BRISTOL MYERS SQUIBB CO - BMY Amended Quarterly Report (10-Q/A) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF

The following is an excerpt from a 10-Q/A SEC Filing, filed by BRISTOL MYERS SQUIBB CO on 3/31/2004.

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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in this Item 2 has been revised to reflect the restatement occurring subsequent to the filing of the original Form 10-Q, as well as to incorporate certain conforming changes.

Restatement of Previously Issued Financial Statements

Bristol-Myers Squibb Company (the Company) restated its consolidated balance sheet at December 31, 2002, and consolidated statements of earnings, cash flows, and comprehensive income and retained earnings for the years ended December 31, 2002 and 2001, and its financial statements for the first, second and third quarters of 2003, including comparable interim periods in 2002 (the "2003 Restatement"). The restatement affected periods prior to 2001. The impact of the restatement on such prior periods is reflected as an adjustment to retained earnings as of January 1, 2001. The restatement is reported in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 (2003 Form 10-K) and is reported in this Amendment No. 1 to the Company's Quarterly Report for the quarterly period ended June 30, 2003 and in amendments to the Company's Quarterly Reports on Form 10-Q/A for the quarterly periods ended March 31, 2003 and September 30, 2003. The 2003 Restatement (i) corrects certain of the Company's historical accounting policies to conform to U.S. generally accepted accounting principles (GAAP) and (ii) corrects certain errors made in the application of GAAP.

In late October 2002, the Company determined that certain of its sales to certain wholesalers for its U.S. pharmaceuticals business should be accounted for under the consignment sales accounting model and, accordingly, determined to restate its sales and earnings for sales to these wholesalers. Following that determination, the Company also determined that it would correct certain of its historical accounting policies to conform the accounting to GAAP and certain known errors made in the application of GAAP that were previously not recorded because in each such case the Company believed the amount of any such error was not material to the Company's consolidated financial statements. In addition, as part of the restatement process, the Company investigated its accounting practices in certain areas that involve significant judgments and determined to restate additional items with respect to which the Company concluded errors were made in the application of GAAP, including certain revisions of inappropriate accounting. In March 2003, the Company completed the restatement of its financial statements for these items and restated its financial statements for the three years ended December 31, 2001, including the corresponding interim periods, and the first and second quarters of 2002, including comparable prior interim periods in 2001 (the "2002 Restatement").

After completing the 2002 Restatement, the Company continued to identify and implement actions to improve the effectiveness of its disclosure controls and procedures and internal controls over financial reporting. In connection with this effort, the Company (i) has substantially strengthened the organization and personnel of the senior financial and control functions, (ii) adopted more rigorous policies and procedures with respect to its balance sheet review process, (iii) focused its internal audit function on financial reporting controls, (iv) engaged a consultant to assist in the evaluation and documentation of certain financial reporting and disclosure processes throughout the Company and (v) engaged a consultant to assist in a comprehensive and detailed review of certain of the Company's tax reporting and accounting. In addition, at the request of the Company's Audit Committee, the Company's independent auditors performed more extensive procedures with respect to the Company's interim financial information during 2003 and, based on the auditors' assessment of the Company's risk profile, expanded the scope and amount of field work to be performed for certain areas in connection with its audit of the Company for 2003. These actions contributed significantly to the Company identifying additional errors relating to prior periods not reflected in the 2002 Restatement. For a discussion of the individual restatement adjustments and the impact of such adjustments on the Company's previously issued financial statements, see "Item 1. Restated Financial Statements-Note 2. Restatement of Previously Issued Financial Statements," above and "Item 8. Financial Statements-Note 2. Restatement of Previously Issued Financial Statements for Years Ended December 31, 2002 and 2001" in the Company's 2003 Form 10-K.

In connection with their audits of the 2002 Restatement and the Company's consolidated financial statements for the year ended December 31, 2002, the Company's independent auditors, PricewaterhouseCoopers LLP (PwC), identified and communicated to the Company and its Audit Committee two "material weaknesses" (as defined under standards established by the American Institute of Certified Public Accountants(AICPA)) relating to the Company's accounting and public financial reporting of significant matters and to its initial recording and management review and oversight of certain accounting matters. In addition, at that time, PwC identified and communicated to the Company and its Audit Committee a "reportable condition" (as defined under standards established by the AICPA) relating to the Company's internal controls over its financial reporting for income taxes. In 2003, the Company dedicated substantial resources to improving its controls over its accounting and financial disclosure and reporting, and PwC has not identified material weaknesses in connection with their audit of the 2003 financial statements. In addition, the Company has devoted substantial resources towards remedying the reportable condition in relation to taxes. The Company also retained a consultant to assist in a comprehensive and detailed review of certain aspects of its tax accounting and reporting. The Company examined its financial

reporting for taxes in each significant jurisdiction where the Company or one of its subsidiaries was subject to tax. As a result of this review, a number of prior period errors were identified, which are reflected in the 2003 Restatement. In addition, the Company undertook a review to evaluate certain issues that had been raised concerning the manner in which the Company determined its provision for income taxes. The Company has determined that prior to 2000 there were certain inappropriate adjustments to tax contingency reserves made for the improper purpose of recording a provision for income taxes consistent with the Company's projected effective tax rate. In addition, there may have been inappropriate adjustments in 2001 and 2002. The Company has completed a review and has not been able to determine whether or not any of the errors relating to its tax contingency reserves being corrected in the restatement are related to inappropriate accounting. In connection with the audit of the Company's consolidated financial statements for the year ended December 31, 2003, PwC has advised the Company and its Audit Committee that the "reportable condition" in the income tax accounting area remains, and the Company expects to complete remediation of this reportable condition by the end of 2004.

Throughout the following Management's Discussion and Analysis of Financial Condition and Result of Operations, all referenced amounts for prior periods and prior period comparisons reflect the balances and amounts on a restated basis.

Revenue Recognition Under the Consignment Model

Historically, the Company recognized revenue for sales upon shipment of products to its customers. Under GAAP, revenue is recognized when substantially all the risks and rewards of ownership have transferred. In the case of certain transactions, the Company has determined that substantially all the risks and rewards of ownership do not transfer upon shipment for certain incentivized sales to two U.S. wholesalers, Cardinal Health, Inc. (Cardinal) and McKesson Corporation (McKesson) and, accordingly, such sales should be accounted for using the consignment model.

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 costs of such inventory. The Company recognizes revenue (net of 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. For additional discussion of the Company's revenue recognition policy, see "Item 1. Restated Financial Statements-Note 1. Basis of Presentation and New Accounting Standards," to the consolidated financial statements included in this Form 10-Q/A.

The Company determined that shipments of product to Cardinal and shipments of product to McKesson met the consignment model criteria set forth in the Company's revenue recognition policy as of July 1, 1999 and July 1, 2000, respectively, and, continued through December 2002 for McKesson and February 2003 for Cardinal. Accordingly, the consignment model was required to be applied to such shipments. All shipments to McKesson in the first six months of 2003, other than those for the Oncology Therapeutics Network (OTN) business, and all shipments to Cardinal after February 2003 were accounted for as sales upon shipment.

The Company has determined that, although sales incentives were offered to other wholesalers and there was a buildup of inventories at such wholesalers in certain periods, the consignment model criteria set forth in the Company's revenue recognition policy were not met. Accordingly, the Company recognized revenue when the products were shipped to these wholesalers. The Company estimates that, generally, in aggregate, the inventory of pharmaceutical products held by these other U.S. pharmaceutical wholesalers in excess of or below approximately one month of supply in the case of the Company's exclusive products (including PLAVIX* and AVAPRO/AVALIDE*) and approximately two months in the case of the Company's non-exclusive products, was in the range of approximately $100 million below this level of supply to $100 million in excess of this level of supply at June 30, 2003.

The Company's estimates of inventories by wholesalers are based on the projected prescription demand-based sales for its products, as well as the Company's analysis of third-party information, including information obtained from certain wholesalers with respect to their inventory levels and sell-through to customers and third-party market research data, and the Company's internal information. The Company's estimates are subject to inherent limitations of estimates that rely on third-party data, as certain third-party information was itself in the form of estimates, and reflect other limitations.

In April 2002, the Company disclosed a substantial buildup of wholesaler inventories in its U.S. pharmaceuticals business, and developed and subsequently undertook a plan to workdown in an orderly fashion these wholesaler inventory levels. To facilitate an orderly workdown, the Company's plan included continuing to offer sales incentives, at reduced levels, to certain wholesalers. With respect to McKesson and Cardinal, the Company entered into agreements for an orderly workdown that provided for these wholesalers to make specified levels of purchases and for the Company to offer specified levels of incentives through the first quarter of 2003 for McKesson and the third quarter of 2003 for Cardinal. The orderly workdown of inventories of its pharmaceutical products held by all U.S. pharmaceuticals wholesalers was substantially completed at or before the end of 2003.

The Company's financial results and prior period and quarterly comparisons are affected by the buildup and orderly workdown of wholesaler inventories, as well as the application of the consignment model to certain sales to certain wholesalers. In addition, with respect to sales not accounted for using the consignment model, the Company's financial results and prior period and quarterly comparisons are affected by fluctuations in the buying patterns of wholesalers, including the effect of incentives offered, and the corresponding changes in inventory levels maintained by these wholesalers. These wholesalers buying patterns and wholesaler inventory levels may not reflect underlying prescriber demand. The Company's policy is to allow wholesalers to purchase product on a limited basis after a price increase at the pre-increase price. For information on U.S. pharmaceuticals prescriber demand, reference is made to the tables within Business Segments under the Pharmaceuticals sections below, which sets forth a comparison of changes in net sales to the estimated total (both retail and mail order customers) prescription growth for certain of the Company's U.S. pharmaceutical products for each of the three months and six months ended June 30, 2003 and 2002, respectively.

Three Months Results of Operations

Worldwide sales for the second quarter of 2003 increased 25% to $5,129 million from $4,097 million in 2002. This sales increase resulted from an 18% increase in volume, a 4% increase in foreign exchange and a 3% increase in price. Domestic sales increased 28% for the quarter, primarily as a result of continued strong prescription demand for key brands and the impact from the workdown of non-consignment wholesaler inventory in the second quarter of 2002. International sales increased 21%, including an 11% favorable foreign exchange impact. For the second quarter of 2003, $32 million of deferred revenue was reversed and recognized as sales (calculated net of sales discounts, rebates and other adjustments). The deferred revenue, recorded at gross invoice sales prices, related to the inventory of pharmaceutical products accounted for using the consignment model, was reduced to $110 million at June 30, 2003, compared to $174 million at March 31, 2003. The deferred revenue and consignment inventory recorded under the consignment model will continue to be reflected on the Company's balance sheet until the related products are sold through to the wholesalers' customers. The sell-through to the wholesalers' customers was substantially complete by the end of 2003.

Second quarter 2003 earnings from continuing operations before minority interest and income taxes increased 67% to $1,247 million from $745 million in 2002 primarily as a result of higher sales. Net earnings from continuing operations increased 89% to $902 million in 2003 compared to $477 million in 2002. The effective income tax rate on earnings from continuing operations before minority interest and income taxes decreased to 21.0% in 2003 from 27.7% in 2002. Basic earnings per share from continuing operations increased 88% to $.47 in 2003 from $.25 in 2002. Diluted earnings per share increased 84% to $.46 in 2003 from $.25 in 2002. Basic and diluted average shares outstanding for the second quarter were 1,937 million and 1,942 million, respectively, in 2003 compared to 1,937 million and 1,944 million, respectively, in 2002.

Business Segments

Pharmaceuticals

Sales for the Pharmaceuticals segment in the three months ended June 30, 2003 increased 30%, including a 6% favorable foreign exchange impact, to $3,631 million from $2,794 million in 2002. Domestic pharmaceutical sales increased 39% to $2,049 million in 2003 from $1,475 million in 2002, primarily due to increased sales of PRAVACHOL, PARAPLATIN, SUSTIVA and GLUCOVANCE*, and partly due to the impact on 2002 sales from the workdown of non-consignment wholesaler inventory.

International sales for the Pharmaceuticals segment increased 20% to $1,582 million in 2003, including a 13% favorable foreign exchange impact, from $1,319 million in 2002. Sales in Europe and the Middle East increased 25%, including a 21% favorable foreign exchange impact, as a result of strong growth in PRAVACHOL, TAXOL, VIDEX and Analgesic products. Japan realized sales growth of 19%, including a 10% favorable foreign exchange impact, led by growth in TAXOL sales.

Sales of selected products in the second quarter of 2003 were as follows:

• Alliance revenue for ABILIFY* for the quarter was $65 million. The schizophrenia agent was introduced in the United States in November 2002 and has achieved more than a 5% weekly new prescription share of the U.S. antipsychotic market. The Company also submitted two Supplemental New Drug Applications (sNDA) for ABILIFY during the first half of this year, one for the treatment of schizophrenia/relapse prevention which was approved, and the other for the treatment of acute mania in patients with bipolar disorder. ABILIFY* is being developed and marketed by Bristol-Myers Squibb and its partner Otsuka Pharmaceutical Co., Ltd.

• Worldwide sales of PRAVACHOL, a cholesterol-lowering agent and the Company's largest selling product, increased 56%, including a 10% favorable foreign exchange impact, to $698 million. This increase in sales is largely due to the effect of workdown of inventory in the second quarter of 2002.

• Sales of PLAVIX*, a platelet aggregation inhibitor, increased 31% to $557 million. Sales of AVAPRO/AVALIDE*, an angiotensin II receptor blocker for the treatment of hypertension, increased 13% to $170 million. AVAPRO/AVALIDE* and PLAVIX* are cardiovascular products that were launched from the alliance between Bristol-Myers Squibb and Sanofi-Synthelabo.

• TAXOL and PARAPLATIN, the Company's leading anti-cancer agents, had sales of $248 million and $247 million, respectively. International sales of TAXOL increased 27%, including favorable foreign exchange of 17%, to $223 million, led by strong sales growth in Japan, while domestic sales decreased 52% to $25 million due to generic competition. PARAPLATIN worldwide sales increased by 44% to $247 million, driven primarily by sales in the United States.

• Sales of SUSTIVA, an anti-retroviral for the treatment of HIV/AIDS, were $160 million, an increase of 44% over the second quarter of the prior year.

• Sales of the GLUCOPHAGE* franchise increased 92% to $240 million. This increase in sales is largely due to the effect of workdown of inventory in the second quarter of 2002. GLUCOPHAGE*IR sales were $26 million, while GLUCOVANCE* sales grew 127% to $116 million, and GLUCOPHAGE*XR (Extended Release) tablets sales grew 29% to $102 million.

The following table sets forth a comparison of reported net sales changes and the estimated total prescription growth (for both retail and mail order customers) for certain of the Company's U.S. pharmaceutical prescription products. The estimated prescription growth amounts are based on third-party data provided by IMS Health, a supplier of market research to the pharmaceutical industry. A significant portion of the Company's domestic pharmaceutical sales is made to wholesalers. Where changes in reported net sales differ from prescription growth, this change in net sales may not reflect underlying prescriber demand.

Three Months Ended June 30, 2003 Three Months Ended June 30, 2002
% Change in % Change in % Change in % Change in U.S. Net Sales Total U.S. Net Sales Total
(Restated)(a) U.S. Prescriptions(b) (Restated)(a) U.S. Prescriptions(b)

(unaudited)
PRAVACHOL 82 2 (11) 10 PLAVIX* 30 28 90 36 AVAPRO/AVALIDE* (4) 13 42 14
ZERIT (13) (25) (24) (13)
SUSTIVA 67 18 - 10 GLUCOVANCE* 124 4 (47) 57 GLUCOPHAGE*XR 29 - 26 101 VIDEX/VIDEX EC 12 1 (16) 11

(a) Reflects change in net sales in dollar terms, including change in average selling prices and wholesaler buying patterns.

(b) Reflects change in total prescriptions in unit terms, based on third-party data.

Earnings before minority interest and income taxes for the Pharmaceuticals segment increased to $1,089 million in the second quarter of 2003 from $634 million in 2002 primarily due to higher sales, favorable product mix, partially offset by increased advertising and product promotion spending on existing in-line products as well as spending to support new product launches.

Oncology Therapeutics Network

Sales by OTN, a specialty distributor of anti-cancer medicines and related products, increased 21% to $558 million, from $463 million in 2002.

Earnings before minority interest and income taxes increased to $5 million in 2003 from $4 million in 2002.

Nutritionals

Sales for the Nutritionals segment were $521 million for the three months ended June 30, 2003, an increase of 14%, including a 2% unfavorable foreign exchange impact, from the prior year levels, as international sales increased 11%, including a 4% unfavorable foreign exchange impact, and U.S. sales increased 17%. Mead Johnson continues to be the leader in the U.S. infant formula market. ENFAMIL, the Company's largest-selling infant formula, had sales of $233 million, an increase of 18% from the prior year. Sales of ENFAGROW, a children's nutritional supplement, increased 31% to $38 million.

Earnings before minority interest and income taxes for the Nutritionals segment increased to $144 million in 2003 from $125 million in 2002 primarily due to an increase in sales.

Other Healthcare

Sales in the Other Healthcare segment increased 9%, including a 6% favorable foreign exchange impact, to $419 million. The Other Healthcare segment is comprised of the ConvaTec, Medical Imaging and Consumer Medicines (United States and Japan) businesses.

• ConvaTec sales for the three months ended June 30, 2003 increased 16%, including a 10% favorable foreign exchange impact, to $202 million. Sales of ostomy products increased 15% to $126 million, while sales of modern wound care products increased 16% to $73 million.

• Medical Imaging sales for the three months ended June 30, 2003, increased 9%, including a 1% favorable foreign exchange impact, to $129 million. The increase in Medical Imaging sales was primarily due to a 12% increase in CARDIOLITE sales to $86 million in 2003 from $77 million in 2002.

• Consumer Medicines sales for the three months ended June 30, 2003 decreased 4% to $88 million including a 3% favorable foreign exchange impact.

Earnings before minority interest and income taxes for the Other Healthcare segment increased to $109 million in 2003 from $105 million in 2002 primarily due to an increase in sales.

Expenses

Total expenses for the three months ended June 30, 2003, as a percentage of sales, decreased to 75.7% from 81.8% in 2002. During the second quarter of 2003 and 2002, the Company recorded several significant items that affected the comparability of the results of the periods presented herein:

Three Months Ended June 30,
Restated Restated 2003 2002
(unaudited, dollars in millions) Litigation settlement income, net(1) $ (41 ) $ - Restructuring and other items(2) 4 4 (37 ) 4 Income taxes/ (benefit) on items above 16 (2 ) $ (21 ) $ 2

(1) In 2003, the Company recognized $30 million of income for patent defense cost reimbursement and $27 million in litigation settlement income, partially offset by $16 million in TAXOL/BUSPAR litigation settlement expense.

(2) Restructuring and other items consist of the following:

Three Months Ended June 30, 2003 (restated)

Provision for Cost of Restructuring Products Sold and Other Total
(unaudited, dollars in millions)
Accelerated depreciation of assets $ 10 $ - $ 10 Termination benefits and other exit costs - 13 13 Relocation expenses - 4 4 Asset impairment charges 1 - 1 Retention benefits - 1 1 Change in estimates - (25 ) (25 ) $ 11 $ (7 ) $ 4

Three Months Ended June 30, 2002 (restated)

Provision for Cost of Restructuring Products Sold and Other Total
(unaudited, dollars in millions)
Termination benefits $ - $ 30 $ 30 Asset write-down and impairment charges 2 27 29 Change in estimates - (55 ) (55 ) $ 2 $ 2 $ 4

For additional information, see "Item 1. Restated Financial Statements-Note 3. Restructuring and Other Items," "-Note 7. Alliances and Investments," "-Note 8. Divestitures and Discontinued Operations" and "-Note 11. Legal Proceedings and Contingencies," to the consolidated financial statements included in this Form 10-Q/A.

Cost of products sold, as a percentage of sales, was flat year over year at 36.1% in 2003 and 2002. The 2003 cost of products sold included the impact of increased sales of high margin products, such as PRAVACHOL, PLAVIX* and PARAPLATIN, offset by increased sales of lower margin products from OTN. In 2003, cost of products sold includes $10 million of accelerated depreciation of assets in manufacturing facilities in North America expected to be closed by the end of 2006 and a $1 million charge for asset impairment. In 2002, cost of products sold included $2 million of inventory write-offs associated with the shutdown of a manufacturing facility in Puerto Rico.

As a percentage of sales, marketing, selling and administrative expenses decreased to 22.4% in the second quarter of 2003 from 24.8% in 2002. Marketing, selling, and administrative expenses increased 13% to $1,147 million in 2003 from $1,016 million in 2002. This increase is primarily due to additional sales support for ABILIFY* and AVAPRO/AVALIDE* in the United States and unfavorable foreign exchange in Europe combined with increased sales support in the Pharmaceuticals segment for new products in Europe, while the percentage decrease is due to increased sales. The percentage decrease in marketing, selling and administrative expense as a percentage of sales is largely due to the impact of inventory workdown in the second quarter of 2002.

Expenditures for advertising and promotion in support of new and existing products increased 18% to $354 million in 2003 from $301 million in 2002, primarily as a result of continued promotional support for ABILIFY*, PLAVIX*, PRAVACHOL and METAGLIP in the United States.

Research and development expenditures increased 2% to $524 million in 2003 from $515 million in 2002. Pharmaceutical research and development spending increased 2% in 2003 compared to 2002 and, as a percentage of pharmaceutical sales, was 13.7% in the second quarter of 2003 and 17.5% in the second quarter of 2002. Pharmaceutical research and development activity for the quarter includes increased spending for new process development, offset by reductions in discovery spending. Research and development spending levels for the full-year 2003 were comparable to 2002 spending levels. The FDA granted marketing clearance for REYATAZ (atazanavir sulfate), a novel protease inhibitor also for the treatment of HIV disease in June 2003. REYATAZ is the first once-daily protease inhibitor approved by the FDA.

Restructuring programs were implemented in the second quarter of 2003 to downsize and streamline worldwide manufacturing operations. The programs include costs for the termination of approximately 430 manufacturing employees in the Pharmaceuticals segment. As a result of these actions, the Company expects the annual benefit to earnings from continuing operations before minority interest and income taxes to be approximately $12 million in future periods. For additional information on restructuring, see "Item 1. Restated Financial Statements-Note 3. Restructuring and Other Items."

Litigation charges, net of settlement income, were $41 million income in 2003 and consists of $30 million income for patent defense cost reimbursement, $27 million in litigation settlement income offset by $16 million in TAXOL/BUSPAR litigation settlement expense. For additional information on litigations, see "Item 1. Restated Financial Statements-Note 11. Legal Proceedings and Contingencies."

Equity in net income of affiliates for the three months ended June 30, 2003 was $48 million compared to $3 million in 2002. Equity in net income of affiliates principally related to the Company's joint venture with Sanofi and investment in ImClone. In 2003, the increase in equity in net income of affiliates primarily reflects higher net income in the Sanofi joint venture and lower losses in ImClone. For additional information on equity in net income of affiliates net, see "Item 1. Restated Financial Statements-Note 7. Alliances & Investments."

Other expense, net increased to $101 million in the second quarter of 2003 from $41 million in the second quarter of 2002. Other expense, net primarily includes net interest expense, interest income, foreign exchange gains and losses, royalty income, and gains and losses on disposal of property, plant and equipment.

The effective income tax rate on earnings from continuing operations before minority interest and income taxes was 21.0% compared with 27.7% in 2002 due to a revised estimate of the use of foreign tax credits relating mainly to the final implementation of the reorganization of the ownership structure of its non-U.S. subsidiaries. The principal purpose of the reorganization was to facilitate the Company's ability to efficiently deploy its financial resources outside the United States.

Six Months Results of Operations

Worldwide sales for the first six months of 2003 increased 12% to $9,857 million from $8,771 million in 2002. This sales increase resulted from a 5% increase in volume, a 4% increase in foreign exchange and a 3% increase in price. Domestic sales increased 9% and international sales increased 18%, including a 10% favorable foreign exchange impact. For the first six months of 2003, $287 million of deferred revenue was reversed and recognized as sales (calculated net of sales discounts, rebates and other adjustments). The deferred revenue, recorded at gross invoice sales prices, related to the inventory of pharmaceutical products accounted for using the consignment model, was reduced to $110 million at June 30, 2003, compared to $470 million at December 31, 2002. The deferred revenue and consignment inventory recorded under the consignment model will continue to be reflected on the Company's balance sheet until the related products are sold through to the wholesalers' customers. The sell-through to the wholesalers' customers was substantially complete by the end of 2003.

For the six months ended June 30, 2003, earnings from continuing operations before minority interest and income taxes increased 19% to $2,410 million from $2,017 million in 2002. The increase was mainly driven by increased sales coupled with the $160 million of acquired in-process research and development expenses in 2002 which did not repeat in 2003, partially offset by an unfavorable product mix and increased investment in advertising and promotion spending as well as an increase in sales force expenses. In 2003, net earnings from continuing operations increased 27% to $1,694 million compared to $1,330 million in 2002. The effective income tax rate on earnings from continuing operations before minority interest and income taxes decreased to 24.0% in 2003 from 26.8% in 2002. Basic earnings per share from continuing operations increased 28% to $.88 in 2003 from $.69 in 2002. Diluted earnings per share from continuing operations increased 28% to $.87 in 2003 from $.68 in 2002. Basic and diluted average shares outstanding for the second quarter were 1,936 million and 1,941 million, respectively, in 2003 compared to 1,936 million and 1,946 million, respectively, in 2002.

Business Segments

Pharmaceuticals

Sales for the Pharmaceuticals segment in the six months ended June 30, 2003 increased 12%, including a 5% favorable foreign exchange impact, to $6,996 million from $6,236 million in 2002. Domestic pharmaceutical sales increased 9% to $3,963 million in 2003 from $3,637 million in 2002, primarily due to increased sales of PRAVACHOL, GLUCOVANCE*, SUSTIVA and PARAPLATIN, and partly due to the impact on 2002 sales from the workdown of non-consignment wholesaler inventory. International sales for the Pharmaceuticals segment increased 17% to $3,033 million in 2003, including an 11% favorable foreign exchange impact, from $2,599 million in 2002. Sales in Europe and the Middle East increased 20%, including an 18% favorable effect of foreign exchange. Strong growth in PRAVACHOL, TAXOL , AVAPRO/AVALIDE*, SUSTIVA and PLAVIX* were partially offset by price declines in Germany and Italy. Japan realized sales growth of 18%, including an 11% favorable foreign exchange impact, led by growth in TAXOL sales.

Sales of selected products for the six months ended June 30, 2003 were as follows:

• Alliance revenue for ABILIFY* for the six months ended June 30, 2003 was $102 million.

• Worldwide sales of PRAVACHOL, a cholesterol-lowering agent and the Company's largest selling product, increased 32%, including a 7% favorable foreign exchange impact, to $1,311 million.

• Sales of PLAVIX*, a platelet aggregation inhibitor, increased 9% to $965 million. Sales of AVAPRO/AVALIDE* an angiotensin II receptor blocker for the treatment of hypertension, increased 19% to $345 million. AVAPRO/AVALIDE* and PLAVIX* are cardiovascular products that were launched from the alliance between Bristol-Myers Squibb and Sanofi-Synthelabo.

• TAXOL and PARAPLATIN, the Company's leading anti-cancer agents, had sales of $457 million and $456 million, respectively. International sales of TAXOL increased 25%, including favorable foreign exchange of 16%, to $415 million, led by strong sales growth in Japan, while domestic sales decreased 64% to $42 million due to generic competition. PARAPLATIN sales increased by 37% to $456 million, primarily driven by sales in the United States.

• Sales of SUSTIVA, an anti-retroviral for the treatment of HIV disease, were $310 million, an increase of 30% over the prior year.

• Sales of the GLUCOPHAGE* franchise increased 18% to $487 million. GLUCOPHAGE*IR sales were $63 million, while GLUCOVANCE* sales grew 107% to $224 million, and GLUCOPHAGE*XR (Extended Release) tablets sales grew 28% to $203 million.

Six Months Ended Six Months Ended June 30, 2003 June 30, 2002

% Change in % Change in % Change in Total % Change in Total U.S. Net Sales U.S. U.S. Net Sales U.S.
(Restated)(a) Prescriptions(b) (Restated)(a) Prescriptions(b)

(unaudited)
PRAVACHOL 34 1 (3) 10 PLAVIX* 4 29 84 37 AVAPRO/AVALIDE* 7 14 32 12
ZERIT (5) (22) (22) (13)
SUSTIVA 31 19 - 7 GLUCOVANCE* 107 7 (25) 79 GLUCOPHAGE*XR 29 3 104 189 VIDEX/VIDEX EC 3 3 11 9

(a) Reflects change in net sales in dollar terms, including change in average selling prices and wholesaler buying patterns.

(b) Reflects change in total prescriptions in unit terms, based on third-party data.

Earnings before minority interest and income taxes for the Pharmaceuticals segment increased to $2,113 million in 2003 from $1,770 million in 2002. The increase in earnings before minority interest and income taxes was driven by increased sales which were partially offset by unfavorable product mix and increased advertising and product promotion spending on new and existing in-line products.

Oncology Therapeutics Network

Sales by OTN, a specialty distributor of anti-cancer medicines and related products, increased 23% to $1,078 million in 2003 from $873 million in 2002.

Earnings before minority interest and income taxes decreased to $8 million in 2003 from $9 million in 2002.

Nutritionals

Sales for the Nutritionals segment were $979 million for the six months ended June 30, 2003, an increase of 7%, including a 2% unfavorable foreign exchange impact, from the prior year. International sales increased 9%, including a 3% unfavorable foreign exchange impact, and U.S. sales increased 6%. Mead Johnson continues to be the leader in the U.S. infant formula market. ENFAMIL, the Company's largest-selling infant formula, had sales of $398 million, an increase of 6% from the prior year, while sales of ENFAGROW, a children's nutritional supplement, increased 44% to $79 million.

Earnings before minority interest and income taxes for the Nutritionals segment decreased to $244 million in 2003 from $268 million in 2002. This decrease is primarily due to a decrease in infant formula sales in the United States and the discontinuance of a copromotion arrangement for CEFZIL with the Pharmaceuticals segment.

Other Healthcare

Sales in the Other Healthcare segment increased 8%, including a 6% favorable foreign exchange impact, to $804 million. The Other Healthcare segment is comprised of the ConvaTec, Medical Imaging and Consumer Medicines (United States and Japan) businesses.

• ConvaTec sales for the six months ended June 30, 2003 increased 11%, including a 9% favorable foreign exchange impact, to $383 million. Sales of ostomy products increased 10% to $237 million, while sales of modern wound care products increased 11% to $141 million.

• Medical Imaging sales for the six months ended June 30, 2003, increased 11%, including a 1% favorable foreign exchange impact, to $250 million. The increase in Medical Imaging sales was primarily due to a 13% increase in CARDIOLITE sales to $161 million in 2003 from $142 million in 2002.

• Consumer Medicines sales for the six months ended June 30, 2003 decreased 3% to $171 million, including a 3% favorable foreign exchange impact, primarily due to decreased demand for EXCEDRIN.

Earnings before minority interest and income taxes for the Other Healthcare segment decreased to $183 million in 2003 from $203 million in 2002 primarily as a result of a decline in sales and increased sales incentives for EXCEDRIN QUICKTABS in the Consumer Medicines business.

Expenses

Total expenses for the six months ended June 30, 2003, as a percentage of sales, decreased to 75.6% from 77.0% in 2002. During the first six months of 2003 and 2002, the Company recorded several significant items that affected the comparability of the results of the periods presented herein:

Six Months Ended June 30,
Restated Restated 2003 2002
(unaudited, dollars in millions) Litigation settlement (income)/charge, net(1) $ (62 ) $ 90 Restructuring and other items(2) 30 3 Gain on sales of business/product lines - (30 ) Acquired in-process research and development - 160 (32 ) 223 Income taxes/(benefit) on items above 18 (85 ) $ (14 ) $ 138

(1) In 2003, the Company recognized $30 million of income for patent defense cost reimbursement, $27 million in litigation settlement income and $21 million in pre-tax income from the settlement of antitrust litigation involving vitamins manufacturers, partially offset by $16 million in TAXOL /BUSPAR litigation settlement expense.

(2) Restructuring and other items consist of the following:

Six Months Ended June 30, 2003 (restated)

Provision for Cost of Restructuring Products Sold and Other Total
(unaudited, dollars in millions)
Accelerated depreciation of assets $ 14 $ - $ 14 Termination benefits and other exit costs - 25 25 Relocation expenses - 4 4 Asset impairment charges 11 - 11 Retention benefits - 1 1 Change in estimates - (25 ) (25 ) $ 25 $ 5 $ 30

Six Months Ended June 30, 2002 (restated)

For additional information, see "Item 1. Restated Financial Statements-Note 3. Restructuring and Other Items," "-Note 7. Alliances and Investments," "-Note 8. Divestitures and Discontinued Operations," and "-Note 11. Legal Proceedings and Contingencies," to the consolidated financial statements included in this Form 10-Q/A.

Cost of products sold, as a percentage of sales, increased to 36.1% in 2003 from 34.1% in 2002. This increase is primarily due to increased sales of lower margin products from OTN partially offset by increased sales of higher margin products such as PRAVACHOL, PARAPLATIN and SUSTIVA. In 2003, cost of products sold includes $14 million of accelerated depreciation of assets in manufacturing facilities in North America expected to be closed by the end of 2006 and an $11 million charge for asset impairment. In 2002, cost of products sold included $2 million for inventory write-offs associated with the shutdown of a manufacturing facility in Puerto Rico.

As a percentage of sales, marketing, selling and administrative expenses increased to 22.8% in the six months ended June 30, 2003 from 22.1% in 2002. Marketing, selling, and administrative expenses increased 16% to $2,247 million in 2003 from $1,940 million in 2002. This increase is primarily due to additional sales support for ABILIFY*, PRAVACHOL and AVAPRO/AVALIDE* in the United States and unfavorable foreign exchange in Europe combined with increased sales support in the Pharmaceuticals segment for new products in Europe.

Expenditures for advertising and promotion in support of new and existing products increased 25% to $669 million in 2003 from $537 million in 2002, primarily as a result of continued promotional support for ABILIFY*, METAGLIP, and PRAVACHOL in the United States.

Research and development expenditures decreased 1% to $999 million in 2003 from $1,012 million in 2002. Pharmaceutical research and development spending decreased 3% from the prior year and, as a percentage of pharmaceutical sales, was 13.5% in the six months ended June 30, 2003 and 15.6% in the six months ended June 30, 2002. The decline in spending is largely due to reductions in discovery spending, including the closure of a discovery facility in Wilmington, Delaware, and decreased spending for new process development. Research and development spending levels for the full-year 2003 were comparable to 2002 spending levels.

Restructuring programs were implemented in the first six months of 2003 to downsize and streamline worldwide manufacturing operations. The programs include costs for the termination of approximately 770 manufacturing employees in the Pharmaceuticals segment. As a result of these actions, the Company expects the annual benefit to earnings from continuing operations before minority interest and income taxes to be approximately $40 million in future periods. For additional information on restructuring, see "Item 1. Restated Financial Statements-Note 3. Restructuring and Other Items."

Litigation charges, net of settlement income, were $62 million of income in 2003 and $90 million of expense in 2002. The $62 million in 2003 consists of $30 million income for patent defense cost reimbursement, $27 million in litigation settlement income, $21 million from the settlement of the anti-trust litigation involving vitamin manufacturers offset by $16 million in TAXOL/BUSPAR litigation settlement expense. The $90 million charge in 2002 related to BUSPAR settlements. For additional information on litigations, see "Item 1. Restated Financial Statements-Note 11. Legal Proceedings and Contingencies."

Equity in net income of affiliates for 2003 was $70 million compared to $32 million in 2002. Equity in net income of affiliates principally related to the Company's joint venture with Sanofi and investment in ImClone. In 2003, the increase in equity in net income of affiliates reflects higher net income in the Sanofi joint venture. For additional information on equity in net income of affiliates, see "Item 1. Restated Financial Statements-Note 7. Alliances and Investments."

Other expense, net increased to $98 million in the six months ended June 30, 2003 from $88 million in the six months ended June 30, 2002. Other expense, net includes net interest expense, interest income, foreign exchange gains and losses, royalty income, and gains and losses on disposal of property, plant and equipment.

The effective income tax rate on earnings from continuing operations before minority interest and income taxes was reduced to 24.0% in 2003 from 26.8% in 2002 due to a revised estimate of the use of foreign tax credits relating mainly to the final implementation of the reorganization of the ownership structure of its non-U.S. subsidiaries. The principal purpose of the reorganization was to facilitate the Company's ability to efficiently deploy its financial resources outside the United States. For a discussion of the recent reorganization of the structure of the ownership of non-U.S. subsidiaries and possible tax liability, which could be material, see "Item 1. Restated Financial Statements-Note 13. Income Taxes."

Developments

For a discussion of the Company's recent developments through the filing on March 15, 2004 of the Company's 2003 Form 10-K, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Developments" in the Company's 2003 Form 10-K. This Amendment No. 1 to the Company's Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2003 has not been updated to reflect any events or developments occurring subsequent to March 15, 2004.

Financial Position

Cash, cash equivalents and marketable securities totaled approximately $4.4 billion at June 30, 2003 as compared to $4.0 billion at December 31, 2002. The Company continues to maintain a high level of working capital, amounting to $2.1 billion at June 30, 2003, increasing from $1.6 billion at December 31, 2002. Approximately $4.2 billion of such cash, cash equivalents and marketable securities was held by the Company's foreign subsidiaries, which the Company does not expect to repatriate in the foreseeable future. Repatriation to the United States would require additional tax provisions not reflected in the consolidated financial statements. Due to the complexities in the tax laws and the assumptions that would have to be made, it is not practicable to estimate the amounts of the income taxes that would have to be provided.

Cash and cash equivalents at June 30, 2003 primarily consisted of U.S. dollar denominated bank deposits with an original maturity of three months or less. Marketable securities at June 30, 2003 primarily consisted of U.S. dollar denominated floating rate instruments with a 'AAA/aaa' credit rating. Due to the nature of these instruments, the Company considers it reasonable to expect that their fair market values will not be significantly impacted by a change in interest rates, and that they can be liquidated for cash at short notice.

Short-term borrowings were $1.9 billion at June 30, 2003, compared with $1.4 billion at December 31, 2002, primarily as a result of the issuance of commercial paper.

Long-term debt increased to $6.4 billion at June 30, 2003 from $6.3 billion at December 31, 2002. In July 2003, Standard & Poor's lowered its corporate credit and senior unsecured debt rating on the Company to AA- from AA. In addition, Standard & Poor's affirmed its A-1+ short term corporate credit and commercial paper rating. In April 2003, Moody's Investors Service reduced the Company's long-term credit rating from Aa2 to A1. In March 2003, Moody's confirmed the Prime-1 short-term credit rating for the Company.

Net cash provided by operating activities was $1,310 million in the six months ended June 30, 2003 as compared to net cash used in operating activities of $682 million in 2002. The increase in cash provided by operating activities in 2003 compared to 2002 is mainly attributable to income tax outflows in 2002 of $1,543 million, which primarily related to the payment of taxes on the gain arising from the sale of the Clairol business.

During the six months ended June 30, 2003, the Company did not purchase any of its common stock. During the six months ended June 30, 2002, the Company purchased 3.1 million shares of its common stock at a cost of $117 million.

For each of the three and six month periods ended June 30, 2003 and 2002 dividends declared per common share were $.28 and $.56, respectively.

For further discussion of the Company's financial position, liquidity and capital resources through the filing on March 15, 2004 of the Company's 2003 Form 10-K, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Financial Position, Liquidity and Capital Resources," in the Company's 2003 Form 10-K. This Amendment No. 1 to the Company's Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2003 has not been updated to reflect any events or developments occurring subsequent to March 15, 2004.

Retirement Benefits

For a discussion of the Company's retirement benefits through the filing on March 15, 2004 of the Company's 2003 Form 10-K, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's 2003 Form 10-K. This Amendment No. 1 to the Company's Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2003 has not been updated to reflect any events or developments occurring subsequent to March 15, 2004.

Critical Accounting Policies

For a discussion of the Company's critical accounting policies through the filing on March 15, 2004 of the Company's 2003 Form 10-K, see "Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations," in the Company's 2003 Form 10-K. This Amendment No. 1 to the Company's Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2003 has not been updated to reflect any events or developments occurring subsequent to March 15, 2004.

Outlook

For a discussion of the Company's outlook for 2004 through the filing on March 15, 2004 of the Company's 2003 Form 10-K, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Outlook for 2004" in the Company's 2003 Form 10-K. This Amendment No. 1 to the Company's Quarterly Report on Form 10-Q/A for the quarterly period ended June 30, 2003 has not been updated to reflect any events or developments occurring subsequent to March 15, 2004.

Cautionary Factors that May Affect Future Results

This Quarterly Report on Form 10-Q/A (including documents incorporated by reference) and other written and oral statements the Company makes from time to time contain certain "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. You can identify these forward-looking statements by the fact they use words such as "should", "expect", "anticipate", "estimate", "target", "may", "will", "project", "guidance", "intend", "plan", "believe" and other words and terms of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including factors that could delay, divert or change any of them, and could cause actual outcomes to differ materially from current expectations. These statements are likely to relate to, among other things, the Company's goals, plans and projections regarding its financial position, results of operations, market position, product development, product approvals, sales efforts, expenses, performance or results of current and anticipated products and the outcome of contingencies such as legal proceedings, and financial results, which are based on current expectations that involve inherent risks and uncertainties, including internal or external factors that could delay, divert or change any of them in the next several years.

Although it is not possible to predict or identify all factors, they may include but are not limited to the following:

• New government laws and regulations, such as (i) health care reform initiatives in the United States at the state and federal level and in other countries; (ii) changes in the FDA and foreign regulatory approval processes that may cause delays in approving, or preventing the approval of, new products; (iii) tax changes such as the phasing out of tax benefits heretofore available in the United States and certain foreign countries; (iv) new laws, regulations and judicial decisions affecting pricing or marketing within or across jurisdictions; and (v) changes in intellectual property law.

• Competitive factors, such as (i) new products developed by competitors that have lower prices or superior performance features or that are otherwise competitive with Bristol-Myers Squibb's current products; (ii) generic competition as the Company's products mature and patents expire on products; (iii) technological advances and patents attained by competitors; (iv) problems with licensors, suppliers and distributors; and (v) business combinations among the Company's competitors or major customers.

• Difficulties and delays inherent in product development, manufacturing and sale, such as (i) products that may appear promising in development but fail to reach market for any number of reasons, including efficacy or safety concerns, the inability to obtain necessary regulatory approvals and the difficulty or excessive cost to manufacture; (ii) failure of any of our products to achieve or maintain commercial viability; (iii) seizure or recall of products;
(iv) the failure to obtain, the imposition of limitations on the use of, or loss of patent and other intellectual property rights; (v) failure of the Company or any of its vendors or suppliers to comply with Current Good Manufacturing Practices and other application regulations and quality assurance guidelines that could lead to temporary manufacturing shutdowns, product shortages and delays in product manufacturing; and (vi) other manufacturing or distribution problems.

• Legal difficulties, including lawsuits, claims, proceedings and investigations, any of which can preclude or delay commercialization of products or adversely affect operations, profitability, liquidity or financial condition, including (i) intellectual property disputes; (ii) adverse decisions in litigation, including product liability and commercial cases; (iii) the inability to obtain adequate insurance with respect to this type of liability; (iv) recalls of pharmaceutical products or forced closings of manufacturing plants; (v) government investigations including those relating to wholesaler inventory, financial restatement and product pricing and promotion; (vi) claims asserting violations of securities, antitrust, federal and state pricing and other laws; (vii) environmental matters; and (viii) tax liabilities. There can be no assurance that there will not be an increase in scope of these matters or that any future lawsuits, claims, proceedings or investigations will not be material.

• Increasing pricing pressures worldwide, including rules and practices of managed care groups and institutional and governmental purchasers, judicial decisions and governmental laws and regulations related to Medicare, Medicaid and healthcare reform, pharmaceutical reimbursement and pricing in general.

• Fluctuations in buying patterns and inventory levels of major distributors, retail chains and other trade buyers, which may result from seasonality, pricing, wholesaler buying decisions (including the effect of incentives offered), the Company's wholesaler inventory management policies (including the workdown or other changes in wholesaler inventory levels) or other factors.

• Greater than expected costs and other difficulties, including unanticipated effects and difficulties of acquisitions, dispositions and other events, including obtaining regulatory approvals in connection with evolving business strategies, legal defense costs, insurance expense, settlement costs and the risk of an adverse decision related to litigation.

• Changes to advertising and promotional spending and other categories of spending that may affect sales.

• Changes in product mix that may affect margins.

• Changes in the Company's structure, operations, revenues, costs, staffing or efficiency resulting from acquisitions, divestitures, mergers, alliances, restructurings or other strategic initiatives.

• Economic factors over which the Company has no control such as changes of business and economic conditions including, but not limited to, changes in interest rates and fluctuation of foreign currency exchange rates.

• Changes in business, political and economic conditions due to political or social instability, military or armed conflict, nationalization of assets, debt or payment moratoriums, other restrictions on commerce, and actual or threatened terrorist attacks in the United States or other parts of the world and related military action.

• Changes in accounting standards promulgated by the FASB, the SEC or the AICPA, which may require adjustments to financial statements.

• Capacity, efficiency, reliability, security and potential breakdown, invasion, destruction or interruption of information systems.

• Reliance of the Company on vendors, partners and other third parties to meet their contractual, regulatory and other obligations in relation to their arrangements with the Company.

• Results of clinical studies relating to the Company's or a competitor's products.

Although the Company believes it has been prudent in its plans and assumptions, no assurance can be given that any goal or plan set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. The Company undertakes no obligation to release publicly any revisions to forward-looking statements as a result of new information, future events or otherwise.