How did BMY's core earnings trend in 1997, and what drove the growth?

Net earnings rose 12% to $3.205 billion and basic EPS rose 13% to $3.22. Growth was driven mainly by volume (+14%) in Pharmaceuticals, especially Pravachol, Taxol, Zerit and Glucophage, partly offset by the loss of patent exclusivity on Capoten. Reported 1997 results include a $225 million gain from the Linvatec sale, which was largely offset by a $225 million restructuring charge.

What are the biggest legal risks facing the company?

The largest exposure is breast implant litigation, with about 24,000 plaintiffs and a settlement program that carries a $400 million individual aggregate limit for future claims. Antitrust suits over brand-name prescription drug pricing seek about $2.4 billion in damages before trebling, and an FTC investigation is ongoing. Management believes reserves are adequate and that the antitrust matters will not have a material adverse effect, but outcomes are uncertain.

How does BMY return cash to shareholders?

In 1997 the company paid $1.5 billion in dividends and repurchased $1.2 billion of stock (16.8 million shares). Dividends per common share were $1.52 in 1997, and the indicated 1998 payout is $1.56, the 26th consecutive annual increase. Dividend payout was about 47% of basic EPS.

Which products are the main growth drivers going forward?

Management highlights Pravachol (cholesterol, $1.4 billion, +34%), Taxol (anti-cancer, $941 million, +16%), Glucophage (diabetes, +74%), Herbal Essences (hair care, +168%) and Zerit (HIV, +185%). Newer launches include Avapro (irbesartan) in the U.S. in Q4 1997, with Plavix planned for early 1998. Management also expects the Redmond Products acquisition to contribute in 1998.

What are the main risks to margins and the balance sheet?

Gross margins have come under pressure from lower-margin Oncology Therapeutics Network sales and rising advertising spend, which reached 13.5% of sales. Long-term debt more than doubled? No: it rose to $1.28 billion from $966 million after new debentures were issued. Cash and investments of $1.8 billion remain sufficient to fund near-term operations, and the company has $500 million in new revolving credit facilities.

BMY 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 31, 1998. Cited figures are marked; the original filing is the authoritative source.

Bristol-Myers Squibb's 1997 10-K reports a record year: worldwide net sales rose 11% to $16.7 billion^a, net earnings increased 12% to $3.205 billion, and basic EPS grew 13% to $3.22 (diluted $3.14).

Growth was driven almost entirely by volume (up 14%), with no net pricing contribution, and the Pharmaceuticals segment (59% of sales) led with 15% growth to $9.9 billion^b, powered by Pravachol, Taxol, Zerit, Buspar, Serzone and Glucophage. Management set a strategic goal of becoming the leader in EPS growth among its peers and is investing heavily in R&D (up 9% to $1.39 billion), advertising and sales force expansion. Gross margins were pressured by low-margin Oncology Therapeutics Network sales and heavier advertising spend.

Balance sheet and cash generation remain strong: operating cash flow was $2.5 billion^c, cash and investments totaled $1.8 billion, the company holds triple-A ratings from Moody's and S&P, and stockholders' equity rose to $7.2 billion. Capital was returned through $1.5 billion of dividends (the 1998 indicated annual dividend is $1.56, the 26th consecutive annual increase) and $1.2 billion of share buybacks. Long-term debt rose to $1.28 billion after new debentures were issued.

The main investor risk remains litigation. Breast implant exposure is the most significant item: roughly 24,000 plaintiffs are pending, the company's individual aggregate benefit limit under the Revised Settlement is $400 million^d, and it paid about $190 million into the settlement fund in 1997.

Antitrust suits over brand-name drug pricing (including a $2.4 billion damages claim before trebling) and an FTC investigation are also pending. Management states that reserves are adequate and that the antitrust matters should not have a material adverse effect, but the outcomes remain uncertain.

02—Key points

Key Highlights

Record 1997 results: net sales of $16.7 billion (+11%), net earnings of $3.2 billion (+12%), and basic EPS of $3.22 (+13%).
Pharmaceuticals is the core engine at $9.9 billion (59% of sales, +15%), led by Pravachol ($1.4 billion, +34%), Taxol, Zerit (+185%), Glucophage (+74%) and Serzone (+70%).
Growth was volume-driven (+14%) with no net pricing contribution, while captopril (Capoten) sales fell $296 million after patent expiration.
Strong cash generation: $2.5 billion in operating cash flow funded $1.5 billion in dividends and $1.2 billion in share repurchases, with a triple-A credit rating from Moody's and S&P.
R&D spending reached $1.39 billion (8.3% of sales; 12.0% of pharmaceutical sales), with plans to hire 2,000 additional scientists.
Breast implant litigation remains the main contingent liability: about 24,000 plaintiffs, a $400 million individual aggregate benefit limit, and a $1.5 billion product liability reserve on the balance sheet (after $1.0 billion of insurance recoverables).
Portfolio changes include the sale of Linvatec for $370 million (gain of $225 million offset by a $225 million restructuring charge) and the early-1998 Redmond Products acquisition.

03—Questions

Frequently Asked Questions

How did BMY's core earnings trend in 1997, and what drove the growth?
Net earnings rose 12% to $3.205 billion and basic EPS rose 13% to $3.22. Growth was driven mainly by volume (+14%) in Pharmaceuticals, especially Pravachol, Taxol, Zerit and Glucophage, partly offset by the loss of patent exclusivity on Capoten. Reported 1997 results include a $225 million gain from the Linvatec sale, which was largely offset by a $225 million restructuring charge.
What are the biggest legal risks facing the company?
The largest exposure is breast implant litigation, with about 24,000 plaintiffs and a settlement program that carries a $400 million individual aggregate limit for future claims. Antitrust suits over brand-name prescription drug pricing seek about $2.4 billion in damages before trebling, and an FTC investigation is ongoing. Management believes reserves are adequate and that the antitrust matters will not have a material adverse effect, but outcomes are uncertain.
How does BMY return cash to shareholders?
In 1997 the company paid $1.5 billion in dividends and repurchased $1.2 billion of stock (16.8 million shares). Dividends per common share were $1.52 in 1997, and the indicated 1998 payout is $1.56, the 26th consecutive annual increase. Dividend payout was about 47% of basic EPS.
Which products are the main growth drivers going forward?
Management highlights Pravachol (cholesterol, $1.4 billion, +34%), Taxol (anti-cancer, $941 million, +16%), Glucophage (diabetes, +74%), Herbal Essences (hair care, +168%) and Zerit (HIV, +185%). Newer launches include Avapro (irbesartan) in the U.S. in Q4 1997, with Plavix planned for early 1998. Management also expects the Redmond Products acquisition to contribute in 1998.
What are the main risks to margins and the balance sheet?
Gross margins have come under pressure from lower-margin Oncology Therapeutics Network sales and rising advertising spend, which reached 13.5% of sales. Long-term debt more than doubled? No: it rose to $1.28 billion from $966 million after new debentures were issued. Cash and investments of $1.8 billion remain sufficient to fund near-term operations, and the company has $500 million in new revolving credit facilities.

04—Continue

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