01—Abstract
Summary
Summary of the 10-K filed March 30, 1999. Cited figures are marked; the original filing is the authoritative source.
Bristol-Myers Squibb closed 1998 with record net sales of $18.3 billiona, up 9% from 1997 (domestic sales up 15% to $11.1 billion; international up 2% to $7.2 billion, with a roughly 3% currency headwind on worldwide sales).
Medicines, the largest segment at 69% of sales, grew 12% to $12.6 billionb, led by PRAVACHOL and TAXOL, both above $1 billion. All four segments grew excluding foreign exchange and divestitures. Reported results were depressed by an $800 million pre-tax special charge in Q4 1998 ($700 million for breast implant liabilities, net of a $100 million insurance receivable increase, plus $100 million for prescription drug pricing litigation).
Net earnings fell to $3.14 billionc from $3.21 billion, with diluted EPS of $1.55. Excluding the charge, net earnings rose 13% to $3.64 billion and diluted EPS rose 14% to $1.79. Pre-tax gains of $201 million on divestitures and $201 million of restructuring charges largely offset each other.
Cash flow and capital returns were strong. Operating cash flow reached a record $4.1 billiond, and the company returned about $3.1 billion to shareholders through $1.6 billion in dividends and $1.6 billion in share repurchases. The balance sheet remains conservative, with $2.5 billion in cash and marketable securities, total debt of roughly $1.8 billion, and triple-A ratings from Moody's and S&P.
The board declared a two-for-one stock split effective February 1999 and a 10% dividend increase for 1999 (indicated $0.86 per pre-split share), the 27th consecutive annual increase. The main risk for investors is the remaining litigation. Breast implant exposure is described as largely contained, with about 6,000 opt-outs remaining and reserves in place.
The prescription drug pricing antitrust cases remain pending, including a class action where plaintiffs have appealed a directed verdict in the defendants' favor. Management believes neither matter will have a material adverse effect on results or financial position.
02—Key points
Key Highlights
- Record net sales of $18.3 billion, up 9% (up 15% domestically); all four business segments grew excluding FX and divestitures
- Medicines segment (69% of sales) grew 12% to $12.6 billion; PRAVACHOL and TAXOL each exceeded $1 billion in sales, and seven other products exceeded $500 million
- $800 million pre-tax special charge in Q4 1998 reduced reported diluted EPS to $1.55; excluding it, EPS was $1.79, up 14%
- Record operating cash flow of $4.1 billion funded $1.6 billion in dividends and $1.6 billion in share buybacks
- Triple-A credit rating from Moody's and S&P; $2.5 billion in cash and marketable securities against roughly $1.8 billion of total debt
- Two-for-one stock split effective February 1999; 1999 indicated dividend of $0.86 per pre-split share, up 10%, the 27th consecutive annual increase
- Breast implant liability largely contained (about 6,000 remaining opt-outs), but prescription drug pricing antitrust litigation continues
03—Questions
Frequently Asked Questions
How did underlying operating performance compare with reported 1998 results?
Reported net earnings fell about 2% to $3.14 billion because of the $800 million Q4 special charge. Excluding that charge, net earnings rose 13% to $3.64 billion and diluted EPS rose 14% to $1.79. Pre-tax gains of $201 million on divestitures were offset by $201 million of restructuring charges.
What is the status of the breast implant and prescription drug litigation?
Breast implant exposure is described as largely resolved, with residual Revised Settlement Program obligations and roughly 6,000 remaining opt-outs, all covered by reserves. The company recorded an additional $700 million net charge in Q4 1998 for this matter. Prescription drug pricing litigation remains pending, including appeals of a directed verdict in a class action. The company recorded a $100 million charge for it in 1998, and management believes neither matter will have a material adverse effect on financial position.
How is the dividend and share repurchase program positioned?
The 1999 indicated dividend is $0.86 per pre-split share, up 10% from $0.78 in 1998. The payout ratio was 43% of net income excluding the special charge. The company repurchased 30.6 million shares for $1.6 billion in 1998, and cumulative repurchases since the program began total 277 million shares.
Which products and segments drive growth, and what risks come with that concentration?
Medicines drove growth, with cardiovascular, anti-cancer, and anti-infective drugs leading. PRAVACHOL and TAXOL each exceeded $1 billion in 1998 sales, and GLUCOPHAGE grew 49%. Several key franchises face patent or exclusivity timelines: TAXOL's Hatch-Waxman exclusivity for first-line ovarian cancer expires April 2001, BUSPAR's U.S. anxiolytic patent expires May 2000, and CAPOTEN has already lost exclusivity. Investors should watch these expiry dates as revenue concentration risks.
How exposed is the company to currency and international risk?
International sales are about 39% of the total ($7.2 billion). Exchange rates reduced worldwide sales growth by about 3%, and the effect was about 7% on international sales, largely from Asian and Latin American currencies. The company hedges anticipated transactions with FX options and forwards, with $1.3 billion notional outstanding at year-end 1998. Management does not use derivatives for trading.
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