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
Purchase answer to see full attachment