 31 2008 202 thousand stock appreciation rights outstanding treated liability awards 2007 plan 2002 plan provide granting common stock key employees subject restrictions continuous employment restrictions generally expire four year period date grant compensation expense recognized restricted period first quarter 2007 company began granting restricted stock units instead restricted stock unit right receive stock end specified vesting period stock unit voting rights note 20 employee stock benefit plans continued 2007 plan 2002 plan also incorporate company’s longterm performance awards delivered form target number performance shares three year cycle 2008 2010 2007 2009 awards annual goals set beginning performance period based 50 earnings per share 50 sales maximum performance result maximum payout 165 2008 2010 award 220 2007 2009 award addition onetime special performance award granted 2008 2010 performance period special performance award annual goals set beginning performance period based 50 pretax operating margin 50 operating cash flow maximum performance result maximum payout 165 goals 2005 2007 2006 2008 awards set three year period based 50 cumulative earnings per share 50 cumulative sales ultimate payout modified company’s total stockholder return versus 11 companies proxy peer group maximum performance three measures result maximum payout 253 target threshold targets met performance period payment made plan teamshare stock option plan terminated january 3 2005 fulltime employees excluding key executives granted options purchase company’s common stock market price date options granted company authorized 66 million shares issuance plan individual grants generally became exercisable evenly third fourth fifth anniversary grant date maximum term 10 years options 36 million shares exercised plan december 31 2008 company’s results operations years ended december 31 2008 2007 2006 reflect impact sfas 123r sharebased payment includes impact expensing stock options company elected alternative method provided fsp 123r3 transition election related accounting tax effects sharebased payment awards determining company’s pool excess tax benefits following tables summarize stockbased compensation expense related employee stock options restricted stock longterm performance awards years ended december 31 2008 2007 2006 stockbased compensation expense recognized consolidated statements earnings follows stockbased compensation expense 5 million 2008 7 million 2007 6 million 2006 included discontinued operations note 20 employee stock benefit plans continued stock options summary stock option activities follows information related stock option grants exercises 2007 plan 2002 plan summarized follows december 31 2008 100 million total unrecognized compensation cost related stock options expected recognized weightedaverage period 24 years following tables summarize information concerning company’s stock compensation plans currently outstanding exercisable options 1 shares plan longer issued note 20 employee stock benefit plans continued following table summarizes significant ranges outstanding exercisable options december 31 2008 amounts millions except per share data aggregate intrinsic value preceding table represents total pretax intrinsic value based company’s closing stock price 2325 december 31 2008 would received option holders option holders exercised options date total number inthemoney options exercisable december 31 2008 17 million december 31 2007 113 million outstanding options exercisable weightedaverage exercise price 4221 fair value employee stock options granted estimated date grant using blackscholes option pricing model stock options service condition monte carlo simulation model options service market conditions following table presents weightedaverage assumptions used valuation company derived expected volatility assumption required blackscholes model calculating 10year historical volatility weighting equally derived implied volatility selection blended historical implied volatility approach based company’s assessment calculation expected volatility representative future stock price trends using historical volatility riskfree interest rate assumption based upon us treasury yield curve effect time grant dividend yield assumption based company’s history expectation dividend payouts expected life employee stock options represents weightedaverage period stock options expected remain outstanding derived output latticebinomial model expected life employee stock options impacted underlying assumptions calibration company’s model latticebinomial model assumes employees’ exercise behavior function option’s remaining vested life extent option inthemoney latticebinomial model estimates probability exercise function two variables based entire history exercises cancellations past option grants made company stockbased compensation expense based awards ultimately expected vest forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates company acquired adnexus october 19 2007 part acquisition agreement company assumed 24 million shares adnexus incentive stock options isos replaced 06 million shares company isos converted options retain original vesting schedules including vesting commencement date well expiration date blackscholes model used determine expected term individual isos valuations result weightedaverage expected term 52 years weightedaverage fair value october 19 2007 2034 note 20 employee stock benefit plans continued restricted stock awards restricted stock units fair value nonvested shares company’s common stock determined based average trading price company’s common stock grant date restricted share activities follows december 31 2008 153 million total unrecognized compensation cost related nonvested restricted stock cost expected recognized weightedaverage period 26 years total fair value nonvested shares share units granted recognized compensation expense 82 million 2008 53 million 2007 34 million 2006 total fair value shares share units vested 2008 84 million longterm performance awards since adoption sfas 123r fair value 2006 2008 performance award estimated date grant using monte carlo simulation model due market condition monte carlo simulation model utilizes multiple input variables determine probability satisfying market condition stipulated award grant calculates fair market value longterm performance awards 2008 2010 2007 2009 performance awards theses awards contain market condition fair value based closing trading price company’s common stock grant date valuation model 2006 2008 award used following assumptions weightedaverage expected volatility based three year historical volatility levels company’s common stock expected dividend yield based historical dividend payments riskfree interest rate reflects yield five year zero coupon us treasury bonds based performance shares’ contractual term fair value performance awards amortized performance period award note 20 employee stock benefit plans continued information related performance awards 2007 plan 2002 plan summarized follows unrecognized compensation cost related performance share plan 24 million december 31 2008 expected recognized weightedaverage period 17 years accuracy fair value estimates company’s determination fair value stockbased payment awards date grant using optionpricing model affected company’s stock price well assumptions regarding number highly complex subjective variables include limited company’s expected stock price volatility term awards actual projected employee stock option exercise behaviors optionpricing models developed use estimating value traded options vesting hedging restrictions fully transferable company’s employee stock options certain characteristics significantly different traded options changes subjective assumptions materially affect estimated value management’s opinion existing valuation models may provide accurate measure fair value company’s employee stock options although fair value employee stock options determined accordance sfas 123r staff accounting bulletin sab 107 sharebased payment using optionpricing model value may indicative fair value observed willing buyerwilling seller market transaction note 21 financial instruments company exposed market risk due changes currency exchange rates interest rates lesser extent natural gas pricing reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure company’s primary net foreign currency translation exposures euro japanese yen canadian dollar chinese renminbi mexican peso manage exposures company utilizes foreign currency contracts subject cash flow hedge accounting treatment instruments managed consolidated basis efficiently net exposures thus take advantage natural offsets company also uses derivative instruments part interest rate risk management strategy derivative instruments used comprised principally fixedtofloating rate interest rate swaps subject fairvalue hedge accounting treatment derivative financial instruments used speculative purposes cash flow hedges foreign exchange contracts company utilizes foreign currency contracts hedge anticipated transactions primarily intercompany transactions certain foreign currencies designates derivative instruments foreign currency cash flow hedges appropriate notional amounts company’s foreign exchange derivative contracts december 31 2008 2007 1151 million 1225 million respectively derivatives majority qualify hedges future anticipated cash flows effective portion changes fair value temporarily deferred accumulated oci recognized earnings hedged item affects earnings table summarizes company’s outstanding foreign exchange forward contracts december 31 2008 fair value foreign exchange forward contracts based yearend currency rates fair value foreign exchange forward contracts viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates note 21 financial instruments continued december 31 2007 total notional fair market value contracts buy japanese yen 145 million 1 million respectively fully offset total notional fair market value sell contracts 145 million 1 million respectively december 31 2008 company hold foreign exchange option contracts buy sell japanese yen december 31 2008 balance deferred gains foreign exchange forward contracts qualified cash flow hedge accounting included accumulated oci pretax basis 45 million 35 million net tax expected reclassified earnings within next 14 months sfas 133 accounting derivative instruments hedging activities requires company perform periodic assessments hedge effectiveness company assesses effectiveness inception hedge quarterly basis assessments determine whether derivatives designated qualifying hedges continue highly effective offsetting changes cash flows hedged items ineffective portion fair value longer deferred accumulated oci included current period earnings years ended december 31 2008 2007 2006 impact hedge ineffectiveness earnings significant additionally years ended december 31 2008 2007 2006 impact discontinued hedges pretax gain 6 million pretax loss 12 million 10 million respectively natural gas contracts company utilizes forward contracts hedge anticipated purchase natural gas designates derivative instruments cash flow hedges appropriate derivatives majority qualify hedges future anticipated cash flows effective portion changes fair value temporarily deferred accumulated oci recognized earnings hedged item affects earnings year ended december 31 2008 impact discontinued natural gas hedges pretax loss 4 million material year ended december 31 2007 nonqualifying foreign exchange contracts addition foreign exchange contracts noted company utilizes forward contracts hedge foreign currencydenominated monetary assets liabilities primary objective forward contracts protect us dollar value foreign currencydenominated monetary assets liabilities effects volatility foreign exchange rates might occur prior receipt settlement us dollars forward contracts designated hedges marktomarket expense net notional fair value amounts purchased sold foreign exchange forward contracts december 31 2008 2007 material furthermore company uses foreign exchange forward contracts offset exposure certain assets liabilities earnings denominated certain foreign currencies foreign exchange forward contracts designated hedges therefore changes fair value derivatives recognized earnings expense net occur notional fair value amounts foreign exchange forward contracts december 31 2008 2007 material hedge net investment company uses nonus dollar borrowings primarily 500 million notes due 2016 500 million notes due 2021 hedge foreign currency exposures company’s net investment certain foreign affiliates nonus dollar borrowings designated hedges net investments effective portion foreign exchange gains losses hedges recorded part foreign currency translation component accumulated oci note 21 financial instruments continued company unhedged exposures net foreign currencydenominated assets liabilities approximately 1074 million 1902 million december 31 2008 2007 respectively primarily japan china mexico australia uk thailand fair value hedges interest rate contracts company uses derivative instruments part interest rate risk management strategy derivative instruments used comprised principally fixedtofloating rate interest rate swaps subject fairvalue hedge accounting treatment november 2006 connection funding retirement 2011 fixed rate debt company executed several fixedtofloating interest rate swaps convert 13 billion 1 billion 13 billion inception company’s newlyissued fixed rate debt paid 2016 2021 2036 variable rate debt 2008 company executed additional fixedtofloating interest rate swaps convert 12 billion company’s newlyissued fixed rate debt paid 2018 2038 variable rate total notional amounts outstanding interest rate swaps 26 billion 1 billion 14 billion december 31 2008 26 billion 10 billion 15 billion december 31 2007 26 billion 1 billion 13 billion december 31 2006 company recognized net decrease interest expense 48 million 2008 net increase 13 million 18 million 2007 2006 respectively swaps well underlying debt hedged recorded fair value swaps generally held maturity intended create appropriate balance fixed floating rate debt company swaps qualify fair value hedges terminated prior maturity dates reported part carrying value underlying debt amortized earnings remaining life debt swaps qualify cash flow hedges terminated reported accumulated oci amortized earnings remaining life debt december 31 2008 balance deferred losses forward starting swaps included accumulated oci 19 million reclassified earnings remaining life debt november december 2008 company repurchased approximately 254 million principal amount debt terminated 241 million notional amount interest rate swaps resulting gain 57 million reported expense net also 2008 company terminated 550 million notional amount fixedtofloating interest rate swap agreements total proceeds 197 million proceeds swap termination recognized interest expense remaining life underlying debt discussion company’s debt buyback refer “note 18 shortterm borrowings longterm debt” note 21 financial instruments continued following tables summarize interest rate swaps outstanding december 31 2008 earnings impact terminated interest rate swaps 2008 2007 2006 interest rate swaps outstanding earnings impact terminated interest rate swaps following table summarizes company’s fair value outstanding derivatives december 31 2008 2007 note 21 financial instruments continued impact earnings interest rate swaps qualified fair value hedges years ended december 31 2008 2007 follows impact oci earnings foreign exchange natural gas forwards qualified cash flow hedges follows impact oci earnings nonderivative debt designated hedge net investment years ended december 31 2008 2007 follows impact earnings nonqualifying derivatives years ended december 31 2008 2007 follows discussion fair value financial instruments see “note 10 fair value measurement” discussion cash equivalents marketable securities see “note 11 cash equivalents marketable securities” longterm debt difference fair value carrying value material january 13 2009 company terminated fixedtofloating interest rate swaps notional amount 1061 million resulting 187 million gain amortized remaining life debt note 22 segment information segment information consistent management reviews businesses makes investing resource allocation decisions assesses operating performance company reports financial operating information two segmentspharmaceuticals nutritionals pharmaceuticals segment comprised global pharmaceutical international consumer medicines businesses nutritionals segment consists mead johnson primarily infant formula business children’s nutritional business january august 2008 company completed divestiture medical imaging convatec businesses respectively results medical imaging convatec businesses previously included former health care convatec operating segments respectively included discontinued operations additional information divestitures medical imaging convatec see “note 4 acquisitions divestitures” “note 6 discontinued operations assets held sale” company’s products sold principally wholesale retail trade nationally internationally certain products also sold drug manufacturers hospitals clinics government agencies medical profession gross sales three pharmaceutical wholesalers us accounted approximately 20 16 12 company’s total gross sales 2008 18 15 11 company’s total gross sales 2007 17 15 10 company’s total gross sales 2006 note 22 segment information continued corporateother assets include cash equivalents marketable securities assets discontinued operations certain assets earnings continuing operations income taxes minority interest reported corporateother consists note 22 segment information continued 1 corporateother amounts include activities convatec medical imaging businesses including capital expenditures 26 million 2008 30 million 2007 33 million 2006 depreciation expense 6 million 2008 28 million 2007 28 million 2006 company’s selected geographic area information follows note 23 leases minimum rental commitments noncancelable operating leases primarily real estate motor vehicles effect december 31 2008 follows operating lease rental expense 179 million 2008 166 million 2007 149 million 2006 net sublease rental income 16 million 2008 17 million 2007 21 million 2006 february 2008 company completed sale leaseback administrative facility paris france 227 million 155 million resulting pretax gain transaction 111 million 102 million deferred reduce future lease rental costs lease period 9 years december 2006 company completed sale leaseback several administrative facilities new jersey 283 million resulting pretax gain transaction 154 million 145 million deferred reduce future lease rental costs lease periods ranging 8 12 years note 24 pension postretirement postemployment liabilities company certain subsidiaries defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan us represents approximately 70 company’s total pension plan assets obligations funding policy contribute amounts provide current service fund past service liability plan benefits based primarily participant’s years credited service compensation plan assets consist principally equity fixedincome securities company also provides comprehensive medical group life benefits substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside us net periodic benefit cost company’s defined benefit pension postretirement benefit plans included following components estimated net actuarial loss prior service cost amortized accumulated oci net periodic benefit cost 2009 note 24 pension postretirement postemployment liabilities continued changes benefit obligations plan assets funded status amounts recognized balance sheet years ended december 31 2008 2007 company’s defined benefit postretirement benefit plans follows impact medicare prescription drug improvement modernization act 2003 96 million 2008 98 million 2007 94 million 2006 reflected reduction accumulated postretirement benefit obligation accumulated benefit obligation defined benefit pension plans 5418 million 5417 million december 31 2008 2007 respectively information related company’s pension plans december 31 follows note 24 pension postretirement postemployment liabilities continued actuarial assumptions weightedaverage assumptions used determine benefit obligations december 31 follows weightedaverage actuarial assumptions used determine net periodic benefit cost years ended december 31 follows company uses yield high quality corporate bonds matches duration benefit obligations determining discount rate citigroup median yield curve used developing discount rate us plans company considers several factors developing expected return plan assets longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class longterm expected rate return plan assets us plans included active management premium approximately 1 projected market returns received external advisors company’s longterm expected annualized returns us pension plans follows expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” marketrelated value exceeds fair value plan assets approximately 11 billion december 31 2008 less fair value plan assets approximately 100 million december 31 2007 change primarily driven significant losses incurred plan assets 2008 due current market conditions differences assumed actual returns amortized marketrelated value straightline basis three year period gains losses resulted changes actuarial assumptions changes discount rate differences assumed actual experience differences actual assumed returns plan assets gains losses except differences amortized marketrelated value amortized extent exceed 10 higher marketrelated value projected benefit obligation respective plan result approximately 17 billion related pension benefits expected amortized 2009 remaining actuarial losses amortized expected remaining service periods active participants assumed health care cost trend rates december 31 follows assumed health care cost trend rates effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects note 24 pension postretirement postemployment liabilities continued plan assets company’s asset allocation december 31 follows company’s investment strategy emphasizes equities order achieve high expected returns long run low expense low required cash contributions us pension plans target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income maintained cash flow ie cash contributions benefit payments used rebalance back targets necessary investments well diversified within three major asset categories approximately 83 us equity investments actively managed investment strategies international pension plans typically similar although asset allocations usually conservative private equity valued three month lag bristolmyers squibb company common stock represents less 1 plan assets december 31 2008 2007 contributions us pension plans 250 million 2008 238 million 2007 235 million 2006 contributions us pension plans expected approximately 550 million 2009 400 million contributed january 2009 contributions international pension plans 176 million 2008 85 million 2007 90 million 2006 contributions international plans expected range 120 million 140 million 2009 estimated future benefit payments following benefit payments mainly us pension plans reflect expected future service appropriate expected paid note 24 pension postretirement postemployment liabilities continued adoption sfas 158 company adopted sfas 158 employers’ accounting defined benefit pension postretirement plansan amendment fasb statements 87 88 106 132r year ended december 31 2006 resulting 1064 million reduction accumulated oci stockholders’ equity 767 million reduction total assets 297 million increase total liabilities impact adoption 2006 summarized follows savings plan principal defined contribution plan bristolmyers squibb savings investment program company’s contribution based employee contributions level company match company’s contributions plan 58 million 2008 60 million 2007 56 million 2006 post employment benefit plan company offers longterm disability benefits certain employees post employment liabilities 94 million 87 million december 31 2008 2007 respectively expense related benefits 26 million 2008 17 million 2007 25 million 2006 termination indemnity plans company operates certain jurisdictions primarily europe require recording statutory termination obligations recognized undiscounted basis assuming employee termination measurement date total pension liability recorded obligations 62 million december 31 2008 70 million december 31 2007 note 25 legal proceedings contingencies various lawsuits claims proceedings investigations pending involving company certain subsidiaries accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated matters involve antitrust securities patent infringement pricing sales marketing practices environmental health safety matters consumer fraud employment matters product liability insurance coverage significant litigation charges 33 million 2008 14 million 2007 302 million 2006 net revised estimates previously accrued amounts cash payments related significant litigation 210 million 2008 318 million 2007 272 million 2006 significant matters described assurance increase scope pending matters future lawsuits claims proceedings investigations material note 25 legal proceedings contingencies continued intellectual property plavix litigation plavix currently company’s largest product ranked net sales plavix patents subject number challenges us including litigation apotex inc apotex corp apotex described less significant markets product possible reasonably estimate impact lawsuits company however loss market exclusivity plavix sustained generic competition us would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity company product partner sanofi companies intend vigorously pursue enforcement patent rights plavix litigation us patent infringement litigation apotex related matters previously disclosed company’s us territory partnership alliance sanofi plaintiff pending patent infringement lawsuit instituted united states district court southern district new york district court entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v apotex suit based us patent 4847265 ‘265 patent composition matter patent discloses claims among things hydrogen sulfate salt clopidogrel medicine made available us companies plavix also previously reported district court upheld validity enforceability ‘265 patent maintaining main patent protection plavix us november 2011 district court also ruled apotex’s generic clopidogrel bisulfate product infringed ‘265 patent permanently enjoined apotex engaging activity infringes ‘265 patent including marketing generic product us patent expires apotex appealed district court’s decision december 12 2008 united states court appeals federal circuit court affirmed district court’s ruling sustaining validity ‘265 patent apotex filed petition circuit court rehearing en banc petition pending district court stayed certain antitrust counterclaims brought apotex pending final outcome appeal previously disclosed company’s us territory partnership alliance sanofi also plaintiff five additional pending patent infringement lawsuits dr reddy’s laboratories inc dr reddy’s laboratories ltd dr reddy’s teva pharmaceuticals usa inc teva cobalt pharmaceuticals inc cobalt watson pharmaceuticals inc watson laboratories inc watson sun pharmaceuticals sun lawsuits dr reddy’s teva cobalt relate ‘265 patent trial date action dr reddy’s set january 24 2008 court entered order requires dr reddy’s give company 10 business days notice intent launch patent infringement actions teva cobalt stayed pending resolution apotex litigation parties actions agreed bound outcome litigation apotex although teva cobalt appeal outcome litigation consequently july 12 2007 district court entered judgments cobalt teva permanently enjoined cobalt teva engaging activity infringes ‘265 patent expires cobalt teva filed appeal lawsuit watson filed october 2004 based us patent 6429210 ‘210 patent discloses claims particular crystalline polymorph form hydrogen sulfate salt clopidogrel marketed plavix december 2005 court permitted watson pursue declaratory judgment counterclaim respect us patent 6504030 january 2006 court approved parties’ stipulation stay case pending outcome trial apotex matter april 2007 pharmastar filed request inter partes reexamination ‘210 patent us patent trademark office granted request july 2007 thus ‘210 patent currently reexamination lawsuit sun filed july 11 2008 based infringement ‘265 patent ‘210 patent respect ‘265 patent sun agreed bound outcome apotex litigation although sun like teva cobalt appeal outcome litigation dr reddy’s teva cobalt watson sun filed anda fda exclusivity periods statutory stay periods hatchwaxman act expired accordingly final approval fda would provide company authorization distribute generic clopidogrel bisulfate product us subject various legal remedies companies may apply including injunctive relief damages previously disclosed march 2007 company served civil investigative demand ftc requesting documents information related proposed settlement company ftc currently discussions regarding potential resolution matter addition previously disclosed april 2007 company received subpoena new york state attorney general’s office antitrust bureau nyag documents related proposed settlement december 22 2008 company entered settlement agreement nyag behalf states pursuant company agreed pay 11 million resolve states’ claims note 25 legal proceedings contingencies continued possible time reasonably assess outcomes appeal apotex circuit court’s decision plavix patent litigations timing renewed generic competition plavix apotex additional generic competition plavix thirdparty generic pharmaceutical companies however apotex prevail appeal patent litigation company would expect face renewed generic competition plavix promptly thereafter loss market exclusivity plavix andor sustained generic competition would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity additionally possible time reasonably assess amount damages could recovered company apotex’s ability pay damages event company prevails apotex’s appeal district court decision additionally november 13 2008 apotex filed lawsuit new jersey superior court entitled apotex inc et al v sanofiaventis et al seeking payment 60 million plus interest related breakup proposed settlement agreement december 31 2008 defendants removed case federal district court new jersey apotex moved remand case back state court plavix litigation international plavix canada apotex inc previously disclosed sanofisynthelabo canada inc instituted prohibition action federal court canada apotex minister health response notice allegation noa apotex directed canadian patent 1336777 ‘777 patent covering clopidogrel bisulfate apotex’s noa indicated filed abbreviated new drug submission ands clopidogrel bisulfate tablets sought approval notice compliance ands expiration ‘777 patent scheduled august 12 2012 apotex’s noa alleged ‘777 patent invalid infringed march 2005 canadian federal court ottawa rejected apotex’s challenge canadian plavix patent held asserted claims novel obvious infringed granted sanofi’s application order prohibition minister health apotex order prohibition precludes approval apotex’s ands patent expires 2012 unless federal court’s decision reversed appeal apotex filed appeal december 2006 federal court appeal dismissed apotex’s appeal upheld federal court’s issuance order prohibition february 2007 apotex filed leave appeal decision supreme court canada granted july 2007 biotecanada canadian generic pharmaceutical association canada’s researchbased pharmaceutical companies granted leave intervene november 6 2008 supreme court canada dismissed apotex’s appeal federal court appeal decision upheld validity ‘777 patent order prohibition also previously disclosed april 2007 apotex filed lawsuit canada ontario superior court justice entitled apotex inc et al v sanofiaventis et al seeking payment 60 million plus interest related breakup proposed settlement agreement january 2008 court granted defendants’ motions dismiss grounds forum non conveniens subject matter jurisdiction apotex appealed decision court appeal ontario october 10 2008 court appeal dismissed lawsuit apotex appeal supreme court canada instead november 13 2008 apotex filed lawsuit new jersey superior court described plavix canada cobalt previously disclosed sanofi sanofisynthelabo canada instituted prohibition action federal court canada cobalt minister health response noa cobalt directed ‘777 patent canadian patent 2334870 ‘870 patent cobalt’s noa indicated filed ands clopidogrel bisulfate tablets sought notice compliance ands expiration ‘777 ‘870 patents cobalt alleged ‘777 patent invalid ‘870 patent invalid infringed following supreme court canada decision apotex inc v sanofisynthelabo canada inc 2008 scc 61 dismissing apotex’s appeal upholding validity ’777 patent described federal court canada granted sanofi’s application order prohibition minister health cobalt precluding approval cobalt’s ands ’777 patent expires 2012 sanofi pursue prohibition action respect ’870 patent plavix korea previously disclosed june 2006 korean intellectual property tribunal kipt invalidated claims sanofi’s korean patent 103094 including claims directed clopidogrel pharmaceutically acceptable salts clopidogrel bisulfate sanofi appealed january 2008 patent court affirmed kipt decision company sanofi filed appeal supreme court korea sanofi also commenced infringement actions generic pharmaceutical companies launched generic clopidogrel bisulfate received approval alternate salt forms clopidogrel korea possible time reasonably assess outcome lawsuits impact company note 25 legal proceedings contingencies continued plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex since changed name apotex august 2007 apotex filed application federal court australia seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 australian court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid view decision possible generic company could develop seek registration australia alternate salt form clopidogrel bisulfate hydrochloride hydrobromide taurocholate company sanofi filed notices appeal full court federal court australia appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 decision pending plavix germany previously disclosed 2007 yes pharmaceutical development services gmbh yes pharmaceutical filed application marketing authorization germany alternate salt form clopidogrel application relied data studies originally conducted sanofi bms plavix may 2008 german health authority bfarm granted marketing authorization yes pharmaceutical product data protection plavix expire july 2008 sanofi bms filed objection grant marketing authorization grounds data exclusivity rights infringed yes pharmaceutical partners sought immediate enforcement marketing authorization denied bfarm yes pharmaceutical partners filed legal motion immediate enforcement administrative court granted yes pharmaceutical’s partners hexal ratiopharm began continue market product germany sanofi bms appealed decision administrative court appeal rejected administrative appeal court third party objection bfarm dismissed bfarm sanofi bms appealed decision administrative court cologne matter currently pending yes pharmaceutical partners announced plan seek marketing authorization eu countries addition germany also company believes companies filed approvals eu clopidogrel containing product applications pending intellectual property litigation abilify previously disclosed otsuka filed patent infringement actions teva barr pharmaceuticals inc barr sandoz inc sandoz synthon laboratories inc synthon sun pharmaceuticals sun apotex relating us patent 5006528 covers aripiprazole expires october 2014 aripiprazole comarketed company otsuka us abilify lawsuits currently pending us district court district new jersey possible time reasonably assess outcome lawsuits impact company erbitux previously disclosed february 2007 abbott laboratories abbott filed suit imclone us district court district massachusetts alleging imclone’s manufacture sale erbitux infringe us patent 5665578 ‘578 patent seeking damages alleged infringement pursuant settlement sublicensing agreements executed imclone repligen corporation repligen announced september 10 2007 repligen granted imclone royaltyfree irrevocable worldwide sublicense future use patented technology including ‘578 patent owned abbott licensed repligen agreement abbott repligen september 23 2008 imclone abbott executed written settlement agreement ending litigation pending parties terms settlement agreement imclone paid abbott 175 million full final settlement claims counterclaims company’s commercial agreements imclone include provisions pursuant certain financial consequences company resulting settlement sublicensing agreements would responsibility imclone note 25 legal proceedings contingencies continued possible time assess outcome lawsuit potential impact company enfamil september 15 2008 company whollyowned subsidiary mead johnson co filed patent infringement lawsuit abbott laboratories abbott nutrition abbott us district court southern district indiana infringement us patent 7040500 companies allege abbott’s sale certain cans similac infant formula powder infringes ‘500 patent february 2009 companies entered settlement agreement resolving matter general commercial litigation clayworth litigation previously disclosed company together number pharmaceutical manufacturers named defendant action filed california state superior court oakland james clayworth et al v bristolmyers squibb company et al alleging defendants conspired fix prices pharmaceuticals agreeing charge drugs us charge outside us particularly canada asserting claims california’s cartwright act unfair competition law plaintiffs sought trebled monetary damages injunctive relief december 2006 court granted company manufacturers’ motion summary judgment based passon defense judgment entered favor defendants july 2008 judgment favor defendants affirmed california court appeals november 2008 california supreme court granted plaintiffs’ petition review possible time reasonably assess outcome lawsuit impact company event plaintiffs successful appeal rxusa wholesale litigation previously disclosed july 2006 complaint filed drug wholesaler rxusa wholesale inc us district court eastern district new york company 15 drug manufacturers five drug wholesalers two officers defendant mckesson wholesale distribution industry trade group rxusa wholesale inc v alcon labs inc et al complaint alleges violations federal new york antitrust laws well various laws plaintiff claims defendants allegedly engaged anticompetitive acts resulted exclusion plaintiff relevant market seeks 586 million damages trebling relief company together manufacturer defendants filed motion dismiss case november 2006 motion remains pending court possible time reasonably estimate outcome lawsuit impact company antitrust litigation previously disclosed 18 lawsuits comprised individual suits purported class actions filed company us district court southern district ohio western division various plaintiffs including pharmacy chains individually assignees whole part certain wholesalers various health welfare benefit plansfunds individual residents various states lawsuits allege among things purported settlement apotex patent infringement litigation violated sherman act related laws plaintiffs seeking among things permanent injunctive relief barring apotex settlement andor monetary damages putative class actions filed behalf direct purchasers consolidated caption plavix direct purchaser antitrust litigation putative class actions filed behalf indirect purchasers consolidated caption plavix indirect purchaser antitrust litigation amended complaints filed october 19 2007 defendants filed consolidated motion dismiss december 11 2007 remains pending possible time reasonably assess outcome lawsuits impact company shareholder derivative actions previously disclosed july 31 2007 certain members board directors current former officers company named two derivative actions filed new york state supreme court john frank v peter dolan et al 07602580 donald beebout v peter dolan et al 07602579 one derivative action filed federal district court steven w sampson v james robinson iii et al 07cv6890 complaints allege breaches fiduciary duties allegedly failing disclose material information relating efforts settle plavix patent infringement litigation apotex plaintiffs seek monetary damages behalf company contribution indemnification decision filed december 13 2007 state court granted motions dismiss complaints frank beebout relating certain members board directors note 25 legal proceedings contingencies continued dismiss complaints former officers decision dated august 20 2008 federal district court granted company’s motion dismiss sampson action plaintiffs appealed district court’s decision us circuit court appeals second circuit pending securities litigation bristolmyers squibb co securities litigation previously disclosed june july 2007 two putative class action complaints minneapolis firefighters’ relief assoc v bristolmyers squibb co et al 07 cv 5867 jean lai v bristolmyers squibb company et al filed us district southern district new york company’s former chief executive officer peter dolan former chief financial officer andrew bonfield complaints allege violations securities laws allegedly failing disclose material information relating efforts settle plavix patent infringement litigation apotex september 20 2007 court dismissed lai case without prejudice changed caption case bristolmyers squibb co securities litigation appointed ontario teachers’ pension plan board lead plaintiff october 15 2007 ontario teachers’ pension plan board filed amended complaint making similar allegations earlier filed complaints naming additional former officer longer naming andrew bonfield defendant decision dated august 20 2008 federal district court denied defendants’ motions dismiss company intends defend vigorously litigation possible time reasonably assess outcome lawsuits potential impact company pricing sales promotional practices litigation investigations awp litigation previously disclosed company together number pharmaceutical manufacturers defendant number private class actions well suits brought attorneys general various states actions plaintiffs allege defendants caused average wholesale prices awps products inflated thereby injuring government programs entities persons reimbursed prescription drugs based awps company remains defendant five state attorneys’ general suits pending federal state courts around country previously reported one set class actions together suit arizona attorney general consolidated us district court district massachusetts awp mdl court awp mdl certified three classes persons entities paid reimbursed seven company’s physicianadministered drugs june 2007 company settled principle claims class 1 medicare part b beneficiaries nationwide 13 million plus half costs class notice maximum payment 1 million parties finalizing terms settlement hearing scheduled preliminary approval class 1 settlement june 2007 nonjury trial awp mdl court found company liable violations massachusetts’ consumer protection laws respect certain oncology drugs certain years awarded damages amount 183 thousand plus interest class 3 private thirdparty payors instructed parties apply court’s opinion determine damages class 2 medigap insurers august 2007 court found damages 187 thousand plus interest class 2 company appealed june 2007 decision us court appeals first circuit oral arguments heard november 4 2008 september 2008 court awp mdl issued order certifying multistate classes class 2 class 3 possible time reasonably assess outcome litigation matters described potential impact company california 340b litigation previously disclosed august 2005 county santa clara filed purported class action company numerous pharmaceutical manufacturers behalf putative class cities counties california well covered entities purchased drugs pursuant 340b drug discount program july 2006 us district court northern district california dismissed lawsuit prejudice failure state claim plaintiff appealed us court appeals ninth circuit september 2008 ninth circuit reversed district court’s dismissal reinstated lawsuit possible time reasonably assess outcome lawsuit potential impact company note 25 legal proceedings contingencies continued product liability litigation company party various product liability lawsuits addition lawsuits company also faces unfiled claims involving products time company believe ongoing lawsuits likely result material effect company’s financial results operations however company also aware potential unfiled claims possible time reasonably assess outcome additional lawsuits might filed potential impact company certain affiliates sanofi defendants number individual lawsuits claiming personal injury allegedly sustained using plavix appear united states district court district new jersey nj district court nj district court ordered administrative termination cases pending resolution potentially related issues united state supreme court cases involving prescription drugs preemption defendants executed tolling agreements respect unfiled claims potential additional plaintiffs possible time reasonably asses outcomes lawsuits impact company environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including comprehensive environmental response compensation liability act cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency epa counterpart state agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable december 31 2008 company estimated share total future costs sites approximately 62 million recorded liabilities represents sum best estimates simple estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties currently expected passaic river nj remediation natural resource damages claims previously disclosed september 2003 new jersey department environmental protection njdep issued administrative enforcement directive requiring company companies perform assessment natural resource damages implement unspecified interim remedial measures restore conditions lower passaic river lpr directive named company due releases nearby bulk chemical reprocessing facility operated predecessor mckesson corp subsequently epa issued notice letters numerous parties company requesting performance remedial investigationfeasibility study rifs conditions lpr consent agreement epa 2004 group parties committed pay roughly half 20 million estimated rifs epa time epa thereafter substantially increased estimate scope cost rifs result epa agreed allow group perform remaining rifs tasks group’s estimate total costs complete rifs related tasks exceed 50 million group negotiated amended consent agreement epa conduct remaining rifs work became effective may 2007 part process company mckesson bought remaining rifs tasks separately company agreed pay approximately 110 thousand towards rifs tasks previously funded mckesson work cooperatively going forward subject later reallocation mid2007 epa announced plans seek implementation “earlyaction” remedial measures address highlycontaminated portions lpr rifs completed epa indicated expects select actions early 2009 also subgroup cooperating private parties commenced discussions federal natural resource trustee agencies concerning agreement assess natural resource damages lpr discussions expected continue mid2009 remaining parties including company mckesson declined discuss proposal least scope cost “earlyactions” sought epa thoroughly understood extent liability company may face related requirements cannot yet determined north brunswick township board education previously disclosed october 2003 company contacted counsel representing north brunswick nj board education boe regarding site waste materials er squibb sons may disposed 1940’s 1960’s fill material containing industrial waste heavy metals excess residential standards discovered note 25 legal proceedings contingencies continued expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 njdep sent company others information request letter possible waste disposal site company responded march 2004 boe township current owners school property park conducting jointly financing soil remediation work ground water investigation work plan approved njdep asked company contribute cost company actively monitoring cleanup project including costs date neither school board township asserted claim company instead company local entities negotiated agreement attempt resolve matter informal means including mediation binding allocation necessary central component agreement provision company interim funding help defray cleanup costs assure work interrupted company transmitted initial interim funding payment december 2007 parties since commenced mediation activities expected conclude mid2009 ods regulatory compliance previously disclosed epa investigating industrial commercial facilities throughout us use refrigeration equipment containing ozonedepleting substances ods enforcing compliance regulations governing prevention service repair leaks ods requirements 2004 company performed voluntary corporatewide audit facilities us puerto rico use odscontaining refrigeration equipment company submitted audit report epa november 2004 identifying potential violations ods requirements several facilities addition matters covered company’s audit report letter epa previously sent mead johnson request information regarding compliance ods requirements facility evansville indiana company responded request june 2004 result identified potential violations evansville facility company signed consent decree epa resolve potential violations discovered audit identified result epa request information evansville facility filed evansville division us district court southern district indiana july 8 2008 consent decree requires company pay civil penalty 127 thousand retire retrofit replace 17 odscontaining refrigeration units june 2009 located facilities new jersey indiana puerto rico consent decree also requires company spend least 2225 thousand supplemental environmental project consists removal two odscontaining comfort cooling devices new brunswick nj facility tie functions new centralized chiller system use ods refrigerant consent decree yet entered court new brunswick facility environmental personal injury lawsuits previously disclosed may 2008 approximately 100 lawsuits filed company superior court middlesex county nj behalf current former residents new brunswick nj live adjacent company’s new brunswick facility complaints allege various personal injuries property damage resulting soil groundwater contamination property stemming historical operations new brunswick facility complaints also allege bms failed remediate contamination new brunswick facility compliance state federal cleanup requirements new brunswick facility already undergoing environmental remediation part new jersey department environmental protection njdep approved cleanup plan addition lawsuits plaintiffs filed notice seeking relief nj environmental rights act october 2008 new jersey supreme court granted mass tort status cases transferred new jersey superior court atlantic county centralized case management purposes company filed motions dismiss lawsuits denied leave refile discovery taken others still pending court company intends defend vigorously litigation possible time reasonably assess outcome lawsuits potential impact company wage hour litigation previously disclosed putative class action complaint filed company former sales representatives beth amendola v bristolmyers squibb company et al docket 07cv6088 filed june 2007 district court plaintiff alleges company violated federal fair labor standards act among things paying overtime compensation putative class similarly situated sales employees june 5 2008 court issued decision renders case nonclass action lawsuit company settled lawsuit individual plaintiffs settlement agreement material company concludes lawsuit note 25 legal proceedings contingencies continued proceedings sec germany investigation previously disclosed october 2004 sec notified company conducting informal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents october 4 2006 sec informed company inquiry formal sec’s inquiry encompasses matters currently investigation german prosecutor munich germany company understands inquiry investigation concern potential violations foreign corrupt practices act german law respectively company cooperating sec german authorities company established accrual respect investigation german prosecutor possible time reasonably assess outcome investigations impact company convatec italy investigation previously reported italian competition authorities investigated complaint lodged hospital ferrara region italy relating allegation four medical device companies including convatec boycotted tenders 2003 2004 ferrara tenders may 2007 convatec received statement objections italian competition authorities whereby authorities alleged four medical device companies including convatec acted concerted manner regard ferrara tenders pricing discussions three regions acted way prevent competition throughout italy august 2007 competition authorities issued decision found four medical device companies infringed italian antitrust law participating ferrara tenders imposed fine convatec amount material company convatec division bms italy prior divestiture fine imposed bms italy convatec appealed decision administrative court fine imposed convatec later reduced company appealed decision high court second instance consiglio di stato hearing occurred february 17 2009 note 26 selected quarterly financial data unaudited 1 earnings per share quarters may add amounts year period computed discrete basis following table reconciles previously reported data current year quarterly data updated discontinued operations related convatec disposition see “note 6 discontinued operations assets held sale” note 26 selected quarterly financial data unaudited continued company recorded following specified expenseincome items 2008 2007 affected comparability results report independent registered public accounting firm board directors stockholders bristolmyers squibb company audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries “company” december 31 2008 2007 related consolidated statements earnings comprehensive income retained earnings cash flows three years period ended december 31 2008 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2008 2007 results operations cash flows three years period ended december 31 2008 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein discussed notes 1 9 24 consolidated financial statements company adopted financial accounting standards board interpretation “fin” 48 accounting uncertainty income taxes interpretation fasb statement 109 effective january 1 2007 statement financial accounting standards “sfas” 158 employers’ accounting defined benefit pension postretirement plans amendment fasb statements 87 88 106 132r effective december 31 2006 also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 20 2009 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp parsippany new jersey february 20 2009 item 9item 8 financial statements supplementary data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements comprehensive income retained earnings dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies basis consolidation consolidated financial statements prepared conformity united states us generally accepted accounting principles gaap include accounts bristolmyers squibb company may referred bristolmyers squibb bms company controlled majorityowned subsidiaries intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date february 19 2010 codevelopment cocommercialization license arrangements entered parties various therapeutic areas terms including upfront licensing contingent payments arrangements assessed determine whether terms give economic control entity may require consolidation entity entities consolidated controlled means majority voting interest referred variable interest entities arrangements material variable interest entities including associated codevelopment cocommercialization license arrangements determined exist reclassifications certain prior year amounts reclassified conform current year presentation mead johnson nutrition company mead johnson financial results previously reported mead johnson segment reported discontinued operations years presented use estimates preparation financial statements requires use management estimates assumptions based complex judgments considered reasonable affect reported amounts assets liabilities disclosure contingent assets contingent liabilities date financial statements reported amounts revenues expenses reporting period significant assumptions employed estimates used determining fair value intangible assets restructuring charges accruals sales rebate return accruals legal contingencies tax assets tax liabilities stockbased compensation expense pension postretirement benefits including actuarial assumptions see “note 19 pension postretirement postemployment liabilities” fair value financial instruments direct observable market quotes inventory obsolescence potential impairment longlived assets allowances bad debt well estimates used applying revenue recognition policy actual results may differ estimated results revenue recognition revenue recognized title substantially risks rewards ownership transferred customer generally time shipment however case certain sales made certain nonus businesses revenue recognized date receipt purchaser see “note 2 alliances collaborations” discussion revenue recognition related alliances revenues reduced time recognition reflect expected returns estimated based historical experience business trends provisions made time revenue recognition discounts rebates estimated sales allowances based historical experience updated changes facts circumstances appropriate provisions recognized reduction revenue limited circumstances new product extension existing line product historical experience products similar therapeutic category exists revenue deferred right return longer exists sufficient historical experience estimate sales returns developed sales rebate return accruals sales rebate return accruals established related revenue recognized resulting reduction sales establishment liability accrual recognized based estimate proportion recognized revenue result rebate return prime vendor chargeback accruals cash discounts established similar manner recognized reduction accounts receivable women infants children wic rebates related mead johnson’s participation competitive bidding process sponsored various governmental agencies nutritional products reductions trade receivables listing accrued rebates returns liabilities follows income taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made cash equivalents cash equivalents consist us treasury securities government agency securities bank deposits time deposits money market funds cash equivalents primarily highly liquid investments original maturities three months less time purchase recognized cost approximates fair value cash equivalents maintained foreign currencies approximated 500 million december 31 2009 subject currency rate risk marketable securities investments companies marketable securities classified “available sale” date purchase investments marketable securities reported fair value december 31 2009 2008 fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity declines fair value considered temporary charged earnings considered temporary reported component accumulated comprehensive income oci shareholders’ equity declines fair value determined credit related charged earnings average cost method used determining realized gains losses sale “available sale” securities included incomeexpense investments 50 less owned companies ability exercise significant influence maintained accounted using equity method accounting share net income losses equity investments included equity net income affiliates consolidated statements earnings equity investments reviewed impairment assessing decline market value investment carrying value temporary making determination factors evaluated determining whether loss value recognized includes consideration intent ability hold investments market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity justifying carrying amount investment impairment losses recognized expense decline market value deemed temporary inventory valuation inventories generally stated lower average cost market capital assets depreciation expenditures additions renewals improvements capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets follows impairment longlived assets current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows assets disposed reported lower carrying value estimated net realizable value capitalized software certain costs obtain internal use software significant systems projects capitalized amortized estimated useful life software ranges three 10 years costs obtain software projects significant expensed incurred capitalized software amortization expense 68 million 2009 84 million 2008 116 million 2007 9 million 2009 11 million 2008 12 million 2007 included discontinued operations business combinations acquired business included consolidated financial statements upon completion acquisition assets acquired liabilities assumed recognized date acquisition respective fair values excess purchase price estimated fair values net assets acquired recognized goodwill legal costs audit fees business valuation costs business acquisition costs expensed incurred goodwill acquired inprocess research development intangible assets goodwill tested impairment annually using twostep process first step identify potential impairment second step measures amount impairment loss goodwill impaired carrying amount reporting unit’s goodwill exceeds estimated fair value biopharmaceuticals segment includes four separate reporting units based geography annual goodwill impairment assessment completed first quarter 2009 subsequently monitored potential impairment remaining quarters 2009 none indicated impairment goodwill fair value inprocess research development iprd acquired business combination determined based present value research project’s projected cash flows using income approach future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weightedaverage cost capital iprd acquired january 1 2009 initially capitalized considered indefinitelived assets subject annual impairment reviews often upon occurrence certain events compounds reach commercialization assets amortized expected useful lives prior january 1 2009 amounts allocated acquired iprd expensed date acquisition patentstrademarks licenses technology capitalized software amortized straightline basis estimated useful lives ranging two 15 years intangible assets deemed impaired net carrying value exceeds estimated fair value restructuring charges recognized result actions streamline operations rationalize manufacturing facilities significant judgment used estimating impact restructuring plans including future termination benefits exit costs incurred actions take place actual results could vary estimates product liability accruals product liability including associated legal costs established undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recognized undiscounted basis probable recovery realized contingencies normal course business loss contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability tax matters may occur accruals loss contingencies recognized probable liability incurred amount loss reasonably estimated gain contingencies recognized realized derivative financial instruments derivative financial instruments used principally management interest rate foreign currency exposures held issued trading purposes derivative instruments recognized fair value changes derivative’s fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized earnings derivative designated cash flow hedge effective portions changes fair value derivative reported accumulated comprehensive income oci subsequently recognized earnings hedged item affects earnings cash flows classified consistent underlying hedged item derivatives designated assigned hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer expected occur gain loss immediately recognized designated hedge earnings nonderivative instruments also designated hedges net investments foreign affiliates nonderivative instruments mainly euro denominated longterm debt effective portion designated nonderivative instrument recognized foreign currency translation section oci ineffective portion recognized earnings shipping handling costs shipping handling costs included marketing selling administrative expenses 208 million 2009 262 million 2008 278 million 2007 68 million 2009 103 million 2008 128 million 2007 included discontinued operations advertising product promotion costs advertising product promotion costs expensed incurred foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized oci research development research development costs expensed incurred strategic alliances third parties provide rights develop manufacture market andor sell pharmaceutical products rights owned party certain research development payments alliance partners contingent upon achievement certain predetermined criteria milestone payments achieved prior regulatory approval product expensed research development milestone payments made connection regulatory approvals capitalized amortized cost products sold remaining useful life asset capitalized milestone payments tested recoverability periodically whenever events changes circumstances indicate carrying amounts may recoverable research development recognized net reimbursements connection collaboration agreements upfront licensing milestone payments received deferred amortized estimated life product income recently issued accounting standards october 2009 fasb issued asu 200913 multipledeliverable revenue arrangements consensus fasb emerging issues task force amendment asc 60525 formerly emerging issues task force eitf issue 0801 revenue arrangements multiple deliverables standard provides principles allocation consideration among multipleelements allowing flexibility identifying accounting separate deliverables arrangement eitf introduces estimated selling price method valuing elements bundled arrangement vendorspecific objective evidence thirdparty evidence selling price available significantly expands related disclosure requirements effective prospective basis revenue arrangements entered materially modified fiscal years beginning june 15 2010 alternatively adoption may retrospective basis early application permitted potential impact standard evaluated december 2009 fasb issued asu 200916 accounting transfers financial assets amendment asc 86010 formerly sfas 166 accounting transfers financial assets amendment fasb statement 140 issued june 2009 among items standard removes concept qualifying specialpurpose entity clarifies objective paragraph asc 86010404 determine whether transferor entities included transferor’s financial statements presented surrendered control transferred financial assets standard effective january 1 2010 expected impact consolidated financial statements december 2009 fasb issued asu 200917 improvements financial reporting enterprises involved variable interest entities amendment asc 81010 formerly sfas 167 amending fasb interpretation 46r issued june 2009 standard provides guidance determining whether enterprise controlling financial interest variable interest entity determination identifies primary beneficiary variable interest entity enterprise power direct activities variable interest entity significantly impacts entity’s economic performance obligation absorb losses right receive benefits entity could potentially significant variable interest entity standard also requires ongoing reassessments whether enterprise primary beneficiary eliminates quantitative approach previously required determining primary beneficiary new provisions standard effective january 1 2010 expected impact consolidated financial statements july 2009 fasb issued asc 105 formerly statement financial standards sfas 168 hierarchy generally accepted accounting principles standard contains guidance reduces us gaap hierarchy two levels one authoritative one standard effective september 15 2009 expected impact consolidated financial statements asc 82010 fair value measurements disclosures formerly sfas 157 fair value measurements respect nonfinancial assets liabilities adopted effective january 1 2009 standard defines fair value establishes framework measuring fair value expands disclosures fair value measurements standard impact consolidated financial statements asc 81010651 noncontrolling interests consolidated financial statementsan amendment arb 51 formerly sfas 160 noncontrolling interests consolidated financial statementsan amendment arb 51 adopted january 1 2009 result adoption noncontrolling interest balance 33 million previously presented 66 million receivables 33 million noncurrent liabilities presented part equity december 31 2008 also noncontrolling interest presented reconciling item consolidated statements earnings consolidated statements comprehensive income retained earnings consolidated statements cash flows asc 805 formerly sfas 141r business combinations business combinations january 1 2009 adopted standard requires assets acquired liabilities assumed noncontrolling interest acquiree acquisition date measured fair value date business combination achieved stages identifiable assets liabilities including noncontrolling interest acquiree required recognized full amount fair value also requires fair value iprd recognized indefinitelived intangible asset contingent consideration recognized acquisition date restructuring acquisitionrelated deal costs expensed incurred addition excess fair value net assets acquired purchase price subsequent changes estimated contingencies recognized earnings see “note 5 medarex inc acquisition” medarex inc medarex purchase accounting details asc 80810 collaborative arrangements formerly eitf issue 071 accounting collaborative arrangements related development commercialization intellectual property adopted january 1 2009 applied retroactively standard defines collaborative arrangement one participants actively involved exposed significant risks rewards depend ultimate commercial success endeavor revenues costs incurred third parties connection collaborative arrangements presented gross net based criteria asc 6054545 overall considerations reporting revenue gross principal vs net agent formerly eitf issue 9919 reporting revenue gross principal vs net agent accounting literature payments collaborators evaluated presented based nature arrangement terms nature entity’s business whether payments within scope accounting literature nature purpose collaborative arrangements disclosed along accounting policies classification significant financial statement amounts related arrangements activities arrangements conducted separate legal entity accounted accounting literature however required disclosure applies entire collaborative agreement standard impact consolidated financial statements note 2 alliances collaborations sanofi company agreements sanofiaventis sanofi codevelopment cocommercialization avaproavalide irbesartanirbesartanhydrochlorothiazide angiotensin ii receptor antagonist indicated treatment hypertension diabetic nephropathy plavix clopidogrel bisulfate platelet aggregation inhibitor worldwide alliance operates framework two geographic territories one americas principally us canada puerto rico latin american countries australia europe asia accordingly two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries general country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place agreements expire later respect plavix 2013 respect avaproavalide 2012 americas australia 2013 europe asia ii expiration patents exclusivity rights applicable territory company acts operating partner owns 501 majority controlling interest territory covering americas australia sanofi’s ownership interest territory 499 company consolidates country partnership results territory reflects sanofi’s share results noncontrolling interest company recognizes net sales territory comarketing countries outside territory eg germany italy irbesartan spain greece discovery royalties owed sanofi included cost products sold cash flows operating activities partnerships territory covering americas australia included operating activities within company’s consolidated statements cash flows distributions partnership profits sanofi’s funding ongoing partnership operations occur routine basis also recognized within operating activities sanofi acts operating partner owns 501 majority controlling interest territory covering europe asia company’s ownership interest territory 499 company consolidate partnership entities territory accounts equity method reflects share results equity net income affiliates company routinely receives distributions profits provides funding ongoing operations partnerships territory covering europe asia reflected cash provided operating activities company sanofi separate partnership governing copromotion irbesartan us alliance company recognizes income related amortization deferred income associated sanofi’s 350 million payment company acquisition interest irbesartan license us upon formation alliance deferred income continue amortized 2012 expected expiration license income attributed certain supply activities development optout royalties sanofi also reflected net income following summarized financial information reflected consolidated financial statements following summarized financial information interests partnerships sanofi territory covering europe asia consolidated accounted using equity method cost products sold includes discovery royalties 446 million 2009 531 million 2008 493 million 2007 paid directly sanofi expenses shared based applicable ownership percentages current assets current liabilities include approximately 10 billion 2009 11 billion 2008 12 billion 2007 related receivablespayables attributed respective years net cash distributions company sanofi well intercompany balances partnerships within territory remaining current assets current liabilities consist thirdparty trade receivables inventories amounts due company sanofi purchase inventories royalties expense reimbursements otsuka company worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote otsuka abilify aripiprazole treatment schizophrenia bipolar mania disorder major depressive disorder except japan china taiwan north korea south korea philippines thailand indonesia pakistan egypt terms agreement company purchases product otsuka performs finish manufacturing sale thirdparty customers company otsuka product currently copromoted otsuka us united kingdom uk germany france spain currently us germany france spain product invoiced thirdparty customers company behalf otsuka company recognizes alliance revenue 65 contractual share thirdparty net sales recognizes expenses related product company recognizes alliance revenue abilify shipped risks rewards ownership transferred thirdparty customers uk italy company presently exclusive distributor product company recognizes 100 net sales related cost products sold expenses company also exclusive right sell abilify countries europe americas number countries asia countries company recognizes 100 net sales related cost products sold april 2009 company otsuka agreed extend us portion commercialization manufacturing agreement expected loss product exclusivity april 2015 terms agreement company paid otsuka 400 million amortized reduction net sales extension period unamortized balance included assets beginning january 1 2010 share abilify us net sales company recognizes changed 65 following period otsuka responsible 30 us expenses related commercialization abilify beginning january 1 2013 expected loss us exclusivity april 2015 including expected six month pediatric extension company receive following percentages us annual net sales period otsuka responsible 50 us expenses related commercialization abilify addition company otsuka announced entered oncology collaboration sprycel dasatinib ixempra ixabepilone includes us japan european union eu markets oncology territory beginning 2010 2020 collaboration fees company pay otsuka annually following percentages net sales sprycel ixempra oncology territory periods otsuka contribute 20 first 175 million certain commercial operational expenses relating oncology products ii 1 commercial operational expenses relating products territory excess 175 million starting 2011 otsuka right copromote sprycel company us japan 2012 top five eu markets us extension oncology collaboration include changeofcontrol provision case acquisition company acquiring company competing product abilify new company assume abilify agreement amended oncology collaboration exists today acquiring company product competes abilify otsuka elect request acquiring company choose whether divest abilify competing product scenario abilify divested otsuka would obligated acquire company’s rights abilify agreement amended agreements also provide event generic competitor abilify january 1 2010 company option terminating abilify april 2009 amendment agreement previously amended remaining force company exercise option either company would receive payment otsuka according predetermined schedule oncology collaboration would terminate time ii oncology collaboration would continue truncated period according predetermined schedule entire eu agreement remained unchanged expire june 2014 countries company exclusive right sell abilify agreement expires later 10th anniversary first commercial sale country expiration applicable patent country addition 400 million extension payment total milestone payments made otsuka agreement december 2009 217 million 157 million expensed iprd 1999 remaining 60 million capitalized intangible assets amortized cost products sold remaining life agreement us following summarized financial information related alliance reflected consolidated financial statements january 2007 company granted otsuka exclusive rights japan develop commercialize onglyza company expects receive milestone payments based certain regulatory events well salesbased payments following regulatory approval onglyza japan retained rights copromote onglyza otsuka japan otsuka responsible development costs japan lilly company commercialization agreement eli lilly company lilly’s november 2008 acquisition imclone systems incorporated imclone codevelopment promotion erbitux cetuximab us expires erbitux september 2018 company also codevelopment promotion rights canada japan erbitux indicated use treatment patients metastatic colorectal cancer use treatment squamous cell carcinoma head neck agreement covering north america lilly receives distribution fee based flat rate 39 net sales north america included cost products sold october 2007 company imclone amended codevelopment agreement merck kgaa merck provide cocommercialization erbitux japan rights agreement expire 2032 however lilly ability terminate agreement 2018 determines commercially unreasonable lilly continue erbitux received marketing approval japan july 2008 use erbitux treating patients advanced recurrent colorectal cancer company receives 50 pretax profit merck sales erbitux japan shared equally lilly company’s share profits commercialization japan included income company amortizing 500 million previously capitalized milestone payments accounted license acquisition 2018 remaining term agreement amortization classified costs products sold upon execution initial commercialization agreement company acquired ownership interest imclone approximated 17 time transaction noted accounting investment equity method company sold shares imclone approximately 10 billion recognized pretax gain 895 million november 2008 january 2010 company lilly restructured commercialization agreement described company imclone relates necitumumab imc11f8 novel targeted cancer therapy currently phase iii development nonsmall cell lung cancer restructured companies share cost developing potentially commercializing necitumumab us canada japan lilly maintains exclusive rights necitumumab markets company fund 55 development costs studies used us fund 275 global studies company would pay 250 million lilly milestone payment upon first approval us canada company recognize sales receive 55 profits necitumumab lilly provide 50 selling effort japan company lilly share commercial costs profits evenly agreement relates necitumumab continues beyond patent expiration parties agree terminate following summarized financial information related alliance reflected consolidated financial statements gilead company gilead sciences inc gilead joint venture develop commercialize atripla efavirenz 600 mg emtricitabine 200 mg tenofovir disoproxil fumarate 300 mg oncedaily single tablet threedrug regimen combining company’s sustiva efavirenz gilead’s truvada emtricitabine tenofovir disoproxil fumarate us canada europe gilead recognizes atripla revenues us canada countries europe consolidates results joint venture operating results company recognizes revenue bulk efavirenz component atripla upon sales product thirdparty customers limited number eu countries company recognizes revenue atripla agreed purchase product gilead distribute thirdparty customers company’s revenues related atripla net sales 869 million 2009 582 million 2008 335 million 2007 company accounts participation us joint venture equity method accounting recognizes share joint venture results equity net income affiliates consolidated statements earnings company’s equity loss us joint venture gilead 10 million 2009 9 million 2008 2007 astrazeneca company maintains two worldwide codevelopment cocommercialization agreements astrazeneca plc astrazeneca first worldwide excluding japan codevelopment cocommercialization onglyza saxagliptin dppiv inhibitor saxagliptin agreement second worldwide including japan codevelopment cocommercialization dapagliflozin sodiumglucose cotransporter2 sglt2 inhibitor sglt2 agreement compounds studied treatment diabetes discovered company agreement two companies jointly develop clinical marketing strategy share commercialization expenses profits losses equally global basis excluding case saxagliptin japan company manufacture products companies cocommercialize dapagliflozin japan share profits losses equally agreement company option decline involvement cocommercialization given country instead receive royalty percentage rates company optsout cocommercialization agreements tiered based net sales july 31 2009 fda approved onglyza adjunct diet exercise improve blood sugar glycemic control adults treatment type 2 diabetes mellitus august 2009 company astrazeneca launched onglyza us october 1 2009 onglyza received marketing authorization use eu treat adults type 2 diabetes combination either metformin sulfonylurea thiazolidinedione agents alone diet exercise provide adequate glycemic control company received astrazeneca total 250 million upfront licensing milestone payments related saxagliptin agreement 50 million upfront licensing payments related sglt2 agreement december 31 2009 including 150 million received 2009 payments deferred amortized useful life products income amortization 16 million 2009 9 million 2008 7 million 2007 unamortized upfront licensing milestone payments 268 million 134 million december 31 2009 2008 respectively additional milestone payments expected received company upon successful achievement various development regulatory events well salesbased milestones saxagliptin agreement company could receive additional 100 million remaining development regulatory milestones saxagliptin met additional 300 million salesbased milestones saxagliptin met sglt2 agreement company could receive additional 350 million development regulatory milestones dapagliflozin met additional 390 million salesbased milestones dapagliflozin met agreement company astrazeneca also share development commercialization costs majority development costs initial development plans paid astrazeneca bearing costs initial agreed upon development plan dapagliflozin japan additional development costs generally shared equally net reimbursements company development costs related saxagliptin dapagliflozin netted research development 38 million 2009 139 million 2008 145 million 2007 pfizer company pfizer inc pfizer maintain worldwide codevelopment cocommercialization agreement apixaban anticoagulant discovered company studied prevention treatment broad range venous arterial thrombotic conditions company received 314 million upfront licensing payments 2007 addition company received 150 million milestone payment april 2009 commencement phase iii clinical trials prevention major adverse cardiovascular events acute coronary syndrome company amortized income 28 million 2009 20 million 2008 12 million 2007 upfront licensing milestone payments unamortized upfront licensing milestone payments 404 million 282 million december 31 2009 2008 respectively pfizer fund 60 development costs initial development plan effective january 1 2007 going forward company fund 40 net reimbursements company apixaban development costs netted research development 190 million 2009 159 million 2008 88 million 2007 company may also receive additional payments pfizer additional 630 million based achieving development regulatory milestones companies jointly develop clinical marketing strategy share commercialization expenses profits losses equally global basis manufacture product arrangement exelixis december 2008 company exelixis inc exelixis entered global codevelopment cocommercialization arrangement xl184 metvegret inhibitor oral anticancer compound license xl281 utility ras raf mutant tumors development exelixis terms arrangement company paid exelixis 195 million 2008 upon execution agreement paid additional 45 million 2009 expensed research development 2008 exelixis funds first 100 million development xl184 exelixis elects continue sharing development costs exelixis fund 35 future global development costs excluding japan share us profits losses equally option copromote us failing elections exelixis receives milestones royalties us net sales royalty percentage rates tiered based net sales company fund 100 development costs japan addition royalties nonus net sales company could pay 610 million development regulatory milestones met compounds additional 300 million salesbased milestones met compounds addition company exelixis history collaborations identify develop promote oncology targets january 2007 company exelixis entered oncology collaboration license agreement exelixis pursuing development three small molecule inds codevelopment copromotion terms agreement company paid exelixis 60 million upfront licensing fees 2007 2008 company paid exelixis 40 million ind acceptance milestones exelixis elects fund development costs copromote us parties equally share development costs profits exelixis optsout codevelopment copromotion agreement company take full development us commercial rights successful pay exelixis development regulatory milestones 380 million additional 180 million salesbased milestones well royalties royalty percentage rates tiered based net sales since july 2001 company held equity investment exelixis december 31 2009 represented less 1 outstanding shares zymogenetics january 2009 company zymogenetics inc zymogenetics entered global codevelopment arrangement us peginterferon lambda novel type 3 interferon treatment hepatitis c terms arrangement company paid zymogenetics total 200 million upfront licensing milestone payments 2009 expensed research development zymogenetics fund first 100 million global development peginterferon lambda zymogenetics fund 20 development costs us europe company fund 100 development costs rest world zymogenetics elects continue sharing development commercialization costs us zymogenetics share 40 us profits losses option copromote us failing election fund development costs us zymogenetics receive royalties us net sales royalty percentage rates tiered based net sales company pay zymogenetics royalties nonus net sales addition company could pay 335 million hepatitis c development regulatory milestones met 287 million development regulatory milestones potential indications met additional 285 million salesbased milestones met alder november 2009 company alder biopharmaceuticals inc alder entered global agreement development commercialization ald518 novel biologic completed phase iia development treatment rheumatoid arthritis terms arrangement alder granted company worldwide exclusive rights develop commercialize ald518 potential indications except cancer alder retains rights granted company option codevelop exclusive rights cocommercialize outside united states company paid alder 85 million upfront licensing payment 2009 expensed research development addition company could pay 764 million developmentbased regulatorybased milestone payments potential salesbased milestones certain circumstances may exceed 200 million royalties net sales royalty percentage rates tiered based net sales company chooses option pursue cancer indications company could pay additional 185 million developmentbased regulatorybased milestone payments aforementioned salesbased milestones royalties net sales royalty percentage rates tiered based net sales note 3 business segment information segment information presented consistent financial information regularly reviewed chief operating decision maker purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods splitoff mead johnson divestitures convatec medical imaging businesses past two years single operating segment remains biopharmaceuticals segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization global supply chain organization utilized responsible development delivery products market products distributed sold four regional organizations serve united states europe middle east africa western hemisphere countries emerging markets pacific business also supported global corporate staff functions products sold principally wholesalers lesser extent directly distributors retailers hospitals clinics government agencies pharmacies gross sales three largest pharmaceutical wholesalers us percentage total gross sales follows selected geographic area information follows net sales key products follows capital expenditures depreciation within biopharmaceuticals segment follows biopharmaceuticals segment results exclude impact significant items indicative current operating performance ongoing results include amongst others charges related implementation productivity transformation initiative pti gains losses purchase sale product lines business assets upfront licensing milestone payments segment results also exclude earnings attributed sanofi noncontrolling interest reconciliation earnings continuing operations income taxes follows note 4 restructuring productivity transformation initiative designed fundamentally change way business run meet challenges changing business environment take advantage diverse opportunities marketplace transformation nextgeneration biopharmaceutical company continues initiatives pti implemented resulting incurrence approximately 13 billion costs recognition 522 million gains related sale mature product lines businesses company target create 25 billion annual productivity cost savings cost avoidance 2012 approximately 90 expected realized end 2010 subsequent pti strategic process designed achieve culture continuous improvement enhance efficiency effectiveness competitiveness continue improve cost base implemented following pti charges recognized accelerated depreciation asset impairment charges shutdown costs included cost products sold primarily relate rationalization manufacturing network biopharmaceuticals segment assets continue depreciated facility closures complete remaining costs pti primarily attributed process standardization activities recognized incurred restructuring charges included termination benefits workforce reductions manufacturing selling administrative research development personnel across geographic regions approximately 1350 2009 2370 2008 2800 2007 following table presents detail expenses incurred connection restructuring activities following table represents activity restructuring liabilities note 5 medarex inc acquisition september 1 2009 company acquired 100 remaining outstanding shares medarex already owned outstanding stock options restricted stock units upon completion tender offers expired august 27 2009 september 1 2009 total purchase price 23 billion allocated estimated fair value assets acquired liabilities assumed presented acquisition costs 11 million classified incomeexpense medarex biopharmaceutical company focused discovery development commercialization fully human antibodybased therapeutic products address major unmet healthcare needs areas oncology inflammation autoimmune disorders infectious diseases result acquisition full rights ipilimumab currently phase iii development received increases biologics development pipeline creating balanced portfolio small molecules biologics balanced portfolio associated biopharma model potential optimize existing ipilimumab programs drives significant amount goodwill arising acquisition goodwill along iprd intangible assets valued acquisition nondeductible tax purposes assigned biopharmaceutical segment following purchase price allocation adjusted september 30 2009 quarterly report filed form 10q reflect final purchase price valuation impact adjustments immaterial prior quarters’ earnings 1 income approximately 21 million recognized remeasurement fair value equity interest medarex held acquisition date 2 includes 51 ownership interest genmab 64 million 187 ownership celldex therapeutics inc 17 million subsequently sold december 31 2009 loss 33 million 3 includes approximately 10 billion related ipilimumab 4 amortized 10 years 5 amortized 13 years results medarex operations included accompanying consolidated financial statements august 27 2009 pro forma supplemental financial information provided impact acquisition material operating results note 6 mead johnson nutrition company initial public offering february 2009 mead johnson completed initial public offering ipo sold 345 million shares class common stock 24 per share net proceeds 782 million deducting 46 million underwriting discounts commissions offering expenses allocated noncontrolling interest capital excess par value stock upon completion ipo 423 million shares mead johnson class common stock 1277 million shares mead johnson class b common stock held company representing 831 interest mead johnson 975 combined voting power outstanding common stock rights holders shares class common stock class b common stock identical except regard voting conversion share class common stock entitled one vote per share class b common stock entitled ten votes per share convertible time election holder one share class common stock class b common stock automatically converted shares class common stock various agreements related separation mead johnson entered including separation agreement transitional services agreement tax matters agreement registration rights agreement employee matters agreement note 7 discontinued operations mead johnson nutrition company splitoff remaining interest mead johnson completed december 23 2009 splitoff effected exchange offer previously held 170 million shares mead johnson converting class b common stock class common stock 269 million outstanding shares company’s stock resulting pretax gain approximately 73 billion 72 billion net taxes shares received connection exchange valued using closing price december 23 2009 2570 reflected treasury stock gain exchange determined using sum fair value shares received plus net deficit mead johnson attributable company less taxes direct expenses related transaction including tax reserve 244 million established convatec disposition august 2008 divestiture convatec business cidron healthcare limited affiliate nordic capital fund vii avista capital partners lp avista completed gross purchase price approximately 41 billion resulting pretax gain 34 billion 20 billion net taxes medical imaging disposition january 2008 divestiture bristolmyers squibb medical imaging medical imaging avista completed gross purchase price approximately 525 million resulting pretax gain 25 million aftertax loss 43 million transitional relationships discontinued operations subsequent respective dispositions cash flows income associated mead johnson convatec medical imaging businesses continued generated relating activities transitional nature generally result agreements intended facilitate orderly transfer business operations agreements include among others services accounting customer service distribution manufacturing generally expire later 18 months date divestiture income generated transitional activities included incomeexpense expected material future results operations cash flows activities related convatec medical imaging businesses substantially complete december 31 2009 following summarized financial information related mead johnson convatec medical imaging businesses segregated continuing operations reported discontinued operations date disposition note 8 earnings per share computations basic diluted earnings per common share eps follows note 9 incomeexpense include note 10 income taxes components earnings continuing operations income taxes categorized based location taxing authorities follows provisionbenefit income taxes attributable continuing operations consisted effective tax rate reconciliation effective tax rate us statutory federal income tax rate decrease 2009 effective tax rate 2008 primarily due unfavorable 2008 tax impact related iprd ars impairment charges lesser extent higher benefit 2009 related certain contingent matters increase 2008 effective tax rate 2007 primarily due higher pretax income us including gain sale imclone shares earnings mix high tax jurisdictions 2008 partially offsetting factors lower nondeductible charges 2008 iprd lower ars impairment charges little tax benefit tax rate 2008 favorably impacted benefit 91 million tax related final settlement 20022003 audit internal revenue service 2007 tax rate unfavorably impacted impairment investment certain ars little tax benefit nondeductible writeoff iprd related acquisition adnexus therapeutics inc adnexus partially offset tax benefit 105 million first quarter 2007 due favorable resolution certain tax matters internal revenue service related deductibility litigation settlement expenses us foreign tax credits claimed deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows valuation allowance deferred tax assets established likely deferred tax assets realized december 31 2009 valuation allowance 1791 million established following items 1420 million foreign net operating loss tax credit carryforwards 357 million state deferred tax assets including net operating loss tax credit carryforwards 8 million us federal net operating loss carryforwards 6 million related impaired financial instruments net operating loss carryforward acquired result acquisitions medarex kosan biosciences inc kosan adnexus subject limitations section 382 internal revenue code net operating loss carryforward expires varying amounts beginning 2020 foreign tax credit research development tax credit carryforwards expire varying amounts beginning 2014 realization foreign tax credit research development tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured management believes likely deferred tax assets realized income tax payments 885 million 2009 636 million 2008 994 million 2007 2008 income tax payments net 432 million cash refund related foreign tax credit carryback claim 2000 2001 current tax benefit realized upon exercise stock options credited capital excess par value stock 5 million 2009 2007 december 31 2009 taxes provided approximately 165 billion undistributed earnings foreign subsidiaries undistributed earnings invested expected permanently invested offshore future earnings repatriated us earnings determined remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided president obama’s administration proposed reforms international tax laws adopted may increase taxes reduce results operations cash flows business conducted various countries throughout world subject tax numerous jurisdictions result significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported may require several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credits deductibility certain expenses liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation uncertain income tax positions standard adopted january 1 2007 resulting recognition 27 million previously unrecognized tax benefits accounted increase opening balance retained earnings standard requires following expanded disclosure end annual reporting period including tabular reconciliation unrecognized tax benefits certain information regarding interest penalty amounts reflected part uncertain tax positions uncertain tax benefits december 31 2009 reduce deferred tax assets extent uncertainty directly related asset otherwise recognized either current noncurrent income taxes payable balance unrecognized tax benefits includes 116 million uncertain tax positions january 1 2009 4 million december 31 2009 ultimate deductibility highly certain uncertainty timing deductibility impact deferred tax accounting interest penalties applicable disallowance shorter deductibility period would affect annual effective tax rate would accelerate payment cash taxing authority utilization tax attributes earlier period unrecognized tax benefits recognized would impact effective tax rate 675 million january 1 2009 964 million december 31 2009 gross additions tax positions related current year include 287 million tax reserves related transfer various international units mead johnson prior ipo splitoff transaction recognized discontinued operations gross reductions tax positions related prior years 2009 include 10 million liabilities related mead johnson interest penalties related unrecognized tax benefits classified income tax expense company currently examination number tax authorities including major tax jurisdictions listed table proposed adjustments tax issues transfer pricing certain tax credits deductibility certain expenses company estimates reasonably possible total amount unrecognized tax benefits december 31 2009 decrease range approximately 65 million 95 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits primarily settlement related involve payment additional taxes adjustment certain deferred taxes andor recognition tax benefits company also anticipates reasonably possible new issues raised tax authorities may require increases balance unrecognized tax benefits however estimate increases cannot reasonably made time company believes adequately provided open tax years tax jurisdiction income tax returns filed us federal jurisdiction various state foreign jurisdictions exceptions company subject us federal state local nonus income tax examinations tax authorities following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited us 2004 2009 canada 2001 2009 france 2006 2009 germany 1999 2009 italy 2004 2009 mexico 2003 2009 january 26 2010 irs announced proposal effective would require many companies disclose uncertain tax provisions annual income tax return filings proposed requirement would apply certain business taxpayers financial statement prepared schedule form would included applicable tax returns annually result splitoff mead johnson filed part company’s us consolidated income tax return various state combined tax returns splitoff date 2009 company entered tax sharing agreement mead johnson payments made tax sharing agreement represent either mead johnson’s share tax liability reimbursement utilization certain tax attributes company agreed indemnify mead johnson outstanding tax liabilities audit exposures income sales use property taxes existed periods prior ipo note 11 fair value measurement fair value financial assets liabilities classified one following categories level 1 quoted prices unadjusted active markets accessible measurement date identical assets liabilities fair value hierarchy gives highest priority level 1 inputs level 2 observable prices based inputs quoted active markets corroborated market data level 3 unobservable inputs used little market data available fair value hierarchy gives lowest priority level 3 inputs majority ars rated ‘a’ standard poor’s primarily represent interests insurance securitizations valuation models utilized rely exclusively level 3 inputs due lack observable market quotes ars portfolio inputs based expected cash flow streams collateral values including assessments counterparty credit quality default risk underlying security discount rates overall capital market liquidity fair value ars determined using internally developed valuations based part indicative bids received underlying assets securities evidence fair value investments expected sold recovery amortized cost basis decline fair value considered otherthantemporary frs longterm debt securities coupons reset periodically benchmark interest rate 2009 141 million principal par frs received known reported defaults frs underlying assets frs primarily consist consumer loans auto loans collateralized loan obligations monoline securities assetbacked securities corporate bonds loans due current lack active market frs general lack transparency underlying assets qualitative analysis relied upon value frs including discussion brokers fund managers default risk underlying security overall capital market liquidity level 3 inputs declines fair value reported temporary loss comprehensive income intentions sell investments likely investments required sold recovery amortized cost basis financial assets liabilities utilize level 1 level 2 inputs direct indirect observable price quotes utilized including libor euribor yield curves foreign exchange forward prices nymex futures pricing common stock price quotes summary valuation techniques level 1 level 2 financial assets liabilities • us government agency securities us government agency money market funds valued quoted market price observable pricing sources reporting date • equity securities valued using quoted stock prices new york stock exchange national association securities dealers automated quotation system reporting date • prime money market funds net asset value 1 per share • corporate debt securities commercial paper valued quoted market price observable pricing sources reporting date • fdic insured debt securities valued quoted market price observable pricing sources reporting date • us treasury money market funds valued quoted market price observable pricing sources reporting date • foreign currency forward derivative assets liabilities valued using quoted forward foreign exchange prices reporting date counterparties contracts highlyrated financial institutions none experienced significant downgrades 2009 valuations may fluctuate considerably periodtoperiod due volatility underlying foreign currencies shortterm maturities foreign currency forward derivatives 17 months less therefore counterparty credit risk significant • interest rate swap derivative assets liabilities valued using libor euribor yield curves less credit valuation adjustments reporting date counterparties contracts highlyrated financial institutions none experienced significant downgrades 2009 valuations may fluctuate considerably periodtoperiod due volatility underlying interest rates driven market conditions duration swap addition credit valuation adjustment volatility may significant impact valuation interest rate swaps due changes counterparty credit ratings credit default swap spreads note 12 cash equivalents marketable securities cash equivalents 7683 million december 31 2009 7976 million december 31 2008 consisted prime money market funds government agency securities treasury securities cash equivalents primarily consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value following table summarizes current noncurrent marketable securities accounted “available sale” debt securities equity securities 1 frs unrealized loss position 12 months december 31 2009 following table summarizes activity financial assets utilizing level 3 fair value measurements contractual maturities “available sale” debt securities december 31 2009 follows note 13 receivables include receivables netted deferred income related alliance partners recognition income result alliance partner receivables deferred income reduced 730 million 566 million december 31 2009 2008 respectively additional information regarding alliance partners see “note 2 alliances collaborations” nonus receivables sold nonrecourse basis 660 million 350 million 2009 2008 respectively aggregate receivables due three pharmaceutical wholesalers us represented 47 35 total trade receivables december 31 2009 2008 respectively note 14 inventories include inventories expected remain onhand beyond one year 249 million 185 million december 31 2009 2008 respectively included noncurrent assets amounts include capitalized costs related production products programs phase iii development subject final us food drug administration approval 49 million 47 million december 31 2009 2008 respectively probability future sales well status regulatory approval process considered assessing recoverability costs note 15 property plant equipment property plant equipment includes depreciation expense 469 million 2009 562 million 2008 542 million 2007 51 million 2009 50 million 2008 69 million 2007 included discontinued operations capitalized interest 13 million 2009 23 million 2008 27 million 2007 note 16 goodwill intangible assets changes carrying amount goodwill segment follows intangible assets include changes intangible assets follows amortization expense included discontinued operations 9 million 2009 12 million 2008 79 million 2007 expected future amortization expense december 31 2009 finitelived intangible assets 258 million 2010 250 million 2011 215 million 2012 134 million 2013 117 million 2014 416 million thereafter note 17 accrued expenses accrued expenses include note 18 equity changes common shares treasury stock capital excess par value stock follows accumulated balances related component comprehensive incomeloss oci net taxes follows reconciliation noncontrolling interest follows noncontrolling interest primarily related partnerships sanofi territory covering americas net sales plavix net earnings attributable noncontrolling interest presented net taxes 589 million 2009 472 million 2008 369 million 2007 consolidated statements earnings corresponding increase provision income taxes distribution partnership profits sanofi’s funding ongoing partnership operations occur routine basis included within operating activities consolidated statements cash flows activity includes pretax income distributions related partnerships net earnings noncontrolling interest included discontinued operations 69 million 2009 7 million 2008 2007 treasury stock recognized cost reacquire shares treasury shares acquired mead johnson splitoff recognized fair value stock splitoff date shares issued treasury recognized utilizing firstin firstout method note 19 pension postretirement postemployment liabilities company certain subsidiaries defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan us represents approximately 70 consolidated pension plan assets obligations funding policy contribute amounts provide current service fund past service liability plan benefits based primarily participant’s years credited service compensation plan assets consist principally equity fixedincome securities comprehensive medical group life benefits provided substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside us net periodic benefit cost defined benefit pension postretirement benefit plans includes us retirement income plan several plans amended june 2009 amendments eliminate crediting future benefits relating service effective december 31 2009 salary increases continue considered additional fiveyear period determining benefit obligation related prior service plan amendments accounted curtailment result applicable plan assets obligations remeasured remeasurement resulted 455 million reduction accumulated oci 295 million net taxes corresponding decrease unfunded status plan due curtailment updated plan asset valuations change discount rate 70 75 curtailment charge 25 million also recognized incomeexpense second quarter 2009 remaining amount unrecognized prior service cost addition participants reclassified inactive benefit plan purposes actuarial gains losses amortized expected weightedaverage remaining lives plan participants 32 years connection plan amendment contributions principal defined contribution plans us puerto rico expected increase effective january 1 2010 net impact actions expected reduce future retiree benefit costs although future costs continue subject market conditions factors including actual expected plan asset performance interest rate fluctuations lumpsum benefit payments us retirement income plan several plans remeasured upon transfer certain plan assets related obligations new mead johnson plans active mead johnson participants february 2009 remeasurement resulted 170 million reduction accumulated oci 110 million net taxes first quarter 2009 corresponding decrease unfunded status plan due updated plan asset valuations change discount rate 65 70 net actuarial loss prior service cost expected amortized accumulated oci net periodic benefit cost 2010 changes defined benefit postretirement benefit plan obligations assets funded status amounts recognized consolidated balance sheets follows table includes activity related mead johnson pension postretirement plans part separation activities certain defined benefit pension postretirement plan assets liabilities transferred mead johnson defined benefit pension postretirement plans related plan assets liabilities transferring participants allocated based assumptions set forth employee matters agreement reduction accumulated postretirement benefit obligation impact medicare prescription drug improvement modernization act 2003 86 million 2009 96 million 2008 98 million 2007 accumulated benefit obligation defined benefit pension plans 5908 million 5418 million december 31 2009 2008 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine benefit obligations december 31 follows weightedaverage actuarial assumptions used determine net periodic benefit cost years ended december 31 follows yield high quality corporate bonds matches duration benefit obligations used determining discount rate citigroup pension discount curve used developing discount rate us plans several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class historical longterm actual annualized returns us pension plans follows expected return plan assets determined using expected rate return calculated value assets referred “marketrelated value” marketrelated value exceeds fair value plan assets 222 million 11 billion december 31 2009 2008 respectively change primarily driven asset gains 2009 offset additional recognition significant losses incurred plan assets 2008 differences assumed actual returns amortized marketrelated value straightline basis threeyear period gains losses resulted changes actuarial assumptions changes discount rate differences assumed actual experience differences actual assumed returns plan assets gains losses except differences amortized marketrelated value amortized extent exceed 10 higher marketrelated value projected benefit obligation respective plan result approximately 900 million related pension benefits expected amortized 2010 majority remaining actuarial losses amortized life expectancy plans’ participants us plans expected remaining service periods plans assumed healthcare cost trend rates december 31 follows assumed healthcare cost trend rates effect amounts reported healthcare plans onepercentagepoint change assumed healthcare cost trend rates would following effects plan assets fair value pension postretirement plan assets asset category december 31 2009 follows equity securities classified level 1 include publicly traded equities traded national securities exchange valued last reported sales price reporting date sale day last reported bid price publicly traded equities traded overthecounter market valued last reported bid price reporting date securities classified level 2 either valued upon offers trade brokers dealers valued net asset value shares held year end based fair value underlying investments level 3 equity securities valued estimated fair value estimated fair value based fair value underlying investment values cost plus minus accumulated earnings losses approximates fair value fixed income securities classified level 1 valued quoted market price observable pricing sources reporting date securities classified level 2 either valued quoted market prices observable pricing sources reporting date valued based upon comparable securities similar yield credit ratings us treasury bills securities classified level 1 valued quoted market price observable pricing sources reporting date us government agency securities classified level 1 valued quoted market price observable pricing sources reporting date government backed index linked government securities classified level 2 valued quoted market price broker dealer quotations transparent pricing sources reporting date corporate debt securities classified level 2 either valued quoted market prices observable pricing sources reporting date valued based upon comparable securities similar yields credit ratings securities classified level 3 valued estimated bids brokers thirdparty vendor sources utilize expected cash flow streams data including counterparty credit quality default risk discount rates overall capital market liquidity shortterm investments securities classified level 2 valued net asset value shares held year end based fair value underlying investments mortgage asset backed securities classified level 2 either valued quoted market prices observable pricing sources reporting date valued based upon comparable securities similar yields credit ratings purpose underlying loan securities classified level 3 valued estimated bids brokers thirdparty vendor sources utilize expected cash flow streams uncorroborated data including counterparty credit quality default risk discount rates overall capital market liquidity hedge funds securities classified level 2 valued net asset value shares held year end based fair value underlying investments real estate interests classified level 2 either valued quoted market prices observable pricing sources reporting date valued based upon comparable investments interests classified level 3 carried estimated fair value estimated fair value based fair value underlying investment values cost plus minus accumulated earnings losses approximates fair value venture capital limited partnerships interests classified level 3 carried estimated fair value estimated fair value based fair value underlying investment values cost plus minus accumulated earnings losses approximates fair value insurance contracts interests classified level 3 carried contract value approximates estimated fair value estimated fair value based fair value underlying investment insurance company insurance contracts held certain nonus pension plans cash equivalents securities classified level 1 highly liquid investments original maturities three months less time purchase recognized cost approximates fair value following summarizes activity financial assets utilizing level 3 fair value measurements investment strategy emphasizes equities order achieve higher expected returns lower expenses required cash contributions longterm target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income maintained us pension plans cash contributions benefit payments used rebalance back targets necessary investments well diversified within three major asset categories approximately 81 us pension plans equity investments actively managed investment strategies international pension plans typically similar although asset allocations usually conservative private equity typically valued three month lag bristolmyers squibb company common stock represents less 1 plan assets december 31 2009 2008 contributions us pension plans 656 million 2009 including 27 million mead johnson 250 million 2008 238 million 2007 contributions us pension plans expected approximate 330 million 2010 300 million contributed january 2010 contributions international pension plans 133 million 2009 176 million 2008 85 million 2007 contributions international plans expected range 85 million 100 million 2010 estimated future benefit payments savings plan principal defined contribution plan bristolmyers squibb savings investment program contribution based employee contributions level company match contributions plan 50 million 2009 58 million 2008 60 million 2007 discussed us retirement income plan several plans amended certain enhancements made defined contribution plan allowing increased matching additional contributions defined contribution plans expected approximately 150 million 2010 post employment benefit plan longterm disability benefits offered certain employees post employment liabilities 93 million 94 million december 31 2009 2008 respectively expense related benefits 21 million 2009 26 million 2008 17 million 2007 termination indemnity plans company certain statutory termination obligations europe obligations recognized undiscounted basis assuming employee termination measurement date liability recognized obligations 49 million december 31 2009 55 million december 31 2008 64 million december 31 2007 vested benefit obligations recognized assuming employee separation measurement date note 20 employee stock benefit plans employee stock plans may 1 2007 shareholders approved 2007 stock award incentive plan 2007 plan 2007 plan replaced 2002 stock incentive plan 2002 plan expired may 31 2007 plan provides 42 million new shares common stock reserved delivery participants plus shares remaining available new grants 2002 plan shares recaptured outstanding awards 2002 plan shares actually delivered participants connection award restrictions lapsed reduce number shares reserved shares tendered prior year pay purchase price options shares previously utilized satisfy withholding tax obligations upon exercise continue available reserved shares common stock reserved issuance pursuant stock plans options conversions preferred stock 346 million 350 million december 31 2009 2008 respectively shares available granted active plans 92 million 100 million december 31 2009 2008 respectively adjusted combination plans 2007 plan 2002 plan executive officers key employees may granted options purchase common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years generally shares stock option exercise issued treasury stock additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price stock appreciation rights 139 thousand outstanding accounted liability awards december 31 2009 2007 plan 2002 plan provide granting common stock key employees subject restrictions continuous employment restrictions generally expire four year period date grant compensation expense recognized restricted period restricted stock units granted instead restricted stock since 2007 stock unit right receive stock end specified vesting period voting rights 2007 plan 2002 plan also incorporated longterm performance awards three year cycle delivered form target number performance share units number shares ultimately issued calculated based actual performance compared earnings targets performance criteria established beginning performance period awards annual goals maximum payout 165 since 2007 threshold targets met performance period payment made plan annual period stockbased compensation expense follows alternative method determine pool excess tax benefits elected stock options stock option activities follows december 31 2009 unrecognized compensation cost related stock options 95 million expected recognized weightedaverage period 23 years additional information related stock option grants exercises 2007 plan 2002 plan summarized follows following table summarizes information concerning stock compensation plans currently outstanding exercisable options following table summarizes significant ranges outstanding exercisable options december 31 2009 amounts millions except per share data aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 2525 december 31 2009 would received option holders option holders exercised options date 26 million inthemoney options exercisable december 31 2009 99 million outstanding options exercisable weightedaverage exercise price 3916 december 31 2008 fair value stock options estimated grant date using blackscholes option pricing model stock options service condition monte carlo simulation model options service market conditions following weightedaverage assumptions used valuation expected volatility assumption required blackscholes model derived calculating 10year historical volatility weighting equally derived implied volatility blended historical implied volatility approach expected volatility believed representative future stock price trends using historical volatility riskfree interest rate assumption based upon us treasury yield curve effect grant date dividend yield assumption based historical expected dividend payouts expected life stock options represents weightedaverage period stock options remain outstanding derived output latticebinomial model expected life impacted underlying assumptions calibration model assumes employees’ exercise behavior function option’s remaining vested life extent option inthemoney model estimates probability exercise function two variables based historical exercises cancellations prior option grants made stockbased compensation expense based awards ultimately expected vest forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates adnexus acquired october 19 2007 connection acquisition 24 million shares adnexus incentive stock options isos assumed replaced 06 million shares company isos converted options retained original vesting schedules including vesting commencement date well expiration date blackscholes model used determine expected term individual isos valuations result weightedaverage expected term 52 years weightedaverage fair value october 19 2007 2034 restricted stock awards restricted stock units december 31 2009 unrecognized compensation cost related nonvested restricted stock 159 million expected recognized weightedaverage period 26 years fair value nonvested shares restricted stock awards units determined based closing trading price company’s common stock grant date longterm performance awards fair value 2006 2008 performance awards estimated date grant using monte carlo simulation model due market condition model utilizes multiple input variables determine probability satisfying market condition stipulated grant calculates fair value longterm performance awards fair value 2007 2009 2008 2010 2009 2011 performance awards based closing trading price common stock grant date awards contain market condition fair value awards granted 2007 2008 2009 discounted using riskfree interest rate date grant participate dividends valuation model 2006 2008 performance award used following assumptions weightedaverage expected volatility based three year historical volatility levels company’s common stock expected dividend yield based historical dividend payments riskfree interest rate reflects yield five year zero coupon us treasury bonds based performance shares’ contractual term fair value performance awards amortized performance period award performance share units granted 14 million 2009 12 million 2008 assuming 100 payout share units outstanding 25 million 16 million december 31 2009 2008 respectively 568 thousand shares issued 2009 december 31 2009 unrecognized compensation cost related performance share unit plan 20 million expected recognized weightedaverage period 12 years note 21 shortterm borrowings longterm debt shortterm borrowings include part medarex acquisition medarex’s outstanding 225 convertible senior notes due may 15 2011 assumed notes adjusted right receive 1167 cash time 1000 principal amount outstanding equivalent 16 per share time prior maturity longterm debt includes portion floating rate convertible senior debentures due 2023 redeemed holders par september 15 2013 2018 fundamental change ownership occurs debentures callable par time company debentures conversion price 4083 equal conversion rate 244922 shares 1000 principal amount subject certain antidilutive adjustments maximum conversion rate 387597 shares 1000 principal amount debentures pay interest quarterly annual rate equal three month libor reset quarterly minus 050 yield never less zero february 2009 mead johnson company borrower mead johnson guarantor indirect majorityowned subsidiaries entered three year syndicated revolving credit facility agreement fourth quarter 2009 mead johnson borrowed 200 million revolving credit facility issued various notes totaling 15 billion proceeds used repay certain intercompany debt prior splitoff 2009 117 million notional debt repurchased 53 million notional amount interest rate swaps related debt repurchases terminated following table summarizes activity 2009 several fixedtofloating interest rate swaps executed convert 797 million 545 notes due 2018 525 notes due 2013 fixed rate debt variable rate debt 2009 1061 million notional amount fixedtofloating interest rate swap agreements terminated proceeds 187 million basis adjustment debt equal proceeds swap termination recognized reduction interest expense remaining life underlying debt discussion interest rate swaps see “note 22 financial instruments” january 2010 fixedtofloating interest rate swaps executed convert 332 million 680 debentures due 2026 147 million 715 debentures due 2023 fixed rate debt variable rate debt swaps qualified fair value hedge debt instrument interest payments including payments interest rate swaps 397 million 2009 539 million 2008 610 million 2007 cash receipts interest rate swaps 191 million 2009 236 million 2008 210 million 2007 excluded interest payments principal value longterm debt obligations 5622 million december 31 2009 650 million due 2013 remaining 4972 million due later 2013 fair value longterm debt 6258 million 6537 million december 31 2009 2008 respectively estimated based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments 20 billion five year revolving credit facility syndicate lenders maturing december 2011 maintained facility extendable consent lenders contains customary terms conditions including financial covenant whereby ratio consolidated net debt consolidated capital cannot exceed 50 end quarter company compliance covenant since inception facility borrowings outstanding facility december 31 2009 2008 december 31 2009 178 million financial guarantees provided form standby letters credit performance bonds standby letters credit insurance companies support thirdparty liability programs performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions significant majority outstanding financial guarantees expire within year expected funded note 22 financial instruments exposure market risk due changes currency exchange rates interest rates result certain derivative financial instruments used available costeffective basis hedge underlying economic exposure primary net foreign currency translation exposures euro japanese yen canadian dollar british pound australian dollar mexican peso chinese renminbi foreign currency forward contracts used manage exposures instruments generally qualify cash flow hedge accounting treatment managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative instruments also used part interest rate risk management strategy derivative instruments used principally comprised fixedtofloating rate interest swaps generally qualify fairvalue hedge accounting treatment addition financial instruments including derivatives subject counterparty credit risk considered part overall fair value measurement derivative financial instruments used trading purposes cash flow hedges foreign currency forward contracts foreign currency forward contracts utilized hedge forecasted intercompany transactions certain foreign currencies contracts designated foreign currency cash flow hedges appropriate notional fair value amounts contracts 1511 million 10 million net liabilities 1151 million 49 million net assets december 31 2009 2008 respectively majority contracts qualify hedges probable forecasted cash flows effective portion changes fair value temporarily reported accumulated oci recognized earnings hedged item affects earnings following table summarizes outstanding foreign currency forward contracts december 31 2009 fair value contracts based yearend currency rates viewed relation fair value underlying hedged transactions overall reduction exposure adverse fluctuations foreign currency exchange rates deferred losses foreign currency forward contracts qualifying cash flow hedge accounting 16 million 11 million net taxes december 31 2009 expected reclassified earnings within next 17 months effectiveness assessed inception hedge quarterly basis assessments determine whether derivatives designated qualifying hedges continue highly effective offsetting changes cash flows hedged items ineffective portion change fair value included current period earnings impact hedge ineffectiveness earnings significant 2009 2008 2007 cash flow hedge accounting discontinued forecasted transaction longer probable occurring originally forecasted date 60 days thereafter hedge longer effective discontinued foreign exchange hedges resulted pretax loss 6 million 2009 reported incomeexpense nonqualifying foreign currency forward contracts foreign currency forward contracts also utilized hedge foreign currencydenominated monetary assets liabilities primary objective contracts protect us dollar value foreign currencydenominated monetary assets liabilities effects volatility foreign exchange rates might occur prior receipt settlement us dollars contracts designated hedges adjusted fair value incomeexpense occur substantially offset change fair value underlying foreign currency denominated monetary asset liability notional fair value amounts contracts significant december 31 2009 2008 furthermore foreign currency forward contracts also used offset exposure certain assets liabilities earnings denominated certain foreign currencies contracts designated hedges therefore changes fair value recognized incomeexpense occur contracts nature held december 31 2009 first quarter 2010 foreign currency forward contracts used hedge anticipated earnings denominated australian canadian dollars contracts designated qualifying hedges therefore gains losses derivatives recognized incomeexpense occur hedge net investment nonus dollar borrowings primarily 500 million notes due 2016 500 million notes due 2021 14 billion total used hedge foreign currency exposures net investment certain foreign affiliates borrowings designated hedge net investment effective portion foreign exchange gains losses recognized foreign currency translation cta component accumulated oci including 169 million related translation notes december 31 2009 ineffective portion notes recognized 6 million loss 2009 9 million gain 2008 fair value hedges interest rate contracts derivative instruments used part interest rate risk management strategy principally fixedtofloating interest rate swaps designated fairvalue hedges total notional amounts fair value outstanding interest rate swaps 37 billion 160 million net assets 40 billion 647 million net assets december 31 2009 2008 respectively swaps underlying debt benchmark risk hedged recognized fair value swaps intended create appropriate balance fixed floating rate debt basis adjustment debt qualifying fair value hedging relationships amortized earnings adjustment interest expense remaining life debt underlying swap terminated prior maturity terminated swaps qualify cash flow hedges recognized accumulated oci amortized earnings remaining life debt hedged debt remains outstanding following summarizes earnings impact terminated interest rate swaps 2009 2008 2007 following summarizes interest rate swaps outstanding december 31 2009 impact earnings interest rate swaps qualified fair value hedges follows following summarizes fair value outstanding derivatives impact oci earnings foreign currency forward contracts natural gas contracts forward starting swaps qualified cash flow hedges follows impact oci earnings nonderivative debt designated hedge net investment follows impact earnings nonqualifying derivatives recognized incomeexpense years ended december 31 2009 2008 significant derivative financial instruments present certain market counterparty risks however concentration counterparty risk mitigated using banks worldwide standard poor’s moody’s longterm debt ratings higher addition conventional derivative financial instruments utilized consolidated financial statements would materially impacted counterparties failed perform according terms agreement currently collateral form securitization required furnished counterparties derivative financial instruments discussion fair value financial instruments see “note 11 fair value measurement” note 23 leases minimum rental commitments noncancelable operating leases primarily real estate motor vehicles effect december 31 2009 follows operating lease expense 149 million 2009 179 million 2008 166 million 2007 net sublease income 17 million 2009 16 million 2008 17 million 2007 17 million 2009 12 million 2008 10 million 2007 included discontinued operations 2008 sale leaseback administrative facility paris france completed 227 million 155 million resulting pretax gain 111 million gain deferred reduce future lease costs lease period 9 years note 24 legal proceedings contingencies company certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise time ordinary course business relating product liability patent commercial consumer environmental securities matters company recognizes accruals contingencies probable liability incurred amount loss reasonably estimated significant litigation charges 132 million 2009 33 million 2008 14 million 2007 net revised estimates previously accrued amounts cash payments related significant litigation 139 million 2009 210 million 2008 318 million 2007 significant matters described although company believes substantial defenses matters company could future incur judgments enter settlements could material adverse effect results operations particular period intellectual property plavix litigation plavix currently company’s largest product ranked net sales plavix patents subject number challenges us including litigation apotex inc apotex corp apotex described less significant markets product reasonably possible estimate impact lawsuits company however loss market exclusivity plavix sustained generic competition us would material company’s net sales plavix results operations cash flows could material company’s financial condition liquidity company product partner sanofi companies intend vigorously pursue enforcement patent rights plavix litigation us patent infringement litigation apotex related matters previously disclosed company’s us territory partnership alliance sanofi plaintiff pending patent infringement lawsuit instituted united states district court southern district new york district court entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v apotex suit based us patent 4847265 ‘265 patent composition matter patent discloses claims among things hydrogen sulfate salt clopidogrel medicine made available us companies plavix also previously reported district court upheld validity enforceability ‘265 patent maintaining main patent protection plavix us november 2011 district court also ruled apotex’s generic clopidogrel bisulfate product infringed ‘265 patent permanently enjoined apotex engaging activity infringes ‘265 patent including marketing generic product us patent expires apotex appealed district court’s decision december 12 2008 united states court appeals federal circuit court affirmed district court’s ruling sustaining validity ‘265 patent apotex filed petition circuit court rehearing en banc march 2009 circuit court denied apotex’s petition case remanded district court proceedings relating damages july 2009 apotex filed petition writ certiorari us supreme court requesting supreme court review circuit court’s decision november 2009 us supreme court denied petition declining review circuit court’s decision december 2009 company filed motion district court summary judgment damages january 2010 apotex filed motion seeking stay ongoing damages proceedings pending outcome reexamination plavix patent us patent trademark office pto described motions pending previously disclosed company’s us territory partnership alliance sanofi also plaintiff five additional pending patent infringement lawsuits dr reddy’s laboratories inc dr reddy’s laboratories ltd dr reddy’s teva pharmaceuticals usa inc teva cobalt pharmaceuticals inc cobalt watson pharmaceuticals inc watson laboratories inc watson sun pharmaceuticals sun lawsuits dr reddy’s teva cobalt relate ‘265 patent may 2009 dr reddy’s signed consent judgment favor sanofi bms conceding validity infringement ‘265 patent previously reported patent infringement actions teva cobalt stayed pending resolution apotex litigation parties actions agreed bound outcome litigation apotex consequently july 12 2007 district court entered judgments cobalt teva permanently enjoined cobalt teva engaging activity infringes ‘265 patent expires cobalt teva filed appeal july 2009 circuit court issued mandate teva appeal binding teva decision apotex litigation august 2009 cobalt consented entry judgment appeal agreeing bound circuit court’s decision apotex litigation lawsuit watson filed october 2004 based us patent 6429210 ‘210 patent discloses claims particular crystalline polymorph form hydrogen sulfate salt clopidogrel marketed plavix december 2005 court permitted watson pursue declaratory judgment counterclaim respect us patent 6504030 january 2006 court approved parties’ stipulation stay case pending outcome trial apotex matter may 1 2009 bms watson entered stipulation dismiss case april 2007 pharmastar filed request inter partes reexamination ‘210 patent pto granted request july 2007 july 2009 pto vacated reexamination proceeding lawsuit sun filed july 11 2008 based infringement ‘265 patent ‘210 patent respect ‘265 patent sun agreed bound outcome apotex litigation dr reddy’s teva cobalt watson sun filed anda fda respect dr reddy’s teva cobalt watson exclusivity periods statutory stay periods hatchwaxman act expired accordingly final approval fda would provide company authorization distribute generic clopidogrel bisulfate product us subject various legal remedies companies may apply including injunctive relief damages june 1 2009 apotex filed request ex parte reexamination ‘265 patent pto august 2009 pto agreed reexamine patent december 2009 pto issued nonfinal office action rejecting several claims covering plavix including claim previously upheld litigation apotex referred sanofi intends respond office action february 2010 possible time reasonably assess outcome reexamination ‘265 patent pto plavix patent litigations timing renewed generic competition plavix apotex additional generic competition plavix thirdparty generic pharmaceutical companies loss market exclusivity plavix andor sustained generic competition would material company’s sales plavix results operations cash flows could material company’s financial condition liquidity additionally possible time reasonably assess amount damages could recovered company apotex’s ability pay damages event company prevails patent litigation additionally november 13 2008 apotex filed lawsuit new jersey superior court entitled apotex inc et al v sanofiaventis et al seeking payment 60 million plus interest related breakup proposed settlement agreement plavix litigation international plavix australia previously disclosed sanofi notified august 2007 genrx proprietary limited genrx obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex since changed name apotex august 2007 apotex filed application federal court australia seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 australian court granted sanofi’s injunction subsidiary company subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated apotex case trial occurred april 2008 august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid view decision possible generic company could develop seek registration australia alternate salt form clopidogrel bisulfate hydrochloride hydrobromide taurocholate company sanofi filed notices appeal full court federal court australia full court appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims stayed federal court’s ruling apotex filed notice appeal appealing holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims hearing appeals occurred february 2009 september 29 2009 full federal court australia held claims patent 597784 invalid november 2009 company sanofi applied high court australia special leave appeal judgment full court plavix eu previously disclosed 2007 yes pharmaceutical development services gmbh yes pharmaceutical filed application marketing authorization germany alternate salt form clopidogrel application relied data studies originally conducted sanofi bms plavix may 2008 german health authority bfarm granted marketing authorization yes pharmaceutical product data protection plavix expire july 2008 sanofi bms filed objection grant marketing authorization grounds data exclusivity rights infringed yes pharmaceutical partners sought immediate enforcement marketing authorization denied bfarm yes pharmaceutical partners filed legal motion immediate enforcement administrative court granted yes pharmaceutical’s partners hexal ratiopharm began continue market product germany sanofi bms appealed decision administrative court appeal rejected administrative appeal court third party objection bfarm dismissed bfarm sanofi bms appealed decision administrative court cologne matter currently pending plavix canada apotex inc april 22 2009 apotex filed impeachment action sanofi federal court canada alleging sanofi’s canadian patent 1336777 ‘777 patent invalid ‘777 patent covers clopidogrel bisulfate patent issue prohibition action canada previously disclosed canadian federal court ottawa rejected apotex’s challenge ‘777 patent held asserted claims novel obvious infringed granted sanofi’s application order prohibition minister health apotex precluding approval apotex’s abbreviated new drug submission patent expires 2012 decision affirmed appeal federal court appeal supreme court canada june 8 2009 sanofi filed defense impeachment action filed suit apotex infringement ‘777 patent plavix canada cobalt previously disclosed sanofi sanofisynthelabo canada instituted prohibition action federal court canada cobalt minister health response noa cobalt directed ‘777 patent canadian patent 2334870 ‘870 patent cobalt’s noa indicated filed ands clopidogrel bisulfate tablets sought notice compliance ands expiration ‘777 ‘870 patents cobalt alleged ‘777 patent invalid ‘870 patent invalid infringed following supreme court canada decision apotex inc v sanofisynthelabo canada inc 2008 scc 61 dismissing apotex’s appeal upholding validity ‘777 patent described federal court canada granted sanofi’s application order prohibition minister health cobalt precluding approval cobalt’s ands ‘777 patent expires 2012 sanofi pursue prohibition action respect ‘870 patent intellectual property litigation abilify previously disclosed otsuka filed patent infringement actions teva barr pharmaceuticals inc barr sandoz inc sandoz synthon laboratories inc synthon sun pharmaceuticals sun zydus pharmaceuticals usa inc apotex relating us patent 5006528 covers aripiprazole expires april 2015 including additional sixmonth pediatric exclusivity period aripiprazole comarketed company otsuka us abilify lawsuits currently pending us district court district new jersey 30month stay hatchwaxman act expires 2010 accordingly final approval fda could possibly occur early may 2010 would provide generic company authorization distribute generic aripiprazole product us subject various legal remedies otsuka may apply including injunctive relief damages possible time reasonably assess outcome lawsuits impact company however generic company launch “at risk” otsuka prevail lawsuits generic competition would likely result substantial decreases sales abilify us would material adverse effect results operations cash flows could material financial condition atripla april 2009 teva filed anda manufacture market generic version atripla teva sent gilead paragraph iv certification letter challenging two fifteen orange book listed patents atripla product joint venture company gilead may 2009 gilead filed patent infringement action teva united states district court southern district new york january 2010 company received notice teva amended anda challenging eight additional orange book listed patents atripla time company’s patent rights covering efavirenz composition matter method use challenged company currently reviewing legal options possible time reasonably assess outcome lawsuits impact company reyataz october 2009 teva filed anda manufacture market generic version reyataz company received paragraph iv certification letter teva challenging two orange book listed patents reyataz december 2009 company novartis pharmaceutical corporation filed patent infringement lawsuit us district court district delaware teva infringement two listed patents covering reyataz triggered automatic 30month stay approval teva’s anda possible time reasonably assess outcome lawsuits impact company general commercial litigation clayworth litigation previously disclosed company together number pharmaceutical manufacturers named defendant action filed california state superior court oakland james clayworth et al v bristolmyers squibb company et al alleging defendants conspired fix prices pharmaceuticals agreeing charge drugs us charge outside us particularly canada asserting claims california’s cartwright act unfair competition law plaintiffs sought trebled monetary damages injunctive relief december 2006 court granted company manufacturers’ motion summary judgment based passon defense judgment entered favor defendants july 2008 judgment favor defendants affirmed california court appeals november 2008 california supreme court granted plaintiffs’ petition review possible time reasonably assess outcome lawsuit impact company event plaintiffs successful appeal rxusa wholesale litigation previously disclosed july 2006 complaint filed drug wholesaler rxusa wholesale inc us district court eastern district new york company 15 drug manufacturers five drug wholesalers two officers defendant mckesson wholesale distribution industry trade group rxusa wholesale inc v alcon labs inc et al complaint alleges violations federal new york antitrust laws well various laws plaintiff claims defendants allegedly engaged anticompetitive acts resulted exclusion plaintiff relevant market seeks 586 million damages trebling relief september 2009 district court granted company’s defendants’ motions dismiss plaintiff appealed district court’s decision us court appeals second circuit antitrust litigation previously disclosed 18 lawsuits comprised individual suits purported class actions filed company us district court southern district ohio western division various plaintiffs including pharmacy chains individually assignees whole part certain wholesalers various health welfare benefit plansfunds individual residents various states lawsuits allege among things purported settlement apotex patent infringement litigation violated sherman act related laws plaintiffs seeking among things permanent injunctive relief barring apotex settlement andor monetary damages putative class actions filed behalf direct purchasers consolidated caption plavix direct purchaser antitrust litigation putative class actions filed behalf indirect purchasers consolidated caption plavix indirect purchaser antitrust litigation amended complaints filed october 19 2007 defendants filed consolidated motion dismiss december 11 2007 remains pending possible time reasonably assess outcome lawsuits impact company shareholder derivative actions previously disclosed july 31 2007 certain members board directors current former officers company named two derivative actions filed new york state supreme court john frank v peter dolan et al 07602580 donald beebout v peter dolan et al 07602579 one derivative action filed federal district court steven w sampson v james robinson iii et al 07cv6890 complaints allege breaches fiduciary duties allegedly failing disclose material information relating efforts settle plavix patent infringement litigation apotex plaintiffs seek monetary damages behalf company contribution indemnification decision filed december 13 2007 state court granted motions dismiss complaints frank beebout relating certain members board directors later dismissed complaints former officers decision dated august 20 2008 federal district court granted company’s motion dismiss sampson action plaintiffs appealed district court’s decision us circuit court appeals second circuit december 2009 district court granted final approval settlement parties amount material company concluded matter securities litigation bristolmyers squibb co securities litigation previously disclosed june july 2007 two putative class action complaints minneapolis firefighters’ relief assoc v bristolmyers squibb co et al 07 cv 5867 jean lai v bristolmyers squibb company et al filed us district southern district new york company’s former chief executive officer peter dolan former chief financial officer andrew bonfield complaints allege violations securities laws allegedly failing disclose material information relating efforts settle plavix patent infringement litigation apotex september 20 2007 court dismissed lai case without prejudice changed caption case bristolmyers squibb co securities litigation appointed ontario teachers’ pension plan board lead plaintiff october 15 2007 ontario teachers’ pension plan board filed amended complaint making similar allegations earlier filed complaints naming additional former officer longer naming andrew bonfield defendant decision dated august 20 2008 federal district court denied defendants’ motions dismiss december 2009 district court granted final approval settlement parties payment 125 million concluded matter pricing sales promotional practices litigation investigations abilify state attorneys general investigation march 2009 company received letter delaware attorney general’s office advising multistate coalition investigating whether certain abilify marketing practices violated respective states’ consumer protection statutes possible time reasonably assess outcome investigation potential impact company awp litigation previously disclosed company together number pharmaceutical manufacturers defendant number private class actions well suits brought attorneys general various states actions plaintiffs allege defendants caused average wholesale prices awps products inflated thereby injuring government programs entities persons reimbursed prescription drugs based awps company remains defendant four state attorneys general suits pending state courts around country previously reported one set class actions consolidated us district court district massachusetts awp mdl august 2009 district court granted preliminary approval proposed settlement awp mdl plaintiffs’ claims company 19 million plus half costs class notice maximum payment 1 million final approval hearing currently scheduled occur july 2010 california 340b litigation previously disclosed august 2005 county santa clara filed purported class action company numerous pharmaceutical manufacturers behalf putative class cities counties california well covered entities purchased drugs pursuant 340b drug discount program alleging manufacturers provide proper discounts covered entities discovery matter ongoing may 2009 us district court northern district california denied plaintiff’s motion certify class without prejudice possible time reasonably assess outcome lawsuit potential impact company omnicare qui tam litigation april 2009 company served qui tam complaint filed us district court district massachusetts former employee omnicare inc omnicare provider pharmaceutical care seniors us declined intervene lawsuit complaint alleges civil violations federal various state false claims acts based allegations company pharmaceutical manufacturers paid omnicare kickbacks switch medications omnicare’s patients thereby damaging government private payers october 2009 plaintiff voluntarily dismissed claims company prejudice product liability litigation company party various product liability lawsuits previously disclosed addition lawsuits company also faces unfiled claims involving products plavix previously disclosed company certain affiliates sanofi defendants number individual lawsuits claiming personal injury allegedly sustained using plavix appear united states district court district new jersey nj district court december 31 2009 companies defendants 23 actions nj district court executed tolling agreements respect unfiled claims potential additional plaintiffs possible time reasonably assess outcomes lawsuits potential impact company hormone replacement therapy company one number defendants masstort litigation plaintiffs allege among things various hormone therapy products including hormone therapy products formerly manufactured company estrace estradiol delestrogen ovcon cause breast cancer stroke blood clots cardiac injuries women defendants aware risks failed warn consumers december 31 2009 company defendant 300 lawsuits filed behalf approximately 500 plaintiffs federal state courts throughout us company’s hormone therapy products sold companies january 2000 august 2001 possible time reasonably assess outcome lawsuits company party impact company environmental proceedings previously reported company party several environmental proceedings matters responsible various state federal foreign laws including comprehensive environmental response compensation liability act cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated thirdparties cercla matters respect cercla matters company responsible various state federal foreign laws company typically estimates potential costs based information obtained us environmental protection agency counterpart state agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable company estimated share future costs sites 69 million december 31 2009 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties currently expected passaic river nj remediation natural resource damages claim previously disclosed september 2003 new jersey department environmental protection njdep issued administrative enforcement directive requiring company companies perform assessment natural resource damages implement unspecified interim remedial measures restore conditions lower passaic river lpr directive named company due releases nearby bulk chemical reprocessing facility operated predecessor mckesson corp subsequently epa issued notice letters numerous parties company requesting performance remedial investigationfeasibility study rifs conditions lpr consent agreement epa 2004 group parties committed pay roughly half 20 million estimated rifs epa time epa thereafter substantially increased estimate scope cost rifs result epa agreed allow group perform remaining rifs tasks group’s estimate total costs complete rifs related tasks exceed 50 million group negotiated amended consent agreement epa conduct remaining rifs work became effective may 2007 part process company mckesson bought remaining rifs tasks separately company agreed pay approximately 110 thousand towards rifs tasks previously funded mckesson work cooperatively going forward subject later reallocation mid2007 epa announced plans seek implementation “earlyaction” remedial measures address highlycontaminated portions lpr rifs completed epa indicated expects select actions mid2009 also subgroup cooperating private parties commenced discussions federal natural resource trustee agencies concerning agreement assess natural resource damages lpr remaining parties including company mckesson declined discuss proposal least scope cost “earlyactions” sought epa thoroughly understood 2006 njdep filed suit set parties tied facility suspected significant discharges lpr recover costs unspecified damages case languished recently defendants filed thirdparty claims members cooperating group numerous parties claims also seek contribution costs various actions defendants funding response actions related lpr defendants name company claims group members actively discussing strategy coordinated actions company participating efforts group currently plan add company litigation remains seen whether new defendants extent liability company may face related risks cannot yet determined new brunswick facility environmental personal injury lawsuits previously disclosed may 2008 100 lawsuits filed company superior court middlesex county nj behalf current former residents new brunswick nj live adjacent company’s new brunswick facility complaints allege various personal injuries property damage resulting soil groundwater contamination property stemming historical operations new brunswick facility october 2008 new jersey supreme court granted mass tort status cases transferred new jersey superior court atlantic county centralized case management purposes company intends defend vigorously litigation possible time reasonably assess outcome lawsuits potential impact company north brunswick township board education previously disclosed october 2003 company contacted counsel representing north brunswick nj board education boe regarding site waste materials er squibb sons may disposed 1940’s 1960’s fill material containing industrial waste heavy metals excess residential standards discovered expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 new jersey department environmental protection njdep sent company others information request letter possible waste disposal site company responded march 2004 boe township current owners school property park conducting jointly financing soil remediation work ground water investigation work plan approved njdep asked company contribute cost company actively monitoring cleanup project including costs date neither school board township asserted claim company instead company local entities negotiated agreement attempt resolve matter informal means including mediation binding allocation necessary central component agreement provision company interim funding help defray cleanup costs assure work interrupted company transmitted initial interim funding payment december 2007 made second required payment november 2009 parties commenced mediation late 2008 however efforts successful parties move binding allocation process addition september 2009 township boe filed suits several parties alleged contributed waste materials site although per mediation agreement boe township agreed forbear asserting claims company remains seen whether defendants new suits seek implead company proceedings sec germany investigation previously disclosed october 2004 sec notified company conducting informal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents october 2006 sec informed company inquiry become formal sec’s inquiry encompasses matters formerly investigation german prosecutor munich germany since resolved company understands inquiry concerns potential violations foreign corrupt practices act company cooperating sec medarex shareholder litigation july 22 2009 company medarex announced signing merger agreement providing acquisition medarex company tender offer 1600 per share cash following announcement certain medarex shareholders filed similar lawsuits state federal court relating transaction medarex members medarex’s board directors company following consolidation state court actions august 20 2009 parties entered memorandum understanding mou pursuant parties reached agreement principle settle state federal actions pursuant agreements mou among things medarex made certain supplemental disclosures tender offer period parties also agreed present superior court new jersey stipulation settlement documentation may required order obtain approval court settlement dismissal actions upon terms set forth mou proposed settlement remains subject class notice approval court note 25 selected quarterly financial data unaudited 1 earnings per share quarters may add amounts year period computed discrete basis 2 marketable securities includes current noncurrent assets following tables reconcile previously reported data current year quarterly data updated discontinued operations related mead johnson see “note 7 discontinued operations” following specified expenseincome items recognized 2009 2008 affected comparability results 2009 report independent registered public accounting firm board directors stockholders bristolmyers squibb company audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries “company” december 31 2009 2008 related consolidated statements earnings comprehensive income retained earnings cash flows three years period ended december 31 2009 audits also included financial statement schedule listed index item 15 financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2009 2008 results operations cash flows three years period ended december 31 2009 conformity accounting principles generally accepted united states america also opinion financial statement schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein discussed note 1 consolidated financial statements company adopted accounting standard related business combinations effective business combinations entered january 1 2009 also audited accordance standards public company accounting oversight board united states company’s internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 19 2010 expressed unqualified opinion company’s internal control financial reporting deloitte touche llp parsippany new jersey february 19 2010 item 9item 8 financial statements supplementary data bristolmyers squibb company consolidated statements earnings dollars millions except per share data excludes amortization acquired intangible assets consolidated statements comprehensive income dollars millions accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated balance sheets dollars millions except share per share data accompanying notes integral part consolidated financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part consolidated financial statements note 1 accounting policies recently issued accounting standards basis consolidation consolidated financial statements prepared conformity us gaap including accounts bristolmyers squibb company controlled majorityowned subsidiaries certain variable interest entities intercompany balances transactions eliminated material subsequent events evaluated disclosed report issuance date refer summary abbreviated terms end 2019 form 10k terms used throughout document alliance license arrangements assessed determine whether terms provide economic control entity requiring consolidation entity entities controlled means majority voting interest referred variable interest entities consolidated bms power direct activities variable interest entity significantly impacts economic performance obligation absorb losses right receive benefits could potentially significant entity business segment information bms operates single segment engaged discovery development licensing manufacturing marketing distribution sale innovative medicines help patients prevail serious diseases global research development organization supply chain organization responsible discovery development manufacturing supply products regional commercial organizations market distribute sell products business also supported global corporate staff functions consistent bmss operational structure chief executive officer “ceo” chief operating decision maker manages allocates resources global corporate level managing allocating resources global corporate level enables ceo assess overall level resources available best deploy resources across functions therapeutic areas regional commercial organizations research development projects line overarching longterm corporatewide strategic goals rather product franchise basis determination single segment consistent financial information regularly reviewed ceo purposes evaluating performance allocating resources setting incentive compensation targets planning forecasting future periods information product regional revenue see “note 2 revenue” use estimates judgments preparation financial statements requires use management estimates judgments assumptions significant assumptions estimates used determining accounting business combinations impairments goodwill intangible assets sales rebate return accruals legal contingencies income taxes actual results may differ estimates reclassifications certain prior period amounts reclassified conform current period presentation including separate presentation amortization acquired intangible assets reclassification assets liabilities change reported amount total assets liabilities reclassifications impact net assets net earnings operating cash flows cash equivalents restricted cash equivalents include bank deposits time deposits commercial paper money market funds cash equivalents consist highly liquid investments original maturities three months less time purchase recognized cost approximates fair value cash restricted withdrawal general use contractually legally restricted determination current noncurrent classification based expected duration restriction restricted cash consists escrow litigation settlements funds restricted annual company contributions defined contribution plan us restricted cash 474 million included cash equivalents restricted cash december 31 2019 consolidated statements cash flows marketable debt securities marketable debt securities classified “availableforsale” date purchase reported fair value fair value determined based observable market quotes valuation models using assessments counterparty credit worthiness credit default risk underlying security overall capital market liquidity marketable debt securities reviewed impairment assessing decline market value investment carrying value temporary considers intent ability retain investment period time sufficient allow anticipated recovery market value duration extent market value less cost investees financial condition investments equity securities investments equity securities readily determinable fair values recorded fair value changes fair value recorded incomeexpense net investments equity securities without readily determinable fair values recorded cost minus impairment plus minus changes estimated fair value resulting observable price changes orderly transactions identical similar investment issuer changes estimated fair value investments equity securities without readily determinable fair values recorded incomeexpense net investments 50 less owned companies accounted using equity method accounting ability exercise significant influence operating financial decisions investee maintained share net income losses equity investments accounted using equity method included incomeexpense net investments equity securities without readily determinable fair values investments equity accounted using equity method assessed potential impairment quarterly basis based qualitative factors inventory valuation inventories stated lower average cost net realizable value property plant equipment depreciation expenditures additions renewals improvements capitalized cost depreciation computed straightline method based estimated useful lives related assets ranging 20 50 years buildings 3 20 years machinery equipment fixtures current facts circumstances periodically evaluated determine carrying value depreciable assets held used may recoverable circumstances exist estimate undiscounted future cash flows generated longlived asset appropriate grouping assets compared carrying value determine whether impairment exists lowest level identifiable cash flows asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques using unobservable fair value inputs discounted value estimated future cash flows capitalized software eligible costs obtain internal use software capitalized amortized estimated useful life software acquisitions businesses acquired consolidated upon obtaining control fair value assets acquired liabilities assumed recognized date acquisition excess purchase price estimated fair values net assets acquired recognized goodwill business acquisition costs expensed incurred contingent consideration potential development regulatory approval salesbased milestones salesbased royalties included purchase price business combinations excluded asset acquisitions amounts allocated lead investigational compounds asset acquisitions expensed date acquisition goodwill acquired inprocess research development intangible assets fair value acquired intangible assets determined using incomebased approach referred excess earnings method utilizing level 3 fair value inputs market participant valuations assume global view considering potential jurisdictions indications based discounted aftertax cash flow projections risk adjusted estimated probability technical regulatory success finitelived intangible assets including licenses developed technology rights iprd projects reach commercialization amortized straightline basis estimated useful life estimated useful lives determined considering period assets expected contribute future cash flows finitelived intangible assets tested impairment facts circumstances suggest carrying value asset may recoverable carrying value exceeds projected undiscounted pretax cash flows intangible asset impairment loss equal excess carrying value estimated fair value discounted aftertax cash flows recognized goodwill tested least annually impairment assessing qualitative factors determining whether likely fair value net assets carrying amounts examples qualitative factors assessed include bmss share price financial performance compared budgets longterm financial plans macroeconomic industry market conditions well substantial excess fair value carrying value net assets annual impairment test performed prior year relevant factor assessed individually aggregate iprd tested impairment annual basis frequently events occur circumstances change would indicate potential reduction fair values assets carrying value impairment charges recognized extent carrying value iprd determined exceed fair value restructuring charges recognized result actions streamline operations reduce number facilities estimating impact restructuring plans including future termination benefits integration expenses exit costs requires judgment actual results could vary estimates restructuring charges recognized upon meeting certain criteria including finalization committed plans reliable estimates discussions local works councils certain markets contingencies loss contingencies legal proceedings claims may occur government investigations shareholder lawsuits product environmental liability contractual claims tax matters accruals recognized probable liability incurred amount loss reasonably estimated gain contingencies including contingent proceeds related divestitures recognized realized legal fees expensed incurred revenue recognition refer “note 2 revenue” detailed discussion accounting policies related revenue recognition including deferred revenue royalties refer “note 3 alliances” detail regarding alliances research development research development costs expensed incurred clinical study costs accrued service periods specified contracts adjusted necessary based upon ongoing review level effort costs actually incurred research development costs presented net reimbursements alliance partners upfront contingent development milestone payments asset acquisitions investigational compounds also included research development expense alternative future uses advertising product promotion costs advertising product promotion costs expensed incurred advertising product promotion costs included marketing selling administrative expenses 633 million 2019 672 million 2018 740 million 2017 foreign currency translation foreign subsidiary earnings translated us dollars using average exchange rates net assets foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recognized comprehensive incomeloss income taxes provision income taxes includes income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax basis assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recognized reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made tax benefits recognized uncertain tax position likely tax position sustained examination taxing authorities based technical merits position tax benefit recognized financial statements particular tax position based largest benefit likely realized upon settlement cash flow payments licensing asset acquisitions investigational compounds included operating activities well outlicensing proceeds payments acquisition ownership interest legal entity including acquisitions meet accounting definition business included investing activities well divestiture proceeds royalties consideration received subsequent related sale asset business adjustments reflected operating activities include divestiture gains losses related royalties asset acquisition charges gains losses equity investments gains losses debt redemption recently adopted accounting standards leases amended guidance lease accounting adopted january 1 2019 using modified retrospective method cumulative effect change recognized retained earnings period adoption new guidance requires entity recognize rightofuse asset lease liability initially measured present value future lease payments cumulative effect accounting change material bms elected package practical expedients upon adoption apply practical expedient separate lease nonlease components new modified leases commencing adoption addition bms applied shortterm lease recognition exemption leases terms inception greater 12 months amended guidance resulted recognition operating lease rightofuse asset lease liability impact bms’s results operations refer “note 13 leases” information goodwill impairment testing amended guidance simplifies recognition measurement goodwill impairment loss eliminating step 2 quantitative goodwill impairment test adopted prospectively first quarter 2019 amended guidance goodwill impairment loss recognized amount reporting units carrying amount including goodwill exceeds fair value amount allocated goodwill adoption amended guidance impact bms’s results operations recently issued accounting standards yet adopted financial instruments measurement credit losses june 2016 fasb issued amended guidance measurement credit losses financial instruments entities required use forwardlooking estimated loss model availableforsale debt security credit losses recognized allowances rather reduction amortized cost guidance effective january 1 2020 modified retrospective approach amended guidance material impact bms’s results operations note 2 revenue following table summarizes disaggregation revenue nature net product sales represent 90 bms’s total revenues years ended december 31 2019 2018 2017 products sold principally wholesalers distributors lesser extent directly retailers hospitals clinics government agencies pharmacies customer orders generally fulfilled within days receipt resulting minimal order backlog contractual performance obligations usually limited transfer control product customer transfer occurs either upon shipment upon receipt product considering customer obtains legal title product bms obtains right payment points customers able direct use obtain substantially remaining benefits product gross revenue three largest pharmaceutical wholesalers us percentage global gross revenues follows wholesalers initially invoiced contractual list prices payment terms typically 30 90 days based customary practices country revenue reduced wholesaler list price time recognition expected chargebacks discounts rebates sales allowances product returns referred gtn adjustments reductions attributed various commercial arrangements managed healthcare organizations government programs medicare medicaid 340b drug pricing program containing various pricing implications mandatory discounts pricing protection wholesaler list price discounts medicare part beneficiaries coverage gap addition nonus government programs include different pricing schemes cost caps volume discounts outcomebased pricing clawbacks determined sales individual companies aggregation companies participating specific market chargebacks cash discounts reflected reduction receivables settled issuance credits customer typically within one month rebates discounts adjustments including medicaid medicare reflected liability settled cash payments customer typically within various time periods ranging months one year significant judgment required estimating gtn adjustments considering legal interpretations applicable laws regulations historical experience payer channel mix current contract prices applicable programs unbilled claims processing time lags inventory levels distribution channel following table summarizes gtn adjustments includes adjustments provisions product sales made prior periods resulting changes estimates 132 million 96 million 71 million years ended december 31 2019 2018 2017 respectively alliance revenues consist primarily amounts related collaborations outlicensing arrangements evaluated whether represent contracts within scope revenue recognition guidance entirety contain aspects within scope guidance either directly reference based upon application guidance related derecognition nonfinancial assets asc 610 performance obligations identified separated party benefit directly rights goods services either together readily available resources rights goods services highly interdependent interrelated transaction prices arrangements may include fixed upfront amounts well variable consideration contingent development regulatory milestones salesbased milestones royalties likely amount method used estimate contingent development regulatory salesbased milestones ultimate outcomes binary nature expected value method used estimate royalties broad range potential outcomes exist except instances royalties relate license variable consideration included transaction price extent significant reversal amount cumulative revenue recognized probable occurring uncertainty associated variable consideration subsequently resolved significant judgment required estimating amount variable consideration recognize assessing factors outside bms’s influence likelihood regulatory success limited availability third party information expected duration time resolution lack relevant past experience historical practice offering fee concessions large number broad range possible amounts extent arrangements include multiple performance obligations separable transaction price assigned distinct performance obligation reflective relative standalone selling price recognized point time upon transfer control three types outlicensing arrangements typically utilized 1 arrangements bms outlicenses intellectual property another party performance obligations 2 arrangements include license additional performance obligation supply product upon request third party 3 collaboration arrangements include transferring license third party jointly develop commercialize product outlicensing arrangements consist single performance obligation satisfied upon execution agreement development commercialization rights transferred third party upfront fees recognized immediately included incomeexpense net although contingent development regulatory milestone amounts assessed period likelihood achievement typically constrained recognized uncertainty subsequently resolved full amount milestone included incomeexpense net salesbased milestones royalties recognized milestone achieved subsequent sales occur salesbased milestones included incomeexpense net royalties included alliance revenue certain outlicensing arrangements may also include contingent performance obligations supply commercial product third party upon request license supply obligations accounted separate performance obligations considered distinct third party benefit license either together supply resources readily available obligations separately identifiable obligations contract accordance revenue recognition guidance considering standalone selling prices situations upfront fees contingent development regulatory milestone amounts salesbased milestone royalties allocated license recognized manner described consideration supply obligation usually based upon stipulated costplus margin contractual terms represent standalone selling price supply consideration recognized point time upon transfer control product third party included alliance revenue fee allocation license supply represents amount consideration bms expects entitled satisfaction separate performance obligations although collaboration arrangements unique nature parties active participants operating activities exposed significant risks rewards depending commercial success activities performance obligations inherent arrangements may include transfer certain development commercialization rights ongoing development commercialization services product supply obligations except certain product supply obligations considered distinct accounted separate performance obligations similar manner discussed performance obligations considered distinct combined single performance obligation since transferred rights highly integrated interrelated bmss obligation jointly develop commercialize product third party result upfront fees recognized ratably time throughout expected period collaboration activities included incomeexpense net license combined development commercialization obligations contingent development regulatory milestones longer constrained recognized similar manner prospective basis royalties profit sharing recognized underlying sales profits occur included alliance revenue refer “note 3 alliances” information following table summarizes disaggregation revenue product region includes bms celgene products 2019 b revenues include royalties alliancerelated revenues products sold bmss regional commercial organizations contract assets primarily estimated future royalties termination fees eligible licensing exclusion therefore recognized upon adoption asc 606 asc 610 contract assets reduced receivables increased period underlying sales occur cumulative catchup adjustments revenue affecting contract assets contract liabilities material year ended december 31 2019 2018 revenue recognized performance obligations satisfied prior periods 411 million 495 million years ended december 31 2019 2018 respectively consisting primarily royalties outlicensing arrangements revised estimates gtn adjustments related prior period sales contract assets material december 31 2019 2018 sales commissions incremental costs obtaining customer contracts expensed incurred amortization periods would less one year note 3 alliances bms enters collaboration arrangements third parties development commercialization certain products although arrangements unique nature parties active participants operating activities collaboration exposed significant risks rewards depending commercial success activities bms may either inlicense intellectual property owned party outlicense intellectual property party arrangements also typically include research development manufacturing andor commercial activities cover single investigational compound commercial product multiple compounds andor products various life cycle stages rights obligations parties global limited geographic regions bms refer collaborations alliances partners alliance partners common activities bms alliance partners presented results operations follows • bms principal end customer sale 100 product sales included net product sales bmss alliance partner principal end customer sale bmss contractual share thirdparty sales andor royalty income included alliance revenues sale commercial products considered part bmss ongoing major central operations refer “note 2 revenue” information regarding recognition criteria • amounts payable bms alliance partners principal end customer sale supply commercial products included alliance revenues sale commercial products considered part bmss ongoing major central operations • profit sharing royalties salesbased fees payable bms alliance partners included cost products sold incurred • cost reimbursements parties recognized incurred included cost products sold marketing selling administrative expenses research development expenses based underlying nature related activities subject reimbursement • upfront contingent development approval milestones payable bms alliance partners investigational compounds commercial products deferred amortized expected period bmss development copromotion obligation market exclusivity period periods related compounds products expected contribute future cash flows amortization presented consistent nature payment arrangement example amounts received investigational compounds presented incomeexpense net activities performed time related sale commercial products included bms’s ongoing major central operations amounts received commercial products presented alliance revenue sale commercial products considered part bms’s ongoing major central operations • upfront contingent approval milestones payable bms alliance partners commercial products capitalized amortized shorter contractual term periods related products expected contribute future cash flows • upfront contingent milestones payable bms alliance partners prior regulatory approval expensed incurred included research development expense • royalties contingent consideration payable bms alliance partners related divestiture businesses included incomeexpense net earned • payments bms alliance partners presented cash flows operating activities selected financial information pertaining alliances follows including net product sales bms principal thirdparty customer sale products subject alliance expenses summarized include amounts attributed activities products alliance payments alliance partners related amortization payments deferred capitalized includes unamortized upfront milestone payments specific information pertaining significant alliances discussed including nature purpose significant rights obligations parties specific accounting policy elections statements earnings classification amounts attributable payments parties pfizer bms pfizer jointly develop commercialize eliquis anticoagulant discovered bms pfizer funds 50 60 development costs depending study profits losses shared equally global basis except certain countries pfizer commercializes eliquis pays bms salesbased fee coexclusive license rights granted pfizer exchange upfront payment potential milestone payments parties assumed certain obligations actively participate joint executive committee various operating committees joint responsibilities research development distribution sales marketing activities alliance using resources infrastructures bms pfizer manufacture product alliance bms principal end customer product sales us significant countries europe well canada australia china japan south korea 2015 bms transferred full commercialization rights pfizer certain smaller countries order simplify operations transferred countries bms supplies product pfizer cost plus percentage net sales price endcustomers recorded full upon transfer control product pfizer bms allocate consideration rights transferred pfizer rights sold separately bms party could pfizer receive benefit delivered rights without fulfillment ongoing obligations bms alliance agreement global alliance treated single unit accounting upfront proceeds subsequent contingent milestone proceeds amortized expected period bmss copromotion obligation market exclusivity period bms received 884 million nonrefundable upfront milestone licensing payments related eliquis december 31 2019 amortization eliquis deferred income included incomeexpense net eliquis commercial product commencement alliance summarized financial information related alliance follows otsuka bms otsuka copromoted sprycel us eu 2019 bms responsible development manufacture product also principal end customer product sales fee paid otsuka 2020 based net sales levels oncology territory us japan eu equates 294 million first 1 billion annual net sales plus 1 net sales excess 1 billion summarized financial information related alliance follows ono bms ono jointly develop commercialize opdivo yervoy several bms investigational compounds japan south korea taiwan bms responsible supply products profits losses development costs shared equally combination therapies involving compounds parties otherwise sharing 80 20 activities involving one party’s compounds bms ono also jointly develop commercialize orencia japan bms responsible order fulfillment distribution intravenous formulation ono responsible subcutaneous formulation formulations jointly promoted parties assigned customer accounts bms responsible product supply copromotion fee 60 paid sale made party’s assigned customer 2017 ono granted bms exclusive license development commercialization ono4578 ono’s prostaglandin e2 receptor 4 antagonist bms acquired worldwide rights except japan south korea taiwan added existing collaboration china asean countries ono retained exclusive rights bms paid 40 million ono included research development expense 2017 ono eligible receive subsequent clinical regulatory salesbased milestone payments 480 million royalties countries bms exclusive licensing rights 2018 bms provided ono right accept nktr214 alliance upon completion phase clinical study opdivo nktr214 ono territory right exercised ono partially reimburse bms development costs incurred study share certain future development costs contingent milestone payments profits losses collaboration nektar ono exercised right accept nktr214 alliance bms 2019 summarized financial information related alliance follows bms principal end customer product sales exclusive right develop manufacture commercialize opdivo worldwide except japan south korea taiwan ono entitled receive royalties 4 north america 15 territories excluding three countries listed subject customary adjustments nektar 2018 bms nektar commenced worldwide license collaboration development commercialization bempegaldesleukin nktr214 nektars investigational immunostimulatory therapy designed selectively expand specific cancerfighting cells natural killer cells directly tumor microenvironment january 2020 parties amended collaboration agreement opdivo nktr214 combination therapy currently phase iii clinical studies melanoma muscleinvasive bladder cancer rcc joint development plan agreed parties part original agreement updated part january 2020 amendment specifies development certain indications tumor types party responsible supply product bmss share development costs associated therapies comprising bms medicine used combination nktr214 675 subject certain cost caps nektar january 2020 amendment retains cost sharing percentages original agreement parties also jointly commercialize therapies subject regulatory approval bmss share global nktr214 profits losses 35 subject certain annual loss caps nektar bms paid nektar 185 billion rights discussed 83 million shares nektar common stock representing 48 ownership interest bmss equity ownership subject certain lockup standstill voting provisions fiveyear period amount upfront payment allocated equity investment 800 million considering nektars stock price date closing current limitations trading securities remaining 105 billion upfront payment allocated rights discussed included research development expense second quarter 2018 bms also pay 18 billion upon achievement contingent development regulatory salesbased milestones life alliance period research development expense payable agreement nektar 108 million 59 million years ended december 31 2019 2018 respectively note 4 acquisitions divestitures licensing arrangements acquisitions business combination celgene november 20 2019 bms completed celgene acquisition expected create leading biopharmaceutical company well positioned sustained innovation longterm growth address needs patients cancer inflammatory immunologic cardiovascular diseases highvalue innovative medicines leading scientific capabilities share celgene common stock converted right receive one share bms common stock 5000 cash celgene shareholders also received one tradeable contingent value right “cvr” share celgene common stock representing right receive 900 cash subject achievement future regulatory milestones aggregate cash paid connection celgene acquisition 357 billion 246 billion net cash acquired bms funded acquisition cash onhand debt proceeds described “note 9 financial instruments fair value measurements” transaction accounted business combination requires assets acquired liabilities assumed recognized fair value acquisition date purchase price allocation preliminary subject change including valuation inventory property plant equipment intangible assets income taxes legal contingencies among items amounts recognized finalized information necessary complete analysis obtained later one year acquisition date total consideration acquisition consisted following closing price cvr based first trade november 21 2019 b fair value awards attributed postcombination services 10 billion included compensation costs refer “note 18 employee stock benefit plans” information preliminary purchase price allocation resulted following amounts allocated assets acquired liabilities assumed acquisition date based upon respective preliminary fair values summarized intangible assets consists currently marketed product rights approximately 445 billion amortized 51 years calculated using weightedaverage useful life assets iprd approximately 195 billion amortized valued using multiperiod excess earnings method starts forecast expected future net cash flows associated asset involves adjusting forecast present value applying appropriate discount rate reflects risk factors associated cash flow streams b amount includes 381 million inventory 130 billion developed product rights 19 million accrued liabilities 5 million noncurrent liabilities refer “divestitures” information c goodwill represents goingconcern value associated future product discovery beyond existing pipeline expected value synergies resulting cost savings avoidance attributed identifiable assets goodwill deductible tax purposes bmss consolidated statement earnings year ended december 31 2019 include 19 billion revenues 16 billion net loss associated result operations celgene acquisition date december 31 2019 acquisition expenses 657 million year ended december 31 2019 including financial advisory legal proxy filing regulatory financing fees hedge costs following unaudited pro forma information prepared celgene acquisition otezla divestiture occurred january 1 2018 unaudited supplemental pro forma consolidated results purport reflect combined companys results operations would project future results operations combined company unaudited supplemental pro forma consolidated results reflect historical financial information bms celgene adjusted give effect celgene acquisition otezla divestitures occurred january 1 2018 primarily following adjustments • amortization expenses primarily related fair value adjustments celgenes intangible assets inventories debt • nonrecurring acquisitionrelated costs directly attributable celgene acquisition tax expense directly attributable otezla divestiture • interest expense including amortization deferred financing fees attributable celgene acquisition financing • elimination historical revenue expenses related otezla refer “divestitures” adjustments adjusted applicable tax impact using estimated weightedaverage statutory tax rate applied applicable pro forma adjustments asset acquisitions certain transactions accounted asset acquisitions since determined business term defined asc 805 primarily significant processes acquired result amounts allocated lead investigational compounds expensed capitalized 2017 bms acquired outstanding shares ifm therapeutics inc “ifm” private biotechnology company focused developing therapies modulate novel targets innate immune system treat cancer autoimmunity inflammatory diseases acquisition provided bms full rights ifms preclinical sting nlrp3 agonist programs focused enhancing innate immune response treating cancer transaction price included upfront payment 325 million contingent consideration 20 billion upfront payment included research development expense except 14 million allocated net operating loss tax credit carryforwards contingent consideration includes development regulatory salesbased milestone payments 25 million included research development expense 2019 2018 following commencement two phase clinical studies bms may pay 555 million additional contingent milestones subsequent products selected ifms preclinical sting nlrp3 agonist programs research development expense also includes 60 million 2018 450 million 2017 resulting occurrence certain development regulatory events attributed asset acquisition completed prior 2017 including flexus biosciences inc cardioxyl pharmaceuticals inc cormorant pharmaceuticals divestitures following table summarizes financial impact divestitures including royalties included incomeexpense net revenue pretax earnings related divestitures assets heldforsale material periods presented excluding divestiture gains losses includes royalties received subsequent related sale asset business otezla order complete celgene acquisition bms required ftc divest certain products allow acquisition close timely basis light concerns expressed ftc celgene entered purchase agreement amgen august 25 2019 amgen would acquire global rights otezla apremilast 134 billion cash november 21 2019 bms completed divestiture otezla amgen transaction accounted asset divestiture otezla acquired part celgene acquisition classified heldforsale time acquisition estimated fair value otezla net assets consisted 130 billion developed product rights 381 million inventory upsa business 2019 bms sold upsa consumer health business including shares upsa sas bmss assets liabilities relating upsa product portfolio taisho pharmaceutical co ltd transaction accounted sale business upsa business treated single disposal group heldforsale december 31 2018 diabetes business february 2014 bms astrazeneca terminated diabetes business alliance agreements bms sold astrazeneca substantially diabetes business comprising alliance consideration transaction included tiered royalty payments ranging 10 25 based net sales 2025 royalties 533 million 2019 457 million 2018 229 million 2017 contingent consideration 100 million received 2017 resulting additional gain upon achievement regulatory approval milestone september 2015 bms transferred percentage future royalty rights amylin net product sales us cppib transferred rights represent approximately 70 potential future royalties bms entitled 2019 2025 exchange transfer bms received additional tieredbased royalty amylin net product sales us cppib 2016 2018 including 45 million 2018 100 million 2017 paid 48 million 2019 november 2017 bms transferred percentage future royalty rights portion onglyza farxiga net product sales royalty pharma transferred rights represent approximately 20 25 potential future royalties bms entitled products 2020 2025 exchange transfer bms received additional tieredbased royalty onglyza farxiga net product sales royalty pharma including 165 million 2019 159 million 2018 erbitux business bms commercialization agreement lilly’s subsidiary imclone codevelopment promotion erbitux us canada japan bms principal end customer product sales north america paid lilly distribution fee 39 erbitux net sales north america plus share certain royalties paid lilly october 2015 bms transferred rights erbitux north america lilly exchange tiered salesbased royalties september 2018 including 145 million 2018 207 million 2017 bms transferred cocommercialization rights japan merck kgaa 2015 exchange salesbased royalties 2032 royalties earned 17 million 2017 result adoption asc 610 first quarter 2018 estimated future royalties resulting transfer rights merck kgaa recorded cumulative effect adjustment retained earnings 23 million change estimated future royalties included 2019 manufacturing operations 2019 bms sold manufacturing packaging facility anagni italy catalent inc transaction accounted sale business divestiture includes transfer facility majority employees site inventories certain thirdparty contract manufacturing obligations assets reduced relative fair value considering purchase price resulting impairment charge 121 million included cost products sold catalent inc provide certain manufacturing packaging services bms period time 2017 bms sold small molecule active pharmaceutical ingredient manufacturing operations swords ireland sk biotek co ltd proceeds received first quarter 2018 transaction accounted sale business divestiture includes transfer facility majority employees site inventories certain thirdparty contract manufacturing obligations assets reduced relative fair value considering purchase price resulting impairment charge 146 million included cost products sold sk biotek co ltd provide certain manufacturing services bms period time plavix avaproavalide sanofi reacquired bmss codevelopment cocommercialization agreements plavix avaproavalide 2013 consideration transfer rights included quarterly royalties december 31 2018 200 million terminal payment received 2018 120 million allocated optout markets 80 million allocated bmss 499 interest europe asia territory partnership royalties expected received 2018 portion terminal payment allocated optout markets reflected contract asset cumulative effect adjustment upon adoption asc 610 2018 bms fulfilled performance obligation 80 million allocated bmss partnership interest deferred december 31 2018 recognized transferred sanofi 2019 royalties earned sanofi territory covering americas australia optout markets presented alliance revenues aggregated 26 million 2018 200 million 2017 royalties attributed territory covering europe asia earned territory partnership paid bms included equity net lossincome affiliates amounted 96 million 2018 95 million 2017 investigational hiv business 2016 bms sold investigational hiv medicines business consisting number rd programs different stages discovery development viiv healthcare bms received 350 million also entitled receive viiv healthcare contingent development regulatory milestone payments 11 billion salesbased milestone payments 43 billion future tiered royalties bms earned transitional fees 10 million certain rd services 2017 mature brands divestitures include several brands sold cheplapharm resulting proceeds 153 million divestiture gains 127 million 2018 assets heldforsale following table summarizes upsa consumer health business net assets heldforsale december 31 2018 licensing arrangements halozyme 2017 bms halozyme entered global collaboration license agreement develop subcutaneously administered bms io medicines using halozymes enhanze drugdelivery technology may allow rapid delivery large volume injectable medications subcutaneous delivery bms paid 105 million halozyme access technology included research development expense bms designated multiple io targets including pd1 develop using enhanze technology option select additional targets within five years effective date maximum 11 targets bms may pay contingent development regulatory salesbased milestones 160 million achieved nominated collaboration targets additional milestone payments combination products future royalties sales products using enhanze technology cytomx 2017 bms expanded strategic collaboration cytomx discover novel therapies using cytomx’s proprietary probody platform part original may 2014 collaboration discover develop commercialize probody therapeutics bms selected four oncology targets including ctla4 pursuant expanded agreement cytomx granted bms exclusive worldwide rights develop commercialize probody therapeutics eight additional targets bms paid cytomx 75 million rights initial four targets expensed rd prior 2017 bms paid 200 million cytomx access additional targets included research development expense 2017 bms also reimburse cytomx certain research costs collaboration period pay contingent development regulatory salesbased milestones 448 million achieved collaboration target future royalties biogen 2017 bms outlicensed biogen exclusive rights develop commercialize bms986168 antietau compound development progressive supranuclear palsy alzheimers disease biogen paid 300 million bms included incomeexpense net bms also entitled contingent development regulatory salesbased milestone payments 360 million achieved future royalties bms originally acquired rights compound 2014 acquisition ipierian inc biogen assumed bms’s applicable remaining obligations former stockholders ipierian inc roche 2017 bms outlicensed roche exclusive rights develop commercialize bms986089 antimyostatin adnectin development duchenne muscular dystrophy roche paid 170 million bms included incomeexpense net roche ceased development duchenne muscular dystrophy 2019 fstar 2014 bms acquired exclusive option purchase fstar lead asset fs102 antiher2 antibody fragment development treatment breast gastric cancer among welldefined population her2positive patients 2017 bms discontinued development fs102 exercise option resulting iprd charge 75 million included research development expense attributed noncontrolling interest note 5 incomeexpense net note 6 restructuring integration plan implemented initiative realize 25 billion expected cost synergies resulting cost savings avoidance celgene acquisition synergies expected realized cost products sold 10 marketing selling administrative expenses 55 research development expenses 35 majority charges expected incurred 2022 range 28 billion 30 billion costs consist integration planning execution expenses employee termination benefit costs accelerated stockbased compensation contract termination costs shutdown costs associated site exits cash outlays connection actions expected approximately 25 billion employee workforce reductions approximately 125 2019 following tables summarize charges activity related celgene acquisition excludes 145 million accelerated stockbased compensation october 2016 restructuring plan announced evolve streamline bmss operating model majority charges expected incurred 2020 range 15 billion 20 billion consist employee termination benefit costs contract termination costs accelerated depreciation impairment charges costs associated manufacturing rd site exits cash outlays connection actions expected approximately 40 50 total charges approximately 14 billion recognized actions since announcement employee workforce reductions approximately 100 2019 900 2018 1900 2017 following tables summarize charges activity related company transformation note 7 income taxes provisionbenefit income taxes consisted effective tax rate reconciliation effective tax rate us statutory federal income tax rate follows effective tax rate 2017 reflects additional tax expense 29 billion recognized upon enactment act increasing effective tax rate 567 effective tax rate 2018 includes favorable measurement period adjustments provisional amounts recorded 2017 associated act 56 million 09 accounting reduction deferred tax assets 21 tax rate complete december 31 2017 tax charge deemed repatriation transition tax complete december 31 2018 gilti tax associated otezla divestiture 808 million 2019 prior enactment act earnings certain bms’s manufacturing operations low tax jurisdictions switzerland ireland puerto rico indefinitely reinvested result transition tax act bms longer indefinitely reinvested respect undistributed earnings foreign subsidiaries provided deferred tax liability foreign state income withholding tax would apply bms remains indefinitely reinvested respect financial statement basis excess tax basis foreign subsidiaries determination deferred tax liability respect basis difference practicable bms operates favorable tax grant puerto rico scheduled expire prior 2023 us federal valuation allowance established 2018 2019 result nektar equity investment fair value losses would considered limited capital loss us federal state foreign contingent tax matters includes 81 million tax benefit 2019 119 million tax benefit 2018 respect lapse statutes fair value adjustments contingent value rights deductible tax purposes non deductible rd charges primarily result acquisition related milestone payments former shareholders including flexus biosciences inc cardioxyl pharmaceuticals inc ifm therapeutics inc 2017 puerto rico imposes excise tax gross company purchase price goods sold bms’s manufacturer puerto rico excise tax recognized cost products sold intraentity sale occurs us income tax purposes excise tax deductible results foreign tax credits generally recognized bms’s provision income taxes excise tax incurred deferred taxes valuation allowance components current noncurrent deferred income tax assetsliabilities follows us federal net operating loss carryforwards 216 million december 31 2019 carryforwards acquired result certain acquisitions subject limitations section 382 internal revenue code net operating loss carryforwards expire varying amounts beginning 2022 foreign state net operating loss carryforwards expire varying amounts beginning 2019 certain amounts unlimited lives december 31 2019 valuation allowance 28 billion established following items 24 billion primarily foreign net operating loss tax credit carryforwards 206 million state deferred tax assets including net operating loss tax credit carryforwards 218 million us federal deferred tax assets including equity fair value adjustments us federal net operating loss carryforwards changes valuation allowance follows income tax payments 1503 million 2019 747 million 2018 546 million 2017 business conducted various countries throughout world subject tax numerous jurisdictions significant number tax returns filed subject examination various federal state local tax authorities tax examinations often complex tax authorities may disagree treatment items reported requiring several years resolve liabilities established possible assessments tax authorities resulting known tax exposures including limited transfer pricing matters tax credit deductibility certain expenses deemed repatriation transition tax liabilities represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax liabilities included effective tax rate reconciliation beginning ending amount gross unrecognized tax benefits follows excluding interest penalties additional information regarding unrecognized tax benefits follows accrued interest penalties payable unrecognized tax benefits included either current noncurrent income taxes payable interest penalties related unrecognized tax benefits included income tax expense bms currently examination number tax authorities proposed considering proposing material adjustments tax positions issues transfer pricing certain tax credits deductibility certain expenses reasonably possible new issues raised tax authorities may require adjustments amount unrecognized tax benefits however estimate adjustments cannot reasonably made time also reasonably possible total amount unrecognized tax benefits december 31 2019 could decrease range approximately 290 million 330 million next twelve months result settlement certain tax audits events expected change unrecognized tax benefits may result payment additional taxes adjustment certain deferred taxes andor recognition tax benefits following summary major tax jurisdictions tax authorities may assert additional taxes based upon tax years currently audit subsequent years likely audited note 8 earnings per share note 9 financial instruments fair value measurements financial instruments include cash equivalents marketable securities accounts receivable payable debt instruments derivatives changes exchange rates interest rates create exposure market risk certain derivative financial instruments used available costeffective basis hedge underlying economic exposure instruments qualify cash flow net investment fair value hedges upon meeting certain criteria including effectiveness offsetting hedged exposures changes fair value derivatives qualify hedge accounting recognized earnings occur derivative financial instruments used trading purposes financial instruments subject counterparty credit risk considered part overall fair value measurement counterparty credit risk monitored ongoing basis mitigated limiting amounts outstanding individual counterparty utilizing conventional derivative financial instruments entering agreements counterparties meet high credit quality standards consolidated financial statements would materially impacted counterparty failed perform according terms agreement collateral required party whether derivatives asset liability position terms agreements fair value measurements fair value financial instruments classified one following categories level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets additionally certain corporate debt securities utilize thirdparty matrix pricing model using significant inputs corroborated market data substantially full term assets equity fixed income funds primarily invested publicly traded securities valued respective nav underlying investments level 2 derivative instruments valued using libor yield curves less credit valuation adjustments observable forward foreign exchange rates reporting date valuations derivative contracts may fluctuate considerably volatility underlying foreign currencies underlying interest rates driven market conditions duration contract level 3 unobservable inputs used little market data available level 3 financial liabilities consist acquisition related contingent consideration success payments related undeveloped product rights resulting celgene acquisition financial assets liabilities measured fair value recurring basis summarized contingent consideration obligations recorded estimated fair values bms revalues obligations reporting period related contingencies resolved contingent value rights adjusted fair value using traded price securities end reporting period fair value measurements contingent consideration liabilities estimated using probabilityweighted discounted cash flow approaches based significant unobservable inputs related product candidates acquired business combinations reviewed quarterly inputs include applicable estimated probabilities timing achieving specified development regulatory milestones estimated annual sales discount rate used calculate present value estimated future payments significant changes increase decrease probabilities achieving related development regulatory events shorten lengthen time required achieve events increase decrease estimated annual sales would result corresponding increases decreases fair values obligations fair value contingent consideration december 31 2019 calculated using following significant unobservable inputs transfers levels 1 2 3 year ended december 31 2019 following table represents rollforward fair value level 3 instruments availableforsale debt securities equity investments changes fair value equity investments included incomeexpense net following table summarizes bmss availableforsale debt securities equity investments noncurrent marketable debt securities mature within five years december 31 2019 december 31 2018 equity investments measured fair value excluded table limited partnerships equity method investments 429 million december 31 2019 114 million december 31 2018 equity investments without readily determinable fair values 781 million december 31 2019 206 million december 31 2018 amounts included noncurrent assets following table summarizes net gainloss recorded equity investments readily determinable fair values held december 31 2019 qualifying hedges nonqualifying derivatives cash flow hedges foreign currency forward contracts used hedge certain forecasted intercompany inventory purchases sales transactions certain foreign currency transactions fair value contracts designated cash flow hedges temporarily reported accumulated comprehensive loss included earnings hedged item affects earnings upon adoption amended guidance derivatives hedging entire change fair value hedging instrument included assessment hedge effectiveness recorded derivatives qualifying cash flow hedges component comprehensive incomeloss net gain loss foreign currency forward contracts expected reclassified net earnings primarily included cost products sold incomeexpense net within next 12 months notional amount outstanding foreign currency forward contracts primarily attributed euro 18 billion japanese yen 911 million december 31 2019 earnings impact related discontinued cash flow hedges hedge ineffectiveness significant periods presented cash flow hedge accounting discontinued forecasted transaction longer probable occurring within 60 days originally forecasted date hedge longer effective assessments determine whether derivatives designated qualifying hedges highly effective offsetting changes cash flows hedged items performed inception quarterly basis foreign currency forward contracts designated hedging instruments used offset exposures certain foreign currency denominated assets liabilities earnings changes fair value derivatives recognized earnings occur bms may hedge portion future foreign currency exposure utilizing strategy involves purchased local currency put option written local currency call option accounted hedges future sales denominated local currency specifically bms sells writes local currency call option purchases local currency put option expiration dates local currency notional amounts different strike prices premium collected sale call option equal premium paid purchased put option resulting net premium paid combination transactions generally referred “zerocost collar” expiration dates notional amounts correspond amount timing forecasted foreign currency sales foreign currency zerocost collar contracts outstanding december 31 2019 settlement dates within 12 months us dollar weakens relative currency hedged anticipated sales purchased put option value reduces zero benefit increase us dollar equivalent value anticipated foreign currency cash flows however benefit would capped strike level written call forms upper end collar net investment hedges nonus dollar borrowings €950 million 11 billion december 31 2019 designated net investment hedges hedge euro currency exposures net investment certain foreign affiliates recognized longterm debt effective portion foreign exchange gain remeasurement euro debt included foreign currency translation component accumulated comprehensive loss related offset longterm debt january 2018 300 million crosscurrency interest rate swap contracts maturing december 2022 entered designated hedge japanese yen currency exposures bmss net investment japan subsidiary contract fair value changes recorded foreign currency translation component comprehensive incomeloss related offset noncurrent assets noncurrent liabilities fair value hedges fixed floating interest rate swap contracts designated fair value hedges used interest rate risk management strategy create appropriate balance fixed floating rate debt contracts underlying debt hedged benchmark risk recorded fair value effective interest rate contracts onemonth libor 18 december 31 2019 plus interest rate spread 46 gains losses resulting changes fair value underlying debt attributable hedged benchmark interest rate risk recorded interest expense associated offset carrying value debt since specific terms notional amount swap intended align debt hedged changes fair value swap recorded interest expense associated offset derivative asset liability consolidated balance sheet result net impact earnings underlying swap terminated prior maturity fair value adjustment underlying debt amortized reduction interest expense remaining term debt following announcement celgene acquisition forward starting interest rate swap option contracts entered total notional value 76 billion hedge future interest rate risk associated anticipated issuance longterm debt fund acquisition april 2019 deal contingent forward starting interest rate swap contracts entered aggregate notional principal amount 104 billion hedge interest rate risk associated anticipated issuance longterm debt fund acquisition forward starting interest rate swap option contracts terminated deal contingent forward starting interest rate swap contracts terminated upon completion celgene acquisition following summarizes fair value outstanding derivatives included current assets noncurrent assets b included current liabilities noncurrent liabilities following table summarizes financial statement classification amount gainloss recognized hedging instruments following table summarizes effect derivative nonderivative instruments designated hedging instruments comprehensive incomeloss amount expected reclassified earnings next 12 months debt obligations 2019 bms issued aggregate principal amount approximately 190 billion floating rate fixed rate unsecured senior notes proceeds net discount deferred loan issuance costs 188 billion notes rank equally right payment bmss existing future senior unsecured indebtedness fixed rate notes redeemable time whole part varying specified redemption prices plus accrued unpaid interest 2017 bms issued aggregate principal amount 15 billion senior unsecured notes registered public offerings proceeds net discount deferred loan issuance costs 15 billion notes rank equally right payment bmss existing future senior unsecured indebtedness redeemable time whole part varying specified redemption prices plus accrued unpaid interest connection celgene acquisition bms commenced offers exchange outstanding notes issued celgene approximately 199 billion likeamount new notes issued bms “exchange offers” exchange transaction accounted modification assumed debt instruments following settlement exchange offers bms issued approximately 185 billion new notes exchange celgene notes tendered exchange offers aggregate principal amount celgene notes remained outstanding following settlement exchange offers approximately 13 billion fair value longterm debt 507 billion 71 billion december 31 2019 2018 respectively valued using level 2 inputs based upon quoted market prices similar debt instruments fair value shortterm borrowings approximates carrying value due short maturities debt instruments repayment notes maturity aggregated 13 billion 2019 750 million 2017 interest payments 414 million 2019 218 million 2018 221 million 2017 december 31 2019 bms four separate revolving credit facilities totaling 60 billion consisted 364day 20 billion facility renewed january 2021 10 billion facility expiring january 2022 two fiveyear 15 billion facilities extended september 2023 july 2024 respectively facilities provide customary terms conditions financial covenants may used provide backup liquidity bmss commercial paper borrowings bmss 10 billion facility two 15 billion revolving facilities extendable annually one year anniversary date consent lenders bmss 364day 20 billion facility renewed one year anniversary date subject certain terms conditions borrowings outstanding revolving credit facility december 31 2019 2018 bms also entered 80 billion term loan credit agreement consisting 10 billion 364day tranche 40 billion threeyear tranche 30 billion fiveyear tranche connection celgene acquisition term loan subject customary terms conditions financial covenants proceeds term loan used fund portion cash paid celgene acquisition payment related fees expenses subsequent completion acquisition bms repaid term loan entirety using cash proceeds generated otezla divestiture refer “note 4 acquisitions divestitures licensing arrangements” information available financial guarantees provided form bank overdraft facilities standby letters credit performance bonds approximately 850 million december 31 2019 standby letters credit issued financial institutions support guarantees various obligations performance bonds issued support range ongoing operating activities including sale products hospitals foreign ministries health bonds customs duties value added tax guarantees related miscellaneous legal actions shortterm debt obligations include longterm debt current portion longterm debt includes note 10 receivables nonus receivables sold nonrecourse basis 797 million 2019 756 million 2018 637 million 2017 aggregate receivables three pharmaceutical wholesalers us represented approximately 50 70 total trade receivables december 31 2019 2018 respectively changes allowances bad debt chargebacks cash discounts follows note 11 inventories prior year amounts certain inventory balances presented work process conform current year presentation rather finished goods raw materials total inventories include fair value adjustments resulting celgene acquisition 35 billion recognized future periods noncurrent assets include inventory expected remain hand beyond one year periods note 12 property plant equipment depreciation expense 554 million 2019 505 million 2018 682 million 2017 note 13 leases leased facilities office research development storage distribution purposes comprise approximately 90 total lease obligation lease terms vary based nature operations market dynamics country however leased facilities classified operating leases remaining lease terms one year 20 years leases contain specific renewal options periods ranging one year 10 years notice renew must provided advance lease expiration automatic renewals advance notice required periods covered option extend lease included noncancellable lease term exercise option determined reasonably certain leases also contain termination options provide flexibility terminate lease ahead expiration sufficient advance notice periods covered option terminate lease included noncancellable lease term exercise option determined reasonably certain judgment required assessing whether renewal termination options reasonably certain exercised factors considered contractual terms compared current market rates leasehold improvements expected significant value costs terminate lease importance facility operations costs determined variable based index rate included measurement real estate lease liabilities variable costs include real estate taxes insurance utilities common area maintenance operating costs implicit rate leases readily determinable incremental borrowing rate applied portfolio approach discount real estate lease liabilities remaining 10 lease obligations comprised vehicles used primarily salesforce rd facility operated third party managements direction vehicle lease terms vary country terms generally one year four years following table summarizes components lease expense operating lease rightofuse assets liabilities follows future lease payments noncancellable operating leases december 31 2019 follows future minimum lease payments noncancelable operating leases december 31 2018 approximately 100 million per year 2019 2023 200 million thereafter rightofuse assets obtained exchange new operating lease obligations 231 million year ended december 31 2019 primarily relates 223 million rightofuse assets acquired celgene acquisition cash paid amounts included measurement operating lease liabilities 79 million year ended december 31 2019 net 33 million lease incentive received second quarter weightedaverage remaining lease term 9 years discount rate 4 december 31 2019 note 14 goodwill intangible assets includes goodwill intangible assets recognized part celgene acquisition 2019 refer “note 4 acquisitions divestitures licensing arrangements” information related celgene acquisition amortization expense intangible assets 1255 million 2019 198 million 2018 190 million 2017 future annual amortization expense intangible assets expected approximately 93 billion 2020 93 billion 2021 91 billion 2022 84 billion 2023 74 billion 2024 intangible asset impairment charges 66 million 2019 84 million 2018 80 million 2017 32 million iprd impairment charge recorded research development 2019 following decision discontinue development investigational compound obtained acquisition medarex 64 million impairment charge recorded incomeexpense net 2018 outlicensed asset obtained 2010 acquisition zymogenetics inc meet primary endpoint phase ii clinical study 75 million iprd impairment charge recognized attributed noncontrolling interest 2017 option purchase fstar exercised note 15 supplemental financial information note 16 equity cumulative effect resulting adoption asu 201616 b cumulative effect resulting adoption asu 201409 c cash dividends declared per common share 168 161 157 2019 2018 2017 respectively bms share repurchase program authorized board directors allowing repurchases shares effected open market privately negotiated transactions compliance rule 10b18 securities exchange act 1934 amended “exchange act” including rule 10b51 trading plans share repurchase program expiration date may suspended discontinued time treasury stock recognized cost reacquire shares issued treasury recognized utilizing firstin firstout method fourth quarter 2019 bms executed accelerated share repurchase agreements “asr” morgan stanley co llc barclays bank plc repurchase aggregate 7 billion common stock asr funded cash onhand approximately 99 million shares common stock representing approximately 80 7 billion aggregate repurchase price current stock price delivered bms included treasury stock agreements expected settle second quarter 2020 upon additional shares common stock may delivered bms certain circumstances bms may required make cash payment may elect deliver shares common stock counterparties total number shares ultimately repurchased asrs determined upon final settlement based discount volumeweighted average price bms’s common stock asr period bms completed accelerated share repurchase agreements repurchased approximately 365 million shares common stock aggregate 2 billion 2017 agreements funded combination debt cash components comprehensive incomeloss follows included cost products sold b included incomeexpense net accumulated balances related component comprehensive incomeloss net taxes follows note 17 retirement benefits bms sponsors defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal defined benefit pension plan bristolmyers squibb retirement income plan “plan” covered us employees future benefits related service plan eliminated 2009 bms contributed least minimum amount required erisa plan benefits based primarily participant’s years credited service final average compensation december 2018 bms announced plans fully terminate plan pension obligations related plan distributed combination lump sum payments eligible plan participants elected payments purchase group annuity contracts wholly owned insurance subsidiaries athene holding ltd “athene” 2019 13 billion distributed plan participants elected lump sum payments election window group annuity contracts purchased athene 26 billion remaining plan participants athene irrevocably assumed pension obligations transactions fully terminated plan resulted 15 billion noncash pretax pension settlement charge 2019 bms acquired celgene november 20 2019 certain celgenes international subsidiaries funded unfunded defined benefit pension plans recorded fair value celgene plans using assumptions accounting policies consistent disclosed bms upon acquisition excess projected benefit obligation plan assets recognized liability previously existing deferred actuarial gains losses unrecognized service costs benefits eliminated net periodic benefit costcredit defined benefit pension plans includes pension settlement charges recognized determining annual lump sum payments exceed annual interest service costs certain pension plans including primary us pension plan 2019 2018 2017 changes defined benefit pension plan obligations assets funded status amounts recognized consolidated balance sheets follows accumulated benefit obligation defined benefit pension plans 29 billion 60 billion december 31 2019 2018 respectively additional information related pension plans follows actuarial assumptions weightedaverage assumptions used determine defined benefit pension plan obligations follows weightedaverage actuarial assumptions used determine defined benefit pension plan net periodic benefit costcredit follows yield high quality corporate bonds matching duration benefit obligations used determining discount rate citi pension discount curve used developing discount rate us plans expected return plan assets assumption plan based managements expectations longterm average rates return achieved underlying investment portfolio several factors considered developing expected return plan assets including longterm historical returns input external advisors individual asset class return forecasts developed based upon market conditions example priceearnings levels yields longterm growth expectations expected longterm rate return weightedaverage target asset allocation individual asset class actuarial gains losses resulted changes actuarial assumptions changes discount rate revised mortality rates differences assumed actual experience differences actual expected return plan assets actuarial losses 2019 related plan benefit obligations primarily result decreases discount rates actuarial gains 2018 related plan benefit obligations primarily result increases discount rates gains losses amortized life expectancy plan participants us plans 26 years 2020 expected remaining service periods plans extent exceed 10 higher marketrelated value projected benefit obligation respective plan postretirement benefit plans comprehensive medical group life benefits provided substantially legacy bms us retirees electing participate comprehensive medical group life plans lesser extent certain benefits nonus employees medical plan contributory contributions adjusted periodically vary date retirement life insurance plan noncontributory plan assets consist principally fixedincome securities postretirement benefit plan obligations 255 million 253 million december 31 2019 2018 respectively fair value plan assets 398 million 331 million december 31 2019 2018 respectively weightedaverage discount rate used determine benefit obligations 29 39 december 31 2019 2018 respectively net periodic benefit credits material plan assets fair value pension postretirement plan assets asset category december 31 2019 2018 follows investment valuation policies per investment class follows level 1 inputs utilize unadjusted quoted prices active markets accessible measurement date identical assets liabilities fair value hierarchy provides highest priority level 1 inputs instruments include equity securities equity funds fixed income funds publicly traded national securities exchange cash equivalents cash equivalents highly liquid investments original maturities three months less time purchase recognized cost approximates fair value pending trade sales purchases included cash equivalents final settlement level 2 inputs utilize observable prices similar instruments quoted prices identical similar instruments nonactive markets observable inputs corroborated market data substantially full term assets liabilities equity funds fixed income funds shortterm investment funds classified level 2 within fair value hierarchy valued nav shares held year end represents fair value corporate debt securities us treasury agency securities classified level 2 within fair value hierarchy valued utilizing observable prices similar instruments quoted prices identical similar instruments markets active level 3 unobservable inputs used little market data available insurance contracts held certain foreign pension plans carried contract value approximates estimated fair value based fair value underlying investment insurance company essentially venture capital limited partnership investments liquidated end 2019 remaining investments using practical expedient consist multiasset funds redeemable either daily weekly monthly basis investment strategy maximize return maintaining appropriate level risk provide sufficient liquidity benefit obligations plan expenses individual plan investment allocations determined local fiduciary committees composition total assets pension plans december 31 2019 broadly characterized allocation equity securities 28 debt securities 63 investments 9 principal us defined benefit pension plan overfunded termination result excess plan assets 424 million reflected bms assets december 31 2019 assets primarily reported long term restricted cash due election contribute assets bristolmyers squibb savings investment program qualified replacement plan election requires assets used fund future annual company contribution bristolmyers squibb savings investment program contributions estimated future benefit payments contributions pension plans 63 million 2019 71 million 2018 396 million 2017 expected material 2020 estimated annual future benefit payments nonterminating plans including lump sum payments approximately 120 million next five years subsequent five year period savings plans principal defined contribution plan bristolmyers squibb savings investment program contributions based employee contributions level company match expense attributed defined contribution plans us approximately 200 million 2019 2018 2017 note 18 employee stock benefit plans may 1 2012 shareholders approved 2012 plan replaced 2007 stock incentive plan 2012 plan provides 109 million shares authorized grants plus shares outstanding awards 2007 plan february 29 2012 expire forfeited canceled withheld satisfy tax withholding obligations december 31 2019 98 million shares available award shares issued treasury stock satisfy bmss obligations plan part celgene acquisition bms assumed 2017 stock incentive plan 2014 equity incentive plan referred together bms plans “plans” plans provided granting options restricted stock units “rsus” performance share units “psus” sharebased performancebased awards former celgene employees officers nonemployee directors additionally terms plans provided accelerated vesting awards upon change control followed involuntary termination without cause acquisition date 29 million shares available award celgene plans outstanding celgene equity awards assumed bms converted bms equity awards replacement bms awards generally terms conditions including vesting former celgene awards exchanged shares issued treasury stock satisfy bmss obligations plans cvrs also issued holders vested unexercised “in money” options outstanding acquisition date celgene rsu holders unvested “in money” options outstanding acquisition date awards vesting prior march 31 2021 also eligible receive cvrs celgene rsu holders unvested “in money” options outstanding acquisition date awards vesting march 31 2021 eligible receive cash value 900 per preconverted celgene rsu “in money” options cvr milestones achieved executive officers key employees may granted options purchase common stock less market price date option granted options generally become exercisable ratably four years maximum term 10 years plans provide granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price primarily utilize treasury shares satisfy exercise stock options rsus may granted key employees subject restrictions continuous employment generally vesting occurs ratably three four year period grant date stock unit right receive stock end specified vesting period voting rights market share units “msus” granted executives vesting conditioned upon continuous employment vesting date payout factor least 60 share price award date payout factor share price vesting date divided share price award date maximum 200 share price used payout factor calculated using average closing prices grant vest date nine trading days immediately preceding grant vest date vesting occurs ratably four years psus granted executives three year cycle granted target number units subject adjustment number shares issued psus vest determined based achievement performance goals based bmss threeyear total shareholder return relative peer group companies vesting conditioned upon continuous employment occurs third anniversary grant date stockbased compensation expense awards ultimately expected vest recognized vesting period forfeitures estimated based historical experience time grant revised subsequent periods actual forfeitures differ estimates components stockbased compensation benefits consolidated statement earnings follows total stockbased compensation expense year ended december 31 2019 includes 66 million related celgene postcombination service period 145 million accelerated vesting awards related celgene acquisition also includes 10 million related cvr obligation unvested stock awards post combination service period refer “note 4 acquisitions divestitures licensing arrangements” information related celgene acquisition replacement stock options granted celgene option holders acquisition issued consistent vesting conditions replaced award replacement stock options contractual terms 10 years initial grant date majority stock options outstanding vest onefourth increments four year period although certain awards cliff vest longer shorter service periods celgene option holders may elect exercise options time option term however shares purchased vested date exercise shall subject forfeiture lapse accordance established vesting time period fair value acquisition date attributable postcombination service adjusted estimated forfeitures recognized expense straightline basis remaining vesting period bms estimated fair value replacement options using blackscholes option pricing model following assumptions riskfree interest rate based rates available us federal reserve treasury constant maturities remaining term equal options expected life time replacement award expected volatility replacement stock option awards estimated based 5050 blend implied volatility five year historical volatility bms publicly traded stocks expected term employee share option period time option expected outstanding based historical forecasted exercise behavior dividend yield estimated based bms annual dividend rate time award replacement following table summarizes stock compensation activity year ended december 31 2019 december 31 2019 substantially 226 million unvested stock options weightedaverage exercise price 5310 expected vest fair value rsus msus psus approximates closing trading price bmss common stock grant date adjusting units eligible accrued dividends addition fair value msus psus considers probability satisfying payout factor total shareholder return respectively fair value replacement rsus approximates closing trading price bms common stock date acquisition adjusting units eligible accrued dividends fair value acquisition date attributable postcombination service adjusted estimated forfeitures recognized expense straightline basis remaining vesting period following table summarizes significant outstanding exercisable options december 31 2019 aggregate intrinsic value preceding table represents total pretax intrinsic value based closing stock price 6419 december 31 2019 note 19 legal proceedings contingencies bms certain subsidiaries involved various lawsuits claims government investigations legal proceedings arise ordinary course business claims proceedings involve various types parties including governments competitors customers suppliers service providers licensees employees shareholders among others matters may involve patent infringement antitrust securities pricing sales marketing practices environmental commercial contractual rights licensing obligations health safety matters consumer fraud employment matters product liability insurance coverage among others resolution matters often develops long period time expectations change result new findings rulings appeals settlement arrangements legal proceedings significant bms believes could become significant material described bms believe matters except otherwise specifically noted material adverse effect financial position liquidity bms believes substantial defenses matters outcomes bms’s legal proceedings contingencies inherently unpredictable subject significant uncertainties assurance increase scope one pending matters future lawsuits claims government investigations legal proceedings material bms’s financial position results operations cash flows particular period furthermore failure enforce bms’s patent rights would likely result substantial decreases respective product revenues generic competition unless otherwise noted bms unable assess outcome respective matters able estimate possible loss range losses could potentially result matters contingency accruals recognized probable liability incurred amount related loss reasonably estimated developments legal proceedings matters could cause changes amounts previously accrued evaluated reporting period discussion bms’s tax contingencies see “note 7 income taxes” intellectual property abraxane us november 2018 celgene received notice letter hbt labs inc “hbt” notifying celgene filed 505b2 nda containing paragraph iv certifications certain patents listed fda orange book abraxane hbt seeking market generic version abraxane us response celgene initiated patent infringement action drug price competition patent term restoration act known “hatchwaxman act” hbt us district court district delaware hbt filed answer counterclaims asserting patents invalid andor infringed february 2020 celgene entered settlement hbt terminate patent litigation part settlement celgene agreed provide hbt license patents required manufacture sell generic paclitaxel proteinbound particles injectable suspension product us beginning september 27 2022 june 2019 celgene also received notice letter sun pharma advanced research company ltd “sparc” notifying celgene filed 505b2 nda containing paragraph iv certifications certain patents listed fda orange book abraxane sparc seeking market paclitaxel injection concentrate suspension product us response celgene initiated patent infringement action hatchwaxman act sparc us district court district new jersey august 2019 december 2019 celgene voluntarily dismissed action without prejudice antipd1 antibody litigation september 2015 danafarber cancer institute “danafarber” filed complaint us district court district massachusetts seeking correct inventorship six related us patents directed methods treating cancer using pd1 pdl1 antibodies specifically danafarber seeking add two scientists inventors patents october 2017 pfizer allowed intervene case alleging one scientists identified danafarber employed company eventually acquired pfizer relevant period february 2019 bms settled lawsuit pfizer bench trial lawsuit danafarber took place february 2019 may 2019 court issued opinion ruling two scientists added inventors patents decision appealed federal circuit june 2019 dana farber filed new lawsuit district massachusetts bms seeking damages result court’s decision adding scientists inventors case stayed pending outcome bms’s appeal federal circuit car litigation october 18 2017 day fda approved kite pharma inc’s “kite” yescarta product juno along sloan kettering institute cancer research “ski” filed complaint kite us district court central district california complaint alleged yescarta infringes certain claims us patent 7446190 “the ’190 patent” concerning car cell technologies kite filed answer counterclaims asserting noninfringement invalidity ’190 patent december 2019 following eightday trial jury rejected kite’s defenses finding kite willfully infringed ’190 patent awarding juno ski reasonable royalty consisting 585 million upfront payment 276 running royalty kite’s sales yescarta expiration ’190 patent august 2024 briefing posttrial motions scheduled completed february 24 2020 eliquis us 2017 bms received notice letters twentyfive generic companies notifying bms filed andas containing paragraph iv certifications seeking approval generic versions eliquis result two eliquis patents listed fda orange book challenged composition matter patent claiming apixaban specifically formulation patent response bms along partner pfizer initiated patent infringement actions hatchwaxman act generic filers us district court district delaware april 2017 august 2017 us patent trademark office granted patent term restoration composition matter patent thereby restoring term eliquis composition matter patent bms’s basis projected loe february 2023 november 2026 bms settled number anda filers settlements affect bms’s projected loe eliquis trial remaining anda filers took place late 2019 posttrial briefing expected complete end february 2020 decision expected time plavix australia sanofi notified august 2007 genrx proprietary limited “genrx” obtained regulatory approval application clopidogrel bisulfate 75mg tablets australia genrx formerly subsidiary apotex inc subsequently changed name apotex “genrxapotex” august 2007 genrxapotex filed application federal court australia seeking revocation sanofi’s australian patent 597784 case nsd 1639 2007 sanofi filed counterclaims infringement sought injunction september 21 2007 federal court australia granted sanofi’s injunction subsidiary bms subsequently added party proceedings february 2008 second company spirit pharmaceuticals pty ltd also filed revocation suit patent case consolidated genrxapotex case august 12 2008 federal court australia held claims patent 597784 covering clopidogrel bisulfate hydrochloride hydrobromide taurocholate salts valid federal court also held process claims pharmaceutical composition claims claim directed clopidogrel pharmaceutically acceptable salts invalid bms sanofi filed notices appeal full court federal court australia “full court” appealing holding invalidity claim covering clopidogrel pharmaceutically acceptable salts process claims pharmaceutical composition claims genrxapotex appealed holding validity clopidogrel bisulfate hydrochloride hydrobromide taurocholate claims september 29 2009 full court held claims patent 597784 invalid march 2010 high court australia denied request bms sanofi hear appeal full court decision case remanded federal court proceedings related damages sought genrxapotex bms genrxapotex settled genrxapotex case dismissed australian government intervened matter seeking maximum damages 449 million aud 311 million plus interest would split bms sanofi alleged losses experienced paying higher price branded plavix period injunction place bms sanofi dispute australian government entitled damages trial concluded september 2017 bms expecting decision 2020 pomalyst us celgene received notice letters behalf teva pharmaceuticals usa inc apotex inc “apotex” apotex corp hetero labs limited hetero labs limited unitv hetero drugs limited hetero usa inc together “hetero” aurobindo pharma ltd mylan pharmaceuticals inc breckenridge pharmaceutical inc notifying celgene filed andas containing paragraph iv certifications seeking approval market generic versions pomalyst us response celgene filed patent infringement actions companies us district court district new jersey asserting certain fda orange booklisted patents well litigations asserting nonfda orange booklisted patents companies filed answers counterclaims andor declaratory judgment actions alleging asserted patents invalid unenforceable andor infringed litigations subsequently consolidated trial scheduled july 27 august 14 2020 celgene subsequently filed additional patent infringement actions us district court district new jersey companies asserting certain patents listed fda orange book cover polymorphic forms pomalidomide companies filed answer andor counterclaims alleging patents invalid andor infringed actions court ordered parties ready trial april 15 2021 june 2019 celgene received notice letter dr reddy’s laboratories ltd dr reddy’s laboratories inc together “drl” notifying celgene filed andas containing paragraph iv certifications seeking approval market generic versions pomalyst response celgene initiated patent infringement action drl us district court district new jersey asserting certain fda orange booklisted patents drl filed answer counterclaims alleging patents invalid andor infringed trial date set revlimid canada celgene received two notices allegation july 2018 natco pharma canada inc “natco canada” notifying celgene filing natco canada’s two separate andas canada’s minister health respect certain celgene’s canadian letters patents natco canada seeking market generic version revlimid canada response celgene initiated patent infringement actions federal court canada sought injunction natco alleges asserted patents invalid andor infringed trial scheduled start march 30 2020 celgene also received four notices allegation october 2018 apotex notifying celgene filing apotex’s anda canada’s minister health respect certain celgene’s canadian letters patents apotex seeking market generic version revlimid canada response celgene initiated patent infringement actions federal court canada sought injunction celgene entered confidential settlement agreement apotex concerning case actions discontinued november 2019 revlimid us celgene received notice letters behalf drl zydus pharmaceuticals usa inc cipla ltd india apotex sun pharma global fze sun pharma global inc sun pharmaceutical industries inc sun pharmaceutical industries limited hetero mylan pharmaceuticals inc mylan inc mylan nv aurobindo pharma limited eugia pharma specialities limited aurobindo pharma usa inc aurolife pharma llc notifying celgene filed andas containing paragraph iv certifications seeking approval market generic versions revlimid us response celgene filed patent infringement actions companies us district court district new jersey asserting certain fda orange booklisted patents well litigations asserting nonfda orange booklisted patents companies filed answers andor counterclaims alleging asserted patents invalid unenforceable andor infringed litigations different schedules trial date set litigations case earliest potential trial date drl respect certain fda orange booklisted patents final pretrial conference case set june 1 2020 sprycel europe january 2016 opposition division epo revoked european patent 1169038 “the ’038 patent” covering dasatinib active ingredient sprycel decision upheld epo board appeal february 2017 orphan drug exclusivity data exclusivity sprycel eu expired november 2016 epo board appeal’s decision affect validity bms’s sprycel patents within outside europe including different patents cover monohydrate form dasatinib use dasatinib treat cml additionally february 2017 epo board appeal reversed remanded invalidity decision european patent 1610780 claim use dasatinib treat cml epo’s opposition division revoked october 2012 december 2018 epo’s opposition division upheld validity patent directed use dasatinib treat cml expires 2024 number generic companies launched generic dasatinib product throughout europe indication sprycel us august 2019 bms received notice letter dr reddy’s laboratories inc notifying bms filed anda containing paragraph iv certifications seeking approval generic version sprycel us challenging two fda orange booklisted monohydrate form patents expiring 2025 2026 response bms initiated patent infringement lawsuit hatchwaxman act us district court district new jersey trial date set 2013 bms entered settlement agreement apotex regarding patent infringement suit covering monohydrate form dasatinib whereby apotex launch generic dasatinib monohydrate anda product september 2024 earlier certain circumstances pricing sales promotional practices litigation plavix state attorneys general lawsuits bms certain sanofi entities defendants consumer protection andor false advertising actions brought attorneys general hawaii new mexico relating sales promotion plavix hawaii matter currently scheduled trial may 2020 product liability litigation bms party various product liability lawsuits plaintiffs cases seek damages relief various grounds alleged personal injury economic loss previously disclosed addition lawsuits bms also faces unfiled claims involving products abilify bms otsuka codefendants product liability litigation related abilify plaintiffs allege abilify caused engage compulsive gambling impulse control disorders 2000 cases filed state federal courts additional cases pending canada judicial panel multidistrict litigation consolidated federal court cases pretrial purposes us district court northern district florida february 2019 bms otsuka entered master settlement agreement establishing proposed settlement program resolve abilify compulsivity claims filed january 28 2019 mdl well various state courts including california new jersey approximately 175 cases remain pending behalf 280 plaintiffs chose participate settlement program filed claims settlement cutoff date byetta amylin former subsidiary bms lilly codefendants product liability litigation related byetta date approximately 580 separate lawsuits pending behalf approximately 2225 active plaintiffs including pending settlements include injury plaintiffs well claims spouses andor beneficiaries various courts us majority cases brought individuals allege personal injury sustained using byetta primarily pancreatic cancer cases claiming alleged wrongful death majority cases pending federal court san diego mdl coordinated proceeding california superior court los angeles “jccp” november 2015 defendants’ motion summary judgment based federal preemption granted mdl jccp november 2017 ninth circuit reversed mdl summary judgment order remanded case mdl november 2018 california court appeal reversed state court summary judgment order remanded cases jccp proceedings amylin product liability insurance covering substantial number claims involving byetta exhausted part bms’s global diabetes business divestiture bms sold byetta astrazeneca february 2014 additional liability amylin respect byetta expected shared astrazeneca onglyza bms astrazeneca codefendants product liability litigation related onglyza plaintiffs assert claims including claims wrongful death result heart failure cardiovascular injuries allege caused use onglyza january 2020 claims pending state federal court behalf approximately 290 individuals allege ingested product suffered injury february 2018 judicial panel multidistrict litigation ordered federal cases transferred mdl us district court eastern district kentucky significant majority claims pending mdl part bms’s global diabetes business divestiture bms sold onglyza astrazeneca february 2014 potential liability respect onglyza expected shared astrazeneca securities litigation bms securities class action since february 2018 two separate putative class action complaints filed us district northern district california us district court southern district new york bms’s chief executive officer giovanni caforio bms’s chief financial officer time charles bancroft certain former current executives bms case california voluntarily dismissed remaining complaint alleges violations securities laws bms’s disclosures related checkmate026 clinical trial lung cancer september 2019 court granted bms’s motion dismiss allowed plaintiffs leave file amended complaint october 2019 plaintiffs filed amended complaint bms moved dismiss amended complaint celgene securities class action beginning march 2018 two putative class actions filed celgene certain officers us district court district new jersey “celgene securities class action” complaints allege defendants violated federal securities laws making misstatements andor omissions concerning 1 trials ged0301 2 celgene’s 2020 outlook projected sales otezla 3 new drug application ozanimod court consolidated two actions appointed lead plaintiff lead counsel coliaison counsel putative class february 2019 defendants filed motion dismiss plaintiff’s amended complaint full december 2019 court denied motion dismiss part granted motion dismiss part including claims arising alleged misstatements regarding ged0301 although court gave plaintiff leave replead dismissed claims elected dismissed claims dismissed prejudice trial date set claims survived court’s order gerold derivative action october 11 2018 sam baran gerold filed shareholder derivative complaint certain members celgene’s board directors superior court new jersey complaint alleges defendants breached certain fiduciary duties related among things actions respect clinical trials ged0301 otezla new drug application ozanimod ii breach defendants caused celgene waste corporate assets defendants unjustly enriched october 2018 defendants removed matter us district court district new jersey january 3 2020 parties entered stipulation proposed order voluntarily dismissing matter without prejudice court entered january 6 2020 saratoga derivative action july 12 2018 saratoga advantage trust health biotechnology portfolio “saratoga” filed shareholder derivative complaint certain members celgene’s board directors us district court district new jersey complaint alleges certain defendants made misrepresentations omissions material fact concerning among things clinical trials ged0301 sales otezla celgene’s 2017 2020 fiscal guidance new drug application ozanimod ii defendants failed adequately supervise celgene regard clinical trials ged0301 sales otezla celgene’s 2017 2020 fiscal guidance new drug application ozanimod promotion marketing revlimid saratoga agreed stay defendants’ obligation answer otherwise respond allegations complaint deference celgene securities class action august 2018 court entered order staying proceedings disposition first motion dismiss celgene securities class action order also administratively terminated proceedings litigation average manufacturer price litigation bms defendant qui tam whistleblower lawsuit us district court eastern district pennsylvania us government declined intervene complaint alleges bms inaccurately reported average manufacturer prices centers medicare medicaid services lower owed similar claims filed companies january 2020 bms reached agreement principle resolve matter subject negotiation definitive settlement agreement contingencies bms cannot provide assurances efforts reach final settlement successful hiv medication antitrust lawsuits bms several manufacturers hiv medications defendants related lawsuits brought indirect purchasers 2019 direct purchasers 2020 us district court northern district california indirect purchasers 2020 us district court southern district florida case alleging defendants’ agreements develop sell fixeddose combination products treatment hiv including atripla evotaz violate antitrust laws indirect purchaser complaint filed florida transferred consolidated matters pending northern district california bms moved intends move dismiss complaints humana litigations may 16 2018 humana inc “humana” filed lawsuit celgene pike county circuit court commonwealth kentucky humana’s complaint alleges celgene engaged unlawful offlabel marketing connection sales thalomid revlimid asserts claims celgene fraud breach contract negligent misrepresentation unjust enrichment violations new jersey’s racketeer influenced corrupt organizations act complaint seeks among things treble punitive damages injunctive relief attorneys’ fees costs april 2019 celgene filed motion dismiss humana’s complaint court denied january 2020 trial date set march 1 2019 humana filed separate lawsuit celgene us district court district new jersey humana’s complaint alleges celgene violated various antitrust consumer protection unfair competition laws delay prevent generic competition thalomid revlimid brand drugs including allegedly refusing sell samples products generic manufacturers purposes bioequivalence testing intended included andas approval market generic versions products b allegedly bringing unjustified patent infringement lawsuits procuring invalid patents andor entering anticompetitive patent settlements c allegedly securing exclusive supply contract supply thalidomide active pharmaceutical ingredient complaint purports assert claims behalf humana subsidiaries several capacities including direct purchaser indirect purchaser seeks among things treble punitive damages injunctive relief attorneys’ fees costs celgene filed motion dismiss humana’s complaint court stayed discovery pending adjudication motion trial date set thalomid revlimid antitrust litigation beginning november 2014 certain putative class action lawsuits filed celgene us district court district new jersey alleging celgene violated various antitrust consumer protection unfair competition laws allegedly securing exclusive supply contract alleged purpose preventing generic manufacturer securing supply thalidomide active pharmaceutical ingredient b allegedly refusing sell samples thalomid revlimid brand drugs various generic manufacturers alleged purpose bioequivalence testing necessary andas submitted fda approval market generic versions products c allegedly bringing unjustified patent infringement lawsuits order allegedly delay approval proposed generic versions thalomid revlimid andor allegedly entering settlements patent infringement lawsuits certain generic manufacturers allegedly anticompetitive effects plaintiffs behalf putative classes thirdparty payers seeking injunctive relief damages various lawsuits consolidated master action purposes october 2017 plaintiffs filed motion certification two damages classes laws thirteen states district columbia nationwide injunction class celgene filed opposition plaintiffs’ motion judgment pleadings dismissing state law claims plaintiffs longer seek represent class october 2018 court denied plaintiffs’ motion class certification celgene’s motion judgment pleadings december 2018 plaintiffs filed new motion class certification celgene opposed july 2019 parties reached settlement putative class plaintiff claims would dismissed prejudice december 2019 certain thirdparty payors members settlement class refused release potential claims participate settlement celgene exercised right terminate settlement agreement trial date set government investigations like pharmaceutical companies bms certain subsidiaries subject extensive regulation national state local authorities us countries bms operates result bms time subject various governmental regulatory inquiries investigations well threatened legal actions proceedings possible criminal charges substantial fines andor civil penalties could result government regulatory investigations environmental proceedings previously reported bms party several environmental proceedings matters responsible various state federal foreign laws including cercla certain costs investigating andor remediating contamination resulting past industrial activity bms’s current former sites waste disposal reprocessing facilities operated third parties cercla matters respect cercla matters bms responsible various state federal foreign laws bms typically estimates potential costs based information obtained us environmental protection agency counterpart state foreign agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” bms accrues liabilities probable reasonably estimable bms estimated share future costs sites 686 million december 31 2019 represents sum best estimates best estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties amount includes estimated costs additional probable loss associated previously disclosed north brunswick township high school remediation site note 20 selected quarterly financial data unaudited earnings per share quarters may add amounts year period computed discrete basis b marketable debt securities includes current noncurrent assets c longterm debt includes current portion commencing november 20 2019 celgenes operations included consolidated financial statements refer “note 4 acquisitions divestitures licensing arrangements” additional information following specified items affected comparability results 2019 2018 report independent registered public accounting firm shareholders board directors bristolmyers squibb company opinion financial statements audited accompanying consolidated balance sheets bristolmyers squibb company subsidiaries company december 31 2019 2018 related consolidated statements earnings comprehensive income cash flows three years period ended december 31 2019 related notes collectively referred financial statements opinion financial statements present fairly material respects financial position company december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states pcaob companys internal control financial reporting december 31 2019 based criteria established internal control integrated framework 2013 issued committee sponsoring organizations treadway commission report dated february 24 2020 expressed unqualified opinion companys internal control financial reporting basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion critical audit matters critical audit matters communicated matters arising currentperiod audit financial statements communicated required communicated audit committee 1 relate accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate grosstonet us rebate accruals us medicaid medicare part managed healthcare refer “note 2 revenue” financial statements critical audit matter description fully disclosed note 2 financial statements company reduces gross product sales list price time revenue recognized expected chargebacks discounts rebates sales allowances product returns referred grosstonet “gtn” adjustments reductions attributed various commercial arrangements managed healthcare organizations government programs mandate various reductions list price chargebacks cash discounts reflected reduction receivables settled issuance credits customer rebates discounts adjustments reflected liability settled cash payments customer certain gtn liabilities related us medicaid medicare part managed healthcare organizations rebate programs “gtn us rebate accruals” involve use significant assumptions judgments calculation significant assumptions judgments include consideration legal interpretations applicable laws regulations historical claims experience payer channel mix current contract prices unbilled claims submission time lags inventory levels distribution channel given complexity involved determining significant assumptions used calculating gtn us rebate accruals auditing estimates involved especially subjective judgment critical audit matter addressed audit procedures related gtn us rebate accruals included following among others • evaluated appropriateness consistency company’s methods assumptions used calculate gtn us rebate accruals • tested effectiveness internal controls review company’s estimation model including underlying assumptions key inputs company’s process calculate gtn us rebate accruals • tested mathematical accuracy gtn us rebate accruals • tested significant assumptions key inputs used calculate gtn us rebate accruals • evaluated company’s ability estimate gtn us rebate accruals accurately comparing actual amounts incurred gtn us rebate accruals historical estimates • tested overall reasonableness gtn us rebate accruals recorded period end developing expectation comparison actual recorded balances • involved audit professionals industry quantitative analytics experience assist us performing auditing procedures taxes unrecognized tax benefit liabilities us transfer pricing refer “note 7 income taxes” financial statements critical audit matter description fully disclosed note 7 financial statements company recognizes certain income tax benefits associated transactions us operating companies related foreign affiliates income tax benefits estimated based transfer pricing agreements thirdparty transfer pricing studies company’s judgment whether morelikelythannot benefits realized tax benefits may ultimately realized company determined judgment accrued unrecognized tax benefit liabilities amounts recognized unrecognized tax benefit liabilities related us transfer pricing may significantly affected subsequent periods due various factors changes tax law identification additional relevant facts change company’s judgment regarding measurement tax benefits upon ultimate settlement taxing authorities given complexity associated assumptions used calculate unrecognized tax benefit liabilities related us transfer pricing coupled significant judgments made company determination auditing estimates involved especially subjective judgment critical audit matter addressed audit procedures related unrecognized tax benefit liabilities related us transfer pricing included following among others • evaluated appropriateness consistency company’s methods assumptions used identification recognition measurement disclosure unrecognized tax benefit liabilities • tested effectiveness internal controls review underlying assumptions key inputs company’s process calculate unrecognized tax benefit liabilities • obtained understanding company’s related party transactions transfer pricing policies • tested mathematical accuracy unrecognized tax benefit liabilities • tested completeness unrecognized tax benefit liabilities • tested reasonableness underlying tax positions amounts accrued selection unrecognized tax benefit liabilities reviewing company’s evaluation relevant facts tax law associated tax position testing significant assumptions inputs used calculate unrecognized tax benefit liabilities reference third party data information produced entity understanding transfer pricing principles tax laws inquires management • evaluated whether company appropriately considered new information could significantly change recognition measurement disclosure unrecognized tax benefit liabilities • involved income tax specialists audit professionals industry experience assist us performing auditing procedures valuation certain intangible assets celgene corporation acquisition refer “note 1 accounting policies recently issued accounting standards” “note 4 acquisitions divestitures licensing arrangements” financial statements critical audit matter description company completed acquisition celgene corporation “celgene” approximately 803 billion november 20 2019 company accounted acquisition business combination accordingly purchase price allocated preliminary basis assets acquired liabilities assumed based respective fair values including currentlymarketed product right intangible assets “product rights” inprocess research development intangible assets “iprd assets” company estimated fair value product rights iprd assets using discounted cash flow method fair value determination product rights iprd assets required company make significant estimates assumptions related forecasted future cash flows selection discount rates identified valuation certain product rights iprd assets celgene acquisition critical audit matter significant estimates assumptions used company determine fair value assets auditing estimates assumptions related valuation certain product rights iprd assets required high degree auditor judgment increased extent effort including involvement valuation specialists performing audit procedures evaluate reasonableness management’s forecasts future cash flows selection discount rates product rights iprd assets critical audit matter addressed audit procedures related valuation certain product rights iprd assets celgene acquisition including forecasts future cash flows selection discount rates certain product rights iprd assets included following among others • evaluated appropriateness consistency company’s methods assumptions used forecast future cash flows select discount rates • tested effectiveness controls valuation certain product rights iprd assets including company’s controls forecasts future cash flows selection discount rates • performed sensitivity analyses significant assumptions used valuation model evaluate change fair value resulting changes significant assumptions • assessed reasonableness company’s forecasts future cash flows comparing forecasts historical results operations certain peer companies andor internal external market studies • assistance valuation specialists evaluated reasonableness discount rates ◦ testing source information underlying determination discount rates testing mathematical accuracy calculation ◦ developing range independent estimates comparing discount rates selected management • evaluated whether forecasted future cash flows consistent evidence obtained areas audit deloitte touche llp parsippany new jersey february 24 2020 served companys auditor since 2006 item 9item 8 financial statements supplementary data accompanying notes integral part financial statements bristolmyers squibb company consolidated statements comprehensive income retained earnings dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated balance sheets dollars millions accompanying notes integral part financial statements bristolmyers squibb company consolidated statements cash flows dollars millions accompanying notes integral part financial statements note 1 accounting policies basis consolidation consolidated financial statements include accounts bristolmyers squibb company bms company bristolmyers squibb controlled majorityowned subsidiaries intercompany balances transactions eliminated certain prior year amounts reclassified conform current year presentation use estimates preparation financial statements conformity us generally accepted accounting principles gaap requires use estimates assumptions affect reported amounts assets liabilities disclosure contingent assets contingent liabilities date financial statements reported amounts revenues expenses reporting period significant assumptions employed estimates used determining values intangible assets restructuring charges accruals sales rebate return accruals legal contingencies tax assets tax liabilities well estimates used applying revenue recognition policy accounting retirement postretirement benefits including actuarial assumptions actual results may differ estimated results revenue recognition company recognizes revenue accordance staff accounting bulletin sab 101 revenue recognition financial statements amended sab 104 revenue recognition substantially risks rewards ownership transferred customer generally revenue recognized time shipment however case certain sales made nutritionals health care segments certain nonus businesses within pharmaceuticals segment revenue recognized date receipt purchaser revenues reduced time recognition reflect expected returns estimated based historical experience additionally provisions made time revenue recognition discounts rebates estimated sales allowances based historical experience updated changes facts circumstances appropriate provisions recorded reduction revenue case sales made wholesalers 1 result incentives 2 excess wholesaler’s ordinary course business inventory level 3 time understanding agreement course dealing consistent business practice company would extend incentives based levels excess inventory connection future purchase 4 time incentives would cover substantially vary directly wholesaler’s cost carrying inventory excess wholesaler’s ordinary course business inventory level substantially risks rewards ownership transfer upon shipment accordingly sales accounted using consignment model determination sales wholesaler meet foregoing criteria involves evaluation variety factors number complex judgments consignment model company recognize revenue upon shipment product rather upon shipment product company invoices wholesaler records deferred revenue gross invoice sales price classifies inventory held wholesalers consignment inventory company’s cost inventory company recognizes revenue consignment inventory longer subject incentive arrangements later inventory sold wholesalers’ customers firstin firstout fifo basis case new products product introduction extension existing line product company determines products similar therapeutic category company determines new product dissimilar characteristics existing products company cannot reliably estimate expected returns new product company defers recognition revenue right return longer exists company developed sufficient historical experience estimate sales returns sales rebate return accruals medicaid rebate accruals 326 million 372 million december 31 2005 2004 respectively women infants children wic rebate accruals 252 million 234 million respectively managed health care rebate contractual discount accruals 167 million 198 million december 31 2005 2004 respectively rebate accruals established period related revenue recognized resulting reduction sales establishment liability included accrued liabilities accrual recorded based estimate proportion recorded revenue result rebate return prime vendor chargeback accruals established similar manner recorded reduction accounts receivable 107 million 106 million december 31 2005 2004 respectively note 1 accounting policies continued income taxes deferred taxes provision income taxes determined using asset liability approach accounting income taxes approach deferred taxes represent future tax consequences expected occur reported amounts assets liabilities recovered paid provision income taxes represents income taxes paid payable current year plus change deferred taxes year deferred taxes result differences financial tax bases company’s assets liabilities adjusted changes tax rates tax laws changes enacted valuation allowances recorded reduce deferred tax assets likely tax benefit realized assessment whether valuation allowance required often requires significant judgment including longrange forecast future taxable income evaluation tax planning initiatives adjustments deferred tax valuation allowances made earnings period assessments made december 31 2005 2004 company net deferred tax assets 2380 million 1713 million respectively net valuation allowances 559 million 507 million respectively company recorded deferred tax assets related us foreign tax credit carryforwards us research tax credit carryforwards expire varying amounts beginning 2012 realization foreign tax credit research tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions increasing biologics manufacturing capacity us increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit carryforwards amount foreign tax credit research tax credit carryforwards considered realizable however could reduced near term outcome plavix litigation us unfavorable andor timing generic competition plavix accelerated events occur company may need record significant additional valuation allowances deferred tax assets additional information plavix litigation see “item 1a risk factors” “item 8 financial statementsnote 20 legal proceedings contingencies” tax benefit qualified production activities guidance financial accounting standards board fasb staff position fsp 1091 application fasb statement 109 “accounting income taxes” tax deduction qualified production activities provided american jobs creation act 2004 deduction treated “special deduction” described statement financial accounting standards sfas 109 special deduction affect deferred tax assets liabilities existing enactment date rather impact deduction reported period deduction claimed company’s tax return undistributed earnings foreign subsidiaries december 31 2005 company approximately 84 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated united states company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided tax contingencies company conducts business various countries throughout world subject tax numerous jurisdictions result business activities company files significant number tax returns subject examination various tax authorities tax examinations often complex tax authorities may disagree treatment items reported company may require several years resolve company establishes liabilities possible assessments tax authorities resulting known tax exposures amounts represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known cash equivalents cash equivalents primarily highly liquid investments original maturities three months less time purchase recorded cost approximates fair value note 1 accounting policies continued marketable securities company accounts marketable securities accordance sfas 115 accounting certain investments debt equity securities company determined appropriate classification marketable securities “availableforsale” time purchase december 31 2005 2004 company’s investments marketable securities reported fair value unrealized gains losses reported component accumulated comprehensive income loss stockholders’ equity amortized cost debt securities held maturity adjusted amortization premiums accretion discounts date purchase maturity amortization included interest income addition deduction coupon interest earned investments company follows investment managers’ method determining cost basis computing realized gains losses sale availableforsale securities average cost method realized gains losses included income expense inventory valuation inventories generally stated average cost excess market capital assets depreciation expenditures additions renewals improvements capitalized cost depreciation generally computed straightline method based estimated useful lives related assets estimated useful lives major classes depreciable assets 50 years buildings 3 40 years machinery equipment fixtures company periodically evaluates whether current events circumstances indicate carrying value depreciable assets may recoverable impairment longlived assets company periodically evaluates whether current facts circumstances indicate carrying value depreciable assets held used may recoverable circumstances determined exist estimate undiscounted future cash flows produced longlived asset appropriate grouping assets compared carrying value determine whether impairment exists asset determined impaired loss measured based difference asset’s fair value carrying value estimate asset’s fair value based quoted market prices active markets available quoted market prices available estimate fair value based various valuation techniques including discounted value estimated future cash flows company reports asset disposed lower carrying value estimated net realizable value capitalized software certain costs obtain internal use software significant systems projects capitalized amortized estimated useful life software ranges 3 10 years costs obtain software projects significant expensed incurred capitalized software net accumulated amortization included intangible assets 336 million 394 million december 31 2005 2004 respectively amortization expense 116 million 90 million 71 million years ended december 31 2005 2004 2003 respectively investments january 2003 company adopted fasb interpretation 46 fin 46 interpretation consolidation variable interest entities interpretation arb 51 fin 46 clarifies application accounting research bulletin arb 51 consolidated financial statements certain entities equity investors characteristics controlling financial interest sufficient equity risk entity finance activities without additional subordinated financial support parties entities known variable interest entities vies fasb issued revision fin 46 fin 46r december 2003 fin 46r effective interim period ending march 31 2004 new existing vies adoption fin 46 effect company’s financial statements entity meet definition vie fin 46 company accounts entity provisions arb 51 consolidated financial statements amended sfas 94 consolidation majorityowned subsidiaries requires company consolidates majority 50 owned subsidiaries ability exercise control company accounts 50 less owned companies ability exercise significant influence using equity method accounting company’s share net income losses equity investments included equity net income affiliates consolidated statement earnings company reviews equity investments impairment based determination whether decline market value investment company’s carrying value temporary making determination company considers accounting principles board apb opinion 18 equity method accounting investments common stock related interpretations set forth factors evaluated note 1 accounting policies continued determining whether loss value recognized including company’s ability hold investment market price market price fluctuations investment’s publicly traded shares inability investee sustain earnings capacity would justify carrying amount investment longterm investments securities comprise marketable equity securities investments market values readily available included assets marketable equity securities classified availableforsale reported fair value fair value based quoted market prices end reporting period securities investments market values readily available carried cost unrealized gains losses reported net related tax effects component accumulated comprehensive income loss stockholders’ equity sold time sale gains losses calculated specific identification method recognized income expense losses also recognized income expense decline market value deemed temporary goodwill intangible assets goodwill longer amortized tested impairment annually using twostep process first step identify potential impairment second step measures amount impairment loss goodwill deemed impaired carrying amount reporting unit’s goodwill exceeds estimated fair value company completed goodwill impairment assessment indicated impairment goodwill intangible assets consisting patents trademarks technology licenses capitalized software amortized straightline basis useful lives ranging 3 17 years indefinitelived intangible assets tested impairment using onestep process consists comparison fair value carrying value intangible asset intangible assets deemed impaired net book value exceeds estimated fair value intangible assets evaluated impairment described “impairment longlived assets” restructuring downsize streamline operations rationalize manufacturing facilities company periodically recorded restructuring charges result company made estimates judgments regarding future plans including future termination benefits exit costs incurred restructuring actions take place actual results may vary estimates resulting potential adjustment earnings subsequent periods product liability accruals product liability including associated legal costs recorded undiscounted basis probable liability incurred amount liability reasonably estimated based existing information accruals adjusted periodically assessment efforts progress additional information becomes available receivables related insurance thirdparty recoveries product liabilities recorded undiscounted basis probable recovery realized classified reduction litigation charges consolidated statement earnings contingencies normal course business company subject loss contingencies legal proceedings claims arising business cover wide range matters including among others government investigations shareholder lawsuits product environmental liability tax matters accordance sfas 5 accounting contingencies sfas no5 company records accruals loss contingencies probable liability incurred amount loss reasonably estimated company accordance sfas no5 recognize gain contingencies realized discussion contingencies see “note 8 income taxes” “note 20 legal proceedings contingencies” derivative financial instruments derivative financial instruments used company principally management interest rate foreign currency exposures company hold issue derivative financial instruments speculative purposes company records derivative instruments balance sheet fair value changes derivative’s fair value recognized earnings unless specific hedge criteria met derivative designated fair value hedge changes fair value derivative hedged item attributable hedged risk recognized consolidated statement earnings derivative designated cash flow hedge effective portions changes fair value derivative recorded comprehensive income loss subsequently recognized consolidated statement earnings hedged item affects earnings cash flows classified consistent underlying hedged item purchased foreign currency note 1 accounting policies continued options entire change fair value included measurement hedge effectiveness cash flow hedges ineffective portions changes fair value cash flow hedges recognized charge credit earnings company designates assigns derivatives hedges forecasted transactions specific assets specific liabilities hedged assets liabilities sold extinguished forecasted transactions hedged longer expected occur company immediately recognizes gain loss designated hedging financial instruments consolidated statement earnings shipping handling costs company typically charge customers shipping handling costs shipping handling costs charged included marketing selling administrative expenses 245 million 2005 2004 243 million 2003 advertising costs advertising costs expensed incurred advertising expense 509 million 479 million 448 million 2005 2004 2003 respectively milestone payments company time enter strategic alliances third parties give company rights develop manufacture market andor sell pharmaceutical products rights owned third parties result alliances company may obligated make payments alliance partners contingent upon achievement certain predetermined criteria milestones achieved prior marketing approval product payments expensed research development product approval additional milestones capitalized amortized cost products sold remaining useful life asset capitalized milestone payments tested recoverability whenever events changes circumstances indicate carrying amounts may recoverable acquired inprocess research development fair value inprocess research development acquired business combination determined independent appraisal based present value research project’s projected cash flows income approach utilized consistent guidance practice aid issued american institute certified public accountants assets acquired business combinations used research development activities focus software electronic devices pharmaceutical industries future cash flows predominately based net income forecast project consistent historical pricing margins expense levels similar products revenues estimated based relevant market size growth factors expected industry trends individual project life cycles life research project’s underlying patent determining fair value research project expected revenues first adjusted technical risk completion resulting cash flows discounted rate approximating company’s weighted average cost capital acquired inprocess research development expensed incurred underlying product received regulatory approval future alternative use addition costs nonrefundable related acquisition licensing products yet received regulatory approval marketed alternative future use charged earnings incurred earnings per share basic earnings per common share computed using weightedaverage number shares outstanding year diluted earnings per common share computed using weightedaverage number shares outstanding year plus incremental shares outstanding assuming exercise dilutive stock options restricted stock convertible instruments foreign currency translation net assets company’s foreign subsidiaries translated us dollars using current exchange rates us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included comprehensive income stock compensation plans december 2004 fasb issued revised sfas 123 sfas 123r sharebased payment standard eliminates ability account sharebased compensation transactions using intrinsic valuebased method apb opinion 25 accounting stock issued employees requires instead transactions accounted using fairvaluebased method april 2005 sec delayed effective date sfas 123r financial statements issued first annual period beginning june 15 2005 company adopted sfas 123r january 1 2006 using prospective transition method note 1 accounting policies continued result provisions sfas 123r sab 107 company estimates compensation charges related sharebased compensation 2006 pretax basis 135 million 145 million includes 80 million 85 million stock option expense due adoption standard tax basis compensation charges related sharebased compensation 2006 estimated 85 million 91 million stock option expense due adoption standard included tax amounts 50 million 54 million however assessment estimated compensation charges affected company’s stock price well number complex subjective variables related tax impacts variables include limited volatility company’s stock price employee stock exercise behaviors respect accounting treatment retirement eligibility provisions employee sharebased compensation awards company historically followed nominal vesting period approach upon adoption sfas 123r january 1 2006 company adopt nonsubstantive vesting period approach begin recognizing compensation cost one year period awards granted retirement eligible employees one year period grant date retirement eligibility achieved less vesting period adoption nonsubstantive vesting period approach expected material effect consolidated financial statements also conjunction adoption sfas 123r company changed method attributing value sharebased compensation expense accelerated multipleoption approach straightline singleoption approach compensation expense sharebased payment awards granted prior adoption continue recognized using accelerated multipleoption approach permissible compensation expense sharebased payment awards granted upon subsequent adoption sfas 123r recognized using straightline singleoption approach currently company applies apb opinion 25 related interpretations accounting stockbased compensation plans discloses pro forma net income related pro forma income per share information accordance sfas 123 accounting stockbased compensation sfas 148 accounting stockbased compensation coststransition disclosure company recognize compensation expense stock options granted plans exercise price option date grant equal fair market value date grants restricted stock company recognizes compensation expense straightline basis period restrictions expire following table summarizes company’s results pro forma basis recorded compensation expense based upon fair value grant date awards plans consistent methodology prescribed sfas 123 2005 2004 2003 options related discontinued operations impact basic diluted earnings per share see “note 15 stockholders’ equity” additional information recently issued accounting standards may 2005 fasb issued sfas 154 accounting changes error corrections replaces apb opinion 20 accounting changes sfas 3 reporting accounting changes interim financial statements pronouncement applies voluntary changes accounting principle revises requirements accounting reporting change accounting principle sfas 154 requires retrospective application prior periods’ financial statements voluntary change accounting principle unless impracticable pronouncement also requires change method depreciation amortization depletion longlived nonfinancial assets accounted change accounting estimate note 1 accounting policies continued effected change accounting principle sfas 154 effective accounting changes corrections errors made fiscal years beginning december 15 2005 statement change transition provisions existing accounting pronouncements including transition phase effective date sfas 154 adoption accounting pronouncement expected material effect consolidated financial statements march 2005 fasb issued fasb interpretation 47 accounting conditional asset retirement obligations fin 47 fin 47 clarifies entity must record liability conditional asset retirement obligation fair value obligation reasonably estimated asset retirement obligations covered fin 47 entity legal obligation perform asset retirement activity even timing method settling obligation conditional future event may within control entity fin 47 also clarifies entity would sufficient information reasonably estimate fair value asset retirement obligation fin 47 effective later end fiscal years ending december 15 2005 adoption accounting pronouncement material effect company’s consolidated financial statements december 2004 fasb issued revised sfas 123 sfas 123r sharebased payment standard eliminates ability account sharebased compensation transactions using intrinsic valuebased method apb opinion 25 accounting stock issued employees requires instead transactions accounted using fairvaluebased method see “stock compensation plans” december 2004 fasb issued fsp 1091application sfas 109 accounting income taxes tax deduction qualified production activities provided american jobs creation act 2004 fsp provides deduction qualified production activities treated “special deduction” described sfas 109 accounting income taxes accordingly tax effect deduction reported component company’s tax provision effect deferred tax assets liabilities department treasury recently issued proposed tax regulations respect deduction qualified production activities company evaluating impact proposed tax regulations fsp income tax provision results operations see “income taxes” december 2004 fasb issued sfas 153 exchanges nonmonetary assets provisions statement effective nonmonetary asset exchanges occurring fiscal periods beginning june 15 2005 applied prospectively statement eliminates exception fair value measurement nonmonetary exchanges similar productive assets paragraph 21b apb opinion 29 accounting nonmonetary transactions replaces exception exchanges commercial substance adoption accounting pronouncement material effect company’s consolidated financial statements november 2004 fasb issued sfas 151 inventory costs amendment arb 43 chapter 4 standard requires abnormal amounts idle facility related expenses recognized current period charges also requires allocation fixed production overheads costs conversion based normal capacity production facilities sfas 151 effective inventory costs incurred fiscal years beginning june 15 2005 adoption accounting pronouncement expected material effect consolidated financial statements june 2004 fasb issued fsp 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 medicare act medicare act introduces prescription drug benefit medicare well federal subsidy sponsors retiree health care benefit plans provide benefit least actuarially equivalent medicare part fsp 1062 requires effects new law accounted sfas 106 employers’ accounting postretirement benefits pensions company adopted fsp 1062 third quarter 2004 retroactive january 1 2004 reduction net periodic benefit cost benefits 8 million 2004 based remeasurement accumulated postretirement benefit obligation january 1 2004 effect adoption fsp 1062 material company’s consolidated financial statements see “item 8 financial statementsnote 19 pension postretirement benefit plans” march 2004 emerging issues task force eitf reached consensus issue 0306 participating securities twoclass method fas 128 requires use twoclass method computing earnings per share enterprises participating securities multiple classes common stock consensus effective fiscal periods beginning march 31 2004 adoption eitf 0306 material effect consolidated financial statements december 2003 fasb revised interpretation 46 consolidation variable interest entities fin 46 fin 46 requires variable interest entity consolidated company subject majority risk loss variable interest entity’s activities entitled receive majority entity’s residual returns fin 46 also requires note 1 accounting policies continued disclosures variable interest entities company required consolidate significant variable interest consolidation requirements fin 46 revised apply immediately variable interest entities created january 31 2003 existing entities first fiscal year interim period ending march 15 2004 certain disclosure requirements apply financial statements issued january 31 2003 regardless variable interest entity established adoption accounting pronouncement material effect consolidated financial statements note 2 alliances investments sanofiaventis company agreements sanofiaventis sanofi codevelopment cocommercialization avaproavalide irbesartan angiotensin ii receptor antagonist indicated treatment hypertension plavix clopidogrel platelet aggregation inhibitor worldwide alliance operates framework two geographic territories one americas principally united states canada puerto rico latin american countries australia europe asia accordingly two territory partnerships formed manage central expenses marketing research development royalties supply finished product individual countries general country level agreements either copromote whereby partnership formed parties sell brand comarket whereby parties operate sell brands independently place agreements expire later respect plavix 2013 respect avaproavalide 2012 americas australia 2013 europe asia ii expiration patents exclusivity rights applicable territory company acts operating partner territory covering americas australia owns 501 majority controlling interest territory sanofi’s ownership interest territory 499 company consolidates country partnership results territory records sanofi’s share results minority interest net taxes 578 million 2005 502 million 2004 351 million 2003 company recorded sales territory comarketing countries outside territory germany italy spain greece 4805 million 2005 4257 million 2004 3224 million 2003 cash flows operating activities partnerships territory covering americas australia recorded operating activities within company’s consolidated statement cash flows distributions partnership profits sanofi’s funding ongoing partnership operations occur routine basis also recorded operating activities within company’s consolidated statement cash flows sanofi acts operating partner territory covering europe asia owns 501 majority financial controlling interest within territory company’s ownership interest partnership within territory 499 company accounts investment partnership entities territory equity method records share results equity net income affiliates consolidated statement earnings company’s share net income partnership entities taxes 345 million 2005 269 million 2004 187 million 2003 company routinely receives distributions profits provides funding ongoing operations partnerships territory covering europe asia transactions recorded operating activities within company’s consolidated statement cash flows 2001 company sanofi formed alliance copromotion irbesartan part company contributed irbesartan distribution rights united states sanofi paid company total 350 million two years ended december 31 2002 company accounted transaction sale interest license deferred amortized 350 million income expected useful life license approximately 11 years formation irbesartan copromotion alliance company recognized income 31 million 32 million 31 million 2005 2004 2003 respectively unamortized portion deferred income recorded liabilities section consolidated balance sheet 217 million 248 million december 31 2005 2004 respectively otsuka company worldwide commercialization agreement otsuka pharmaceutical co ltd otsuka codevelop copromote otsuka abilify aripiprazole treatment schizophrenia related psychiatric disorders except japan china taiwan north korea south korea philippines thailand indonesia pakistan egypt company began copromoting product otsuka us puerto rico november 2002 june 2004 company received marketing approval european commission product currently copromoted otsuka united kingdom germany spain abilify currently distributed exclusively company france temporary basis otsuka joins copromotion product company records alliance revenue 65 contractual share otsuka’s net sales copromotion countries excluding united kingdom records expenses related product company recognizes alliance revenue abilify shipped risks rewards ownership transferred otsuka’s customers united kingdom france copromotion otsuka commences company records 100 net sales related costs products sold company also exclusive right sell abilify countries europe americas number countries asia countries company records 100 net sales related cost products sold terms note 2 alliances investments continued agreement company purchases product otsuka performs finish manufacturing sale company customers agreement expires november 2012 us puerto rico entire european union agreement expires june 2014 country company exclusive right sell abilify agreement expires later tenth anniversary first commercial sale country expiration applicable patent country company recorded revenue abilify 912 million 2005 593 million 2004 283 million 2003 total milestone payments made otsuka agreement december 2005 217 million 157 million expensed acquired inprocess research development 1999 remaining 60 million capitalized intangible assets amortized cost products sold remaining life agreement us ranging 8 11 years company amortized cost products sold 6 million 2005 5 million 2004 5 million 2003 unamortized capitalized payment balance 41 million 47 million december 31 2005 2004 respectively imclone company commercialization agreement expiring september 2018 imclone systems incorporated imclone biopharmaceutical company focused developing targeted cancer treatments codevelopment copromotion erbitux united states 2004 us food drug administration fda approved biologics license application bla erbitux use combination irinotecan treatment patients epidermal growth factor receptor egfrexpressing metastatic colorectal cancer refractory irinotecanbased chemotherapy use single agent treatment patients egfrexpressing metastatic colorectal cancer intolerant irinotecanbased chemotherapy company paid 250 million 2004 milestone payment initial approval erbitux also 2004 fda approved imclone’s chemistry manufacturing controls supplemental bla sbla licensure bb36 manufacturing facility march 1 2006 fda approved erbitux use treatment squamous cell carcinoma head neck result fda approval company pay 250 million milestone payment imclone march 31 2006 agreement imclone receives distribution fee based flat rate 39 product revenues north america addition company coexclusive right commercialize erbitux japan imclone previously granted coexclusive right merck kgaa japan december 2004 company japanese affiliate bmkk merck kgaa merck ltd imclone executed joint development agreement erbitux japan company accounts 250 million approval milestone paid 2004 additional 250 million milestone expected paid march 31 2006 license acquisitions amortizes payments cost products sold expected useful life license approximately 14 years 2005 2004 company amortized cost products sold 17 million 14 million respectively unamortized portion approval payment recorded intangible assets 219 million 236 million december 31 2005 2004 respectively company accounts investment imclone equity method records share results equity net income affiliates consolidated statement earnings company’s recorded investment imclone common stock december 31 2005 2004 66 million 72 million respectively company holds 144 million shares imclone stock representing approximately 17 imclone’s shares outstanding december 31 2005 2004 per share basis carrying value imclone investment closing market price imclone shares december 31 2005 455 3424 respectively compared 503 4608 respectively december 31 2004 company determines equity share imclone’s net income loss eliminating imclone’s results milestone revenue imclone recognizes 400 million preapproval milestone payments made company 2001 2003 company recorded 80 million preapproval milestone payments equity investment expensed remaining 320 million acquired inprocess research development period milestone revenue recognized imclone excess 400 million eliminated company determining equity share imclone’s results share imclone’s results operations company recorded net loss 5 million 2005 income 9 million 2004 net loss 36 million 2003 company recorded net sales erbitux 413 million 2005 261 million 2004 merck april 2004 company entered collaboration agreement merck co inc merck worldwide codevelopment copromotion muraglitazar company’s dual ppar peroxisome proliferator activated receptor agonist currently phase iii clinical development use treating type 2 diabetes terms agreement company received 100 million upfront payment may 2004 55 million milestone payment january 2005 submission new drug application nda note 2 alliances investments continued december 2004 company submitted nda fda regulatory approval muraglitazar october 2005 fda issued approvable letter muraglitazar requesting additional information ongoing clinical trials fully address cardiovascular safety profile product company continuing discussions fda determined likely initiate additional new trials gain regulatory approval considering range options including conducting additional studies terminating development muraglitazar additional studies could take approximately five years complete december 2005 company merck terminated collaboration agreement muraglitazar rights returning company december 21 2005 result termination agreement company recognized 143 million deferred income fourth quarter 2005 recorded “other expense net” company composition matter patent expires united states 2020 summary financial information following summarized financial information company’s equity investments imclone joint venture sanofi europe asia note 3 restructuring 2005 activities 2005 company recorded pretax charges 33 million related termination benefits related costs workforce reductions downsizing streamlining worldwide operations primarily north america latin america europe africa asia charges 31 million related employee termination benefits related expenses approximately 640 selling administrative personnel includes restructuring us cardiovascularmetabolics primary care sales organization workforce headcount reduction 1 million related retention bonuses 1 million related asset impairments charges offset 1 million adjustment reflecting changes estimates restructuring actions taken prior periods following table presents detail charges segment type company expects substantially complete restructuring activities 2006 2004 activities 2004 company recorded pretax restructuring charges 116 million relating termination benefits related costs workforce reduction downsizing streamlining worldwide operations primarily europe north america asia latin america charges 107 million primarily related employee termination benefits related expenses approximately 2000 selling administrative manufacturing personnel 1 million related primarily asset impairments 6 million related consolidation certain research facilities 2 million retention bonuses charges partially offset 8 million adjustment reflecting changes estimates restructuring actions taken prior periods 4 million gain sale research facility previously written restructuring note 3 restructuring continued following table presents detail charges segment type company substantially completed restructuring activities 2003 activities 2003 company recorded pretax charges 65 million relating termination benefits related costs workforce reduction downsizing streamlining worldwide operations primarily europe north america asia latin america charges 50 million related employee termination benefits related expenses approximately 950 selling administrative manufacturing personnel 13 million related consolidation certain research facilities 2 million retention bonuses charges offset 39 million adjustment reflecting changes estimates restructuring actions taken prior periods principally due higher anticipated proceeds disposal assets reduced separation costs following table presents detail charges segment type company substantially completed restructuring activities rollforward restructuring charges spending liabilities associated prior current actions follows liabilities included accrued expenses consolidated balance sheet note 4 acquisitions divestitures january 2006 company completed sale inventory trademark patent intellectual property rights related dovonex treatment psoriasis united states warner chilcott company inc 200 million cash addition company receive royalty based 5 net sales dovonex end 2007 result transaction company expects recognize pretax gain approximately 200 million 126 million net tax first quarter 2006 subject certain postclosing adjustments third quarter 2005 company completed sale us canadian consumer medicines business related assets consumer medicines novartis ag novartis terms agreement novartis acquired trademarks patents intellectual property rights consumer medicines 661 million cash including impact working capital adjustment 15 million attributable postclosing supply arrangement company novartis related assets include rights us consumer medicines brands latin america europe middle east africa results operations consumer medicines included company’s consolidated statement earnings date disposal result transaction company recorded pretax gain 569 million 370 million net tax third quarter 2005 subject certain postclosing adjustments april 2004 company completed acquisition acordis speciality fibres acordis company purchased stock acordis 150 million incurred 8 million acquisition costs connection transaction additional 10 million payment contingent achievement future production volumes purchase price acquisition allocated tangible identifiable intangible assets acquired liabilities assumed based estimated fair values acquisition date 158 million 63 million allocated inprocess research development immediately expensed 22 million assigned identifiable intangible assets predominantly patents excess purchase price estimated fair values net assets acquired recorded goodwill acquisition accounted purchase method accordingly results operations included accompanying consolidated financial statements date acquisition february 2004 company completed divestiture adult nutritional business novartis 386 million including 20 million contingent achievement contractual requirements satisfied 22 million upfront payment supply agreement company recorded total pretax gain 320 million 198 million net tax included 20 million contingent payment 5 million reduction company goodwill associated mead johnson product lines note 5 discontinued operations may 2005 company completed sale oncology therapeutics network otn one equity partners llc cash proceeds 197 million including impact preliminary working capital adjustment company recorded pretax gain 63 million 13 million net tax presented gain sale discontinued operations consolidated statement earnings otn previously presented separate segment following amounts related otn business segregated continuing operations reported discontinued operations date disposition reflect costs certain services provided otn company costs allocated company otn services included legal counsel insurance external audit fees payroll processing certain human resource services information technology systems support consolidated balance sheet december 31 2004 includes otn net assets expected sold include 332 million assets primarily consisting receivables 542 million liabilities primarily consisting accounts payable addition goodwill related otn december 31 2004 80 million writtenoff gain sale second quarter 2005 consolidated statement cash flows includes otn business periods presented date disposition company uses centralized approach cash management financing operations accordingly debt allocated business cash flows operating activities discontinued operations consist outflows 265 million year ended december 31 2005 cash inflows 134 million 95 million years ended december 31 2004 2003 respectively cash flows used investing activities discontinued operations 2 million year ended december 31 2004 investing activities years ended december 31 2005 2003 note 6 earnings per share numerator basic earnings per share net earnings available common stockholders numerator diluted earnings per share net earnings available common stockholders interest expense added back assumed conversion convertible debt common stock denominator basic earnings per share weighted average number common stock outstanding period denominator diluted earnings per share weighted average shares outstanding adjusted effect dilutive stock options assumed conversion convertible debt common stock computations basic diluted earnings per common share follows weightedaverage shares issuable upon exercise stock options included diluted earnings per share calculation dilutive 156 million 2005 126 million 2004 114 million 2003 note 7 expense net components expense net 2005 2004 2003 interest expense reduced net interest swap gains 52 million 151 million 116 million respectively interest income relates primarily cash equivalents investments marketable securities net includes income thirdparty contract manufacturing royalty income expense deferred income recognized termination collaborative agreement muraglitazar gains losses disposal investments property plant equipment debt retirement costs note 8 income taxes components earnings loss continuing operations minority interest income taxes amounts categorized based location taxing authorities provisionbenefit income taxes attributable continuing operations consisted company’s provision income taxes 2005 2004 2003 different amount computed applying statutory us federal income tax rate earnings continuing operations minority interest income taxes result following note 8 income taxes continued effective income tax rate earnings continuing operations minority interest income taxes 206 2005 compared 344 2004 258 2003 lower effective tax rate 2005 due primarily 2004 charge approximately 575 million estimated deferred income taxes related repatriation approximately 9 billion special dividends company’s nonus subsidiaries pursuant american jobs creation act ajca 2004 charge related establishment valuation allowance certain charitable contributions tax benefit 2005 associated release certain tax contingency reserves resulting settlement examinations internal revenue service irs years 1998 2001 change estimate 2005 related reduction aforementioned 2004 ajca deferred tax charge partially offset lower estimated foreign tax credits 2005 increase 2004 effective tax rate 2003 effective tax rate primarily attributable aforementioned 2004 ajca deferred tax charge 575 million aforementioned establishment valuation allowance certain charitable contributions 2004 increase estimates contingent tax matters partially offset favorable resolution certain tax refund claims increased foreign tax credits 2003 effect certain litigation reserves nondeductible fourth quarter 2004 company disclosed anticipated repatriating approximately 9 billion special dividends 2005 recorded 575 million provision deferred taxes pursuant ajca enacted pending matters company repatriated approximately 62 billion foreign subsidiaries first quarter 2005 repatriated remaining balance approximately 28 billion fourth quarter 2005 company expects approximately 9 billion repatriated 2005 qualify special dividends subject finalization 2005 us federal income tax return related tax examinations irs company used expects continue use special dividends accordance requirements established ajca us treasury department second quarter 2005 us treasury department issued ajca related guidance clarifying “grossup” foreign taxes associated special dividends also qualifies 525 tax rate established ajca result guidance company reduced 575 million provision recording benefit approximately 135 million tax provision 2005 components current noncurrent deferred income tax assets liabilities valuation allowance 559 million december 31 2005 relates 79 million foreign state net deferred tax assets 363 million foreign state net operating loss tax credit carryforwards 117 million charitable contribution carryforwards company currently believes likely realized note 8 income taxes continued company recorded deferred tax assets related us foreign tax credit carryforwards approximately 975 million us research tax credit carryforwards approximately 120 million expire varying amounts beginning 2012 realization foreign tax credit research tax credit carryforwards dependent generating sufficient domesticsourced taxable income prior expiration although realization assured management believes likely deferred tax assets realized company anticipates increasing level domestic profitability time undertaking actions increasing biologics manufacturing capacity us increasing domestic profitability likely cause company’s effective tax rate increase also enhance company’s ability utilize foreign tax credit research tax credit carryforwards amount foreign tax credit research tax credit carryforwards considered realizable however could reduced near term outcome plavix litigation us unfavorable andor timing generic competition plavix accelerated events occur company may need record significant additional valuation allowances deferred tax assets additional information plavix litigation see “item 1a risk factors” “item 8 financial statementsnote 20 legal proceedings contingencies” income taxes paid year 1556 million 822 million 869 million 2005 2004 2003 respectively current tax benefit realized upon exercise stock options charged capital excess par value stock amounted 19 million 26 million 10 million 2005 2004 2003 respectively december 31 2005 company approximately 84 billion undistributed earnings foreign subsidiaries taxes provided company invested expects invest undistributed earnings permanently offshore future earnings repatriated united states company determines earnings remitted foreseeable future additional tax provisions would required due complexities tax laws assumptions would made practicable estimate amounts income taxes would provided company settled us federal income tax returns internal revenue service irs 2001 company’s us federal income tax returns 2002 2003 currently examination irs company conducts business various states municipalities foreign countries subsidiary companies state local foreign tax authorities routinely examine company’s income tax returns company establishes liabilities possible assessments taxing authorities resulting known tax exposures including limited transfer pricing certain tax credits deductibility certain expenses various state local foreign tax matters amounts represent reasonable provision taxes ultimately expected paid may need adjusted time information becomes known effect changes estimates related contingent tax matters included effective tax rate reconciliation 2005 company recognized income tax benefit approximately 159 million due settlement company’s us federal income tax returns years 1998 2001 2002 company reorganized structure ownership many nonus subsidiaries principal purpose reorganization facilitate company’s ability efficiently deploy financial resources outside united states company believes reorganization transactions generally taxfree inside outside united states possible however taxing authorities particular jurisdictions could assert tax liabilities arising reorganization transactions operations reorganized subsidiaries reasonably possible predict whether taxing authority assert tax liability reasonably estimate possible loss range loss respect asserted tax liability company would vigorously challenge assertion believes would prevail assurance result company prevail final nonappealable determinations possible impact could material note 9 receivables major categories receivables follow note 10 inventories major categories inventories follow company finished good inventories could impaired determined inventories cannot reworked commercialization december 31 2005 carrying value inventories 25 million allowance provided note 11 property plant equipment major categories property plant equipment follow capitalized interest included categories property plant equipment shown company capitalized interest 9 million 10 million 35 million years ended december 31 2005 2004 2003 respectively note 12 goodwill changes carrying amount goodwill years ended december 31 2005 2004 follows note 13 intangible assets december 31 2005 2004 intangible assets consisted following 2005 company recorded impairment charges 42 million resulting actual estimated future sales declines tequin amortization expense intangible assets years ended december 31 2005 2004 2003 352 million 316 million 298 million respectively expected amortization expense related current net carrying amount intangible assets follows note 14 shortterm borrowings longterm debt shortterm borrowings end 2005 2004 231 million 1883 million respectively reduction borrowings due primarily retirement commercial paper august 2005 whollyowned subsidiary company entered new 25 billion term facility syndicate bank lenders borrowings facility guaranteed company subsidiaries borrower certain european subsidiaries company facility contains fiveyear tranche 20 billion twoyear tranche 500 million interest paid periodic basis agreed lenders annual rate equal applicable libor plus 025 company subject substantially covenants included december 2004 revolving credit facility company also subject restrictions including certain financial covenants prior borrowing proceeds facility company obtained waiver lenders covenant default facility due onetime intercompany distribution december 31 2005 facility fully drawn company full compliance covenants second quarter 2005 company repurchased outstanding 25 billion aggregate principal amount 475 notes due 2006 incurred aggregate pretax loss approximately 69 million connection early redemption notes termination related interest rate swaps december 2004 company replaced prior 1 billion revolving credit facilities new 2 billion five year revolving credit facility syndicate lenders extendable anniversary date consent lenders facility contains financial covenant whereby ratio consolidated debt consolidated capital cannot exceed 50 company compliance covenant since inception new facility borrowings outstanding revolving credit facilities december 31 2005 2004 company unused shortterm lines credit foreign banks 198 million 158 million december 31 2005 2004 respectively note 14 shortterm borrowings longterm debt continued components longterm debt follows 1 company’s outstanding 12 billion convertible debentures pay interest quarterly annual rate equal 3month libor reset quarterly minus 050 yield never less zero final maturity september 15 2023 debentures callable par time september 21 2008 issuer holders also redeem debentures par september 15 2008 2013 2018 fundamental change ownership company occurs bond initial conversion price 4128 conversion rate 242248 shares adjustable depending average closing prices applicable period maximum conversion rate 387597 shares company entered fixed floating interest rate swaps 34 billion longterm debt 2004 2003 2002 company executed several fixed floating interest rate swaps convert 62 billion company’s fixed rate debt paid 2006 2008 2011 2013 2023 2026 variable rate debt year ended december 31 2005 company recognized net reduction interest expense 54 million reflects benefit lower floating rate obtained swap agreement april 2005 connection early redemption 25 billion notes due 2006 company terminated 2 billion notional amount 2006 fixedtofloating interest rate swap agreements incurred pretax loss 28 million june 2005 company terminated 500 million notional amount 2011 fixedtofloating interest rate swap agreements related 25 billion notes due 2011 incurred pretax loss 23 million loss amortized interest expense remaining life notes due 2011 2 million recognized 2005 september 2005 company terminated 350 million notional amount 2026 fixedtofloating interest rate swap agreements related 350 million debentures due 2026 received gain 39 million gain recognized interest expense remaining life debentures due 2026 approximately 1 million recognized 2005 cash payments interest including payments due interest rate swaps 598 million 354 million 290 million 2005 2004 2003 respectively company’s cash receipts interest rate swaps 275 million 298 million 166 million 2005 2004 2003 respectively excluded cash payments interest 2 2006 obligations included shortterm borrowings company’s consolidated balance sheet december 31 2005 balances approximate outstanding nominal longterm debt values company’s convertible debenture included due payment 2008 contains 2008 put call feature described december 31 2005 company provided financial guarantees form standby letters credit performance bonds majority standby letters credit insurance companies support thirdparty liability programs performance bonds relate sale company product various foreign ministries health middle east company believes significant majority guarantees expire without funded amounts obligations presented following table note 14 shortterm borrowings longterm debt continued note 15 stockholders’ equity changes common shares treasury stock capital excess par value stock restricted stock share company’s preferred stock convertible 1696 shares common stock callable company’s option reductions number issued shares preferred stock 2005 2004 2003 due conversions shares common stock dividends declared per common share 112 2005 112 2004 112 2003 accumulated balances related component comprehensive incomeloss follows stock compensation plans company’s 2002 stock incentive plan executive officers key employees may granted options purchase company’s common stock less 100 market price date option granted options generally become exercisable installments 25 per year first fourth anniversaries grant date maximum term 10 years additionally plan provides granting stock appreciation rights whereby grantee may surrender exercisable rights receive common stock andor cash measured excess market price common stock option exercise price terms 2002 stock incentive plan authorized shares include 09 outstanding shares per year 2007 well number shares tendered prior year pay purchase price options number shares previously utilized satisfy withholding tax obligations upon exercise shares available grant prior year granted year shares cancelled forfeited expired also available future grant note 15 stockholders’ equity continued 2002 stock incentive plan provides granting common stock key employees subject restrictions continuous employment restrictions generally expire fiveyear period date grant compensation expense recognized restricted period december 31 2005 2004 42 million 29 million shares restricted stock outstanding plan respectively 2005 18 million shares restricted stock granted fair value 2461 per common share 2002 stock incentive plan also incorporates company’s longterm performance awards delivered form target number performance shares threeyear cycle 2004 2006 awards based 50 cumulative eps 50 cumulative sales ultimate payout modified company’s total stockholder return versus 11 companies proxy peer group threshold targets met performance period payment made longterm performance award plan maximum performance three measures result maximum payout 253 target december 31 2005 2004 18 million 09 million performance shares outstanding plan respectively 2005 11 million performance shares granted fair value 2545 per common share teamshare stock option plan fulltime employees excluding key executives granted options purchase company’s common stock market price date options granted company authorized 66 million shares issuance plan individual grants generally became exercisable evenly third fourth fifth anniversary grant date maximum term 10 years options 353 million shares exercised plan december 31 2005 fair value options granted 2005 2004 2003 estimated 549 per common share 591 per common share 515 per common share respectively date grant using blackscholes optionpricing model following assumptions stock option transactions note 15 stockholders’ equity continued following tables summarize information concerning company’s stock compensation plans currently outstanding exercisable options 1 average contractual life remaining years december 31 2005 298 million shares common stock reserved issuance pursuant stock plans options conversions preferred stock options related discontinued operations included amounts material note 16 financial instruments company exposed market risk due changes currency exchange rates interest rates reduce risk company enters certain derivative financial instruments available costeffective basis hedge underlying economic exposure instruments managed consolidated basis efficiently net exposures thus take advantage natural offsets derivative financial instruments used speculative purposes company’s primary foreign currency exposures anticipated transactions primarily intercompany inventory purchases expected occur within next two years euro canadian dollar japanese yen mexican peso chinese yuan company utilizes foreign currency forward contracts hedge exposures certain foreign currencies designates derivative instruments cash flow hedges notional amounts company’s foreign exchange derivative contracts december 31 2005 2004 2296 million 3461 million respectively derivatives majority qualify hedges future anticipated cash flows effective portion changes fair value temporarily deferred comprehensive income oci recognized earnings hedged item affects earnings sfas 133 requires company perform periodic assessments hedge effectiveness assessments determine whether derivatives designated qualifying hedges continue highly effective offsetting changes cash flows hedged items ineffective portion fair value longer deferred oci included current period earnings years ended december 31 2005 2004 hedge ineffectiveness earnings significant additionally company uses foreign exchange forward contracts offset exposure certain currency assets liabilities foreign exchange forward contracts designated hedges therefore changes fair value derivatives recognized earnings note 16 financial instruments continued occur 2005 2004 amounts recognized earnings related foreign exchange forward contracts qualify hedge accounting treatment significant fair value option forward contracts assets 53 million liabilities 362 million december 31 2005 2004 respectively recorded assets accrued liabilities december 31 2005 2004 respectively fair value foreign exchange contracts based yearend currency rates blackscholes model case option contracts company exposures net foreign currency denominated assets liabilities approximately 2488 million 2264 million december 31 2005 2004 respectively primarily europe japan mexico australia canada addition foreign exchange hedge contracts noted company utilizes forward contracts hedge foreign currency denominated monetary assets liabilities primary objective forward contracts protect us dollar value foreign currency denominated monetary assets liabilities effects volatility foreign exchange rates might occur prior receipt settlement us dollars foreign currency denominated monetary assets liabilities primarily denominated japanese yen euro forward contracts designated hedges marked market incomeexpense notional fair value amount purchased foreign exchange forward contracts 142 million 2 million liability respectively december 31 2005 229 million 10 million liability respectively december 31 2004 notional fair value amount sold foreign exchange forward contracts 47 million 1 million asset respectively december 31 2005 96 million 4 million asset respectively december 31 2004 company also uses non us dollar borrowings lesser extent forward contracts hedge foreign currency exposures company’s net investment certain foreign affiliates non us dollar borrowings forward contracts designated hedges net investments effective portion foreign exchange gains losses hedges recorded part foreign currency translation component comprehensive income december 31 2005 2004 12 million tax gains 6 million tax losses respectively recorded foreign currency translation component comprehensive income company uses derivative instruments part interest rate risk management strategy derivative instruments used comprised principally fixed floating rate interest rate swaps subject fairvalue hedge accounting treatment 2004 2003 2002 company executed several fixedtofloating interest rate swap contracts several financial institutions convert 62 billion company’s fixed rate debt paid 2006 2008 2011 2013 2023 2026 variable rate debt notional amounts swaps 34 billion 62 billion december 31 2005 2004 respectively accordance sfas 133 accounting derivative instruments hedging activities company recognized net reduction interest expense 54 million 151 million 116 million 2005 2004 2003 respectively reflects benefit lower floating rate obtained swap compared fixed rate underlying debt april 2005 connection early redemption 25 billion notes due 2006 company terminated 2 billion notional amount 2006 fixedtofloating interest rate swap agreements incurred pretax loss 28 million june 2005 company terminated 500 million notional amount 2011 fixedtofloating interest rate swap agreements related 25 billion notes due 2011 incurred pretax loss 23 million loss amortized interest expense remaining life notes due 2011 2 million recognized 2005 september 2005 company terminated 350 million notional amount 2026 fixedtofloating interest rate swap agreements related 350 million debentures due 2026 resulted gain 39 million gain recognized interest expense remaining life debentures due 2026 approximately 1 million recognized 2005 swap contracts well underlying debt hedged recorded fair value resulted increase noncurrent assets 21 million current liabilities 51 million reduction longterm debt 30 million increase noncurrent assets 76 million current liabilities 1 million longterm debt 75 million december 31 2005 2004 respectively swap contracts generally held maturity company use derivative financial instruments speculative purposes 2005 2004 2003 company reclassified deferred losses 130 million 234 million 223 million respectively oci earnings majority classified cost products sold carrying amount company’s financial instruments includes cash equivalents marketable securities accounts receivable accounts payable approximates fair value december 31 2005 2004 longterm debt difference fair value carrying value material note 17 segment information company organized three reportable segmentspharmaceuticals nutritionals health care pharmaceuticals segment comprised global pharmaceutical international consumer medicines businesses nutritionals segment consists mead johnson primarily infant formula business children’s nutritional business health care segment consists convatec medical imaging consumer medicines united states canada third quarter 2005 company completed sale consumer medicines business additional information sale consumer medicines see “note 4 acquisitions divestitures” company’s products sold principally wholesale retail trade nationally internationally certain products also sold drug manufacturers hospitals clinics government agencies medical profession three wholesalers accounted approximately 20 19 11 respectively company’s total net sales 2005 2004 sales wholesalers accounted 19 17 10 respectively company’s total net sales 2003 three wholesalers accounted approximately 17 15 13 respectively company’s total net sales concentrated pharmaceuticals segment business segments corporateother consists principally interest income interest expense certain administrative expenses allocations business segments certain corporate programs gain sale consumer medicines business corporateother assets include cash equivalents marketable securities goodwill assets otn held available sale december 31 2004 sold 2005 certain assets geographic areas change yearend assets united states western hemisphere 2005 2004 primarily related 2005 cash repatriation company’s nonus subsidiaries pursuant ajca 2004 note 18 leases minimum rental commitments noncancelable operating leases primarily real estate motor vehicles effect december 31 2005 operating lease rental expense net sublease rental income 15 million 2005 13 million 2004 11 million 2003 150 million 2005 149 million 2004 137 million 2003 note 19 pension postretirement benefit plans company certain subsidiaries defined benefit pension plans defined contribution plans termination indemnity plans regular fulltime employees principal pension plan bristolmyers squibb retirement income plan funding policy contribute amounts provide current service fund past service liability plan benefits based primarily participant’s years credited service compensation plan assets consist principally equity fixedincome securities company also provides comprehensive medical group life benefits substantially us retirees elect participate comprehensive medical group life plans medical plan contributory contributions adjusted periodically vary date retirement original retiring company life insurance plan noncontributory plan assets consist principally equity fixedincome securities similar plans exist employees certain countries outside united states cost company’s deferred benefits postretirement benefit plans included following components company recognized impact medicare prescription drug improvement modernization act 2003 2005 2004 accordance fsp 1062 recorded 11 million 8 million 2005 2004 respectively reduction net periodic benefit costs note 19 pension postretirement benefit plans continued changes benefit obligations plan assets december 31 2005 2004 company’s defined benefit postretirement benefit plans several plans underfunded accrued benefit obligations exceeded accrued benefit liabilities december 31 2005 2004 additional minimum liabilities established increase accrued benefit liabilities values underfunded accrued benefit obligations additional minimum liabilities totaled 328 million 349 million december 31 2005 2004 respectively us unfunded benefit equalization plan several international plans additional minimum liabilities offset intangible assets 2 million 3 million charges comprehensive income included stockholders’ equity 326 million 346 million december 31 2005 2004 respectively accumulated benefit obligation defined benefit pension plans 5209 million 4828 million december 31 2005 2004 respectively information pension plans accumulated benefit obligations excess plan assets note 19 pension postretirement benefit plans continued attributable primarily unfunded us benefit equalization plan several plans international markets unfunded us benefit equalization plan provides pension benefits employees compensation irs limits cannot funded taxadvantaged manner additional information pertaining company’s pension postretirement plans weightedaverage assumptions used determine benefit obligations december 31 weightedaverage actuarial assumptions used determine net periodic benefit cost years ended december 31 december 31 2005 company’s expected longterm rate return us pension plan assets 875 target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income 875 approximated applying expected returns 9 public equity 15 private equity 6 fixed income target allocation actual historical returns also relevant annualized returns periods ended december 31 2005 96 10 years 109 15 years 105 20 years us pension plan assets represented approximately 80 total company pension plan assets december 31 2004 841 disclosed total company expected return assets 2005 875 us pension plans due impact international pension plans typically employ less aggressive asset allocation 875 expected return disclosed benefits 2005 relevant assets invested manner us pension plan assets international plan assets assumed health care cost trend rates december 31 assumed health care cost trend rates effect amounts reported health care plans onepercentagepoint change assumed health care cost trend rates would following effects note 19 pension postretirement benefit plans continued company’s asset allocation pension postretirement benefits december 31 2005 2004 company’s investment strategy emphasizes equities order achieve high expected returns long run low expense low required cash contributions us pension plans target asset allocation 70 public equity 58 us 12 international 8 private equity 22 fixed income maintained cash flow ie cash contributions benefit payments used rebalance back targets necessary investments well diversified within three major asset categories 40 us equity passively managed otherwise investments actively managed investment strategies international pension plans typically similar although asset allocations usually conservative bristolmyers squibb company common stock represents less 1 plan assets december 31 2005 2004 assets postretirement benefits commingled us pension plan assets therefore investment strategy identical described us pension plans contributions although minimum contributions required company plans make cash contributions us pension plans 2006 contributions made us pension plans company may make taxdeductible contributions 401h account retiree medical benefits equal portion pension normal cost contributions international pension plans expected 70 90 million range 2006 estimated future benefit payments following benefit payments mainly us pension plans reflect expected future service appropriate expected paid savings plan principal defined contribution plan bristolmyers squibb savings investment program company’s contribution based employee contributions level company match company’s contributions plan 51 million 2005 53 million 2004 51 million 2003 termination indemnity plans company operates certain jurisdictions primarily europe require recording statutory termination obligations assessed accordance eitf 881 determination vested benefit obligation defined benefit pension plan total liability recorded obligations 68 million december 31 2005 81 million december 31 2004 note 20 legal proceedings contingencies various lawsuits claims proceedings investigations pending company certain subsidiaries accordance sfas 5 accounting contingencies company records accruals contingencies probable liability incurred amount loss reasonably estimated matters involve antitrust securities patent infringement pricing sales marketing practices environmental health safety matters product liability insurance coverage significant matters described assurance increase scope matters future lawsuits claims proceedings investigations material management continues believe previously disclosed next years aggregate impact beyond current reserves legal matters affecting company reasonably likely material company’s results operations cash flows may material financial condition liquidity company’s decision obtain insurance coverage dependent market conditions including cost availability existing time decisions made result external factors availability insurance become restrictive cost increased significantly company evaluated risks determined cost obtaining insurance outweighs benefits coverage protection losses became selfinsured product liabilities effective july 1 2004 company continue evaluate risks benefits determine insurance needs future intellectual property plavix litigation plavix currently company’s largest product ranked net sales net sales plavix approximately 38 billion year ended december 31 2005 plavix patents subject number challenges united states canada described currently company expects plavix market exclusivity united states 2011 apotex announced january 2006 received final approval anda clopidogrel bisulfate fda accordingly apotex could decide launch generic product risk time generic competition would likely result substantial decreases sales plavix united states company expects final approval andas defendants subject potential 180day semiexclusivity apotex united states company’s us territory partnership alliance sanofi plaintiff four pending patent infringement lawsuits instituted us district court southern district new york entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v apotex inc apotex corp apotex 02cv2255 shs sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v dr reddy’s laboratories ltd dr reddy’s laboratories inc 02cv3672 shs sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v teva pharmaceuticals usa inc teva pharmaceuticals industries ltd 04cv7458 sanofiaventis sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v cobalt pharmaceuticals inc 05cv8055 shs teva pharmaceuticals industries ltd since dismissed case proceedings involving plavix also progress canada us suits filed march 21 2002 may 14 2002 september 23 2004 september 16 2005 respectively based us patent 4847265 composition matter patent discloses claims among things hydrogen sulfate salt clopidogrel marketed plavix first two suits also based us patent 5576328 discloses claims among things use clopidogrel prevent secondary ischemic event plaintiffs later withdrew patent 5576328 two lawsuits plaintiffs’ infringement position based defendants’ filing abbreviated new drug applications anda fda seeking approval sell generic clopidogrel bisulfate prior expiration composition matter patent 2011 defendants responded alleging patent invalid andor unenforceable apotex added antitrust counterclaims first two cases consolidated discovery fact discovery closed october 15 2003 expert discovery completed november 2004 joint pretrial order apotex case submitted may 27 2005 court approved court scheduled trial apotex matter begin june 2006 apotex case tried without jury plaintiffs filed motion consolidate dr reddy’s case apotex case trial motion pending court stipulation approved us district court southern district new york april 15 2005 parties patent infringement litigation teva agreed teva litigation stayed pending resolution apotex dr note 20 legal proceedings contingencies continued reddy’s litigation parties teva litigation bound outcome litigation district court apotex dr reddy’s april 18 2005 court denied moot pending motion consolidate teva litigation apotex dr reddy’s result court’s approval stipulation parties submitted similar stipulation court cobalt case october 12 2005 court approved thus case cobalt also stayed april 20 2005 apotex filed complaint declaratory judgment sanofiaventis inc bristolmyers squibb sanofi pharmaceuticals holding partnership complaint seeks declaratory judgment ‘265 patent unenforceable due alleged inequitable conduct committed prosecution patent defendants responded submitting motion dismiss court granted september 12 2005 apotex filed appeal united states court appeals federal circuit company’s us territory partnership alliance sanofi plaintiff another pending patent infringement lawsuit instituted us district court district new jersey entitled sanofisynthelabo inc bristolmyers squibb sanofi pharmaceuticals holding partnership v watson pharmaceuticals inc watson laboratories inc 204cv4926 suit filed october 7 2004 based us patent 6429210 discloses claims particular crystalline polymorph form hydrogen sulfate salt clopidogrel marketed plavix case discovery phase december 8 2005 court permitted watson pursue declaratory judgment counterclaim respect us patent 6504030 january 24 2006 court approved parties’ stipulation stay case pending outcome trial apotex matter thus case officially stayed canada sanofisynthelabo canada inc instituted prohibition action federal court canada apotex inc apotex minister health response notice allegation noa apotex directed canadian patent 1336777 covering clopidogrel bisulfate apotex’s notice allegation indicated filed abbreviated new drug submission ands clopidogrel bisulfate tablets sought approval notice compliance ands expiration canadian patent 1336777 expires august 12 2012 apotex’s noa alleged ‘777 patent invalid infringed hearing held february 21 february 25 2005 march 21 2005 canadian federal court ottawa rejected apotex’s challenge canadian plavix patent held asserted claims novel obvious infringed granted sanofi’s application order prohibition minister health apotex inc order prohibition preclude approval apotex’s ands patent expires 2012 unless federal court’s decision reversed appeal apotex filed appeal sanofisynthelabo canada inc also instituted prohibition action federal court canada apotex minister health response noa directed canadian patent 2334870 covering form 2 polymorph clopidogrel bisulfate apotex seeks approval ands expiration ‘870 patent 2019 apotex alleges noa infringe ‘870 patent invalid action discontinued sanofiaventis sanofisynthelabo canada inc instituted prohibition action federal court canada novopharm limited novopharm minister health response notice allegation novopharm directed canadian patent 1336777 covering clopidogrel bisulfate novopharm’s noa indicated filed ands clopidogrel bisulfate tablets sought approval notice compliance ands expiration canadian patent 1336777 expires august 12 2012 novopharm’s noa alleged ‘777 patent invalid novopharm since withdrawn noa agreed bound result apotex proceeding prohibition action therefore discontinued sanofiaventis sanofisynthelabo canada instituted prohibition action federal court canada cobalt pharmaceuticals inc minister health response notice allegation cobalt directed canadian patents 1336777 2334870 cobalt’s noa indicated filed ands clopidogrel bisulfate tablets sought notice compliance ands expiration ‘777 ‘870 patents cobalt alleged ‘777 patent invalid ‘870 patent invalid infringed case stayed pending outcome apotex appeal although plaintiffs intend vigorously pursue enforcement patent rights plavix possible time reasonably assess outcome lawsuits company prevail lawsuits apotex final approval anda us enter market generic product risk timing potential generic competition plavix also possible reasonably estimate impact lawsuits company note 20 legal proceedings contingencies continued however loss market exclusivity plavix subsequent development generic competition would material company’s sales plavix results operations cash flows could material financial condition liquidity see “ note 8 income taxes” additional information intellectual property litigation tequin company kyorin pharmaceuticals co ltd kyorin commenced patent infringement action march 23 2004 teva usa teva industries united states district court southern district new york relating antibiotic gatifloxacin kyorin holds composition matter patent company sells tequin teva industries since dismissed case action relates teva’s filing anda generic version gatifloxacin tablets certification composition matter patent expires december 2007 granted patent term extension december 2009 invalid infringed filing suit places stay approval teva’s generic product june 2007 unless court decision adverse company kyorin date trial matter scheduled begin may 1 2006 tequin injectable form company kyorin commenced patent infringement actions march 8 2005 apotex inc apotex corp sicor pharmaceuticals inc sicor inc sicor pharmaceuticals sales inc teva pharmaceuticals usa inc teva pharmaceutical industries ltd united states district court southern district new york relating injectable forms antibiotic gatifloxacin kyorin holds composition matter patent company sells tequin action related apotex’s sicor’s filing andas generic versions injectable gatifloxacin piv certifications composition matter patent expires december 2007 granted patent term extension december 2009 invalid filing lawsuits places stays approvals apotex’s sicor’s generic products julyaugust 2007 unless court decision adverse company kyorin date sicor case consolidated proceeding stipulation approved us district court southern district new york august 22 2005 parties agreed apotex case stayed pending resolution teva sicor cases parties bound outcome litigation erbitux october 28 2003 complaint filed yeda research development company ltd yeda imclone aventis pharmaceuticals inc us district court southern district new york action alleges seeks three individuals associated yeda also named coinventors us patent 6217866 covers therapeutic combination egfrspecific monoclonal antibody antineoplastic agents chemotherapeutic agents use treatment cancer yeda’s action successful yeda could position practice license others practice invention could result product competition erbitux might otherwise occur company party action unable predict outcome stage proceedings may 5 2004 repligen corporation repligen massachusetts institute technology mit filed lawsuit united states district court district massachusetts imclone claiming imclone’s manufacture sale erbitux infringes patent generally covers process protein production mammalian cells repligen mit seek damages based sales erbitux commenced february 2004 patent expired may 5 2004 although repligen mit seeking extension patent company party action unable predict outcome stage proceedings orencia january 6 2006 repligen corporation repligen regents university michigan filed complaint company united states district court eastern district texas marshall division complaint alleges company’s anticipated sale orencia infringe us patent 6685541 abilify august 11 2004 otsuka filed united states patent trademark office uspto request reexamination us composition matter patent covering abilify antipsychotic agent used treatment schizophrenia related psychiatric disorders us patent number 5006528 ‘528 patent” expires 2014 including granted supplemental protection extensions otsuka determined original ‘528 patent application contained error description prior art reference identified wrong patent number addition otsuka taken opportunity bring information attention uspto granted request reexamination proceeding ongoing reexamination proceeding allow uspto consider patentability patent claims light corrected patent number newly cited information uspto expected make final decision reexamination end 2006 company’s rights commercialize product us expire november 2012 note 20 legal proceedings contingencies continued company otsuka believe invention claimed ‘528 patent patentable prior art expect uspto reconfirm reexamination however guarantee outcome patentability ‘528 patent reconfirmed following reexamination may sooner expected loss market exclusivity abilify subsequent development generic competition would material operating results company securities litigation vanlev litigation april may june 2000 company former chairman board chief executive officer charles heimbold jr former chief scientific officer peter ringrose phd named defendants number class action lawsuits alleging violations federal securities laws regulations actions consolidated one action us district court district new jersey plaintiff claimed defendants disseminated materially false misleading statements andor failed disclose material information concerning safety efficacy commercial viability vanlev drug development period november 8 1999 april 19 2000 number related class actions making essentially allegations also filed us district court southern district new york actions transferred us district court district new jersey court certified two separate classes class relating period november 8 1999 april 19 2000 “first class period” class relating period march 22 2001 march 20 2002 “second class period” first class period involved claims related vanlev’s efficacy safety andor potential blockbuster drug second class period involved claims related vanlev’s potential blockbuster drug class certifications without prejudice defendants’ rights fully contest merits plaintiff’s claims plaintiff sought compensatory damages costs expenses behalf shareholders respect two class periods december 17 2004 company defendants made motion summary judgment plaintiff’s claims august 17 2005 court granted part denied part summary judgment motion also dismissed two three individual defendants peter r dolan peter ringrose case february 8 2006 court granted preliminary approval settlement agreement parties company pay 185 million settlement fund agree certain nonmonetary terms settlement subject certain conditions including final approval fairness hearing scheduled may 11 2006 accordingly company established reserve fourth quarter 2005 185 million paid settlement fund february 2006 securities matters 2002 2003 company certain current former officers pricewaterhousecoopers named defendants number securities class actions derivative suits united states district court southern district new york lawsuits alleged violations federal securities laws regulations connection sales incentives wholesaler inventory levels breaches fiduciary duty connection company’s conduct concerning among things safety efficacy commercial viability vanlev discussed company’s sales incentives certain wholesalers inventory levels wholesalers company’s investment relations imclone’s product erbitux alleged anticompetitive behavior connection buspar taxol® paclitaxel suits settled respect company current former officers directors september 21 2005 certain company’s current former officers named purported class action starkman v bristolmyers squibb et al filed new york state supreme court alleging factual claims similar resolved federal class action southern district new york noted asserted common law fraud breach fiduciary duty claims behalf stockholders purchased company’s stock october 19 1999 held stock march 10 2003 october 7 2005 company removed case united states district court southern district new york case currently stayed november 18 2004 class action complaint filed united states district court eastern district missouri company dk health care resources inc “dk” several current former dk directors officers behalf purchasers dk stock august 10 2000 september 16 2002 complaint alleges company participated fraudulently inflating value dk stock allegedly engaging improper “channelstuffing” agreements dk company filed motion dismiss case january 28 2005 motion consideration court private securities litigation reform act discovery automatically stayed pending outcome motion dismiss plaintiff moved partially lift automatic stay court considering motion note 20 legal proceedings contingencies continued last two cases noted preliminary stages company unable assess outcome reasonably estimate possible loss range loss respect cases august 4 2004 company entered final settlement sec concluding investigation concerning certain wholesaler inventory accounting matters company agreed without admitting denying liability violate certain provisions securities laws company also established 150 million fund distributed certain company shareholders plan distribution established sec settlement resolve ongoing investigation sec activities certain current former members company’s management connection wholesaler inventory issues accounting matters company continuing cooperate investigation june 15 2005 united states attorney’s office district new jersey “the office” filed criminal complaint charging company conspiracy commit securities fraud connection previously disclosed investigation office concerning inventory various accounting matters covered company’s settlement sec connection filing complaint company office entered deferred prosecution agreement pursuant agreement company agreed maintain continue implement remedial measures pursuant settlement sec take certain additional remedial actions appoint independent monitor continue cooperate office including respect ongoing investigation regarding individual current former employees company well make additional payment 300 million fund shareholders established pursuant company’s settlement sec company fulfills obligations deferred prosecution agreement office dismiss criminal complaint two years date filing pricing sales promotional practices litigation investigations company together number pharmaceutical manufacturers defendant private class actions well suits brought attorneys general several states numerous new york counties city new york pending federal state courts relating pricing company products federal cases consolidated pretrial purposes caption pharmaceutical industry average wholesale price litigation mdl 1456 us district court district massachusetts “awp mdl” pleadings private class action amended course awp mdl response court’s rulings class certification merits issues october 16 2005 plaintiffs filed third amended master consolidated class action complaint “tamcc” alleging company’s many pharmaceutical manufacturers’ reporting prices certain prescription drug products 20 listed drugs company’s case effect falsely overstating average wholesale price “awp” published industry compendia turn improperly inflated reimbursement paid medical providers others prescribed administered products tamcc asserts claims federal rico statute state consumer protection fair trade statutes however court’s prior rulings rico claims dismissed continue included tamcc primarily appeal purposes addition opinion dated august 16 2005 court declined certify proposed class company’s drugs selfadministered patient ie pills liquids purchased pharmacy expressed willingness certify classes involving drugs administered physician eg injectables oncology drugs january 19 2006 court heard argument certification three classes persons entities paid reimbursed seven company’s physicianadministered drugs certified following classes nationwide class individual medicare part b beneficiaries ii massachusetts class “medigap” insurers iii massachusetts class entities persons private commerce paid reimbursed drugs based awp fact discovery plaintiffs company closed private awp mdl proceedings case progressing issues expert discovery january 31 2006 court issued case management order scheduling summary judgment motions filed march 15 2006 setting trial date company november 6 2006 certain state attorneys general actions suits new york counties new york city also proceeding awp mdl specifically company defendant complaints montana illinois kentucky california attorneys general well master consolidated complaint 42 new york counties new york city complaint nassau county new york attorneys general suits proceeding company among many drug manufacturers state courts pennsylvania nevada wisconsin alabama mississippi company defendants removed federal court recent state court case filed arizona attorney general defendants seek transfer case awp mdl finally company one many defendants case commenced erie county new york proceeding state court allegations various state attorneys general new york county new york city cases similar note 20 legal proceedings contingencies continued private class action awp mdl following respect allege company manufacturers caused awps inflated thereby injuring entities persons reimbursed prescription drugs based awps primary differences awp mdl states counties sue behalf payors drugs state medicaid programs well behalf corporate individual citizens states paid reimbursed drugs based awps b states counties either limit cite greater number drugs contend awps inflated c certain states new york counties also allege company defendants underpaid amount “rebates” owed medicaid rebate statute rebate agreement federal government finally company also defendant one private class action pending arizona state court contains allegations similar made awp mdl class certified case stayed pending resolution class motions awp mdl company also defendant two putative class actions involving prices section 340b public health services act requires prescription drug manufacturers offer discounts qualified medical providers generally disproportionately service poor people one case pending alabama federal court plaintiffs two medical providers claim providers across country receive discounted prices entitled case pending california federal court county santa clara california contends counties cities california provide financing local hospitals otherwise would necessary company defendants provided appropriate discounts alabama court denied defendants’ motion dismiss february 14 2006 motion dismiss california action granted court also granted plaintiff leave amend plaintiff filed amended complaint cases preliminary stage company unable assess outcome possible effects business profitability reasonably estimate possible loss range loss respect cases company prevail final nonappealable determinations litigations impact could material company together number pharmaceutical manufacturers also received subpoenas document requests various government agencies seeking records relating pricing sales marketing practices “best price” reporting drugs covered medicare andor medicaid public health service act 340b program requests records come us attorneys’ offices district massachusetts eastern district pennsylvania northern district texas civil division department justice offices inspector general department health human services office personnel management conjunction civil division department justice office pharmacy assistance health resources services administration hrsa several states addition requests information come house committee energy commerce senate finance committee connection investigations committees currently conducting medicaid best price issues use educational grants pharmaceutical companies previously disclosed mid2003 company initiated internal review certain sales marketing practices focusing whether practices comply applicable antikickback laws analyzing practices respect compliance 1 best price reporting rebate requirements medicaid program certain us governmental programs reference medicaid rebate program 2 applicable fda requirements company met representatives us attorney’s office district massachusetts discuss review received related subpoenas us attorney’s office including subpoena received may 5 2005 documents relating possible label promotion abilify company’s internal review expected continue resolution pending governmental investigations related matters company producing documents actively cooperating investigations could result assertion civil andor criminal claims company reserves liabilities relation pharmaceutical pricing sales marketing practices 146 million possible time reasonably assess final outcome matters accordance gaap company determined amount represents minimum expected probable losses respect matters losses could include imposition fines penalties administrative remedies andor liability additional rebate amounts eventual losses related matters may exceed reserves impact could material company believe topend range losses estimated company prevail final nonappealable determinations investigations impact could material previously disclosed 2004 company undertook analysis methods processes calculating prices reporting governmental rebate pricing programs related us pharmaceuticals business analysis completed early 2005 based analysis company identified need revisions methodology processes used calculating reported pricing related rebate amounts implemented revised methodologies processes beginning reporting federal government agency primary responsibility rebate price reporting obligations centers medicare medicaid services cms first quarter 2005 addition using revised methodologies processes company also recalculated “best price” “average manufacturer’s price” required reported note 20 legal proceedings contingencies continued company’s federal medicaid rebate agreement certain state agreements corresponding revised rebate liability amounts programs threeyear period 2002 2004 upon completion analysis early 2005 company determined estimated rebate liability programs threeyear period 2002 2004 actually less rebates paid company period accordingly fourth quarter 2004 company recorded reduction rebate liability amount estimated overpayment company submitted proposed revisions updated estimate cms review recently notified government submitting updated estimate correcting recently identified programming errors department justice doj informed company also reviewing submission conjunction previously disclosed subpoena received company doj relating among things “best price” reporting drugs covered medicaid discussed detail requested company provide additional information regarding proposed revisions estimate agencies may take position revisions company’s methodologies calculations required company believes however based current information recalculation 2002 2004 period likely result material rebate liability however due uncertainty surrounding recoverability company’s estimated overpayment arising review process described company recorded reserve amount equal estimated overpayment general commercial litigation company together number pharmaceutical manufacturers named defendant action filed california state superior court oakland james clayworth et al v bristolmyers squibb company et al alleging defendants conspired fix prices pharmaceuticals agreeing charge drugs united states charge outside united states particularly canada asserting claims california’s cartwright act unfair competition law plaintiffs seek treble damages sustained restitution profit obtained defendants charging artificially higher prices plaintiffs injunction barring defendants charging plaintiffs higher prices offered customers award reasonable attorneys’ fees costs relief court deems proper case preliminary stage company unable assess outcome possible effect business profitability reasonably estimate possible loss range loss respect case company prevail final nonappealable determination litigation impact could material company also named defendant along many pharmaceutical companies action brought utility consumers action network consumer advocacy organization focuses privacy issues lawsuit filed california state superior court san diego county entitled utility consumers action network behalf privacy rights clearinghouse et al v bristolmyers squibb co et al originally directed retail drug stores amended july 2004 add company pharmaceutical companies defendants another lawsuit rowan klein representative action behalf similarly situated persons consuming public v walgreens et al filed february 2005 also california state superior court san diego county retail pharmacies company pharmaceutical companies substantially utility consumers action network lawsuit jointly referred “the complaints” complaints seek equitable relief monetary damages attorneys’ fees based upon allegedly unfair business practices untrue misleading advertising various california statutes including california confidentiality medical information act specifically complaints allege “drug marketing program” retail stores selling consumers’ confidential medical information companies complaints allege companies using consumers’ medical information direct marketing increase sale targeted drugs january 2005 company pharmaceutical defendants sought dismiss utility consumers action network case klein case grounds california’s proposition 64 requires plaintiff must injured party order standing bring suit company contends neither plaintiffs two cases personally injured october 2005 court entered stay cases pending california supreme court’s decision review several intermediate appellate decisions discuss applicability proposition 64 pending cases preliminary stage company unable assess outcome possible effect business profitability reasonably estimate possible loss range loss respect case company prevail final nonappealable determination two lawsuits impact could material product liability litigation company party product liability lawsuits involving allegations injury caused company’s pharmaceutical overthecounter medications lawsuits involve certain overthecounter medications containing phenylpropanolamine ppa others involve hormone replacement therapy hrt products polyurethanecovered breast implants smoothwalled breast implants company’s serzone stadol ns prescription drugs addition lawsuits company also faces unfiled claims involving products note 20 legal proceedings contingencies continued serzone nefazodone hydrochloride antidepressant launched company may 1994 canada march 1995 united states december 2001 company added black box warning serzone label warning potential risk severe hepatic events including possible liver failure need transplantation risk death within several months black box warning added package insert serzone number lawsuits including several class actions filed company plaintiffs allege company knew known hepatic risks posed serzone failed adequately warn physicians users risks seek compensatory punitive damages medical monitoring refunds costs purchasing serzone august 2002 federal cases transferred us district court southern district west virginia serzone products liability litigation mdl 1477 addition cases filed united states four national class actions filed canada may 2004 company announced following evaluation commercial potential product generic entry marketplace rapidly declining brand sales decided discontinue manufacture sale product effective june 14 2004 without admitting wrongdoing liability around october 15 2004 company entered settlement agreement respect claims united states territories regarding serzone pursuant terms proposed settlement claims dismissed litigation terminated defendants receive releases company commits paying least 70 million funds class members class counsel petitioned court award reasonable attorneys’ fees expenses fees paid company reduce amount money paid class members part settlement company may terminate settlement based upon number claims submitted number purported class members opt participate settlement instead pursue individual claims november 18 2004 district court conditionally certified temporary settlement class preliminarily approved settlement optout period ended april 8 2005 fairness hearing occurred june 29 2005 september 2 2005 court issued opinion granting final approval settlement order approving settlement entered september 9 2005 company reserves liabilities lawsuits 76 million including reasonable attorney’s fees expenses possible time reasonably assess final outcome lawsuits due number contingencies could affect settlement accordance gaap company determined amounts represent minimum expected probable losses respect lawsuits eventual losses related lawsuits may exceed reserves impact could material company believe topend range losses estimated hormone replacement therapy hrt litigation 1991 national institutes health nih launched women’s health initiative whi clinical trials involving approximately 161000 healthy postmenopausal women participants given either prempro estrogen progestin premarin estrogen manufactured wyeth july 2002 article journal american medical association reported among prempro subjects increased risks breast cancer heart attacks blood clots strokes decreased risks hip fractures colorectal cancer prempro phase study stopped july 9 2002 premarin phase continued stopped march 1 2004 nih informed study participants stop study medications trial conjugated equine estrogens premarin estrogenalone versus placebo women continue followed several years including ascertainment outcomes mammogram reports first legal complaints filed wyeth shortly whi halted july 2002 july 2003 company served first hrt lawsuit plaintiffs allege among things hormone therapy products cause breast cancer stroke blood clots cardiac injuries women defendants aware risks failed warn consumers company products involved litigation estrace estrogenonly tablet estradiol generic estrogenonly tablet delestrogen injectable estrogen ovcon oral contraceptive containing estrogen progestin federal cases transferred us district court eastern district arkansas prempro wyeth products liability litigation mdl 1507 february 28 2006 company defendant 387 lawsuits involving abovementioned products filed behalf approximately 1012 plaintiffs federal state courts throughout united states lawsuits involve multiple defendants company expects dismissed many cases products never used company’s hormone therapy products sold companies january 2000 august 2001 company maintains estrace anda continues manufacture products supply agreement possible time reasonably assess final outcome litigation reasonably estimate possible loss range loss respect litigation note 20 legal proceedings contingencies continued environmental proceedings october 2005 company commenced voluntary environmental audit mead johnson facility mt vernon indiana determine compliance epa’s new source performance standards nsps applicable operation incinerator december 2005 company disclosed possible violations nsps requirement currently process modifying operations fall within exemption requirements date neither epa indiana department environmental management pursued penalties potential violations however company could potentially subject civil penalties past noncompliance nsps us environmental protection agency epa investigating industrial commercial facilities throughout us use refrigeration equipment containing ozonedepleting substances ods enforcing compliance regulations governing prevention service repair leaks ods requirements 2004 company performed voluntary corporatewide audit facilities us puerto rico use odscontaining refrigeration equipment company submitted audit report epa november 2004 identifying potential violations ods requirements several facilities addition matters covered company’s audit report letter epa previously sent company’s wholly owned subsidiary mead johnson request information regarding compliance ods requirements facility evansville indiana company responded request june 2004 result identified potential violations evansville facility company currently discussions epa resolve potential violations discovered audit identified result epa request information evansville facility epa determines evansville facility facilities violation applicable ods requirements company could subject penalties andor required convert replace refrigeration equipment use nonods approved substitutes march 2005 company commenced voluntary environmental audit barceloneta humacao puerto rico facilities determine compliance epa’s regulations regarding maximum achievable control technology requirements emissions hazardous air pollutants pharmaceuticals production pharmaceutical mact company submitted epa audit report humacao facility june 2005 barceloneta facility july 2005 disclosed potential violations pharmaceutical mact requirements facilities date epa discussed potential violations company however company undertaking actions correct potential violations epa determines barceloneta humacao facilities violated pharmaceutical mact requirements company could subject civil penalties andor required make investments facilities ensure compliance pharmaceutical mact october 2003 company contacted north brunswick nj board education boe regarding discovery industrial waste materials allegedly including materials er squibb sons expansion project north brunswick township high school well number neighboring residential properties adjacent public park areas january 2004 new jersey department environmental protection njdep sent company others information request letter possible waste disposal site company responded march 2004 school board township current owners school property park conducting jointly financing soil remediation work plan approved njdep evaluating need conduct response actions remediate contain potentially impacted ground water due financial constraints boe asked company contribute funds interim basis assure uninterrupted performance necessary site work company actively monitoring cleanup project including costs offered negotiate boe township terms cooperative funding agreement allocation process municipal records indicate township operated landfill site 1940’s 1960’s company actively investigating historic use site including company’s possible connection date neither boe township asserted claims company september 2003 njdep issued administrative enforcement directive notice new jersey spill compensation control act requiring company approximately 65 companies perform assessment natural resource damages nrd implement unspecified interim remedial measures restore conditions lower passaic river directive alleges company liable historically sent bulk waste former inland chemical company facility newark nj owned mckesson corp reprocessing releases hazardous substances facility migrated newark bay continue adverse impact lower passaic river watershed subsequently epa also issued notice letter comprehensive environmental response compensation liability act cercla numerous partiesbut including companyseeking cooperation study conditions substantially stretch passaic river subject njdep’s directive group parties entered consent agreement epa 2004 finance portion study epa initially estimated study cost 20 million recent epa internal estimates pegged number least twice amount consent agreement private party group committed pay roughly half 20 million estimate subject revision future negotiation study may also lead cleanup actions directed epa army corps engineers company working cooperatively note 20 legal proceedings contingencies continued group parties received njdep directive andor epa notice explore potential resolutions directive address risk collateral claims although company believe caused contributed contamination lower passaic river watershed company informed njdep willing discuss njdep’s allegations company also private party group continues discuss federal agencies designated trustees natural resources affected contamination passaic river watershed possibility funding cooperative nrd study presumably would dovetail ongoing epa study ideally would joined njdep coordinate actions njdep may seek directive late 2005 njdep issued supplemental directive filed suit one site parties seeking compel implementation interim measures unclear whether njdep take additional actions site parties andor whether litigation arise response new claims extent liability company may face either njdep epa respect future claims federal trustees mckesson responsible parties cannot yet determined december 1 2003 company njdep entered administrative consent order aco concerning alleged violations new jersey air pollution control act implementing regulations company’s new brunswick facility pursuant aco company agreed submit permit application creating facilitywide emissions cap pay small administrative fine obligations satisfied early 2004 subsequently february 15 2005 aco amended provide company would install new cogeneration turbine new brunswick facility december 31 2006 would obtain applicable air permits december 31 2005 company obtained applicable permits purchasing new cogeneration turbine cost approximately 5 million company one several defendants including major us pharmaceutical companies purported class action suit filed superior court puerto rico february 2000 residents three wards municipality barceloneta alleging air emissions government owned operated wastewater treatment facility municipality caused respiratory ailments violated local air rules adversely impacted property values company believes wastewater discharges treatment facility material compliance terms company’s permit september 2005 parties stipulated dismissal prejudice claims property damage personal injury leaving claims related nuisance remaining case court scheduled hearing class certification motion september 30 2005 hearing adjourned settlement discussions among parties continued november december successful february 2006 new judge appointed due potential conflict interest involving prior judge case status conference scheduled april 2006 company believes litigation resolved immaterial amount may bring matter resolution however event adverse judgment company’s ultimate financial liability could greater anticipated company also responsible various state federal foreign laws including cercla certain costs investigating andor remediating contamination resulting past industrial activity company’s current former sites waste disposal reprocessing facilities operated third parties company typically estimates costs based information obtained epa counterpart state agency andor studies prepared independent consultants including total estimated costs site expected costsharing “potentially responsible parties” company accrues liabilities probable reasonably estimable december 31 2005 company estimated share total future costs sites approximately 685 million recorded liabilities represents sum best estimates simple estimate reasonably made estimates minimal probable amount among range costs without taking account potential recoveries parties currently expected company paid less 4 million excluding legal fees last five years investigation remediation matters including liabilities cercla onsite remedial obligations although possible predict certainty outcome environmental proceedings ultimate costs remediation company believe reasonably possible expenditures company may incur excess existing reserves material adverse effect business financial position results operations matters october 25 2004 sec notified company conducting informal inquiry activities certain company’s german pharmaceutical subsidiaries employees andor agents sec’s informal inquiry encompasses matters currently investigation german prosecutor munich germany company understands inquiry investigation concern potential violations foreign corrupt practices act german law company cooperating sec german authorities company established accrual represents minimum expected probable losses respect investigation german prosecutor note 20 legal proceedings contingencies continued january 2006 company notified prosecutor bari region italy “prosecutor” company investigation result activities two employees region investigation involves company well number doctors pharmacists pharmaceutical companies sales representatives main allegation parties engaged plan defraud national health service prosecutor also alleges companies lacked appropriate compliance controls andor processes procedures control activities sales representatives hearing scheduled march 23 2006 prosecutor’s request close operations pharmaceutical companies investigation appoint judicial administrator preliminary measures company believes request unwarranted indemnification officers directors company’s corporate bylaws require extent permitted law company shall indemnify officers directors judgments fines penalties amounts paid settlement including legal fees appeals incurred connection civil criminal actions proceedings relates services company subsidiaries bylaws provide limit amount indemnification permitted case willful misconduct knowing violation criminal law improper personal benefit permitted laws state delaware company many years purchased directors officers insurance coverage cover claims made directors officers amounts types coverage varied period dictated market conditions litigation matters regulatory actions described involve certain company’s current former directors officers covered aforementioned indemnity applicable certain prior period insurance policies however certain indemnification payments may covered company’s directors’ officers’ insurance coverage company cannot predict certainty extent company recover insurers indemnification payments made connection litigation matters regulatory actions described note 21 subsequent events january 2006 company completed sale inventory trademark patent intellectual property rights related dovonex treatment psoriasis united states warner chilcott company inc 200 million cash addition company receive royalty based 5 net sales dovonex end 2007 result transaction company expects recognize pretax gain approximately 200 million 126 million net tax first quarter 2006 subject certain postclosing adjustments note 22 selected quarterly financial data unaudited note earnings per share quarters may add amounts year period computed discrete basis 1 2005 includes litigation charges 124 million 269 million 197 million first second fourth quarters respectively second third quarters include litigation insurance recoveries 295 million 26 million respectively first second third fourth quarters include restructuring items 17 million 24 million 30 million 86 million respectively first fourth quarters include upfront payments licensing agreements 35 million 9 million respectively first second quarters include 18 million 9 million respectively gain sale equity investments first second third quarters include 16 million 1 million 1 million respectively loss sale fixed assets second quarter includes debt retirement costs 69 million fourth quarter includes 138 million deferred income net costs resulting termination collaborative agreement merck muraglitazar third quarter includes gain sale consumer medicines business 569 million 2 2004 includes litigation charges 480 million 36 million 16 million second third fourth quarters respectively second quarter includes litigation settlement income 25 million first second third fourth quarters include gain sale adult nutritional business 295 million 18 million 3 million 4 million respectively first second third fourth quarters include provisions restructuring items 29 million 17 million 105 million 61 million respectively first second third fourth quarters include upfront payments licensing agreements 5 million 25 million 10 million 15 million respectively second third quarters include writeoffs acquired inprocess research development 62 million 1 million respectively 3 common equivalent shares excluded computation diluted earnings per share effect would anti dilutive follows millions report independent registered public accounting firm board directors stockholders bristolmyers squibb company completed integrated audits bristolmyers squibb company’s 2005 2004 consolidated financial statements internal control financial reporting december 31 2005 audit december 31 2003 consolidated financial statements accordance standards public company accounting oversight board united states opinions based audits presented consolidated financial statements financial statement schedule opinion consolidated financial statements listed index appearing item 15a1 present fairly material respects financial position bristolmyers squibb company subsidiaries december 31 2005 2004 results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america addition opinion financial statement schedule listed index appearing item 15a2 presents fairly material respects information set forth therein read conjunction related consolidated financial statements financial statements financial statement schedule responsibility company’s management responsibility express opinion financial statements financial statement schedule based audits conducted audits statements accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit financial statements includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management evaluating overall financial statement presentation believe audits provide reasonable basis opinion internal control financial reporting also opinion management’s assessment included management’s report internal control financial reporting appearing item 9a company maintained effective internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission coso fairly stated material respects based criteria furthermore opinion company maintained material respects effective internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued coso company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinions management’s assessment effectiveness company’s internal control financial reporting based audit conducted audit internal control financial reporting accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit internal control financial reporting includes obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures consider necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company ii provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company iii provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate pricewaterhousecoopers llp pricewaterhousecoopers llp philadelphia pa march 13 2006 item 9 nannannannannannannannannanitem 15 exhibits financial statement schedules reports form 8k page number 1 consolidated financial statements 4851 notes consolidated financial statements 5296 report independent accountants 2 financial statement schedule number page number valuation qualifying accounts ii schedules included additional financial data omitted applicable required information included financial statements notes thereto 3exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 unless otherwise indicated exhibits part commission file number 11136 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registrants registration statement form s3 registration statement 3333682 dated march 7 1990 amended may 5 1999 certificate amendment incorporated herein reference exhibit 3a form 10k fiscal year ended december 311999 3b bylaws bristolmyers squibb company amended march 4 2003 filed herewith 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4f form 10k fiscal year ended december 31 1997 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4g form 10k fiscal year ended december 31 1997 4h form 475 note due 2006 form 575 note due 2011 bristolmyers squibb company incorporated herein reference form 424b5 filed september 26 2001 10a bristolmyers squibb company 1997 stock incentive plan effective may 6 1997 amended effective july 17 2002 incorporated herein reference exhibit 10a form 10q quarterly period ended june 30 2002 10b bristolmyers squibb company 2002 stock incentive plan effective may 7 2002 amended effective july 17 2002 incorporated herein reference exhibit 10b form 10q quarterly period ended june 30 2002 10c bristolmyers squibb company teamshare stock option plan amended restated effective september 10 2002 filed herewith 10d bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10e bristolmyers squibb company 1983 stock option plan amended restated january 1 1997 amended november 3 1998 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1998 10f squibb corporation 1982 option restricted stock performance unit plan amended incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1993 10g squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10h bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10i benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1996 10j benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated effective january 1 1996 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 2001 10k squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein ence exhibit 10g form 10k fiscal year ended december 31 1993 101 bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference bit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein e exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 incorporated reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 ated herein reference exhibit 10h form 10k fiscal year ended december 31 1994 10m bristolmyers squibb company retirement income plan nonemployee directors amended march 5 1996 incorporated herein e exhibit 10k form 10k fiscal year ended december 31 1996 10n bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended january 13 1998 incorporated reference exhibit 101 form 10k fiscal year ended december 31 1997 10o bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 ated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 12 1999 rated herein reference exhibit 10m form 10k fiscal year ended december 31 1998 10p squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 corporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10q amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 10r employment separation agreement dated june 5 2002 registrant peter ringrose incorporated herein reference exhibit 10r form 10q quarterly period ended june 30 2002 10s form agreement entered registrant following officers effective following dates lamberto august 30 2002 harrison bains jr may 8 2002 stephen e bear december 4 2001 andrew r j bonfield september 2 wendy dixon march 20 2002 peter r dolan july 29 1999 donald j hayden jr july 30 1999 tamar howson october 1 john l mcgoldrick august 10 1999 dean j mitchell may 7 2002 peter ringrose phd august 5 1999 john l august 5 1999 incorporated herein reference exhibit 10q form 10q quarterly period ended september 30 1999 21 subsidiaries registrant filed herewith 23 consent pricewaterhousecoopers llp filed herewith 991 section 906 certification letter filed herewith 992 section 906 certification letter filed herewith breports form 8k november 1 2002 company filed form 8k connection expected restatement including exhibit form 8k press release dated october 24 2002 november 15 2002 company filed form 8k announcing expected filing dates third quarter 2002 form 10q amended filings disclosing certain matters connection restatement delay filing third quarter 2002 form 10q company included exhibit form 8k press release dated november 15 2002 indicates form 10k brand names products registered trademarks owned company subsidiaries erbitux trademark imclone systems incorporated avapro aprovel avalide plavix trademarks sanofisynthelabo sa glucophage ir glucophage xr glucovance metaglip trademarks merck sante sas associate merck kgaa darmstadt germany abilify trademark otsuka pharmaceutical company ltd corzide delestrogen corgard florinef trademarks king pharmaceuticals inc viactiv trademark mcneilppc inc solage trademark galderma sa ovcon trademark warner chilcott inc sea breeze trademark shiseido company ltd vaniqa trademark women first healthcare inc moisturel duricef estrace trademarks galen chemicals limited signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant peter r dolan peter r dolan chairman board directors chief executive officer date march 28 2003 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated signature title date peter r dolan peter r dolan chairman board directors chief executive officer principal executive officer march 28 2003 andrew rj bonfield andrew rj bonfield senior vice president chief financial officer principal financial officer march 28 2003 david l zabor david l zabor vice president controller principal accounting officer march 28 2003 robert e allen robert e allen director march 28 2003 lewis b campbell lewis b campbell director march 28 2003 vance coffman vance coffman director march 28 2003 ellen v futter ellen v futter director march 28 2003 louis v gerstner jr louis v gerstner jr director march 28 2003 laurie h glimcher md laurie h glimcher md director march 28 2003 leif johansson leif johansson director march 28 2003 james robinson iii james robinson iii director march 28 2003 louis w sullivan md louis w sullivan md director march 28 2003 certifications pursuant section 302 sarbanesoxley act 2002 certification chairman board chief executive officer peter r dolan certify 1 reviewed annual report form 10k bristolmyers squibb company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant company adesigned disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared bevaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date cpresented annual report companys conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based companys recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function aall significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls bany fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date companys recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 28 2003 peter r dolan peter r dolan chairman board chief executive officer certification senior vice president chief financial officer andrew rj bonfield certify 1 reviewed annual report form 10k bristolmyers squibb company 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 registrant company adesigned disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared bevaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date cpresented annual report companys conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based companys recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent function aall significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls bany fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date companys recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 28 2003 andrew rj bonfield andrew rj bonfield senior vice president chief financial officer exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designed two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 exhibit description page 3a restated certificate incorporation bristolmyers squibb company incorporated herein reference exhibit 4a registrants registration statement form s3 registration statement 3333682 dated march 7 1990 amended may 5 1999 certificate amendment incorporated herein reference exhibit 3a form 10k fiscal year ended december 311999 3b bylaws bristolmyers squibb company amended march 4 2003 e31 4a letter agreement dated march 28 1984 incorporated herein reference exhibit 4 form 10k fiscal year ended december 31 1983 4b indenture dated june 1 1993 bristolmyers squibb company chase manhattan bank national association trustee incorporated herein reference exhibit 41 form 8k dated may 27 1993 filed june 3 1993 4c form 715 debenture due 2023 bristolmyers squibb company incorporated herein reference exhibit 42 form 8k dated may 27 1993 filed june 3 1993 4d form 680 debenture due 2026 bristolmyers squibb company incorporated herein reference exhibit 4e form 10k fiscal year ended december 31 1996 4e form 6875 debenture due 2097 bristolmyers squibb company incorporated herein reference exhibit 4f form 10q quarterly period ended september 30 1997 4f five year competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4f form 10k fiscal year ended december 31 1997 4g 364day competitive advance revolving credit facility agreement dated march 17 1998 among bristolmyers squibb company borrowing subsidiaries defined agreement lenders listed schedule 21 agreement chase manhattan bank administrative agent citibank na administrative agent incorporated herein reference exhibit 4g form 10k fiscal year ended december 31 1997 4h form 475 note due 2006 form 575 note due 2011 bristolmyers squibb company incorporated herein reference form 424b5 filed september 26 2001 10a bristolmyers squibb company 1997 stock incentive plan effective may 6 1997 amended effective july 17 2002 incorporated herein reference exhibit 10a form 10q quarterly period ended june 30 2002 10b bristolmyers squibb company 2002 stock incentive plan effective may 7 2002 amended effective july 17 2002 incorporated herein reference exhibit 10b form 10q quarterly period ended june 30 2002 10c bristolmyers squibb company teamshare stock option plan amended restated effective september 10 2002 e101 10d bristolmyers squibb company executive performance incentive plan incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1996 10e bristolmyers squibb company 1983 stock option plan amended restated january 1 1997 amended november 3 1998 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1998 10f squibb corporation 1982 option restricted stock performance unit plan amended incorporated herein reference exhibit 10b form 10k fiscal year ended december 31 1993 10g squibb corporation 1986 option restricted stock performance unit plan amended adopted incorporated herein reference exhibit 10k squibb corporation form 10k fiscal year ended december 31 1988 file 15514 amended effective july 1 1993 incorporated herein reference exhibit 10c form 10k fiscal year ended december 31 1993 10h bristolmyers squibb company performance incentive plan amended adopted incorporated herein reference exhibit 2 form 10k fiscal year ended december 31 1978 amended january 8 1990 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1990 amended april 2 1991 incorporated herein reference exhibit 19b form 10k fiscal year ended december 31 1991 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1993 amended effective january 1 1994 incorporated herein reference exhibit 10d form 10k fiscal year ended december 31 1994 10i benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company retirement income plan bristolmyers squibb puerto rico inc retirement income plan amended restated january 1 1993 amended effective october 1 1993 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1993 amended effective february 1 1995 incorporated herein reference exhibit 10e form 10k fiscal year ended december 31 1996 10j benefit equalization plan bristolmyers squibb company subsidiary affiliated corporations participating bristolmyers squibb company savings investment program amended restated effective january 1 1996 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 2001 10k squibb corporation supplementary pension plan amended previously amended restated incorporated herein reference exhibit 19g form 10k fiscal year ended december 31 1991 amended september 14 1993 incorporated herein reference exhibit 10g form 10k fiscal year ended december 31 1993 10l bristolmyers squibb company restricted stock award plan amended adopted november 7 1989 incorporated herein reference exhibit 10t form 10k fiscal year ended december 31 1989 amended december 4 1990 incorporated herein reference exhibit 19a form 10k fiscal year ended december 31 1990 amended effective july 1 1993 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1993 amended effective december 6 1994 incorporated herein reference exhibit 10h form 10k fiscal year ended december 31 1994 10m bristolmyers squibb company retirement income plan nonemployee directors amended march 5 1996 incorporated herein reference exhibit 10k form 10k fiscal year ended december 31 1996 10n bristolmyers squibb company 1987 deferred compensation plan nonemployee directors amended january 13 1998 incorporated herein reference exhibit 101 form 10k fiscal year ended december 31 1997 10o bristolmyers squibb company nonemployee directors stock option plan amended approved stockholders may 1 1990 incorporated herein reference exhibit 28 registration statement 3338587 form s8 amended may 7 1991 incorporated herein reference exhibit 19c form 10k fiscal year ended december 31 1991 amended january 12 1999 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1998 10p squibb corporation deferral plan fees outside directors amended adopted incorporated herein reference exhibit 10e squibb corporation form 10k fiscal year ended december 31 1987 file 15514 amended effective december 31 1991 incorporated herein reference exhibit 10m form 10k fiscal year ended december 31 1992 10q amendment companys plans agreements legal documents writings pursuant action board directors october 3 1989 reflect change companys name bristolmyers squibb company incorporated herein reference exhibit 10v form 10k fiscal year ended december 31 1989 10r employment separation agreement dated june 5 2002 registrant peter ringrose incorporated herein reference exhibit 10r form 10q quarterly period ended june 30 2002 10s form agreement entered registrant following officers effective following dates lamberto andreotti august 30 2002 harrison bains jr may 8 2002 stephen e bear december 4 2001 andrew r j bonfield september 23 2002 wendy dixon march 20 2002 peter r dolan july 29 1999 donald j hayden jr july 30 1999 tamar howson october 11 2001 john l mcgoldrick august 10 1999 dean j mitchell may 7 2002 peter ringrose phd august 5 1999 john l skule august 5 1999 incorporated herein reference exhibit 10q form 10q quarterly period ended september 30 1999 21 subsidiaries registrant e211 23 consent pricewaterhousecoopers llp e231 991 section 906 certification letter e991 992 section 906 certification letter e992 schedule ii bristolmyers squibb company valuation qualifying accounts dollars millions documents incorporated reference part item 1 business item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ia part ii item 5 market registrants common stock related stockholder matters item 6 selected financial data fiveyear financial summary item 7 managements discussion analysis financial condition results operations item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data bristolmyers squibb company consolidated statement earnings millions except per share data bristolmyers squibb company consolidated statement comprehensive income retained earnings dollars millions bristolmyers squibb company consolidated balance sheet dollars millions bristolmyers squibb company consolidated statement cash flows dollars millions bristolmyers squibb company notes consolidated financial statements bristolmyers squibb company notes consolidated financial statements report independent accountants item 9 changes disagreements accountants accounting financial disclosure part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management item 13 certain relationships related transactions item 14 controls procedures part iv item 15 exhibits financial statement schedules reports form 8k signatures certifications pursuant section 302 sarbanesoxley act 2002 certification chairman board chief executive officer certification senior vice president chief financial officer exhibit index schedule ii bristolmyers squibb company valuation qualifying accounts dollars millionsitem 15 exhibits financial statement schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 unless otherwise indicated exhibits part commission file number 11136 indicates form 10k brand names products registered trademarks owned company subsidiaries erbitux trademark imclone avapro aprovel avalide plavix trademarks sanofisynthelabo sa glucophage glucovance trademarks merck sante sas associate merck kgaa darmstadt germany abilify trademark otsuka pharmaceuticals ltd moisturel duricef trademarks galen chemicals limited javlor trademark pierre fabre medicament sa truvada trademark gilead sciences inc emsam trademark somerset pharmaceuticals inc signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant peter r dolan peter r dolan chairman board directors chief executive officer date march 3 2005 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 schedule ii bristolmyers squibb company valuation qualifying accountsitem 15 exhibits financial statement schedule reports form 8k schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 unless otherwise indicated exhibits part commission file number 11136 indicates form 10k brand names products registered trademarks owned company subsidiaries erbitux trademark imclone systems incorporated avaproavalide known eu aprovelkarvea iscover plavix trademarks sanofiaventis glucophage trademark merck sante sas associate merck kgaa darmstadt germany abilify trademark otsuka pharmaceutical co ltd truvada trademark gilead sciences inc emsam trademark somerset pharmaceuticals inc gleevec trademark novartis ag atripla trademark bristolmyers squibb gilead sciences llc dovonex trademark leo pharma bufferin trademark novartis ag us canada europe latin america estrace trademark galen chemicals ltd delestrogen trademark jones pharma inc ovcon trademark warner chilcott company inc norvir trademark abbott laboratories trizivir trademark glaxo group ltd signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 schedule ii bristolmyers squibb company valuation qualifying accountsitem 15 exhibits financial statement schedule reports form 8k schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 indicates form 10k brand names products registered trademarks owned company subsidiaries erbitux trademark imclone systems incorporated avaproavalide known eu aprovelkarvea iscover plavix trademarks sanofiaventis abilify trademark otsuka pharmaceutical co ltd truvada trademark gilead sciences inc emsam trademark somerset pharmaceuticals inc bufferin excedrin gleevec trademarks novartis ag atripla trademark bristolmyers squibb gilead sciences llc dovonex trademark leo pharma norvir trademark abbott laboratories signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant james cornelius james cornelius chairman board chief executive officer date february 21 2008 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 schedule ii bristolmyers squibb company valuation qualifying accounts 1 amounts reclassified give effect discontinued operations information discontinued operations see “item 8 financial statements note 5 discontinued operations assets held sale”item 15 exhibits financial statement schedule information called item incorporated herein reference exhibit index form 10k signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136  confidential treatment granted certain portions omitted copy exhibit electronically filed commission omitted information filed separately commission pursuant company’s application confidential treatment indicates form 10k brand names products registered trademarks owned company subsidiaries eliquis trademark pfizer inc erbitux alimta gemzar trademarks eli lilly avaproavalide known eu aprovelkarvea iscover karvezide coaprovel plavix duoplavin duocover trademarks sanofiaventis abilify trademark otsuka pharmaceutical co ltd truvada trademark gilead sciences inc gleevec trademark novartis ag prilosec trademark astrazeneca atripla trademark bristolmyers squibb gilead sciences llc norvir trademark abbott laboratories estrace ovcon trademarks warnerchilcott company llc delestrogen trademark jhp pharmaceuticals inc brand names products capital letters without asterisk registered trademarks bms andor one subsidiariesitem 15 exhibits financial statement schedule information called item incorporated herein reference exhibit index form 10k signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136  confidential treatment granted certain portions omitted copy exhibit electronically filed commission omitted information filed separately commission pursuant company’s application confidential treatment indicates form 10k brand names products registered trademarks owned bms subsidiaries erbitux alimta gemzar trademarks eli lilly company avaproavalide known eu aprovelkarvea iscover karvezide coaprovel plavix trademarks sanofi abilify trademark otsuka pharmaceutical co ltd truvada trademark gilead sciences inc gleevec trademark novartis ag atripla trademark bristolmyers squibb gilead sciences llc norvir trademark abbott laboratories estrace ovcon trademarks warnerchilcott company llc delestrogen trademark jhp pharmaceuticals inc humira trademark abbott laboratories brand names products capital letters without asterisk registered trademarks bms andor one subsidiariesitem 15 exhibits financial statement schedule information called item incorporated herein reference exhibit index form 10k signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136  confidential treatment granted certain portions omitted copy exhibit electronically filed commission  confidential treatment requested certain portions omitted copy exhibit electronically filed commission omitted information filed separately commission pursuant company’s application confidential treatment indicates form 10k brand names products registered trademarks solely owned company subsidiaries byetta bydureon symlin trademarks amylin pharmaceuticals llc astrazeneca pharmaceuticals lp erbitux trademarks imclone llc avaproavalide known eu aprovelkarvea iscover karvezide coaprovel plavix trademarks sanofi abilify trademark otsuka pharmaceutical co ltd truvada trademark gilead sciences inc gleevec trademark novartis ag atripla trademark bristolmyers squibb gilead sciences llc norvir trademark abbott laboratories estrace ovcon trademarks warnerchilcott company llc delestrogen trademark jhp pharmaceuticals llc reglan trademark anip acquisition company humira trademark abbvie biotechnology ltd brand names products italicized letters without asterisk registered trademarks bms andor one subsidiariesitem 15 exhibits financial statement schedule page number 1 consolidated financial statements consolidated statements earnings consolidated statements comprehensive income consolidated balance sheets consolidated statements cash flows notes consolidated financial statements report independent registered public accounting firm schedules included additional financial data omitted applicable required information included financial statements notes thereto 2 exhibits required filed item 601 regulation sk information called item incorporated herein reference exhibit index form 10k signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated symbol ‡‡ management contracts compensatory plans arrangements required filed pursuant item 15 symbol ‡ page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 † confidential treatment granted certain portions omitted copy exhibit electronically filed commission †† confidential treatment requested certain portions omitted copy exhibit electronically filed commission omitted information filed separately commission pursuant company’s application confidential treatment indicates form 10k brand names products registered trademarks solely owned company subsidiaries byetta bydureon symlin trademarks amylin pharmaceuticals llc astrazeneca pharmaceuticals lp erbitux trademarks imclone llc avaproavalide known eu aprovelkarvea iscover karvezide coaprovel plavix trademarks sanofi abilify trademark otsuka pharmaceutical co ltd truvada trademark gilead sciences inc gleevec trademark novartis ag atripla trademark bristolmyers squibb gilead sciences llc norvir trademark abbott laboratories estrace ovcon trademarks warnerchilcott company llc delestrogen trademark jhp pharmaceuticals llc reglan trademark anip acquisition company humira trademark abbvie biotechnology ltd brand names products italicized letters without asterisk registered trademarks bms andor one subsidiariesitem 15 exhibits financial statement schedule page number 1 consolidated financial statements consolidated statements earnings comprehensive income consolidated balance sheets consolidated statements cash flows notes consolidated financial statements report independent registered public accounting firm schedules included additional financial data omitted applicable required information included financial statements notes thereto 2 exhibits required filed item 601 regulation sk information called item incorporated herein reference exhibit index form 10k signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated symbol ‡‡ management contracts compensatory plans arrangements required filed pursuant item 15 symbol ‡ page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 † confidential treatment granted certain portions omitted copy exhibit electronically filed commission indicates form 10k brand names products registered trademarks solely owned company subsidiaries byetta bydureon symlin trademarks amylin pharmaceuticals llc astrazeneca pharmaceuticals lp farxiga xigduo onglyza kombiglyze trademarks astrazeneca ab erbitux trademark imclone llc avaproavalide known eu aprovelkarvea plavix trademarks sanofi abilify trademark otsuka pharmaceutical co ltd truvada tybost trademarks gilead sciences inc gleevec trademark novartis ag atripla trademark bristolmyers squibb gilead sciences llc norvir trademark abbvie inc myalept trademark aegerion pharmaceutical inc reglan trademark anip acquisition company brand names products italicized letters without asterisk registered trademarks bms andor one subsidiariesitem 15 exhibits financial statement schedule page number 1 consolidated financial statements consolidated statements earnings comprehensive income consolidated balance sheets consolidated statements cash flows notes consolidated financial statements report independent registered public accounting firm schedules included additional financial data omitted applicable required information included financial statements notes thereto 2 exhibits required filed item 601 regulation sk information called item incorporated herein reference exhibit index form 10k signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated symbol ‡‡ management contracts compensatory plans arrangements required filed pursuant item 15 symbol ‡ page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 † confidential treatment granted certain portions omitted copy exhibit electronically filed commission indicates form 10k brand names products registered trademarks solely owned company subsidiaries byetta bydureon symlin trademarks amylin pharmaceuticals llc farxiga onglyza kombiglyze trademarks astrazeneca ab erbitux trademark imclone llc avaproavalide known eu aprovelkarvea plavix trademarks sanofi abilify trademark otsuka pharmaceutical co ltd truvada tybost trademarks gilead sciences inc andor one affiliates gleevec trademark novartis ag atripla trademark bristolmyers squibb gilead sciences llc norvir trademark abbvie inc myalept trademark aegerion pharmaceuticals inc reglan trademark anip acquisition company revlimid trademark celgene corporation prostvac trademark bn immunotherapeutics inc keytruda trademark merck sharp dohme corp recothrom trademark medicines company ixempra trademark rpharm us operating llc brand names products italicized letters without asterisk registered trademarks bms andor one subsidiariesitem 15 exhibits financial statement schedule page number 1 consolidated financial statements consolidated statements earnings comprehensive income consolidated balance sheets consolidated statements cash flows notes consolidated financial statements report independent registered public accounting firm schedules included additional financial data omitted applicable required information included financial statements notes thereto 2 exhibits required filed item 601 regulation sk information called item incorporated herein reference exhibit index form 10k none signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated summary abbreviated terms bristolmyers squibb company may referred bristolmyers squibb bms company us 2016 form 10k throughout 2016 form 10k used terms defined exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated symbol ‡‡ management contracts compensatory plans arrangements required filed pursuant item 15 symbol ‡ page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 † confidential treatment granted certain portions omitted copy exhibit electronically filed commission indicates form 10k brand names products registered trademarks solely owned company subsidiaries abilify trademark otsuka pharmaceutical co ltd adcetris trademark seattle genetics inc atripla trademark bristolmyers squibb gilead sciences llc avaproavalide known eu aprovelkarvea plavix trademarks sanofi bydureon byetta symlin trademarks amylin pharmaceuticals llc erbitux trademark imclone llc farxiga onglyza trademarks astrazeneca ab gleevec trademark novartis ag ixempra trademark rpharm us operating llc keytruda trademark merck sharp dohme corp myalept trademark aegerion pharmaceuticals inc prostvac trademark bn immunotherapeutics inc recothrom trademark medicines company revlimid trademark celgene corporation truvada tybost trademarks gilead sciences inc andor one affiliates brand names products italicized letters without asterisk registered trademarks bms andor one subsidiariesitem 15 exhibits financial statement schedule page number 1 consolidated financial statements consolidated statements earnings comprehensive income consolidated balance sheets consolidated statements cash flows notes consolidated financial statements report independent registered public accounting firm schedules included additional financial data omitted applicable required information included financial statements notes thereto 2 exhibits required filed item 601 regulation sk information called item incorporated herein reference exhibit index form 10k none signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant giovanni caforio giovanni caforio chairman board chief executive officer date february 13 2018 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated summary abbreviated terms bristolmyers squibb company may referred bristolmyers squibb bms company us 2017 form 10k throughout 2017 form 10k used terms defined exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated symbol ‡‡ management contracts compensatory plans arrangements required filed pursuant item 15 symbol ‡ page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 † confidential treatment granted certain portions omitted copy exhibit electronically filed commission indicates form 10k brand names products registered trademarks solely owned company subsidiaries abilify trademark otsuka pharmaceutical co ltd adcetris trademark seattle genetics inc atripla trademark bristolmyers squibb gilead sciences llc avaproavalide known eu aprovelkarvea plavix trademarks sanofi bydureon byetta symlin trademarks amylin pharmaceuticals llc cabometyx trademark exelixis inc enhanze trademark halozyme inc erbitux trademark imclone llc farxiga onglyza trademarks astrazeneca ab gleevec trademark novartis ag ixempra trademark rpharm us operating llc keytruda trademark merck sharp dohme corp myalept trademark aegerion pharmaceuticals inc prostvac trademark bn immunotherapeutics inc recothrom trademark medicines company rubraca trademark clovis oncology inc truvada tybost trademarks gilead sciences inc andor one affiliates brand names products italicized letters without asterisk registered trademarks bms andor one subsidiariesitem 15 exhibits financial statement schedule page number 1 consolidated financial statements consolidated statements earnings comprehensive income consolidated balance sheets consolidated statements cash flows notes consolidated financial statements report independent registered public accounting firm 2 financial statement schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibits information called item incorporated herein reference exhibit index 2018 form 10k b information called item incorporated herein reference exhibit index 2018 form 10k none signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant giovanni caforio giovanni caforio chairman board chief executive officer date february 25 2019 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated summary abbreviated terms bristolmyers squibb company consolidated subsidiaries may referred bristolmyers squibb bms company us 2018 form 10k unless context otherwise indicates throughout 2018 form 10k used terms defined exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated symbol ‡‡ management contracts compensatory plans arrangements required filed pursuant item 15 symbol ‡ page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 † confidential treatment granted certain portions omitted copy exhibit electronically filed commission indicates 2018 form 10k brand names products registered trademarks solely owned company subsidiaries abilify trademark otsuka pharmaceutical co ltd atripla truvada tybost trademarks gilead sciences inc avaproavalide known eu aprovelkarvea plavix trademarks sanofi byetta trademark amylin pharmaceuticals llc enhanze trademark halozyme inc erbitux trademark imclone llc farxiga onglyza trademarks astrazeneca ab gleevec trademark novartis ag keytruda trademark merck sharp dohme corp pomalyst revlimid trademarks celgene corporation prostvac trademark bn immunotherapeutics inc andor one affiliates brand names products italicized letters without asterisk registered trademarks bms andor one subsidiariesitem 15exhibits financial statement schedule page number 1consolidated financial statements consolidated statements earnings comprehensive lossincome consolidated balance sheets consolidated statements cash flows notes consolidated financial statements report independent registered public accounting firm 2financial statement schedules included additional financial data omitted applicable required information included financial statements notes thereto 3exhibits information called item incorporated herein reference exhibit index 2020 form 10k information called item incorporated herein reference exhibit index 2020 form 10k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant bys giovanni caforio md giovanni caforio md chairman board chief executive officer date february 10 2021 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated summary abbreviated terms bristolmyers squibb company consolidated subsidiaries may referred bristolmyers squibb bms company us 2020 form 10k unless context otherwise indicates throughout 2020 form 10k used terms defined exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated symbol ‡‡ management contracts compensatory plans arrangements required filed pursuant item 15 symbol ‡ page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 †confidential treatment granted certain portions omitted copy exhibit electronically filed commission indicates 2020 form 10k brand names products registered trademarks solely owned company subsidiaries abilify trademark otsuka pharmaceutical co ltd atripla trademark gilead sciences inc avaproavalide known eu aprovelkarvea plavix trademarks sanofi byetta trademark amylin pharmaceuticals llc cabometyx trademark exelixis inc enhanze trademark halozyme inc erbitux trademark imclone llc farxiga onglyza trademarks astrazeneca ab gleevec trademark novartis ag keytruda trademark merck sharp dohme corp otezla trademark amgen inc yescarta trademark kite pharma inc brand names products italicized letters without asterisk registered trademarks bms andor one subsidiariesitem 15 exhibits financial statement schedules reports form 8k schedule number page number valuation qualifying accounts ii schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 unless otherwise indicated exhibits part commission file number 11136 b reports form 8k october 23 2003 registrant filed form 8k item 9 item 12 announcing earnings third quarter 2003 attached exhibit form 8k registrant’s press release dated october 23 2003 indicates form 10k brand names products registered trademarks owned company subsidiaries erbitux trademark imclone avapro aprovel avalide plavix trademarks sanofisynthelabo sa glucophage glucovance trademarks merck sante sas associate merck kgaa darmstadt germany abilify trademark otsuka corzide delestrogen corgard florinef trademarks king pharmaceuticals inc viactiv trademark mcneilppc inc solage trademark galderma sa vaniqa trademark women first healthcare inc moisturel duricef estrace trademarks galen chemicals limited signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant peter r dolan peter r dolan chairman board directors chief executive officer date march 15 2004 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 14 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 schedule ii bristolmyers squibb company valuation qualifying accounts dollars millionsitem 15 exhibits financial statement schedule reports form 8k schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 indicates form 10k brand names products registered trademarks owned company subsidiaries erbitux trademark imclone systems incorporated avaproavalide known eu aprovelkarvea iscover karvezide coaprovel plavix trademarks sanofiaventis abilify trademark otsuka pharmaceutical co ltd truvada trademark gilead sciences inc gleevec trademark novartis ag atripla trademark bristolmyers squibb gilead sciences llc dovonex trademark leo pharma norvir trademark abbott laboratories similac trademark abbott laboratories excedrin spain asia excluding china taiwan certain oceanic countries trademarks lion corporation signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant james cornelius james cornelius chairman board chief executive officer date february 20 2009 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 schedule ii bristolmyers squibb company valuation qualifying accounts 1 amounts reclassified give effect discontinued operations information discontinued operations see “item 8 financial statementsnote 6 discontinued operations assets held sale”item 15 exhibits financial statement schedule information called item incorporated herein reference exhibit index form 10k signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant james cornelius james cornelius chairman board chief executive officer date february 19 2010 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136  confidential treatment granted certain portions omitted copy exhibit electronically filed commission omitted information filed separately commission pursuant company’s application confidential treatment indicates form 10k brand names products registered trademarks owned company subsidiaries erbitux trademark eli lilly avaproavalide known eu aprovelkarvea iscover karvezide coaprovel plavix trademarks sanofiaventis abilify trademark otsuka pharmaceutical co ltd truvada trademark gilead sciences inc gleevec trademark novartis ag prilosec trademark astrazeneca atripla trademark bristolmyers squibb gilead sciences llc norvir trademark abbott laboratories bufferin excedrin spain asia excluding china taiwan certain oceanic countries trademarks lion corporation schedule ii bristolmyers squibb company valuation qualifying accounts 1 amounts reclassified give effect discontinued operations information discontinued operations see “item 8 financial statementsnote 7 discontinued operations”item 15 exhibits financial statement schedule page number 1 consolidated financial statements consolidated statements earnings comprehensive income consolidated balance sheets consolidated statements cash flows notes consolidated financial statements report independent registered public accounting firm 2 financial statement schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibits information called item incorporated herein reference exhibit index 2019 form 10k information called item incorporated herein reference exhibit index 2019 form 10k none signatures pursuant requirements section 13 15d securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized bristolmyers squibb company registrant giovanni caforio md giovanni caforio md chairman board chief executive officer date february 24 2020 pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated summary abbreviated terms bristolmyers squibb company consolidated subsidiaries may referred bristolmyers squibb bms company us 2019 form 10k unless context otherwise indicates throughout 2019 form 10k used terms defined exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated symbol ‡‡ management contracts compensatory plans arrangements required filed pursuant item 15 symbol ‡ page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 † confidential treatment granted certain portions omitted copy exhibit electronically filed commission indicates 2019 form 10k brand names products registered trademarks solely owned company subsidiaries abilify trademark otsuka pharmaceutical co ltd atripla trademark gilead sciences inc avaproavalide known eu aprovelkarvea plavix trademarks sanofi byetta trademark amylin pharmaceuticals llc enhanze trademark halozyme inc erbitux trademark imclone llc farxiga onglyza trademarks astrazeneca ab gleevec trademark novartis ag keytruda trademark merck sharp dohme corp otezla trademark amgen inc yescarta trademark kite pharma inc brand names products italicized letters without asterisk registered trademarks bms andor one subsidiariesitem 15 exhibits financial statement schedule reports form 8k schedules included additional financial data omitted applicable required information included financial statements notes thereto 3 exhibit list exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 unless otherwise indicated exhibits part commission file number 11136 indicates form 10k brand names products registered trademarks owned company subsidiaries erbitux trademark imclone systems inc avapro aprovel coaprovel avalide karvea karvezide iscover plavix trademarks sanofiaventis corp glucophage glucovance metaglip trademarks merck sante sas associate merck kgaa darmstadt germany abilify trademark otsuka pharmaceuticals ltd truvada trademark gilead sciences inc estrace ovcon trademarks warner chilcott company inc delestrogen trademark jones pharma inc dovonex trademark leo pharma bufferin excedrin trademarks novartis ag emsam trademark somerset pharmaceuticals inc signatures pursuant requirements section 13 15 securities exchange act 1934 registrant duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf registrant capacities dates indicated exhibit index exhibits listed identified numbers corresponding exhibit table item 601 regulation sk exhibits designated two asterisks management contracts compensatory plans arrangements required filed pursuant item 15 asterisk page column indicates exhibit previously filed commission incorporated herein reference unless otherwise indicated exhibits part commission file number 11136 schedule ii bristolmyers squibb company valuation qualifying accounts