01—Abstract
Summary
Summary of the 10-K filed March 28, 1996. Cited figures are marked; the original filing is the authoritative source.
Bristol-Myers Squibb's 1995 10-K shows a record year on the top line: net sales rose 15% to $13.8 billiona, with all four segments growing and international sales up 22%.
The pharmaceutical segment (57% of sales) grew 12% to $7.8 billionb, led by cardiovascular drugs such as PRAVACHOL and anti-infectives, while the medical devices, nonprescription health and toiletries segments also posted increases. Profitability was weighed down by non-recurring charges: a $950 million pre-tax breast implant product liability charge, a $310 million restructuring provision, and continued litigation exposure. As reported, net earnings fell 2% to $1.81 billion ($3.58 per share) from $1.84 billion ($3.62 per share).
Excluding the special charges and restructuring, net earnings rose 12% to $2.6 billionc ($5.14 per share). The balance sheet remains strong, with $2.2 billion in cash, time deposits and marketable securities, operating cash flow of $2.5 billion, and AAA ratings from Moody's and S&P. The company continued to return capital to shareholders, paying about $1.5 billion in dividends, raising the indicated 1996 dividend to $3.00 per share (the 24th consecutive annual increase), and expanding its share repurchase authorization from 50 million to 75 million shares.
Shareholders' equity was essentially flat at $5.8 billion, while total liabilities rose sharply to $8.1 billiond, largely because of product liability reserves. The main investor concern is the open-ended breast implant litigation.
Roughly 20,000 plaintiffs have sued, a revised settlement (up to $755 million industry-wide over 15 years, with a $400 million company limit) is under appeal, and management said further charges may be needed. Other overhangs include infant formula antitrust suits, pharmaceutical pricing class actions, and the 1996 expiry of CAPOTEN's U.S. patent, which management described as not materially important to the business.
02—Key points
Key Highlights
- Record net sales of $13.8 billion in 1995, up 15% from $12.0 billion, with volume the primary driver and all four segments growing
- Pharmaceutical Products (57% of sales) grew 12% to $7.8 billion, led by PRAVACHOL, TAXOL (sales up 68% to $580 million), anti-infectives and the new Glucophage launch
- Reported net earnings fell 2% to $1.81 billion ($3.58/share) due to a $950 million breast implant charge and a $310 million restructuring provision; excluding these, EPS rose 12% to $5.14
- Breast implant litigation remains the principal risk: about 20,000 plaintiffs, a revised $4.25 billion-scale settlement under appeal, and management states an additional charge may be required
- Strong balance sheet with $2.2 billion in cash and marketable securities, $2.5 billion operating cash flow, and triple-A credit ratings from Moody's and S&P
- Dividend increased to an indicated $3.00 per share for 1996 (24th consecutive annual increase) and share repurchase authorization raised to 75 million shares
- Total liabilities rose to $8.1 billion from $7.2 billion, driven by product liability reserves, while stockholders' equity was roughly flat at $5.8 billion
03—Questions
Frequently Asked Questions
How much of the 1995 earnings decline was due to one-time charges?
The $950 million pre-tax breast implant charge ($590 million after tax, or $1.17 per share) and the $310 million restructuring provision ($198 million after tax, or $0.39 per share) together account for roughly $1.79 per share. Excluding them, net earnings were $2.6 billion, or $5.14 per share, up 12% from $4.58 in 1994.
What is the potential exposure from breast implant litigation?
The company cannot precisely estimate its cost. About 20,000 plaintiffs have sued, and the revised settlement program (benefits for some claimants are capped at a $400 million company limit over 15 years, while others are uncapped) is on appeal. Approximately 2,600 U.S. opt-out claimants and about 300 identified foreign opt-outs remain. Management says an additional charge could have a material adverse effect on results of operations in the period taken, but not on liquidity or financial position.
Is the company's dividend and cash position secure despite the charges?
Yes, according to management. Operating cash flow was $2.5 billion, covering roughly $1.5 billion of dividends, and the company held $2.2 billion in cash and marketable securities. It has triple-A ratings from Moody's and S&P and substantial unused borrowing capacity. The indicated 1996 dividend is $3.00 per share, up from $2.96 paid in 1995.
Which products are driving growth, and what are the key patent risks?
Growth came from PRAVACHOL (about $770 million in sales, with expanded labeling after the West of Scotland study), TAXOL (sales up 68% to $580 million), ZERIT, CEFZIL, SERZONE, Glucophage and the medical devices NEXGEN knee system. CAPOTEN, the largest-selling product, has been flat amid ACE inhibitor competition and German generic entry; its U.S. patent expired in February 1996. TAXOL's U.S. exclusivity runs to December 1997 and PLATINOL's patent to December 1996.
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