Revenue Restatement at Bristol-Myers Squibb: Justified or Not?
INTRODUCTION
In October 2002, Bristol-Myers Squibb (“BMS” or the “Company”) announced that it was
going to restate its financial statements for the period 1999-2002 [see excerpts from BMS
announcement on 10.24.2002 attached in Appendix A]. The restatement was premised on the
notion that there was an arrangement or course of dealing between BMS and certain of its
wholesale customers whereby BMS compensated the wholesalers for carrying excess
inventories, and the compensation for such excess inventories was to cover the wholesalers’
carrying costs on those inventories. The Company concluded that transactions with all of the
following characteristics should be accounted for under the consignment accounting model:
•
•
•
•
The sales were made as a result of incentives;
The sales resulted in the wholesalers holding excess inventories;
There was an understanding, agreement or prior course of dealing that the
Company would extend incentives based on levels of excess inventory with future
purchases; and,
The incentives covered substantially all, and varied directly with, the wholesaler’s
cost of carrying excess inventories.
The Company restated approximately $1.9 billion in sales for the period 1999-2001 [see
excerpts from BMS announcement on 3.10.2003 attached as Appendix B].
COMPANY BACKGROUND
BMS was formed in 1989 by the merger of two companies, Bristol-Myers and Squibb.
Bristol-Myers was founded in 1887 and Squibb in 1858. The Company’s core business has
been and continues to be the manufacture of pharmaceutical products through its U.S.
Medicines Group.
The Company’s pledge to shareholders is as follows: We pledge our dedication to
responsibly increasing the shareholder value of your company based upon continued growth,
strong finances, productive collaborations and innovation in research and development.1
Double-Double and Mega-Double Goals
In 1994, BMS announced what became known as the "Double-Double" goal: to double
BMS's sales, earnings and earnings per share (“EPS”) in a seven year period. The DoubleDouble required average compound annual growth of approximately 10%. The last year of
the Double-Double was 2000, and at the end of the year BMS announced that it had
1
2008 Standards of Business Conduct and Ethics.
achieved the doubling of earnings and EPS, and that it “virtually” doubled its sales since
1993.
In September 2000 BMS announced the "Strategy for Growth," which incorporated what
became known as the “Mega-Double” goal, a plan to double year-end 2000 sales and
earnings by the end of 2005, a five-year period. Achievement of the Mega-Double required
average compound annual growth of nearly 15%.
WHOLESALER SALES AND CHANNEL STUFFING
BMS manufactures pharmaceutical products and distributes those products through
wholesalers. In 2000 to 2001, four U.S. wholesalers handled the distribution of
approximately 85% of BMS's U.S. pharmaceutical products. These wholesalers delivered
BMS pharmaceutical products to thousands of independent pharmacies, retail chains,
hospitals and other health care providers across the country. Wholesalers generally
purchased product at least sufficient to meet the demand of these retail businesses.
From 2000 to 2001, BMS regularly used financial incentives to spur wholesalers to buy
product in excess of prescription demand, so that BMS could report higher sales and
earnings. This practice, which is commonly known as “channel stuffing,” was also referred
to as “sales acceleration” or “trade loading.”
BMS used a variety of financial incentives to spur wholesalers to buy and hold additional
product in excess of prescription demand. The financial incentives included:
(a) Pre-price increase buy-ins - allowing wholesalers to purchase product in advance of a
BMS price increase for the product;
(b) Extended dating of invoices - extending the due date for the wholesaler's payment
beyond the usual thirty days;
(c) Additional early payment discounts- discounts beyond those customarily offered to
wholesalers for paying early for product; and
(d) “Future file" purchases- allowing wholesalers to buy at an old, lower price, even after a
price increase had become effective.
(e) Return on Investment (ROI)- In or about July 1999, BMS entered into an agreement to
pay its second largest wholesaler 2% of the value of any excess inventory it agreed to take,
per month, until this wholesaler sold the products. For purposes of this agreement, BMS
permitted its second largest wholesaler to treat anything over two weeks of inventory on
hand as excess inventory. BMS agreed to pay the 2% to this wholesaler through sales
incentives on future purchases, primarily in the form of price discounts. These payments
covered this wholesaler’s costs of carrying excess inventory, and guaranteed this wholesaler
would meet its target return on investment of about 24 percent per year on any excess
inventory this wholesaler agreed to take (ROI Agreement).
REVENUE RECOGNITION ACCOUNTING POLICIES
PRIOR TO RESTATEMENT
Revenue Recognition—Revenue from product sales is recognized upon shipment to
customers.
RESTATEMENT
Revenue Recognition—The Company recognizes revenue for sales upon shipment of
product to its customers, except in the case of certain transactions with its U.S.
pharmaceuticals wholesalers which are accounted for using the consignment model. Under
GAAP, revenue is recognized when substantially all the risks and rewards of ownership have
transferred. In the case of sales made to wholesalers (1) as a result of incentives, (2) in
excess of the wholesaler's ordinary course of business inventory level, (3) at a time when
there was an understanding, agreement, course of dealing or consistent business practice that
the Company would extend incentives based on levels of excess inventory in connection
with future purchases and (4) at a time when such incentives would cover substantially all,
and vary directly with, the wholesaler's cost of carrying inventory in excess of the
wholesaler's ordinary course of business inventory level, substantially all the risks and
rewards of ownership do not transfer upon shipment and, accordingly, such sales should be
accounted for using the consignment model. The determination of when, if at all, sales to a
wholesaler meet the foregoing criteria involves evaluation of a variety of factors and a
number of complex judgments. Under the consignment model, the Company does not
recognize revenue upon shipment of product. Rather, upon shipment of product the
Company invoices the wholesaler, records deferred revenue at gross invoice sales price and
classifies the inventory held by the wholesalers as consignment inventory at the Company's
cost of such inventory. The Company recognizes revenue when the consignment inventory is
no longer subject to incentive arrangements but not later than when such inventory is sold
through to the wholesalers' customers, on a first-in first-out (FIFO) basis.
Revenues are reduced at the time of sale to reflect expected returns that are estimated based
on historical experience. Additionally, provision is made at the time of sale for all discounts,
rebates and estimated sales allowances based on historical experience updated for changes in
facts and circumstances, as appropriate. Such provision is recorded as a reduction of
revenue.
REVENUE RECOGNITION POLICIES OF OTHER PHARMACEUTICAL
COMPANIES
18 of the largest pharmaceutical companies reported revenue recognition upon shipment to
wholesalers.
Disclosures related to sales incentives provided to wholesalers
•
•
•
Amgen (External Auditor – E&Y) - “Amgen discloses the global P&L charge
for….other incentives;…and global accruals related to sales incentives” and “…sales
incentives…are recognized when shipped and title and risk of loss have passed.”
AstraZeneca PLC (External Auditor – KPMG) – “A further feature that significantly
influenced our sales in the US market was wholesaler buying patterns. Wholesalers
would place orders which were significantly larger than their normal levels of
demand ahead of anticipated price increases…”
Johnson and Johnson (External Auditor – PwC) – “Provisions for sales
incentives….are accounted for as a reduction in sales in the same period in which the
•
sale is recorded.”
Merck & Co. Inc. (External Auditor – PwC) – “Through the US distribution program
for wholesalers...the Company incents wholesalers to align purchases with
underlying demand and maintain inventories within specified levels.”
ACCOUNTING STANDARDS RELATED TO REVENUE RECOGNITION
STAFF ACCOUNTING BULLETIN (SAB) 101/104
The staff believes that revenue generally is realized or realizable and earned when all of the
following criteria are met:
•
•
•
Persuasive evidence of an arrangement exists – Concepts Statement 2, paragraph 63
states, “Representational faithfulness is correspondence or agreement between a
measure or description and the phenomenon it purports to represent.” The staff
believes that evidence of an exchange arrangement must exist to determine if the
accounting treatment represents faithfully the transaction. The use of the term
“arrangement” in this SAB Topic is meant to identify the final understanding
between the parties as to the specific nature and terms of the agreed-upon transaction.
The staff is aware that sometimes a customer and seller enter into “side” agreement
to a master contract that effectively amend the master contract. Side agreements
could include cancellation, termination, or other provisions that affect revenue
recognition. The existence of a subsequently executed side agreement may be an
indicator that the original agreement may be an indicator that the original agreement
was not final and revenue recognition was not final and the revenue recognition was
not appropriate.
Delivery has occurred or services have been rendered – Revenue should not be
recognized until the seller has substantially accomplished what it must do pursuant to
the terms of the arrangement, which usually occurs upon delivery of performance of
the services.
Customer acceptance: After delivery of a product or performance of a service, if
uncertainty exists about customer acceptance, revenue should not be recognized until
acceptance occurs. Customer acceptance may be included in a contract, among other
reasons, to enforce a customer’s rights to (1) test the delivered product, (2) require
the seller to perform additional services subsequent to delivery of an initial product
or performance of an initial service, or (3) identify other work necessary to be done
before accepting the product. The staff presumes that such contractual customer
acceptance provisions are substantive, bargained-for terms of an arrangement.
Accordingly, when such customer acceptance provisions exist, the staff generally
believes that the seller should not recognize revenue until customer acceptance
occurs or the acceptance provisions lapse.
The seller’s price to the buyer is fixed or determinable – A “fixed fee” is defined as a
“fee required to be paid at a set amount that is not subject to refund or adjustment.”
•
Collectibility is reasonably assured.
CONSIGNMENT SALES (SAB 101, TOPIC 13-A)
Question 2
Facts: Company Z enters into an arrangement with Customer A to deliver Company Z's
products to Customer A on a consignment basis. Pursuant to the terms of the arrangement,
Customer A is a consignee, and title to the products does not pass from Company Z to
Customer A until Customer A consumes the products in its operations. Company Z delivers
product to Customer A under the terms of their arrangement.
Question: May Company Z recognize revenue upon delivery of its product to Customer A?
Interpretive Response: No. Products delivered to a consignee pursuant to a consignment
arrangement are not sales and do not qualify for revenue recognition until a sale occurs. The
staff believes that revenue recognition is not appropriate because the seller retains the risks
and rewards of ownership of the product and title usually does not pass to the consignee.
Other situations may exist where title to delivered products passes to a buyer, but the
substance of the transaction is that of a consignment or a financing. Such arrangements
require a careful analysis of the facts and circumstances of the transaction, as well as an
understanding of the rights and obligations of the parties, and the seller's customary business
practices in such arrangements. The staff believes that the presence of one or more of the
following characteristics in a transaction precludes revenue recognition even if title to the
product has passed to the buyer:
1. The buyer has the right to return the product and:
a) the buyer does not pay the seller at the time of sale, and the buyer is not obligated to
pay the seller at a specified date or dates.
b) the buyer does not pay the seller at the time of sale but rather is obligated to pay at a
specified date or dates, and the buyer's obligation to pay is contractually or implicitly
excused until the buyer resells the product or subsequently consumes or uses the
product,
c) the buyer's obligation to the seller would be changed (e.g., the seller would forgive
the obligation or grant a refund) in the event of theft or physical destruction or
damage of the product,
d) the buyer acquiring the product for resale does not have economic substance apart
from that provided by the seller, or
e) the seller has significant obligations for future performance to directly bring about
resale of the product by the buyer.
2. The seller is required to repurchase the product (or a substantially identical product or
processed goods of which the product is a component) at specified prices that are not
subject to change except for fluctuations due to finance and holding costs, and the
amounts to be paid by the seller will be adjusted, as necessary, to cover substantially all
fluctuations in costs incurred by the buyer in purchasing and holding the product
(including interest). The staff believes that indicators of the latter condition include:
a) the seller provides interest-free or significantly below market financing to the buyer
beyond the seller's customary sales terms and until the products are resold,
b) the seller pays interest costs on behalf of the buyer under a third-party financing
arrangement, or
c) the seller has a practice of refunding (or intends to refund) a portion of the original
sales price representative of interest expense for the period from when the buyer paid
the seller until the buyer resells the product.
3. The transaction possesses the characteristics set forth in EITF Issue No. 95-1, Revenue
Recognition on Sales with a Guaranteed Minimum Resale Value, and does not qualify
for sales-type lease accounting.
4. The product is delivered for demonstration purposes.
ACCOUNTING FOR REIMBURSEMENT FOR CUSTOMER COSTS (EITF 0025)
Example 14—Reimbursement of Floor Plan Interest
Auto Manufacturer F has an ongoing dealer assistance program under which auto dealers
are reimbursed at the end of each month for a portion of their floor plan interest costs
incurred in connection with purchases of Manufacturer F’s automobiles. The amount of
interest cost to be reimbursed each month is determined using a contractually specified
formula based on purchases from Manufacturer F during the most recent three-month
period ( including the current month). If a dealer ceases doing business with Manufacturer
F during the month, that dealer is not eligible to receive the floor plan interest subsidy for
that month.
Evaluation: The first condition of the model is not met because Manufacturer F simply is
paying some of the dealers’ operating costs, and is doing so only because the dealers are
customers—not because there is an identifiable benefit that is sufficiently separable from
Manufacturer F’s sale of automobiles to the dealers. Therefore, the reimbursements of floor
plan interest are a reduction of revenue when recognized in Manufacturer F’s income
statement. Because Manufacturer F receives no identifiable benefit and the consideration
can be used or is exercisable by the dealers only if they remain customers of Manufacturer
F for at least a month, Manufacturer F should apply the recognition and measurement
guidance in Issue 6.
Issue 6—If a vendor offers a customer a rebate or refund of a specified amount of cash
consideration that is redeemable only if the customer completes a specified
cumulative level of revenue transactions or remains a customer for a specified
time period, when should the vendor recognize and how should the vendor
measure the cost of the offer?
30. The Task Force reached a consensus that the vendor should recognize the rebate or
refund obligation as a reduction of revenue based on a systematic and rational allocation
of the cost of honoring rebates or refunds earned and claimed to each of the underlying
revenue transactions that result in progress by the customer toward earning the rebate or
refund. Measurement of the total rebate or refund obligation should be based on the
estimated number of customers that will ultimately earn and claim rebates or refunds.
INTERNATIONAL ACCOUNTING STANDARDS (IAS) 18
Recognition of revenue
Recognition, as defined in the IASB Framework, means incorporating an item that meets the
definition of revenue in the income statement when it meets the following criteria:
•
•
It is probable that any future economic benefit associated with the item of revenue
will flow to the entity, and
The amount of revenue can be measured with reliability
Sale of goods
Revenue arising from the sale of goods should be recognized when all of the following
criteria have been satisfied:
•
•
•
•
•
The seller has transferred to the buyer the significant risks and rewards of ownership
The seller retains neither continuing managerial involvement to the degree usually
associated with ownership nor effective control over the goods sold
The amount of revenue can be measured reliably
It is probable that the economic benefits associated with the transaction will flow to
the seller, and
The costs incurred or to be incurred in respect of the transaction can be measured
reliably under the offer (that is, breakage should be considered if it can be reasonably
estimated). However, if the amount of future rebates or refunds cannot be reasonably
estimated, a liability should be recognized for the maximum potential amount of the
refund or rebate (that is, no reduction for breakage should be made). The ability
to make a reasonable estimate of the amount of future rebates or refunds depends on
many factors and circumstances that will vary from case to case. However, the
following factors may impair a vendor’s ability to make a reasonable estimate:
a.
b.
c.
Relatively long periods in which a particular rebate or refund may be claimed
The absence of historical experience with similar types of sales incentive
programs with similar products or the inability to apply such experience
because of changing circumstances
The absence of a large volume of relatively homogeneous transactions.
OUTCOME
BMS
BMS entered into a Deferred Prosecution Agreement (DPA) with the United States Attorney's
Office for the District of New Jersey. Pursuant to the agreement, BMS agreed to pay:
• $150 million to the SEC
• $300 million to the DOJ as penalties
• Appoint an independent adviser to review and monitor its accounting principles,
financial reporting and internal controls
In total, the company spent $839M in investor lawsuits and other probes by U.S. prosecutors
and regulators.
EXECUTIVES
U.S. prosecutors agreed to drop 5-year-old fraud charges against the two executives without
going to trial. The judge claimed that prosecutors could NOT argue that Schiff and Lane were
required to correct financial statements. She also barred prosecutors from using the phrase
“Channel Stuffing” during the proceedings.
QUESTIONS
1. What was the nature of the relationship between the company and its wholesalers? Based
on the relationship, how would the terms of the relationship (e.g., deliveries, title,
transportation, prices, discounts, inspection, freight, acceptance, etc.) work in the normal
course of business?
2. Assume that the revenue recognition policy before the restatement complies with GAAP.
How would you support that GAAP was appropriately applied based on the guidance in
SAB 101/104 and IAS 18?
3. Assume that the revenue recognition policy during the restatement complies with GAAP.
How would you support that GAAP was appropriately applied based on the guidance in
SAB 101/104 and IAS 18?
4. There was a change of management after the channel stuffing was revealed.
(a) What are the possible incentives for prior management to undertake channel stuffing?
(b) What are the incentives for the new management to do the restatement?
5. Assume that the restatement was justified. Support your arguments citing GAAP and
other accounting principles/concepts.
6. Assume that the restatement was unjustified. Support your arguments citing GAAP and
other accounting principles/concepts.
7. The company was alleged to have stuffed its channels. What are the circumstances under
which channel stuffing results in revenue fraud? Do any of the circumstances apply to the
company?
8. Are there any alternative approaches to account for the excess inventories? Discuss those
approaches.
9. The sanctions given to the company by the regulators and the outcomes for the two
executives seem to be contradictory. Looking backwards, do you believe the sanctions
were appropriate? Why or why not?
APPENDIX A
NEW YORK, N.Y. (October 24, 2002) - Bristol-Myers Squibb Company (NYSE:BMY) today
announced that it expects to restate sales and earnings upward for 2002 and downward for the
prior periods that were affected, primarily in 2000 and 2001, by the company's previously
disclosed wholesaler inventory buildup situation in its U.S. Pharmaceuticals Unit. The expected
restatement is based on further review and consideration of the company's accounting for its
previously disclosed iwholesaler inventory situation and on recent advice from the company's
auditors, PricewaterhouseCoopers LLP, based on their ongoing assessment of the company's
sales practices in the U.S. pharmaceuticals business and related accounting. The restatement is
expected to reflect primarily adjustments in the timing of revenue recognition of the company's
U.S. pharmaceutical sales to certain of its wholesalers. The company estimates that the principal
components of the restatement will be:
•
•
a reallocation among periods of more than $2 billion in sales revenue; and
a reallocation among periods of diluted earnings per share related to the value of the U.S.
wholesaler inventories to be worked down, which the company estimates to be
approximately $.61.
The company estimates that a portion of these reallocations will be recorded in periods after
September 30, 2002. These amounts are preliminary estimates and are subject to change.
There will be a delay in filing the company's third quarter 10-Q. The company will announce its
anticipated timing for preparing the restatement, filing its third quarter 10-Q and amending
earlier filings at a later time.
The actual inventory workdown continues on an aggressive timetable. "Restating will help put
the inventory issue behind us as soon as possible and allow us to move forward," said Peter R.
Dolan, chairman and chief executive officer. "We continue to make substantial progress in
reducing U.S. wholesaler inventory to desirable levels, with more than 75% of the workdown
completed to date and more than 90% expected to be achieved by year-end 2002.
APPENDIX B
NEW YORK, N.Y. (March 10, 2003) -- Bristol-Myers Squibb Company (NYSE: BMY) today
announced the restatement of its previously issued financial statements for the years 1999
through 2001 and the first two quarters of 2002. In the aggregate, the restatement reduced net
sales by $1,436 million, $678 million and $376 million for the years ended December 31, 2001,
2000 and 1999, respectively, and increased net sales for the six months ended June 30, 2002 by
$653 million. The restatement also reduced net earnings from continuing operations by $376
million, $206 million and $331 million in the years ended December 31, 2001, 2000 and 1999,
while net earnings from continuing operations were increased by $201 million in the six months
ended June 30, 2002. The Company also announced its sales and earnings for the full-year 2002
and reiterated its 2003 earnings guidance.
The restatement primarily reflects a correction of an error in the timing of revenue recognition
for certain sales to two of the largest wholesalers for the U.S. pharmaceuticals business. As a
result of the restatement for this matter, net sales were reduced by $1,096 million, $475 million
and $409 million for the years ended December 31, 2001, 2000 and 1999, respectively. The
corresponding reduction in pre-tax earnings was $798 million, $395 million and $315 million,
respectively. Net sales and pre-tax earnings for the six months ended June 30, 2002 were
increased by $533 million and $401 million, respectively. In addition, net sales and pre-tax
earnings were increased by approximately $860 million and $620 million, respectively, in the six
months ended December 31, 2002, and are projected to increase by approximately $425 million
and $290 million, respectively, in 2003.
RESTATEMENT RESULTS
Summary
The Company experienced a substantial buildup of wholesaler inventories in its U.S.
pharmaceuticals business over several years, primarily in 2000 and 2001. This buildup was
primarily due to sales incentives offered by the Company to its wholesalers. These incentives
were generally offered towards the end of a quarter in order to incentivize wholesalers to
purchase products in an amount sufficient to meet the Company's quarterly sales projections
established by the Company's senior management. In April 2002, the Company disclosed this
substantial buildup, and developed and subsequently undertook a plan to work down in an
orderly fashion these wholesaler inventory levels.
In late October 2002, based on further review and consideration of the previously disclosed
buildup of wholesaler inventories in the Company's U.S. pharmaceuticals business and the
incentives offered to certain wholesalers, and on advice from the Company's independent
auditors, PricewaterhouseCoopers LLP, the Company determined that it was required to restate
its sales and earnings to correct errors in timing of revenue recognition for certain sales to certain
U.S. pharmaceuticals wholesalers. Since that time, the Company has undertaken an analysis of
its transactions and incentive practices with U.S. pharmaceuticals wholesalers. The Company has
now determined that certain incentivized transactions with certain wholesalers should be
accounted for under the consignment model rather than recognizing revenue for such
transactions upon shipment. This determination involved evaluation of a variety of criteria and a
number of complex accounting judgments. As a result of its analysis, the Company determined
that certain of its sales to two of the largest wholesalers for the U.S. pharmaceuticals business
should be accounted for under the consignment model, based in part on the relationship between
the amount of incentives offered to these wholesalers and the amount of inventory held by these
wholesalers.
Consignment Sales
Historically, the Company recognized revenue for sales upon shipment of product to its
customers. Under GAAP, revenue is recognized when substantially all the risks and rewards of
ownership have transferred. In the case of sales made to wholesalers (1) as a result of incentives,
(2) in excess of the wholesaler's ordinary course of business inventory level, (3) at a time when
there was an understanding, agreement, course of dealing or consistent business practice that the
Company would extend incentives based on levels of excess inventory in connection with future
purchases and (4) at a time when such incentives would cover substantially all, and vary directly
with, the wholesaler's cost of carrying inventory in excess of the wholesaler's ordinary course of
business inventory level, substantially all the risks and rewards of ownership do not transfer
upon shipment and, accordingly, such sales should be accounted for using the consignment
model. The determination of when, if at all, sales to a wholesaler meet the foregoing criteria
involves evaluation of a variety of factors and a number of complex judgments.
Under the consignment model, the Company does not recognize revenue upon shipment of
product. Rather, upon shipment of product the Company invoices the wholesaler, records
deferred revenue at gross invoice sales price and classifies the inventory held by the wholesalers
as consignment inventory at the Company's cost of such inventory. The Company recognizes
revenue (net of cash discounts, rebates, estimated sales allowances and accruals for returns)
when the consignment inventory is no longer subject to incentive arrangements but not later than
when such inventory is sold through to the wholesalers' customers, on a first-in first-out (FIFO)
basis.
The Company has restated its previously issued financial statements to correct the timing of
revenue recognition for certain previously recognized U.S. pharmaceuticals sales to Cardinal and
McKesson, two of the largest wholesalers for the Company's U.S. pharmaceuticals business, that,
based on the application of the criteria described above, were recorded in error at the time of
shipment and should have been accounted for using the consignment model. The Company has
determined that shipments of product to Cardinal and shipments of product to McKesson met the
consignment model criteria set forth above as of July 1, 1999 and July 1, 2000, respectively, and,
in each case, continuing through the end of 2001 and for some period thereafter.
Accordingly, the consignment model was required to be applied to such shipments. Prior to those
respective periods, the Company recognized sales to Cardinal and McKesson upon shipment of
product. Although the Company generally views approximately one month of supply as a
desirable level of wholesaler inventory on a going-forward basis and as a level of wholesaler
inventory representative of an industry average, in applying the consignment with respect to
sales to Cardinal and McKesson, the Company defined inventory in excess of the wholesaler's
ordinary course of business inventory level as inventory above two weeks and three weeks of
supply, respectively, based on the levels of inventory that Cardinal and McKesson required to be
used as the basis for negotiation of incentives granted. As a result of this restatement adjustment,
net sales were reduced by $1,015 million, $475 million and $409 million in 2001, 2000 and
1999, respectively. The corresponding reduction in earnings from continuing operations before
income taxes was $721 million, $395 million and $315 million, respectively.
APPENDIX C – FINANCIAL STATEMENTS AT DECEMBER 31, 2001
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
(in millions, except per share amounts)
EARNINGS
Net Sales
Year Ended December 31,
2001
2000
1999
$ 19,423
Expenses:
Cost of products sold
Marketing, selling and administrative
Advertising and product promotion
Research and development
Acquired in-process research and development
Provision for restructuring and nonrecurring items
Gain on sales of businesses
Other
$ 18,216
5,575
3,903
1,433
2,259
2,744
781
(392)
134
$ 16,878
4,759
3,860
1,672
1,939
—
508
(160)
160
4,542
3,789
1,549
1,759
—
—
—
81
16,437
12,738
11,720
Earnings from Continuing Operations Before Income Taxes
Provision for income taxes
2,986
459
5,478
1,382
5,158
1,369
Earnings from Continuing Operations
Discontinued Operations
Net earnings
Net gain on disposal
2,527
4,096
3,789
226
2,492
375
240
378
—
2,718
615
378
$ 5,245
$ 4,711
$ 4,167
$
$
$
Net Earnings
Earnings Per Common Share
Basic
Earnings from Continuing Operations
Discontinued Operations
Net earnings
Net gain on disposal
Net Earnings
Diluted
$
1.30
2.08
1.91
.12
1.28
.19
.13
.19
—
1.40
.32
.19
2.70
$
2.40
$
2.10
Earnings from Continuing Operations
Discontinued Operations
Net earnings
Net gain on disposal
$
1.29
$
2.05
$
1.87
.11
1.27
.19
.12
.19
—
1.38
.31
.19
Net Earnings
$
2.67
Average Common Shares Outstanding
Basic
Diluted
Dividends Per Common Share
1,940
1,965
$ 1.10
$
2.36
1,965
1,997
$
.98
$
2.06
1,984
2,027
$
.86
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEET
ASSETS
(dollars in millions)
December 31,
ASSETS
Current Assets:
Cash and cash equivalents
Time deposits and marketable securities
Receivables, net of allowances
Inventories
Prepaid expenses
Total Current Assets
Property, Plant and Equipment, net
Goodwill
Intangible Assets, net
Other Assets
Total Assets
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEET - LIABILITIES AND STOCKHOLDERS' EQUITY
2001
2000
$ 5,500
154
3,949
1,487
1,259
$ 3,182
203
3,662
1,831
946
12,349
9,824
4,879
5,200
2,247
2,382
4,548
1,436
384
1,386
$ 27,057
$ 17,578
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in millions)
Year Ended December 31,
2001
Cash Flows From Operating Activities:
Net earnings
Depreciation
Amortization
Acquired in-process research and development
Provision for restructuring and nonrecurring items
Gain on sales of businesses
Other operating items
Receivables
Inventories
Accounts payable and accrued expenses
Income taxes
Product liability
Insurance recoverable
Pension contribution
Other assets and liabilities
Net Cash Provided by Operating Activities
2000
1999
$ 5,245 $ 4,711 $ 4,167
481
461
438
300
285
240
2,744
—
—
781
542
—
(4,544)
(562)
—
20
10
(79)
(359)
(494)
(176)
(10)
75
(317)
(170)
256
258
1,015
(54)
477
(176)
(173)
(726)
174
100
59
(215)
(230)
—
116
(275)
(117)
5,402
4,652
4,224
Cash Flows From Investing Activities:
Proceeds from sales of time deposits and marketable securities
Purchases of time deposits and marketable securities
Additions to fixed assets
Proceeds from sales of businesses
Proceeds from sale of Clairol
Acquisition of DuPont
Investment in ImClone
Businesses acquisitions (including purchase of trademarks/patents)
Other, net
1,412
(1,375)
(1,023)
537
4,965
(7,774)
(1,207)
(133)
(266)
45
(10)
(589)
848
—
—
—
(196)
(82)
51
(4)
(709)
134
—
—
—
(266)
35
Net Cash (Used in) Provided by Investing Activities
(4,864)
16
(759)
Cash Flows From Financing Activities:
Short-term borrowings
Long-term debt borrowings
Long-term debt repayments
Issuances of common stock under stock plans
Purchases of treasury stock
Dividends paid
392
4,854
(3)
251
(1,589)
(2,137)
(247)
17
(11)
352
(2,338)
(1,930)
(26)
2
(56)
254
(1,419)
(1,707)
1,768
(4,157)
(2,952)
Net Cash Provided by (Used in) Financing Activities
Effect of Exchange Rates on Cash
Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
12
(49)
(37)
2,318
3,182
462
2,720
476
2,244
$ 5,500
$ 3,182
$ 2,720
APPENDIX C – RESTATED FINANCIAL STATEMENTS AT DECEMBER 31, 2001
Item 8.
RESTATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The restated consolidated financial statements and supplementary data, including the notes to the restated
consolidated financial statements, set forth in this Item 8 have been revised to reflect the restatement, the Company's
business segment reorganization that became effective in the first quarter of 2002 and certain events occurring
subsequent to the filing of the original Form 10-K.
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENT OF EARNINGS
(dollars in millions, except per share data)
EARNINGS
Net Sales
Restated
2001
Restated
2000
Restated
1999
$ 18,139
$ 17,695
$ 16,502
Cost of products sold
Marketing, selling and administrative
Advertising and product promotion
Research and development
Acquired in-process research and development
Provision for restructuring and other items
Gain on sales of businesses/product lines
Other (income)/expense, net
5,454
3,909
1,433
2,183
2,772
583
(475)
62
4,729
3,863
1,672
1,878
38
443
(216)
41
4,458
3,789
1,549
1,705
193
—
(50)
68
15,921
12,448
11,712
Earnings from Continuing Operations Before Minority Interest and Income Taxes
Provision for income taxes
Minority interest, net of taxes(1)
2,218
73
102
5,247
1,320
97
4,790
1,318
49
Earnings from Continuing Operations
2,043
3,830
3,423
Discontinued Operations:
Net earnings
Net gain on disposal
226
2,565
375
266
378
—
2,791
641
378
$ 4,834
$ 4,471
$ 3,801
$
$
$
Net Earnings
Earnings per Common Share
Basic
Earnings from Continuing Operations
Discontinued Operations:
Net earnings
Net gain on disposal
1.05
1.95
1.73
.12
1.32
.19
.14
.19
—
1.44
.33
.19
Net Earnings
$
2.49
$
2.28
$
1.92
Earnings from Continuing Operations
Discontinued Operations:
Net earnings
Net gain on disposal
$
1.04
$
1.92
$
1.69
Diluted
Net Earnings
Average Common Shares Outstanding
Basic
Diluted
Dividends declared per Common Share
(1)
Includes minority interest expense and income from unconsolidated affiliates.
$
.11
1.31
.19
.13
.19
—
1.42
.32
.19
2.46
1,940
1,965
$ 1.11
$
2.24
1,965
1,997
$ 1.01
$
1.88
1,984
2,027
$
.89
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED BALANCE SHEET
(dollars in millions)
The accompanying notes are an integral part of these financial statements.
December 31,
ASSETS
Current Assets:
Cash and cash equivalents
Time deposits and marketable securities
Receivables, net of allowances of $122 and $154
Inventories, including consignment inventory
Prepaid expenses
Restated
2001
Restated
2000
$ 5,500
154
3,992
1,699
1,904
$ 3,182
203
3,682
1,930
1,245
13,249
4,887
5,119
2,084
2,473
10,242
4,509
1,409
196
1,400
$ 27,812
$ 17,756
$
$
Total Current Assets
Property, plant and equipment, net
Goodwill
Intangible assets, net
Other assets
Total Assets
LIABILITIES
Current Liabilities:
Short-term borrowings
Deferred revenue on consigned inventory
Accounts payable
Dividends payable
Accrued expenses
Accrued rebates and returns
U.S. and foreign income taxes payable
174
2,026
1,478
542
3,176
888
2,825
162
908
1,668
537
2,332
794
701
Total Current Liabilities
11,109
1,391
6,237
7,102
1,430
1,336
Total Liabilities
18,737
9,868
—
—
Other liabilities
Long-term debt
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $2 convertible series: Authorized 10 million shares; issued and outstanding 8,914 in 2001 and
9,864 in 2000, liquidation value of $50 per share
Common stock, par value of $0.10 per share: Authorized 4.5 billion shares; issued 2,200,010,476 issued in 2001
and 2,197,900,835 in 2000
Capital in excess of par value of stock
Other accumulated comprehensive loss
220
2,403
(1,117)
220
2,069
(1,103)
Retained earnings
Less cost of treasury stock—264,389,570 common shares in 2001
and 244,365,726 in 2000
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
18,958
16,422
20,464
17,608
11,389
9,720
9,075
7,888
$ 27,812
$ 17,756
BRISTOL-MYERS SQUIBB COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in millions)
Year Ended December 31,
Restated
Restated
Restated
2001
2000
1999
Cash Flows From Operating Activities:
Net earnings
Depreciation
Amortization
Acquired in-process research and development
Provision for restructuring and other items
Gain on sales of businesses/product lines (including discontinued operations)
Other operating items
Receivables
Inventories
Deferred revenue on consigned inventory
Accounts payable and accrued expenses
Income taxes
Product liability
Insurance recoverable
Pension contribution
Other assets and liabilities
Net Cash Provided by Operating Activities
$ 4,834 $ 4,471 $ 3,801
481
461
438
247
224
185
2,772
38
193
715
517
—
(4,750)
(660)
(50)
20
10
(79)
(381)
(507)
(183)
(120)
30
(371)
1,118
491
417
(131)
317
270
618
(157)
396
(176)
(173)
(726)
174
100
59
(300)
(267)
(46)
281
(243)
(80)
5,402
4,652
4,224
Cash Flows From Investing Activities:
Proceeds from sales of time deposits and marketable securities
Purchases of time deposits and marketable securities
Additions to property, plant and equipment
Proceeds from sales of businesses/product lines
Proceeds from sale of Clairol
Acquisition of DuPont
Investment in ImClone
Other business acquisitions (including purchase of trademarks/patents)
Other, net
1,412
(1,375)
(1,023)
537
4,965
(7,774)
(1,207)
(133)
(266)
45
(10)
(589)
848
—
—
—
(196)
(82)
51
(4)
(709)
134
—
—
—
(266)
35
Net Cash (Used in) Provided by Investing Activities
(4,864)
16
(759)
Cash Flows From Financing Activities:
Short-term borrowings
Long-term debt borrowings
Long-term debt repayments
Issuances of common stock under stock plans
Purchases of treasury stock
Dividends paid
Net Cash Provided by (Used in) Financing Activities
Effect of Exchange Rates on Cash
Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year
i
392
4,854
(3)
251
(1,589)
(2,137)
(247)
17
(11)
352
(2,338)
(1,930)
(26)
2
(56)
254
(1,419)
(1,707)
1,768
(4,157)
(2,952)
12
(49)
(37)
2,318
3,182
462
2,720
476
2,244
$ 5,500
$ 3,182
$ 2,720
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