Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2001, for Bristol-Myers Squibb Company. The filing includes unaudited consolidated financial statements for the three and nine months ended September 30, 2001, compared to the same periods in 2000. The Company is a global pharmaceutical firm currently undergoing significant portfolio restructuring, including the divestiture of its beauty care (Clairol) and orthopaedic (Zimmer) businesses, and the strategic acquisition of DuPont Pharmaceuticals.
Key Financial Metrics
| Metric (in millions) | 9 Months Ended Sep 30, 2001 | 9 Months Ended Sep 30, 2000 | 3 Months Ended Sep 30, 2001 | 3 Months Ended Sep 30, 2000 |
|---|---|---|---|---|
| Net Sales | $14,141 | $13,432 | $4,743 | $4,563 |
| Net Earnings | $3,782 | $3,548 | $1,245 | $1,236 |
| Diluted EPS | $1.92 | $1.77 | $0.63 | $0.62 |
| Operating Cash Flow | $3,436 | $2,832 | N/A | N/A |
| Short-Term Borrowings | $1,734 | $162 | $1,734 | $162 |
| Long-Term Debt | $6,259 | $1,336 | $6,259 | $1,336 |
| Cash & Equivalents | $2,801 | $3,182 | $2,801 | $3,182 |
Margins (9 Months 2001 vs 2000): Cost of products sold increased to 28.0% of sales from 25.8%. Marketing, selling, and administrative expenses declined to 19.7% from 22.1%. Research and development spending increased to 12.8% of pharmaceutical sales from 12.5%.
Material Changes vs. Prior Period
- Revenue Growth: Net sales increased 5% year-over-year for the nine months, driven by a 6% volume increase and 2% price increase, partially offset by a 3% foreign exchange headwind. Excluding generic competition impacts on TAXOL* and BUSPAR*, sales would have grown 10%.
- Profitability: Net earnings increased 7% to $3.78 billion. Earnings from continuing operations before taxes rose to $4.86 billion from $4.03 billion. This growth was supported by strong performance in GLUCOPHAGE (+44%), PLAVIX (+52%), and PRAVACHOL (+15%), offset by declines in TAXOL* (-23%) and BUSPAR* (-84%) due to generic competition.
- Debt Structure: Total debt increased significantly to finance the DuPont Pharmaceuticals acquisition. Long-term debt rose from $1.34 billion to $6.26 billion, and short-term borrowings increased to $1.73 billion. The Company issued $5 billion in medium-term notes and $1.5 billion in commercial paper in September 2001.
- Restructuring and Divestitures: The Company recorded a $240 million pre-tax gain on the sale of certain pharmaceutical products and licensing rights, offset by a $240 million pre-tax restructuring charge related to sales force termination and facility closures. The Zimmer orthopaedic business was spun off in August 2001.
Guidance, Outlook, and Risks
- Acquisitions: The Company completed the acquisition of DuPont Pharmaceuticals for $7.8 billion in October 2001. This transaction is expected to result in a pre-tax purchase accounting charge of approximately $1.9 billion for the write-off of in-process research and development in the fourth quarter. Additionally, a strategic agreement with ImClone Systems involves a potential $1 billion pre-tax charge for in-process R&D write-offs.
- Divestitures: The sale of the Clairol business to Procter & Gamble for $4.95 billion is expected to close in the fourth quarter, with an anticipated after-tax gain of approximately $2.5 billion.
- Legal Proceedings: Significant litigation surrounds the patents for TAXOL* and BUSPAR*. Courts have invalidated most TAXOL* patent claims, leading to generic competition. The Company faces antitrust investigations and lawsuits regarding the listing of BUSPAR* patents in the FDA Orange Book. The financial impact of these proceedings is currently not estimable.
- Accounting Changes: The Company adopted SFAS No. 133 (Derivatives) and anticipates the impact of SFAS No. 142 (Goodwill), which will eliminate goodwill amortization for future acquisitions, replacing it with annual impairment testing.
Investor Verification Checklist
- Acquisition Charges: Verify the timing and magnitude of the $1.9 billion DuPont and $1 billion ImClone in-process R&D write-offs expected in Q4 2001.
- Clairol Sale: Confirm the closing date and final gain recognition for the $4.95 billion Clairol divestiture.
- Patent Litigation: Monitor the status of the TAXOL* and BUSPAR* patent appeals and antitrust investigations, as these directly impact future revenue streams for these key products.
- Debt Servicing: Assess the impact of the new $6.5 billion debt load on future interest expenses and cash flow, noting the effective interest rates of 5.4% and 6.27% on the new notes.
- Generic Competition: Evaluate the long-term sales trajectory of TAXOL* and BUSPAR* given the confirmed loss of patent exclusivity and the entry of generic competitors.