What drove the 1996 earnings growth, and how much of it was recurring?

Net earnings rose 10% to $2.85 billion. The 1995 comparison was depressed by a $950 million pre-tax breast implant charge and a $310 million restructuring provision, so reported growth looks much larger ($1.81 billion in 1995). Excluding those charges, growth was about 10% on pre-tax earnings and 11% on EPS. Volume drove sales growth (+11%), pricing was flat, and currency cost 2 points. Margin gains came from a favorable product mix, a lower cost of goods sold for TAXOL, and manufacturing efficiencies, partly offset by higher advertising spend.

How significant is the CAPOTEN patent expiration for future results?

It is a real drag but a manageable one. U.S. CAPOTEN sales fell 68% in 1996 after exclusivity ended in February 1996, and worldwide sales still reached $1.1 billion. Erosion will continue in 1997 as exclusivity ends in several other countries, which contributed $208 million of 1996 sales. Strong growth in PRAVACHOL, MONOPRIL, TAXOL and other brands offset the loss, and excluding CAPOTEN, pharmaceutical sales grew 21%.

What is the biggest legal and financial risk to shareholders?

Breast implant litigation is the most significant. About 22,000 plaintiffs have sued, and roughly 3,300 domestic opt-outs have been identified as plaintiffs in pending suits. The company's individual aggregate benefit limit under the Revised Settlement is $400 million, and it has already recorded special charges totaling $1.9 billion pre-tax since 1993, net of expected insurance recoveries. Management says an additional charge might be needed and could materially affect results in a given period, though it should not materially impair liquidity or financial position. The retail pharmacy antitrust action, which seeks about $2.4 billion before trebling from opt-out plaintiffs, is another key exposure, although management believes it is without merit.

Is the dividend secure, and how much capital is available for shareholder returns?

The dividend looks secure. The company has raised its dividend for 25 consecutive years, and 1996 dividends of $1.5 billion were comfortably covered by $2.6 billion in operating cash flow. Management carries triple-A ratings, reports $2.2 billion in liquid assets, and has substantial borrowing capacity. The share repurchase program was raised to 150 million shares in March 1996, with 107 million repurchased to date. Its pace depends on market conditions, and 1996 buybacks of $852 million were funded alongside $350 million in new debentures.

What are the key catalysts and risks to watch for in 1997?

Positive catalysts include continued growth of PRAVACHOL (supported by its first-heart-attack prevention label), TAXOL's approval for first-line ovarian cancer use in the UK, expanding HIV therapy (ZERIT oral solution launched January 1997), and the Glucophage launch. Key risks include TAXOL's U.S. exclusivity expiring in December 1997, the ongoing CAPOTEN erosion outside the U.S., the outcome of the breast implant opt-out litigation and the insurance coverage trial expected in Q2 1997, and possible rulings in the infant formula antitrust cases. Rising advertising and R&D spending will also need to be matched by revenue growth to sustain margins.

BMY 10-K FY1996 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 31, 1997. Cited figures are marked; the original filing is the authoritative source.

Bristol-Myers Squibb's 1996 10-K reports a year of record growth: worldwide net sales rose 9% to $15.1 billion^a (volume up 11%, pricing flat, FX down 2%), and net earnings rose to $2.85 billion, or $2.84 per share.

Excluding the 1995 charges, EPS grew 11% and pre-tax earnings grew 10%. Pharmaceuticals is the largest segment at 58% of sales ($8.7 billion^b, up 11%), led by the cardiovascular franchise (PRAVACHOL, up 39% to $1.1 billion), TAXOL (up 40% to $813 million) and ZERIT/VIDEX. Growth was partly offset by the loss of U.S. patent exclusivity for CAPOTEN, whose U.S. sales fell 68%, and CAPOTEN's exclusivity will also erode in several non-U.S. markets in 1997.

Operating margins improved in nonprescription health and medical devices, while toiletries and beauty aids remained the lowest-margin segment. The balance sheet remains strong, with $2.2 billion^c in cash, time deposits and marketable securities, operating cash flow of $2.6 billion, and triple-A ratings from Moody's and S&P. Dividends were raised for the 25th consecutive year, to an indicated $1.52 per share for 1997.

The company repurchased 19 million shares for $852 million^d in 1996 and authorized a two-for-one stock split effective February 1997. Long-term debt rose to $966 million after a $350 million debenture issue. The main investor risk is contingent liabilities, chiefly breast implant litigation (about 22,000 plaintiffs, with the company's own $400 million aggregate settlement limit and a possible additional charge), plus infant formula antitrust matters and a large retail pharmacy antitrust action seeking damages of about $2.4 billion before trebling.

Management says these should not materially affect liquidity or financial position, though an additional charge could hurt results in a given period. Looking ahead, 1997 growth will depend on sustaining momentum in key brands such as PRAVACHOL, TAXOL, GLUCOPHAGE and CEFZIL, offsetting CAPOTEN erosion, and absorbing the cost of heavier advertising and R&D spending. TAXOL's U.S. exclusivity expires in December 1997, a meaningful risk to the anti-cancer franchise.

02—Key points

Key Highlights

Record results: net sales up 9% to $15.07 billion; net earnings up 10% to $2.85 billion; EPS of $2.84, up 11% excluding 1995 charges.
Growth engines: PRAVACHOL sales rose 39% to about $1.1 billion, TAXOL rose 40% to $813 million, and anti-infectives (including ZERIT and VIDEX) rose 9% to $1.86 billion.
Patent erosion: CAPOTEN U.S. sales fell 68% after losing U.S. exclusivity in February 1996; worldwide CAPOTEN sales were $1.1 billion, with $208 million at risk in non-U.S. markets in 1997.
Strong financial position: $2.2 billion in cash and investments, $2.6 billion in operating cash flow, and triple-A ratings from Moody's and S&P.
Shareholder returns: 25th consecutive annual dividend increase (indicated 1997 payment of $1.52); 19 million shares repurchased for $852 million; two-for-one stock split effective February 1997; total shareholder return of 32.1%.
Key litigation risk: breast implant claims (about 22,000 plaintiffs, $400 million company settlement cap, cumulative special charges of $1.9 billion since 1993) could lead to an additional charge, and a retail pharmacy antitrust action claims roughly $2.4 billion before trebling.
R&D and marketing intensity: R&D rose 6% to $1.28 billion (12.3% of pharmaceutical sales); advertising and promotion rose 18% to $1.95 billion, including direct-to-consumer campaigns.

03—Questions

Frequently Asked Questions

What drove the 1996 earnings growth, and how much of it was recurring?
Net earnings rose 10% to $2.85 billion. The 1995 comparison was depressed by a $950 million pre-tax breast implant charge and a $310 million restructuring provision, so reported growth looks much larger ($1.81 billion in 1995). Excluding those charges, growth was about 10% on pre-tax earnings and 11% on EPS. Volume drove sales growth (+11%), pricing was flat, and currency cost 2 points. Margin gains came from a favorable product mix, a lower cost of goods sold for TAXOL, and manufacturing efficiencies, partly offset by higher advertising spend.
How significant is the CAPOTEN patent expiration for future results?
It is a real drag but a manageable one. U.S. CAPOTEN sales fell 68% in 1996 after exclusivity ended in February 1996, and worldwide sales still reached $1.1 billion. Erosion will continue in 1997 as exclusivity ends in several other countries, which contributed $208 million of 1996 sales. Strong growth in PRAVACHOL, MONOPRIL, TAXOL and other brands offset the loss, and excluding CAPOTEN, pharmaceutical sales grew 21%.
What is the biggest legal and financial risk to shareholders?
Breast implant litigation is the most significant. About 22,000 plaintiffs have sued, and roughly 3,300 domestic opt-outs have been identified as plaintiffs in pending suits. The company's individual aggregate benefit limit under the Revised Settlement is $400 million, and it has already recorded special charges totaling $1.9 billion pre-tax since 1993, net of expected insurance recoveries. Management says an additional charge might be needed and could materially affect results in a given period, though it should not materially impair liquidity or financial position. The retail pharmacy antitrust action, which seeks about $2.4 billion before trebling from opt-out plaintiffs, is another key exposure, although management believes it is without merit.
Is the dividend secure, and how much capital is available for shareholder returns?
The dividend looks secure. The company has raised its dividend for 25 consecutive years, and 1996 dividends of $1.5 billion were comfortably covered by $2.6 billion in operating cash flow. Management carries triple-A ratings, reports $2.2 billion in liquid assets, and has substantial borrowing capacity. The share repurchase program was raised to 150 million shares in March 1996, with 107 million repurchased to date. Its pace depends on market conditions, and 1996 buybacks of $852 million were funded alongside $350 million in new debentures.
What are the key catalysts and risks to watch for in 1997?
Positive catalysts include continued growth of PRAVACHOL (supported by its first-heart-attack prevention label), TAXOL's approval for first-line ovarian cancer use in the UK, expanding HIV therapy (ZERIT oral solution launched January 1997), and the Glucophage launch. Key risks include TAXOL's U.S. exclusivity expiring in December 1997, the ongoing CAPOTEN erosion outside the U.S., the outcome of the breast implant opt-out litigation and the insurance coverage trial expected in Q2 1997, and possible rulings in the infant formula antitrust cases. Rising advertising and R&D spending will also need to be matched by revenue growth to sustain margins.

04—Continue

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