01—Abstract
Summary
Summary of the 10-K filed March 31, 1994. Cited figures are marked; the original filing is the authoritative source.
Bristol-Myers Squibb's 1993 10-K shows a company with solid top-line growth and strong profitability, but reported earnings were depressed by a $500 milliona pre-tax special charge for breast implant litigation.
Worldwide net sales rose 2% to $11.4 billionb (domestic up 4%, international flat, or up 5% excluding currency translation). Earnings from continuing operations fell 1.2% from the 1991 level but rose 27% year over year to $1.96 billion, or $3.80 per share. Excluding the 1993 special charge and the 1992 restructuring charge, earnings from continuing operations grew 8% to $2.27 billion, or $4.40 per share.
Management reported a 32.8% return on stockholders' equity, a triple-A credit rating, and $2.7 billionc in cash, time deposits and marketable securities. The pharmaceutical segment drove results, with sales up 3% to $6.5 billion and operating margin improving to 32.7%. Anti-cancer drugs grew 19% to $1.2 billion, led by TAXOL, and newer cardiovascular products such as PRAVACHOL and MONOPRIL performed well.
Captopril (CAPOTEN), the largest product, fell 11% to $1.5 billiond, and its U.S. patent expires in 1995, a key risk for investors. R&D spending rose to $1.13 billion, or 14.9% of pharmaceutical sales.
The medical devices segment was loss-making in 1993 because of the breast implant charge, and the company agreed in late March 1994 to a settlement with a cap of $1.154 billion in contributions over roughly 30 years. Investors should weigh the strong cash generation and dividend growth (the 1994 indicated dividend is $2.92, the 22nd consecutive annual increase) against several overhangs: the breast implant settlement's dependence on claimant opt-outs and court approval, a 1994 effective tax rate expected to rise to about 30% under the 1993 Omnibus Budget Reconciliation Act, pending infant formula antitrust actions, pharmaceutical pricing litigation, and captopril's 1995 patent expiry.
02—Key points
Key Highlights
- Net sales rose 2% to $11.4 billion in 1993, with a 3% volume gain and 2% pricing gain offset by a 3% currency headwind.
- Reported EPS from continuing operations was $3.80, including a $500 million ($0.60 per share) pre-tax breast implant special charge; excluding charges, EPS rose 8% to $4.40.
- Anti-cancer drug sales grew 19% to $1.2 billion, led by TAXOL, while captopril (CAPOTEN) sales fell 11% to $1.5 billion ahead of its 1995 U.S. patent expiry.
- Breast implant litigation: about 11,000 plaintiffs; a late-March 1994 settlement caps the company's aggregate contribution at $1.154 billion over about 30 years, subject to court approval and opt-out levels.
- Financial strength: $2.7 billion in cash and marketable securities, working capital of $3.5 billion, a triple-A credit rating, a 32.8% return on equity, and operating cash flow of $2.6 billion.
- Dividend: 1993 common dividends were $2.88 per share (up 4%), and the 1994 indicated rate is $2.92, the 22nd consecutive annual increase.
- Effective tax rate expected to rise to about 30% in 1994 from 23.8% in 1993, reflecting the Omnibus Budget Reconciliation Act of 1993.
03—Questions
Frequently Asked Questions
How large is the breast implant liability, and how is it being financed?
The company recorded a $500 million pre-tax special charge in Q4 1993, consisting of $1.5 billion in estimated liabilities and expenses offset by $1 billion in expected insurance recoveries. Its late-March 1994 settlement caps its aggregate contribution at $1.154 billion, paid over about 30 years. The settlement still needs approval from Judge Pointer, is subject to claimant opt-outs, and the company is in coverage litigation with some insurers, which could ultimately yield additional recoveries.
What is the outlook for captopril (CAPOTEN) and other key products?
Captopril, the largest product at about $1.5 billion in 1993 sales, fell 11% on currency effects, lower U.S. market share and European cost-containment measures. Its U.S. patent expires in 1995, so sales are likely to decline further as generics enter. Growth is expected from newer products: PRAVACHOL (over $500 million worldwide), MONOPRIL, TAXOL, CEFZIL, VIDEX, and DOVONEX, which received FDA approval in December 1993.
Why did reported earnings fall versus the adjusted results, and what should investors expect for 1994?
Reported 1993 earnings of $1.96 billion ($3.80 per share) reflect the $500 million breast implant charge. Adjusted for that charge and the 1992 restructuring, earnings rose 8% to $2.27 billion ($4.40 per share). In 1994, the effective tax rate is expected to rise to about 30%, which will pressure after-tax earnings growth even with continued sales growth.
Are there other significant litigation or regulatory risks?
Yes. The company faces infant formula antitrust suits in multiple states, a Louisiana federal action and a Nestle suit, plus pending state Attorney General investigations and a Canadian competition inquiry. It also faces more than 30 industry defendants in federal and California pharmaceutical pricing suits, a securities class action over 1991-1992 earnings projections, and a patent appeal over BUSPAR. Management believes none will have a material adverse effect on consolidated financial position.
How strong is the balance sheet and cash flow?
The balance sheet is strong, with $2.7 billion in cash, time deposits and marketable securities, a current ratio of 2.14, and long-term debt of only $588 million against $5.9 billion in stockholders' equity. Operating cash flow rose to $2.58 billion from $2.03 billion, funding R&D, capital spending of $580 million, dividends of $1.49 billion and $419 million of share repurchases. A $350 million 7.15% debenture issued in June 1993 raised long-term debt to $588 million, and the company's ability to raise debt on favorable terms is a further source of liquidity.
04—Continue